Nov 12, 2025
On October 29, The Capitol Forum held a conference call with Steven Xiao, Associate Professor of Finance at the University of Texas at Dallas Naveen Jindal School of Management, and Zheng Liu, Ph.D. Candidate at the same institution, for a discussion with Teddy Downey, our Executive Editor. They discussed their paper Building the Bottlenecks: The Impact of Homebuilder Consolidation, which explores how rising concentration in the U.S. homebuilding industry affects housing supply, pricing, and market resilience.
The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Welcome to our Conference Call on Building the Bottlenecks – The Impact of Home Builder Consolidation. I’m Teddy Downey, Executive Editor here at The Capitol Forum. Today’s guests are Steven Xiao, Associate Professor of Finance at the University of Texas at Dallas Naveen Jindal School of Management, and Zheng Liu, Ph.D. candidate at the same institution.
Steven’s research spans corporate finance, market efficiency, real estate, and supply chain dynamics with a focus on how organizational structure and competition shape economic outcomes. Zheng’s work examines housing markets, urban economics, and the competitive effects of firm consolidation. We’re going to get into the details of the paper.
First, I just want to thank you so much for doing this today.
ZHENG LIU: Thank you.
STEVEN XIAO: Thanks for having us.
TEDDY DOWNEY: And if you have questions, please just put them in the questions panel in the control pane. Steven, maybe I could start with you. Because I think the thing that strikes me the most about this paper is really the frame and the scope. You have a very holistic way of analyzing this market that I would call atypical from an economist’s perspective.
And I wonder if you could just share with our audience how you and Zheng came up with this frame and sort of how you think about the world in that your approach to economics, your analysis, the way you both collected the information. It just seems so much more comprehensive, so much more holistic than what you typically see in an economics paper. And I’d love to just hear how you did that.
STEVEN XIAO: So, thanks, Teddy. So, I think that the type of study where the type of questions that we’re asking here and the way we look at this question is actually one of the biggest themes in the mind of a typical economist.
So, we always think about competition and concentration. And we had a little bit of this discussion earlier. And the two ongoing mechanisms that we always have in mind when we think about why firms need to grow so big. Why do we need scale, right?
So, it’s like these two joint mechanism. One is the economies of scale, that it makes sense for firms to operate at a larger scale so that you can spread the fixed cost over a larger amount of productions. And that will reduce the average cost and give you the cost advantage.
On the other hand, a larger firm also necessarily means a higher concentration or a larger relative size to other firms. So, that leads to an even distribution across players in the market. So, that to some extent could hinder competition. And so, for those reasons, the prices may not be fully efficient. And so, that allows the big players to charge a markup.
And these two mechanisms could be going on at the same time. So, it’s actually really hard to disentangle these two empirically or observe patterns that are consistent with both effects. And for that reason, I think in the case of real estate markets, the construction industries, I think there are a lot of reasons why these tensions might be particularly pronounced. Because there’s a pretty high entry barrier to the construction industry.
So, first of all, it’s a capital intensive industry. So, you have to have the money to acquire a large number lands, right, before you start building. And not only there’s a high acquisition cost, but also high holding costs. So, you have to pay a tax and then the financing cost of buying and keeping this lands before you can actually build something and start selling. And also, a lot of the working capital is required in the building process, which takes time. And also, you have to maintain the supply chain. So, lots of raw materials that goes into the building process.
So, all of these require some level of skills. And so, it’s hard for the small players to enter into this market. So, that naturally leads to motivations for firms to grow big, for builders to grow big in this industry. And it also requires local knowledge about zoning regulations and so on and so forth. So, that also motivate firms to expand into new markets through acquisitions.
TEDDY DOWNEY: Yeah, we’re going to keep coming back to this. But the way that you two think about this, I find very compelling. And Zheng, before we get into the meat of the paper, obviously, from a popular standpoint, we have this big political debate right now around abundance and around housing prices. And were you working on before that? Has this just been generally a big societal issue? Or were you responding to any particular research that’s out there? I would love to just get a little background on how you chose to write about this now.
