Las Vegas neighborhoods are gaining more elbow room

If you don’t like the postage stamp-sized lots that were popular in Las Vegas during the housing boom, take heart.

The market is upgrading to postcard-sized lots.

Forget about those tiny yards with three-story homes stacked side-by-side, once a necessity driven by skyrocketing land prices. Those lots could be permanently on the way out, and that means your future castle could have a different feel.

“Small-lot products are just not desirable. People don’t like them, and land prices are still significantly less than what they used to be,” said Curt Allsop, director of the land group for local commercial brokerage Newmark Grubb Knight Frank. “Those densities are gone, based on what jurisdictions will allow and based on what the market wants.”

Whether that’s good or bad depends on whom you ask. Municipalities say any talk about lot size is a small part of a broader planning-revision process that will look at improving overall quality of life, but some builders are up in arms over potential new regulations that they say will pile higher housing costs onto consumers.

SIZE MATTERS

If you want to know how this debate will affect the new home you may buy someday, it helps to look at how the market got here. You probably know some of the story: From 2004 to 2007, the real estate bubble drove local land prices in some areas of the Las Vegas Valley to around $1 million an acre, Allsop said.

That meant builders would have to put 10 homes on one acre — creating 4,400-square-foot lots — just to keep land costs alone at $100,000 per house. Throw in infrastructure improvements for another $40,000 per home, and builders were at $140,000 per unit before they even began building. So developers squeezed lots, going to three-story floor plans and fitting 12 homes onto an acre. Before you knew it, you were buying a home on a 3,500-square-foot lot with a 5-foot driveway, and a living room wall and outdoor deck crammed up against your neighbor’s lot line.

“It was the only way homebuilders could make a community work,” Allsop said.

Land prices aren’t the only influence on lot size, but numbers from local housing data company SalesTraq show how parcels fluctuated with land values. In 2006, when the average citywide land price per acre approached $800,000, lots hovered around 5,500 square feet on average. The average land price plummeted to $115,000 in the first half of 2012, and lot sizes jumped to an average of 6,100 square feet. With prices spiking to nearly $253,000 in the third quarter, lot sizes are down again, to around 5,500 square feet.

Though they’re up from their 2012 lows, today’s land prices are still reasonable enough to give builders (and their buyers) breathing room: Companies such as DR Horton have even begun building on half-acre lots in the northwest and in other rural-preservation areas.

Part of the move to larger lots is simply a function of what’s available in the market, said Dennis Smith, president and CEO of local analysis firm Home Builders Research. The market has a relatively decent supply of 2.5- to 5-acre chunks in outlying areas, but those parcels are zoned for rural densities, Smith said. Bigger plots zoned for denser tract-home subdivisions have been harder to come by.

Now, on top of market forces, local municipalities are moving to formalize larger lots.

If they’re just looking at yard sizes, buyers may not notice a huge difference.

Where single-family parcels before the recession shrank to 3,300 square feet, local agencies now look to draw the minimum lot line at 4,000 square feet, said Nat Hodgson, executive director of the Southern Nevada Home Builders Association. Companies accustomed to building on 18,000-square-foot lots in rural-preservation areas would have to stick with at least 20,000 square feet.

rising home prices

Where consumers might see a bigger difference is in home prices, Hodgson said.

Throw in other new codes and regulations, plus expenses for materials and labor, and the industry’s costs are up locally about $15,000 per home since 2011, Hodgson said. Putting fewer homes on an acre will only add to costs — and home prices.

“When density goes down, each house incrementally takes on more dollars, and that’s not where we need to be right now,” Hodgson said. “Maybe it’s time to look at density, but we’re still trying to climb out of a hole. They tell us, ‘You guys are putting the biggest house possible with minimum (lot) setbacks.’ Well, it is a business. If I can put the same house on a 40,000-square-foot lot and the price stays the same, I’ll do it.”

