US home builders using new data analysis to decide where and what to build
A proliferation of data and new data analysis methods are changing the way builders in the United States buy, sell and develop vacant land, according to experts.
Builders are cautiously optimistic that easier credit and more flexibility will help the new homes market rebound in 2015, according to experts at a building and building products symposium in New York.
The state of the land market, a key factor in determining what kinds of housing gets built, where and at what price, was a common theme throughout the various discussions.
‘The real opportunity of land goes beyond the land itself. Builders are looking at land as much more than a piece of dirt now,’ said Steve Benson, chief executive officer of Phoenix based land banking and advisory firm Community Development Capital Group.
Landowners and buyers alike are using multiple data sources to examine what is being built in other areas, which designs work best for certain parcels and which builders are best suited to maximize certain features of a given piece of land, Benson explained.
Rather than building a certain set of homes on a given piece of land, developers today may be more apt to sell their land to a different type of developer rather than undergo a project themselves, or choose to build a different type of home than they normally would, based on data, he pointed out.
‘Real estate has always been about location, location, location. But with land especially, it’s future location, future location, future location. Today, data helps inform that equation for builders much more than in the past,’ he added.
High land costs, and perhaps unrealistic value assessments by landowners, are a big reason why developers are having difficulty developing more entry level, lower cost communities and homes, according to Greg Vogel, chief executive officer of the Land Advisors Organization, an Arizona based land brokerage.
Developable tracts of land appreciated very quickly in value during 2012 and 2013 in anticipation of a building boom in 2014 that largely has yet to materialise, he explained, adding that strong recent years have convinced today’s land owners that their land may be worth more than it is.
As a result, builders are increasingly forced to put higher prices homes on developments they do control in order to recoup their higher land acquisition costs. This will create challenges for larger builders looking to cater to lower end and first time buyers, who are expected to enter the market in higher numbers in coming years.
‘Most observers agreed that it’s just a question of time until we see millennial demand pick up. If the entry level buyer does come back, I’m not sure there will be a lot of opportunities to develop those kinds of communities right away,’ Vogel said.
Beyond the kinds of large, multi acre sites on the edge of cities and towns favoured by big, publicly traded home building companies, smaller lots located in downtowns and established communities also represent opportunities for builders, particularly smaller, private developers.
Private developers can build higher density projects with a smaller overall number of units on infill sites, Vogel said, though these homes cannot compete on price with those built by larger firms. But what they lack in price strength, these developments can make up for in design flexibility.
‘Private firms excel at being able to simply hire an architect. And with those kinds of projects, they don’t have to worry about competing with the bigger builder down the street or on the other side of town,’ Vogel concluded.
In recent years, data indicate that builders seem content to trade high sales volumes in exchange for lower volumes, but higher sales prices. Vogel said the way to get higher sales volume is simply to have more speculatively built homes completed and available for sale in the first place.
In order to begin building more homes, the one thing builders would like to see more than anything else, more than lower land costs and higher wages among buyers, is simply more economic confidence among potential buyers, according to John Burns, chief executive officer of John Burns Real Estate Consulting. According to a recent Burns survey, roughly one third of builders said more confidence topped their 2015 wish list.
That bodes well for 2015 and beyond and recent research from real estate data firm Zillow indicates that housing confidence, in particular, is on its way up, especially among younger renters who may be looking to buy in the next few years.
But not all demand for new homes is expected to come from younger, entry level and first time buyers in coming months and years. Douglas Yearley, chief executive officer of Pennsylvania based residential construction firm Toll Brothers, said there are plenty of existing home owners looking to move up into a larger or nicer home.
Builders were also hopeful that slowly easing access to mortgage credit would convince more would be buyers to enter the market. Steve Hilton, chief executive officer of Scottsdale based home builder Meritage Homes, said there is currently more demand for new homes than his company is able to qualify, an indication that if credit conditions were looser more homes could be sold.