A lack of ready-to-build residential lots is hampering the construction of new homes in Seattle and other hot housing markets across the country.
As detailed in an article appearing in Friday’s print edition of the Puget Sound Business Journal, “Housing rebound begets a new shortage: lots,” developers have been selling new homes faster than they have been preparing residential lots for construction in the Puget Sound area.
It’s a problem in other recovering housing markets across the country, according to Chief Economist David Crowe of theNational Association of Home Builders, who is in Seatle for the three-day Urban Land Institute Housing Conference that ends Friday. Crowe and the new president of the Master Builders Association of King and Snohomish Counties, Brian Ross of YarrowBay Holdings, stopped by the Puget Sound Business Journal Thursday morning to talk about the national and local housing market.
Behind the lot shortage: During the recession, very few developers applied for new lots. Now that the housing market is recovering, the supply of builder-ready lots is rapidly dwindling and it will take years before home builders can get a new supply of lots through the regulatory pipeline.
In the Puget Sound area, there is “a very constrained supply” of builder-ready lots, according to Ross. The problem is most acute in the hottest submarkets in the Puget Sound area, where home builders are eager to construct new homes.
“South Snohomish County seems to be the ground zero of the housing market’s recovery,” Ross said. “There’s very little land left that’s suitable for development within the urban growth boundary.”
“In Mill Creek and Bothell, there is no land left for builders to build homes on,” Ross said.
“We’ve seen land prices quadruple in South Snohomish County in the last 16 months,” Ross said.
At the bottom of the housing market, a lot typically accounted for about 10 percent of the price of the house. With the lot shortage, lots in some markets now account for about 40 percent of the price of a new home.
Meanwhile, the problem is spreading into King County because of the “very limited” supply of builder-ready lots, Ross said.
While the lot shortage is a drag on the housing market in some areas of the country, Crowe, of the National Association of Home Builders, foresees a steady increase in new home construction. Single-family home construction increased 25 percent last year, and Crowe expects a similar gain this year as demand for houses continues to gain momentum.
The improving job market is leading to an increase in the formation of new households. Young adults who have been living with their parents or sharing quarters with roommates increasingly are able to afford their own place. During the recession, the formation of new households dropped to about a half million a year from a peak of 1.4 million during the boom. With the economic recovery, the number of new households has risen to about 850,000, Crowe said. He expects that number to settle to a steady 1.2 million a year.
Crowe expects the national housing market will have recovered by 2016, with some markets such as Seattle recovering as early as 2015. The housing market is cyclical, but, barring another economic disaster, Crowe isn’t expecting the roller-coaster ride of the past several years to repeat itself.
“In theory, we will get back to normal,” he said.
Jeanne Lang Jones covers retail and real estate for the Puget Sound Business Journal.