Land for Sale?
Lot shortages are a hot-button issue nationally.
According to a May report from the National Association of Home Builders (NAHB), almost 65% of builders across the country are dealing with a low or very low inventory of available lots. That’s the highest percentage since the NAHB began tracking these numbers nearly 20 years ago.
Although elsewhere in the Midwest lot shortages are a concern, the West and the Northeast are reporting the greatest deficiency. But in central Iowa, we’re bucking that trend.
Here’s what some local professionals have to say about it.
The overview
“Based on our surveys, there isn’t a shortage of lots, except perhaps entry-level lots,” says Kalen Ludwig of Groundbreaker Homes, who tracks statistics for 18 area communities.
She says over the past two years, the number of permits issued in the surveyed communities increased by 20% and is expected to be even stronger for 2016.
But that growth rate varies from one city to another. “In the west-side communities, land is getting bid up so high, it pushes some buyers out of the market. In those situations, builders are looking for more-appealing options, but not prime-level land. That’s more available in the outlying communities,” Ludwig says.
According to Ted Grob of Savannah Homes, “There’s no shortage of high-priced, luxury lots. There’s always land if you’re willing to pay the price.”
However, Landmark Development’s Bill Spencer, says, “The lot situation depends on the community. Some areas need additional lots developed, but others are adequate for the current demand.”
“As a blanket statement, no, there’s not a shortage of lots here,” explains Eric Grubb, president of Solid Ground LLC. “But in certain communities at certain price points, there are shortages. In nearly every community, it’s hard to find entry-level lots.”
Land is being developed at record pace throughout the metro communities. But the development of lots for homes under $250,000 is extremely limited.
“The development of townhomes is growing, which is usually the result of this type of market. That’s the only option for a lot of first-time buyers,” Grob says.
The reasons
Grubb believes there are four primary factors affecting the current land situation. “The market had been demanding higher-end homes, so not a lot of land was developed for the lower end of the market,” he says. “Now the market has changed, and lots haven’t been developed at this point. Third, regulations are tougher, which adds to the cost of development. And construction costs continue to rise. All of those things add to the cost of the lot.”
Spencer echoes this perspective. “Entry-level, smaller lots are really in demand right now, and not a lot have been developed. That’s partly due to cities not being interested in that level of building.”
“Between the regulations and the bureaucracy, a lot of communities make it extremely difficult to develop land,” Grob says.
Several of the developers agreed with Grob and noted that the municipalities themselves play a significant part in the availability—or lack—of developed lots. Whether it’s community-specific regulations or simply the desire to only develop executive-level neighborhoods, each city’s individual approach can dramatically add to the cost of developing land there.
Grubb says, “Some of the surrounding bedroom communities have less-costly land and are more amenable to development, offering tax abatements and encouraging building. But that isn’t always the case.”
The outlook
Spencer says, “The market is constantly changing. For the last three or four years, there’s been more demand for high-end construction. But over the next few years, there will be growing demand for first-time and move-up homes. Cities will need to understand that demand and work with builders and developers to provide property at that level.”
Though some have been predicting a development bubble, similar to the housing bubble of a few years ago, these professionals don’t see a dramatic event on the horizon.
“I don’t anticipate a huge bubble,” says Ludwig. “Inventory is low. Interest rates are low. Des Moines is appealing and on every hot list. We have good jobs available. There may be a slight drop, but not a significant one.”
Grubb notes that since the housing bubble, there are fewer developers in the market, and that has played a role in the current situation. “Some of the smaller developers got out of the business when things went south,” he explains. “And the strength of the market in the last few years has allowed larger developers to grow even larger. So the perception is that the market is tighter than it really is because so many lots are controlled by so few.”
In the end, it’s not the cities or the developers who will control the price or the development of land. It’s the market.
As Spencer said, “Builders are interested in doing what the market demands. That’s how we stay in business.”
Grob agrees. “The market will adjust; it always does. The demands in the market are what drive development.”