Lack of Developable Land is One of Home Builders' Biggest Constraints

Would-be homebuyers will be seriously constrained by soaring home prices, rising interest rates and a noticeable shortage of developable land, Starwood Land Advisors’ Mike Moser said in a recent discussion with John Burns Real Estate Consulting. 

Moser told JBREC’s Dean Wehrli that new home sales will likely fall below 800,000 this year and likely won’t accelerate much in the near term. He says increasingly cumbersome entitlement processes in municipalities of all sizes are partially to blame.

“I don’t know how we’re going to ever see 1,000,000 like we saw in 2004 and 2005,” Moser said. “I don’t think there’s enough land in the way, I don’t think it’s been entitled and engineered and can get out of the entitlement process fast enough. And that’s what you’re seeing right now… the biggest supply chain shortage is land.”

Moser said that while materials shortages continue to plague builders, from a developer standpoint “we’re trying to put as many lots on the ground as we can. And as soon as we get them on the ground, they’re bought up.” In other words, a shortage of land is the biggest bottleneck in the sales cycle.

It’s a sentiment borne out by data: a recent survey from the National Association of Home Builders shows that 76% of builders rated the overall supply of developed lots in their regions as low to very low⁠—an all-time record since NAHB began collecting the data in the 1990s. The prior record was 65% in 2018.

Around 46% of single-family builders said the lot supply in their areas was simply low, and 30% said it was very low.

Moser also commented on price increases, saying markets with 20 to 25% price appreciation over the last year are “dangerous.”  He cited Nashville, an MSA where some areas have seen 30% price increases over the last year, as one such example. 

“That’s now getting to a product that’s a $700,000 house… (and) the vast majority of these buyers have never seen anything but 3 or 4% rates,” he said. “And so if it popped to five or six, that house that’s selling for $700,000 today has got a bad day coming.”

Affordable, pro-growth markets will fare best in the next economic cycle, Moser says.

“The last recession Texas was, I’m not going to say unaffected, but not affected hardly at all like Florida was, and Washington DC. It didn’t have as much impact as it did in Washington as it did in Florida,” he said. “So it’s going to be cyclical, and in different municipalities it’ll all be different.”