Research Reveals the Growth of Home Building Oligopolies
"U.S. housing debates rarely involve the 'O' word. But oligopolies, a cousin of monopolies in which a few powerful players corner the market, are emerging everywhere," writes Andrew Van Dam.
Van Dam is sharing the results of a working paper by Luis Quintero and Jacob Cosman of Carey Business School at Johns Hopkins, which found a 25 percent drop in the number of firms operating in most housing markets.
The trend has consequences for housing affordability. "With fewer competitors, builders are under less pressure to beat out rival projects, and can time their efforts so that they produce fewer homes while charging higher prices," according to Van Dam. "From 2013 to 2017 home prices grew more than twice as fast as they would have if the market hadn’t consolidated, the economists found."
The article includes a lot more about the methodology of the study, infographics to illustrate the findings, and a big caveat about the role of consolidation in the complex mix of factors driving up prices: the costs of labor and materials, restrictive land use regulations, and other commonly cited factors are still responsible for the housing crisis. And housing and land costs "could be a cause of consolidation, not an effect," explains Van Dam.