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Welcome to The Corner. In this issue, we take a closer look at oligopoly causing soaring prices in the U.S. home-building sector; grade the Biden Administration’s on its handling of food and farming consolidation; and offer insights into the baby formula shortage.
Consolidation by Builders Worsens America’s Housing Crisis
Luke Goldstein
As rents soar in metropolitan areas across the country — by a national average of 12% this year — there is no shortage of culprits to blame. The reopening of offices after the pandemic, the end of Covid-era rent restrictions, and soaring real estate valuations all play a role. Then there’s the buying up of homes by investment funds like Blackstone, as we reported in February.
But there’s another factor that’s been largely overlooked: an oligopoly of homebuilders that have cornered construction capacity in many major cities and surrounding suburbs. Less competition allows large firms to build fewer homes and keep prices high. And indeed, perhaps the single biggest source of the rent crisis is simply that America is building too few new homes. By most estimates, our national housing stock falls short by around 4 million homes.
"We're seeing large builders using their market power to decrease the housing supply for their own benefit," said Luis Quintero, a professor at Johns Hopkins’ Carey Business School who co-authored a paper investigating homebuilder concentration.
As data from Builder Magazine shows, the nation’s top 10 builders capture 63% of the market share in the 25 fastest-growing home markets, compared to just 34% before the great housing crash of 2008. And these national market figures strongly understate the problem, as the level of concentration is often much higher in local and regional markets.
A granular analysis by Johns Hopkins researchers at the Carey School breaking down local housing markets with high demand details such local concentration in homebuilding. The number of builders developing new housing in most local markets dropped by a quarter from 2006 to 2015. In a handful of areas with the highest levels of concentration, two or fewer firms produced at least 90% of new housing by 2016.
In part, this is due to a series of big mergers among big builders. Pulte Homes and Centex merged in 2009 to create the largest homebuilding firm in the country at the time, and in 2017 Lennar purchased CalAtlantic, combining the second and fifth largest national builders.
The Johns Hopkins study confirms that such deals have contributed to the housing shortage, costing the country some 150,000 additional homes a year since the great recession, compared to if the market had been as competitive as it was in 2006. With fewer competitors, builders don't face pressures to beat out rivals and can get away with producing fewer homes while charging higher prices. The Hopkins study also confirms that such deals drive up prices, with home prices between 2013 to 2017 growing more than twice as fast in local markets as they would have if the market hadn’t consolidated.
The homebuilding market became even more concentrated during the pandemic. Economist Paul Emrath of the National Association of Home Builders says the skyrocketing cost of lumber and timber, the main inputs needed for new construction, is another factor blocking new entrants to the homebuilding market. "We've been hearing from a lot of builders that the supplies they need are just getting to be totally unaffordable," he says.
Here again, big homebuilders have an advantage over smaller companies since they can purchase bulk orders for large projects which make the costs more affordable.
Open Markets and Farm Action Fault USDA’s Antimonopoly Efforts
Open Markets Institute and Farm Action hosted an in-person event this week in Washington, titled “Making the Grade? A Midterm Review of the Biden Administration’s Commitment to Food System Competition.” The panelists included Ricardo Salvador of the Union of Concerned Scientists; Carrie Balkcom of the American Grassfed Association; John Boyd, Jr., founder and president, National Black Farmers Association; Michael Gay, owner and manager, Food Fresh; and Dennis Olson of the United Food and Commercial Workers International Union. Angela Huffman, Sarah Carden, and Dee Laninga spoke for Farm Action, and Claire Kelloway and Barry Lynn spoke for Open Markets. The event was covered by the Financial Times, Bloomberg, Tri-State Livestock News and The Fence Post, among other outlets.
Barry Lynn testifies in Senate on Baby Formula Shortage and Supply Chain Fragility
Executive director Barry Lynn testified before the Senate Committee on the Judiciary, Subcommittee on Competition Policy, Antitrust, and Consumer Rights, in a hearing titled “Baby Formula and Beyond: The Impact of Consolidation on Families and Consumers.” Ginger Carney of St. Jude Children’s Research Hospital in Memphis; Jeanette Contreras of the National Consumers League; and Scott Lincicome of the Cato Institute also testified.
