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Buying a home remains out of reach for many individuals and families in the United States, with house prices hovering close to an all-time high, and millennials, for a variety of reasons, opting to continue renting.
A specialist in urban and real estate economics, particularly related to policy-related topics like affordability, Luis Quintero is an assistant professor at the Johns Hopkins Carey Business School. Here, he discusses the state of the housing market and shares insights from his recent research uncovering an important yet missing piece of the housing puzzle:
Q: What, specifically, have you learned from your housing affordability research?
A: 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 homebuilders 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 homebuilders—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.
Q: How, then, does the high market concentration in housing construction affect home prices?
A: When you have a monopoly, you have an interest in withholding supply to increase demand—really, to increase prices. That’s what we see happening and one of the variables contributing to the continuous rise of house prices. We have some large, dominant players who do not want to produce as much as they can because they know it will bring down the prices of their other units. So, they intentionally avoid building, or they build over a staggered time period. That’s why you see new neighborhoods with only a couple of houses over the span of months or even years. They deliberately keep the housing they’re producing scarce.
Read the full interview about homebuilder monopolies with Luis E. Quintero at Futurity.