martes, 31 de julio de 2018

martes, julio 31, 2018

Big Builders Are Remodeling the Housing Market

The demise of many small builders has given big ones more power, one reason new-home sales have stayed low

By Justin Lahart

      A contractor hammers the frame of a D.R. Horton home in Florence, Ariz.


One of the big mysteries of the housing market since the financial crisis is why sales of new homes have remained so low despite a strong economy and real-estate market.

One explanation is a major consolidation among homebuilders, which has given surprising power to some of the big publicly traded companies. That is a big change in what has long been a heavily fragmented industry driven at the margins by small-time construction companies that built like crazy during boom years. With its historically low barriers to entry -- a bit of capital and know-how were the major requirements for breaking into the business -- this marks a major change in the industry.


RAISING THE ROOF
Top 10 builders' market share, median for top25 markets (2004-2017)

Source: Builder magazine

The housing bust and the financial crisis destroyed many home builders. In the tally of U.S. businesses it conducts every five years, the Census Bureau found that there were 48,261 home builders operating in the U.S. in 2012, about half as many as the 98,067 it counted in 2007. In the consolidation, publicly traded home builders fared much better, with only a handful of small ones going bankrupt, and most of those ultimately remained in business.

Updated Census figures won’t be available for some time, but even as the economy has recovered and demand for homes has risen, the number of homebuilders doesn’t appear to have rebounded. Instead the industry has become more concentrated, with a few big national players dominating major markets like never before. According to data from Builder magazine, the median market share captured by the top 10 builders in each of the country’s top 25 new-home markets was 63% in 2017. That compared with 34% a decade earlier.


BIG FEET
Top 10 home builders in Atlanta in 2017 by market share

Source: Builder magazine

Note: Lennar completed its acquisition of CalAtlantic in 2018




While homebuilding is nowhere near as consolidated as industries like airlines, the result has been similar, less supply. Last year, 1.9 new homes were sold per 1,000 people in the U.S., compared to an average of 2.6 over the past 50 years.

Big builders have benefited in other ways. They have been able to leverage lower funding costs and economies of scale in ways that smaller players, more dependent on bank lending, haven’t. Higher costs on lumber, caused by tariffs and forest fires, and on other building products have further squeezed small builders. The big players have also been better able to navigate the tight labor market by promising workers more stable jobs. Average hourly earnings for workers on new single-family homes were up 9% in June from a year ago, versus a 2.7% gain for U.S. workers overall.

Evercore ISI analyst Stephen Kim thinks that the gains the big builders have made in major markets may signal a broad shift in how new homes are built. These companies, focused on profit margins, are using their buying power to lower material costs, and are building homes that are more standardized. That makes them less labor intensive and more profitable.

That is reflected in the results of public builders themselves, he says. Profit margins at big ones such as D.R. Horton , Lennar and PulteGroup are substantially higher than smaller public players such as KB Home , M/I Homes and M.D.C. Holdings , he points out. “That suggests that the larger builders are the ones who have figured out how to be more efficient,” he says.


FRAMING UP
Wholesale price index for residential construction godos

Source: Labor Department
Note: Not seasonally adjusted. Indexed to 1986 level



While big homebuilders have benefited, the shift has been a drag on the economy. Not only is home building contributing less to gross domestic product and employment than it used to, but it isn’t as big a driver of business in other areas, like furniture and washing-machine sales.

The environment isn’t uniformly bad for small builders — away from the big markets, the business remains far more fragmented. In many of those markets, land is easier to come by, points out Chris Herbert, managing director at Harvard University’s Joint Center for Housing Studies, while lower sales volumes make them less enticing to the public builders. “The reason why you’re seeing the small builders doing OK in the smaller markets is the big builders just don’t want to go there,” he says.


PRICE POINTS
Median price of single-family homes

Source: National Association of Realtors (existing homes), Commerce Department (newhomes)




Home builder George Hale says that these days it is harder for small builders like him to get a toehold in the Portland and Bend, Ore. markets where he operates. As a result of high land prices and the regulatory hoops builders need to jump through, the capital requirements to start a project are high. That makes it tough to compete with large public builders, like Portland-area leader D.R. Horton, which have readier access to funds.

Mr. Hale has been lucky since he focuses on smaller projects that don’t interest big builders. But he doesn’t see many new people getting into the business. “I’m 48, and all my peers are my age plus,” he says.

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