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Welcome back to Trust the Process, podcast where we talk about the real estate market,
new home construction, and everything in between.
Today we're going to dive a little bit deeper into land.
How much land is there, what's available, what can we do with it?
So a lot to kind of dive into there, and I'm going to let you take the lead and just run with it.
Thank you.
And I was thinking about how if I had to title this episode, it would be Where is the Land?
Where is the Land?
So that's how I got the inspiration to talk about this topic, because when you drive around in most cities,
even in densely populated northeastern cities, if you go 25 to 30 minutes in at least one or two of the directions,
maybe if you leave New York City and you head directly north, you have City City City in south,
then you start hitting rural land, you start hitting a rural field within 30 to 45 minutes of driving.
And the East Coast has had a lot of time to develop, and you still hit that pretty quickly.
In Nevada, and a lot of the fast growing Sunbelt stays even Texas, which has had a long time to grow too,
you hit blank land quickly, and you must ponder that where is all the land?
Why are we in a land shortage on paper, but not in reality?
If we were to drop an alien into any major U.S. city and you said,
believe it or not, one of our scarcest assets as a city is our land, they would beam you up and shoot you into a comet.
Especially in a state like Nevada, where you can get in the car and drive from here to Reno,
northern Nevada, southern Nevada, and it's nothing but land.
It's all land.
Yeah, you can't.
Right.
So it's something that I get asked a lot just in passing among friends and colleagues and people in the industry and people that I interact with.
Why is it said that there's a land shortage?
So there's a lot of factors at play here.
If you're in an East Coast state or an established state and you drive 20 minutes outside of Charlotte,
you hit raw land quickly and you hit farmland and you hit just nothing.
It's basically prairies and flats and woods and all these things that you feel like could easily be developed into housing or into more cities.
I mean, ultimately we're a growing country and many of our states are growing,
especially about 15 of them are growing enormous clip.
And when you really look at it, it's a lot of factors at play here.
No one wants to live in a house with no running water.
No one wants to live in a house with no electricity.
No one wants to live right off the grid.
So if you look at what limits a lot of development on the East Coast,
it's a fragmented land ownership, right?
Because all of that land is spoken for.
Someone owns it.
And we'll talk about numbers and how that plays out and how that bears out in terms of ownership.
But most land east of the Mississippi is owned by private parties, right?
And that's it.
Some sort of wildlife preserve or something that was maybe donated or something that was part of Teddy Roosevelt's push for national parks.
And there's definitely federal land east of the Mississippi.
But for the most part, land that is being developed east of the Mississippi was bought by a private citizen, right?
And developed.
But why does all the raw land not just get developed then?
What props up New York housing prices when there's so much raw land on Long Island,
when there's so much in eastern Pennsylvania that could be a wonderful master plan suburb for New York City?
Well, a lot of it is infrastructure and the grid and the water grid.
I mean, not just the power grid.
What does the water supply look like?
What do we do with waste?
What do we do with streets?
Where's the political will to spend money on improving the roads and then making another exit ramp for a thousand rooftop master plan community outside of Philadelphia?
Well, there's not much political will, right?
Because people will say, why can't you improve my street corner?
Why can't you improve my schools?
Why are we building a new school for this community?
So it is the land, but it's the is that land viable?
What does that pencil out if you're building that subdivision?
Let's say you're a master plan developer and you're putting a thousand or two thousand rooftops in.
What school district are they going to go to?
Are you going to fund those schools?
Does the project still pencil if you do all that?
Can you assemble enough land to make all that work?
Can you assemble the capital?
Can you deploy the capital?
Can you get those things approved?
Can you get the infrastructure in place?
Do you have those headwinds?
Are they insurmountable?
Does the market warrant the end of day sales price that it would take to get it to that?
So that's why a lot of times in the East Coast, you'll see much more spot building because it just doesn't make sense.
It's too much to ask of a local jurisdiction.
It's also much more fragmented back there.
Many times counties are a friend of mine just told me he was from Georgia.
He said counties in Georgia are basically the boundaries of previous plantations.
And if you look at county maps at the state level, they're really small on the East Coast.
And yeah, maybe in the South, the Grarian culture that they were plantations.
And in the North, there are probably county seats dictated by the crown, right?
And they were small, small, little governing bodies.
