15 ms·

Solving the housing crisis requires fighting monopolies in construction (2020)

120 points by jseliger 4y ago

jschveibinz 4y ago
According to this resource (https://www.newhomesource.com/learn/stick-built-vs-modular-home-costs/ https://www.newhomesource.com/learn/stick-built-vs-modular-h...): - Modular home construction is an $11 billion industry, growing at 8.5% per year - The cost of modular/factory vs. stick built construction is about a 10-20% savings. On a $500k home, that’s going to be less than $25k difference in price. That’s not the problem. Additionally from this source (https://blog.lotnetwork.com/lot-and-land-loans-financing-your-property-purchase/ https://blog.lotnetwork.com/lot-and-land-loans-financing-you...): - Banks, which are tied to the Fed, are loathe to provide lot/construction loans. Ironically, this creates supply shortage and makes it necessary to purchase existing homes or from tract home builders that the author is criticizing. - The size of the cash downpayment can be as much as 50% of the cost of the home. Bottom line: the cost of housing is a systemic problem, and the Fed along with local government zoning boards are at the root of both the financial and regulatory sides of the problem.
- mistrial9 4y ago
  not a coincidence that the Federal Housing and Urban Development efforts have been, I argue, as close to third world corrupt as it comes, in the USA.
- hash872 4y ago
  Lot/construction loans is a highly speculative business, especially as lots of builders are blue-collar guys with minimal assets who can simply close shop in a recession. Building homes is constrained by the wider economy and interest rates, and they take a while to build, so in all of the umpteen million housing crashes we've had previously, a large % of homes built will hit in the market in the middle of a crash. The history of housing busts dates back hundreds of years and is older than the United States. Banks are not wild to extend lot or construction loans because, until we achieve AI singularity, there's always another bust coming around the corner- and banks know they'll take it on the chin. Especially to the average home builder, who will simply walk away from their loans in a recession, close their company, declare bankruptcy, etc. etc.
  - cmmeur01 4y ago
    When’s the last time a bank has “taken it on the chin”?
    - Panzer04 4y ago
      2008?
- dtgriscom 4y ago
  > The cost of modular/factory vs. stick built construction is about a 10-20% savings. On a $500k home, that’s going to be less than $25k difference in price. Isn't 10-20% of $500k actually $50k-$100k? (Could buy some really nice appliances...)
  - SilasX 4y ago
    I assume the parent was using $500k as the total home price (building + land[1]), so the savings is only off the building cost, which is a fraction of the total price. Should have made that assumption explicit though. I think the OP's core point is sound -- (total) home prices are like 50% over historically reasonable levels, so it's daft to explain it by even 20% overpricing for construction (which, again, applies to only a portion of the total sale price). [1] And the typical home does not cost $500k to build.
- snapplebobapple 4y ago
  You mentioned in a few words the biggest problem, which is zoning. The vast majority of land is zoned single family, which is actually a money loser for most municipalities in the USA. Crushing the local nimby zoning boards and forcing a much higher percentage of the land to be zoned for higher density would cause a boom of missing middle (and high rise) construction that could mostly solve this problem for very minimal capital outlay by municipalities vs trying to build enough single family zoned stuff to push prices down.
eesmith 4y ago
> But the key monopolies involved in blocking small modular homes are the Department of Housing and Urban Development (HUD) and the National Association of Home Builders (NAHB). They have successfully squashed the emergence of these factory houses. Is factory-built housing common in other countries? If not, then it would strongly suggest there are other reasons than federal control. Wikipedia at https://en.wikipedia.org/wiki/Modular_building#Market_acceptance https://en.wikipedia.org/wiki/Modular_building#Market_accept... says "In the UK and Australia, modular homes have become accepted in some regional areas; however, they are not commonly built in major cities. Modular homes are becoming increasingly common in Japanese urban areas ...", suggesting it isn't all that common world-wide.
- sien 4y ago
  This is a very good line of reasoning and well worth thinking about. In Australia you can't get a loan on a mobile home in a 'manufactured home park' https://www.homeloanexperts.com.au/forum/viewtopic.php?t=580#:~:text=Unfortunately%20there%20is%20no%20lender,on%20its%20own%20as%20security https://www.homeloanexperts.com.au/forum/viewtopic.php?t=580.... Also building codes often make it hard to build mobile homes on residential land.
sys_64738 4y ago
I know in the USA it used to be the case you couldn't get a mortgage on a modular home and had to take out a personal loan. Not sure if that changed.
- eesmith 4y ago
  Likely connected to these parts of the essay: > They also mean the homes are financed as automobiles (with personal loans, or chattell loans) and not real estate loans. ... > One famous program, the so called “Section 235,” provided mortgages at interest rates as low as one percent for buyers purchasing a home built on-site. Buyers of factory-built homes, in particular, manufactured-homes, were not eligible.
- deleted 4y ago
  [deleted]
oldgradstudent 4y ago
Is there even a shred of evidence that the housing crisis is a result of higher construction costs? Or is the Fed trying to draw attention away from the catastrophic impact of its zero interest and other policies on the massive increase in asset prices?
- epistasis 4y ago
  There is an entire paper linked here that's exactly what you ask for in your first question. What about it do you find unconvincing?
  - oldgradstudent 4y ago
    It just asserts that without proof. The paper essentially argues that construction costs can be lowered significantly using factory production methods, especially for small-modular homes. I have no problem with that part. The title has no basis in the paper, though. It is unrelated to the massive increase in housing (and other asset) prices in recent years which are the cause of the current housing crisis.
    - vinceguidry 4y ago
      Yeah. Like, anyone who has ever tried to get anything custom out of builders these days has been confronted with the fact that none of these guys want or care to do anything even close to custom work anymore. The diversity has been squeezed out of the market ages ago, cookie cutter houses are the norm everywhere. I only read the abstract, but it doesn't surprise me in the least that this paper just asserts conclusions without justification. Houses are already as close to factory-built as is possible to do with today's tastes. Everything is pre-engineered and merely assembled on site.
  - eesmith 4y ago
