Government concerns about great disparities in housing conditions, what are often called housing crises, date to at least the 1920s. These great disparities are, of course, still with us 100 years later. In this essay, we argue there will be no progress ending these great disparities until the residential construction industry adopts technology that other industries began adopting more than 100 years ago – factory production methods. There have been attempts to introduce these methods in residential construction for the last century, but they are always blocked and sabotaged by monopolies in the traditional construction sector, that is, the sector producing homes outside, on-site, using “stick-built” methods. Monopolies in traditional construction sabotage many types of factory-built homes. In this essay, we focus on the sabotage of particular types of such homes, what we call small-modular homes. These homes can be produced and sold at very-low prices, so that the sabotage of these homes has disproportionately hurt the low-income. The sabotage is the primary reason for the existence of, and perpetuation of, U.S. housing crises.
[Small-modular homes]…are blocked from most areas of the country – it’s simply illegal for a household to purchase such a home and place it on land owned by the household. In areas where they are “allowed,” they are often zoned for areas like manufacturing districts and dumps. Even then, regulations mean higher production costs for these homes in factories. They also mean the homes are financed as automobiles (with personal loans, or chattell loans) and not real estate loans. 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.
That’s from James Schmitz’s paper for the Minneapolis Fed, Solving the Housing Crisis will Require Fighting Monopolies in Construction.
Amazingly, a majority of the houses produced in the early 1970s were factory-built before these types of houses were driven out of the market. Capps at Bloomberg notes:
Manufactured homes briefly dominated the U.S. housing market during the 1960s. By 1972, these homes — not just mobile homes but small-scale modular houses — accounted for some 60% of all new single-family homes produced nationwide, according to census data. That number has diminished so much that the role of factories in building affordable housing has gone all but forgotten.
The Biden administration wants to put America’s house factories — those used to be a thing, really — back to work. A new housing plan by the White House offers a set of actions designed to close the nation’s massive affordability gap.
As Schmitz discusses at length in another paper, part of the reason economists have ignored the destruction of factory built housing is that economists came to think of the danger of monopoly as solely involving price (or, to put it the other way as Austrians do, they thought of the virtue of competition as only involving price.). In fact, monopolies reduce productivity and they use the political process to sabotage other firms. Competition isn’t just about price but about increased productivity and creative destruction.
P.S. I am in the process of building a factory-built house. The factory part was by far the easiest and most efficient part of the process.