A monopoly of home builders in the housing sector is contributing to the ongoing housing shortage as well as challenging affordability conditions, according to research from economist Luis Quintero, an associate professor at the Johns Hopkins Carey Business School. In a Q&A with Futurity.org, Quintero outlines the factors contributing to the housing shortage and affordability challenges for many buyers. Additionally, the economist shares findings from his research that indicate the housing sector has a “market structure” problem.
Q: What, specifically, have you learned from your housing affordability research?
Our research has shown those factors certainly contribute—there’s no doubt, for instance, that regulation prevents a ton of new construction. But even if we fix that, we still have what we call a “market structure” problem or, essentially, a rising market concentration in homebuilding.
Let me explain.
Ever since the Great Recession, smaller builders have had a hard time surviving in the market. Many were kicked out—they went bankrupt. Large, powerful developers were more likely to weather the storm and survive. Consequently, they gained power and started to dominate building in many regions, in some cases building 60%, 70%, or even 80% of new housing construction. One of my papers, “Fewer Players, Fewer Homes,” offers examples, some from the analyses of outside research groups and others from our own. But to give you a sense, consider, for instance, that 100 of the largest home builders in the US now account for about half of all new single-family home sales, up from just over a third decades ago. Most of these gains come from increases in the shares of only two home builders—D.R. Horton and Lennar—which, together, build almost as much as the other eight firms in the top 10 combined.
Another interesting statistic: Despite the strong recovery in home prices after the Great Recession, the number of builders has declined 65% since 2007, right around the time the financial crisis started.
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