    I didn't find it convincing. Elsewhere here I asked why factory-built housing doesn't seem to be popular world-wide, which is what you would expect if it's only US Federal policy which prevents it from being popular in the US. I'll add that I saw no discussion of how local housing policies were designed to prevent "Large numbers of low-income, city residents [from moving] to these areas", in order to keep property values high. Or the classism that caused people to look down on mobile homes. The author rhetorically asks "But what stops public transportation from expanding upon the arrival of new residents?", when I've heard so many New Urbanist videos answering that question. I didn't understand how "a uniform building code across the country would be a great benefit to factory producers" is a meaningful goal, given that the needs for Florida, Arizona, and Alaska are quite different, making me question his understanding. I read "There is a literature that asks why the poor live in cities." and counter with the observation that the poverty rate is higher in rural areas - https://en.wikipedia.org/wiki/Rural_poverty#Rural_versus_Urban_Poverty--United_States https://en.wikipedia.org/wiki/Rural_poverty#Rural_versus_Urb... says "rural poverty rates are higher and more persistent than in urban areas, rural workers are disadvantaged by lower wages and less access to better paying labor markets" - note that housing prices aren't part of it. And I didn't see mention that "stick housing" has moved towards factory methods. As https://priceonomics.com/in-defense-of-mobile-homes/ https://priceonomics.com/in-defense-of-mobile-homes/ points out: > Windows, doors, and other parts arrive prefabricated, Rybczynski writes, so labor costs have actually halved since 1949. Levitt and Sons spent $4 to $5 per square foot building Levittowners, and, adjusted for inflation, builders today spend the same amount. > Instead the problem is almost wholly that land is too expensive. Reduce the size of a new, modern house by 50%, Rybczynski notes, and houses in metropolitan areas will still cost over $200,000. > That’s the secret to the extreme affordability of a mobile home—take land out of the equation. We aren't really using "traditional methods" - engineered wood is not traditional and is very common. "As of 2005, approximately half of all wood light framed floors were framed using I-joists" says https://en.wikipedia.org/wiki/Engineered_wood#Beams https://en.wikipedia.org/wiki/Engineered_wood#Beams . These were made in a factory, and not "on-site" as the author describes the house-building process.
TedShiller 4y ago
There is no housing crisis.
- epistasis 4y ago
  There's not a crisis if you already own your home and are collecting those sweet sweet land rents. And by denying the existence of others' problems, those who own land get to collect ever higher economic rents. But for everybody else, yes there's a huge housing crisis.
  - TedShiller 4y ago
    I can’t afford a lot of things. I don’t call it a crisis.
    - zeraynor 4y ago
      If housing was one of them you'd probably consider it a crisis.
      - TedShiller 4y ago
        Actually housing IS one of the things I cannot afford -- if you are talking about SF, LA, NYC, etc. But luckily for me and everyone else, those are not the only places one can live.
        deleted 4y ago
        [deleted]
    - workingon 4y ago
      If you couldn’t afford a place to live you may feel differently.
      - TedShiller 4y ago
        I can't afford to live in NYC or SF or LA either, but that doesn't mean I can't afford a place to live. If someone cannot afford to live in the most desirable locations in the world, but they can live almost anywhere else, that is not a crisis.
tmaly 4y ago
I would think ZIRP and backwards zoning commissions would be a bigger problem
- forgithubs 4y ago
  [dead]
- epistasis 4y ago
  ZIRP may change sticker prices but those are still ultimately determined by ability to make monthly payments. The unaffordability of monthly payments is the housing crisis, and that stems from inadequate supply.
AlbertCory 4y ago
"Housing crisis": the first sentence is U.S. government concerns about great disparities in housing conditions are at least 100 years old. So, a permanent crisis? Anyhow: the shortage of housing has a lot to do with zoning restrictions, building codes, NIMBY-ism, credit availability, and lots of other factors, and very little to do with HUD and NAHB. Manufactured homes have a low social status, unfortunately, and forcing municipalities to accept them would be a very hard slog.
jelliclesfarm 4y ago
Unions. One of the major set backs for building more in Bay Area and San Francisco is not NIMBYism or zoning. It’s because construction unions have a big say with the counties and they have a big voice during elections. Anything that involves mortgages and the govt has to necessarily support unions and work with them. They don’t like modular homes as automation will replace union jobs.
- eesmith 4y ago
  The author doesn't single out unions like you do: > Many groups were, and still are, opposed to factory production, including building contractors, building craft unions, building code inspectors, architects, materials producers and politicians (who are supported by the traditional industry). While these groups are sometimes at odds with each other, they all join together to fight factory production of homes. They form a mega-monopoly, composed of their individual monopolies.
  - jelliclesfarm 4y ago
    Looks like he does? There is California building and trade council as well as the separate San Francisco building and trade council..umbrella for multiple building and construction unions from trades like carpenters and plumbers and electricians to construction workers.. all of them wield tremendous clout and can deliver the vote banks to any politician standing for public office. These are the same people who build roads and bridges and all public utilities. Their power shouldn’t be underestimated.
  - jelliclesfarm 4y ago
    Where the money comes from..https://calmatters.org/politics/california-election-2020/2020/10/california-lawmakers-big-donors-special-interest-independent-expenditures/ https://calmatters.org/politics/california-election-2020/202... (2020) Teachers and realtors(not developers) each had contributed over 2.5 million each. Prison guard union 3.7 million. Other unions: about 3.5 million Building industry is about a million but that’s pre 2020 numbers. It has since gone up. The article explains who gives how much and what they want in return. There are also overlaps. NIMBY and zoning complaints are smokescreens. Look at campaign donations. It’s all public record.
akamaka 4y ago
For a good laugh, read the conclusion of the paper, which sounds like it was written in the year 1960, when inner cities were crumbing, and imagines that rural areas will get better public transit when the poor escape the cities they are “trapped in”: There is a literature that asks why the poor live in cities. One answer provided is that transportation options are much better in cities than rural areas and small towns. But what stops public transportation from expanding upon the arrival of new residents? A more important reason for why the poor live in cities, it seems, is that many low-income households are “trapped” in cities by the high cost of constructing housing in rural areas and small towns.
- xyzzyz 4y ago
  The entire paper is a joke. Monopoly in the construction market? Dude, there are multiple competing contractors in every field even in smallest towns. In fact, I’d endeavor to say that construction is probably the least centralized major industry in US, certainly less centralized than, say, farming.
  - someguydave 4y ago
