The Landscape of the Industry

How the issues shaping the world of land development are also impacting socioeconomic equity

By JULIA EDINGER

Life has returned to the landscape outside. With summer in sight, builders are hoping to see their local markets heat up with the weather. From a finance perspective, economists are optimistic; the remaining challenge seems to be the consistently high costs associated with buying and developing a lot of land.

While some challenges in land development vary by region, according to the climate and weather of that particular landscape, the high-priced cost of lots is something that homebuilders across the U.S. are acknowledging as a major challenge.

In general, building costs remain fairly consistent. However, the land acquisition can prove to be much more challenging and unpredictable. Increased land development costs may seem manageable, usually posed as a small price per-front-foot.

Unfortunately, they do have a significant impact on the price. In turn, an increase in price significantly shrinks the homebuyer pool. According to a report by the National Association of Home Builders (NAHB), every $1,000 increase of a house’s price will price 127,560 U.S. households out of the market. Unfortunately, these restrictions may be intentional. Part of the problem with land pricing is that, too often, the community impact is overlooked — for example, an area using exclusionary zoning measures to restrict the number of low-income people living in an area.

“Many existing residents do not want their taxes to go up as a consequence of housing people less fortunate than themselves,” explained Manuel H. Lazerov, President of Infrastructure Financial, Inc. “The lack of affordable housing is a problem, but the underlying problems are community resistance and a lack of political will.”

These imposed restrictions affect homebuyers and homebuilders alike. Zoning regulations have a drastic impact on the price at which builders can generate a product. Alternatively, lowering developmental standards can restrict the number of high-income buyers that want to live in a specific area, leaving little room for growth and development of the neighborhood.

As is the case with much economic development, these challenges will disproportionately affect minority and low-income prospective buyers. It is a cycle of poverty that cannot be broken without new policy taking shape.

While subsidies are an essential first step, that alone is not a sufficient solution to housing inequity. A shift in mindset is the necessary next step to make a substantial difference.

Regulations have a lot of benefits, but they come at a price — literally.

“[NAHB economists] found that on average, regulation and other costs imposed by all levels of government account for 24 percent of the price of producing a new single-family home,” said NAHB’s 2019 Chairman of the Board, Greg Ugalde. “These burdensome regulations are pushing the price of housing beyond the means of many families.”

In most areas that people want to move to, homebuilders cannot produce a home unit for a price that the average family can afford. The unaffordability of these homes is pushing people to either move outside of the cities they work in, buy a smaller unit, or continue renting as an alternative to buying a home.

Challenges in affordability stem from a number of factors, but there are methods that can help to mitigate some of these costs.

By making a genuine effort to provide affordable housing that is accessible for low-income families, homebuilders can build more diverse communities, stimulate the local economies, and build equity in those communities.

Some strategies that builders can implement are building narrower lots for product size variety, building further from major cities, and utilizing any finance methods available.

According to Greg Vogel, Founder and CEO of Land Advisors Organization, there is not one single solution to the increased land costs. “It will take a myriad of different approaches with all participants in the development process (e.g. land sellers, contractors, builders, capital providers, jurisdictions, and homebuyers) adjusting their expectations and sharing in the increased cost burden,” said Vogel.

To address the challenges in the land development world, builders must also advance their strategies in terms of design and finance. Implementing cost-saving features for homebuyers, such as solar capabilities and smart home technologies that lower utility fees, can help expand the target market for a new development.

In contrast, builders and policymakers alike must refrain from methods that exclude low-income homebuyers who are already verging on being priced out of any desirable area. In California, there is a particularly heavy emphasis on the lack of affordable land, as many people working in major metropolitan hubs (San Francisco, San Diego, Los Angeles) cannot afford to live in the city they work in. Dan Dunmoyer, President and CEO of the California Building Industry Association, suggests that having a housing-focused governor could help, but that builders need to get involved in the conversation.

Whether it is by building more high-density housing, more energy-efficient homes, or building further from the city, it is time for homebuilders to be creative, maximizing space with design. That is just the lay of the land.

Julia Edinger is the Assistant Editor for Builder and Developer Magazine. She can be reached at julia@penpubinc.com.

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