- Home builders are putting larger homes on smaller lots, building up instead of out.
- As homes occupy larger portions of their lots, the value of the land as a share of the final price of the home is dropping.
New home construction and sales have remained perplexingly flat throughout the economic recovery, hovering near historically low levels. But while the number of new homes sold has stayed low, prices for new homes have recovered very strongly.
One argument is that home builders have consciously opted to target buyers looking for higher-priced homes (presumably also boosting their margins at the same time), in exchange for lower volumes. Another possible explanation is that home builders are concentrating their construction in denser, urban communities where there is less developable land available, and are spatially building their homes up rather than out.
Data from the U.S. Census Bureau’s Survey of Construction show that new homes are occupying a larger portion of their lots. In 2000, the total area (in square feet) of new homes sold took up about 24 percent of the lot area. By the end of 2013, new homes took up 30 percent of the lot area (figure 1, green line).
And as builders build up, the original lot value represents a smaller fraction of the final sales price. In 2000, lot value represented roughly 20 percent of the final sales price of the median new home sold. By 2013, lot values represented just 16 percent of the final sales price of the median new home (figure 1, blue line).
