Continued housing shortage refocuses planning for building products companies

Industry expertise

Does your business strategy align with long-term housing trends?

Economic volatility may hold the attention of building products businesses today, but it’s the ongoing housing shortage that should capture leaders’ attention looking forward. That shortage, combined with population projections driving strong household formation, will likely take a decade to close, resulting in robust housing demand over that period that will intensify business cycle upswings and dampen downturns for building products companies.

The big picture for the housing market

The housing shortage in the U.S., which started building during the Great Recession, has been compounded by pandemic-driven shortages, disruptions to traditional buying patterns, and rising interest rates—but changing population demographics have had the greatest impact.

Millennials delayed homeownership as they dealt with unprecedented levels of educational debt. While they’ve enjoyed high employment rates, they’ve also recently seen their purchasing power crimped by high inflation, rising interest rates, and elevated home prices.

Despite their relatively delayed entry into the housing market, millennials are now looking to step into home ownership. And with baby boomers increasingly aging in place, there’s a need for more housing supply overall to fulfill demand from first-time homeowners.

The housing deficit along with these demographic forces should generate tailwinds that will propel housing starts. The outlook for building products over the next decade is expected to remain bullish as the construction of single-family homes catches up with pent-up demand. Multifamily units will likely see an uptick as well, filling the gap left by a lack of affordable single-family homes.

But farther ahead, the outlook becomes less certain. Gen Z is smaller than the millennial age group. This younger cohort will reach prime home-buying age in the 2030s, as older baby boomers creep into their 80s—a traditional time for downsizing and transitioning out of the housing market. As we move toward the 2040s, the smaller number of first-time homebuyers may drive housing starts down.

Beyond the next decade, it’s possible that we could move from shortage to surplus and that long-term uncertainty presents questions. Will Gen Z be ready to buy on schedule? Will unforeseen developments transform traditional household formation and homebuying behavior? It’s almost impossible to confidently predict how housing markets will behave that far out. Unforeseen events could drastically reshape homebuying patterns—like the pandemic nobody saw coming.

Today’s housing shortage is projected to persist for the next decade, but farther ahead, the outlook becomes less certain.

EXAMPLE: A conceptual supply and demand representation shows that in 2023, housing demand significantly exceeds supply, resulting in a housing shortage. Over the coming decade, housing supply is expected to grow steadily, bringing supply and demand to the same level in the years beyond 2030.

Consider housing shortage tailwinds as you craft your business plans.

Thoughtful preparation fortifies your business for uncertainties that can’t be avoided. Start by evaluating—or re-evaluating—your long-term business goals. Whether you’re updating an existing business plan or rethinking long-term plans for yourself and your business, you’ll want to factor the drivers of housing market dynamics and conditions into your decisions.

Today’s tailwinds mean growth for many building products companies. Determining suitable expansion strategies and finding the capital you’ll need to grow will likely be top priorities. Ask yourself these questions:

  • Will organic growth be the most effective approach given your market position, financials, and stage in the business lifecycle?
  • Should you consider a potential merger or acquisition?
  • What’s the best way to fund your growth? Traditional financing? Private equity partnership?

As a leader and owner, your goals should be front and center as you develop your plans. If you’re thinking of exiting the business within the next 10-15 years, how might the current tailwind affect those plans? Does the questionable outlook beyond the current ten-year growth window have you thinking of exiting sooner rather than later?

Whether you’re planning to expand or transition out, enhancing your business’s value should take precedence. That may mean concentrating on capital efficiency and balance sheet optimization to strengthen your business’s fundamentals. You’ll likely also be looking to capitalize on emerging business opportunities and maximize your business’s market value for when you do exit.

Have a clear vision for your exit.

Market dynamics may affect the exact timing of your exit, but you should shape what that transition looks like now. Bring your vision into clear focus. Doing so increases the likelihood of completing the transition on your terms; whether that happens in two years, ten years, or even twenty years down the road; you'll be better prepared by carefully considering your exit strategy.

As you map out your succession plan, think about the steps needed to put all the pieces in place, paying particular attention to company ownership and leadership, with these questions in mind:

  • Is the next generation of your family prepared to take the reins? How will you ensure that the future leaders you’ve identified receive the training, mentoring, and leadership experience they’ll need to be ready to take over?
  • Would you be better off seeking a strategic industry player or searching to attract private equity when looking for an external buyer? The answer hinges on your objectives—do you prefer a quick exit, or would you rather maintain limited involvement while keeping an ongoing equity stake in the business?
  • Are key managers or employees interested in a negotiated sale? Company managers know your business, its customers, and its value—that makes them a winning option to continue what you’ve created. An employee stock ownership plan (ESOP) could be attractive if you have long-time, dedicated employees who would value owning a piece of the company.

While you have the best vision of where you want to take the business and what your exit should look like, it’s not the time to go it alone. Craft a multi-year plan aligned with macro housing trends. Keep the complexities of succession planning, business growth, market positioning, and executing major transactions in mind—it’s no simple task. You’ll want to lean on your business advisors and draw in professionals who can help you with the strategic implications and technical intricacies of the next steps for your business.

Get the help you need to realize the strategic opportunities ahead.

From the best capital structures and financing options to succession planning and M&A—your Truist relationship manager and our Truist Business Lifecycle Advisory approach can connect you with financial experts who offer expert guidance. We’re committed to helping you achieve the outcomes you want for your building products company at every stage of your business lifecycle. To learn more, visit our website for Truist building products lifecycle.