Prices are going through the (very expensive) roof in wealthy neighborhoods due to the classic story of supply and demand. Because there is a shortage of vacant, developed lots in prime areas, but there are plenty of wealthy buyers desiring to live there, home prices are being driven up, according to a study by the National Association of Home Builders.
The survey found that 69% of the 333 home builders surveyed said “A” lots—the most desirable parcels because of their location—were in low or very low supply, the Wall Street Journal reports.
The lack of developer financing from the real estate downturn combined with the limited supply of land is now causing a huge increase in median land prices in affluent areas. Places rich folks want to reside like Beverly Hill, CA, Southampton, NY, downtown Miami and Chicago, saw the greatest price jumps, according to Realtor.com
“The legacy of the Great Recession was that banks weren’t lending,” explains Robert Dietz, NAHB’s chief economist. “Even when the mortgage lending came back acquisition, development, and construction loans were tight for years.”
So basically the affluent find themselves is in this pickle because, when the cash flow ceased, builders slowed down developer land for future construction. As a result, existing projects on land in desirable areas will be an ever-increasing hot commodity. [WSJ]