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 to build homes.
As people keep moving to cities, they are pushing up the price of dirt and making the housing shortages in these fast-growing areas even worse.
Land is far more expensive today than it was decades ago. Until the second half of the 20th century, America’s population was far more spread out, living where land was cheap. But as more people moved to a small number of cities with abundant office jobs, and municipalities passed stricter zoning codes that made it tougher to build housing, land prices and housing costs surged.
This historic land boom has provided a windfall for homeowners. U.S. residential land alone is now estimated to be worth more than $20 trillion, about 47% of U.S. home values. That is up from 38% in 2012 and less than 20% in the early 1960s. The rising value of land is responsible for almost all of the surge in home values in recent decades, he said.
Inadequate infrastructure is also boosting land inflation. In Nashville, for example, commutes have been getting longer as the population grows, U.S. census data shows.
A lack of viable public transit options mean commuters often have little choice but to inch down clogged roads.
The Federal Reserve’s efforts to fight inflation might bring prices down. Higher interest rates and construction costs are already weighing on the land market, brokers say, and other parts of the real-estate market are starting to slow.
While land prices haven’t fallen, there are fewer bidders on deals. Some landowners worry about a downturn similar to the 2008 financial crisis, when home and land values plummeted after years of debt-fueled excess.
Still, the lack of supply and the strong demand mean land prices will likely continue to rise, at least in the short term.
Most economists say municipalities need to relax zoning rules and other restrictions to bring down land inflation and build more housing. But these changes are often unpopular with homeowners, who benefit from rising land values and make up around 65% of U.S. households. Adding more housing also often requires costly investments in roads and other infrastructure.
Once land inflation sets in, it can be hard to reverse. Landowners who think their property will become more valuable have little incentive to sell today, making it even harder for developers to find sites.