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

Intro

In this episode of the Freakonomics podcast, titled “Why Is It So Hard (and Expensive) to Build Anything in America?”, the hosts explore the decline in productivity in the US construction industry and its impact on the economy. They discuss the various factors contributing to this decline and propose modular construction as a potential solution. The episode also delves into the challenges faced by disruptive companies in the construction industry and the potential for offsite construction to revolutionize housing supply.

Main Takeaways

Decline in Construction Productivity

• Productivity in the US construction industry has fallen significantly over the past 50 years, with the value added by a construction worker today being about 40% less than it was in 1970.
• This is the opposite of how productivity has changed in most other industries, like agriculture, manufacturing, and information technology.
• The concerns expressed in a Johnson Administration report about declining productivity in the construction industry have turned out to be valid, with a potential for major societal impact.
• Rethinking construction methods is necessary to address the problem, and modular construction could be a solution that people don’t realize can be used to build things like hotels.

Factors Contributing to Decline in Construction Productivity

• There is no single explanation for the decline in construction productivity, and theories range from regulation to labor market issues.
• Lack of capital investment and rising input prices are not causing the problem of declining construction productivity.
• Land use regulations have played a major role in the construction problem.
• Regulations make it difficult to focus on mass production and limit building.

Housing Shortage and its Consequences

• The US is nearly four million housing units short of what it needs.
• Housing shortage leads to higher prices and smaller productive areas.
• Americans historically moved to more productive areas, but this is not possible due to the housing shortage.
• Housing shortage leads to intergenerational transfer of wealth and harms the young.

Modular Construction as a Solution

• Rethinking construction methods is necessary to address the problem, and modular construction could be a solution that people don’t realize can be used to build things like hotels.
• Modular construction is faster and more efficient, producing less waste and pollution.
• Modular construction allows for a more diverse workforce, eliminating physical limitations and providing a safer work environment.
• Some countries, like Japan and Sweden, have a higher percentage of modular construction than the US.

Challenges Faced by Disruptive Companies in Construction

• Disruptive companies in the construction industry often struggle to make an impact due to the challenges of the industry.
• Investment in R&D is low in construction.
• Automation and industrialization could radically transform the construction industry.

Summary

Decline in Construction Productivity and the Need for Rethinking

The productivity in the US construction industry has been declining for the past 50 years, unlike most other industries. This decline has significant implications for the economy and the affordability of housing and infrastructure. Rethinking construction methods, such as adopting modular construction, could help address this problem and improve productivity.

Factors Contributing to the Decline

The decline in construction productivity is not attributable to a single factor. Land use regulations, labor market issues, and the lack of focus on mass production due to regulations all play a role. These factors hinder efficiency and make it harder to address the housing shortage.

The Housing Shortage and its Consequences

The US is facing a significant housing shortage, leading to higher prices and limited opportunities for economic mobility. The shortage also has intergenerational consequences, as wealth is transferred from the young to older generations. The housing shortage is exacerbated by regulations that limit construction and make it difficult to meet the demand.

Modular Construction as a Potential Solution

Modular construction offers a more efficient and sustainable approach to building. It has the potential to address the decline in productivity and increase the speed of construction. Countries like Japan and Sweden have successfully adopted modular construction, demonstrating its viability. However, there are challenges to widespread adoption, including the need for investment in research and development and overcoming resistance to change in the industry.

Challenges Faced by Disruptive Companies in Construction

Disruptive companies in the construction industry face numerous challenges, including low investment in research and development and resistance to change. Automation and industrialization have the potential to transform the industry, but there is a need for greater investment and a shift in mindset. Overcoming these challenges could lead to significant improvements in productivity and affordability.

Conclusion

The decline in construction productivity and the housing shortage in the US pose significant challenges to the economy and society. Rethinking construction methods, such as modular construction, offers a potential solution to address these challenges. However, overcoming the barriers to adoption and investment in research and development is crucial. By embracing innovation and efficiency, the construction industry can play a vital role in meeting the housing needs of the population and supporting economic growth.