Japan gaining ground in U.S. house-building industry

As federal and state authorities continue to clamp down on foreign investments in American businesses and real estate that could pose a risk to national security, some foreign entities are making inroads into American homebuilding.

The latest was the recent blockbuster transaction that saw Sekisui House, a Japanese company, acquire the country’s 12th largest homebuilder, MDC Holdings, for a whopping $4.9 billion. MDC shareholders will receive $63 per share in cash, a 19% premium above the stock’s closing price on the day before the sale was announced.

There is not even a hint that the deal with Sekisui House would jeopardize American interests, or even warrant an investigation into whether the acquisition is anti-competitive in the highly fragmented new home sector, where thousands of independent builders operate. Indeed, the Osaka-based company is often heralded in the trade press as a top-notch outfit with a sterling reputation.

“The global company’s business value proposition weaves together its shareholder return stewardship with equally strong commitments to customer care ... and environmental, social and governance commitment and investment,” says John McManus of The Builder’s Daily newsletter.

In a deal the newsletter calls the “homebuilding story-ofthe-decade (so far),” Sekisui, already the 13th largest builder in the country, will become larger than such housing household names as KB

Home and Toll Brothers. Based on 2022 sales, only

D.R. Horton, Lennar, Pulte and NVR are larger.

Sekisui already owns several other U.S. homebuilders, including Woodside Homes, Holt Homes, Chesmar Homes and Hubble Homes. Woodside builds in California, Arizona, Nevada and Utah; Holt, in Washington and Oregon; Chesmar, in Texas; and Hubble, in southern Idaho.

With the MDC acquisition, the Japanese outfit will have a nearly nationwide footprint. Through its Richmond American Homes subsidiary, the Denver-based MDC is active in at least 13 states, including several mentioned above as well as Florida, Maryland and Virginia. MDC also operates subsidiaries in the mortgage, insurance and title businesses.

While the firm is growing, the other eight largest builders “are barely growing” in terms of land holdings, according to John Burns Research and Consulting.

Sekisui isn’t the only Japanese company operating in the U.S. housing business. According to McManus, “more than a dozen” domestic builders are now subsidiaries of Japanese worldwide corporate enterprises. Together, he reports, they account for “tens of thousands of U.S.-built houses.” And the invasion, if you will, is likely to continue, offers Margaret Whelan of Whelan Advisory.

“I think (Japanese activity in the U.S. housing market) is going to accelerate,” she told BUILDER magazine.

Meanwhile, a U.S. appeals court has stopped Florida from enforcing a ban on Chinese citizens owning homes or land in the state, and Hawaii is considering legislation to bar foreigners from buying real estate there.

Now, Missouri has added to its restrictions on foreigners owning property. Missouri already caps foreign agricultural land purchases at 1% of the state’s total agricultural land. Gov. Mike Parson has issued an executive order banning businesses or individuals from nations designated as U.S. adversaries from purchasing farmland within a 10-mile radius of critical military installations (meaning, all staffed military bases) in the state. Nations currently classified as foreign adversaries include China, Cuba, Iran, North Korea, Russia and Venezuela.

At the federal level, the Government Accountability Office — the investigative arm of Congress — has told the Department of Agriculture to get its act together when collecting data about foreign ownership of the nation’s farmland. In a restricted report, the GAO said that the “USDA needs to collect, track and share the data better.”

The Defense Department has also complained that it needs better access to specific, up-to-date information. Per the GAO report, “Sharing current data could help increase visibility into potential national security risks related to foreign investments in U.S. agricultural land.”

According to the USDA, “foreign ownership and investment in U.S. agricultural land — which includes farmland, pastures and forest land — has grown almost 50% since 2017.” Foreign-owned wind companies acquiring leases to build wind turbines on agricultural land is largely responsible for the increase.

But some deals may be too close to sensitive government installations, like the subsidiary of a Chinese company’s purchase of cropland near Grand Forks Air Force Base in North Dakota in 2022. In its investigation, the GAO found that Uncle Sam is having a “hard time” tracking such transactions. Consequently, total foreign holdings are likely to be understated.