    Construction is very decentralized but land developers tend to have local monopolies or oligopolies supported by local politicians.
  - shuckles 4y ago
    In fairness, there isn’t that much competition between large subdivision developers, and an even smaller number of firms that are able to navigate the gauntlet of gatekeepers in major urban areas.
  - whimsicalism 4y ago
    Large developers, there is absolutely not. Farmers in most industries are basically price-takers.
donthellbanme 4y ago
I'm a inactive General Contractor, and union electrician. I'm not going to read a 49 page pdf today. There are two things that really affect supply. 1. Government regulations is number one by a huge margin. We all know what that includes; zoning, persnickety council members who literally debate where a window is placed, the wood or stucco you can use, down to hedges, and even the color of your home. Look at what Bill Mahar had to go through in order to build a shack in his backyard. (Gavin Neusome made some great changes these last few years. They arn't being used though. Why? It's still dam expensive to build anything. I've noticed a a few well off wealthy guys in my county using ADA units to increase the sq. footage of their homes. But most folks don't have the money to build. 2. The cost of constructing is high. Every-time a new code goes into building it just adds up. And I know how most of you love these safety codes. The problem with over coding is the law is the law. My father once got a failed final permit on the electrical Service installation. The law states you need 30" of space around the panel. The Service was in a concrete hallway. He was failed because the panel was 29". The inspector was a childhood friend of my father. Yes--it says something about my father too? I knew a guy whom was failed a final electrical install because he didn't have the right sticker on two of his receptacle. A sticker. He didn't even know buried in the code there was a law over a missing label. The recepticals were standard 15 amp residential recepticals. This guy said HUD, and NAHB, are not helping the situation. He is probally right. I did look up NAHB lobby monies for 2021, and it was 3.275 million. Which doesn't seem outrageous. If this guy's thesis is we need to encourage manufactured housing; I'm all for it. Just pay the guys a union wage. Housing, and the way we treat our Homeless, are my two big hot buttons. If you don't have a place to sleep, and shower, you are fucked. It's not a big problem. Some "Progressive" jack ass running for something in LA wants to not give a homeless person a room. He wants to house them in army barrack style housing, and using the single room as a carrot if the poor slob is a good boy. If a guy buys some land, let him do whatever (within reason) with it. And yes, that means putting up a tent on it if he wants. I'm disenfranchised over our lack of homes in the right economic zones, I don't see much ever happening. One thing Russia did right during their experiment with Communism is they built those huge concrete apartment buildings. Everyone was pretty much guaranteed a room. We need those big buildings now. We need to have hard building codes (like foundations, roofing, mechanicals, etc. We then need the soft codes. A guy should have to rip out a Service panel over a 1" violation. If you are ever interested in what it takes to build anything, watch the community station that plays the local town meetings. I guarantee you will want to throw the remote at the tv.
User23 4y ago
There is plenty of cheap or even virtually free housing available in major cities such as Detroit, Baltimore, St. Louis, and many others, as well as countless trailer parks in any of countless Nowheresvilles, USA. The unspoken dirty little secret is that affordability complaints are really about housing that is around the kind of people the buyer wants to be around and not around the kind of people the buyer doesn't want to be around.
- dgfitz 4y ago
  Baltimore at least is quite desperate. It’s almost a war zone there. https://foxbaltimore.com/amp/news/local/national-guard-naacp-baltimore-crime-larry-hogan-homicides-mayor-scott https://foxbaltimore.com/amp/news/local/national-guard-naacp...
- awaywithcovid 4y ago
  +1 There is a large stock of existing single family houses that cost as much as buying a car - $50,000. In theory, anyone with $5K down and can afford a $200/month mortgage can get a single family house in quite a number of cities. In practice, the problem with the housing market goes way beyond the economic basics of land, construction, ZIRP.
- imtringued 4y ago
  Wealth concentration also leads to geographic concentration of jobs. So people cannot choose to live in Detroit, global investors decide where your job is going to be and where you are going to live.
- tellsor 4y ago
  Not to mention the weather. Part of the trade off I make personally for affordable housing is not really wanting to go outside from November to March because the weather sucks. If you live in an area that has perfect weather you are always going to have a demand problem and high prices from people wanting to move to those areas.
hervature 4y ago
Certainly, the last year as been absolutely stupid, but I would argue that we've actually, for the first time since 2005, gotten to unsustainable levels. The headline is sensational, but please review the last graph here: https://realestatedecoded.com/real-monthly-mortgage-payment-home-price-index/ https://realestatedecoded.com/real-monthly-mortgage-payment-... What really matters to people are monthly payments relative to paycheck. Of course, if people also believe that inflation is underestimated, then the current housing situation is perfectly fine.
- whimsicalism 4y ago
  > What really matters to people are monthly payments relative to paycheck. I hear this repeated often, fail to see how it's true. Let's say I'm 50, just starting a 30 year mortgage. Monthly payments relative to paycheck? Sure that's important. So is the fact that I'll have to be paying until I'm 80..?
  - hervature 4y ago
    Well, if you're 50 and agree to a 30 year mortgage, then the bank expects you to pay until you're 80 or sell your house to pay off the remainder. I don't understand how that's confusing? People have income in their retirement. They shouldn't take a big mortgage if their retirement savings are small.
    - whimsicalism 4y ago
      Yes, aka the amount of the loan matters, not just the monthly payment.
      - hervature 4y ago
        There is a one-to-one relationship between "amount of the loan" and monthly payments. I don't see how that's relevant. Do you mean the length of the loan? Banks don't give mortgages to 100 year olds because they know they won't be able to afford the monthly payment in 20 years (because they are dead), it doesn't matter of the loan amount. Even for a 50 year old, I would expect it would be hard to find any bank give you a loan for longer than 15 years. Each bank is different and a cursory search shows that some banks consider giving you a mortgage if the end date is before you turn 95. The point remains, this has nothing to do with amount.
dibujante 4y ago
This post is just bait to get the brainlets to rage-post.
poutine 4y ago
