David Barista is editorial director of Building Design+Construction and BDCnetwork.com, properties that combined reach more than 100,000 commercial building professionals, including architects, engineers, contractors, and building owners. He has covered the U.S. construction industry for more than a decade, previously serving as editor-in-chief of BD+C, Professional BuilderCustom Builder, and HousingZone.com, covering the U.S. construction industry for more than a decade.

Blog: Is a lot shortage looming?

May 22, 2011

At a time when the housing industry is facing a severe glut of inventory, depressed real-estate values, tighter lending standards, and a lethargic path toward recovery, it seems ludicrous to even mention the terms “lot” and “shortage” in sequence.
Yet, during the past few weeks alone, I have heard several prominent home builders and real-estate experts reference the coming dearth of developed land in this country. While many builders remain (justifiably so) in short-term survival mode, these builders have kept one eye on the future as they navigate their firms through the muddy waters of the economic downtown.

The potential for a nationwide lot shortage, say these prognosticators, stems from the lack of land parcels currently in the development pipeline. Reduced demand for new housing — combined with the lack of available financing for new developments and the fact that builders can’t get many parcels to pencil out based on the going rate for homes today — has caused the land development pipeline to all but dry up. Exacerbating the situation is the increasingly longer and convoluted land entitlement process that builders and developers face in many states.

“We see the entitlement process becoming more difficult and time consuming as each state tightens its environmental regulations,” says Toby Waxman, founder and president of Entitlement Strategies Group, a full-service land consulting firm based in Los Angeles. Waxman says the entitlement process can take two years or more.

It is this bottleneck that has builders with substantial entitled land holdings, like PulteGroup, upbeat about their chances to grow and gain market share when the market does eventually come back. As Pulte president and CEO Richard J. Dugas put it so bluntly during a recent sit down with Professional Builder editors: “The curse of our land position during the past three to four years is going to be the blessing for the future.”

Pulte’s curse (and future blessing) includes some 144,000 controlled lots, 30 percent of which are developed, along with more than 30 new land deals in the works across the U.S. That’s a ton of land to be on the hook for in a very difficult market. But Dugas has no doubt there will be huge payoffs on the other side of the downturn. “I’ll make the prediction right now: There will be a lot shortage in this country when business improves. During that two- or three-year period, this company in particular will take a significant amount of share.”


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