Finance

In 1994, the ten largest builders had just 10% of the national market. By 2018, the top ten builders had a little less than a third. Partly this consolidation is due to a credit crunch. During the financial crisis from 2007-2012, 55% of residential developers disappeared. There were also post-crisis mergers, like Pulte Homes and Centex, Lennar and CalAtlantic, Tri Pointe and Weyerhauser, and so forth, but many of the acquisitions these days are smaller roll-ups, like D.R. Horton buying an Arkansas specialty builder Riggins Custom Homes, Gulf Coast builder Truland Homes, or lot developer Forestar Group, or Lennar acquiring developer WCI Communities. Analysts are projecting 2024 to be another strong year for M&A.

Of course, such numbers understate consolidation; national shares matter very little, since housing is local, and concentration is higher when you get to local levels. In Miami-Fort Lauderdale, for instance, Lennar has 47% of the market for new homes, in Los Angeles, D.R. Horton has about a third. As economist Luis Quintero noted in a paper, 60% of local markets are now “highly concentrated,” a new phenomenon. In 25 of the top 82 markets, one builder controls at least 25% of the market. That’s 60% of the housing markets in “Virginia, Maryland, Delaware, New Jersey, New York, and western Pennsylvania.”

[…]

So why all the consolidation? And more importantly, why hasn’t the number of builders bounced back? If margins are up, why aren’t there new entrants coming in to take profit and share? To answer this question I started by reading a bunch of investor documents from the big homebuilders. And I realized that to call these businesses “homebuilders” is misleading. It’s striking how little of their business has to do with, well, building. For instance, here’s D.R. Horton in 2023: “Substantially all of our land development and home construction work is performed by subcontractors.” Here’s Lennar in 2023: “We use independent subcontractors for most aspects of land development and home construction.” I suspect most of the other big guys would say something similar. These aren’t builders, they are financiers that borrow cheaper than real developers and use that cheap credit to speculate in land, hiring contractors to do the work. They are, in other words, middlemen.

In this report we propose the creation of a national construction fund to help expand the stock of new multifamily housing, particularly during high interest rate environments. The multifamily housing sector finds itself trapped in a vicious cycle: rising rent and housing costs induce the Federal Reserve to raise interest rates, thereby shrinking the supply of financing for housing, in turn contributing to higher housing prices. Financing bottlenecks cause otherwise economically viable units to sit unbuilt or delayed, contributing to our national housing shortage and affordability crisis. 

A national construction fund would provide enough lower-cost construction financing to allow multi-family developers to clear upfront equity investment hurdles and continue developing projects in higher interest rate environments. Thousands of permitted, ready-to-build units that are stuck in limbo would nally enter construction, ensuring that housing supply becomes available as the economy picks up steam and preventing housing costs from continuing to spiral upward.

This report highlights:

• the connection between the business cycle, housing supply, and housing costs;
• the financing gaps that developers face in high-rate environments; and
• considerations and options for policymakers in designing and implementing a national construction fund that can ll those gaps, including the proper instrumentalities to host the fund, eligible lenders, risk management, fund sizing, and further incentives to increase affordability.

Any society must undertake economic activities, which are embedded within social systems, to generate the flow of goods and services to provide for the material means of life, including the provisioning of money. The economic ideology of money as a “neutral” medium of exchange obfuscates the sociopolitical nature of the monetary provisioning system. In contrast, we ground our analysis in the understanding of money as a social relation, and we apply the lens of social provisioning to the monetary system. This view makes clear that the monetary system is embedded within, and reinforces, existing hierarchies and power structures and evolves through processes of political contestation. First, our analysis traces how changes in the monetary system have shaped the institutional structures of early capitalism such that the monetary system was seemingly depoliticized. Second, we apply this historical analysis to generate a deeper understanding of current monetary contestations. We apply a discourse analysis of the European Union’s fiscal rules to reflect these debates. The monetary system as it has taken shape through the financial crisis of 2007–2008 and the COVID-19 pandemic has brought the political nature of money back into the public imaginary. Accordingly, we highlight the role and power of the state as guarantor of the functioning of the monetary system. A full acknowledgement of this governmental capacity could create renewed space for monetary contestations and democratization. Our analysis reveals that these are both necessary elements to ensure the financing and macroeconomic stability of a social-ecological transformation.

Credit guidance was used extensively in the post-war period. The policy helped states build up their industrial capacity, expand their welfare systems, and accelerate technological innovation in key sectors where rapid development was needed. It is a central pillar of any successful industrial policy framework. And with the ecological crisis, it is gaining renewed attention: A recent report produced by the University College London’s Institute for Innovation and Public Purpose shows how credit guidance can be used to accelerate an effective green transition.

This approach can also be used to offset inflationary pressure. In a scenario where we need to increase public investment in necessary social projects—such as health care, housing, and transit—credit controls can be used to reduce commercial investments elsewhere in the economy (again, specifically in damaging and unnecessary industries that we need to scale down), thus regulating aggregate demand. This is a much more rational strategy for inflation control than using broad-brush interest-rate policy, which can have a devastating impact on people’s livelihoods and on socially important sectors.

Wielding the power of credit, commercial banks get to determine the allocation of investment and therefore determine what gets produced.  They make these decisions based on whatever production is most profitable, regardless of whether it is beneficial or destructive. As a result, we get massive investment in things like fossil fuels, beef and SUVs, because these things are highly profitable to capital, and chronic underinvestment in necessary sectors like renewable energy, regenerative agriculture and public transit, because these are less profitable or not profitable at all.  

This dynamic is what explains the fact that high-income countries – like the United States and Britain – are characterized by extremely high levels of resource use and yet still fail to meet many basic human needs. It is because investment is controlled in an undemocratic way, and is totally unaccountable to society.

Credit guidance can help deal with this problem.  We need a democratically ratified framework to guide private investment in line with social and ecological objectives rather than just profit maximization. What are our main goals and values as a society? What do we need to accomplish? What forms of production should be increased in order to improve human well-being?  What forms of production are destructive and unnecessary and should be scaled down?  These questions should be democratically determined and a credit guidance framework should be established accordingly.

BIS statistics, compiled in cooperation with central banks and other national authorities, are designed to inform the analysis of international financial stability, monetary spillovers and global liquidity.

The BIS Data Portal is your entry point to global statistics. You can access a variety of tools and curated, statistical content for guided data and metadata exploration, quick data insights and efficient data export into multiple formats.

Recent coverage of insurance markets has highlighted the industry’s involvement in the so-called “climate risk doom loop”: looming climate risks and worse disasters are raising the price of insurance for real estate and infrastructure assets, exacerbating their owners’ vulnerability to future disasters and feeding into higher insurance prices in the future―or the withdrawal of insurance coverage altogether.

Rising insurance prices and the credible threat of insurer divestment from higher-risk areas will constrain investment in both homes and businesses across vulnerable communities. Yet more people are moving into higher-risk areas, and some politicians fear backlash if they let insurance companies deny these communities coverage. In response, state leaders in California and Florida have sought to prevent divestment by directing their insurance commissioners to adjust pricing regulations, invite competition in insurance markets, or derisk insurers by imposing disaster-risk fees on all insurance purchasers regardless of risk.

Private investors, meanwhile, believe the insurance industry should follow price signals: if firms can identify the climate risks an assets could face, and investors price those risks into building and maintaining costs, then market actors will invest prudently.

I argue that insurance is a woefully inadequate financial tool for coping with the impacts of climate change. Improving insurance markets does little to address the fact that the core drivers of the “climate risk doom loop” rest in the design of capital markets, which are structured to direct investment away from vulnerable communities when they most need it.