Forcing larger lot sizes would be especially challenging for builders today, given the price difference between a new home and a resale, Hodgson said. SalesTraq statistics found a September new-home median of $267,856, compared with $154,995 among existing homes. Anything that puts upward pressure on new-home prices could make them even less competitive, Hodgson said.

SalesTraq Principal Brian Gordon said it’s difficult to quantify how moving from 3,300-square-foot lots to 4,000-square-foot lots would affect prices, which are also a function of market conditions and consumer demand.

But some “simple math” comes into play any time you increase parcel sizes, he added.

“If a builder is limited in terms of density, or there are minimum thresholds for lot sizes, that affects what they are potentially able to pay on the open market and build upon,” he said. “The pricing of homes is certainly a factor, and everything that goes into the development process can play into the financial pro forma. But land cost is a key part of that equation.”

No need for builders to fret, though, said Jon Wardlaw, planning manager with Clark County. Any discussion about lot sizes is happening only in the context of a larger discussion about long-term land-use planning, he said.

HAZARDS OF GOING SMALL

It’s too early to say how land-planning processes might change. County officials likely won’t have a proposal on new models before February, Wardlaw said.

Yes, there may be some effect on minimum lot sizes, but the “rationale behind it would be to get toward more functional space on a lot, rather than just a very tiny side yard around a building just so someone can say it’s a detached product,” Wardlaw said. “It goes back to whether you’re happy with the way you live and have a product that gets you there.”

Rather than go to 3,300-square-foot, single-family lots, it might make more sense to simply build an actual attached-home community, Wardlaw said. That would let a builder maximize use of common areas.

“You may be able to have a community pool, or parking with the unit as well as off-site from the unit. It becomes more effective and more efficient,” he said. “Three-story homes with tiny, little lots — mentally, you ask yourself, ‘What does that do? Why do you have that product?’”

Mario Bermudez, planning manager with Clark County Comprehensive Planning, said his department hasn’t received any direction from county commissioners to suggest code changes that would prohibit lots of less than 4,000 square feet. But in practice, commissioners are telling developers and consultants that’s what they want to see.

“What they’re looking at is that future homeowners would really like to have a larger backyard area, so kids can play in the yard instead of in the street,” Bermudez said.

Bermudez added that he hadn’t heard any complaints about larger lots from developers.

Other safety issues are pushing up lot sizes, Allsop said. Those 5-foot driveways? People try to park their cars in them, and leave trunks hanging into the street. That makes it tough for fire and rescue vehicles to get by.

“I don’t think those driveways will ever come back,” Allsop said. “They’re a fire hazard.”

That’s especially the case because high-density communities also tend to have narrow streets, Bermudez said. Add a few illegally parked cars at the curb and firetrucks can’t maneuver.

Then there’s the community-vitality issue.

“When the recession hit, some of these neighborhoods with houses on postage stamp-sized lots turned into blighted areas,” Smith said. “It only takes one or two distressed properties to wreck an entire block, because the homes are so close to each other.”

Add it all up, and you get a new development norm of four to eight units per acre, down from six to 12 during the boom, Allsop said. That could creep up to nine units per acre, but we’re unlikely to see 10 or more in the foreseeable future — not even if land costs start spiking again.

“I think that’s about as dense as the market wants, and about as dense as what cities will allow, regardless of what happens to land pricing,” Allsop said.

The trend will put pressure on prices, Smith said.

“It’s going to be harder to find homes that are considered value-priced,” he said.

Hodgson agreed.

“Land sellers aren’t saying, ‘Oh, the builder can put only six homes on an acre instead of seven, so let me drop my land price.’ At the end of the day, the builder has to make it viable for the buyer. If land costs go up because of density, on top of rising costs for licenses and builder permit fees, we’re pushing the envelope with costs. And we have to watch out for that.”

Lot sizes should also be flexible based on the community, Hodgson said. Maybe small, urban lots would make more sense in a densely developed area such as Centennial Hills, where there’s a push to have residents live near work.

“It’s not a one-size-fits-all thing,” Hodgson said.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com. Follow @J_Robison1 on Twitter.