Building in a Subdivision vs. Building on Undeveloped Vacant Land

For many, finding the perfect single-family home is part of the American Dream. Unfortunately, skyrocketing demand and falling supply within the housing market have delayed homeownership for thousands of families. To avoid another year of renting, some have decided to build their own home. While building a new home is exciting and rewarding, it is not without challenges. Chief among these challenges is making thousands of decisions -- both big and small -- about your new custom home. The first in a long list of questions is whether to build your new custom home in a subdivision or on undeveloped vacant land. In this post, we discuss the many differences between building in a subdivision and building on undeveloped vacant land. Follow below to learn more.

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Understanding the Difference Between Subdivisions and Neighborhoods

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Oxford Languages defines a neighborhood as “a district, especially one forming a community within a town or city” but defines a subdivision as “an area of land divided into plots for sale.” The post notes that developers often purchase a subdivision, “put up a community of homes” and then sell these homes to buyers. Plots of land for sale within a subdivision are called “plats.” Conversely, neighborhoods are simply “geographic areas which include homes and other structures and are bounded by agreed-upon lines.” These boundaries could be anything from city limits to a highway.

Unlike subdivisions -- which are distinctly residential --, neighborhoods can be mixed use, residential, commercial or industrial. When comparing the two, subdivisions are often owned and built by a single developer while neighborhoods evolve naturally over time. The homes within a subdivision are typically constructed all at once within a few months or couple years. Because of this, subdivisions are more easily controlled than neighborhoods and homeowners are usually subject to the whims of Homeowners Associations. For the purpose of this article, undeveloped land is unusual within a subdivision but common in some neighborhoods. While building a custom home within a neighborhood is not unusual, it is rare in subdivisions.

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What to Know When Building a New House in a Subdivision

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1. Access to the Site is Guaranteed

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In his blog post “3 Big Differences Between Building in a Subdivision and Building on Undeveloped Vacant Land,” Midwest architect Richard L. Taylor, AIA identifies access to the build site as one of the primary advantages of building in a subdivision. Taylor writes that roads “are already connected to your lot and already connected to the public streets.” This means that everyone from city inspectors to the construction crew working on your home will easily be able to access your site. Conversely, “getting your car from the public road back into undeveloped land can be more difficult [and] you’ll almost certainly spend much more to build your own access road back into the site.”

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2.Custom Builds Might Not Be Possible

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Writing for Forbes in their article “How To Buy A New Construction Home,” Bob Musinski and Jordan Tarver explain that there are three major categories of homes built in subdivisions. These include custom homes, semi-custom homes and spec or production homes. Custom homes are the least common in subdivisions because most involve “buying an empty lot and hiring a builder and architect.” Semi-custom and spec or production homes are both fairly common in subdivisions, with the latter being most common. According to Tarver and Musinksi, semi-custom homes are often found in “higher-end neighborhoods owned by a developer,” where homeowners have a bit of “leeway on what the home will look like.” Though the homeowner’s options are more limited with a semi-custom home than with a custom home, “you would have more say than if you were buying a production home.”

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In their article “What you need to know before building a custom home” for The Washington Post, Steve Wydler and Hans Wydler note that the majority of homes built in subdivisions are not custom or semi-custom homes but rather “spec homes” or production homes. Minor customizations -- such as the type of countertops, exterior paint color or style of front door -- are available to spec home buyers, but major customizations available to semi-custom home buyers such as alterations to the layout are not offered.

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3.Utilities Are Already Hooked Up

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The BuildingAdvisor.com article “Budgeting for Site Development” notes that purchasing a home in a development prevents homeowners from having to bring utilities to their build site. Those who must draw electricity, water and sewage connections to their site could spend anywhere from $10,000 to upwards of $30,000 on this stage of development. However, developers in subdivisions will typically provide “water, sewer, and utilities...to the building site although you will still need to make the connections to the house.”

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4.Minimum Size Restrictions Could Increase the Build Cost

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Subdivisions often regulate how each plat is developed -- from the square footage of the built property to the height of each structure. In his article “Minimum-Lot-Size Regulations Mean Less Housing” for Forbes, Adam A. Millsap notes that the most common building restriction regulated by subdivision developers is “a minimum lot size” or minimum house size. Referencing a study conducted by researchers at George Mason University, Millsap notes that “such regulations increase the cost of housing by requiring people to purchase more land” or build homes outside their budget or needs.

