Nice article from MetroStudy:

Lack of Lot Inventory to Create Housing Production Headwinds in 2013

Some excerpts with my bolding to highlight critical points:

Metrostudy CEO, Mike Castleman stated the following, “In order for the housing industry to expand its production to meet emerging demand, there must be Vacant Developed Lots available in each market. Just having lots on the ground is not enough. Each lot must meet certain quality standards such as an appropriate location, a price that is suitable for the market, and it must be available for purchase by a builder.”

Castleman goes on to separate lots into 6 categories, A, B, C, D, F, and F-. Class-A lots are available to home builders in subdivisions that are currently seeing home building and for which there is a recognizable demand. Class-B are less suitable than A, but still attractive, and so on.

At the bottom of the list are the D’s, F’s and F-‘s. The D’s are lots that inexperienced developers and investors developed in 2005 and 2006, thinking that the skyrocketing demand would render the poor location, high price, and inappropriate configuration inconsequential. This did not happen. As the market collapsed, these lots came on stream and found no builders willing or able to buy them. There they sit, streets in place, weeds everywhere, signage deteriorating and nobody cares, except perhaps the bank that has foreclosed or investment group that bought the “distressed property” thinking they were going to make a 1990’s RTC style killing.

I have to laugh at that last sentence. I’m sure we’ve all seen these around. The devil is in the details, though: some of these weed-infested subdivisions are diamonds in the rough. They only lack someone willing and able to buy them to start building on them. They can’t be ranked C because they are difficult to acquire, but they could really turn a good profit for someone ready and willing to invest and wait a year or two.

But, be careful you don’t end up with an F-. The study goes on:

And then, there the F-‘s. In all of the markets around the country, there is some land that is suitable primarily for agricultural purposes. The F-‘s are that land. There is no chance that the F- lots will ever contribute to urban sprawl.

And here’s the meat of the issue: A-lots make up 10% of all lots studied, B-lots make up 14%, and C-lots make up 22% for a grand total of 46% in readily available, attractive, and affordable subdivisions. Metrostudy concludes that that is only a two year supply of lots at current rates of home building–rates that are historically low, by the way. It doesn’t take much imagination to see the problem there. Here at home, we only have to look at The Villages, they are building around 2200 to 2400 homes a year (BTW, that’s more than something like the next 9 largest projects in the state). I calculate their build out of current land to be around 4 years at that rate. But what if demand increases to a quite reasonable 3000 homes per year? Or 4000? I wouldn’t be surprised to see that level in a year’s time. We could be seeing a housing crisis in the next two to three years.

On the other side, how many new plats are under review in Central Florida? How many DRIs have been reviewed? There’s virtually nothing in the pipeline, so all we’re going to be left with are D and F-lots. A decent residential developer should be able to do very well over the next few years by taking advantage of this gap.

I’ll go one step further, Metrostudy is focusing on current rates of building. I’ve been watching the real estate market for the past few months and the supply of available home inventory is dwindling all over Florida, but most importantly (at least for me) in places like Lake and Pasco Counties. The combination of a lack of existing homes offered for sale with a lack of available lots to be built on will create a very interesting problem in 2013, the year I’ve been saying will be the one that we see a return to normality in the home building industry (and coincidentally, the year that my partner, Ron Lieberman, will be president of the Florida Home Builders Association).

This is an opportune time to invest in residential development and redevelopment in Central Florida. If you have any interest, we at Achievable Solutions (and its sister company, American Real Estate & Development) can help you acquire, develop, and market a quality residential project. We have decades of experience in planning, real estate, and residential development. Contact us for a free consultation.

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