By David F. Seiders. Recent NAHB surveys document an ongoing trend toward subcontracting by single-family home builders. But builders of all sizes still directly purchase large proportions of materials used and installed by their subcontractors. And, in these cases, traditional distribution channels still dominate.

Subcontracting expands

Subcontracting always has been a major feature of the home building industry, particularly among larger building companies, and reliance on subs has increased over time as large builders have gained larger and larger shares of the housing market. Indeed, two-thirds of all firms surveyed by the NAHB in February said that at least three-fourths of their construction costs were subcontracted in 2002; 30 percent of respondents had subcontracted all of their construction activity. For large companies (with more than 100 starts per year), the comparable proportions were 82 percent and 44 percent, respectively.

The number of subcontractors used to build a typical single-family detached home also has been on the rise. In 2002, 26 subs were used, on average, compared with 23 back in 1999. Large building companies used an average of 29 subs to build their homes last year, compared with 24 for small firms (with fewer than 25 starts per year).

Most builders reserve little of the construction process for their own employees. Some (generally small firms) do their own framing, paneling, and installation of windows as well as interior and exterior doors. But virtually all companies subcontract things like carpeting, electrical wiring, plumbing, brickwork, foundations, drywall, concrete flatwork, roofing, and painting.

Who buys materials?

While relying heavily on subs for the construction work, many builders still purchase large amounts of building materials/components themselves. While subs ordinarily provide the materials for electrical wiring, plumbing, insulation, painting, and heating/air conditioning systems, builders are heavily involved in selecting and purchasing other things. The NAHB survey shows less than 10 percent of builders rely on subs to provide framing lumber, trusses, plywood/ structural panels, windows, or doors. Builders also are heavily involved in buying roofing, siding, bricks, cabinets, countertops, appliances, and lighting fixtures.

Builders buy where?

There's been talk for a long time about the need for cooperatives of small builders to exert buying power in the markets for building materials/components, and in recent years the Internet has been touted as an emerging competitive channel of distribution for large and small builders alike. But cooperatives remain few and far between, and the Internet has not yet fulfilled its promise as an effective distribution--as opposed to information--channel.

The NAHB's survey shows that, in cases where builders (rather than subcontractors) are procuring building materials/components, traditional channels of distribution still dominate.