Root causes: housing shortage driven by policy, not big builder concentration

I’ve been reading more articles arguing that our housing shortage is artificially created—that it’s caused by the increasing concentration of homebuilders and the decline in private homebuilders. The theory suggests that public builders are “hoarding” lots to drive prices up when they could be selling more homes and lowering prices.

I initially dismissed this narrative. But unfortunately, it’s gaining traction among politicians who tend to believe anything implying the crisis isn’t their fault and is beyond their control.

The genesis of this argument seems to have three sources:

1. Growing concentration in industry sectors across the economy
2. Years’ supply of lots reported by builders
3. A confusion over correlation versus causation

Industry concentration: context matters

Let me address the first point. There is indeed a problem in this country with increasing concentration across a wide range of industries. While opinions differ on why this is happening—some less harmful than others—a major factor is the over-regulation of everything. More rules and complex compliance requirements favor large companies that can afford to hire numerous lawyers and experts to cover the costs, especially as volumes increase. I agree that this is a valid concern, and I believe it also affects homebuilders.

But concentration in homebuilding only appears large compared to the past. It remains very low compared to other industries, as shown below:

Comparing industry market shares

• AI LLMs–about 99% Winner-Takes-Most: A near-total monopoly or duopoly. OpenAI and Google alone dominate most of the traffic.
• Mobile phones — about 98% duopoly: Apple and Samsung together dominate roughly 80%. The “Top 10” essentially make up the entire market.
• Airlines—about 92% Oligopoly: The “Big 4” (Delta, United, American, Southwest) control around 70%, with the next six taking nearly all the rest.
• Autos—about 87% competitive: Highly competitive at the manufacturing top. No single firm controls more than 18%. The “tail” (brands 11-20, such as BMW and Mazda) remains significant.
• Home Building—about 45% Fragmented: The most open market. Even the largest builder (D.R. Horton) has only about 14% share.

This side-by-side comparison highlights the huge difference in “market power.” While a small number of giants dominate Mobile Phones and AI, Home Building remains arguably the last major US industry where the top 10 firms control less than half the market.

The reality of land banking

The second point assumes that when people hear big builders have 6-7 years’ worth of land tied up, it could all be built now if they simply chose to do so. But if you’re in the business, you understand the following:

1. Those lots are not all created equal
2. They are not all approved and shovel-ready
3. They are not evenly distributed in equal numbers across equal projects
4. Many are optioned and may not ultimately “pencil.”
5. Not all will be delivered by the developer/entitlement firm from whom they are optioned

In short, they are not nearly all buildable today. In fact, I would argue that big builders are tying up much more land not to “hoard it,” but because lot delivery has become so uncertain that they need to secure more land to reach their production targets.

Mistaking correlation for causation

The third point examines data showing the number of private builders decreasing and affordability getting worse, and it combines this with point two to conclude: “Aha! I see what’s happening! Big builders are hoarding lots to drive up prices!”

But we’ve talked about why it’s become much harder for private builders to compete and why they sell. The main factor is approval and processing timelines, which require much more capital to keep a company going. That is not a concentration problem—that’s an entitlement problem.

Big builders have grown quickly, partly due to the housing shortage. They have not caused it.

Evidence against the hoarding theory

If you’re not convinced, consider this: Big builders typically have higher sales per project than private builders and, as discussed earlier, have been increasing their per-project sales rates over the last decade. If they are selling more per project than before and more than private builders, doesn’t that imply they are willing to sell for less?

Where my sympathies are and why it matters

Please understand, my sympathies and friendships lean more toward private than public builders. While I have collaborated with public companies, the majority of my career has been with private companies. I enjoy working with the dynamic entrepreneurs in our industry. I want them to succeed and unleash their creativity.

The best way to achieve this is to make it easy for them to pursue unique products and land solutions, and to have enough land that can reasonably be approved to keep costs—and the upfront capital required—manageable. If you love having local companies engaged in their communities, that is how you encourage it in the building industry. It’s not about blaming big builders; it’s about fixing the problem.

The real solution

The reality is that most of the dynamics in this market come down to fundamental economics and land use decisions. And the choices made by public policy have been to restrict supply and implement requirements that increase the cost of housing.

Focusing affordability concerns on big builders distracts from what truly matters: we need more and faster approvals, along with infrastructure built at scale. While those arguing that concentration is the problem probably mean well, it’s a way for politicians to avoid real issues.