Lot shortages could drive up home prices

Lot availability is at a record low – and that could have negative consequences for housing affordability

Lot shortages could drive up home prices
The availability of lots has hit a record low – and that could have a negative impact on housing affordability, according to data from the National Association of Home Builders.

The NAHB/Wells Fargo Housing Market Index found that 64% of respondents to its May survey reported that the supply of lots in their market was either “low” or “very low” – up from 62% last year at the same time, and the highest number since the NAHB began collecting data on lot availability in 1997.

Builders are reporting lot shortage despite new home starts running at a rate under 1.2 million per year. In 2005, housing starts were over 2 million, but only 53% of builders reported lot shortages, according to the NAHB.

“The lack of availability of buildable lots has quickly become one of the biggest issues facing our members,” said Ed Brady, chairman of the NAHB. “While labor shortages and regulatory burdens remain struggles as well, lot shortages are preventing our builders from responding to growing demand for housing.”

“We have monitored lot availability for the last two decades, and it is clear that the scarcity of building lots is growing,” said Robert Dietz, NAHB chief economist. “Whether due to land use policy, geographic constraints or other regulatory constraints, the lack of lots for residential construction will have negative impacts on housing affordability in many markets.”

The lot shortage was most severe in the Western region, where 39% of builders said the supply of lots was “very low,” according to the NAHB. In the South, 23% said lot supply was “very low” while 18% said it was “very low” in both the Midwest and Northeast.