Modern houses are far more complex undertakings than houses built a decade or two ago. This translates to cost. Take a look at something like the BC Energy Step Code https://energystepcode.ca/ https://energystepcode.ca/ and its guidelines on thermal bridging: https://www.bchousing.org/research-centre/library/residential-design-construction/building-envelope-thermal-bridging-guide&sortType=sortByDate https://www.bchousing.org/research-centre/library/residentia... It produces better buildings, but this is all new and expensive. Expand this sort of thing all out to all the other components (electrical, plumbing, foundation, etc) of modern, compliant buildings and you get the idea.
- mistrial9 4y ago
  that is one part -- meanwhile, stupid building codes in expensive areas, are real; crooked inspectors in very expensive areas, are real source: four years in construction trades, my own two eyes
  - deleted 4y ago
    [deleted]
innagadadavida 4y ago
It’s not just the cinateuction lobby, Right now there is deluge of vacant commercial properties. SF alone has around 20Msqft - this translates to 15-20k apartments. Why cannot this be converted? Same glut situation with warehouses, they can be used for housing homeless people.
- jschveibinz 4y ago
  Probably because of the cost to convert and the building codes. There is another article on HN that discusses this situation in NYC right now. It just can’t be done according to the “experts.”
Patrol8394 4y ago
Solving housing crisis requires making housing not an investment. Make very very very tax inconvenient to buy places for the sole purpose of renting them out. Do this, and most problems are solved. But banks and legislators have no interests in doing so, therefore nothing will ever solve housing crisis. Make peace with it. It will only get worse.
- tqi 4y ago
  Drastically reducing rentals would crush job mobility/flexibility. There are a lot of problems with the rental market, but it's existence is not one of them.
- whimsicalism 4y ago
  Make supplying rental units illegal? Your "solution" involves evicting half the stage of California.
  - bradlys 4y ago
    No - it makes putting half the stage on the market. There is a difference.
    - whimsicalism 4y ago
      Given that 50% of the state rents and you would make it illegal for them to continue their current occupancy arrangement? Not going to keep replying.
      - noahtallen 4y ago
        Not saying I agree, but the concept is that 50% more capacity on the market drives down prices so much that renters can afford to own. Obviously not everyone could afford, and not everyone wants to, and that transition process would be dramatically inefficient. (For example, inspectors could charge a fortune with so many people trying to buy so many homes)
DoreenMichele 4y ago
Without reading all 47 pages, this (below) seems to be the crux of what it is talking about -- cheap, small factory-built single family detached homes. And I am skeptical because my research suggests we don't need crappier single family detached homes. Instead, we need more missing middle housing and similar. It’s clear why these homes are a threat to those constructing stick-built homes, especially in the lower-priced home market, and why monopolies in traditional construction have invested so heavily in blocking these small-modular homes. The homes are of high-quality, built to a strict national building code. They are manufactured at a cost per square foot that is one-third to one-half less than the cost per square foot to construct homes with traditional methods.4 Not only can factory production methods produce houses at a fraction of the cost per square foot of traditional methods, factory methods are also able to “go small.” That is, factory methods are able to economically produce homes of small sizes.5 The average size of these homes (in square feet) is less than one-half that of homes constructed with traditional methods.
mihaaly 4y ago
To my knowledge (sorry not citing sources, too much, but could be individually looked up and validated/refuted) it is rather the opposite, the construction industry is hopelessly fragmanted. A tree of contractors and subcontractors participate in any sizeable projects (and several even in the smallest one), also the composition change during the project many times. There are research efforts for long time into this topic, how to handle the fragmented and volatile situations as part of construction supply chain management research. Also touches the risk management area. The industrialized construction (or offsite construction) improvements more like hindered than helped by this fragmantation. Inventing and introducing new techniques (including workforce training, software and hardware) is infinitely harder with fragmanted organization involvement. Having few dominant organizations that could dictate work methods actually helps. Furthermore the finances of the construction organizations are of project focused. Need to find money and time in long running single construction projects for research and development and somehow connect those accross production projects, in parallel, while trying to keep up prompt and cheap delivery as clients (paying a lot for each one off product, each product different unlike in manufacturing industry using mass production or at least mass customization) demand quick and cheap delivery. They may go to one does not spend on R&D and can work cheaper (eve 1% difference can mean millions on this scale). Need to change the engine while flying kind of thing, cannot stop alone, or even together for a while (clients demands delivery) to reform the practices. Even with industrialized construction the housing crisis remains. Look at very advanced countries like Sweden where factory based construction is norm but (despite municipality and government backed effort) getting a home is still hard. Not enough supply of the very expensive stock and even the councious and heavy regulations just shift the problem elsewhere (life long waiting lines for affordable rentals). I believe the housing crisis is almost pure financial problem. Housing is used for investments too. And having affordable (reliably cheap) and high profit yielding (rapid cost increasing) housing at the same time is impossible. Seems like the ball is more like at the economists and regulatory side than construction technology. Not to mention places where the cost of land and associated taxes are further worsening the situation (e.g. UK), where construction cost is actually lower portion in the overall price. The construction industry can do quite a bit in improving mass production, but not that much that would solve housing crisis in high value locations where the space is limited, costly, and prices fuelled by investment efforts as well (where else would you invest than in places with high demand?). State bodies could help more.
kkfx 4y ago
Just as a question: can someone try do depict what is the "housing crisis"? I mean is simply "there are not much affordable homes" or something else. Because IMVHO that's MUCH something else. Surely monopolies in general are not good, but honestly I suspect the actual crisis haven't much to do about real estate/construction business, not even to mere economics terms (i.e. high prices). Long story short: how can housing be stable in a changing society in a changing world? If a mass of people want (and/or need) to relocate because of increasing bad climate and extreme events (floods, fires, too-hot-in-too-long-summers, ...), if there is a crossing between some who need to go to cities because can't afford anymore living outside and some who want freedom outside, if properties prices keep floating due to such moves how can a stable housing exists?

