Builders Outlook
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Notably, this record shortage comes at a time when new homes are being started at a rate of under 1.2 million a year. In 2005, when total housing starts were over 2 million, the share of builders reporting a shortage of lots was 53 percent. “The lack of availability of buildable lots has quickly become one of the biggest issues facing our members,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “While labor shortages and regulatory burdens remain struggles as well, lot shortages are preventing our builders from responding to growing demand for housing.” “We have monitored lot availability for the last two decades, and it is clear that the scarcity of building lots is growing,” said NAHB Chief Economist Robert Dietz. “Whether due to land use policy, geographic constraints or other regulatory constraints, the lack of lots for residential construction will have negative impacts on housing affordability in many markets.” The survey results varied somewhat, based on region of the country, size of builder, and type of lot. The dearth of developed lots is most apparent in the Western
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regions of the country, where 39 percent of builders said lot supply was “very low,” compared to 23 percent in the South and 18 percent in both the Midwest and Northeast. When referring to premium “Class A” category lots, builders in all regions reported similar opinions of widespread shortages. The Study:
Perhaps most notable is that builders reported this record shortage at a time when new homes are being started at a rate of under 1.2 million a year. in 2005, when total housing starts were over 2.0 million, the share of builders reporting a shortage of lots was “only” 53 percent. The percentage varies somewhat, based on region of the country, size of builder, and type of lot. Although the categories are seldom defined precisely, builders often think in
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National, State & Local Building Industry News 2016: Issue 5
Lot Shortages Worse Than Ever According to NAHB Survey Lot availability hit a record low according to new data from the National Association of Home Builders (NAHB). Sixty-four percent of builders responding to special questions in the May NAHB/Wells Fargo Housing Market Index reported that the supply of lots in their markets was “low” or “very low”—up from 62 percent last year, and the highest that number has been since NAHB began collecting this data in 1997.
terms of A, B and C lots, based on the desirability of their location. As you might expect, the shortage tends to be most acute for A lots. In the May 2016 survey, 69 percent of the builders said A lots were in short supply, compared to 60 percent for B lots, and 47 percent for C lots. Often, differences show up most clearly in the share of builders who report the supply of lots in their markets is “very low.” For example, the 69 percent of builders reporting low or very-low lot supply in the West is only marginally above the 62 percent in the Midwest and 64 percent in the South, and actually slightly below the 68 percent in the Northeast. But a full 39 percent of builders in the West characterized lot supply as very low, far above the percentages in the other three regions. Compared to lot supply in general, builders are more likely to report a very-low share of A lots, especially in the Northeast, Midwest and South. When the lot supply question is restricted to A lots, these three regions more closely resemble the West. Perhaps surprisingly, lot shortages were also reported somewhat more often by larger home builders. Overall, 70 percent
of builders with over 100 starts reported a low or very-low supply of lots, compared to 65 percent for builders with 6 to 99 starts, and 62 percent of builders with fewer than 6 starts One factor may be that builders with fewer starts are more likely to build one-at-a-time custom homes on land already owned by the homeowner, where lot supply in the area is less of an issue. Larger companies may also be looking to build in multiple locations within an area, making them more likely to run into a shortage if it exists anywhere within the broader area. In any event, larger builders are also more likely to report shortages for A lots specifically. In the 2016 survey, 78 percent of builders with 100-plus starts reported a shortage of A lots, compared to 74 to 75 percent of builders with 6 to 99 starts, and 59 percent of builders with fewer than 6 starts. Part of the reason the percentage is that low for small builders is that quite a few of them checked “Don’t Know/Not Sure” when asked about lots of a particular type (A, B or C). NAHB includes “Don’t Knows” in the base when calculating percentages to avoid overstating the shortages. By Paul Emrath, NAHB
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