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Prices are rising for new homes, and the land they are built on


MINNEAPOLIS » A few months ago, Michael N. Felix’s phone started ringing again after four years of silence. Felix is a land broker whose business dried up when the housing market crashed. But with home prices now rising faster than anyone expected, builders are again looking for what, in the land trade, is referred to as dirt.

Already, developers report that the cost of land in the most desirable areas is double what it was two years ago. At least three golf courses in the Minneapolis-St. Paul area are being carved into millions of dollars’ worth of residential lots. The race has even sent builders back to outer suburbs like Otsego, 30 miles from downtown Minneapolis, where bulldozers are laying the groundwork for four-bedroom houses with three-car garages, in subdivisions bordered by cornfields.

"Lot buyers and sellers!!!!!!!!" Felix’s website reads. "It is time to get moving again….!"

Or past time. The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and platting pipeline, which can take months or years to turn raw fields into buildable lots. They are realizing another thing, too: They have been sorely missed.

"For the first time, I’ve seen cities want to work to help figure it out, rather than doing us a favor all the time to let us develop," said Scott Carlston of Hunter Emerson, a development partnership. Hunter Emerson won a victory when the city of Eagan, a suburb of Minneapolis, allowed Parkview Golf Club to be converted into a high-end single-family subdivision.

The hunt for dirt is not limited to the Twin Cities. After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar. At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four years’ worth, and only about a quarter of that is in the more desirable A- or B-rated locations.

"We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’" said Bradley F. Hunter, the chief economist at MetroStudy.

The shortage of lots is slowing the housing recovery, the National Association of Home Builders said last week. In August, 59 percent of builders surveyed reported that lot supply was low or very low, the association said. Housing is a critical driver for the economy, not just because of the jobs and supplies needed to build homes but also the appliances and furnishings that new occupants buy.

At the peak of the housing boom, builders were finishing more than 1.6 million single-family houses a year. That number plunged to less than half a million during the recession. This year, the industry is on track to complete more than 570,000 homes, still substantially below the level considered necessary to replace aging homes and provide for new households. A return to more normal rates of construction would substantially lift the economy’s anemic growth rate of about 2 percent over the past year.

Carlston said some cities in the Twin Cities area had adjusted their rules to allow fewer parking spaces or smaller lots. Otsego has lowered some of its development fees and allowed a developer to change an approved plan so that a partly built town house project could be finished with more salable detached homes. Rick Packer, a land development manager for Centra Homes, said some suburbs were relaxing requirements that homes be made of brick or stucco.

Even the Sierra Club, which once placed Minneapolis among the top 10 sprawl-threatened cities, has backed off a bit. An annual bike ride by the local chapter, once known as the "Tour de Sprawl," has been given a less pejorative name and refocused to include not just threatened green space but what the group considers model development and transportation projects.

Mayor Mike Maguire of Eagan, a co-chairman of the Regional Council of Mayors Housing Initiative, said one reason his city had approved a land use change for the golf course was that so little new housing was built in the past few years.

"When there’s no new development, you have stock that’s increasingly out of date and that tends to bring your home values down," he said. "That was one of the things we were hearing back from Realtors, was they had people who wanted to move to Eagan but couldn’t find the home they wanted."

In 2012, Hunter Emerson agreed to pay $8.6 million for the golf course, wagering that the city would approve the land use change. The partnership sold the property to a national homebuilder for $13.1 million, Carlston said. The houses will cost from $400,000 to $700,000, he said.

The excess left from the boom – land in various stages of development ranging from untouched to what builders call PVC farms, named for the hard plastic plumbing pipes that, with electrical lines, were virtually all that was on the lots – is quickly being absorbed. Developers have gone from buying foreclosed acreage from banks to buying from farmers, family trusts, manufacturers and even homeowners with outdated homes on single lots.

"What we’ve seen is the inner ring of the suburbs, all those areas have come back," said Rod Just of Key Land Homes, a Twin Cities builder. "The outer ring, they’ve taken just a little bit longer because of gas prices, but they’re going to come back."

For builders, there is even a sense of dij‘ vu.

"The new lots that are coming out," Just said, "are almost the prices that they were in 2005 when everything crashed."

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