As the US economy and job market register full recovery levels, demand for housing is soaring. As a result, property inventory levels are tight across the board creating strong demand for new builds. However, developers currently face one major obstacle – the severe shortage of building land in the US. This latest BRIC Group article provides the full picture.
The National Association of Home Builders (NAHB) announced in May that “the shortage of lots is now worse than ever”. Their monthly survey revealed that builders throughout the country were struggling to source land. Of those interviewed, 64 per cent said that the supply of building land in the US was ‘low’ or ‘very low’. This is the highest percentage recorded since the NAHB began to survey builders in 1997.
Bigger shortage of land in desirable locations
The shortage varies depending on the specific location within the US, but reflects a general countrywide trend. The lack of supply becomes even more acute in the case of building land in desirable locations. These lots are denominated ‘A’ class and 69 per cent of builders claim the supplies are at low levels.
The NAHB points out that this historic shortage comes at a time when new home starts sit at much lower levels than average. The US is currently building less than 1.2 million new homes a year, a significant drop below the over 2 million started in 2005. 53 per cent of builders reported a low or very low supply of building land in the US then.
Booming sales and high prices
Despite what Marketwatch described as “a seller’s market with extremely lean inventory”, demand for new-build properties in the US continues to surge. In the year to April, sales rose by 16.6 per cent, the highest hike in 24 years.
Unsurprisingly, inventory levels for new homes dropped to 4.7 months, well below the 6-months considered to be a sign of a balanced market. This intense demand also pushed up prices for new builds and over the 12 months to April, median prices for a single family home reached US$321,000. This brings the annual increase to 9.7 per cent.
The situation is broadly similar in property market across the US. The Q2 2016 Florida & Metro Forecast noted that in Southwest Florida “new housing starts are not keeping up with growth, which is pushing prices up in the single family market”.
Builders take note
The shortage of new homes has led the National Association of Realtors to call on builders to build more. “It’s time for home builders to double their focus on constructing single-family homes,” a March press release said.
Bloomberg predicted in June that “improving sentiment among homebuilders may lead to a construction boost in the months ahead as companies feel more confident they can find buyers for new homes”. However, the same news article pointed out that the shortage of skilled labourers and building land in the US will limit progress.
“Building land has always been a commodity with a finite supply and that’s one of its appeals as an investment,” says Dies Poppeliers, Managing Director of BRIC Group. “In a market such as the US generally and Southwest Florida particularly where there’s big demand for housing the investment potential of land grows exponentially.”
BRIC Group, an investment company specialising in global real estate opportunities, offers US real estate investments including turnkey properties in Florida and Houston, and land plots in Florida. BRIC Group is also developing The Coral resort, in Northeast Brazil, a luxury beachfront resort with land and villa investment opportunities. BRIC Group has been creating wealth for its clients since 1996 and has offices in Brazil, Dubai (consulting office), Hungary, Spain and the US.
(Sources: NAHB, Marketwatch, Bloomberg)