Shareholder returns for top homebuilders D.R. Horton and Lennar outpaced the wider S&P 500 between August 2014 and August 2024. Analysts downgraded the investment outlook of both companies this summer. However, some investors remain optimistic about the industry’s prospects for performance.
Industry observers say the market positions of top homebuilders has grown since the 2007-2008 financial crisis.
“A lot of them were receiving a massive liquidity boost from stimulus packages in the early 2010s,” said Luis Quintero, a faculty member at Johns Hopkins University Carey School of Business. “And they could use these resources in any way they wanted.”
Quintero’s research suggests lower levels of competition among homebuilders may contribute to the U.S. housing shortage.
Restrictions on supply are slowing homebuilding
The United States would need to rapidly build millions of new homes to slow the recent rise in housing prices.
“The supply shortage that we have estimated [is] anywhere from 2 [million] to 8 million. Some people put it at even 20 million housing units that we are short,” said Tobias Peter, co-director of the American Enterprise Institute’s Housing Center.
Some experts say that the long-term shortage partially stems from the permit approval process, which can slow down projects in areas with restrictive zoning laws.
Margaret Whelan, founder and chief executive officer of Whelan Advisory, said areas with more open land and looser regulations are seeing more home sales.
“A land decision in California can take decades versus in Texas,” said Whelan. “The dollars go further.”
Permits and starts of new residential projects have fallen below the highs recorded in 2021 as elevated mortgage rates on top of rapid home price inflation have continued to shut out many would-be buyers from the market.
Zoning proposals in the 2024 election
Vice President Kamala Harris and former President Donald Trump have offered contrasting views on zoning reform, which may influence the pace of residential construction.
On the campaign trail, Harris has called on local governments to relax restrictive zoning laws that limit the number of permits issued to initiate new construction. Her platform calls for subsidies to some builders that contribute to the construction of 3 million new homes by the end of the next presidential term.
“We will end America’s housing shortage,” said Vice President Harris on the final night of the Democratic National Convention.
Former President Trump has called for an end to what he says is the Biden administration’s efforts to bring more dense forms of housing to suburban areas. Trump also has criticized the administration for the current inflation situation, which has affected key costs including housing.
“Young people can’t get any financing to buy a house,” said former President Trump at the Republican National Convention in July.
Watch the video above to learn more about what’s slowing down homebuilders in the U.S.