Earlier this month we published two blogs highlighting record-small sizes and record-high prices of new single-family lots. Extending this analysis and incorporating data on new home sale prices shows that, on average, lot values accounted for less than 17% of sale prices of new single-family homes started in 2016, the lowest share since at least 1999. Regionally, the share of new home sale prices attributed to lots varied from 26% in New England to 14% in the East South Central division.
Nationally, the share of lot values in new home prices fluctuated around 20% during the housing boom years, peaked at 21% in 2009 and has been declining ever since, despite the rising and record-setting lot prices. The declining share of new home sale prices attributed to lots suggests that other construction costs, including cost of labor and materials, are outpacing the rising lot values. These findings are consistent with the results of NAHB’s proprietary construction cost survey last conducted in 2015. Even though, NAHB’s survey shows slightly higher share of finished lots in single-family home sales prices and the declining share trend starting in 2007.
The similar pattern – with the share of sale prices attributed to lots declining after the housing boom years – is visible across all regions of the United States. Most divisions registered their highest shares in 2009, but the New England and Mountain divisions hit their peaks earlier in 2007, while the West North Central division – in 2006.
New England stands out for having the largest and most expensive lots that account for more than a quarter of sale prices, the highest share in the nation. New England’s strict zoning regulation undoubtedly contributes to high lot prices and their remarkably high share in sale prices of new single-family homes.
The Middle Atlantic and Pacific division are next on the list, with about one fifth of new home prices reflecting lot costs. The East South Central division established the lower bound on the contribution of lots to sale prices of new single-family homes – 14%. Remarkably, the rest of the country does not show much variation with lots accounting for about 16% to 17% of sale prices. The shares considered in the above analysis are averages. To make sure these are not heavily influenced by extreme outliers or Census Bureau’s masking procedures, the entire distribution of the shares of sale prices attributed to lot values is analyzed. The results are consistent and summarized in the chart below.Looking at all new single-family homes started in New England in 2016, more than half of the homes have lots accounting for a quarter or more of the final sale price. There are barely any homes with lots accounting for less than 16% of the sale price. In stark contrast, more than half of single-family homes started in the East South Central division have lots that account for less than 16% of the sale price and there are barely any homes with lots accounting for a quarter or more of the sale price.
The analysis above is limited to single-family detached speculatively built homes. Custom homes built on owner’s land with either the owner or a builder acting as the general contractor do not involve the work of a professional land developer subdividing a property. Therefore, in case of custom homes, lots refer to owner’s land area rather than lots in conventional sense. The data are from the 2016 Survey of Construction.