And those bodies don't have the budget to do the capital improvements that would require the growth.
And the landowners don't want to part with their land if the value of it is a tenth of what they thought.
Because it's just not a commercially viable venture to develop it into whatever it is.
So you have to see the kind of pressures on price and pressures on inbound migration to the area.
And enough depreciation or obsolescence of the existing housing stock to justify that land value, to justify that growth.
So a lot of the Southeast is growing.
A lot of the Southeast has fewer of those barriers because their number one is an appetite for growth.
So the state and local governments maybe prop it up a little bit more with subsidies.
There's not as much investment into their school districts.
You can just see as a per capita basis, the southeastern states don't invest as much.
So maybe they're not as concerned with the load that that 2,000 homes puts on the school district.
They want the growth in the tax base.
The scarcity of water is not as much as a concern as let's say in the Southwest.
And electricity grid is kind of the other lynchpin.
But if that's something you can overcome, then you pretty much have a recipe for a lot of growth,
which is why a lot of those southeastern states, Georgia, I mean, Atlanta has exploded and Charlotte Metro, Raleigh, a lot of South Carolina.
Obviously, Florida has grown tremendously because it has all those factors and there's a lot of inbound migration.
So you don't even need to factor in the obsolescence of the current housing stock because there is no relative to the growth of the population and what kind of inbound numbers and population swings they've seen in the last two decades.
So that's why you see the growth there.
And then because the land is fragmented and owned by thousands of different people, you can it's easier to pick off 10 acres here and 15 acres there and 30 acres here and you can kind of use the existing infrastructure until you can get those capital improvements to continue to expand,
which is interesting to watch those growth rings of those East Coast cities, it's much more fragmented in little arteries along existing infrastructure versus our cities to the west of the Mississippi, even most of Dallas Metro, kind of these logical concentric rings,
because it was wherever the political will was there to extend the infrastructure to the urban growth boundary.
Well, jurisdictions call it that but it's effectively what it is. So urban growth boundary, right? It's okay. We're going to annex to here as a city into the county.
We're going to bring the infrastructure in and we're going to increase our tax base through this development. A lot of times those those call outs are as part of an approval process, right?
And we're going to say we're going to buy 500 acres of Clark County land. We're going to work a deal with the city of Las Vegas and we're going to annex it. We're going to have a special improvement district that's going to fractionally charge each homeowner, what we call a SID,
and they'll pay for an increments of $10,000, $12,000 per home site over 15 years. They'll pay for those capital improvements. The city will put up a bond to grow. And that's why you'll see these kind of logical growth patterns in these western cities.
Number one, because of that. Number two, because the land largely, at least in Nevada, is held by is a federal or federal lands. So if you look at why the cities grow differently, that's kind of what you're looking at.
You're following major routes back east, you're following infrastructure that's already there, kind of taking the low hanging fruit and then going out in those kind of concentric, or not concentric, in those webs, in those dendrites, roots, right, kind of looking at, okay, starts here and then it kind of fans out.
This gets less desirable, but then this starts growing, gets more desirable, then it just kind of process repeats itself, versus a city like Portland or Seattle or Las Vegas or Dallas, you know, those kind of suburbs are just clean enough.
Don't get me wrong, there's X-erbs and there's little pockets of satellites of growth. But if you look at the cities themselves, they kind of follow somewhat of a logical, especially if you look at an aerial map over 25 years kind of follows a logical pattern.
It started here and it moves outward. It's far less capital intensive to build close to your infrastructure. It's easier to get it approved. It's easier terms of the roadways and traffic and access to local schools and amenities.
So it's a market forces, right? People don't want to live 40 minutes from the nearest grocery store, they'll live 20 so pencils out better. So it's all those factors.
Now, additional headwinds when you are west of the Mississippi is just the oligarchy of landowners, I eat the federal government.
It is the federal government. Okay, so 99% of BLM land is west of the Mississippi. It's in the West.
So most of the east, that's what I say, most of the east is spoken for. Most of the east is fragmented into a lot of different owners. And that being said, the west is not.
And look at the national map, it really is heavy. That's right. You can see it clearly.
It's clear. Clearly see where where is that a rule for the next several hundred years or we just a little snapshot little snapshot in time and maybe in 50 years it starts like different. So time will tell but I feel that we've never really had this type of experiment where a government has owned so much of its own land, right?
