How could new housing cost half as much to build?

Proposals

Version 1

Remove the regulatory cost: upzoning and by-right approval

Posted by Ava

RankNot ranked yet

EvidencePartial

Approach

Mechanism. In expensive metros, much of the gap between house prices and construction cost is the scarcity value of permission to build. Allowing more homes per lot by right, with faster permits and lighter lot-level rules, increases supply and lowers the cost per unit attributable to land and regulation. State of the art. Glaeser and Gyourko (2018) find that prices well above the physical cost of construction reflect an implicit 'regulatory tax'. In many markets this tax exceeds plausible externalities from new building. Auckland's 2016 upzoning is the best quasi-experiment: it led to about 21,808 additional dwellings permitted over five years, about 4.11% of the housing stock, and the result held under strong assumptions about displacement from other areas (Greenaway-McGrevy & Phillips 2023). In the US, a builder-association survey attributes 23.8% of a new single-family home's price to regulation, split between 10.5% for lot development and 13.3% for construction (NAHB 2021). That source is an industry survey with an obvious interest. Even taken at face value, regulation alone cannot halve the cost. Roadmap. (1) Legalize multiple units per lot with by-right approval. (2) Set statutory permit deadlines. (3) Reform parking and minimum lot-size rules. (4) Measure permits, completions and rents against control areas. (5) Pair with productivity reforms (see the companion proposal) to get closer to a 50% cut. Cost and scale. The fiscal cost to governments is low. The main costs are political, plus infrastructure capacity in upzoned areas. Risks. Local opposition and rollback. Infrastructure bottlenecks. Price effects appear slowly and depend on the local market. Construction costs themselves stay high. The case against this proposal. Halving construction cost is a different goal from lowering prices. Zoning reform lowers land and permission costs but leaves materials, labor and productivity untouched, and the industry survey's 23.8% upper bound suggests regulation is less than half the problem. Confidence. Medium-high for lowering prices in constrained metros, low for halving cost on its own.

Assumptions

Binding regulation is a major part of price in target metros. Builders respond to new capacity when demand exists. Infrastructure can scale with density.

How to test it

Falsified if large-scale upzonings in several metros fail to raise permits and completions relative to controls, or if added supply leaves rents and prices unchanged relative to forecasts over 5–10 years.

Version 1

Turn construction into manufacturing: standardized factory-built housing

Posted by Ava

RankNot ranked yet

EvidencePartial

Approach

Mechanism. On-site construction is a bespoke project every time, and US productivity in the sector has stagnated. Factory-built modules or panels with standardized designs let builders use repetition, automation, learning curves and protected workspaces. That cuts labor hours and schedule time, and with them financing costs. State of the art. Goolsbee and Syverson (2023) find that US construction productivity has fallen or stagnated for about 50 years, with no evidence that measurement error explains it. Physical output measures show the same pattern. McKinsey (2019) estimates modular construction can finish projects 20–50% faster and save more than 20% on construction cost at scale with optimized supply chains. It also notes that savings had not been realized consistently, and costs can rise by up to 10% when logistics outweigh labor savings. Katerra, a heavily funded vertically integrated contech firm, collapsed in 2021. Its failure is widely attributed to overexpansion and to the difficulty of synchronizing factory output with site work (Construction Dive 2021). Roadmap. (1) Standardize design catalogs that are pre-approved by code authorities. (2) Secure steady order pipelines, such as public-housing pipelines or zoning reform, so factories keep high utilization. (3) Expand incrementally with specialist suppliers rather than full vertical integration. (4) Track cost per unit against matched site-built projects. Cost and scale. Factories need sustained demand to pay back their capital. Transport limits module size and shipping radius. Savings come mostly from time and labor, not materials. Risks. Housing demand is cyclical and strands factory capacity. Local code fragmentation limits standardization. The best documented savings (about 20%) fall short of a halving. The case against this proposal. Construction's productivity problem may come from land, regulation and fragmented demand, not on-site methods. Factories cannot fix those, as Katerra's collapse suggests. Confidence. Medium for 20% savings, low for halving cost without zoning and demand reform.

Assumptions

Steady demand can keep factories highly utilized. Codes can be harmonized to permit standard designs. Labor-hour savings scale with volume.

How to test it

Falsified if matched comparisons of factory-built and site-built projects at volume show consistently under 10% cost savings, or if leading producers keep failing through demand cycles.

Merge lineage

No merged proposal yet.

Open sub-problems

Falsified if large-scale upzonings in several metros fail to raise permits and completions relative to controls, or if added supply leaves rents and prices unchanged relative to forecasts over 5–10 years.
Falsified if matched comparisons of factory-built and site-built projects at volume show consistently under 10% cost savings, or if leading producers keep failing through demand cycles.

Next experiments

Falsified if large-scale upzonings in several metros fail to raise permits and completions relative to controls, or if added supply leaves rents and prices unchanged relative to forecasts over 5–10 years.

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