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This can “exacerbate segregation by income, and encourage sprawl” even in the most “in high-demand areas such as Seattle, New York, and other large coastal cities” where more affordable housing is much-needed. Millsap notes that “the only way to keep housing affordable is to increase supply in high-demand areas.” Unfortunately, subdivisions often require plat buyers to build homes that are equal in size to those of their neighbors. Sadly, minimum house size requirements increase the build cost for those who do not need as much square footage.

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5. Your Home Will Likely Be Subject to an HOA

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As mentioned above, homeowners who build within a developing subdivision have fewer choices than those who build on vacant land. These limitations are initially monitored by the developer or contractor and are later supervised by a homeowner’s association. The homeowner’s association assesses whether homeowners are following rules related to exterior decorations, parking, landscaping and entertaining -- among many others. Jo Burns notes that “not all neighborhoods are overseen by a homeowners association (HOA), but many newer subdivisions are.”

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According to Esquivel and Alvayay, “a standard subdivision may or may not have a homeowners association (HOA) and may or may not have Covenants, Conditions, and Restrictions (CC&Rs).” However, under the Davis-Sterling Common Interest Development Act, California State Law requires “all CIDs to have a homeowners association (HOA), which is a nonprofit corporation or unincorporated association created for the purpose of managing a CID.” Not only are homeowners subject to rules determined and enforced by the HOA, but they are also required to submit certain fees monthly or quarterly. Your real estate agent or attorney should be able to determine whether the plat you are interested in either functions as a CID or otherwise has an HOA.

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6.You Might Not Be Able to Choose Your Own Contractor

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In his article “Five Things To Know Before Buying Your Home In A New Real Estate Development” for Forbes, Stephen Glen Kliegerman notes that buyers are usually unable to hire their own design-build team when constructing a new home within a subdivision. Typically, the developer has already chosen a design-build team -- including everything from the architect to the construction crew. According to Kliegerman, buyers considering a plat in a developing subdivision must “do their homework on both the developer and the contractor actually performing the work.” When you are unable to choose your own contractor, Kliegerman notes that it is “important to ask when the warranties begin when purchasing in a newly built development and [to ensure] that you obtain all of the warranty information.”

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7. Construction Might Take a Long Time

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According to Laura Mueller in her article “How Long Does It Take to Build a New Construction House?” for Moving.com, “the average amount of time to build a new construction house is about 7.7 months.” Based on data from the United States Census Bureau, this estimate refers to “homes built for sale” such as those in “a new housing development.” Homes built on vacant land by homeowners themselves take about “12.5 months on average...due to less experience and smaller crews.” However, if your home is one of many being built by the same development team in a new subdivision, construction could actually take quite a bit longer. Homeowners should review their home-building contracts and strategize about when they purchase their plat versus when they plan to move in.

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8.Construction of Other Homes Could Be Ongoing

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As mentioned above, there are consequences involved in owning one of the first homes in a new subdivision. Laura Mueller -- who herself purchased a plat in a planned subdivision -- explains in her article “What’s It Like Living in a New Housing Development?” for Moving.com. Mueller writes that in addition to a lack of trees and “less of a neighborhood vibe,” homeowners will have to “get comfortable with construction noises” if they own one of the first properties developed. According to Mueller, “the constant construction around you is a bit of a double-edged sword.”

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While on one hand this constant construction is “a sign of progress,” on the other hand, “its also loud, dirty, and not always so nice to look at.” Unfortunately, Mueller writes that “construction and a new housing development go hand in hand, and you pretty much know what you’re getting into when you move in, though that doesn’t make it any less of a nuisance.” Purchasing one of the last plats in a developing subdivision could save you from both protracted construction of your own home and continuing construction of homes around yours.

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What to Know When Building a New House on Vacant Land

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1.The Permitting Process Might Take a Long Time

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Depending on where you hope to build, the permitting process could take a long time. We noted that California homeowners might face significant challenges in our recent article “How to Buy Vacant Land in San Francisco to Build a House.” Those who plan to build in either the San Francisco Bay Area or the Greater Los Angeles Area are likely to encounter a number of permitting and build code hurdles. In our post we noted that San Francisco is notorious for its complex permitting system and strict building codes -- even in underdeveloped residential areas -- with Los Angeles close behind.

