Labor and Material Costs Rising Faster Than Lot Prices

Filed in Economics, Land Development by on October 26, 2017 3 Comments

Despite the record-high prices for single-family lots, the average portion of the final sales price of a new single-family home attributed to the cost of the lot is actually decreasing.

In the years leading up to the recession, average lot values accounted for around 20% of the sales price of a home. Since 2009, that number has steadily declined, dropping to 17% in 2016.

At first, that might sound like good news. But as NAHB economist Natalia Siniavskaia points out in a recent Eye On Housing blog post, it’s largely due to the rising prices of labor and materials, which are outpacing the increasing cost of lots.

“As prices continue to rise for lots, labor and materials, the shares of those costs will change from year to year,” said NAHB Chief Economist Robert Dietz. “The challenge for builders is managing development costs, including burdensome regulatory costs, while building an affordable product, especially as interest rates rise in the years ahead.”

Affordability remains a big concern for the housing industry. However, the rising prices don’t appear to be scaring away most buyers just yet. While inventory of existing homes continues to be limited, year-to-date new home sales have surged to a 10-year high.

For additional analysis, go to eyeonhousing.org.

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  1. John Bitely says:

    This may statisically be correct but i would challenge the fact that in 2016 we were still using up lots left over from the crash and lot prices hadn’t rebounded to cost to produce the lots. The infrastructure and redtape costs for bringing new lots on line is out of sight in our area.

  2. Brian McDonald says:

    Rules and regulations in our area have almost become more of a burden than the actual construction process in a lot of cases.

  3. Duke Pointer says:

    This is more bad news for developers and builders. Our lot and development costs in New England are well in excess of 30% of the selling price mostly caused by the changes in rules and regulations. Material/Labor prices are rising at an even faster pace (I agree). We are reaching a tipping point where homebuyers cannot continue to pay the increases which will mean builders will be forced to stop, due to the excessive risks and delays. Local Boards and regulators just say “pass it on to the homebuyer” and then complain that homes are not affordable in their towns.

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