Limited land supply is becoming a major pain point for home builders, as market competition continues to drive prices up in 2024. With lot availability challenges showing no signs of subsiding, many firms have been looking at strategic partnerships with land and infrastructure developers to drive growth.
These builder-developer relationships have become a key strategy for some of the nation’s largest homebuilders. Builder recently did an interview with John Neal, the president of Neal Land & Neighborhoods, a land planning and development organization that supports many South Florida markets. The discussion covered some highly relevant points on the current state of the land market and how these partnerships can help builders solve land supply challenges.
The Current Florida Land Market
John Neal was quick to point out that Florida developers are significantly underproducing lots and therefore homes for the rapidly increasing amount of people who want to buy in the state. He noted it’s difficult to adjust to demand when it takes homebuilders three years to go from concept to sales on a new residential development plan. Relying on land developers has become the key to unlocking a deep pipeline for future growth. Neal said his firm currently has a pipeline of 12,000 paper lots.
“We try to bring on [paper lots] just in time so that we produce lots in the same market that we sell lots,” Neal said.
More Builders Are Seeking Land Development Partnerships
As more and more builders are looking to hold a light land position to be more competitive, they’re approaching Neal’s company about a potential partnership. He said builders who are planning for long-term growth have a better chance of success by partnering with land developers. For example, many builders are capable of building 150 to 200 homes in a year, but doing so repeatedly over 10 years is a major challenge due to land development. Land developer partnerships can help solve this.
Land Development Partnerships Add Significant Value For Builders And Buyers
A primary benefit of working with a land developer is they’ll handle the horizontal. Homebuilders tend to focus on features like price and commute times, as these are sales points that resonate with buyers and are easy to communicate. Land developers put more effort and design considerations into building communities. According to Neal, land developers work with local governments and school boards to help map out new locations for schools, hospitals, and amenities.
The Near-Term Outlook On Land Market And Development
During the discussion, Neal pointed out that an inventory correction in both existing homes and new construction, and a limited supply of lots will continue to be a problem. As a result, his firm is continuing to build and develop lots. This strategy is helpful for his company’s homebuilder partners who don’t want to carry lots on their balance sheets for an extended period of time.
Developing lots is becoming increasingly difficult due to costs, regulations, and timing of production, which will continue to create an uphill battle for builders over the next several years. This is especially true because homebuilding has also become more complicated due to standards and regulations. Homebuilders are more capable of developing homes at scale, rather than land, and doing both can be time-consuming and expensive.
“I think there is an advantage with any builder who makes a relationship with a land developer who focuses on all the horizontal elements,” Neal told Builder. “So the builder can focus on the margins and pricing and the value proposition of the vertical product of the home itself.”
As both land development and home development become more complicated, the natural separation of duties that occurs with a builder-developer partnership will spark growth across the industry and help resolve ongoing inventory challenges in hot markets across Florida and the US.