ZHENG LIU: Sure. Let me share more about the background of the paper. So, as you said, the housing affordability is one of the most pressing concerns in U.S. society these days. And we think a key driver of this problem is the consistent under supply of the new homes. Especially like the new home supply has consistently lagged behind new household formation. If you look at the statistics, people estimate that the cumulative shortage has reached about 3.8 million homes. And at the same time, we observe this increasing concentration of the home building industry. So, this industry was once very fragmented back in 1990. The top ten builders only took about ten percent of the market share, but this number has increased sharply to over 45 percent in the recent years.
So, this is a large change, and especially since the home building industry works at a localized market. If you look at the local markets, this concentration trend is even more significant.
So, the market share of the top ten builders across the top fifty metro markets has reached about 80 percent. So, ten builders supply 80 percent of the new homes in those metro markets. Meaning homeowners have less choices, and these large builders are facing less competition. And typically, these two trends together, the consistent end of supply and the increased concentration, leads to this research question. So, what’s the general impact of this kind of concentration on the housing market?
TEDDY DOWNEY: And the findings are really interesting and compelling. Maybe you could, if you wouldn’t mind, walk us through some of the high-level findings, and then we can kind of dig into the details. I’m not sure I would say I was surprised, but I found it really interesting the conclusions that you came to, particularly in light of this whole abundance conversation that’s going on.
ZHENG LIU: So, for the start of this project, we show that the market share of these large builders are positively correlated with the housing prices and the revenue they’re earning. Also, with the top metro market, we show a negative correlation between those market share of the large builders and the housing supply. For example, ten percentage points in the market share of the top ten builders is kind of associated with about ten percent decrease in total supply in those metro markets.
So, that’s a starting point of this project. We observed this kind of positive correlation between concentration and prices and negative correlation between a concentration and the home supply. But because there are many factors that could drive both the concentration and the supply. So, we needed a cleaner framework to tease out the effect of this kind of concentration.
So, I designed this difference analysis around these mergers between large home builders. The idea is straightforward. These mergers create a discrete[?] jump in the local concentration level of those overlapping markets where both the acquiring builder and target builder operates together. But a similar non-overlapping market, where one of the merged builders operates alone, does not experience a similar level of structural change.
So, I’m using this overlapping market as a treated group and the non-overlapping market as the control group and comparing those housing market outcomes in those two type of markets around the mergers. And the result shows that, after the mergers, the overlapping market display over seven percent decrease in new home supply, which is largely driven by the supply contraction of the merged builder itself, which reduces home construction by over twenty percent.
At the same time, the new home prices increased by over six percent and the construction quality is lower as well, with a 20 percent increase in the likelihood of filing repair related permits within three or five years of construction for those newly built homes. And especially when people talk about the housing supply constraint, the existing literature and policymakers primarily focus on the role of zoning regulations. I additionally show that the concentration in our setting serves as an independent factor shaping all those housing market outcomes, regardless of the stringency of the zoning regulations.
So, just by relaxing all those zoning codes as proposed by many policymakers may not necessarily lead to a solution to the supply issue that we have been experiencing without considering the profound impact of the concentration. And in our study, we also show that these kind of mergers are more likely to happen if the acquired and potential target have a higher share of overlapping market. So, they’re consistent with the motivation to acquire market share and market power. Those are the main findings of the paper.
TEDDY DOWNEY: And truly remarkable stuff showing there’s a decline in supply, an increase in price, a decrease in quality. It’s really compelling stuff. Steven, anything that jumped out at you that surprised you or that you wanted to highlight before we sort of dig into some of these findings and how you guys looked at the data?
