Land & Lots: How they Affect the Price of a Home

By Jeanene Dunn

 

Current land and associated lot prices continue to have an impact on the housing market. Inflation is a stubborn residual from the pandemic that may be showing signs of easing.  

 

KCHBA members Shawn Woods, president of Ashlar Homes, Brenner Holland, senior vice president of residential development at Hunt Midwest, and Jeff Julian, vice president of Don Julian Builders recently discussed how higher land prices are impacting their businesses.  

 

The good news is that all three companies have multiple residential projects across the metro area that are nearly completed, in progress or in the planning stages.

 

How are lots priced? 

 

In some communities where their companies are building, lot prices are currently averaging between $75,000 for smaller 60-foot-wide lots, and up to $200,000 for larger 80 to 100-foot-wide lots. “This is particularly true in Johnson County, on the Kansas side, where land and lot costs are higher due to demand,” Julian explains. 

 

Holland says lot prices vary by location. “What we try to do in most of our communities is establish two or more price points and products,” he explains. “Villas are an example of that option for buyers, and there is an increasing demand for the product. “We are currently building villas on 55 to 60-foot-wide lots as part of the final phases of the Eagle Creek project in Lee’s Summit that we started developing 20 years ago.” Eagle Creek currently has about 750 homes and 250 townhomes. 

 

Woods offers a general rule about lot prices and the final home price. “The lot price is usually about 20 percent of the total cost of the home. It’s a metric that is still applicable, with a few exceptions.”

 

How long does a residential development take?

 

It depends on where the project is being proposed. Some communities embrace new development more than others, so it varies. “The majority of municipalities where we build projects require that we notify residents living near the proposed site that we plan to build a project and are seeking their input,” Woods says. 

 

“We hear our share of feedback from neighbors who are either excited about new development, or neighbors who don’t want the project in their back yard (NIMBYs). And we hear from elected officials who may have different ideas on design that don’t meet the developers’ intended outcome for the project.” 

 

Julian says it takes about a year to build a home and it could take another six months to sell the home. “If you buy a piece of ground today and secure the proper permits, it’s going to take about a year, speaking in general terms.” He went on to say timelines are the reason developers and builders have multiple projects in the pipeline to account for this, as well as unanticipated delays.

 

How do developers decide where to build?

 

Developers use market studies and other tools to target their building efforts in areas that are growing or poised for growth. Holland says they also look to see if there are other types of development occurring in the area.

 

“We also identify sites based on land prices and do rough sketches to determine how many lots we can create on that land. We look at the proximity to utilities in the area,” he adds. “Another driver is the strength of the local school district in the community.”  

 

Woods, Holland and Julian build primarily on greenfields – land that has never been developed. If there is remediation, it involves removing trees, some farm homes or other structures.

 

Holland adds that a common public misconception regarding utilities is that the municipalities pay the costs for water, stormwater and sewer within the subdivision. “Developers pay those costs and they are passed on in the lot and home price to the future buyer.” 

 

What are the current housing market trends among buyers?

 

Julian’s company is currently building in the Bristol Highlands subdivision. “The housing mix includes villas, manors and estates,” he details. “Villas are built on smaller lot sizes about 60-feet-wide, manor styles fall somewhere in the middle, and the larger estate model lots are typically 80- to 100-feet-wide.” The Bristol Highlands Villas are in Lenexa, and Bristol Highlands Estates are in Shawnee, near the new Lenexa City Center.

 

Julian is seeing a couple of interesting trends among buyers. “More families are looking at multigenerational housing,” he says. “They are combining their financial resources and building a home that includes space for three to four generations. It’s a model that promotes affordability and addresses aging in place concerns.”

 

Holland is also seeing more requests for villas. “They’re maintenance provided, which is attractive to a lot of buyers, and they may meet a price point they’re willing to pay because of the lower lot price.” 

 

What should buyers know?

 

Maintain open communication with your builder and don’t be afraid to ask questions. Learn about the five factors that can affect the price you pay for a new home: land, labor, laws, lumber, and loans. This article is the first in a series on the 5 Ls of homebuilding. Watch KCHBA Executive Vice President Will Ruder describe how the 5Ls impact the housing industry.  

 

Are you looking to connect with a builder for your next home? KCHBA can help. Visit our member directory at members.kchba.org/directory.

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