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The land market has never been easy for home builders. Instead, Erik Heuser, chief corporate operations officer at Taylor Morrison, says it is “different kinds of hard.”

“The [land market in 2024] has been aggressive, but somewhat manageable,” Heuser says. “There are places like Southern California where we’ve seen some uber aggressiveness. You might have to look at a few more deals to get the right one to pencil. There are spots in the country where we do see a bit more competition and maybe a little bit of desperation from some builders that need the land.”

Data from Zonda suggests that lot supply tightened in the first quarter of 2024 and the overall market remains significantly undersupplied, as it has been since 2017. Lot supply tightened in 19 of the 30 major metros analyzed by Zonda in its recently released New Home Lot Supply Index (LSI).

“Limited availability of desirable land near major job centers is pushing new housing developments farther into the suburbs,” Ali Wolf said in the first quarter New Home LSI release. “However, these outlying areas often lack the necessary infrastructure, creating a bottleneck for builders eager to expand their communities. This imbalance between available lots and the desire to start new construction persists, posing a challenge for the housing market.”

Things will get tighter

As a result of tight lot supply, lot availability ranked as the second biggest concern for home builders entering 2024, according to survey data from the NAHB.

“If you think about how the lot development pipeline works, in a relatively efficient market it can be a two- to three-year process. In a highly regulated market, it can be five years or more,” says NAHB chief economist Rob Dietz. “I think later this year [and] the start of 2025 are when the actual lots on hand are going to get relatively tighter in terms of supply relative to the current need for construction.”

Many public builders, including Taylor Morrison and Tri Pointe Homes, though, have years of supply of land and a strong pipeline that provide flexibility to remain opportunistic without the need to be overly aggressive in the land market.

Tri Pointe actively seeking

Tri Pointe Homes has a land portfolio of approximately 34,000 lots owned or controlled, which positions the home builder well for future growth, including a planned 10% increase in community count by the end of 2025. Tom Mitchell, president and chief operating officer at Tri Pointe, says the company is actively seeking land opportunities in its core market locations to further accelerate growth and enhance its future pipeline.

Heuser shares a similar opportunistic outlook toward land to support Taylor Morrison’s 10% growth target for community count in the calendar year.

“We have 90% of our land owned and controlled to fulfill our closing expectations through 2026. When you have that war chest, you are able to be a bit more selective, opportunistic, and choosy,” Heuser says. “We’re never out of the market. The foot is never 100% on the gas, but it’s never 100% on the brake.”

Full steam ahead

Zonda’s April survey of division presidents indicates that 60% of respondents are moving “full steam ahead” with land acquisition, while around one-third of respondents are cautiously moving forward. Additionally, nearly two-thirds of respondents said land prices are higher than they were several months ago.

Andy Seitz, vice president of corporate land at Drees Homes, says while the company is employing a similar approach to land as it did in 2023, opportunities for new land deals—particularly land with utility access—“are in short supply.” The limited supply is resulting in elevated prices and “more difficult terms from developers,” he says.

“We’ve observed a general increase in land prices, which aligns with the growing demand for constrained supply, particularly in the core ‘A’ locations where we primarily operate,” says Mitchell. “We seek to work collaboratively and transparently with land sellers to carefully estimate potential revenues and costs, thereby determining the feasible land residual value we can achieve.”

Landsea sees "intense" competition

Mike Forsum, president and chief operating officer at Landsea Homes, and Mitchell note competition for land is “intense” in several operating markets for the home builders. For Tri Pointe, supply-constrained regions such as Seattle, Washington, D.C., and several California markets are particularly competitive. Forsum notes Central Florida, Texas, Phoenix, and Southern California as particularly competitive markets.

“It’s not for the faint of heart. When opportunities present themselves and they get broadly marketed, there are multiple players at the table all willing to be strong competitors,” Forsum says. “We try to be a little off the radar and find those next-year land opportunities and not be in those bake-offs if we can avoid them.”

He notes there is also upward pressure from land sellers on price because of the success home builders are having with selling homes.

“Most land sellers see you are selling houses and you’ve got a price point [that] seems like it is going up. It feels [to them] like you have made it through your supply chain challenges,” Forsum says. “From their point of view, it looks like it’s a pretty sturdy and good business and you should be paying more for land.”

In recent years, both Landsea Homes and Taylor Morrison have pivoted away from seeking finished lots delivered by master plan developers. For Taylor Morrison, the company is instead in favor of balance-sheet-friendly self-developed land parcels.

“We like our master plan developer friends, and we like finished lots when we can get them,” Heuser says. “But land has become competitive. Over the last several years, we have had to make this pivot to focus on self-development deals.”

Forsum says finished lots from master plan developers are in high demand as many builders look to fill near-term gaps in their land portfolio.

“On the finished lot side of things, it’s pretty frothy, and it is hard to get capitulation from the sellers. But, if you do have your land under control in the near term, on the wholesale side of things, raw land, land to get entitled and developed, the pricing is a little better,” Forsum says. “We probably lean more into controlling lots that are in situations whereby we can add value with our entitlement activity and by way of our land development expertise.”

Strategic partnerships

Moving forward, several builders, including Lennar and David Weekley Homes, note the desire to establish new strategic partnerships while cultivating existing developer relationships to facilitate growth goals.

“As we’ve migrated to a land-light strategy, we’ve wanted to be patient about recognizing that we are developing new sources of land relationships,” Lennar executive chairman and co-CEO Stuart Miller said during the home builder’s most recent earnings call. “We want to make sure that as the market ebbs and flows that what we depended on didn’t evaporate. We’re looking to build more of those structures in order to have durability baked in.”

At David Weekley Homes, co-chief operating officer Joe Rentfro says the company is focused on establishing new strategic partners, working closely with third-party developers.

“To help facilitate our growth goals, we’ve increased our engagement on acquisition and development projects in select markets,” Rentfro says. “This has been a portion of our business that has grown over the years, and we expect these efforts will need to continue in order to meet demands in our markets.”

Brookfield looks to outside builders

Adrian Foley, president and CEO at Brookfield Residential, says the company is engaging in a growing number of lot servicing and land banking deal structures with outside builders, “where in our business would buy and develop residential land and sell finished lots to builders at a predetermined price and schedule.”

“These mechanisms will allow for home builders to access an incremental source of capital, provide balance sheet flexibility, increase returns, and partially transfer development risk,” Foley says. “We continue to utilize and look for efficient capital structures as it pertains to land acquisition and development, ultimately holding a shorter duration of housing inventory on our books.”

Mitchell says Tri Pointe’s land strategy is “intricately linked” with the company’s long-term goals, as community count growth targets are informed by the land pipeline that drives closings targets.

“Our land strategy integrates a comprehensive analysis of macroeconomic trends and local market conditions, including mortgage interest rates, employment rates, household income levels, building costs, trade availability, and the specific characteristics of each deal,” Mitchell says. “Our focus on market and demographics, coupled with the current undersupplied housing market, positions Tri Pointe Homes to continue its growth trajectory effectively."

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