Because many times governments are formed and existing properties are preserved and that ownership structure is preserved. So they're they're kind of owning the infill parcels or they really just have governance over the private property that's already held.
We brought we bought most of the west from the French. We literally bought it. So we bought Alaska from Russia. I mean, it wasn't a regime change.
It was literally a real estate purchase. So that being said, you have all these swaths of land. So Nevada as a great microcosm. Now, Nevada is the most egregious example. We are mostly owned by the federal government.
So federal government was a greater percentage in Nevada than any other state except Alaska. So Alaska is so much land area. Alaska is massive. But if the lower 48 Nevada is owned wholeheartedly by the federal government.
So depending on how you look at it, it's around 85% of Nevada is our federal lands. 80% of that is a Bureau of Land Management. So you might ask, what's the other 5%?
Well, federal lands are not all BLM lands, right? But all BLM lands are federal lands. So the balance of that US Fish and Wildlife, US Forestry Service, National Parks, Department of Defense, our military bases, Department of Energy, which would be like the Nevada test site, things like that.
Those are not counted. So when the Nevada test, it's a massive place where I don't want to know about anyone put it. I don't want to put it in the record, but I think it goes on there. But I don't want to get abducted in the middle of the night.
But if you look at 85% of the land mass of Nevada and mind you, Nevada is a large state. If you laid Nevada over the East Coast on our long side, I have never done it. But I bet you it reaches the majority of the East Coast.
Probably for sure stretches from the Panhandle of Florida up to the Northeast, Northeastern Seaboard for sure. So if you think of it as a massive, massive state, how many Maryland's could fit in there, right? How many Connecticut's could fit in there?
So it's an enormous amount of land being held. It's around 56 million acres. So it's very, it's a very interesting case study in federal land and federal land management. So most of Nevada was built on the back of federal land.
We had an initial land auction. We used to just be a train station and then we had an initial land auction. And because we were a train stop, people wanted to build here and started with train repair. And then, okay, well, we need a pharmacy here. We need a pub. We need, and that's just kind of how it started with an initial land auction.
And now we still have land auctions to this day. Most of the Bureau of Land Management land is released to the public with published land auctions.
So you'll be put on notice that this parcel's coming up and you'll have the ability to bid on it. You have to be vetted. You have to show your financials. You have to show that you can take on the purchase.
They do. Yeah. I mean, we definitely could see them more frequently, but I think that they're smart in a way that this is their asset. And if they flood the market with land, it will ultimately supply and demand will take care of itself.
And if they're having land auctions every week of millions of dollars worth of land, eventually the capital and the appetite would dry up or you'd have a land grab.
And we'd have a oligarchy of other landowners. Black Rock went on all the vacant land in Nevada if we let it, if we turn to lose.
So in many ways, I'm glad that we, that we run it that way. And we kind of slowly throttle it in. And in Nevada, we have other resource limiting.
We have a water concern and we've drought prolonged drought. And I think that we do need to grow responsibly. But it's, I guess I wish that there was a little asterisk when people said land shortage.
It should be buildable, viable land because there's no shortage of land in Nevada for sure, but especially in the West.
Available land.
Available. Is it buildable? Does it pencil out? Is it commercially viable to do anything with it? And I think that that's a little asterisk that I think would be important.
Now, that being said, there's still a ton of buildable and we talked about it in their episode.
We're about 10,000 fully improved lots. I think it's 9,400 or something last I checked of fully improved lots that are ready to develop that most of those are held by publicly traded companies. So we can't go buy them, but they're there and fully improved.
And that's not even counting the parcels that are approved, right? The master plan communities or the new subdivisions that are approved, but none of the infrastructure work has started.
So we're definitely not developing enough to meet that demand, but we have other factors to consider. And at a certain point, the market will have to justify.
If the sales prices were too low, you just wouldn't see any develop. It does equalize. It takes a while and there's pain in those equalizations on both sides.
When you're on your way up, it hurts for people trying to buy and read if you were on your way down. That would be very painful for the existing homeowner. So it's a it's a strike, you know, striking a balance.
But and ultimately that's not up to the federal government to preserve the value of your home or to ensure you could argue that maybe they do have a mandate to ensure affordable housing.
But they're just, I guess, I lead in with all the infrastructure and viability to say that the land itself is not enough to fix any kind of housing shortages or housing crises.
