Trends in reverse: It's back to the Cities

It's probably not too surprising that demand for land in third-tier suburban areas -- crushed by the popping of the real estate bubble two years ago -- hasn't shown any signs of returning. With acres and acres of failed housing developments to choose from and no signs of a rebound in new housing starts, undeveloped lots in some of those areas can be had almost for the cost of maintaining them.

But it's a slightly different story closer in to the urban core. Smaller "infill" building sites in first- and second-ring suburbs such as Edina, Woodbury, Maple Grove and Bloomington are seeing signs of demand from recovering national home builders. And in the urban cores, multifamily housing developers are laying out cash for premium infill sites, industry players say.

The situation reflects the new reality of both consumers and builders all but abandoning the bubble-era paradigm of buyers snapping up houses 30 miles from their jobs in exchange for cheaper homes.

"The drive for affordability is not really something that's going on as much as it was a few years ago," said Mike Swanson, a division vice president with Rottlund Homes and past president of the Builders Association of the Twin Cities. "It's no secret the new construction market has shrunk by 75 percent since its peak, and it has really gotten down to those premium, closer-in places now."

Rising gas prices and younger new home buyers are sparking a long-term demand for smaller lots closer to the cities, he said.

Developable land in once-hot exurban outposts like Otsego, Zimmerman and Rogers -- much of it now gone back to lenders -- remains in plentiful supply and dirt cheap. Prices as low as $6,000 per acre aren't uncommon in areas that were once commanding $250,000 per acre, according to recent listings.

The toll of the land price roller coaster on builders who were caught holding the bag when the bubble burst was heavy.

"Right after the crash, builders weren't in a position to be acquiring land and instead they were in a 'dump' mode, trying to make themselves a little more financially stable," Jones said. "But over the course of the last few years, the larger builders with cash, having written down all their toxic assets, have been fairly active in trying to accrue some of the larger infill sites to develop."

Metrostudy reported there are 16,279 vacant improved lots in the Twin Cities metro area, which, given the current record-low number of housing starts, works out to be a five-year supply in a market where a two-year supply is considered healthy.

But Jones said the supply in closer-in locales is tightening. The market is "definitely seeing more interest from the larger home builders looking in places like Bloomington and Roseville, or in Richfield or Edina, which they may not have considered before because the acquisition prices were too high."

But, he cautioned, the supply of developable land throughout close-in suburbs is limited, and while such land isn't as expensive as before the recession, it isn't cheap, either.

"The availability of these sites are dwindling quickly. They're not as prevalent as one might initially think."

National home builders, such as D.R. Horton, Pulte Homes and Ryland, looking to get back into the game as the economy improves, are buying up some of the better-positioned of the failed subdivisions.

In Chanhassen LDK First Impressions home builders of Milaca, Minn., has picked up the option on an unfinished neighborhood called Serenity of Chanhassen; and in Maple Grove, Ryland Homes has stepped in for Toll Brothers to continue the build-out of the Lakes at Maple Grove townhome development, according to Maple Grove-based land brokers the Pfeffer Co.

And it's not just the "nationals" on the infill prowl. Local builders who have access to financing are also looking.

Scott Busyn, president of Great Neighborhood Homes, said his business of buying up older homes in Edina, tearing them down and building new custom ones on the modest lots is benefiting from "a big trend" of would-be home buyers staying close in.

"Interest in our homes is really taking off this spring," he said, adding he's bombarded by property owners looking to supply him with affordable lots in exchange for a buyout.