2018 | Future of US Residential building market

Photo by David McBee from Pexels

Category: Urban Area

Industry: Future of Urban Living

Location: United States

Related to: Future of Urban Living, Urban Cities, Urban Development, Community, Growth 

Reviewer: Logan Larkin / BFA Parsons School of Design

Company: McKinsey

Website: https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/the-next-act-for-private-equity-in-us-residential-building-products

About: 

Confidence has been growing since the housing market crash in 2009. From lows of 478,000 housing units annually in 2009, the US has recovered that number to 1.28 million, almost reaching the all-time high of 1.5 million housing units a year. High numbers have influenced investors confidence in the housing industry. Despite still being below long-term averages, housing starts still have high demand, which indicates a continuation of the current bull market. According to McKinsey, “To continue creating value, industry leaders—whether public or private equity-owned—will need to expand their value-creation playbook beyond consolidation and operational improvement.” In order to maintain momentum in total return for shareholders, companies will need to expand and address issues such as labor shortage and consolidation across the value chain.

After a strong recovery from the Great Recession, optimism in the housing industry created a balanced economy and room for construction growth. This resulted in consolidation in the value chain allowing for the number of completed of transactions to reach a peak in 2017. However, over the next five years, valuation will continue to increase and potential buyers will find it hard to sustain high returns. McKinsey expects to see these two trends over the next five years:

Trend 1: Near-term growth rates will be more muted

Trend 2: Construction labor shortages and stagnant productivity are expected to propel innovation and technological adoption

As investors continue to invest with the expectation of high returns in an already consolidated value chain, the industry will become more bloated. In order to avoid stagnation, players need to create strategies to steadily expand the value chain to maximize returns. Players need to look into high-growth micro markets such as the south-west, as well as other trends; energy efficient, stronger and lighter and limited maintenance products have all become popular trends for housing starts. In order to stay competitive in the housing and building products industry as well as against other industries, the building industry is expected to integrate digital tools to maximize efficiency and continuously expand the value chain