Fewer Players, Fewer Homes: Concentration and the New Dynamics of Housing Supply

Abstract

Local homebuilding markets have become highly concentrated in the past decade. We document this increase in concentration and use IV regressions to show that it has led to lower production volume, fewer units in the production pipeline, and greater unit price volatility. These results are consistent with a theoretical model in which oligopolistic firms strategically set the timing, volume, and price of their new construction. Our estimates imply that market concentration has decreased the annual value of housing production nationwide by $106 billion. These findings provide further evidence that the secular decline in competitive intensity is altering macroeconomic dynamics

Keywords: housing, great recession, concentration, new housing supply, housing developers, competition