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Zoning, Infrastructure Limits Are Squeezing Us Land Supply

Prices rise to new heights as developers short on lots

The latest shortage wreaking havoc on the country? Land.

Developers are increasingly struggling to find suitable land for residential developments, the Wall Street Journal reported. Land-use restrictions such as zoning and infrastructure issues are among the challenges making it difficult to find sites near major metropolitan areas.

With scarcity comes inflated prices. Morris Davis, a professor of finance at Rutgers Business School, pegs national residential land to cumulatively be worth more than $20 trillion. Davis estimated land accounts for 47 percent of home values, up nine percentage points from a decade ago.

The Sun Belt fielded the lion’s share of migration spurred by the pandemic, and it has the land costs to prove it. Data from CoStar-owned Land.com reported by the Journal show the region’s average price of vacant land per acre more than doubled over the past two years.

Cities like Austin, Phoenix and Tampa are attracting new residents, but rising land costs keep a vicious cycle in motion by making it more difficult to build and, in turn, exacerbating local housing shortages.

In Tampa, zoning limits most of the city to nothing larger than single-family development. In late 2019, Hillsborough County issued a moratorium on rezoning for new housing affected much of the county in an attempt to slow down new development amid community concerns about local infrastructure.

Lackluster infrastructure is also a factor in ballooning land prices. The absence of public transportation and limited investment in new roads limits areas available for development and inflates the value of land near city centers, handing homeowners more traffic-filled trips to the office or downtown.

Ryan Williams, executive chairman of real estate investment firm Cadre, bemoaned the increasing difficulty of building multifamily properties in hot Sun Belt markets.

“Now, almost across the board, you’re fighting for land,” Williams told the Journal. “It’s a literal land grab.”

There is a chance land prices fall as the Federal Reserve continues to wage battle against inflation. High interest rates and construction costs could slow the rising cost of land. Landowners, disincentivized to sell due to the soaring value of the ground beneath them, could be in for a rude awakening if values plummet, à la 2008.

But if land inflation keeps unfolding, it may never stop. Owners under the impression values will keep rising will stay waiting for a bigger payday, blocking developers out of more opportunities to build.

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