Senators Klobuchar, Lee, Booker, Blumenthal, Ossof, Cruz, Blackburn, and Hawley took part in the discussion. In his testimony, Lynn said that “Ronald Reagan’s embrace of Robert Bork’s radical efficiency theory for antitrust, in combination with Bill Clinton’s embrace of Larry Summer’s radical efficiency theory for trade, resulted in the bulldozing of almost every industrial system on which we depend, and has pushed us to the brink of catastrophe.”
Wall Street Journal Confirms Open Markets Concerns About Payments to Newspapers
The Wall Street Journal reported last week that Facebook will likely halt annual multimillion-dollar payments to the New York Times, Washington Post, and Wall Street Journal. The article said Facebook pays per year more than $20 million to the Times, more than $15 million to the Post, and more than $10 million to the Journal. In the case of the Journal, the reporters said the payments form part of a larger agreement that provides parent company Dow Jones with more than $20 million worth of “compensation.” The article also implied that the payments amounted to a form of a political deal between Facebook and the publishers. Ending the payments, the reporters wrote, “would represent the end of a certain detente in the fraught relationship between online content makers and the social-media giant.”
The article marked an important win for the Open Markets Institute, which has long opposed such under-the-table payments by Facebook and Google to publishers, precisely because of the threat they pose to the independence of America’s newspapers. Open Markets efforts include this groundbreaking article, produced by its Center for Journalism & Liberty program, in April 2021 on the payments, major conferences on the topic in April 2021 and in June 2018, and efforts to encourage Congress to require a full disclosure of such payments or even to outlaw them.
🔊 ANTI-MONOPOLY RISING:
The Department of Justice requested in a “statement of interest” Wednesday that a federal court limit the century old antitrust exemption given to Major League Baseball. This request comes following a lawsuit filed by three former minor league teams that accused MLB of violating antitrust laws by consolidating minor league baseball and getting rid of 40 teams. The MLB has asked for dismissal of the lawsuit which resulted in the DOJ requesting that the exemption be limited in scope and defined narrowly. (New York Times)
The Competition and Markets Authority in the U.K. last week announced that it intends to investigate Google and Apple’s stranglehold over mobile device software. The investigation will examine how both companies control the market for web browsers in mobile device software. The probe will also entail how Apple’s restricts cloud gaming on its devices by blocking it on its app store, and the conditions Google places on its in-app payments systems for its app store. (The Guardian, WSJ)
A federal judge announced last week that an antitrust lawsuit targeting the alliance between JetBlue Airways and American Airlines can advance after the airlines sought to dismiss the case. The alliance allows the airlines to sell one another’s seats on certain northeastern U.S. routes. The complaint, filed by the Justice Department, the D.C. attorney general, and six state attorneys general, claims that the arrangement would harm consumers by decreasing competition in an already heavily concentrated industry. (Washington Post)
The Federal Trade Commission earlier this month voted 5-0 to block a merger between HCA Healthcare and Steward Healthcare. According to the FTC the merger between the two Utah health care providers would reduce options for 80% of residents in the Wasatch front region. The merger would result in increased market concentration, a reduction in inpatient general acute care services, increased prices and less innovative services for patients. Low-cost provider services would also be lost, as Steward is a major regional player. (FTC, Axios)
The FTC Monday announced, in a 5-0 vote, that it would require private equity firm JAB Consumer Partners to divest from veterinary clinics in California and Texas, and receive advance approval from the agency when attempting to acquire other veterinary clinics. The action comes following the $1.1 billion acquisition of SAGE Veterinary Partners by National Veterinary Associates, which is backed by JAB. The FTC argues that without the divesture, the market for emergency vet services in California and Texas would be less competitive. The vote represents increasing scrutiny of private equity firms involvement in healthcare by the Biden administration. (WSJ)
- The FTC in early June began investigating deceptive and unfair practices in the advertising and marketing of mental health service startups. The FTC sent a letter to Cerebral, requesting information on the startup practice of billing customers subscription fees until they cancel. This comes after a subpoena that the FTC sent Cerebral in May that sought to figure out whether the company violated the Controlled Substances Act. (WSJ)
- The FTC last week began an investigation into pharmacy benefit managers, requesting information and records detailing their business practices. Millions of Americans are captive to PBMs who control their access to prescriptions drugs. PBMs are middlemen that manage and decide which health insurance plans and pharmacies offer which medications. The FTC will investigate drug manufacturer rebates offered by PBMs and how they impact formularies and drug prices. (CBS News)
📝 WHAT WE'VE BEEN UP TO:
Senior fellow Nikki Usher’s News for the Rich, White, and Blue: How Place and Power Distort American Journalism, received two honors at the International Communication Association conference, one for the best journalism studies book and for the 2022 International Journal of Press/Politics Hazel Gaudet-Erskine Best Book Award.
