Las Vegas- What Land Shortage?

Hat tip to the Judge, who sent me an article that temporarily confused me.  I was astounded when In Business Las Vegas was quoting the always bullish Dennis Smith as saying:

Don’t be surprised if some homebuilders "close their store" in Las Vegas this year.


I don’t often find myself agreeing with Smith- so I read on anxiously.  Unfortunately, he continued in a more familiar vein:


"It looks like it’s difficult for the builders to replace the lots they are absorbing," Smith said. "If a builder stopped buying land six months ago, they didn’t stop selling houses. Call any builder and it’s difficult for them to find land to buy for two or three years out."

Smith said he’s been sounding warnings about the lack of available land for traditional housing development in the Las Vegas Valley. About five ago, he said he suggested there was about a 10- to 12-year supply of land remaining within the Bureau of Land Management disposal boundary for a typical builder to develop a typical single-family subdivision. Today, if a single-family homebuilder is not participating in Summerlin, the Focus Property Group master plans in Henderson and Las Vegas or the new Olympia Group master plan in North Las Vegas, where are they going to go to acquire any large number of lots to position them for the future?, Smith asked.

I’m a little confused here- even Smith indicated that Centex has walked away from a deal in Henderson, which would indicate more land than they need.  Then there’s all of those MSM stories of homebuilders not exercising options, selling land and writedowns:

Even after dumping land and options through much of 2006, the nation’s 11 top public builders still have land stockpiles that are more than a year in excess of their needs, according to Carl Reichardt, senior analyst at Wachovia Securities. A report by Credit Suisse analyst Ivy Zelman last fall showed that publicly traded homebuilders invested $35.2 billion in new land and land development in 2005, up 36% from the previous year. When the final numbers are tallied for 2006, Zelman projects an additional jump of 8% in land investment and related costs.

 

Well maybe not in Las Vegas, right?  Well in an In Business Las Vegas article from earlier this month, it didn’t sound like builders were scrambling to buy land

The demand for land has softened in the Las Vegas Valley as property owners continue to hold out for prices that speculators and developers, especially homebuilders, are finding less and less palatable.

That’s the assessment of Brian Gordon and Jeremy Aguero, principals of Applied Analysis who this week released the latest figures on land transactions. Demand dropped sharply in the fourth quarter, down nearly 68 percent from the same period in 2005 and off 33 percent from July through September of this year.

Hmm… It sounds like Gordon and Aguero believe that high prices have softened demand- not Smith:

If there was a larger supply of land available, the prices would have decreased. Overall, land prices didn’t change much. This is due to the overall short land supply. Builders will again soon begin buying land to maintain or increase lot supplies for future communities.

Using that rationale, you could prove that there was a shortage of homes for sale in Las Vegas as well- maybe Smith should drive around more.

I thought I’d take a quick look and see how hard it was to find land in Las Vegas.  Zip Realty lists 1108 properties- most under 10 acres. Of these 1108 properties, 276 have had the price reduced- an indication that the property is slow to sell.  This would not be an all inclusive list of properties available- as land is not always sold through the MLS.

If you don’t like anything currently on the market, the BLM has regular land sales as well.  The next one will be held March 7.

USA Today had an article in November describing the "land shortage" claiming that "Las Vegas Closing in on a Full House."  It looks more like some of the Las Vegas cheerleaders aren’t playing with a full deck.

 

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5 Comments for this entry

  1. inqydesu says:
    February 22, 2007 at 10:28 AM

    Wow – this article was off the mark. Lets take it in steps. The MSM did comment on builders who build in Las Vegas, but not on the Las Vegas Operations, but rather the national sell offs of land and options. Thus less cornfields will be turned into suburbs around the country.

    Las Vegas, unlike most cities, isn’t surrounded by large agricultural land holders who will sell as land prices rise and farming margins decline. It is surrounded by federal landholdings which don’t sell based upon demand alone.

    Second, zoning and planning regulations make much of the available land unavailable or unsuitable for building. Most of the available parcels are in the SW and NW part of town, which have been zoned as Rural Conservation, so that the horse owners and NIMBY folks can have their barns and 1-2 acre parcels. Thus, even if you wanted to build there, you would have to build 600-800k homes, which aren’t is as much demand.

    The other land that is available is expensive, $1M per acre. Plus the costs of development (streets, utilities etc). Thus centex’s denial of the henderson project doesn’t mean that it has enough land, but rather it chooses not to get involved with the deal, either according to cost, or because it doesn’t want to deal with large master planned communities. Large Master Planned communities increase the cost and complexity. Summerlin requires an automatic off the top “tax” simply for building there, and this cost is forfeit if the land is “flipped” by a builder. Further added insurance costs and additional restrictions mak e some builders unwilling to do work there.

