It's currently a strong seller's market: high demand with low supply. The market's answer to this is to strive for equilibrium, creating an even balance between demand and supply. One way to achieve this (in today's market) is to add more supply (homes). Expect that to happen in 2021 -- but maybe not to the extent it should. The reason: a land shortage.
Why builders build
Two big factors contribute to homebuilding activity. Buyer demand is, of course, one. But there's another major factor that determines how many homes are built: land availability, which is in short supply these days.
If you remember the landscape just a mere 12 years ago, during the housing crisis, you'd see subdivisions started but then quickly abandoned because of the recession. This created a ghost-town atmosphere and trouble for the pioneers who bought during Phase 1 and watched as garbage dumps became the new neighbors.
During that time, if you told builders this land would be a hot commodity in just 10 years or so, they'd have probably laughed in your face. But if you did invest in that land, you're the one having the last laugh.
There's not a shortage of land everywhere, of course. But when it comes to homebuilding, we're talking about land where people want to live. That's what's in short supply these days. Think of the suburbs in Western and Southern states. That's where the demand is, and that's precisely where builders are having difficulty finding enough lots to buy.
Plus, some builders might still be a tad gun-shy after being burned in 2008 and investing in smaller sites. Some builders stopped buying during the pandemic lockdowns altogether because of all the uncertainty. It turned out the pandemic only served to boost demand as urban renters now wanted to buy in the suburbs. No one has a crystal ball, but hindsight shows builders should have been buying land in early 2020 -- and many didn't.
It takes time to get lots ready to develop -- at least a year before building begins. It can sometimes take several years to get the proper permits, for road development to occur, and for sewage systems to be installed before lot grading even begins. All that happens before any foundation is laid.
Today, much of the land developers own is still in the development phase, meaning the land is not yet ready to build on. So while there may be land available, buildable land is another issue, and that's in short supply.
Longer wait times
While I didn't see the pandemic coming, being in real estate, I did predict location well when picking out my lot for my new build.
Even back in 2016, my husband and I waited twice as long for the finished product, and the situation has not improved since then. In fact, it's worsened, as demand has increased and some local governments that approve projects and issue permits are taking longer to act as they try to maneuver working from home along with their usual duties.
People fortunate enough to lock in their lot for their future home can expect to wait longer than planned for the home to be completed. Every part of the project is now experiencing delays.
People need housing now, and if the pandemic has taught us nothing else, it showed us that doing things the way they've always been done isn't always practical. Rather than always buying large lots of land to be developed into subdivisions, new trends are developing.
Using infill development
There's usually vacant land or underused parcels in urban areas. Builders can develop these for new homes.
Choosing to tear down
Many people are happy to live in a small mid-century modern home. But the people who aren't might be able to tear down the property and get that new-build home of their dreams.
Putting more homes on the lot
Rather than building two-story sprawling homes with huge yards, many communities are opting for taller, thinner homes, three and four stories on a zero lot line with community greenspace. (Time to invest in the home elevator business, perhaps?)
The Millionacres bottom line
Although a lot shortage is the norm right now, some builders will get creative. If there's demand, somehow supply should eventually catch up. It's just a matter of when. In the meantime, expect housing prices to continue to rise until there's more equilibrium between supply and demand.