The shortage of lots that has been hindering the housing recovery eased somewhat in 2019, but remains elevated by historical standards, according to a recent survey conducted by the National Association of Home Builders (NAHB). The survey consisted of a set of special questions included on the instrument for the September 2019 NAHB/Wells Fargo Housing Market Index (HMI).
The survey asked a panel of single-family builders, stratified by number of homes started and region of the country, to categorize the supply of lots in their market areas as “very high,” “high,” “normal,” “low,” or “very low,” as well as giving them an option to say they didn’t know or were not sure. In response, 58 percent of builders said the supply of lots was low (40 percent) or very low (18 percent). This is down somewhat from the all-time peak of 65 percent in September of 2018, but higher than it had been at any time prior to 2013 (NAHB has been asking the same lot supply questions on its HMI survey periodically since 1997).
The lot supply problem is particularly severe in relation to housing starts, which still have only partially recovered from the last downturn. After averaging 1.5 million from 1960-2007 and hitting a peak of 2 million in 2005, starts have recovered only to about 1.2 million a year.
For comparison, even during the boom period in August of 2005, the share of builders characterizing lot supply as low or very low was 53 percent — 5 percentage points below the latest number.
Although the terms lack precise definitions, builders routinely categorize lots as “A,” “B” or “C,” based on the general desirability of their locations. Not surprisingly, in September of 2019, the lot shortages tended to be especially acute in the most desirable, or “A”, locations. Sixty-seven percent of builders said that the supply of “A” lots was low or very low, compared to 57 percent for “B” and 46 percent for “C” lots.
A shortage of buildable lots, especially in the most desirable locations, tends to increase lot prices and reduce lot sizes. As described in recent posts, Census data show that the median size of new home lots remains near a record low, while the median price of new home lots is at a record high. The shortage and high price of lots, in turn, contribute to the ongoing problem we are seeing with a general lack of affordable housing in the U.S.