NAHB’s analysis of information published in Builder Magazine shows that, although major markets became slightly less concentrated overall, large builders tended to gain market share.
Every year, Builder Magazine lists the top local home builders, measured by total closings, in the country’s 50 largest markets. For each of them, NAHB calculates four summary measures. The first is a basic four-firm concentration ratio (the share of closings accounted for by the four top builders in the area, irrespective of their size). The other three are shares of closings accounted for by builders in three size tiers: those with at least 3,000, 1,000 and 500 closings per year. These cut-offs are chosen to provide rough working definitions of national, large regional and medium-sized regional builders, respectively.
There are 36 markets that have been continually on Builder’s list, enabling them to be tracked in a consistent way from 2009 through 2016. As reported in last year’s post, on average across the major metropoitan markets, all four concentration measures increased regularly from 2009 to 2014, before reversing their trends and declining slightly in 2015.
In 2016, the changes in the average concentration measures were relatively small and somewhat mixed. The average four-firm concentration ratio for the 36 metro markets declined from 38.6 to 38.2 percent, while the other three measures edged upward. The average market share for builders with 500+ closings increased only slightly from 47.9 to 48.0 percent. The average share for builders with 1,000+ closings increased from 42.6 to 42.9 percent. The average share for national builders (with 3,000+ closings) posted the largest gain, going from 36.3 to 37.2 percent.
While changes in the 36-market averages were relatively small, individual markets showed more volatility, as you would expect. In 2015, Miami was by far the most concentrated of the major markets, with a four-firm concentration ratio of over 70 percent. But in 2016, Miami’s four-firm concentration ratio fell back considerably, to 46.7 percent. In 2016, Baltimore ranked as the most concentrated of the major markets when measured either by the four-firm concentration ratio (62.0 percent), or the share of the market held by builders with 3,000+ closings (74.8 percent).
In Baltimore, it is clearly the large national builders (with 3,000+ closings per year), rather than regional builders, driving the market. No builders in the 1,000-2,999 or 500-999 size ranges have made the list of top builders in the Baltimore market for several years. The share of the market held by large national builders has been trending upward consistently in the Baltimore area since 2011.
The situation is different in some of the other local markets. If large regional as well as national builders are considered, Las Vegas ranked as the most concentrated market in 2016, with builders averaging at least 1,000 starts per year accounting for 79.5 percent of total closings.
Since 2009, medium-sized regional builders in the 500-999 size range have moved into and out of the top 10 in the Las Vegas market. There were none in the top 10 in 2016, so the share of the market accounted for by firms with 500+ and 1,000 plus closings are identical.
The major market where medium-sized regional builders had the greatest impact in 2016 was Jacksonville, Florida. In Jacksonville, the share of the market held by firms with 500+ plus closings surged from 61.6 percent in 2015, all the way up to 83.4 percent, the highest for any of the top 50 markets in 2016.
Although builders in all three size tiers increased their market shares in Jacksonville in 2016, the increasing concentrations were led by a particularly strong surge in the share of the market held by firms in the 500-999 size range.