As prices of houses rise, so does the cost of land

Land brokers and development firms in the Minneapolis-St. Paul area say that the price of land is increasing rapidly.
Tim Gruber/The New York Times
Land brokers and development firms in the Minneapolis-St. Paul area say that the price of land is increasing rapidly.

MINNEAPOLIS — A few months ago, Michael N. Felix’s phone started ringing again after four years of silence. Felix is a land broker whose business dried up when the housing market crashed. But with home prices now rising faster than expected, builders are again looking for what, in the land trade, is referred to as dirt.

Already, developers report that the cost of land in the most desirable areas is double what it was two years ago. At least three golf courses in the Minneapolis-St. Paul area are being carved into millions of dollars’ worth of residential lots.

The race has even sent builders back to outer suburbs like Otsego, 30 miles from downtown Minneapolis, where bulldozers are laying the groundwork for four-bedroom houses with three-car garages, in subdivisions bordered by cornfields.


“Lot buyers and sellers!” Felix’s website reads. “It is time to get moving again!”

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Or past time. The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and platting pipeline, which can take months or years to turn raw fields into buildable lots. They are realizing another thing, too: They have been sorely missed.

“For the first time, I’ve seen cities want to work to help figure it out, rather than doing us a favor all the time to let us develop,” said Scott Carlston of Hunter Emerson, a development partnership. Hunter Emerson won a victory when the city of Eagan, a suburb of Minneapolis, allowed Parkview Golf Club to be converted into a high-end single-family subdivision.

The hunt for dirt is not limited to the Twin Cities. After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar.

At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four years’ worth, and only about a quarter of that is in the more desirable A- or B-rated locations.


“We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’ ” said Bradley F. Hunter, the chief economist at MetroStudy.

The shortage of lots is slowing the housing recovery, the National Association of Home Builders said last week. In August, 59 percent of builders surveyed reported that lot supply was low or very low, the association said.

Housing is a critical driver for the economy, not just because of the jobs and supplies needed to build homes but also the appliances and furnishings that new occupants buy.

At the peak of the housing boom, builders were finishing more than 1.6 million single-family houses a year. That number plunged to less than half a million during the recession. This year, the industry is on track to complete more than 570,000 homes, still substantially below the level considered necessary to replace aging homes and provide for new households.

A return to more normal rates of construction would substantially lift the economy’s anemic growth rate of about 2 percent over the past year.