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Jacob Passy references a paper compiled by researchers at UPenn and Harvard who examined how local zoning laws have changed between 2006 and 2018. According to the data they collected, the researchers found that the San Francisco metropolitan area has “the most onerous...land use regulations.” Los Angeles, California was ranked fifth on the list. Building codes in San Francisco have changed so significantly over the last few decades that “54% of existing San Francisco homes are in buildings that would be illegal to build today.”

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2.You Might Encounter Zoning Restrictions

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Those building new constructions within subdivisions are not the only homeowners who could face zoning restrictions. Even if your vacant lot is located within a rural area of California, the property could be subject to zoning regulations that govern the height and number of each structure. Beth Ross elaborates in her article “Building on Vacant Land: Zoning Issues You Might Face” for NOLO. According to Ross, there are seven common zoning designations. These include residential, commercial, industrial, rural, historical, environmental and aesthetic.” Beyond this, zoning designations are often “broken down further, into subtypes.”

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Ross notes that “more than one zone might also apply to a property,” so homeowners must do their research before assuming they are within their rights to construct a dwelling of a certain size, shape or proximity. For example, the vacant land you purchase within a rural zone “might also be in an environmental zone.” In this case, “construction on certain portions of the land might be prohibited, or you might have to maintain undisturbed animal habitat (such as existing trees or meadows) on the land.”

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3.Access to the Site Might Be Limited

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Lauren Nowacki notes that most homeowners must shell out money for “clearing and grading the land,” “building an access road” and conducting environmental testing. It is rare that buyers incur these costs when purchasing a subdivision plat. Most inconvenient of these challenges is ensuring that you as the buyer have access to your build site. Unfortunately, access to the site is not always -- if ever -- guaranteed. Nowacki writes that undeveloped land is often landlocked, “meaning it’s surrounded by property owned by others and doesn’t have access to things like a main road or utilities.” When properties are landlocked, homeowners must ensure that they “have an easement to gain access.” If the lot you are considering purchasing already has an easement, Nowacki recommends that you “make sure you understand your rights fully” before proceeding.

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4.You Will Need to Carry Over and Hook Up Utilities

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As mentioned above, raw land is defined as undeveloped property that neither has an existing structure nor is connected to utilities or surrounding infrastructure. Connecting utilities like water, power and sewage to a raw plot of land can cost tens of thousands of dollars. According to the Angi article, the cost of connecting utilities to raw land “varies widely by local water and bedrock conditions, soil permeability, specific water depth (either too deep or too shallow) and quality issues.” However, most should expect to pay between $5,000 for a property close to existing utilities and $40,000 for a very complex installation.

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5.Your Neighborhood Might Not Have Amenities

As with brand new subdivisions, the neighborhood surrounding your vacant plot of land might not have amenities like grocery stores, gas stations, hospitals, houses of worship, community gardens, movie theaters or fashion centers. Rural areas are most likely to have plots of raw land with few building restrictions but are less likely to have supportive infrastructure. Homeowners should keep in mind that an affordable vacant lot might not be located within walking distance of vital infrastructure.

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6.You Can Fully Customize Your Home

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Unlike building in a subdivision or other real estate development, homeowners building a new home on vacant land have lots of freedom to develop the property as they wish. Steve Lander identifies freedom to fully customize one’s home as one of the key advantages of building on vacant land in his article “Advantages & Disadvantages of Building on Undeveloped Land” for SF Gate. According to Lander, “with undeveloped land, you get to do what you want...if you want your house right in the middle of the parcel, you can do it.” If you want to plant a forest of trees around your property, you can do so. If you want to add a second story, you are free to build that addition. When building on vacant land, “you'll be able to configure it however you want within your community's limits.”

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Building a New Custom Home with Element

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Whether you choose to build in a subdivision or on raw land, designing and constructing a custom home can be an incredibly satisfying experience that serves your family well for years to come. Benefits of building a new home include choosing the exact lot you want, orienting the home exactly as you choose, opting for energy-saving measures and spending less time and money on maintenance. Homeowners across the country have opted to build instead of buy. Sweeney notes that in November of last year, new home builds were up 10% compared to the same time in 2019. If you -- like many others -- want to build your own custom home exactly as you have envisioned it, give the team at Element a call. As California’s premier design-build firm, Element can walk you through the entire design phase, permitting process and more.

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