New Home Construction Booms, But Will There Be Any Room?

There's been lots of construction activity over the past 12 months, giving builders real encouragement that the worst years of the housing slump are finally behind them. But while these developments will be warmly embraced, construction firms could soon be facing an altogether different problem ' a lack of space on which to build.

Housing construction booms, but are we running out of space? © sellingpix ' Fotolia.com

One of the best gauges of the construction industry's health is housing permits, those certificates issued to builders giving them the go ahead to break ground on new developments, and the number of these being issued has soared by 3.6% over the last month (November).

This increase can be taken as a sign that builders are execting 2013 to be a prosperous one by previous years' standards, and this argument is further strengthened by the news that the total number of housing starts is expected to see 25% growth compared to the previous year.

But all of this renewed building activity has led to an altogether different problem for building firms, one that they would never have imagined just 12 months ago ' a scarcity of available lots on which to build their new homes.

As demand for new housing picks up pace, construction companies are now grappling with a shortage of new lots on which to build on, with those that do exist seeing rapid increases in price as builder's compete for the space.

Megan McGrath, home building analyst for MKM Partners, told USA Today that builders are now scrambling to secure what few lots are still available.

'No one has developed land in six years,' she says. 'Builders are now running to catch up.'

Builders say they are running out of lots on which to build. © Leo Blanchette ' Fotolia.com

The result of this shortage is that the price of building lots has risen dramatically in recent months. Across the nation, 90% of building firms report that lot prices have risen substantially, compared to just 10% reporting similar rises two years ago.

Not surprisingly, it all depends where you are based. Lots in Phoenix, Arizona, have seen some of the biggest increases, rising by 30% in some parts of the city, whilst North Carolina (25%) and Denver (15%) have also seen steep increases.

The pressure will now be on local officials to free up more available land to meet the rising demand for new home construction. In the meantime, builders won't be worrying about whether they can sell the new homes they're building, but whether they can even build them in the first place.