The homebuilding industry has spent years chasing scale. The numbers suggest we may have been looking in the wrong place. What if the fastest way for a homebuilder to get bigger is to get smaller? Not smaller in revenue. Not smaller in closings. And certainly not smaller in ambition.
Smaller on the map.
The homebuilding industry has spent years pursuing scale through expansion: more markets, more communities, more lots and a broader geographic reach. But after reviewing FY2025 results from 12 of the largest publicly traded U.S. homebuilders, I’m beginning to wonder whether we have confused size with scale.
A builder can be enormous nationally while operating relatively small local businesses. Another can operate in far fewer markets yet build hundreds, sometimes thousands, of more homes in each market.
Which one actually has greater scale? I started with a simple metric: closings per market.
It isn’t perfect. Markets differ enormously in size, price point, land constraints, product and competitive structure. But it tells us something important: how deeply a builder operates in the markets where it has already chosen to compete. And the differences are enormous.
Across 12 public builders, closings per market range from roughly 130 to more than 1,000. That isn’t a rounding error. It represents fundamentally different operating models.
12 Builders. Very different perspectives on scale
At one end of the spectrum, Lennar produces roughly 1,000 homes per market, based on its approximate market count. Taylor Morrison and D.R. Horton are around 684 and 673, respectively. PulteGroup, Meritage Homes, NVR, and M/I Homes cluster between roughly 525 and 630.
Then the numbers fall sharply. KB Home produces roughly 263 homes per market. Century Communities is no more than roughly 231, based on its disclosed market floor. Hovnanian is around 204, Toll Brothers no more than roughly 188, and LGI Homes roughly 130.
Same industry. Same supposed pursuit of scale. Completely different operating footprints.
And that raises a question I don’t think the industry asks often enough:
Scale of what?
Is scale the number of markets? The number of communities? Total closings? Purchasing power?
Access to capital? Or is the form of scale that matters most achieved when a builder becomes exceptionally large within a single market?
Bigger isn’t necessarily deeper
For years, geographic expansion has been treated as evidence of scale. But adding another market doesn’t necessarily make the existing organization more scaled. In fact, it can do the opposite. A new market requires leadership, land operations, purchasing relationships, sales infrastructure, construction operations, trade relationships, working capital, and management attention. Some of those costs can be leveraged nationally. Many cannot.
Homebuilding remains an intensely local business. Land is local. Entitlements are local. Trades are local. Municipalities are local. Consumers are local. And perhaps most importantly, the judgment required to buy land correctly is local. At some point, another dot on the map may add size without much operating leverage. That doesn’t mean geographic expansion is wrong. It means expansion has to answer a harder question: What becomes economically better because we entered this market?
The margin data complicates the story in a good way
If density automatically produced higher margins, this would be an easy thesis. It doesn’t.
PulteGroup combines substantial local density with the group’s highest gross margin at 26.3%. Toll Brothers generates the second-highest margin, 25.6%, despite having one of the lowest closings-per-market figures. That matters.
Toll’s much higher average selling price and differentiated luxury positioning create economics that volume alone cannot explain. So density is clearly not the only path to an economically powerful local business. Differentiation can do it, too.
What looks more interesting is the combination of being wide, thin, and relatively undifferentiated. Several builders near the bottom of the density rankings also rank near the bottom of the margin table. That doesn’t prove causation.
Land basis, incentives, product mix, cycle timing, geography, and accounting differences all affect gross margin. But the data raises a legitimate strategic question: If a builder lacks density in a market and meaningful product or pricing differentiation, what exactly is the economic advantage of being there? That may be the more important question.
The long tail deserves more attention
Every large national builder eventually builds a portfolio of markets. Some become enormous. Some become good businesses. Others remain relatively small for years. The industry tends to evaluate those markets individually: Is the division profitable? Is the land pipeline acceptable? Is the market growing? These are reasonable questions.
But perhaps there is another one: What is the opportunity cost of keeping capital and management attention in a collection of smaller markets rather than concentrating more heavily on the strongest ones?
Every builder has finite capital. Every builder has finite management bandwidth. And every builder has a finite number of exceptional operators. That means the real capital-allocation decision isn’t simply whether a smaller market is profitable.