Executive Director Barry Lynn spoke at the Global Effects of a Nuclear Conflict conference in Washington, on how even a single nuclear explosion could trigger a catastrophic industrial crash. The discussion was hosted by the Nuclear Threats Initiative, and included former senator Sam Nunn (D-GA) and former Energy Secretary Ernest Moniz.
Lynn spoke at the Policy History Conference in Tempe, Arizona, about his book Liberty from All Masters. He was part of a panel titled “Anti-Monopoly Past and Present” with four other authors: Richard John (Network Nation); Gerald Berk (Louis Brandeis and the Making of Regulated Competition); Laura Phillips Sawyer (American Fair Trade); and Matt Stoller (Goliath).
Senior fellow Johnny Ryan was featured in an Ad Exchanger article, examining ad tech developments and other data privacy topics. “I think what needs to happen is a market-wide shift imposed by an enforcer or a court,” Ryan says.
- Lynn was quoted in NTD emphasizing the potential dangers posed by Elon Musk’s efforts to buy Twitter. “Barry Lynn, head of the Open Markets Institute, believes that Musk already has one of the world’s most important Internet platforms – Starlink – and his acquisition of one of the world’s most important platforms for public communication and debate – Twitter – would pose a threat to “democracy and free speech in the United States.” Lynn said the deal to acquire Twitter is illegal and involves the risk of monopoly.”
Kelloway joined Local SYR to discuss the state of faulty supply chains and industry consolidation leading to baby formula shortages. “Kelloway said the public would likely be surprised to learn that there’s only a handful of formula manufacturers here in the US. According to ABC News, 90 percent of the nation’s supply comes from just four companies.”
Ryan “spoke with eMarketer principal analyst at Insider Intelligence Nicole Perrin to discuss real-time bidding and consumer data privacy.” This exchange was mentioned in Media Post, attempting to shine a light on many privacy policies and regulations that are flying under the radar.
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📈 VITAL STAT:
43%
The number of minor league teams that would be eliminated under a recent consolidation of minor league teams engineered by Major League Baseball. The consolidation plays a role in the decision by the Department of Justice to ask a court to limit MLB’s existing exemption from enforcement of antitrust law. (New York Times)
📚 WHAT WE'RE READING:
- “To Stem the Tide of Rural Decline, Stop the Bank Merger Wave,” a report by the attorney Basel Musharbash, who practices law in Paris, Texas. “Over the past 3 decades, bank mergers have eliminated thousands of locally-owned banks across rural America and consolidated control over 80 percent of national banking assets in the hands of large, metro-headquartered financial institutions—with catastrophic consequences for rural access to credit, economic vitality, and civic wellbeing.”
NIKKI USHER'S
NEW BOOK
News for the Rich, White, and Blue: How Place and Power Distort American Journalism
Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.
“We need to radically rethink the core functions of journalism, leverage expertise, and consider how to take the best of what the newspaper ethos of journalism can offer to places that have lost geographically specific news, “ says Usher, an associate professor at the University of Illinois-Champaign. “The news that powers democracy can be more inclusive.”
Usher is also the author of Making News at The New York Times (2014) and Interactive Journalism: Hackers, Data, and Code (2016).
News for the Rich, White, and Blue, published by Columbia University Press, is available as a hardback, paperback and e-book. You can order your copy here.
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