Putting_the_Supplier_in_Housing_Supply_A - Putting the...

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1 Putting the Supplier in Housing Supply: An Overview of the Growth and Concentration of Large Homebuilders in the United States (1990 - 2007) Peter Wissoker City and Regional Planning Cornell University Ithaca, NY Forthcoming Housing Policy Debate ABSTRACT As housing production was ramping up in the 1990s and 2000s, some of the industry’s largest firms experienced remarkable growth primarily through mergers and acquisitions and the issuance of debt; the market share of the ten largest firms tripled between 1995 and 2005. The article describes the role of financial firms in encouraging that growth and some of its consequences. Drawing on financial filings, news reports, investor analyses and other relevant data, the paper offers an overview of the relationship between homebuilders and investment firms, as well as a new explanation of the oversupply of housing in the 2000s. In doing so, the article seeks to bring attention to homebuilders as a missing feature in analyses of housing supply and housing markets, and proposes directions for future research. Keywords : housing; homebuilding; financialization; housing markets; housing supply; shareholder value; homeownership; real estate; economy *Email: [email protected]
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2 “Models of housing price volatility that ignore supply miss a fundamental part of the housing market” Glaeser, et al. , 2008, p. 198 Greater attention to the structure of the housing supply mechanism is necessary in order to better understand the effects on the prices and quantities of houses in specific local markets of both market-related and policy-induced shocks to housing demand. Ambrose and Peek, 2008, p. 660 “There has been a change in the overall competitive dynamic in this industry, where large public home builders are now able to wield substantial competitive advantage over smaller, private competitors to a degree that was not seen in decades past,"” Kim says. "”That has resulted in them being able to essentially crowd out some of the smaller players at a time when supply is becoming scarce. If supply is becoming constrained and they have the ability to produce supply when others don't, the majority of the price improvement [from rising home prices] is going to accrue to them. Stephen Kim, Managing Director, Smith Barney (Holtzman, 2005) In the years leading up to the collapse of the housing bubble a wave of mergers and acquisitions hit the homebuilding industry. The resulting concentration of firms remade what had traditionally been an industry of local and regional firms into one marked by companies that strategized at a national and sometimes international scale. Although nationally the ten largest firms held less than a twenty percent market share, in individual regions their market share was far greater. This was particularly so in the states with the biggest bubble, Arizona, California, Florida, and Nevada. Between 2002 and 2007, the average market share of the ten most productive firms in the fastest growing housing markets
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