For Builders, Lot Shortage Eases But is Still a Problem

Obtaining lots to build on remains a challenge for many of NAHB’s builders, although the shortages are not quite as widespread as they were in 2021.  Responding to special questions on the May 2023 survey for the NAHB/Wells Fargo Housing Market Index (HMI), 42 percent of single-family builders characterized the supply of lots simply as low, and another 25 percent said the supply was very low, for a total of 67 percent of builders reporting some type of shortage.  Although this is down from 76 percent the last time NAHB asked the question (in September 2021), it is nevertheless the second highest incidence of lot shortages on record since NAHB began collecting the information in 1997.

The current 67 percent of builders reporting a shortage of lots is particularly high relative to the current level of production.  Over the past six months, total housing starts have been hovering around an annual rate of 1.4 million.  In comparison, in 2005 when total housing starts peaked at over 2.0 million, “only” 53 percent of builders were reporting lot shortages.

In addition to the overall supply, since 2013 the HMI survey has also asked builders to rate the supply of A, B and C lots in the areas where they build.  As usual, shortages tended to be most acute among lots in the most desirable, or “A,” locations in 2023.  In the May 2023 survey, 67 percent of builders said that the supply of “A” lots was low or very low, compared to 58 percent for “B” lots and 52 percent for “C” lots.  All three percentages are down from all-time highs posted in 2021.  For A lots, however, the current shortage percentage is about the same as it was in the immediate pre-Covid period of 2016-2019, while for B lots it is lower, and for C lots it is higher.

Why are lots still in such short supply?  One factor is availability of credit for developers.  As discussed in a recent post, loans to develop new residential lots were becoming both harder to obtain and more expensive over the prior year.  Another factor is the effect of government regulation, which can lengthen and complicate the lot development process, as well as add to its cost.  As shown in a recent NAHB study, government regulation is responsible for roughly 42 percent of the cost of a lot for the average new single-family home.


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2 thoughts on “For Builders, Lot Shortage Eases But is Still a Problem

  1. Construction loans are a key part of helping builders combat the current lot shortage. The availability of funds can make it easier and faster for builders to acquire lots and get projects underway! If you’re interested, check out builderloans.net for more info!

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