Largest metro Atlanta builders getting a larger share of the market

2007…..24 percent

2013…..35 percent

Top 100 builders

1998…..48 percent

2013…..78 percent

Data from Smart Numbers

Metro Atlanta’s biggest builders are getting the most new business as the housing market recovers.

Though they are still building far fewer homes than they did at the market peak, the top 10 builders in the region are constructing an ever-larger share of the region's new houses. At the same time, smaller builders are sometimes struggling to get the bank loans they need to restart their businesses.

Atlanta has historically been one of the most fractured markets in the country for builders, with large, publicly traded companies competing with a number of small, private builders who construct just a handful of homes each year. Since the housing bubble burst, the number of metro Atlanta builders has fallen to about 850 from more than 3,000, said Steve Palm, president of Smart Numbers.

That large-scale reduction in competition is one of the reasons the top 10 builders saw their market share increase to 35 percent of the new homes being built in 2013, versus 18 percent of all new houses in 1999.

Lack of funding is another. In the boom years, builders were often able to finance 100 percent of the cost of a project. That is no longer the case.

“It’s harder for the smaller builder,” said Mark Tipton, the chairman and CEO of Atlanta’s Georgia Commerce Bank. “We’re going to require more equity on the front end.”

With existing lines of credit, or private equity investors supplying them money, the largest builders are better able to finance their projects. They can buy already-developed lots in desirable areas, even as the prices rise, and they can afford to develop their own raw land.

The result, said Hugh Morton, president of Peachtree Homes in Jonesboro, is a market that is less competitive.

“I can’t make the numbers compete with them,” said Morton, who has been working in Columbus, but who hasn’t started a house in metro Atlanta since the crash. “The public builders weathered the storm better. … They’re coming at this thing with a whole lot more dollars, a whole lot more credit.”

Morton said he would not be surprised if the biggest builders continued to increase their market share to as many as half of all houses built in the region. That would lead prices to be as much as 20 to 30 percent higher for a new home, he said — closer to the costs in cities like Denver and Phoenix.

Because there were so many small builders who were active here before the crash, metro Atlanta wasn’t an appealing place for some of the larger builders, who needed more scale, said Tom Cunningham, a senior economist with the Federal Reserve Bank of Atlanta. That has started to change.

The upset in the market — and lower land prices — led national builder Lennar to enter the Atlanta market in 2010. Pulte Group, which has had an Atlanta presence for some time, announced last month that it would be moving its corporate headquarters here from Michigan.

Since Lennar entered the market in 2010, its Atlanta marketing manager Rose Humphrey said, the builder has added 21 communities here and become the fifth-largest builder in the region. Lennar’s newer communities, developed from raw land, will likely be twice the size of existing ones, Humphrey said.

“Because we’re a national company, we have a lot of practices in place,” she said. “We’re very much a well-oiled machine.”

Pulte’s strong balance sheet gives it a nimbleness that smaller builders likely do not have as they try to access construction loans from small banks that were hard-hit by real estate lending, said Casey Hill, Pulte’s Georgia division president. Pulte can afford to pay more for land than can small builders, he said, and can build more homes more quickly.

But even as the percentage of homes constructed by the biggest builders grows, Hill said, companies such as Pulte remain a small share of the market. Pulte, which is the second-largest builder in the region, has a market share in the mid-single digits, he said.

Pulte won’t chase growth for the sake of increasing its market share here, Hill said. But being one of the biggest builders in an area can be beneficial when it comes to gaining the trust of potential customers.

“Size and strength matter,” he said.

Terry Russell has been on both sides of the equation. Russell, the former CEO of John Wieland Homes & Neighborhoods, one of the top builders in the state, is now the head of FrontDoor Communities, a company that is about to start its first metro Atlanta project with private equity backing.

Russell said if the big builders can maintain their increased market share as more new homes are built, they will grow exponentially. But because there are a lot of small parcels that may not be worth the investment for big builders, he thinks it will be difficult for them to hold on to the market share they have amassed. Typically, larger builders want larger communities to best make use of their scale.

The challenge, Russell said, makes everyone else in the market work harder to remain competitive.

Cunningham, with the Federal Reserve, said he thinks the current trends may be unstable — that as more smaller builders get access to capital, they will be better able to compete. But Palm, with Smart Numbers, said he expects the strong will continue to get stronger.

“I think they’re going to hold on to it for a fairly long time,” he said. “They’re better positioned to take advantage of the current situation.”

In some cities, the top builders control as much as 80 percent of the market, Palm said. So metro Atlanta’s market is still fractured, even with the increase for the top 10.

Although the top 100 builders make up 78 percent of the market — up from 48 percent in 1998 — Atlanta’s market remains competitive, said David Ellis, executive vice president of the Greater Atlanta Home Builders Association.

The shift and the reduction in builders isn’t all because of a lack of capital, Ellis said. Since 2008, Georgia builders have had a licensing requirement, and many builders that worked on just a home or two before the crash may have decided not to become licensed.

While Ellis said he expects some of the smaller builders to get back into the market, he said he would not be surprised if some of the shift is permanent.

“We’re in such a transition,” he said. “It’s not like you’re going to snap your fingers and all of a sudden, you’re back in it. You’re not going to wiggle your nose and build 20 houses again.”