Lot Availability Remains Significant Challenge for Builders
Originally Published by: Builder Online — August 7, 2024
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Zonda’s New Home Lot Supply Index (LSI) showed lot supply tightened year over year and quarter over quarter in the second quarter. The LSI registered a reading of 56.7 in the second quarter, representing a decrease of 9.5% compared with the second quarter of 2023 and a decrease of 1.1% compared with the first quarter.
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The LSI indicates the national market is “significantly undersupplied,” as it has been since 2017. The index considers the total vacant developed lot supply and adjusts it for overall starts activity. The LSI started “to roll over” in the fourth quarter of 2023 as builders felt confident increasing starts again, a trend that has continued into the new year.
“The No. 1 issue reported by home builders today is land and lot supply,” says Ali Wolf, chief economist at Zonda. “Delays in land development, including on the entitlement, zoning, and plan approval side, are driving up development costs and putting a lid on total market activity.”
Wolf says the declining LSI underscores the issues related to land and lot supply, indicating the pace of new construction is continuing to outpace the rate at which vacant developed lots are coming online.
On a market level, lot supply tightened in 21 of 30 analyzed major metros on a year-over-year basis. The LSI tightened quarter over quarter in 14 of Zonda’s 30 markets, a decrease from 25 in the first quarter of 2024.
Los Angeles/Orange County tightened the most on a year-over-year basis, with the LSI decreasing 43% to 16.8. In addition to Los Angeles, Miami and San Diego comprise the top three markets with the tightest supply of lots.
Orlando; Charlotte, North Carolina; and Indianapolis experienced the greatest land supply loosening on a year-over-year basis. In these markets, starts were up 17%, 14%, and 21%, respectively, compared with the same quarter in 2023.
Five markets are considered slightly undersupplied—San Antonio; Dallas; Austin, Texas; Atlanta; and Minneapolis. Housing starts and vacant developed lots increased on a year-over-year basis in each of these markets.
Zonda also tracks future lots through the stages of development, ranging from raw land to streets in, the last step before the lot becomes a vacant developed lot. It groups the last few stages into a classification called “total upcoming lots,” which indicates delivery over the next 12 to 18 months.
Total upcoming lots for the second quarter decreased 1.7% year over year and were down 2.6% from the prior quarter. Among total upcoming lots, roadwork—which includes streets paved and streets in stages—increased the most, up 32% from the same period last year. Lots in excavation stage slipped 6% year over year, while those with equipment on site are down 17%, notes Zonda.
The largest share (57%) of upcoming lots were in the excavation stage in the second quarter. Such lots have an expected delivery between the first and second quarters of 2025.
“Tracking upcoming lots and listening to builder feedback can help guide us on future housing starts,” says Wolf. “Roughly 70% of home builders plan to increase housing production this year, and 80% are planning even more starts in 2025. This confidence is largely driven by two things—the hope of lower interest rates and the anticipation of more lot supply.”