120 points by jseliger 4y ago

According to this resource (https://www.newhomesource.com/learn/stick-built-vs-modular-home-costs/ https://www.newhomesource.com/learn/stick-built-vs-modular-h...): - Modular home construction is an $11 billion industry, growing at 8.5% per year - The cost of modular/factory vs. stick built construction is about a 10-20% savings. On a $500k home, that’s going to be less than $25k difference in price. That’s not the problem. Additionally from this source (https://blog.lotnetwork.com/lot-and-land-loans-financing-your-property-purchase/ https://blog.lotnetwork.com/lot-and-land-loans-financing-you...): - Banks, which are tied to the Fed, are loathe to provide lot/construction loans. Ironically, this creates supply shortage and makes it necessary to purchase existing homes or from tract home builders that the author is criticizing. - The size of the cash downpayment can be as much as 50% of the cost of the home. Bottom line: the cost of housing is a systemic problem, and the Fed along with local government zoning boards are at the root of both the financial and regulatory sides of the problem.

mistrial9 4y ago
not a coincidence that the Federal Housing and Urban Development efforts have been, I argue, as close to third world corrupt as it comes, in the USA.
hash872 4y ago
Lot/construction loans is a highly speculative business, especially as lots of builders are blue-collar guys with minimal assets who can simply close shop in a recession. Building homes is constrained by the wider economy and interest rates, and they take a while to build, so in all of the umpteen million housing crashes we've had previously, a large % of homes built will hit in the market in the middle of a crash. The history of housing busts dates back hundreds of years and is older than the United States. Banks are not wild to extend lot or construction loans because, until we achieve AI singularity, there's always another bust coming around the corner- and banks know they'll take it on the chin. Especially to the average home builder, who will simply walk away from their loans in a recession, close their company, declare bankruptcy, etc. etc.
- cmmeur01 4y ago
  When’s the last time a bank has “taken it on the chin”?
  - Panzer04 4y ago
    2008?
dtgriscom 4y ago
> The cost of modular/factory vs. stick built construction is about a 10-20% savings. On a $500k home, that’s going to be less than $25k difference in price. Isn't 10-20% of $500k actually $50k-$100k? (Could buy some really nice appliances...)
- SilasX 4y ago
  I assume the parent was using $500k as the total home price (building + land[1]), so the savings is only off the building cost, which is a fraction of the total price. Should have made that assumption explicit though. I think the OP's core point is sound -- (total) home prices are like 50% over historically reasonable levels, so it's daft to explain it by even 20% overpricing for construction (which, again, applies to only a portion of the total sale price). [1] And the typical home does not cost $500k to build.
snapplebobapple 4y ago
You mentioned in a few words the biggest problem, which is zoning. The vast majority of land is zoned single family, which is actually a money loser for most municipalities in the USA. Crushing the local nimby zoning boards and forcing a much higher percentage of the land to be zoned for higher density would cause a boom of missing middle (and high rise) construction that could mostly solve this problem for very minimal capital outlay by municipalities vs trying to build enough single family zoned stuff to push prices down.

eesmith 4y ago

> But the key monopolies involved in blocking small modular homes are the Department of Housing and Urban Development (HUD) and the National Association of Home Builders (NAHB). They have successfully squashed the emergence of these factory houses. Is factory-built housing common in other countries? If not, then it would strongly suggest there are other reasons than federal control. Wikipedia at https://en.wikipedia.org/wiki/Modular_building#Market_acceptance https://en.wikipedia.org/wiki/Modular_building#Market_accept... says "In the UK and Australia, modular homes have become accepted in some regional areas; however, they are not commonly built in major cities. Modular homes are becoming increasingly common in Japanese urban areas ...", suggesting it isn't all that common world-wide.

sien 4y ago
This is a very good line of reasoning and well worth thinking about. In Australia you can't get a loan on a mobile home in a 'manufactured home park' https://www.homeloanexperts.com.au/forum/viewtopic.php?t=580#:~:text=Unfortunately%20there%20is%20no%20lender,on%20its%20own%20as%20security https://www.homeloanexperts.com.au/forum/viewtopic.php?t=580.... Also building codes often make it hard to build mobile homes on residential land.

sys_64738 4y ago

I know in the USA it used to be the case you couldn't get a mortgage on a modular home and had to take out a personal loan. Not sure if that changed.

eesmith 4y ago
Likely connected to these parts of the essay: > They also mean the homes are financed as automobiles (with personal loans, or chattell loans) and not real estate loans. ... > One famous program, the so called “Section 235,” provided mortgages at interest rates as low as one percent for buyers purchasing a home built on-site. Buyers of factory-built homes, in particular, manufactured-homes, were not eligible.
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oldgradstudent 4y ago

Is there even a shred of evidence that the housing crisis is a result of higher construction costs? Or is the Fed trying to draw attention away from the catastrophic impact of its zero interest and other policies on the massive increase in asset prices?