STEVEN XIAO: So, I think the results that we find around these merger events for the most part are consistent with our intuition as what you would expect when the concentration rises. So, in a fully competitive market, builders will have the incentive to be the first one to finish their home so that they can meet the demand ahead of others. So, when you face less competition, like in the case when you have one large builder in the market, then they sort of control the overall supply of the market.
And so, by scaling down the supply a bit, they could keep the prices high so that they could enjoy a higher markup and maximize their overall profitability. So, this is perfectly consistent with what you would expect from a classical point of view of the effect of oligopoly when there’s a rise in concentration. Yeah.
TEDDY DOWNEY: One thing that surprised me, on a number of levels, was you find that the consolidated home builder can actually prioritize its own projects at the expense of competitors and at the expense of homeowners trying to do repairs, particularly after an emergency or like a flood or something.
Normally, I think a lot of economists would just stop at the finding that, oh, well, they did their own projects faster. And so, that’s a benefit of the merger. They got to do their projects faster. But when you took a step back, you found that overall projects were getting done slower. And so, the gains were really only for the consolidated company, not to the broader public.
I’m curious how you did that analysis, how you thought to think of it that way, and if you were surprised by that finding as well.
ZHENG LIU: So, there are typically, two sides of concentration, especially around these mergers. One side, we may expect economic scales by those large builders. The other side is the competition effect that we just introduced.
So, to try and tease out these two kinds of effects, I’m looking at efficiency changes around these mergers. And we just find, after the merger, the average project construction time in the overlapping market takes about eight percent more. But this project carried out by the acquiring builder actually finished forty percent faster.
So, one potential explanation is that by taking more market share and gaining higher bargaining power, these acquiring builders can have this priority access to the local construction resources, such as land and labor. And by taking advantage of these resources, they are able to fast-track their own projects. But these resources are not easy to fill up, to be supplemented by the outside sources. So, by doing so, this kind of priority access creates bottlenecks for their competitors and potentially leads to this market-wide inefficiency.
So, basically, to test this kind of hypothesis, we shift our focus to a natural disaster setting. These natural disasters create a sudden increase in the repair demand for construction capacity and provides this real-world stress test on how resources are allocated and how market power comes into play to secure those resources.
So, we are looking at four hurricane events in Florida and comparing the construction delays in high‑concentration market versus the low‑concentration market. The idea is straightforward. In high‑concentration market, the large national builders are better positioned to secure these resources with their market power.
And indeed, we find these kind of results. After this hurricane event, the high-concentration market experienced significant delays. The average delay is about eight percent, equivalent to about a ten day delay after these hurricanes. But for more repair-critical projects, such as roofing projects, the delay is much more significant, equivalent to about 32 day delays. This is certainly devastating for those impacted homeowners to get the roof fixed to wait for another whole month. But at the same time, we find that those projects carried on by the large national builders actually finished sixty percent faster compared to their local competitors and compared to those homeowners.
So, basically, by taking advantage of this resource allocation, they are crowding out homeowners’ repair demands and also leading to the community-wide recovery delays. So, this is how we tested these efficiency changes and the implication to the broader markets.
STEVEN XIAO: I just wanted to add that, to some extent, when we think about competition, the competition is not only happening in the downstream but also in the upstream. So, downstream in terms of price, quantity on the consumer end, upstream in terms of competition for securing the raw material, the labor, the supply chain. So, whether you can get the priority in accessing these resources critical for the construction. And this could even happen to the permit issuance process. So, Zheng and I had a lot of discussions about this. What is the better way to find more direct evidence to show this competition on the upstream?
So, the disaster setting is what we tried to use as a better setting that basically gives it a stress test. When you face resource constraints, then who gets the priority? Who gets to get things done faster than the others?
So, that’s what we have in mind. But having said that, this is still an ongoing project. We’re still trying to provide better evidence and try to tease out one effect from the others. So, any comments and suggestions are certainly appreciated.
