SIC 1521 General Contractors—Single-Family Houses

 
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SIC 1521

The category covers general contractors primarily engaged in construction activities (including new work, additions, alterations, remodeling, and repair) of single-family houses.

NAICS CODE(S)

233210

Single-Family Housing Construction

INDUSTRY SNAPSHOT

Traditionally quite fragmented, in 2002 the single-family housing construction industry consisted of 104,930 establishments that employed 423,323 workers, according to the U.S. Census Bureau. The top 400 housing construction contractors accounted for less than 33 percent of the national market. In 2003, there were 1.5 million new housing starts, up from 1.3 million in 2002. A boom in the housing industry pushed new housing starts up in 2004 to an estimated 1.6 million. The South represented the majority of single-family housing starts with 734,000, while the Northeast numbered 127,000 housing starts.

Single-family housing construction was expected to decline to 1.5 million in 2005. According to the National Association of Home Builders (NAHB), housing construction was expected to decline 3.5 percent, or 1.4 million new housing starts in 2006

The single-family home construction industry comprises general contractors who are primarily engaged in building, remodeling, and repairing houses. Included in this industry classification are prefabricated housing assembled on-site and town-house construction. The single-family home construction industry is vital to the U.S. economy; it supplies jobs, tax revenue, and housing for Americans. During the early 2000s, the U.S. economy slumped into recession. However, low interest rates and the value of real estate as a relatively safe investment spurred housing construction. Although all other construction was sluggish at best, housing construction remained robust.

The rate of home ownership reached a record 67 percent of U.S. households in 1999, a figure that was expected to reach 70 percent by 2010. However, declining numbers of people will be entering the prime home-buying ages of 25 to 45 following the aging of the baby boomers during that period. Moreover, a decreasing proportion of this age bracket was purchasing homes; despite rising income levels among those 25 to 45, more people than ever opted to live in apartments. This shift was attributed mostly to lifestyle changes among younger people entering the housing market, who tended to prefer living in proximity to entertainment venues and shopping.

Furthermore, the rising costs of land, labor, and materials were among the primary challenges to single-family homebuilders at the beginning of the twenty-first century. Drywall and lumber prices, which tend to be somewhat unstable, were particularly inflated, while increases in land costs have been less pronounced, though some strong markets, especially in southern cities, have experienced significant escalation. Meanwhile, the shortage of skilled labor was viewed by some analysts as the most pressing concern facing the industry as it entered the twenty-first century.

While single-family housing was experiencing a gradual decline early in 2005, the focus shifted to home remodeling, including additions and alterations, maintenance and repairs, and major replacements. In fact, according to The U.S. Census Department, this sector would increase 12 percent in 2005, or a total of $177 billion that homeowners would spend. However, some analysts predict homeowners would spend closer to $225 billion. The majority of contracted projects would include additions or alterations, followed by maintenance and repairs with a small number of major replacements.

ORGANIZATION AND STRUCTURE

The single-family housing construction industry is unique for an industry of its size because it is highly fragmented and dispersed. The typical home is built by a contractor who produces fewer than 25 houses each year, while about half of all industry employees work at firms with less than 20 workers. While some larger contractors maintain building operations in a number of sectors, about 75 percent of establishments engage only in single-family housing construction. These firms also account for 55 percent of industry employees.

Nonetheless, in alignment with most industries in the 1990s, single-family construction was rapidly consolidating. The top construction firms on Builder magazine's "Builder 100" list have continued to expand their market share throughout the decade, particularly toward the late 1990s. The top five single-family contractors have accelerated their market share the fastest, achieving 30 percent of the top 100's share in 1997, compared with 21 percent two years earlier. Altogether, the five largest contractors generated revenues of $14.9 billion in 1998, up from $11.3 billion in 1997.

The relative, though diminishing, lack of concentration in the industry reflects the labor intensity and logistical complexity characteristic of on-site homebuilding. Regional and state building codes, trade unions, demographics, and environmental regulations combine to make the competitive structure of each local market unique. Many workers from various trades must be coordinated to complete a home. Moreover, many construction materials are less expensive when purchased regionally. Finally, the localized nature of housing markets prohibits many national economies of scale.

Since the 1980s, the South and West have proved the most fertile ground for new housing construction. The leading states for single-family construction in 1997 were California, with 13,000 establishments generating sales of $18.1 billion; and Florida, with 6,740 establishments engaging in work valued at $12.1 billion. Other leading states included Michigan, New York, and Texas.

Large contracting companies that do compete nationally are often relatively decentralized—consisting of generally autonomous regional operating companies. The various units of the corporation benefit from financial strength, as well as geographic and market diversification. The few contractors that compete overseas usually do so through foreign-owned subsidiaries. Although U.S. manufacturers sell and ship significant amounts of manufactured housing to countries such as Mexico, the homes themselves are usually assembled and finished by foreign contractors.

General contractors in the industry operate in a variety of ways. Some contractors actually purchase property and perform all construction work themselves. In other cases, a general contractor may be hired by a developer or landowner to provide construction services. General contractors commonly subcontract some or a majority of building activities to other firms. In any case, the general contractor is ultimately responsible for the finished product.

Products and Services

Two broad categories of homes are constructed or assembled on-site by the industry—attached and detached. Attached homes, commonly called town houses, can be owned by their occupants rather than rented. They are similar in construction to some apartment rental complexes, but town houses are separated from adjoining units by a ground-to-roof wall. In contrast to rental facilities, attached homes also have completely separate utilities and do not share infrastructure.

Detached homes are usually built on a lot that is owned by the same party that possesses the house. They typically have front, back, and side yards and are more expensive than attached homes. In 1998, 1.03 million detached homes were constructed, accounting for more than 90 percent of the single-family market. Approximately 8 percent of these homes were manufactured houses, which means that they were almost completely manufactured off-site, shipped to a lot, and assembled by a general contractor. Only the on-site assemblage of the home is classified as a single-family home construction activity.

Manufactured homes are typically smaller and less expensive than site-built homes. Because of federal manufacturing regulations, however, these units must conform to building codes that are stricter than those imposed by many local governments for site-built housing in a similar price range. Furthermore, quality control is often higher for...

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