Lingering Problems with AD&C Credit=Shortage of Lots for Builders

A recent blog showed that, after many quarters of persistent and often extreme tightening, availability of credit for land acquistion, development and construction (AD&C) eased slightly at the end of 2012.

However, most of the improvement was in the availability of loans for single-family construction.  For land acquisition and development, NAHB members were closer to evenly split on whether credit conditions had improved or gotten worse.

A similar difference showed up in the percentages of builders and developers putting various types of projects on hold until the financing climate improves.  While “only” 32% reported putting single-family construction projects on hold in the fourth quarter, the shares were 44% for land acquisition and  49% for land development.

Although all were improvements over the previous quarter, the improvement was strongest in single-family construction.  As a result, a 17 percentage point gap has opened between development and construction—the largest since NAHB initiated the AD&C survey in its current form in 2008:

Throughout the period shown in the above graph, AD&C credit problems have tended to deter development more than construction.  But the difference has become more extreme now, with credit for construction improving much faster than credit for land development.

Single-family general contractors who don’t do their own land acquisition or development (in NAHB’s montly survey from last September, more single-family builders reported buying lots from others than developing their own) will see the improvement in availability of construction loans directly, but may see the lingering problems with land acquisition and development loans only indirectly, as a shortage of lots to buy and build on.

No wonder cost and availability of developed lots was one of the growing concerns mentioned by builders in the February 8 Eye on Housing.