KB Home May Spend $700 Million on Land This Year, Mezger Says

KB Home, the Los Angeles-based homebuilder that targets first-time buyers, may spend $600 million to $700 million on new land this year as it expands its community count, Chief Executive Officer Jeffrey Mezger said.

The company is buying properties close to job centers and coastal regions, betting that these areas will recover more quickly from the housing slump, he said. Most of its purchases will be in California and Texas.

“If the markets firm up and are better we’ll spend more,” Mezger said in an interview yesterday at Bloomberg’s headquarters in New York. “If the markets get more difficult, we’ll spend less.”

Builders have been hurt by an unemployment rate that averaged 9.6 percent last year and competition from lower-priced foreclosures. Construction of single-family homes fell 1 percent to a 413,000 rate in January from the prior month, the fewest since May 2009, the Commerce Department said yesterday. Builder confidence stagnated in February, the National Association of Home Builders/Wells Fargo sentiment index showed Feb. 15.

KB Home has said it plans to open 70 new communities in the first half of this year and increase its average community count for 2011 by 25 percent. The new projects will help the company increase profitability because land prices have fallen in the past few years, Mezger said.

Local Governments

The company has acquired some raw land, particularly in California, as finished lots in prime locations become harder to find, Mezger said. One cost-saving strategy includes negotiating lower development fees with local governments that are eager to replace revenue lost after the housing bubble popped, he said.

“They want new homes,” Mezger said of the cities. “They want communities finished that were half-built and they need the revenue base.”

KB Home has 132 communities in 30 markets, including California, Texas, Florida, Nevada, Arizona, Georgia, North Carolina and the Washington metro area. It invested $550 million in land last year.

Locations for communities opening this year include Austin and San Antonio in Texas, and Orange County and coastal Los Angeles County in California, according to the company.

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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