SIC 1531 Operative Builders

 
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SIC 1531

This category covers builders primarily engaged in the construction of single-family houses and other buildings for sale on their own account rather than as contractors. Establishments primarily engaged in the construction (including renovation) of buildings for lease or rental on their own account are classified in the Real Estate Operators (Except Developers) and Lessors industries.

NAICS CODE(S)

233210

Single-Family Housing Construction

233220

Multi-Family Housing Construction

233310

Manufacturing and Light Industrial Building Construction

233320

Commercial and Industrial Building Construction

INDUSTRY SNAPSHOT

Historically low interest rates in the early 2000s fueled an unprecedented housing boom in the United States. In 2003, new home sales exceeded 1 million for the first time in industry history. All segments of the residential construction industry, including operative builders, benefited from brisk new home sales. According to the National Association of Home Builders, the outlook for the U.S. housing industry remained favorable through at least 2005.

ORGANIZATION AND STRUCTURE

Unlike general contractors who perform construction work on a for-hire basis for the owner or owners of a development, operative builders are the owners of the structures they erect and act as their own general contractor. In addition to construction, operative builders also engage in land acquisition, sales, and a host of other non-construction activities associated with developing and selling properties. Historically, operative building has traditionally accounted for a comparatively small percentage of construction. Typically during the 1990s, operative builders employed fewer construction workers than general contractors and employed a higher proportion of non-construction employees such as executives, salespeople, administrative staff, and other professional categories, reflective of their wider involvement in site development, property sales, and other activities not performed by general contractors.

Although operative builders were primarily involved in construction, their principal industry activities also included subdivider and site development work, real estate management activities, land sales, construction-related activities, and miscellaneous operations. The vast majority (95percent) of the construction performed by industry firms involved the erection of new buildings and service facilities and the installation of equipment such as elevators, heating and air conditioning, and plumbing. A small proportion of construction activities involved renovation work, such as additions, alterations, or reconstruction, and maintenance and repair.

An important component of the industry's non-construction-related activities was the acquisition of land for development of its own properties or for resale in developed, undeveloped, or partially developed form to purchasers such as other builders. Industry firms considering the purchase of a tract of land evaluated it on its cost, or based on marketing and demographic studies conducted by the operative builder or by consultants. Other criteria included financial and legal considerations, governmental approvals and entitlements, environmental factors, the firm's experience in a particular market, real estate market trends and the health of the economy in general. Engle Homes of Florida, for example, primarily purchased land already "improved" for building construction, land requiring site improvements, and "options" on improved land permitting the company to buy the site when market demand warranted construction. Firms that can afford to carry the costs of a large undeveloped "land inventory" may ultimately benefit from having purchased large tracts rather than several smaller, more expensive parcels when it comes time to construct a large master-planned community on the site. It generally takes five years to develop purchased land into master-planned communities or subdivisions, while smaller, more conventional residential projects take two to three years to complete. The purchase of land tracts involves a "contingency period" while zoning, environmental, and other governmental and infrastructure requirements are met.

In the 1980s and early 1990s, several factors had compelled the building industry to seek new means for acquiring financing for land purchases: the federal Tax Reform...

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