Why It's Still So Expensive to Build Homes in America

SPEAKER_2 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, you're a homeowner now, right?

Joe Weisenthal (0:26)

Yeah, it's very fun.

Tracy Alloway (0:27)

Tell me, tell me how fun it is. I know you've had a few issues that cropped up basically as soon as you bought your new place.

Joe Weisenthal (0:33)

I don't want to talk about it, let's move on. No, it's like-

Tracy Alloway (0:35)

This is part of my carefully planned intro.

Joe Weisenthal (0:37)

Yes, I know. Yeah, it's annoying, and you have to deal with stuff. And I may have mentioned on the show one time, actually I've been lucky, by and large. But yes, it was very funny.

I think literally the day or two days after we closed on my apartment in the East Village, it's like when there was something wrong before, there's just a phone number of someone and you call it the- Yeah. So the building still has a super, but the landlord just deals with replacing something. And then I think literally the day after we closed, there was like a window leak. And it's like, wait, is there no longer a number? Do I have to pay for this myself?

Tracy Alloway (1:11)

So who did you find to fix the window?

Joe Weisenthal (1:14)

That I don't remember. There is still a super in the building, but we had to write a check.

Tracy Alloway (1:18)

Okay. One of the things that has surprised me about being a homeowner is how low tech a lot of housing construction and fixing actually is, right? So if there's a leak in your ceiling, in your roof or something, it's literally either you or some guy that you hire going up on a ladder and putting down a few more shingles with a nail gun, right? It all seems very old-fashioned.

Joe Weisenthal (1:42)

What did you think was going to happen?

Tracy Alloway (1:43)

Well, I don't know.

Joe Weisenthal (1:44)

There's going to be some unitary robots that crawled up there. There should be a drone.

Tracy Alloway (1:48)

No, seriously. It's the year 2025, and we're still putting houses together with the hammers and someone comes with a box, and they look through the different screw, they're like, no, this doesn't fit.

Joe Weisenthal (2:00)

I got it. Then they're like, one second, I don't have the right screw, and they go around to a construction store. I'll be right back. I got this. I got, yeah, it's still pretty, probably the way it looked when we were kids.

Tracy Alloway (2:11)

Well, anyway, I've been thinking about it because a couple of months ago, the Richmond Fed put out this paper, and it was all about productivity in housing construction, and the fact that construction labor productivity in housing has fallen by more than 30 percent from 1970 to 2020

Joe Weisenthal (2:28)

That's crazy.

Tracy Alloway (2:29)

You think about the arc of economic development. Normally, there are productivity improvements as we invent new efficiencies and as we invent new technology and ways of making things. That hasn't happened in housing. It's still the guy showing up with the toolbox.

Joe Weisenthal (2:43)

This strikes me as a really important element of the housing affordability conversation that I don't think gets enough attention, which is it's easy to talk about zoning, and I'm sure there are issues there that need reform. It's easy, you know, permits and all that stuff. It's easy to talk about financing, et cetera. However, housing is a product and things get built at a cost and then sold at some profit margin above that. And if that underlying cost keeps going up and it definitely has in, say, New York City and other areas, if that underlying cost keeps going up, then that is going to push up the cost of housing regardless of what you do on. Now, again, like maybe zoning can make help with productivity gains, et cetera. Nonetheless, it continues to get more expensive for the actual construction of a home, unlike many other built goods. I mean, the issue is that we don't build homes in China, unfortunately. If we did, that would solve the problem. We don't, and maybe we could talk a little bit about why we don't, but maybe one day we will, but that would help a lot.

Tracy Alloway (3:43)

Well, on that note, I mean, there have been attempts through history to have pre-fab houses, right? Some of the old pre-fab houses that you order from the Sears catalog in the 1920s or 1930s, those are gorgeous, and I would happily live in one of those today. But we should talk about why it seems difficult to build houses, or at least more expensive than some other things, and also why it seems that manufacturing other products seems to get more efficient over time, while housing seems to kind of stagnate. All right. So we do in fact have the perfect guest. I'm very happy to say we have Brian Potter, who is the author of the Construction Physics newsletter on Substack. I subscribe to this and it's fantastic. He is also the author of the new book, The Origins of Efficiency and a Senior Infrastructure Fellow at IFP. So really the perfect guest. Brian, thank you so much for coming on the show.