In an era where land is becoming an increasingly scarce resource, Lennar’s CEO Stuart Miller has sounded the alarm on the next significant challenge facing the housing industry. On the company’s recent earnings call, Miller highlighted the escalating cost and scarcity of developed land, which he believes will limit the supply of new homes and perpetuate the existing supply-demand imbalance in the housing market. Despite impressive quarterly orders and an optimistic forecast for fourth quarter deliveries, the looming land issue is a cause for concern for homebuilders like Lennar.
The irony of a country as vast as the US experiencing a shortage of land for housing isn’t lost on industry observers. Homebuilders are on a constant hunt for land, often resorting to acquisitions of companies with attractive land pipelines to fuel their growth. However, land doesn’t come cheap. The cost per acre can range from a few thousand dollars to tens of thousands, putting significant pressure on cash flows and balance sheets. This escalating cost and scarcity of land have led Lennar to refine its land strategy, casting a spotlight on a critical issue that could shape the future of the housing industry.
Lennar’s CEO Stuart Miller Concerned About Land Scarcity and Its Impact on Housing Supply
Lennar’s CEO, Stuart Miller, expressed concerns about the scarcity and increasing cost of developed land during the company’s recent quarter earnings call. He warned that the shortage of developed land is likely to limit the new supply of homes, thereby maintaining the imbalance between supply and demand.
Hungry For Land
Homebuilders are in desperate search of land, even though the US offers vast open spaces. Companies like Lennar have managed to grow through acquisitions of companies with cherished land pipelines. However, land acquisition is not cheap. The cost can range from a few thousand dollars per acre to tens of thousands of dollars for a lot, putting a strain on cash flows and balance sheets. This has led Lennar to fine-tune its land strategy.
In the third quarter, Lennar has been effectively working with strategic land and land bank partners to purchase land. Jonathan Jaffe, co-CEO president & director of Lennar, revealed that about 85% of their $1.5 billion land acquisition included finished homesites purchased from various land structures. He also highlighted that the company’s year’s supply of owned homesites improved to 1.5 years from 2.2 years, and their controlled homesite percentage increased to 73% from 79%.
Inventory and Community Growth
By the end of the third quarter, Lennar owned and controlled a total of 391,000 homesites. The company also made significant strides in reducing cycle time and owned land, which in turn increased cash flow and improved inventory churn. The community count stood at 1,253, a 5% increase from last year, and executives expect this growth to reach high single digits by the end of the year.
The Future is Bright
Despite the challenges, Lennar’s outlook is quite bullish. For the fourth quarter, the company expects to deliver between 21,500 to 22,500 homes, surpassing Bloomberg analysts’ estimate of 20,446 homes. Lennar also forecasts a strong 2024, with Miller stating, "We are positioned for a very strong 2024 right now. We have the land. We have it identified. It is under contract or in our pipeline. It is under development."
The issue of land scarcity is a serious concern for the housing industry. However, companies like Lennar are strategically addressing this challenge through partnerships and efficient land strategies. Despite the challenges, the company remains optimistic about the future, indicating a resilient and adaptable approach to the housing market’s evolving dynamics.