Scale has advantages in most industries, leading to domination by larger firms over the long term. Historically, because of the very localized nature of housing, scale has had its limits in home building. But because of the structural issues the industry has faced during the past six-plus years and the changing market context, big builders gained competitive advantages over smaller firms—and the end result is a more concentrated landscape.
The biggest 200 builders gained share in 2012. Overall, the nation’s top 100 builders were responsible for 50 percent of all new-home closings in 2012, up from 45 percent in 2011. Publicly traded builders captured 28 percent of all new-home closings (constructed homes sold with land and documented with a deed of sale), up from 26 percent in 2011. The 10 largest builders saw similar growth, closing 27 percent of all new homes last year, up from 24 percent in 2011.
We expect this trend to continue in 2013, providing advantages to the larger builders such as increased access to capital, leverage over suppliers, better financing options for buyers, and more bargaining power with land developers. Smaller builders will need to focus on agility and nimbleness—traits that are tough to exhibit through scale—to compete with bigger firms.