Business Opportunities in Residential Construction
BY Erin Kim
There are big opportunities in residential housing development, where revenues are projected to rise an average 10.4% annually for the next five years.
By the Numbers
90%: Approximate share of establishments employing fewer than 10 people, according to IBISWorld
1.1 million: Projected number of people employed in 2017, according to IBISWorld
81.1%: Share of the industry that is accounted for by single-family house building, according to the U.S. Census Bureau
34.4%: Increase in building permits for housing units from February 2011 to February 2012, according to Plunkett Research
10%: Share of industry revenue accounted for by the top four major players, including KB Homes and Toll Brothers
Why It's Hot
After being hammered by the recession, homebuilders are back at work. New construction projects have been stalled for so long that there’s actually pent-up demand, says Andrea Alegria, industry analyst at IBISWorld, a market research firm. According to Plunkett Research, which also covers the industry, single-family housing starts are expected to reach 360,000 this year, an 18% increase from 2011.
Industrywide revenue is expected to top $303 billion by 2017, a 63% increase from this year’s sales forecast. Alegria projects there will be 340,544 total firms this year and 556,090 by 2017. Driving this growth are Gen Y-ers who have started to leave the nest and buy their own homes. This growth will create a range of business opportunities, from bathroom remodelers to full-scale construction firms. Plus, as the market has picked back up, some overhead costs have decreased, helping to boost profit margins.
Barriers to Entry
Alegria cautions that, although significant, the growth will not "reach the peak levels that were recorded in 2005, at the peak of the boom."
She also notes that new construction firms face some fairly standard barriers to entry: getting enough capital/investment to start a firm, and developing relationships with subcontractors and suppliers, financial institutions, and property developers.
Still, she says, "I think the benefits of cashing in on the mounting demand in the housing market far outweigh these barriers. ... It's highly competitive, but that doesn't mean it’s not going to create opportunities for people that know how to cash in on it."
According to the National Association of Home Builders, some areas of strength include New Orleans, Washington state, and parts of Texas.