Age Of The Big Builders

How large publicly traded builders are turning the American home into a corporate product.

Many regions of the U.S. are nearing buildout. The economics of supply and demand are likely to force housing prices to rise further. Big builders are buying up land in the hope that they can cash in on a future price hike they believe is coming that will reflect the housing costs that you find in Europe. Here in the US housing is roughly 3.5 times annual income in Great Britain it is roughly 7 times.

"A number of companies [have] over the past few years, transformed the American home into a corporate product... At the moment, one in four new homes in the United States is built by a large publicly traded home builder, but this ratio will probably change significantly...

[Builders] see a future that depends not on the short-term fate of the Florida and California condominium markets but on the long-term supply of land...They ponder where it will lead them to build in 5 or 10 years.

For the past few years...some builders turned to infill housing, looking to old industrial spaces or unused urban lots to satisfy demand. For the most part, though, they have plotted new communities farther and farther outside of cities...

Of course, there's more to the economics of the housing market than the supply of land. Demand can be influenced by everything from higher interest rates...to a region's rate of job creation...None of these contingencies shake the faith of the big, publicly held builders. Indeed, many are adamant that the tightening supply of land in many metro areas, as well as long-term demographic trends, augur an American future that works to their advantage...

One idea that shapes the outlook of real-estate economists is the notion that cities, in a rough conceptual sense, are replacements for one another. A city is founded, and residents and industries settle there; over time, that city and its metro area might reach a population of a million residents. As demand to live there increases and the supply of good land diminishes, housing gets more expensive. But lo, another city arises nearby, where land is cheaper and jobs are plentiful. Residents can now leave the first big city, if they choose, and move to the second, smaller city...As pressure on prices and land builds, a new city can act as a pressure release.

It's possible that this model has broken down over the past few years. A small cadre of economists, in fact, has begun to ask whether the irrepressible inflation of home values in many coastal metro areas actually reflects a deeper logic based on the straitened land supply in these cities...

You can see how it adds up in the end: the stealthy land acquisition, the aggressive legal positioning, the meandering street designs, the furiously gabled architecture, the fungible options and home facades, the demographic targets - an entire vertically integrated, highly methodological luxury system."

Thanks to Peter Vaughan

Full Story: Chasing Ground

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