Southern California homebuilders are facing a challenge when it comes to finding suitable land for new construction projects, even as one measure of supply has shown an increase this year.
Let’s take a closer look at Zonda’s unique index of lot supply here. This index, which takes into account historical real estate and demographic factors, tracks the availability of lots for new home construction and compares it to what the research firm considers to be the ideal supply.
According to Zonda’s index, there hasn’t been enough progress in creating homebuilding spaces in Southern California.
For example, in the Inland Empire, the supply of ready-to-build lots increased by 49% in the past year. However, this still only represents 54% of the ideal lot count for Riverside and San Bernardino counties, as determined by Zonda.
In Los Angeles and Orange counties, builders have 47% more lots, but this supply only amounts to 35% of Zonda’s estimated ideal lot count for the local area. In San Diego, the supply has increased by 61%, but it is still only 29% of what Zonda considers to be the normal level of supply.
With sales of existing homes dropping to historic lows, builders are under pressure to bring new units to the market. The shortage of available lots has pushed builders to think outside the box when it comes to land acquisition.
One option for builders is to purchase finished lots from master-planned community developers. However, this route tends to be expensive and often results in the construction of high-end housing instead of addressing the broader market’s needs.
Alternatively, builders can buy undeveloped raw land or old, under-utilized properties and undertake the lengthy process of getting the project approved and preparing the site for construction.
A great example of this approach can be seen with Trumark Homes.
In December 2020, Trumark Homes purchased a hillside land off El Toro Road in Mission Viejo. The extensive planning and grading work required at the site delayed the sales of the 91 townhomes at Saddleback Place until February 2023.
However, the wait has proven to be worthwhile, as Trumark has already sold 44 units in just six months.
Now, let’s compare this to another project a few miles away in Irvine. Trumark Homes acquired 47 finished lots from developer Five Point in June 2021, six months after the Mission Viejo acquisition. Sales at the L’Aube neighborhood in the Great Park began in May 2022, and the project sold out in just 11 months.
“You’ve got to be able to handle the complex land development or infill development,” says Richard Douglass, Trumark’s Southern California president. “And you’ve got to be efficient and work within the master-planned communities while having the capital to do so because it involves expensive land and finances. But if you only focus on one aspect, you limit yourself to half of the market.”
In March 2022, Trumark also acquired 73 finished lots in the Rancho Mission Viejo master-planned community. As of this summer, the Dahlia project has already sold 54 units, with 15 families already moved in.
In Covina, Trumark purchased 4 acres of land in March 2021 that included a historic bowling alley. The Covina Bowl project consists of 132 townhomes and a revamped commercial property that retains much of the site’s unique “Googie” architecture. Only 37 residences are still available for sale.
In Oceanside, Trumark bought 70 acres of relatively flat land in December 2020, simultaneously with the Saddleback project. Sales of the 301 residences across four neighborhoods began in November 2021, and only 41 units remain unsold.
In Chino Hills, the builder acquired 130 acres of raw, hilly land to construct 159 single-family homes in the Shady View neighborhood. Extensive grading work was required before the construction could commence.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]
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