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. From 2006 to 2015, the number of builders who controlled 90 percent of a typical market dropped by a quarter, according to a recent working paper by economists Luis Quintero and Jacob Cosman of Carey Business School at Johns Hopkins.
The economists find this dwindling competition has cost the country approximately 150,000 additional homes a year — all else being equal. 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.
The largest builders are national publicly traded companies that have thrived even as new-home construction remains far below historical levels, but success in real estate is local. Relationships with city or county officials, which oligopolies have used to cement their advantage since the recession, are often decisive.
Brookings Institution affordable-housing expert Jenny Schuetz praised Cosman and Quintero’s analysis and said that while market concentration helps explain part of the housing shortage in high-cost regions, the debate always comes back to expensive regulation and its cousin, NIMBYISM.
NAHB estimates that from 2011 to 2016, regulatory costs rose 30 percent to $84,671 for a typical new U.S. single-family home. That is a high bar for smaller builders to clear.