epistasis 4y ago
There is an entire paper linked here that's exactly what you ask for in your first question. What about it do you find unconvincing?
- oldgradstudent 4y ago
  It just asserts that without proof. The paper essentially argues that construction costs can be lowered significantly using factory production methods, especially for small-modular homes. I have no problem with that part. The title has no basis in the paper, though. It is unrelated to the massive increase in housing (and other asset) prices in recent years which are the cause of the current housing crisis.
  - vinceguidry 4y ago
    Yeah. Like, anyone who has ever tried to get anything custom out of builders these days has been confronted with the fact that none of these guys want or care to do anything even close to custom work anymore. The diversity has been squeezed out of the market ages ago, cookie cutter houses are the norm everywhere. I only read the abstract, but it doesn't surprise me in the least that this paper just asserts conclusions without justification. Houses are already as close to factory-built as is possible to do with today's tastes. Everything is pre-engineered and merely assembled on site.
- eesmith 4y ago
  I didn't find it convincing. Elsewhere here I asked why factory-built housing doesn't seem to be popular world-wide, which is what you would expect if it's only US Federal policy which prevents it from being popular in the US. I'll add that I saw no discussion of how local housing policies were designed to prevent "Large numbers of low-income, city residents [from moving] to these areas", in order to keep property values high. Or the classism that caused people to look down on mobile homes. The author rhetorically asks "But what stops public transportation from expanding upon the arrival of new residents?", when I've heard so many New Urbanist videos answering that question. I didn't understand how "a uniform building code across the country would be a great benefit to factory producers" is a meaningful goal, given that the needs for Florida, Arizona, and Alaska are quite different, making me question his understanding. I read "There is a literature that asks why the poor live in cities." and counter with the observation that the poverty rate is higher in rural areas - https://en.wikipedia.org/wiki/Rural_poverty#Rural_versus_Urban_Poverty--United_States https://en.wikipedia.org/wiki/Rural_poverty#Rural_versus_Urb... says "rural poverty rates are higher and more persistent than in urban areas, rural workers are disadvantaged by lower wages and less access to better paying labor markets" - note that housing prices aren't part of it. And I didn't see mention that "stick housing" has moved towards factory methods. As https://priceonomics.com/in-defense-of-mobile-homes/ https://priceonomics.com/in-defense-of-mobile-homes/ points out: > Windows, doors, and other parts arrive prefabricated, Rybczynski writes, so labor costs have actually halved since 1949. Levitt and Sons spent $4 to $5 per square foot building Levittowners, and, adjusted for inflation, builders today spend the same amount. > Instead the problem is almost wholly that land is too expensive. Reduce the size of a new, modern house by 50%, Rybczynski notes, and houses in metropolitan areas will still cost over $200,000. > That’s the secret to the extreme affordability of a mobile home—take land out of the equation. We aren't really using "traditional methods" - engineered wood is not traditional and is very common. "As of 2005, approximately half of all wood light framed floors were framed using I-joists" says https://en.wikipedia.org/wiki/Engineered_wood#Beams https://en.wikipedia.org/wiki/Engineered_wood#Beams . These were made in a factory, and not "on-site" as the author describes the house-building process.

TedShiller 4y ago

There is no housing crisis.

epistasis 4y ago
There's not a crisis if you already own your home and are collecting those sweet sweet land rents. And by denying the existence of others' problems, those who own land get to collect ever higher economic rents. But for everybody else, yes there's a huge housing crisis.
- TedShiller 4y ago
  I can’t afford a lot of things. I don’t call it a crisis.
  - zeraynor 4y ago
    If housing was one of them you'd probably consider it a crisis.
    - TedShiller 4y ago
      Actually housing IS one of the things I cannot afford -- if you are talking about SF, LA, NYC, etc. But luckily for me and everyone else, those are not the only places one can live.
      - deleted 4y ago
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  - workingon 4y ago
    If you couldn’t afford a place to live you may feel differently.
    - TedShiller 4y ago
      I can't afford to live in NYC or SF or LA either, but that doesn't mean I can't afford a place to live. If someone cannot afford to live in the most desirable locations in the world, but they can live almost anywhere else, that is not a crisis.

tmaly 4y ago

I would think ZIRP and backwards zoning commissions would be a bigger problem

forgithubs 4y ago
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epistasis 4y ago
ZIRP may change sticker prices but those are still ultimately determined by ability to make monthly payments. The unaffordability of monthly payments is the housing crisis, and that stems from inadequate supply.

AlbertCory 4y ago

"Housing crisis": the first sentence is U.S. government concerns about great disparities in housing conditions are at least 100 years old. So, a permanent crisis? Anyhow: the shortage of housing has a lot to do with zoning restrictions, building codes, NIMBY-ism, credit availability, and lots of other factors, and very little to do with HUD and NAHB. Manufactured homes have a low social status, unfortunately, and forcing municipalities to accept them would be a very hard slog.

jelliclesfarm 4y ago

Unions. One of the major set backs for building more in Bay Area and San Francisco is not NIMBYism or zoning. It’s because construction unions have a big say with the counties and they have a big voice during elections. Anything that involves mortgages and the govt has to necessarily support unions and work with them. They don’t like modular homes as automation will replace union jobs.

eesmith 4y ago
The author doesn't single out unions like you do: > Many groups were, and still are, opposed to factory production, including building contractors, building craft unions, building code inspectors, architects, materials producers and politicians (who are supported by the traditional industry). While these groups are sometimes at odds with each other, they all join together to fight factory production of homes. They form a mega-monopoly, composed of their individual monopolies.
- jelliclesfarm 4y ago
  Looks like he does? There is California building and trade council as well as the separate San Francisco building and trade council..umbrella for multiple building and construction unions from trades like carpenters and plumbers and electricians to construction workers.. all of them wield tremendous clout and can deliver the vote banks to any politician standing for public office. These are the same people who build roads and bridges and all public utilities. Their power shouldn’t be underestimated.
- jelliclesfarm 4y ago
  Where the money comes from..https://calmatters.org/politics/california-election-2020/2020/10/california-lawmakers-big-donors-special-interest-independent-expenditures/ https://calmatters.org/politics/california-election-2020/202... (2020) Teachers and realtors(not developers) each had contributed over 2.5 million each. Prison guard union 3.7 million. Other unions: about 3.5 million Building industry is about a million but that’s pre 2020 numbers. It has since gone up. The article explains who gives how much and what they want in return. There are also overlaps. NIMBY and zoning complaints are smokescreens. Look at campaign donations. It’s all public record.

akamaka 4y ago

For a good laugh, read the conclusion of the paper, which sounds like it was written in the year 1960, when inner cities were crumbing, and imagines that rural areas will get better public transit when the poor escape the cities they are “trapped in”: There is a literature that asks why the poor live in cities. One answer provided is that transportation options are much better in cities than rural areas and small towns. But what stops public transportation from expanding upon the arrival of new residents? A more important reason for why the poor live in cities, it seems, is that many low-income households are “trapped” in cities by the high cost of constructing housing in rural areas and small towns.

