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U.S. Housing Land Grows Scarce

The price of land is increasing across the United States, making it challenging and expensive for developers to build new housing, according to The Wall Street Journal (subscription).

The problem: “Land-use restrictions and a lack of public investment in roads, rail and other infrastructure have made it harder than ever for developers to find sites near big population centers to build homes. As people keep moving to cities such as Austin, Phoenix and Tampa, they are pushing up the price of dirt and making the housing shortages in these fast-growing areas even worse.”

  • Zoning rules in some areas designed to prevent overcrowding prohibit building anything larger than a single-family home. As a result, developers are forced to use more land for fewer homes—making the land more valuable.

The infrastructure angle: A lack of public transit options is also increasing the cost of land. As many cities grow significantly in population, roads are becoming crowded with commuters driving cars.

  • Without public transportation options to allow far-flung workers to commute more easily, the value of land closer to the city center is rising higher than ever.

Some relief: The Fed’s rate hikes—designed to fight ongoing inflation—could help to tamp down prices in the near term. These higher interest rates and the elevated cost of construction are turning off some bidders, and some landowners suspect that we could see a downturn in the value of land.

The view ahead: Nevertheless, the constricted supply paired with stubbornly elevated demand suggests to economists and investors that the cost of land will continue to rise over the long term.

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