Explore how cities are deprived of new housing wherever corporate builders are able to monopolize on residential development. Part of our series: “Causes of the Housing Crisis”
It was in March of 2024 that I found myself walking down a quiet residential street in Alhambra, a city that forms just one part of the complicated mishmash of municipalities that is Los Angeles County. I had come to visit LA to meet with builders, architects, and urban planners to interview them about their fight for a more livable city, and to see first-hand how that fight was unfolding. It was for this reason that I was walking down that quiet street in Alhambra, to meet with a builder that was working on a type of home that might soon be seen all across the US and Canada.
As I walked down that sloping and meandering residential street, I was astonished to see just how many of those houses had a construction crew working in the backyard. Wherever I turned I saw construction crews going about their days, there being almost as many unique construction companies, with different logos emblazed on their trucks and shirts, as there were job sites themselves. What I was witnessing first-hand was the boom in LA housing construction fueled, in no small part, by Accessory Dwelling Units (ADUs).
ADUs are housing units built within the lot of an existing property, typically in the backyard of a single-family home. In LA, ADUs are usually detached from the principal structure, with a separate foundation, and with separate metered connections for utilities like water and power. According to data from the California Department of Housing and Community Development (Cal HCD), over 21% of all new residential build permits issued state-wide in 2023 were for ADUs. Between 2020 and 2023, the number of build permits issued for ADUs exploded by over 54%, with that surge even more pronounced in the ADU-concentrated areas in and around LA.
This surge in ADU construction is spearheaded by smaller-scale builders like Gil who I met with on a sunny March day in Alhambra, California. Gil is the owner of GoADU, a general contracting company that offers ADU construction and remodeling services.
“Just 4 years ago, we had never even worked on an ADU. We were focused on residential remodeling. Today, it’s my entire business,” said Gil as he walked me through the driveway of his Alhambra job site. As I turned the corner, I was greeted by the homeowner named Michiko who was standing there watching as Gil’s team continued their work. Michiko intended to move into her new ADU as soon as it was finished, while leasing out the main home which was an older single-family structure.
Housing Type | Built by small or medium sized builder | Built by a large (corporate) builder |
|---|---|---|
ADUs (California only) | 90.70% | 9.30% |
Single Family Homes (US) | 19.80% | 80.20% |
Table 1: 2020 home construction stats by builder type. Source: Cal HCD, UC Berkeley, Harvard JCHS
Michiko’s ADU is just one of the 90% of Californian ADUs which were built by a non-corporate construction entity. Non-corporate construction entities like GoADU who compete for jobs such as Michiko’s within a highly fragmented and thus, competitive market of small and medium sized builders. Contrast this with the state of the nation’s single family home construction industry, which has over 80% of new homes being built by a corporate construction entity.
Industry sub-segments | Total business count | Corporate-scale businesses | Total 2017 earnings (USD) |
|---|---|---|---|
Single Family (SF) Contractors | 48 673 | 3 408 | $69 000 000 000 |
Multi-Family (MF) Contractors | 3 200 | 1 024 | $47 000 000 000 |
For-Sale Builders | 17 123 | 4 110 | $149 000 000 000 |
Remodelers | 102 818 | 3 085 | $78 000 000 000 |
Land Subdivision | 4 893 | 392 | $9 400 000 000 |
Speciality Trade Contractors (STC) | 463 263 | 41 694 | $875 600 000 000 |
Table 2: 2017 US National Home Builder Census. Source: NAHB
A corporate construction entity is defined as a builder or contracting company earning 5 million USD or more in annual revenue. Table 2 shows us that the home builder industry seems to be highly fragmented, with corporate entities only being a small subset of the builder census. But further analysis of the earnings data from the US National Association of Home Builders (NAHB) shows us just how concentrated the home builder industry truly is.
Figure 1: Breakdown of how much different classes of companies are earning in their respective industries. Source: NAHB
Despite only representing 8% of all businesses in the 2017 census, corporate-scale entities earned over 62% of industry earnings for that year. The increasing concentration of the residential construction industry is best underscored by the fact that just 100 of the largest home builders now account for over half of all new housing construction across the entire US, according to a 2022 study published by Harvard’s Joint Center for Housing Studies.
So, what does Michiko’s ADU have to do with housing affordability?
Citizen developers like Michiko, who are collectively contributing massively to California’s new housing stock, are deprived of development opportunities wherever corporate builders are able to monopolize on residential development. The concentration of the home builder industry has a profoundly negative effect on the number of new housing units built, and the affordability of housing overall.
Data from a paper by Luis Quintero, and published by the John Hopkins Carey Business school, strongly suggest that this industry concentration has led to decreased productivity in the form of lower housing output, as well as an increase in price volatility. Quintero’s analysis shows that at 2006 levels of industry competition, the US in 2015 would have seen 157,000 more housing units while experiencing a 3.1% decrease in price volatility.
To state this differently, the lack of competition in the home construction industry resulted in a 15% decrease in actual housing built in the US in 2015. This missing 15% of housing represents 106 billion US dollars worth of housing that was removed from the national housing pool as a result of industry domination by just a small number of corporate builders.
The consequences of industry consolidation are not constrained to the home construction industry. Across the board, industries in the US and elsewhere around the world are continuing to concentrate thanks to the monopolization by a small number of powerful companies. This decline in overall market competitiveness can already be felt in our day-to-day lives whether that mean more expensive phone plans, poorer airline quality, smaller restaurant portions, or dare I say, chronic housing shortages and unaffordability.
Figure 2: Winner takes all. Accross all industries the largest companies are growing their stakes within their respective industry sectors. Source: Brookings Institution
A 2018 research paper titled Antitrust remedies for our concentrated, uncompetitive economy rebukes the increasingly dire state of market competition saying "rising concentration is only the first half of the story. The other half tells how the competition so fundamental to our dynamic, free market system is now under threat."
"Rising concentration is only the first half of the story. The other half tells how the competition so fundamental to our dynamic, free market system is now under threat."
Michiko looks on as the workers continue their work on her ADU, her future home. Michiko’s ADU is just one of the thousands of new ADUs that are being added to California’s new housing supply, desperately needed as California grapples with a historic housing crisis.
At a time when large corporations continue to exploit and exacerbate perilous crises for monetary gain, the growth of a highly energetic and yet highly competitive sub-sector around ADUs offers a glimmer a hope, and a prime example of how a free and dynamic market is needed to restore housing affordability & availability. But is the rise of the ADU one that is insulated from corporate exploitation? Or is this merely the calm before the storm, before they too are consolidated by the corporate powers at-large, absorbed into their growing dominions where the consumer will always lose.
Written by Michael Clement Cambare
Michael is a co-founder of FHA. A passionate affordable housing advocate and someone very frustrated with how bad the traffic is in Toronto.