Homebuilding in the 1980s: Crisis or Transition?

Abstract

At the end of World War II, pent-up demand and favorable government action—notably, better financing and high-way building—combined to create the setting for a boom in house construction. This bred a new type of company, merchant builders, who brought together every aspect of homebuilding, from land acquisition to consumer finance and marketing. After receding somewhere in the late 1950s and most of the 1960s, housing starts reached all-time highs in the 1970s. Throughout all of the postwar period, merchant builders with annual volume of 100 units or more came to dominate the industry. Dozens of firms sought far greater scale, and some even dreamed of creating truly national firms. The rampant inflation of the 1970s, particularly the last half of the decade, and the coming of age of the postwar baby boom generated enormous volume in starts, resale transactions, and merchant-builder profits. But events since 1979 may well mark that year as the end of a golden era. For the past two years, transactional velocity and profits have been severely constrained, a situation that will continue for several more years. Dreams of glory are being shattered. However, by the middle of the decade this harsh transition will have ended, and the industry will return to conditions much like those of the early 1960s.