TEDDY DOWNEY: Well, one thing that stood out to me, and I’d be interested in staying on this notion for a second where you’re looking at the upstream. It’s like kind of you guys call it the strategic ability to control these or have priority access to land, labor, third-party contractors, the supply chain, as you just mentioned. And I’m curious, was there a size of company that ‑‑ when you’re looking at the problematic effects, it’s kind of interesting that it basically showed that any ‑‑ you’re seeing anytime there’s concentration with overlapping markets. And it wasn’t really that there was ‑‑ it seemed like you always found a problem. There was always a resulting problem, not only if it was above a 30 percent share or above a 60 percent share or above a 50 percent share.
So, you were seeing it at lower levels. Is that the proper way to read the paper? Because typically, I think the person who’s a little bit familiar with antitrust would say, oh, well, you only start seeing really negative effects at a certain market share level. I know from our experience, when you’re talking about buyer power ‑‑ and in some respects, maybe you’re talking about control over these inputs, land, labor, third-party contractors, you said permitting process ‑‑ you could see problems, competition problems, at 20, 30 percent market share in a market.
But I’m curious to just get your reaction to the sort of blanket problem anytime there was overlap and there was a concentration versus sort of what you would normally think is like, oh, well, more market share related.
ZHENG LIU: This impact could be huge, especially when we are thinking about, okay, the home building industry typically works at the local level with the resources or at the local level as well. And those kind of big changes in market share typically drives the result that we are finding. Even if we’re just looking at the timing variable of whether there’s an overlapping market, but they could have a huge impact throughout our sample.
TEDDY DOWNEY: Yeah, that was interesting for me in particular. You also, in the same respect, mentioned some other studies in your paper that looked at zoning restrictions as explaining difficulty in creating new housing supply. The paper seems to find no real evidence that that ‑‑ or at least finds that concentration, you have a clear problem there. Whereas, it’s not really affected by the zoning restrictions or at least it’s not exacerbated or doesn’t seem to play a role.
What’s your take on this popular view that zoning restrictions do play a big role? And also, I think one of the studies you pointed out tried to say that it was small builders and zoning restrictions that are a problem. Whereas, obviously your paper seems to suggest it’s the big companies that are problem. What’s your reaction to those papers and that understanding that’s out there about zoning?
ZHENG LIU: Zoning regulations, of course, have a huge impact on the housing supply and that’s primary focus of the existing literature and many of the policy makers. For example, last week, the Secretary of Treasury, Scott Bessent, announced that the current administration is considering announcing a national housing emergency in response to the consistent undersupply of the new homes. And one of the proposed actions is to relax all the zoning codes nationally to help builders to navigate and build more homes under those impacts of zoning regulations.
So, in our study, definitely we tried to test this interplay between the zoning regulations and the concentration effect that we identify. So, I’m including this Water Land Use Regulation Index into my merger setting. And I basically find that, okay, the concentration effect seems to stand alone. It serves as an independent factor shaping all those housing market outcomes data that we are testing, regardless of the stringency level of those zoning regulations.
So, basically, our result suggests that, okay, just by relaxing all the zoning codes may not necessarily solve the entire undersupply issue without considering this impact of concentration. And as you mentioned, there’s another paper by Yumiko suggesting that, okay, the zoning regulations are constraining the size of these builders, which affects their ability for innovation, their ability to achieve this economic scale. And that’s the problem of why we have the undersupply issue.
In our paper, we may argue a little bit to promote a competitive market structure. But actually, our result does not entirely contradict with that paper. We show that, okay, with the mergers, when the acquiring builders have become bigger, they take more construction resources, they can finish their own projects actually faster. They enjoy this kind of private efficiency gain, as proposed by the other paper. But these kind of private efficiency gains come at a cost of the market efficiency, especially as these acquiring builders are taking control of lots of the local construction resources. And that kind of lack of resources by their competitors results in this reduction in construction efficiency on the market level.
So, our paper suggests, okay, it’s very important to promote this kind of competitive market structure. Even though there’s a private efficiency gain joined by these large builders, there is an even huger problem on the market side.
