Many US homebuilders favoring more expensive land plots in developed areas, rather than further-out cheaper lots they expect to be less profitable, driving up land prices in prime locations

Audrey Dixon

LOS ANGELES , April 11, 2014 (Industry Intelligence Inc.) – Many U.S. homebuilders are tending to prefer higher-priced lots near developed areas over cheaper, farther-out lots, driving up prices on the popular areas to 2005 levels, the Wall Street Journal (WSJ) reported on March 28.

One driving factor is that homes on cheaper land are not expected to sell at high enough prices to make building profitable, particularly if the site lacks existing infrastructure.

The trend seems to have entered a cycle, as builders depend on the older, wealthier veteran homebuyers for sales in expensive areas. The 25 to 34-year-old demographic that accounts for many new entrants into the home market tends to look for the kind of cheaper homes builders have been avoiding, causing stagnation in the housing market’s growth, according to WSJ.

As a result, house prices have become increasingly polarized between the two plot types. For example, in Phoenix, Arizona, house prices are typically well ahead of those in the suburb of Buckeye by about 20%, but that figure has increased to about 30%, according to data from John Burns Real Estate Consulting.

Surveys of homebuilders find that many decry a lack of available lots, but statistics suggest there is not a shortage of land as much as a dearth of preferred land. The climbing prices in already more-expensive areas suggest builders are more likely to bid prices upward on choice land than opt for the cheaper, less-profitable plots.

As builders do begin to spread outward from expensive areas, they still tend to steer toward land already set up with sewage and streets rather than taking on the expense of developing raw land, the WSJ noted.

The primary source of this article is The Wall Street Journal, New York, NY, on March 28, 2014. Click here to view the primary source’s original version of the article.

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