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Large Builders are Not the Majority

In a recent, “Eye on Housing” blog post, the The National Association of Homebuilders (NAHB) reported that publicly-traded builder shares got a boost in 2016, up to 27.4 percent of new single family home closings, up from 25.6 percent in 2015 and the highest since 2010. The share is smaller when not including not-for-sale custom home building.

Largest home builder D.R. Horton saw 40, 309 closings in 2016, comprising 7.2 percent of market shares. Lennar and Pulte, the next two largest builders, had 26, 563 and 19,951 closings, respectively. The top 10 publicly-traded builders closed 153, 343 sales in 2016 total. The market, as a whole, saw 559, 000 closings.

Though large publicly-traded home builders are often seen as a risk to smaller privately owned builders, private builders still dominate the residential construction sector. In 2015, a report from NAHB found that at least 96 percent of homebuilders qualify as small businesses and 81 percent are self-employed, independent contractors.

According to the Home Building Census released by the NAHB and using data from the Census Bureau, residential construction builders are for the most part private contractors with very few to no employees on the payroll. Instead, these small companies tend to subcontract most of the construction work. The report shows that these non-employing firms account for more than half of the workers in residential building construction, though  these firms only average around 17 percent of total sales and receipts in residential construction.

The NAHB notes that while large, publicly-traded companies have many advantages such as better access to credit and better advertising, smaller builders know their local market better and are better suited to customize their product and increase the amount of returning customers. These types of companies are the majority in the industry with two out of three home builders generate less than one million in receipts. There is no fear that the large publicly traded companies will take shares away from these smaller businesses.

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