TEDDY DOWNEY: This is a question for both of you. I’m not trying to be too controversial here. But in your paper, you seem to expect that there will be some interaction with zoning law and concentration, right? Like, if this is playing such a big role in whether or not new homes get built, this will either be exacerbated or there will be some effect when the size of the company is getting bigger, as opposed to some sort of completely distinct role that zoning plays in housing supply. You don’t find that though. You find nothing. Basically, you find nothing.
And so, isn’t it intuitive to suggest that your paper ‑‑ or to think that your paper suggests that when it comes to the decision of the businesses that make homes, concentration explains the market a lot more than the zoning, right? Like, to me, intellectually, you would see some interaction there if it was playing such a big role in the supply. But maybe I’m being hard-headed or I’m not being open-minded enough about these things being distinct factors.
STEVEN XIAO: So, I think we need to be a bit careful in the interpretation of some of our analysis here, right? So, because in the analysis, the focus has been on when there’s a sudden and substantial change in the level of concentration, what happened to housing supply. So, naturally, the effect of concentration will stand out as the first order factor in the analysis, right?
But that doesn’t mean that the zoning regulation plays no role in the housing supply. And the interaction that we looked into in the study basically suggests that zoning regulation itself does not amplify the effect of rising concentration on supply and prices. But conceptually, I think there are lots of reasons to believe that these two effects could interact.
So, I think this remains an open question that we are still thinking about what’s the best way to tease out the interaction between the two. Because one could imagine that if you have a particular large builder that could better navigate the zoning regulations and the permit issuance process, that would allow them to gain an even bigger advantage in the construction process. So, I think that remains a possibility. It’s just right now we do not have the evidence that directly supports that mechanism.
TEDDY DOWNEY: Yeah, it also just seems like, I’m curious about this, was it a Wharton index on zoning regulation? It’s like, I mean, they’re coming up with some model for it being restrictive. But there are just so many different ways that zone communities control their zoning that it seems like it could be a very hard thing to standardize and come up with, okay, this is how this interacts with competition.
I was surprised. I was actually shocked. Because, to me, if you do have restrictive zoning, I would think there would be some interaction with a bigger firm being able to either dominate or otherwise not dominate that market. As you guys point out, there’s ambiguity in what the result would be. And then you found no statistical effect. But I think there’s, yeah, no, I’m interested to learn more there. I was surprised. I think it does at least suggest that maybe there’s less explanatory power in the zoning stuff. And certainly, the public discourse is almost all about zoning and not any about concentration.
So, in terms of like trying to come up with where policymakers should maybe focus more attention, I think you have hit the nail on the head here, that maybe concentration at least deserves to be a much, much, much larger part of the conversation.
And with that I think you have some recommendations in terms of like not necessarily strict policy prescriptions, but when you look at all the work that you did here, all the findings that you have, we’ve got a lot of people on this call or listening to the podcast and reading the transcript who work at DOJ, who work at FTC, who work on the Hill, who work in the White House. What would you suggest to them that they focus on if they want to create more housing supply? Obviously, you mentioned they’re already going after zoning. So, we don’t need to spend a ton of time on that. But if they want to think about your paper, what the findings are, how to think about that, where should policymakers focus their attention given all the things that you found in this report here?
ZHENG LIU: So, of course, those policy concerns are what we are trying to argue here. We should promote this competitive market structure in the home building industry, especially at the local level. So, if you look at the national level, the market share of top ten builders take about 45 percent compared to other markets. This shouldn’t be that concentrated, right? But since these builders are typically specializing in certain regional markets, that’s when this concentration starts to build up. Especially we are looking at the zip code level and they have this kind of huge effects when these mergers takes place within in these overlapping markets.
