Home builders have survived the worst cycle in their lifetime. Output measured in annual housing starts or permits plummeted 73 percent between 2005 and 2009. The next most precipitous production crash was between 1940 and 1944 when housing starts fell 74 percent. The builders that remain can safely say they have seen nothing like this in their careers. What do the survivors look like?
A recent demographic survey of builder members provides a few characteristics. Comparable data dates back to 2008 when the NAHB membership started falling. Membership trends lag production cycles as firms wind down and drop membership as the cycle worsens. In the four years from 2007 to 2011, membership fell about half as far as production, which left twice as many members chasing the smaller pie.
The most striking change was the number and share of builders who started or expanded remodeling activity. From 2008 to 2011, the share of builder members building single-family homes as their primary business activity fell from 66 percent to 56 percent. In the same period, the share with a primary activity in residential remodeling increased from 19 percent to 28 percent. Most of that shift occurred in a single year between 2008 and 2009 as realization that the housing slump was going to be longer and deeper than anyone originally expected.
Similarly, builders’ secondary activities have broadened during the Great Recession as they looked for alternatives to new construction. In 2008, builders with single-family construction as a secondary business activity totalled 58 percent but by 2011 that number dipped to 37 percent. The largest increase in secondary activity was in subcontracting or specialty trades as home building firms fell back to one of their underlying services such as carpentry or roofing and siding. Remodeling continued to be a strong back-up activity but the share listing it as secondary activity did not change significantly.
The firms that survived became smaller and leaner. The average number of employees dropped from 14.2 to 11.6 with a greater percentage decline in non-construction staff, 22 percent, versus construction staff, 14 percent. Larger companies and land developers had the largest percentage drop in employees. The average number of single-family homes built fell from 20 to 16 while the average number of multifamily homes increased from 10 to 12. The drop in employee count and units started fell the most between 2008 and 2009 but has been increasing very slightly since as the firms that remain capture the remaining business. Dollar volume did not slip as much, falling 3 percent from 2008 to 2011 to a median $937,000.
Over the four-year period, the median age of all builder members rose by two years to 54 in 2011, and the median years as a member of the NAHB rose four years to 12. Both trends suggest that the fallouts during the crash were younger members with less time in the association. The longer tenured and older builder members are multifamily builders, 16 years in the NAHB, and 58 years old; and land developers, 18 years in the NAHB and 58 years old. Firms with revenue over $5 million had longer tenure in the NAHB, 16 years, but were younger than the median age at 52.
The industry remains male dominated with 93 percent of builders male, up 1 percent from 2008. Of the many disciplines within the industry, female owners/heads are most frequent in the modular/panelized/log homes sector at 18 percent. The level of education has not changed significantly with just over half of the builder members holding at least a college degree in both years.
The recent housing cycle was the worst in 70 years, but a large number of builder members remain ready to respond to a burgeoning recovery. Even with a smaller pie to divide, the survivors have grown slightly from their nadir in 2009 as they diversified, cut staff and overhead, and priced aggressively. While a painful culling, the survivors are very strong competitors.