xyzzyz 4y ago
The entire paper is a joke. Monopoly in the construction market? Dude, there are multiple competing contractors in every field even in smallest towns. In fact, I’d endeavor to say that construction is probably the least centralized major industry in US, certainly less centralized than, say, farming.
- someguydave 4y ago
  Construction is very decentralized but land developers tend to have local monopolies or oligopolies supported by local politicians.
- shuckles 4y ago
  In fairness, there isn’t that much competition between large subdivision developers, and an even smaller number of firms that are able to navigate the gauntlet of gatekeepers in major urban areas.
- whimsicalism 4y ago
  Large developers, there is absolutely not. Farmers in most industries are basically price-takers.

donthellbanme 4y ago

I'm a inactive General Contractor, and union electrician. I'm not going to read a 49 page pdf today. There are two things that really affect supply. 1. Government regulations is number one by a huge margin. We all know what that includes; zoning, persnickety council members who literally debate where a window is placed, the wood or stucco you can use, down to hedges, and even the color of your home. Look at what Bill Mahar had to go through in order to build a shack in his backyard. (Gavin Neusome made some great changes these last few years. They arn't being used though. Why? It's still dam expensive to build anything. I've noticed a a few well off wealthy guys in my county using ADA units to increase the sq. footage of their homes. But most folks don't have the money to build. 2. The cost of constructing is high. Every-time a new code goes into building it just adds up. And I know how most of you love these safety codes. The problem with over coding is the law is the law. My father once got a failed final permit on the electrical Service installation. The law states you need 30" of space around the panel. The Service was in a concrete hallway. He was failed because the panel was 29". The inspector was a childhood friend of my father. Yes--it says something about my father too? I knew a guy whom was failed a final electrical install because he didn't have the right sticker on two of his receptacle. A sticker. He didn't even know buried in the code there was a law over a missing label. The recepticals were standard 15 amp residential recepticals. This guy said HUD, and NAHB, are not helping the situation. He is probally right. I did look up NAHB lobby monies for 2021, and it was 3.275 million. Which doesn't seem outrageous. If this guy's thesis is we need to encourage manufactured housing; I'm all for it. Just pay the guys a union wage. Housing, and the way we treat our Homeless, are my two big hot buttons. If you don't have a place to sleep, and shower, you are fucked. It's not a big problem. Some "Progressive" jack ass running for something in LA wants to not give a homeless person a room. He wants to house them in army barrack style housing, and using the single room as a carrot if the poor slob is a good boy. If a guy buys some land, let him do whatever (within reason) with it. And yes, that means putting up a tent on it if he wants. I'm disenfranchised over our lack of homes in the right economic zones, I don't see much ever happening. One thing Russia did right during their experiment with Communism is they built those huge concrete apartment buildings. Everyone was pretty much guaranteed a room. We need those big buildings now. We need to have hard building codes (like foundations, roofing, mechanicals, etc. We then need the soft codes. A guy should have to rip out a Service panel over a 1" violation. If you are ever interested in what it takes to build anything, watch the community station that plays the local town meetings. I guarantee you will want to throw the remote at the tv.

User23 4y ago

There is plenty of cheap or even virtually free housing available in major cities such as Detroit, Baltimore, St. Louis, and many others, as well as countless trailer parks in any of countless Nowheresvilles, USA. The unspoken dirty little secret is that affordability complaints are really about housing that is around the kind of people the buyer wants to be around and not around the kind of people the buyer doesn't want to be around.

dgfitz 4y ago
Baltimore at least is quite desperate. It’s almost a war zone there. https://foxbaltimore.com/amp/news/local/national-guard-naacp-baltimore-crime-larry-hogan-homicides-mayor-scott https://foxbaltimore.com/amp/news/local/national-guard-naacp...
awaywithcovid 4y ago
+1 There is a large stock of existing single family houses that cost as much as buying a car - $50,000. In theory, anyone with $5K down and can afford a $200/month mortgage can get a single family house in quite a number of cities. In practice, the problem with the housing market goes way beyond the economic basics of land, construction, ZIRP.
imtringued 4y ago
Wealth concentration also leads to geographic concentration of jobs. So people cannot choose to live in Detroit, global investors decide where your job is going to be and where you are going to live.
tellsor 4y ago
Not to mention the weather. Part of the trade off I make personally for affordable housing is not really wanting to go outside from November to March because the weather sucks. If you live in an area that has perfect weather you are always going to have a demand problem and high prices from people wanting to move to those areas.

hervature 4y ago

Certainly, the last year as been absolutely stupid, but I would argue that we've actually, for the first time since 2005, gotten to unsustainable levels. The headline is sensational, but please review the last graph here: https://realestatedecoded.com/real-monthly-mortgage-payment-home-price-index/ https://realestatedecoded.com/real-monthly-mortgage-payment-... What really matters to people are monthly payments relative to paycheck. Of course, if people also believe that inflation is underestimated, then the current housing situation is perfectly fine.

whimsicalism 4y ago
> What really matters to people are monthly payments relative to paycheck. I hear this repeated often, fail to see how it's true. Let's say I'm 50, just starting a 30 year mortgage. Monthly payments relative to paycheck? Sure that's important. So is the fact that I'll have to be paying until I'm 80..?
- hervature 4y ago
  Well, if you're 50 and agree to a 30 year mortgage, then the bank expects you to pay until you're 80 or sell your house to pay off the remainder. I don't understand how that's confusing? People have income in their retirement. They shouldn't take a big mortgage if their retirement savings are small.
  - whimsicalism 4y ago
    Yes, aka the amount of the loan matters, not just the monthly payment.
    - hervature 4y ago
      There is a one-to-one relationship between "amount of the loan" and monthly payments. I don't see how that's relevant. Do you mean the length of the loan? Banks don't give mortgages to 100 year olds because they know they won't be able to afford the monthly payment in 20 years (because they are dead), it doesn't matter of the loan amount. Even for a 50 year old, I would expect it would be hard to find any bank give you a loan for longer than 15 years. Each bank is different and a cursory search shows that some banks consider giving you a mortgage if the end date is before you turn 95. The point remains, this has nothing to do with amount.