So, we would argue that it’s important to look at this effect of the mergers at this local level instead of just on the national level and to tease out these kinds of competition impacts on housing supply, housing prices, and this local level add up would contribute to the national crisis that we are experiencing today. I think that’s one of the biggest takeaways from this paper.
STEVEN XIAO: I think our broader point is not about the impact of any specific mergers, right? So, I think in the context of the housing market, because of the frictions on the supply side, there are reasons to believe that the anti-competitive effects of consolidation, even the mid-size type of mergers that may not meet the traditional thresholds for regulatory reviews, may have a non-trivial effect on the supply and the prices of houses in the local markets.
TEDDY DOWNEY: To me, that is just so fascinating. I mean, that calls into question how we even do merger review when it comes to — maybe specific markets like this need different rules to properly make sure that there is competition.
Were there any other really, really concentrated markets that you wanted to highlight? Obviously, Florida politicians might want to take a look at that explaining for some of their higher prices and lower inventory issues. Obviously, there are a lot of natural disasters in Florida. Are there particularly markets where there are both high concentration and natural disasters which would strike me as places where people should focus their attention to perhaps increase competition there? Any markets that you were looking at that jump out at you that you want to share? Or I was just curious, just given the findings, if you had any off the top of your head.
ZHENG LIU: So, for that case that you just mentioned, I just wanted to have a showcase of how concentration could be at a very local level. And I’m just choosing one of the most concentrated markets in the U.S. to show this kind of effect. But it’s hard to put a direct link between this concentration level and the housing supply. Because, as I mentioned, there are many other factors driving those effects altogether. So, we are not just planning to argue that, okay, because they have this high-level of concentration, they are typically, having more severe problems in their supply.
But we do show, from this cross-sectional regression of those local markets, that the higher market share of those top ten builders are associated with lower supply in general and lower supply growth in general as well. And that’s the first step of our study, actually. And in our later steps, we want to explore this link between concentration and housing supply outcomes through the merger setting.
But you are right. Since the second half of the paper shows that, okay, those high concentration markets typically experience more repair delays after those natural disasters ‑‑ especially Florida is one of the states that have more very frequent natural disasters. That’s a concern if you look at those regions with high concentration markets. And that would have some impact on the homeowners seeking for repair demands after those disasters, for sure.
STEVEN XIAO: So, I think from what we could observe, the rising concentration in the builder industry is pretty widespread. It’s not just being observed in one specific location. That’s like the places that you mentioned, like along the coast, the Florida area, there are a lot of these local markets that are highly concentrated. But you are also seeing that happening in places like Texas and Nevada.
So, the rising concentration is happening across the country. But I think part of the ‑‑ like Zheng was saying ‑‑ part of the interesting implication out of our study is that not only that rising builder concentration has significant implications to the overall declining level of housing supply and rising house prices, but it also interacts with climate risk, which may exacerbate the concerns about post-disaster recovery of some of these markets. So, it becomes another layer of frictions that slows down the post-disaster recovery.
TEDDY DOWNEY: Yeah. Obviously, your local politician, but also FEMA and the disaster recovery folks, should be paying attention to this type of research. One thing that also stood out to me ‑‑ and again, I couldn’t be more impressed with this paper on so many levels. But one that really stands out to me is we focus a lot at The Capitol Forum on, all right, we’re not just going to look at price. Let’s look at these other factors, like quality. And some of the most incredible insights, I think, from the paper are related to how the quality of these homes is deteriorating.
You mentioned briefly some examples of lawsuits where the big companies are being sued for quality problems, but then you do some really robust analysis. You pull out your own Better Business Bureau data. Can you walk us through the process, first of all, of how you thought to use the data that you did? I found it really, really incredibly clever. And then how you analyzed it and what the findings were.
ZHENG LIU: Sure. Just as you mentioned, I read many news reports online that all those big builders are facing multiple lawsuits from homeowners for their quality issues. That’s what drives me into those questions. Okay, what kind of effects of the concentration on the construction quality?
