CONSULTATION
BLOGIS THERE A DEVELOPED LOT SHORTAGE?
“By Jeff Hebeler 3/20/10”
With the glut of lots that existed when the housing boom came to an abrupt halt, is it too early to be thinking about a developed lot shortage?
If we look at the lot supply on a macro scale in the 7 county Greater Cincinnati area, it appears that there is a tremendous over-supply of lots. As of the end of 2009, there were 11,750 developed lots within subdivisions that NPG DataQuest tracks. In 2009 there were 2,315 new home starts within these same subdivisions. Using the 2009 starts number on a going forward basis, there is over a 5 year supply of lots on the ground. The general rule is that equilibrium exists at a 2 year supply of lots.
If we look at the most active subdivisions from 2009, those with 10 or more starts, there is currently a 1.3 year supply of lots. If we look at those subdivisions with 5 or more starts, there is currently a 1.9 year supply of lots available; right at equilibrium. These subdivisions accounted for 80% of the starts in 2009. To sustain the current level of sales activity within these subdivisions, future sections will need to be developed in the near term. However only 59% of these subdivisions have future sections planned. Replacement subdivisions are now going to be required.
The question is where do these replacement subdivisions come from? It has become extremely difficult to make new development projects profitable much less have the ability to get them financed. Even in existing developments, future phase development may cost more to develop than the market will bear. Therefore in the near term, replacement lots will more than likely come from the nearly 600 subdivisions that had four or less starts each in 2009. These third and fourth tier subdivisions contain over 8,070 vacant lots. In many cases these subdivisions will be repositioned for a different product, price point or both. While there are many lots available, large lot positions may not be. It will take flexibility and creativity on the builder’s behalf in order to work out of this situation.
While this predicament is not attractive for builders, this will be welcome news to many homeowners who have invested in communities only to wonder if they will ever build out. Additionally, until many of these existing lots are absorbed, lot price stabilization and lot price increases will be difficult making new subdivision development more than a challenge. With permits on the rise, hopefully we can get through this sooner than later.
We would be happy to discuss how NPG DataQuest and NorthPointe Group expertise can help with your land strategy for 2010 and beyond.
If we look at the lot supply on a macro scale in the 7 county Greater Cincinnati area, it appears that there is a tremendous over-supply of lots. As of the end of 2009, there were 11,750 developed lots within subdivisions that NPG DataQuest tracks. In 2009 there were 2,315 new home starts within these same subdivisions. Using the 2009 starts number on a going forward basis, there is over a 5 year supply of lots on the ground. The general rule is that equilibrium exists at a 2 year supply of lots.
If we look at the most active subdivisions from 2009, those with 10 or more starts, there is currently a 1.3 year supply of lots. If we look at those subdivisions with 5 or more starts, there is currently a 1.9 year supply of lots available; right at equilibrium. These subdivisions accounted for 80% of the starts in 2009. To sustain the current level of sales activity within these subdivisions, future sections will need to be developed in the near term. However only 59% of these subdivisions have future sections planned. Replacement subdivisions are now going to be required.
The question is where do these replacement subdivisions come from? It has become extremely difficult to make new development projects profitable much less have the ability to get them financed. Even in existing developments, future phase development may cost more to develop than the market will bear. Therefore in the near term, replacement lots will more than likely come from the nearly 600 subdivisions that had four or less starts each in 2009. These third and fourth tier subdivisions contain over 8,070 vacant lots. In many cases these subdivisions will be repositioned for a different product, price point or both. While there are many lots available, large lot positions may not be. It will take flexibility and creativity on the builder’s behalf in order to work out of this situation.
While this predicament is not attractive for builders, this will be welcome news to many homeowners who have invested in communities only to wonder if they will ever build out. Additionally, until many of these existing lots are absorbed, lot price stabilization and lot price increases will be difficult making new subdivision development more than a challenge. With permits on the rise, hopefully we can get through this sooner than later.
We would be happy to discuss how NPG DataQuest and NorthPointe Group expertise can help with your land strategy for 2010 and beyond.