It is about whether the next dollar earns more there than elsewhere. Should the next dollar take a 100-home operation to 150? Should it open another market? Or should it help turn a proven 600-home business into a 1,200-home business? Those are dramatically different growth strategies.
Maybe the division should be the scale
This leads to a different organizational model. Imagine a homebuilding division producing 2,000 to 3,000 homes annually. That’s no longer a branch office. It’s a substantial operating company.
Land, product, pricing, people, production, strategy, and ultimately the P&L increasingly belong to the operator who understands that market. Corporate still matters enormously.
It should allocate capital, protect the balance sheet, manage treasury, audit, public-company reporting, legal, compliance and risk, provide technology where centralized scale genuinely creates an advantage and protect the brand. But everything between corporate capital and the local operator should answer a simple question: Why does this decision need to be made here rather than closer to the market?
That includes regional operating structures. If a builder develops fewer but much larger local platforms, does it still need the same number of organizational layers between the division president and corporate? Maybe. But the burden of proof shifts.
Give great operators more authority and more risk
There is an obvious problem with decentralization. Give local operators more authority, and eventually someone will make a terrible land decision. Land committees exist for a reason. Homebuilders need adults in the room who are willing to say no. But exceptional local operators also know things a centralized committee sometimes cannot. So perhaps proven operators deserve another door.
If an operator strongly believes the committee is wrong, allow that operator to override the decision under defined circumstances, provided some of their economics are invested alongside the company. That doesn’t require personally guaranteeing corporate land acquisitions. Co-investment, deferred compensation, forfeitable incentive capital, or carried economics can all create alignment.
The principle matters more than the mechanism: Authority and accountability should go together. If you want to make an owner’s decision, take some owner’s risk. And if you’re right, get paid like an owner.
Stop buying dots. Start buying businesses
There is another implication. When builders enter new markets, they frequently begin by acquiring land. Then they hire people, build trade relationships, develop product, establish purchasing, create a sales organization, build a pipeline and spend years attempting to achieve local scale.
Maybe we have that backward.
If entering a new geography is strategically necessary, acquiring an already-dense local builder, while preserving its leadership, land pipeline, trade relationships and operating culture, may be considerably faster than buying land and building an operating company from scratch. The objective shouldn’t be another dot on the map. The objective should be a meaningful business by the time the dot appears.
Scale needs a better definition
I started this exercise thinking scale was primarily about overhead. I don’t think that anymore. The more interesting issue is capital allocation and management attention. The 12-builder comparison doesn’t tell us there is a single correct geographic footprint.
There isn’t.
Toll Brothers proves that differentiation can create powerful economics without requiring enormous unit density. NVR demonstrates another model: substantial local density within a relatively concentrated geographic footprint.
D.R. Horton and Lennar demonstrate that enormous national scale and substantial local production can coexist.
Every strategy is different. That is exactly why simply saying a builder needs “more scale” isn’t enough. Scale should describe an economic advantage, not a corporate aspiration. Something should become cheaper, faster, more productive, more profitable or more defensible.
Otherwise, getting bigger is just getting bigger.
Maybe smaller is the new bigger
The numbers are clues, not instructions. But they point to a question worth asking across the homebuilding industry. Instead of asking: How many more markets can we enter? Maybe builders should ask: How much bigger can we grow in the markets where we already know how to win?
That could mean a smaller map. Much larger local businesses. More capital behind proven platforms. More authority for exceptional operators. More accountability tied to that authority. And when the time genuinely comes to enter a new market, perhaps don’t just buy the land. Buy the operating capability.
For an industry obsessed with getting bigger, that raises an uncomfortable possibility: Some homebuilders may get much bigger by getting smaller first.
Builder-by-builder read
Lennar: The group’s top revenue ($32.1B) and a wide, well-distributed footprint (78 markets). Weak spot: the lowest gross margin (17.7%), so it’s winning on size, not on price.
Taylor Morrison: Punches above its weight: high revenue per market ($408M) from just 19 markets, plus a solid 22.5% margin. Weak spot: a small footprint limits how much room it has to keep growing.
