Home-building needs some rehab

Jul 07, 2022 View in browser   By Lorraine Woellert THE BIG PICTURE People have long complained about the cost of housing, but the problem is getting only worse as the gap between prices and wages widens. There's a long list of contributors to the affordability crunch, but one in particular stands out — the home-building industry itself. Even with prices rising and demand high, the sector has been held back by its own hidebound business models. One important number tells the story. Productivity in construction has been flat for at least a generation. Homebuilders to a large degree are erecting houses the way they did half a century ago, an approach that now is buckling under the weight of inflation, material shortages and a lack of skilled labor. The result: The U.S. economy is struggling to deliver a basic human need — shelter. Why do we care about productivity? Put simply, productivity is a measure of output per worker. It's always been important, but productivity matters more than ever in the current economy, with its dearth of skilled labor and rising rents. When productivity increases, wages typically increase, too. When workers are paid more and produce more, construction costs fall. That means lower rents and cheaper houses. In the big picture, productivity gains are the economic version of a free lunch, said Robert Dietz, chief economist at the National Association of Home Builders. "Construction is one of those sectors still using methods proven successful over time but that haven't changed a lot," Dietz said. Because the industry is highly decentralized and dominated by small players, no one company has market power to push systemic change or the deep pockets to invest in new technology. Modular construction, in which parts of a house are built off-site, is one way to boost productivity and once seemed promising. In the late 1990s, off-site construction was incorporated into 7 percent to 8 percent of new single-family homes. But as building has shifted from urbanized parts of the U.S. to the more rural South, that figure has fallen to about 3 percent, Dietz said. So what? Housing is so fundamental to the economy and society that market failures in the space have outsize consequences for everyone. The most obvious is affordability. The median price-to-income ratio, a widely used measure of affordability, hit an all-time high in 2021, according to the Harvard Joint Center for Housing Studies, with the median price of an existing home reaching 5.3 times the median household income. The last record, 4.9, was notched in 2005. And in March, home-price appreciation nationwide hit 20.6 percent, topping the previous year-over-year high of 20 percent in August 2021. It was the biggest jump in three decades of record-keeping, according to Harvard. Now the industry itself is sounding alarms. In June, Ed Brady, chief executive of the non-profit Home Builders Institute, declared a labor crisis and called for improved cooperation between the home building industry and its trade unions. The overture signaled a major shift on the part of builders, who historically have been antagonistic toward organized labor. "We are in a new era of need and opportunity that requires serious collaboration," said Brady, whose group offers industry training and job placement. "I trained in high school and college under a master union carpenter. We're losing those people because they're aging out," Brady said. "We've missed an opportunity to mentor and train from masters. If we don't invest now it's going to get worse." And technology companies are using the labor crisis and inflation as an opportunity to disrupt the sector with techniques that cut waste, speed production and require fewer hands on the job site. Black Buffalo 3D Corp., a Pennsylvania subsidiary of South Korea-based Big Sun Holdings Group Inc., says its technology can cut material and labor costs by 15 percent to 30 percent over stick-built homes and as more than 60 percent over block construction. Installed on a track and equipped with cement-based "ink", the company's multi-story robot is, in essence, an on-site factory that can run 24 hours a day and speed production of entire neighborhoods that are energy-efficient and cheap to maintain. "The sustainability factor is really a monster here. You're producing a product that's going to last 50 years," Black Buffalo CEO Michael Woods said. "We're beyond, 'Hey, does this work?'" Woods said. "Builders have no choice. They have to embrace technology." YOU TELL US A cozy printed bungalow in the Netherlands. | AP Photo/Peter Dejong In the U.S., high-tech construction is getting one of its first big tests in Appalachia, where affordable homes are being printed in Pulaski, Virginia. Would you live in a 3D-printed house? Tell us what you think. The Long Game is your source for news on how companies and governments are shaping our future. Team Sustainability is  editor Greg Mott, deputy editor Debra Kahn and reporters Lorraine Woellert and Jordan Wolman. Reach us all at gmott@politico.com, dkahn@politico.com, lwoellert@politico.com and jwolman@politico.com. Want more? Don't we all. Sign up for the Long Game. Four days a week and still free!   INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY.     WHAT WE'RE CLICKING — The U.S. has two job openings for every available worker. CNBC has the latest labor data. — Gabon is seeking to profit from climate change, Bloomberg reports. — More people were hungry last year. The U.N.'s 2022 State of Food Security and Nutrition in the World has the grim news.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Lorraine Woellert @Woellert Jordan Wolman @jordanwolman   Follow us

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