Housing could be built more cheaply by factories, the way cars are, if it weren’t for the fact that local building codes vary from county to county. Only ten states have statewide building codes that keep counties from adding their own individual requirements for building housing. In other states, each individual county can add its own building code requirements, making it harder for a factory to produce standard models of housing that can be used in every county.
Still, there is enough commonality in requirements from place to place that some builders of apartment buildings are now relying on factories to do most of the construction work. That includes America’s biggest apartment building owner, Greystar Real Estate Partners. The Wall Street Journal reports:
Greystar Real Estate Partners on Monday is opening a six-building modular apartment complex, complete with a gym, amphitheater and bocce courts. It is Greystar’s first U.S. project assembled using this alternative construction method, aiming to combat the chronic delays of traditional developments.
The new complex called ‘Ltd. Findlay’ is located in Coraopolis, Pa., about 16 miles west of Pittsburgh. It is offering leases for 312 apartments, making it one of the largest multifamily modular projects in the U.S. Ltd. Findlay is the first property developed at Greystar’s modular factory in Knox, Pa. The developer has six more modular projects in its U.S. pipeline that will also be built at the Knox site.
Unlike conventional on-site construction, modular homes are assembled in a factory, transported to the final building site and then stacked on top of each other like jumbo Lego blocks. Proponents say this type of building can be completed faster using fewer workers and with materials that can be purchased at a bulk discount, which can reduce overall costs….modular remains only a small portion of the overall construction market…But its use is steadily growing. With the construction workforce shrinking and costs rising, the efficiency gains of modular are gaining traction with mainstream developers. From 2015 to 2023, the annual market share of modular construction more than tripled to 6.6%…Developers such as Related and Amherst are among the major companies that have experimented with modular in the U.S. Marriott also has begun using modular to build some of its new hotels. McKinsey projects that modular construction revenues globally could grow to as much as $1.1 trillion by 2040 from $180 billion in 2022.
In most industries, productivity has risen enormously since 1947. But not in construction, where productivity has not increased at all over the last 75 years. As Market Watch noted in 2017,”While construction has appeared stuck in a time warp, other sectors have transformed themselves. Consider that in the United States between 1947 and 2010, agriculture achieved cumulative real growth in its productivity of 1,510% and manufacturing 760%…U.S. construction-sector productivity is lower today than it was in 1968.”
Productivity is so low in housing construction because high-cost, low-productivity methods are encouraged by federal housing regulations and subsidies. The Foundation for Research on Economic Opportunity (FREOPP) explains:
According to the U.S. Bureau of Labor Statistics, construction productivity in 2020 was 40% lower than in 1970, even though productivity in other sectors of the economy more than doubled during that time. While local regulatory policy is unquestionably a factor in this decline, FREOPP Visiting Fellow Jackson Mejia notes that restrictions on the methods of housing production also affect the supply of affordable housing. Prefabricated factory-built housing costs about one-third as much as traditional “stick-built housing,” but it constitutes just 10% of new single-family home construction today. In the 1970s, it was 60%. That dramatic decline is thanks to monopolistic government policies, from mortgage subsidies to federal safety standards, that irrationally favor stick-built methods over factory-built. To make more housing available to more Americans at lower prices, the federal government must get out of the way and allow housing construction to modernize the same way other sectors of the economy have.
Federal policies promote “‘stick-built housing,’ when buildings are constructed on-site by traditional construction methods. This method requires highly skilled, frequently unionized workers to produce homes on-site. Pre-fabricated factory-built housing, by contrast, costs about 1/3 as much per square foot”:
Research by economist Jim Schmitz at the Federal Reserve Bank of Minneapolis highlights that the prevalence of stick-built housing is a function of monopolistic behavior by construction companies and government policy, particularly the National Association of Home Builders (NAHB) and the Department of Housing and Urban Development (HUD). This happened in a couple of steps.
First, HUD developed Section 235 in 1968, a program that substantially subsidized mortgages on stick-built but not factory-built homes. Given the relative inefficiency of stick-built production, this program effectively subsidized a low-productivity technology at the cost of other, more efficient production methods.
Second, HUD and NAHB pushed the National Manufactured Housing Construction and Safety Standards Act of 1974 through Congress. The act effectively operates as a national zoning ordinance and restricts the production of factory-built homes substantially by requiring such homes to meet certain standards. At the time, factory-built housing competed with stick-built housing largely in low-density areas, many of which had no zoning laws to begin with. Before factory-built housing could make headway into urban areas, it was strangled in the crib.
Local building codes that vary from county to county and state to state make housing more expensive by preventing mass production of housing by factories. A factory can’t just come up with cheap, durable modular housing and then sell it everywhere. Imagine how much more expensive cars would be, if they had to be produced by hand in tiny factories located in each individual state or county, rather than (as is currently the case) being mass produced in large factories in a few states (in facilities that use robots and take advantage of economies of scale).