dibujante 4y ago

This post is just bait to get the brainlets to rage-post.

poutine 4y ago

Modern houses are far more complex undertakings than houses built a decade or two ago. This translates to cost. Take a look at something like the BC Energy Step Code https://energystepcode.ca/ https://energystepcode.ca/ and its guidelines on thermal bridging: https://www.bchousing.org/research-centre/library/residential-design-construction/building-envelope-thermal-bridging-guide&sortType=sortByDate https://www.bchousing.org/research-centre/library/residentia... It produces better buildings, but this is all new and expensive. Expand this sort of thing all out to all the other components (electrical, plumbing, foundation, etc) of modern, compliant buildings and you get the idea.

mistrial9 4y ago
that is one part -- meanwhile, stupid building codes in expensive areas, are real; crooked inspectors in very expensive areas, are real source: four years in construction trades, my own two eyes
- deleted 4y ago
  [deleted]

innagadadavida 4y ago

It’s not just the cinateuction lobby, Right now there is deluge of vacant commercial properties. SF alone has around 20Msqft - this translates to 15-20k apartments. Why cannot this be converted? Same glut situation with warehouses, they can be used for housing homeless people.

jschveibinz 4y ago
Probably because of the cost to convert and the building codes. There is another article on HN that discusses this situation in NYC right now. It just can’t be done according to the “experts.”

Patrol8394 4y ago

Solving housing crisis requires making housing not an investment. Make very very very tax inconvenient to buy places for the sole purpose of renting them out. Do this, and most problems are solved. But banks and legislators have no interests in doing so, therefore nothing will ever solve housing crisis. Make peace with it. It will only get worse.

tqi 4y ago
Drastically reducing rentals would crush job mobility/flexibility. There are a lot of problems with the rental market, but it's existence is not one of them.
whimsicalism 4y ago
Make supplying rental units illegal? Your "solution" involves evicting half the stage of California.
- bradlys 4y ago
  No - it makes putting half the stage on the market. There is a difference.
  - whimsicalism 4y ago
    Given that 50% of the state rents and you would make it illegal for them to continue their current occupancy arrangement? Not going to keep replying.
    - noahtallen 4y ago
      Not saying I agree, but the concept is that 50% more capacity on the market drives down prices so much that renters can afford to own. Obviously not everyone could afford, and not everyone wants to, and that transition process would be dramatically inefficient. (For example, inspectors could charge a fortune with so many people trying to buy so many homes)

DoreenMichele 4y ago

Without reading all 47 pages, this (below) seems to be the crux of what it is talking about -- cheap, small factory-built single family detached homes. And I am skeptical because my research suggests we don't need crappier single family detached homes. Instead, we need more missing middle housing and similar. It’s clear why these homes are a threat to those constructing stick-built homes, especially in the lower-priced home market, and why monopolies in traditional construction have invested so heavily in blocking these small-modular homes. The homes are of high-quality, built to a strict national building code. They are manufactured at a cost per square foot that is one-third to one-half less than the cost per square foot to construct homes with traditional methods.4 Not only can factory production methods produce houses at a fraction of the cost per square foot of traditional methods, factory methods are also able to “go small.” That is, factory methods are able to economically produce homes of small sizes.5 The average size of these homes (in square feet) is less than one-half that of homes constructed with traditional methods.

mihaaly 4y ago

To my knowledge (sorry not citing sources, too much, but could be individually looked up and validated/refuted) it is rather the opposite, the construction industry is hopelessly fragmanted. A tree of contractors and subcontractors participate in any sizeable projects (and several even in the smallest one), also the composition change during the project many times. There are research efforts for long time into this topic, how to handle the fragmented and volatile situations as part of construction supply chain management research. Also touches the risk management area. The industrialized construction (or offsite construction) improvements more like hindered than helped by this fragmantation. Inventing and introducing new techniques (including workforce training, software and hardware) is infinitely harder with fragmanted organization involvement. Having few dominant organizations that could dictate work methods actually helps. Furthermore the finances of the construction organizations are of project focused. Need to find money and time in long running single construction projects for research and development and somehow connect those accross production projects, in parallel, while trying to keep up prompt and cheap delivery as clients (paying a lot for each one off product, each product different unlike in manufacturing industry using mass production or at least mass customization) demand quick and cheap delivery. They may go to one does not spend on R&D and can work cheaper (eve 1% difference can mean millions on this scale). Need to change the engine while flying kind of thing, cannot stop alone, or even together for a while (clients demands delivery) to reform the practices. Even with industrialized construction the housing crisis remains. Look at very advanced countries like Sweden where factory based construction is norm but (despite municipality and government backed effort) getting a home is still hard. Not enough supply of the very expensive stock and even the councious and heavy regulations just shift the problem elsewhere (life long waiting lines for affordable rentals). I believe the housing crisis is almost pure financial problem. Housing is used for investments too. And having affordable (reliably cheap) and high profit yielding (rapid cost increasing) housing at the same time is impossible. Seems like the ball is more like at the economists and regulatory side than construction technology. Not to mention places where the cost of land and associated taxes are further worsening the situation (e.g. UK), where construction cost is actually lower portion in the overall price. The construction industry can do quite a bit in improving mass production, but not that much that would solve housing crisis in high value locations where the space is limited, costly, and prices fuelled by investment efforts as well (where else would you invest than in places with high demand?). State bodies could help more.

kkfx 4y ago

Just as a question: can someone try do depict what is the "housing crisis"? I mean is simply "there are not much affordable homes" or something else. Because IMVHO that's MUCH something else. Surely monopolies in general are not good, but honestly I suspect the actual crisis haven't much to do about real estate/construction business, not even to mere economics terms (i.e. high prices). Long story short: how can housing be stable in a changing society in a changing world? If a mass of people want (and/or need) to relocate because of increasing bad climate and extreme events (floods, fires, too-hot-in-too-long-summers, ...), if there is a crossing between some who need to go to cities because can't afford anymore living outside and some who want freedom outside, if properties prices keep floating due to such moves how can a stable housing exists?