What drives developers? Understanding vertical (dis)integration strategies in the land development process

Abstract

Real estate developers play a crucial role in the production of our cities. Yet, the knowledge about how they operate is limited. They are often portrayed as a homogeneous group, while in practice we see a large variety of different types of developers and of their strategies. Particularly striking are the differences in the extent to which real estate developers cover the land development process. Some limit themselves to development, while others incorporate strategic land acquisition, construction, and/or long-term investment. With the help of theories from organisational economics, we explore different vertical integration strategies and the motives behind them. We apply these insights to cases from the Dutch homebuilding industry. Our analysis leads to a conceptualisation and categorisation of real estate developers according to their vertical integration strategy and we identify different motives behind those strategies. We find that vertical (dis)integration strategies are informed by strategic considerations, such as land assembly in order to secure future workload in construction, by price advantages, and by transaction-cost considerations that are related to the highly specific nature of some activities in the land development process.