566. Why Is It So Hard (and Expensive) to Build Anything in America?

Episode Summary

Executive Summary: The episode argues that U.S. construction has suffered a decades-long productivity decline, making housing and infrastructure more expensive and scarce. It explores causes from regulation and fragmented incentives to weak adoption of industrialized methods, then looks at modular/off-site construction as a partial solution—promising but constrained by policy, scale, and the structure of the industry.

Main Topics: Long-run collapse in construction productivity (Priority: 5/5): The episode centers on research showing construction productivity has moved opposite most other sectors since the late 1960s, with output per worker falling substantially over time. Regulation, local control, and housing shortages (Priority: 5/5): Economists Ed Glaeser and others argue that zoning, land-use rules, and citizen opposition make it hard to build at scale, raising costs and reducing housing supply in high-demand cities. Why the industry resists productivity gains (Priority: 4/5): Construction is fragmented, project-based, risky, and incentive-misaligned: firms often prioritize winning the next bid over optimizing current work, which discourages efficiency and innovation. Modular/off-site construction as an alternative (Priority: 5/5): Factory-built modules can reduce build time, labor strain, waste, and emissions, but uptake in the U.S. remains low and the business model requires scale and coordination that the market lacks. Historical attempts to industrialize building (Priority: 4/5): The episode revisits Sears kit homes, HUD’s Operation Breakthrough, and Katerra as efforts to transform construction through standardization and factories, with mixed or failed outcomes. Policy levers: carrots, sticks, and code reform (Priority: 4/5): Examples from Canada, California, Ireland, Sweden, Singapore, and the EU illustrate how governments can push off-site construction through subsidies, mandates, and performance-based codes. Potential future of dense urban building (Priority: 3/5): The episode ends by imagining major zoning liberalization or even large-scale new city development as possible ways to force innovation and bring housing costs down.

Key Arguments: Construction productivity has fallen for roughly 50 years, unlike agriculture, manufacturing, and IT, making the sector a major drag on affordability and economic growth. The decline is unlikely to be explained by one single factor; it appears to be a combination of regulation, project structure, incentives, and industry fragmentation. Higher housing and infrastructure costs are a public problem, not just a contractor problem, because they raise prices for homes, schools, bridges, factories, and transit. Land-use regulation and local veto points make it difficult to achieve mass production in housing, especially in productive urban areas where demand is highest. The smaller and more bespoke projects become, the harder it is to realize scale economies, which helps explain why construction firms remain tiny compared with manufacturing firms. Modular/off-site construction can deliver faster, safer, and cleaner production, but it needs supportive policy and enough market scale to survive. Past attempts to industrialize construction in the U.S. failed partly because of policy instability, weak capitalization, and a mismatch between ambition and execution. A real fix likely requires changing both how buildings are designed and how land use is governed, not just adding more labor or capital to the current system.

Data Points: Construction productivity trend since 1970: about 40% less value added per construction worker today than in 1970 - Cited from Austin Goolsbee and Chad Severson’s paper on U.S. construction productivity Construction productivity in the 1940s-1960s: grew about 2% per year in the 1940s and 1950s, then flatlined in the 1960s - Referenced from the 1968 HUD report A Decent Home Average U.S. labor productivity long run: about 2% per year - Used as a comparison to show construction’s divergence from the broader economy Recent U.S. labor productivity growth: about 1% per year for the last 15 years or so - Broad economy context provided by Chad Severson Construction’s share of GDP: about 4% - Explains why construction productivity matters at the macroeconomic level U.S. housing shortage estimate: nearly 4 million housing units short - Freddie Mac estimate discussed by Ed Glaeser Modular construction share in the U.S.: about 6% - Current share of U.S. construction that is modular/off-site Prefabrication shares abroad: around 15% in Japan; around 80% in Sweden - Used to show that other countries have adopted industrialized construction more extensively Swedish productivity gain from off-site construction: 10% higher productivity than conventional construction - Reported example of performance from a more modular-friendly regulatory environment Module timing advantage: less than 50% of the time of site-built construction - Vaughn Buckley on average speed of modular building Hotel room completion at delivery: about 90% complete - Buckley describing factory-finished modules delivered to site Emissions reduction from modular construction: 40% less emissions - Independent analysis cited during discussion of environmental benefits Share of global carbon from construction: almost 40% - Used to emphasize the industry’s climate impact Building cost comparison across cities: about $700/sq ft in New York and San Francisco; about $500 in Chicago; about $300 in Houston - Turner and Townsend survey data on office construction costs New York cost breakdown: 50% labor, 20% materials and plant, remainder unexplained residual - Explaining why New York building costs are so high Highway spending per mile: more than threefold increase from the 1960s to the 1980s - Leah Brooks and Zachary Liscow’s research on infrastructure costs Small construction establishments: almost 600,000 establishments with fewer than five people - Shows extreme fragmentation in the construction sector Large construction establishments: 101 establishments with more than 1,000 people - Contrasted with manufacturing to highlight lack of scale Large manufacturing establishments: 990 establishments with more than 1,000 people - Comparison point showing manufacturing’s greater scale COStar parcel sample: median parcel 7.3 acres with 3.2 units - Illustrates how small and non-scaled many development projects are Operation Breakthrough prototypes: nearly 3,000 prototype housing units - HUD’s late-1960s industrialized housing initiative Katerra funding: more than $800 million from SoftBank - Used to show how much capital backed a failed modular-tech effort Katerra shutdown: bankruptcy in 2021 - Marks the failure of a high-profile attempt to remake construction

Pivotal Quotes: "Productivity in the construction sector has fallen significantly over the past 50 years." — Chad Severson: Explaining the core finding of the research paper on U.S. construction productivity "We need to rethink what we are doing everywhere because it is not working." — Vaughn Buckley: Summarizing the case for systemic change and broader adoption of off-site construction "If you got, you know, 50 acres of prime land in Silicon Valley that you were allowed to put, you know, 5,000 units on. Yeah, absolutely." — Ed Glaeser: Illustrating how relaxed land-use rules could unlock large-scale housing production

Implications: If construction remains fragmented and heavily constrained, housing and infrastructure will keep getting more expensive. Faster progress likely depends on zoning reform, code modernization, and wider use of factory-based building methods.