As the housing market revives, developed lots are in short supply and prices are rising even for less desirable locations. But developers are working to restart the supply chain to meet the expected pent-up demand. The late start is compounded by a lack of access to capital, the encumbered process of adhering to local, state, and federal regulations, and the uncertainty of the recovery.
Credit is still tight but less so than it was, which is hardly a celebration but an improvement over the worst. At the peak, more than 90 percent of builders were shopping for acquisition and development credit, but that share sunk below 20 percent in 2009. Now about 30 percent of the developers are seeking credit, and their success rate is rising as well.
The process of permitting land for homes worsened during the recovery because municipalities reduced their workforce to cut costs and are now slow to rehire. Regulatory requirements were not relaxed although some jurisdictions did lengthen the time for permit expiration. In a recent survey, builders reported over half of all new developments encompassed wetlands. Existing wetlands were or will be preserved in more than half of the developments, and in most of the others developers must obtain a “wetland fill” permit from the U.S. Army Corps of Engineers.
Subdivision Statistics A housing recovery is more clearly in view now so developers have begun the process of bringing land into production for builders. A recent survey of more than 2,000 NAHB member developers provides an estimate of 3,500 subdivisions of at least four lots that will accommodate a total of 1.2 million homes as of April 2014.
Of those subdivisions, seven in 10 are intended for single-family detached homes with an average of five general contractors buying lots and building homes. The median size of the single-family developments is 24 acres with 48 lots; 4 percent of the single-family projects will include retail or commercial space. In 38 percent of the single-family projects, more land is available for continued development after the current job is finalized.
Another 17 percent of the developments are larger mixed-use projects. Median size is 85 acres intended for 291 single- and multifamily units, and the projects are likely to have seven different general contractors within the development. The mixed-housing projects are the most likely to have commercial and retail spaces; 41 percent will have retail and 36 percent will have commercial space. Nearly one-third of the mixed-use developments have additional space for future expansion. Their large size also makes these subdivisions the most likely to have environmental issues: two-thirds of them have wetlands.
The next most frequent subdivision contains multifamily homes in 9 percent of the projects surveyed. Median size is 12 acres with 86 units, the highest density of all types at 11.2 homes per acre. The developer expects only two general contractors on the project.
Single-family attached or townhouse developments are the smallest of the four subdivision types at 10 acres for 56 units. Developers expect three contractors on these projects, with a very small share planning retail or commercial space. Townhouse developments are the least likely (31 percent) to have additional land for future development.
Additionally, seven in 10 subdivisions are in metropolitan areas. Last year, 87 percent of permits were drawn in the 361 designated metropolitan statistical areas. The difference is not likely a shift away from metro areas but the developers’ designation as a non-metro area even though it technically lies within the government definition of metropolitan.
Development characteristics vary by region with the largest in the Northeast (40 acre median) and the smallest in the West (14 acre median). But the smallest lots are in the West (4.3 units per acre) and the largest are in the Northeast (1.9 units per acre).
Lot development currently is underway and as a result, some relief from the shortages will evolve.