The New Homebuilding Boom: Land Shortage and Jobs Drive New Home Starts

The big takeaway from this morning’s homebuilding panel at the National Association of Real Estate Editors spring conference is that land — more specifically, the lack thereof — is responsible for our lagging new home inventory and the dearth of new home starts in the nation. And while the pool of potential homebuyers is relatively large and stable, low inventory is driving prices up, making starter homes out of reach for many first-time homebuyers.

“Housing starts are down because land is not available where builders want to build,” said Metrostudy’s chief economist, Brad Hunter. “Builders are plowing golf courses under and building houses.”

According to Hunter, the new home market is no longer suffering from distressed properties and demand is improving, but tight inventory is a huge problem. According to his figures, the Dallas/Fort Worth region has just less than 3,000 units of available housing inventory, which is approximately seven weeks of supply. Yikes!

And with home prices rising, investors are turning to the existing home market. “Entry-level buyers are missing from the market,” Hunter said, but that doesn’t mean the demand isn’t there. In fact, some builders — D.R. Horton, to be specific — are targeting this market. And while there are a lot of buyers looking at model homes, there is some sticker shock as many new homes start in the neighborhood of $500,000.

“People today still want to buy homes,” said David Weekley CEO Jim Johnson. “What we have is a weak job market nationally.”

It’s a recurring theme we’re hearing from economists and developers, that the slow job market is also a factor in lagging new home construction. In fast-growing areas such as Houston, housing starts are up 17 percent over Q4 2013, and in Dallas starts are up 11 percent even though lot prices are at astronomical levels and labor is hard to come by.

Still, Johnson does think that builders will catch up to demand but he’s not sure when exactly that will happen.

Hunter, on the other hand, says that if builders can increase their pool of potential buyers, serious growth is possible.