So, in this paper, I’m actually measuring the construction quality by the fact that if a newly built home files a repair related permit within a short period of time after construction, typically, three or five years, that may indicate a major quality issues of those individual properties. And especially having access to this residential construction permit data, I’m able to find out which newly built homes filed those permits for roofing, for plumbing, for HVAC within a short period of construction. And I’m using the share of those properties filing those permits as a measure for construction quality on the market level.
And I’m showing, okay, after those mergers, does the overlapping market see a significant deterioration in construction quality with over 20 percent increase in the likelihood of filing those permits within three or five years of construction? And that typically points out, okay, when there’s less competition, the builders within the overlapping market, provide this less desirable constructed properties for homeowners. And that could have some implications for people who are trying to buy homes.
TEDDY DOWNEY: Really interesting stuff. I also thought it was like doubly compelling that you didn’t just do the Better Business Bureau stuff, but you also pulled the permitting. Was it hard to get all this data? I mean, we have a lot of people here who are always combing through data. I was not shocked, but I was impressed at all the different data sources that you went through. Steven, Zheng, do you spend a lot of time strategically thinking, all right, how can we get this data? And I’m just curious, intellectually, how you go through that. Is this relentless combing through information? Or how do you come up with these ways of acquiring the data and then analyzing the data?
ZHENG LIU: So, you are right. One of the main empirical challenge in this paper is to combine all those rich source of data. And to start, I collected over a 1,400 builder names from the builder magazines, annual rankings, and the regional rankings.
And from that list, I can recognize all those large national or regional home builders. And also, to pin down their geographic footprint so that I can find the overlapping market and the non-overlapping market between acquirer and target. I do this matching between these builder names and the seller names in transaction data.
So, I find over 800,000 individual properties sold by these builders, spanning over 4,000 zip codes in over 40 states. That’s how I can find which areas does this acquire and target operates? Do they have overlap or not?
And also, I’m relying a lot on the residential permits data. So, by combining the transaction data and the residential permits data, I’m able to track the full life cycle of each individual property from its initial construction to the first sell and to the first major repair or renovation after the construction. So, this gave me the advantage to look at the multiple sides of housing market outcomes and the impact of this concentration.
TEDDY DOWNEY: And so, Steven, do you and Zheng think through these problems? Like, okay, here’s the problem that we’re going to solve. We’re going to need this type of data. I mean, is it that simple or how do you come up with it? I mean, I know we do something similar, but this was just so comprehensive with so many different kinds of data. How do you ‑‑ I think it’s ‑‑ I’m impressed. I’m just curious how you guys come up with these data sources or tackle these challenges from a data perspective.
STEVEN XIAO: So, the general advice that we usually give to our Ph.D. students is always start with the question, not with the data. And so, in the case of this project specifically, we have this question in mind that the big picture question is whether rising concentration has something to do in explaining that the decline in housing supplies, which has been there, that the trend has been there, has been a big problem since the 2008, the mortgage crisis.
So, with this big picture question in mind we started thinking what are the data that we need to speak to this question? And so, because of my research experience, I have some knowledge and access to some of the existing real estate transaction data that we can use for this study. The housing permit data is something new that we bring into this research project for the first time.
But like Zheng was saying, a big part of the work here is harmonizing and merging across this data from different sources, which is not a trivial task. And so, Zheng did an amazing job in putting things together that allows us to link, first of all, the mergers and the builders to the houses that they build through the permit link, and then look at the prices and the overall market outcome through the transaction data.
TEDDY DOWNEY: Oh, so, so impressive. And you mentioned access to data. I was curious, is it all publicly available data? Or do you have to have specific databases that only professors have? Or do you buy the data? How do you get all this data?
STEVEN XIAO: So, there are more and more commercial sources that are now available that third-party vendors, they collect a lot of these data from local sources. Because a lot of the real estate data are public information, but they are at the local government level that you have to collect from different sources and they’re not at all standardized. And so, that takes a lot of work and labor intensive. So, there are these vendors that are aggregating this data and then they sell this data, right? So, that part of the work is there, has been done. But the work on our part is to harmonize this data from different sources. Yeah.
