Houston Sees Sales Drop Amid Rising Prices, Scarcity

As Houston’s urban land market tightens, developers are increasingly hesitant to invest due to high prices and rising interest rates.

Despite Houston’s reputation for sprawl, land in this coveted urban center has become scarce and expensive, leading to an unbalanced market, Bisnow reported.

Commercial land brokers are feeling the pressure and working harder to close deals as landowners expect high prices. This stagnation means only well-capitalized investors can afford to expand in Houston, with limited asset classes deemed viable for new projects.

Average lot prices for homes increased from $127,000 in 2020 to $166,000 in 2021, followed by a gradual increase to $189,000 in May 2023, according to the Houston Association of Realtors. Lot sales volume has declined significantly, from a peak of 7,901 transactions in 2021 to just 2,230 so far in 2024.

Houston has urbanized significantly over the past decade, reducing available land, Jaggi said. Current economic challenges, such as high borrowing costs, are deterring potential buyers, with developers unable to close the price gap.

“Buyers and sellers are currently in a prolonged waiting phase,” George Craft, managing shareholder of law firm Winstead, told the media outlet.

Sellers are waiting for possible interest rate cuts to secure higher prices, while buyers are hesitant to commit under current conditions.

Landowners, often generational or well-capitalized, feel no pressure to sell quickly, said Reed Vestal, co-founder of Junction Commercial Real Estate.

Weak land sales have a different impact on different real estate sectors. Industrial and single-family developments remain viable, while speculative multifamily and office projects are largely stalled. Industrial developments, benefiting from locations on the outskirts of cities and benefiting from motorway access, continue to attract investment. Retail demand is high, but there aren’t many parcels large enough for shopping center development or similar projects.

Despite a difficult market, notable transactions are still taking place. Earlier this month, a company by Leslie Doggett, John Goff and Doug Schnitzer acquired a prime 6.3-acre tract of land for a mixed-use development at Post Oak Boulevard and BLVD Place. Provident Realty Advisors recently purchased 16.5 acres in northwest Houston for an industrial project.

Houston’s unique position as the largest unzoned U.S. city still presents regulatory challenges, particularly within Beltway 8 and along the Interstate 10 corridor. Despite available land, regulations and mentality NIMBYs complicate development.

“If you’re a potential buyer, it won’t hurt to wait six more months to see the changes,” Craft said.

—Quinn Donoghue