You still have all those other factors to consider. The end of the day has to be commercially viable homes and cities are built by developers, right?
The government builds very few of their own housing, right? So they have to pencil out in order to make sense.
So is that to say that even if all of that land that's held by BLM is were released, it still wouldn't.
I think it would. I look at it this way to use a little analogy. If you owned a bakery and you were consistently out of ingredients to make.
Let's say chocolate chip muffins.
Okay.
And someone said, I'm going to solve all your problems. I'm going to back up a truck full of flour and you're going to be able to make all the muffins you can make.
Yeah, but what about everything else that goes into it? And do I even have enough oven space? Do I even have enough manpower?
I mean, we would then find some other rate limiting step.
I will say right now, I feel in my gut and will never know because we won't be able to run this experiment that the BLM not releasing enough land is probably our rate limiting step.
At this moment, but ants. The answer to that is not opening it up. Maybe if we open it up 10% or 20% maybe that would help.
But ultimately we're going development is incredibly capital intensive, time intensive prospect.
So just the raw land is 100 pounds of flour without any bakers to make muffins or oven space.
So I think I don't forget those.
It's not my sweet. So yeah, that's kind of how I think of it is. It's probably probably the biggest culprit right now.
But it'd be easy to fix that and then find another whack-a-mole problem that pops up and says, oh, wait a minute.
We don't have the manpower to build and develop this. Oh, we don't have the home builder appetite to have this kind of exposure in our market.
So I feel that we'd find some other great limiting step.
I like that analogy, the whack-a-mole. You can literally imagine this is going to pop up. We serve this need.
We fixed it. Now we've got another one that popped up.
Send that land. And the housing crisis as a whole is that, you know, popping up.
It is. And it's kind of any industry really, if you think about it. And we just happen to know this industry very well.
And when I contemplate these things, it's interesting to think of the solutions to it.
And there'd be a time when we would run out of buyer ability because it's not just that there's a housing shortage, but there's an affordability crisis.
So if we just build more on affordable homes, we'll take.
They have to work in conjunction in order to serve the problem.
You have to come to throttle them in and drip them in. Exactly.
Right. Exactly. You have to drip them into the market.
And it's the adage of if you build it, they will come. Probably works. But you'll find the limit.
And when we talk about pain, yeah, you talk about pain that would be pain on the home builder side to say, uh-oh, we're stuck with a lot of inventory.
And you and I both lived through a period of oversupply and housing. And it was not that long ago. It was about 20 years ago.
So and you could see it reflected in rents versus home prices.
Why are rents so cheap at home prices as an asset are so expensive.
Sign of a serious housing problem on the other side of the equation.
So it's a balancing act and that doesn't help anyone either.
It's a, it feels good in the short term. At least that's $150,000.
No, there's not going to be many more left because no one's going to be able to recreate that product.
So it has to balance itself out.
And there are certain things that yes, right now the BLM has their finger on the scale because unintentionally, most likely, they don't realize they're not releasing enough or they don't have the authority to insert some multi-prong.
It's not one person that says, yeah, go ahead and release those 50 acres. It's a lot. It's a big process.
Because it's actually all our land as U.S. citizens.
That's not a decision that goes into it. Like you said, you wouldn't want to release too much of it.
So it's that sort of, you know, give and take to, to buy and demand.
That's right.
That's what really needs to happen.
And they look at many factors. I, again, like we talked about in our regulations episode, I believe that these people have good intentions and they want to release things that are strategic.
Okay, this land makes no sense for the BLM to own. It's hard to manage.
It's getting, it's in the middle of the city. It's getting trash dumped on it.
It's someone could fall and go in there and fall. There could be a can't many people in there. We want strategically want to sell it.
And then there's a, okay, this is for the greater good of this community. Let's sell this. It's can be used for a school or whatever.
You know, there's a lot of things that go into it. And I do believe they have the best intentions.
So we're sitting on a lot of dusty gold under our feet, but it's just a matter of kind of letting it play out time and strategy.
Yeah.
It's released.
Right.
More to see more to know.
Interesting.
Interesting topic. Appreciate your insights.
Thank you.
It's good. Good chatting about it.
Thank you for joining us. Join us again next time on the next episode of trust the process podcast. See you then.
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