TEDDY DOWNEY: Again, couldn’t be more impressed. I don’t see any questions from the audience. Let me take one last check here. Do we have any? I don’t see any. But is there anything that you wanted to say that I didn’t ask about the paper?
Again, I think it’s an incredible paper. I think it’s also a particularly poignant time to be releasing a paper like this. I get a lot of questions. Some of the interviews that have been most popular, have been critiqued or otherwise, dug into some of the sort of conclusions or assertions in that book “Abundance.” And so, I imagine this will also play a big role in that conversation. But anything that I didn’t get to that you wanted to touch on, Zheng or Steven.
ZHENG LIU: Yeah, I think you asked many great questions which I think covered basically all of our paper. So, I really appreciate that and enjoyed this conversation with you and sharing all the details of the paper. At this stage, I don’t have anything to add. I’m not sure about Steven.
STEVEN XIAO: So, I think that we’re glad that we’re able to contribute to this concurrent policy debate, especially the debate about the abundance agenda. I think a lot of these writers and policymakers make excellent points about the potential role of regulation, zoning, the red tapes that could contribute to the structural shortage of housing infrastructure in general.
So, I think what we are bringing to the table is a little bit of a nuance to the picture and to show that other than these regulatory factors, there could be these market factors that could also come into play that arises organically due to the nature of this industry because of the supply side frictions that are there, that naturally drive a rise of concentration over time, which could also speak to some of the depressing issues that we are facing about the housing shortage.
So, hopefully, we’ll contribute something useful to this conversation and we’ll keep on improving this work. Like I said, this is still a work in progress. So, the work may keep on evolving as we improve our understanding about what is going on here. So, hopefully we’ll get more feedback and comments and we’ll keep improving our work.
TEDDY DOWNEY: And last question, are you planning to evolve it beyond concentration? Or are you going to just keep looking at — are there other questions that you’re going to try to answer from here or just further refine and further dig into the same question?
STEVEN XIAO: I think it’s important to keep refining the mechanism that drives these results. So, like we discussed earlier, this concentration leads to lower supply and rising prices. This is what you would expect from a standard economic analysis of concentration.
The resource can control the upstream competition. I think it’s something that we are still thinking about and keep on analyzing. Hopefully, there will be some better evidence and a more coherent interpretation that we can come out of our analysis.
TEDDY DOWNEY: Yeah, I look forward to seeing that. Zheng, I look forward to all your future endeavors. This seems right up your alley. I mean, I’ve been doing this since 2012. This is one of the few economic papers that I enjoyed reading the entire thing. I don’t think I can say that about any other economic paper that I’ve ever read.
So, congrats to you. Congrats to you, Steven, for teaching economics in a way that I think really makes it accessible to people like me, like a lay person like me, but also a policymaker who does care about equity, who does care about what’s really going on in the market, how it works, when the law is not potentially accounting for changes in a particular market structure. I found it incredible. I thought it was really remarkably done. And so, thank you to you both for doing it. And thank you so much for joining me on the call today.
ZHENG LIU: Yeah, thanks for inviting us.
STEVEN XIAO: Thank you so much for having us.
TEDDY DOWNEY: Thank you so much for joining us today. If you found the conversation helpful or thought provoking, please be sure to follow The Capitol Forum on LinkedIn, X and Blue Sky for breaking news, policy updates, and information on upcoming events.
We’d also love to hear from you. Drop us a line at events@tcfpress.com if you have any ideas for future topics, speakers, or just want to connect with us. Again, that’s events@tcfpress.com. And have a great day, everyone. This concludes the call. Thanks again. Bye-bye.
STEVEN XIAO: Thank you.
ZHENG LIU: Thank you.
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