Sidestep Skyrocketing Land Costs

With land prices quickly shooting up, ‘C’ is the new ‘B’, says Brad Hunter, chief economist at Metrostudy, Hanley Wood’s research arm. “Builders will soon be buying land in more remote locations, at lower prices than in close-in locations, and that will allow them to provide homes at lower prices,” he says. Hunter cites the success of Mountain House, Shea Homes’ 4,784-acre master planned community in California’s San Joaquin County, as a great example of this trend.

Of course, not all buyers want to drive until they qualify. And the rise of the first-ring suburb offers plenty of opportunity to buyers looking to cut down on the commute. “Commercial corridors that were shopping centers in a previous life are taking on value—and affordability—when they’re redeveloped as retail that has housing associated with it,” says Michael Medick, market leader for land planning at BSB Design.

In the nation’s largest metros, developers would be wise to look to first-ring suburbs that are ignored or decrepit, advises Elise Platt, a longtime development consultant. “People who like the location will make some compromises,” she adds. “Almost every drive-in theater in New Jersey has been converted to housing in the past 25 years.”

Building where everyone else wants to live doesn’t have to be a deal-breaker. There are plenty of walkable neighborhoods well-positioned for mass transit, but where the housing stock has grown old and worn out.

“In a neighborhood with walkable amenities, you can charge more per square foot,” says James Wentling, a Philadelphia-based architect who works from New England to the Carolinas. He looks for older, established enclaves developed in the ’30s, ’40s, or ’50s, with parks, churches, commercial centers, and public transit.

Tony Crasi of The Crasi Co. seconds that strategy as a way to get around skyrocketing land costs. “Maybe the lot isn’t right off Main Street, but if it’s five blocks away, you still have the main amenities,” he says. An added plus to this proximity play: Walkable communities were the least affected during the downturn.

Medick also is a proponent of neighborhoods with some age on them. “In addition to infrastructure, you’ve got old trees and wider sidewalks,” he says. Another way builders can make dollars go farther in desirable locations is by reducing the lot size. But Medick says to proceed with caution: From the get-go, the land plan and house plan have to work hand in hand.

Bill Bonstra of Bonstra|Haresign Architects, a longtime player in Washington, D.C.’s redevelopment, advises adding value by increasing density through public process, special approvals, and zoning variances. In D.C., Bonstra is seeing building codes that now allow wood frame buildings to be taller, “a significant savings over steel and concrete,” he points out, citing five stories of stick over two stories of concrete. Density is key, he says, but “it’s about density that’s not just in a high-rise, but distributed strategically.”