Eye On Housing
According to NAHB’s analysis of the Census Bureau’s Survey of Construction (SOC) data, single-family lot prices reached new record high in 2017, with half of the lots priced at or above $47,400. While this constitutes a new nominal record, lot values adjusted for inflation have not reached the housing boom peaks. In the midst of the housing boom – when twice as many single-family homes were started – half of the lots were going for over $43,000, which is over $50,000 when converted in $2017.
The rising lot values are most pronounced in the West South Central and West North Central divisions where lot values hit new historical records – not only in nominal terms but also when adjusted for inflation – in 2017. In the West South Central division (that includes Texas, Oklahoma, Arkansas, and Louisiana), lot values had traditionally been below the national median. They caught up with the national median in 2015, surpassed it in 2016, and surged even higher in 2017, with half of the lots selling for more than $56,000. This represents a significant jump in the division lot values since the housing boom years when more than half of lots were priced under $30,000. The West North Central division also established a new record high, with half of the lots priced above $64,000, significantly exceeding the lot values of the boom era.
Single-family spec homes started in New England are built on some of the most expensive lots in the nation. Half of all sold single-family homes started in New England in 2017 report lot values in excess of $128,000, by far exceeding the national median lot value for single-family spec homes of $47,400. New England is known for strict local zoning regulations that often require very low densities. Therefore, it is not surprising that typical single-family spec homes started in New England are built on some of the largest and most expensive lots in the nation.
The Pacific division where densities are high and developed land is scarce has the smallest lots. However, high regulatory costs push the median lot value to $84,000, the second most expensive value in the nation. The Pacific division lots also stand out for being most expensive in the nation in terms of per acre costs.
The East South Central Division that has the second largest lots in the nation simultaneously reports the lowest median value of $37,000 per lot, thus defining the most economical per acre lots in the nation.
Given that nation’s lots are getting smaller and home production is still significantly below the historically normal levels, it might seem surprising that lot values keep going up. However, the rising lot values are consistent with persistent record lot shortages that NAHB reported recently. They are also consistent with significant and rising regulatory costs that ultimately increase development costs and boost lot values. It is also possible that home building shifted towards more urban and dense areas where land values are typically higher, and land development faces more stringent regulation requirements.
For this analysis, the median lot values were chosen over averages since averages tend to be heavily influenced by extreme outliers. In addition, the Census Bureau often masks extreme lot values on the public use SOC dataset making it difficult to calculate averages precisely but medians remain unaffected by these procedures.
This analysis is limited to single-family speculatively-built homes by year started and with reported sales prices. For custom homes built on owner’s land with either the owner or a builder acting as the general contractor, the corresponding land values are not reported in the SOC. Consequently, custom homes are excluded from the analysis.
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