Southern California facing homebuilding lot shortage

Southern California homebuilders are struggling to find land to build on – even after one measure of supply ballooned this year.

Let’s look at Zonda’s curious index of lot supply. This yardstick — using historical real estate and demographic factors — tracks how many lots are available for building new homes and compares that inventory with what the research firm sees as the ideal supply.

In a nutshell, Zonda’s index says there hasn’t been enough progress in creating homebuilding spaces in Southern California.

Take the Inland Empire, for example. Zonda says the supply of ready-to-build lots improved by 49% in the year ended in the second quarter. But that jump leaves this benchmark of inventory at 54% of what Zonda sees as a balanced lot count for Riverside and San Bernardino counties.

In Los Angeles and Orange counties, builders have 47% more lots, but that supply is only 35% of Zonda’s ideal estimate of local needs. And San Diego’s supply is up 61% but is 29% of what Zonda deems normal.

Builders are rushing to bring new units onto the market as sales of existing homes slide to historic lows. These lot shortfalls have nudged builders to get creative when it comes to land acquisition.

Of course, builders can buy finished lots from master-planned community developers. That’s the expensive route and typically produces high-end housing – not the market’s biggest need.

Or builders can buy undeveloped raw land or old, under-utilized properties and do the slow, heavy lifting of getting the project approved and doing the pre-construction grading and preparations.

Just look at what Trumark Homes has done.

In Mission Viejo, the builder bought a hillside off El Toro Road in December 2020. The significant and costly planning and grading at the site meant that sales of the 91 townhomes at Saddleback Place didn’t start until February 2023.

The wait seems worth it. In six months, Trumark has swiftly signed sales contracts for 44 units.

Now compare that extended effort with a project a few miles up the 5 Freeway. Trumark bought 47 finished lots in Irvine in June 2021 from developer Five Point – six months after the Mission Viejo acquisition. Sales at this L’Aube neighborhood at the Great Park started in May 2022. The project sold out in 11 months.

“You’ve got to be able to do the heavy land development or infill development,” says Richard Douglass, Trumark’s Southern California president. “And you’ve got to be able to be efficient and work in the masterplan communities and have the capital to do that because it’s very expensive money, very expensive land. But if you only do one of the two, you’ve cut yourself off from half of the market.”

Also, Trumark picked up 73 finished lots in the Rancho Mission Viejo master-planned community in March 2022. As of this summer, the Dahlia project has 54 sales, with 15 families moved in.

In Covina, Trumark bought 4 acres in March 2021 that included a historic bowling alley. The Covina Bowl project includes 132 townhomes and a smaller, revamped commercial property that saves much of the site’s  “Googie” architecture. Just 37 residences are left to sell.

In Oceanside, Trumark bought 70 acres of relatively flat land in December 2020 – the same time as the Saddleback project. Sales of the 301 residences in four neighborhoods began in November 2021 – and just 41 units remain unsold.

In Chino Hills, the builder has acquired 130 acres of raw, hilly land to build 159 single-family homes in its Shady View neighborhood. That project required significant grading before construction could begin.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

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