As public builders continue to expand, let's appreciate and not overlook the companies and communities private home builders build throughout the U.S. Their excellence stems from being laser focused on what they do best while sustaining competitive advantages in their chosen niches.
The industry's bifurcation is unmistakable as public builders continue to increase their market share to the detriment of private builders. In 1990, public home builders built 5% of all U.S. homes. In 2005, their market share ticked up to 25%.
By 2019, it reached 37%, and in 2024, it spiked to 51%, with continued growth expected. For the first time, publicly traded home builders are building more homes than the privates.
Private Builders Are Essential to Housing
Private home builders are a vital component of the home building industry. Highly skilled private builders deliver exceptional products at market prices, providing a variety of unique designs with quality specifications—flexible floor plans with personal touches, originality with over-the-top customer service. An option from big builders is a must to maintain a variety of choices for consumers. Housing shouldn’t be one-size-fits-all.
Privates also serve as market innovators, introducing housing concepts that challenge mainstream development approaches. They can create diverse neighborhoods by providing varied architectural and land planning styles while integrating specialty materials and other services. They often target specific demographic needs and geographic preferences, seeking to impact their community positively.
Private Builders Have to be Impressive
Consider how smart and proficient private builders must be to succeed in such a competitive environment.
Those who have been around for a while have excellent track records with efficient systems, processes, and great teams in place. Land acquisition, design, material purchasing, labor, operations, and customer service must be finely tuned.
Not to mention their chief financial officers, who create capital stacks, structured financing solutions, work with lenders, bring in joint venture equity partners, family offices, and structure them soundly so all parties can succeed. The ability to maintain solid balance sheets and profit margins, with enough cash to create pipelines of land opportunities, is essential.
They are entrepreneurs, making products for consumers and businesses for the long term, some for the next generations.
Private builders must maintain excellence as many principals take personal risks on every project, every day.
They are resilient risk takers who roll with economic and political twists—constantly seeking solutions to affordability, land approvals, material cost increases, labor shortages, interest rate fluctuations, and other issues confronting their business and the industry.
Skin is in the game, willing to go the extra mile to meet customer needs and continue to compete and thrive. It’s more about strength and ingenuity when you’re a private builder; the countless work hours can’t be seen. The ability to create something spectacular out of nothing, usually through resolve and determination.
It’s not about shareholder value; it’s more about providing value to their customers, who will praise them.
Public Builders Are Embracing Opportunity
The publics are using their access to inexpensive capital, land strategies, and ability to acquire other builders to accelerate growth. Who can blame them? Opportunities exist, and more private equity, foreign capital, and other institutional sources are jumping in.
As for all public companies, their responsibility to shareholders is a primary goal. Value creation, growth, stock price, and earnings provide a much-needed product at scale: housing.
At some point, will the big getting bigger negatively affect the industry? All the merger transactions are newsworthy, of course, as they impact the housing landscape and its various markets.
But what it means to most private builders today is that another public builder may move into their market, overpay for land, and cut prices and margins, if necessary, to keep their building machine rolling. Navigating through these challenges is difficult, a skill set all builders need to possess.
Land
These days, it’s mostly about land: land pipelines, access to capital, lots under control, and the ability to accumulate the best locations quickly. It’s very competitive. Financing tools for land are becoming more available for private and public sectors. Capital sees opportunities here as well, and private builders can benefit from a diverse array of options to move promptly when a parcel becomes available.
Benefits of a Balanced Industry
From a consumer side, there are benefits for the private and public co-existing—more housing with more choices; different specialties, pricing, design, specifications, and services. Large, well-capitalized building companies can help the industry progress through research and development initiatives and housing supply. Privates can offer their unique homes and communities while providing distinctness and optionality.
Consolidation happens in many industries, and home building is no exception; perhaps it’s just a natural progression. The industry was built by private builders, all providing different experiences, communities, and value, according to their visions and commitment. Consumers will have the final say, as always. I’m optimistic for the home building industry and private builders; there are too many outstanding and experienced leaders with so much to offer.