    While the sky is currently not falling on land, it is a very real and very substantial concern. Just because the temporary oversupply of allready constructed housing is causing falling prices, doesn’t mean that the supply of land is not short or that the short supply won’t cause increased housing prices down the line. As long as people keep moving to Vegas, housing prices will go up.

    I know its hard to imagine sometimes with all the sagebrush around, but Uncle Sam is a jealous landowner. Which explains all the high density housing.

  2. twist says:
    February 22, 2007 at 1:18 PM

    Ingydesu-

    My point wasn’t that long term land problem is not an issue for Las Vegas. The issue is short term. Smith was claiming that builders would be pulling out within a year due to land shortages. LV is so overbuilt at the moment that Centex pulled out of Henderson.

    Demand has dropped for land, and land sellers need to tell with the current realities. Demand exceeds supply, and that will put pressure on prices- LV is not on a “permanent high” when it comes to land- it is subject to market forces, just as in other metro areas.

  3. inqydesu says:
    February 22, 2007 at 3:55 PM

    I think you misread the article a little. The article states that builders can’t replace the short term (1-3 yr) land supply at current rates. The builders expected that as home prices declined, land prices would soften. however, it is easier for land holders to hold on to land, as most of the available in demand land is held by small individual in smaller parcels (under 10 acres), that were likely purchased a while ago. Thus reduced carrying costs, no expensive maintainence, etc like you find with holding on to improved property.

    Yes – LV is not immune from market forces. But this supports my earlier argument. Until areas like the Ivanpah valley, Coyote Springs, and N Arizona and other areas are developed as viable alternatives, there will be a steady and persistent pressure on LV land supply.

  4. twist says:
    February 22, 2007 at 5:36 PM

    Ingydesu-

    Have you read the history of Coyote Springs? That’s a great case in point to show that the BLM can and does make way for development, as well as other agencies.

    The best summary I’ve seen on it was an LA Times article that is no longer available, but I found most of the relevant information

    on this site:

    The story of Coyote Springs sounds like a Horatio Alger story. The land Whittemore bought in 1998 from a defense contractor who intended on using it for target practice had a number of restrictions on its use. A quarter of it was subject to a federal power-line right of way. Another quarter had federal protection for the desert tortoise, an endangered species that also is Nevada’s official state reptile. The land had a fragile series of streams and washes that required special permission on which to build without ruining the desert’s ecosystem.

    None of these obstacles proved too difficult for Whittemore, at least not while he had his friend Harry Reid running interference in Congress. Interior refused to relocate the tortoises for over five years, until the Bureau of Land Management agreed to swap the land for another parcel abutting a federal preserve elsewhere. No one ever did an analysis to determine whether the deal was fair to either party, nor did the BLM go to Congress for approval on the changes to a project that Congress had explicitly legislated.

    In 2002, Reid worked on the power corridor. He inserted obscure provisions into a land management bill that relocated the power corridor, freeing Whittemore to build on the 10,500 acres that Congress had previously held — which means that someone else now had to lose property value for Whittemore’s benefit, and for no cost whatsoever. That bald move caused raised eyebrows at the BLM and the Senate’s Energy and Natural Resources Committee, and Reid backed away — for the moment. Less than two years later, Reid tried again to give Whittemore the land for a song ($160,000), but Congress balked again. He finally settled for freeing the land for development and allowing Whittemore to buy it at a fair market rate, and forcing the government to relocate the power corridor.

    In 2005, Reid and fellow Nevada Senator John Ensign conducted a series of interventions with the EPA to eliminate the final obstacle — the environmental impact on the fragile ecosystem in Coyote Springs Valley. When the agency blocked Whittemore’s efforts, Reid and Ensign held several meetings with EPA officials to pressure them into submission. Whittemore used another Reid son, Lief, to lobby his father’s office for assistance. In the end, the pressure paid off, as the EPA backed down from its opposition after winning a few concessions on the development plan.

    All of this was done to accomodate a venture for a developer that wanted to put a project some distance away from the city.  However, LV pundits say that  these types of accomodations won’t be reached closer in when Las Vegas is bursting at the seams?  It strikes me as unlikely.

  5. inqydesu says:
    February 23, 2007 at 1:08 PM

    I agree that land will eventually become available. However your article made my point. It takes AN ACT OF CONGRESS for large swaths of land to become available in las vegas. Compare that to even other similarly situated cities (SLC, PHX) all of whom are situated in states with large federal land holdings, but have substantial agricultural and other holdings to buffer demand.

    Yes – there is land in LV, and it will be made available. But because it won’t come as easy, there will be increased price pressure.

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