Houston land sales plunge amid scarcity, high prices, interest rates

Average lot prices surged by $60K between 2021 and 2023

(Illustration by The Real Deal with Getty)
(Illustration by The Real Deal with Getty)

As Houston’s urban land market tightens, developers are increasingly hesitant to invest due to high prices and rising interest rates. 

Despite Houston’s reputation for sprawl, land in the coveted urban center has become scarce and expensive, leading to an unbalanced market, Bisnow reported

Commercial land brokers are feeling the strain, working harder to close deals as landowners hold out for high prices. This stagnation means only well-capitalized investors can afford to develop in Houston, with limited asset classes deemed viable for new projects.

Average lot prices for homes increased from $127,000 in 2020 to $166,000 in 2021, followed by a gradual rise to $189,000 by May 2023, according to the Houston Association of Realtors. The volume of lot sales has dropped significantly, from a peak of 7,901 transactions in 2021 to just 2,230 so far in 2024.

Houston has become significantly urbanized over the past decade, reducing available land, Jaggi said. Current economic challenges, such as high borrowing costs, are deterring prospective buyers, with developers unable to bridge the price gap.

“Buyers and sellers are in a prolonged wait-and-see phase right now,” George Craft, managing shareholder at Winstead law firm, told the outlet. 

Sellers are waiting for potential interest rate cuts to secure higher prices, while buyers hesitate to commit under current conditions.

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Landowners, often generational or well-capitalized owners, feel no pressure to sell quickly, said Reed Vestal, co-founder of Junction Commercial Real Estate.

Subdued land sales impact various real estate sectors differently. Industrial and single-family developments remain viable, while multifamily and speculative office projects are largely stalled. Industrial developments, benefiting from locations on city outskirts with freeway access, continue to attract investment. Retail demand is high, but there aren’t many parcels large enough for shopping center developments or similar projects.

Despite the challenging market, notable deals still occur. Earlier this month, a venture of Leslie Doggett, John Goff and Doug Schnitzer acquired a prime 6.3-acre tract for a mixed-use development at Post Oak Boulevard and BLVD Place. Provident Realty Advisors recently purchased 16.5 acres in northwest Houston for an industrial project.

Houston’s unique position as the largest U.S. city without zoning still presents regulatory challenges, particularly inside Beltway 8 and along the Interstate 10 corridor. Despite available land, regulations and a NIMBY mindset complicate development.

“If you’re a potential buyer, it doesn’t harm you to wait six more months to see what changes,” Craft said.

—Quinn Donoghue

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