Good land is increasingly hard to find, big home builders will grow bigger, and consolidation will continue in the home-building industry, according to a report released this week by McGraw-Hill Construction and Deloitte & Touche LLP’s real estate industry group.
The report, based on a survey conducted by McGraw-Hill Construction’s Industry Analytics and Alliances division, also found that high-end kitchen materials, tile flooring and wood flooring are a fast-growing trend in new-home construction.
“In all aspects of the study, land was shown to be a critical commodity. It could create the largest roadblocks (supply and development delays), the most significant cost, and have the most important impact on profitability,” McGraw-Hill and Deloitte and Touche officials said in an announcement.
Construction materials procurement “is becoming more regional national, not just local, which means that large home builders are reaping strong advantages in procurement,” according to the “Staying Competitive in Today’s Homebuilding Industry” report.
“As large builders gain economic advantages in procuring materials, accessing capital and attaining developable land, their profitability and prominence will continue to expand at the expense of small builders,” the report also states.
About 34 percent of the respondents to the homebuilder survey had annual revenues greater than $100 million while about half of respondents had annual revenue between $10 million to $50 million, and about 29 percent of respondents build more than 250 homes per year.
The top 100 builders control about 65 percent of the market, the report states, and “more than a dozen acquisitions during 2003 resulted in the top-10 builders increasing their total U.S. market share from 10 percent in 1995 to 20 percent in 2004.
Customer requests are the best way to keep up with home-building trends, the survey found, followed by trade literature and publications, market research and tradeshows.
Modular homes and steel-framed homes are falling out of favor among builders, the survey also revealed.
Financial-reporting software, and the use of high-tech tools for purchasing and project management are among the most valuable applications of technology for the industry, according to the survey. Outsourcing for mortgage origination, hardware, software, sales and marketing services – in that order – are popular among builders.
Land costs ranged from 24 percent to 28 percent of the total project costs among starter, move-up and luxury homes, survey respondents said, compared to about 33 percent of the total cost in the states of Florida and California.
The average build time for a single-family house was three to six months, according to 64 percent of the survey respondents, while 22 percent said the average build time was six to 12 months.
McGraw-Hill Construction, part of The McGraw-Hill Cos., offers industry news, trends and forecasts, serving about 1 million within the $4 trillion global construction community. Deloitte & Touche offers audit, tax, consulting and financial advisory services.
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