PulteGroup: Best margin of any builder (26.3%) and strong revenue per market. No real weak spot in this table; the most well-rounded performer.
NVR: The most evenly run company here: lowest concentration multiple (1.5x), meaning its markets perform consistently rather than relying on a few stars. Weak spot: nothing stands out as exceptional; revenue per market is solid but unremarkable.
M/I Homes: Efficient at a smaller scale, with a decent margin (20.8%). Weak spot: the smallest revenue and closings among the fully reliable builders, so less diversified.
D.R. Horton: Largest footprint by far (126 markets) and the most homes closed (84,863) — unmatched national reach. Weak spot: lowest revenue per market among the big builders, reflecting a volume-over-price strategy.
Meritage Homes: Nicely balanced — its closings share and revenue share in top markets match almost exactly (51.8%/51.8%), indicating pricing is consistent across markets. Weak spot: margins and revenue per market are middle-of-the-pack, with nothing that stands out.
Toll Brothers: Strong margins (25.6%), reflecting its luxury-home focus. Weak spot: lowest revenue per market despite being a luxury brand — it’s spread thin across 60 markets, and its market-level data is only partially confirmed.
KB Home: Extremely concentrated in winning markets, its top 17 markets earn 5.0x more per market than its other 32. Weak spot: that long tail of 32 markets is dragging results down hard (only $53M average revenue each), and the overall margin (18.6%) is below average.
Hovnanian Enterprises: Hard to find a strength in this table. Weak spot: the lowest gross margin of any builder (12.7%, nearly half the industry best), and its market-concentration data is too incomplete to say much else with confidence.
Century Communities: Its top markets generate a meaningfully higher revenue share (56%) than closings share (47%), suggesting it prices well in its best locations. Weak spot: overall revenue per market and margin are both near the bottom.
LGI Homes: Margin is respectable (20.7%). Weak spot: lowest revenue per market of any builder by a wide margin ($47M), and its market-concentration figures are the least reliable in the set.
Maybe this is what a mature industry looks like
There may be a larger story beneath all of this. Industries mature, and when they do, the source of competitive advantage often shifts. Homebuilding’s great postwar entrepreneurs did not begin by drawing dots on a national map. They builtlocal operating companies. They learned the land, the trades, the customer, and the municipalities, and built organizations capable of replicating that knowledge at scale. Many of today’s strongest homebuilding divisions can still trace their roots, directly or indirectly, to businesses and operating cultures created by that generation. The national companies came later.The local businesses came first.
We don’t have to look only to history.Highland Homes and Bloomfield Homes show that a concentrated local scale can still work in the middle market.And now something entirely new may be emerging alongside that old model. Millrose and the institutional land-banking industry are increasingly separating land ownership from the operation of the homebuilding business. Perhaps, inadvertently, that creates an opportunity to rethink what a homebuilder actually needs to own. If land can increasingly sit outside the operating company, the scarce assets inside the builder become something different:great operators, local knowledge, trade relationships, product, brand, and the ability to turn capital into homes.
That could lead somewhere genuinely new. Imagine national capital and land infrastructure sitting behind a collection of large, entrepreneurial local operating companies — businesses with real authority, accountability, and economic ownership, without each one carrying the traditional land balance sheet. In a strange way, the future of homebuilding could begin to resemble its past:local builders run by exceptional operators, only this time supported by institutional capital and a national land platform.Land banking may have been designed to make homebuilders more asset-light. Its more consequential legacy could be giving the industry permission to ask a much bigger question:If we can separate the land from the builder, what should the builder of the future actually look like?
And that is probably where I should stop.
I started this exercise to understand scale and somehow ended up counting markets, closings, margins, revenue per market, and concentration ratios across twelve public homebuilders. As an Aggie, I had to take my shoes off just to get past 10. If the industry keeps making this complicated, I may have to learn to count to 20 with my shoes on.
Either way, I’ll keep doing the math.
[Editor’s note: This is the second installment of a five-part analysis on homebuilder scale by the author, Scott Finfer. Part 1: Why 45 homebuilding markets may not beat six high-density ones is available here.]