'We're Chronically Undersupplied': PulteGroup CEO On Growth, Acquisitions, Design, Affordability

Ryan Marshall, president and CEO of PulteGroup Inc., said the home construction company realized about 15 years ago that it needed to better serve its clients and investors. That meant finding innovative ways to increase efficiency and deliver carefully crafted design plans.

But, as Marshall remarked on this week’s Walker Webcast with Walker & Dunlop CEO Willy Walker, this process took years of planning and strategic recalibration.

“In 2010, when the market was at the tail end of the Great Financial Crisis, [PulteGroup] had barely survived,” Marshall said. “We went through some really tough times, and as a management team, we said there has to be a better way to run this business.”

After a “complete retooling,” PulteGroup is the third-largest homebuilder in the U.S., expecting to deliver 31,000 homes this year alone. PulteGroup’s stock has also grown from $20 per share to $130 per share since Marshall assumed his position in 2016.

What’s more fascinating, Walker said, is that back in the early 2000s, between 2000 and 2005, PulteGroup was delivering about 50,000 units annually. This is a noticeable difference from the approximate 30,000 units it’s already delivered or is projected to deliver annually in the 2020 to 2025 segment. 

Its earnings, however, continue to rise, Walker said, who noted that PulteGroup had reduced deliveries dramatically even as it maintained earnings per share growth. 

“How is it that you've been able to pull back growth so much, yet at the same time continue to grow earnings?” Walker asked.

Marshall said it’s all about delivering high-quality floor plans and communities where consumers will come in, see value and say, “This is a place where I want to be.”

“We absolutely know that we're putting a better home on the market than our competition, and our consumers see the value in that.”

To increase efficiency and build homes better, the firm decided that it needed to run as a “really efficient manufacturer” as opposed to a custom builder about 15 years ago. This led to a massive consolidation of its numerous floorplans.

“We had about 3,500 different floor plans that we were managing, and you had to manage the cost, the engineering and the specifications,” he said.

“We were building those homes about four times each, which was terribly inefficient. That’s when we started our commonly managed plans projects, and our goal was to bring 3,500 down to 500 and build 80% of our deliveries out of those 500 floor plans.”

In the wake of the Global Financial Crisis, the firm realized that it had been a top-quartile company in terms of revenue but was fourth quartile when it came to return on invested capital. That’s when PulteGroup started to prioritize margin over the amount of homes it produced, Marshall said.

“Value is created for shareholders in housing by delivering high return on invested capital, so we went on this journey of completely reworking the way we think about how we buy land, how we manage capital allocation and the things that are important,” he said. “Certainly, market share and scale are important, but the No. 1 thing that we believe creates value is a high return on invested capital.”

Walker pivoted the conversation to that of housing affordability — a pressing concern for consumers and developers of both single-family and commercial properties. 

The average age of the first-time homebuyer has risen to 38, up from the historic average of 31 to 32 years old, Walker said. 

In addition, families making the median income in 2014 were able to afford about 65% of homes on the market, according to the Wells Fargo Cost Of Housing Index. This stayed consistent until 2021, when affordability took a big hit, with only 40% of people being able to afford a home if they met the median household income.

Walker asked Marshall how the industry is dealing with this sharp decline in affordability from a homebuilding standpoint, as it’s widely estimated that the country needs at least 3 million more homes to catch up with demand.

“We’re chronically undersupplied with housing,” Marshall said. “We've been under-building that number for the last decade, maybe even going on 15 years, and we believe that dynamic has created the housing deficit that we have today in the country.”

He added that the median age of a first-time homebuyer has risen over the past few years due to societal changes. People are waiting longer to get married and have kids, resulting in everything else shifting by as much as six years from what they used to be. 

The U.S. is also a “not in my backyard” population — where everybody loves the idea of growing the economy until it involves putting new development next door to them. Until that sentiment is changed, the market will perpetually be undersupplied, according to Marshall.

“If we could supply a little bit more in both single-family and multifamily, I think that would probably be the single biggest and most powerful tool that we could have to bring down prices and make housing more attainable for buyers,” Marshall said.

One last trend that Walker mentioned about the homebuilding industry is the absorption of smaller, regional developers into larger, national developers. 

Marshall said that there has been massive consolidation in the homebuilding industry and that if one were to look at the top 50 housing markets, they would find that the top 10 builders have between 70% to 80% of the market share. About 10 to 15 years ago, it was a very different story — the market share of those builders was not nearly as high.

PulteGroup itself has acquired several companies over the years and now sells homes across the nation under various brands, including Pulte Homes, Centex, Del Webb and American West.

“We're always talking to the investment bankers, seeing what's out there, but we know that we can grow organically just as effectively, and maybe even more effectively,” Marshall said. “M&A is a little bit like the old Forrest Gump adage of life's like a box of chocolates. Sometimes you're going to like the chocolate and sometimes you don't.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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