News & Media

Economists: An Unseen Force Holds Back Affordable Housing

Study: Builders lost workers, went bankrupt or got absorbed during the recession. That led to a drop in competition and potential loss of 150K new homes each year.

WASHINGTON – According to a working paper by economists Luis Quintero and Jacob Cosman of Carey Business School at Johns Hopkins, the number of builders that controlled 90% of a typical market fell by a quarter between 2006 and 2015 – and this drop in competition cost the country about 150,000 additional homes per year, all else being equal.

The change in the makeup of builders also influenced prices. They found that home prices grew more than twice as fast from 2013 to 2017 as they would have if the market hadn’t consolidated during the recession.

According to Quintero and Cosmans’ theory, having only a few builders controlling many markets exacerbated the nation’s affordable housing crisis. With fewer competitors, builders face less pressure to beat out rival projects and can time their efforts to produce fewer homes while charging higher prices.

However, industry experts attribute this consolidation to issues like the scarcity of land, rising labor costs, restrictive zoning, NIMBYISM (or not-in-my-backyardism) and the financial markets.

The National Association of Home Builders reports that mergers among large home builders boosted the market share of the top 20 builders to 29% last year from 21% in 2008. While many may not consider the housing market an oligopoly given the thousands of builders across the country, oligopolies in housing are fundamentally different due to “location, location and location.”

Quintero says that buyers shop for homes in a narrowly defined town, suburb, neighborhood or other market. And in some of those areas, the only competitors that matter are those operating within the same market.

Jenny Schuetz, an affordable housing expert at the Brookings Institution, praised the analysis. “If zoning and other local permitting processes are complicated, land is expensive and the time needed to develop a project is long, then only large, well-capitalized, politically savvy developers will be able to build.”

Source: Washington Post (10/17/19) Van Dam, Andrew

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