The National Association of Homebuilders released a report, consistent with our predictions, indicating that approved lots ready for construction are a scarcity. 62% of builders indicate that the supply of developed lots is low or very low. This phenomenon, at record levels since at least 1997 when records were kept, is likely due to the great recession. For the most part, developers retrenched during the great recession and did not seek approvals for new developments. Instead, they hoarded cash in an effort to position themselves to come out of the great recession or for simply survival.
Unfortunately, few, if any, developers were in a position – or thought it wise – to be investing in approvals for projects for future development. This problem is likely exacerbated in New Jersey where development approvals, particularly for larger developments, can often take two to four years. As the recession subsided, developers in a position to do so typically bought up approved developments and/or brought already approved projects they owned off the shelf for development.
Prior to the great recession – and one could argue it was a depression for the real estate market – developers were largely building homes in New Jersey as fast as they could get them approved. Accordingly, there was not a glut of unbuilt lots. Once developers stopped spending money on future development once the recession hit, we found ourselves in the position we are today. The scenario was predictable.
Interestingly, much of the development in the future may be inclusionary development (including a set-aside for affordable housing) that will arise as a result of the groundbreaking affordable (Mt. Laurel) housing decision in March by the New Jersey Supreme Court. We addressed the affordable housing decision in a previous blog post, which you should definitely check out.