Land Market Update
December 1, 2017 |
CEO, Arizona Land Advisors
The land market in our region has experienced several super cycles. The boom of 1985-1987 ended horrifically with the S&L crisis AKA RTC days. It took until 1995 to begin a new phase that lifted our land economy steadily until the grand finale of 2004 -2006 and it all ended as the housing market crashed.
Many have labeled 2007-2017 as the lost decade in the Phoenix Metro land and housing market.
During the past four years, there has been a great deal of healing in the region and we now have a solid platform to move forward.
The land market is a leading indicator for the real estate economy. We have seen the overall land market increase from $1.1 billion to $2.3 billion the past 12 months.
In addition, the top line revenue of home sales by the region’s home builders grew from $1.8 billion in 2009 to nearly $7 billion in the past 12 months. Home builders typically spend 30 percent of their top line revenue purchasing land and lots. Home builders spent just over $1 billion on land and lots during the same period. Figuring in the costs for developing raw land into finished lots, we estimate that home builders are approximately $500 million short of acquiring what is required to service their needs going forward.
Home builders tend to act in concert: everyone pressing the “buy” button all at once. The Phoenix Metro area has been under building single-family homes by ten thousand units over the past several years. For the first 6 years of the last decade, under building was needed to allow the excess inventory to be absorbed. Now, just like the excess building of 2004-2007, over the past 4 years we have been under supplying the market causing a housing shortage.
Phoenix now faces only a 3-month supply of resale homes and a shortage of finished lots for new homes. Currently, the price per square foot for a new home versus a resale home is nearly identical. Looking forward, we are not permitting enough new homes to meet the demand of our growing population. This is due in large part to a shortage of available labor to build new homes and high material costs, both of which cut into home builders’ margins. Demand for new homes will continue to outpace supply due to our limited capacity to build.
The next decade is expected to be one of the best the region has ever experienced. Land sales for all types of uses and geographies are on the increase. Whether it is infill for higher density or 2,000 lots recently purchased on the Sun Valley Parkway in the far West Valley, land purchases are occurring to service demand and very few transactions for pure speculation.
The commercial sector is also healed. Office, Industrial, Apartments and Retail have all seen recovery to the point where new building is required. There are no signs of overbuilding in virtually any sector. All of this results in a healthy market for land for the foreseeable future.
As Chief Executive Officer of the Land Advisors Organization, Greg Vogel has led the expansion of the company into 23 markets across the United States. Over the past 29 years he has been involved in hundreds of transactions including several of the highest valued land transactions in the country. Greg has developed an extreme level of expertise in large scale community development and the representation of large land owners in unique structured transactions. Greg can be reached at firstname.lastname@example.org.