Labor and Material Costs Rising Faster Than Lot Prices

Semi-detached houses under constructionDespite the record-high prices for single-family lots, the average portion of the final sales price of a new single-family home attributed to the cost of the lot is actually decreasing.

In the years leading up to the recession, average lot values accounted for around 20 percent of the sales price of a home. Since 2009, that number has steadily declined, dropping to 17 percent in 2016.

At first, that might sound like good news. But as NAHB economist Natalia Siniavskaia points out in a recent Eye On Housing blog post, it’s largely due to the rising prices of labor and materials, which are outpacing the increasing cost of lots.

“As prices continue to rise for lots, labor and materials, the shares of those costs will change from year to year,” said NAHB Chief Economist Robert Dietz. “The challenge for builders is managing development costs, including burdensome regulatory costs, while building an affordable product, especially as interest rates rise in the years ahead.”

Affordability remains a big concern for the housing industry. However, the rising prices don’t appear to be scaring away most buyers just yet. While inventory of existing homes continues to be limited, year-to-date new home sales have surged to a 10-year high.

This article is from NAHB’s NAHB Now blog.