Why Is A House So Expensive?
It's The Productivity Stupid!
This is a follow up to that rant about why no one can buy a house. There are no answers here about how to “solve” this “problem” other than to say, in time, humanity will figure it out so stop reading now if you are looking for answers.
Caveat One.
If you try to generalize (make simple) anything in housing (it’s usually to get votes or status) you are already wrong ….. because real estate is local …. and emotional … and _________? Fill in any adjective you want here. In other words ….. Here comes the great catchall answer for everything …. Wait for it! … It depends! Given that we “flounder on the shores of confounding variables”, especially in economics, it is obvious that there cannot be one reason for the price of something being what it is. At this point most just say it’s a supply and demand thing stupid!
Caveat Two.
These days most economic (1) arguments devolve into a collective/individual thingy where one side says the socialist inefficient government sucks and the other side says the greedy capitalist pig sucks. It is very similar to the biological nature/nurture argument. To sum it up in four words … it is always both.
Productivity
A big talking point these days from people in the know (about building structures) is that productivity in the building trades sucks (yes, I know, third time for this word).
Productivity is measured (and yes, all economic measurements are suspect to a certain extent) by taking yer (2) GDP and dividing that by yer total number of hours worked. In Canada that number right now is 58 bucks per hour while in the States it is $73. The (economic) reason given for this discrepancy is that there is more investment in a worker in the USA than Canada ($28K vs $15K per worker). The more investment in a worker, the better tools/system said worker has and therefore said worker produces more. Got it? That’s the theory anyway.
Productivity of workers has gone up and up and up in lots of things (ie-tech) for decades but in building houses it has gone down and down and down for decades.
Let’s talk about the two most cited reasons for this.
First Reason: Regulation
Academics will now say that 25% of a structure’s cost is paperwork. That is a cost. That decreases productivity numbers. This paperwork however does have a flip side in that it pays the salaries of extra bureaucrats, so that’s good. For them. People have argued that all of this paper is simply to get more money for municipal governments, and they may be right. The principal agent problem rules in a multipolar trap of Moloch.
Second Reason: Little Or No Factory Manufacturing Of Houses
In all other businesses where productivity has skyrocketed, it is the standardization of manufacturing in a factory that has been the secret. Henry Ford knew about this a hundred years ago. So why can’t we make a house in a factory?
Well sometimes you can. Like for a hotel or a prison where all the rooms are the same. But. For everything else it has failed. Remember the dream of Buckminster Fuller for geodesic domes. It failed. Recently Kattera went bankrupt after it took almost $1B from Softbank.
Modular (3) housing has taken off in Sweden but that’s it. So far. The best guess as to why not is financing (like it is for a lot of things). The way building is tied into money now is based on doing one thing and then getting paid, then doing another thing and getting paid, then doing another thing and getting paid, etc. And the bank pays people to make sure each step is done. If you want to build a factory with lots of expensive housing making machines in it then the bank has to come up with a lot of money upfront before any house gets manufactured in that housing factory. So tyranny of the status quo rules.
Humanity will figure it out. Why even the great and failed real estate entrepreneur Adam Neumann is back with Andreessen Horowitz funding. For now, as Canadians, we will just have to put our faith in our new housing minister Gregor. The juice man seems to know how to increase the value of real estate (4).
Notes:
1)Economists are some of the smartest people, at least rhetorically, on the planet. The trouble is that one says minus one and another equally smart one says positive one for just about any effin’ economic question. Medicine, with its statistically underpowered and “flooded with false positives” RCT’s is bad enough but at least the positive negative difference is maybe between a minus 0.1 number and a positive 0.1 number?
2)I'm so into possessive pronoun diversity these days vs. the boring woke personal pronoun bullshit, so eat your heart out DEI! Maybe I should have capitalized yer or maybe bolded it just like happens today when these SF idiotic things get tuba blasted into YER face.
3)There are a ton of other names like prefab, kit homes, volumetric homes, offsite-built homes, etc. for this.
4)And not to be too facetious, that may be the Real Reason. People with a house tend to be people with the political connections to make sure the rules are gamed to keep their house prices high. So. Real estate always goes up. Right? Was anyone here alive in 1980? Or in Japan in 1989. Or in the world in 2008? Don’t worry. If it tanks in the rest of the world, Vancouver will always go up. Yah?