WEBVTT - Why It's Still So Expensive to Build Homes in America 0:00:02.720 --> 0:00:14.000 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.560 --> 0:00:21.360 Hello and welcome to another episode of the All Thoughts podcast. 0:00:21.440 --> 0:00:22.760 I'm Tracy Alloway. 0:00:22.480 --> 0:00:24.040 And I'm Joe. Wasn't all Joe? 0:00:24.079 --> 0:00:25.320 You're a homeowner now right? 0:00:26.160 --> 0:00:27.160 Yeah, it's very fun. 0:00:27.480 --> 0:00:28.840 Tell me, tell me how fun it is. 0:00:28.960 --> 0:00:31.040 I know you've had a few issues that cropped up 0:00:31.080 --> 0:00:32.680 basically as soon as you brought your new place. 0:00:33.080 --> 0:00:33.640 I don't want to talk. 0:00:33.800 --> 0:00:34.600 Let's go, let's move on. 0:00:34.800 --> 0:00:38.120 No, this is part of my carefully planned Yes, I know. 0:00:38.680 --> 0:00:40.960 Yeah, it's annoying and you have to deal with stuff. 0:00:41.040 --> 0:00:44.120 And I may have mentioned Alicia one time. Actually have 0:00:44.240 --> 0:00:47.440 been lucky by and large, But yes, it was very funny. 0:00:47.520 --> 0:00:50.279 You know. The I think literally the day or two 0:00:50.360 --> 0:00:53.479 days after it closed on my apartment in the East Village. 0:00:54.120 --> 0:00:56.080 You know, it's like whether there was something wrong before 0:00:56.400 --> 0:00:59.480 you just there's the phone number of somebody, just call it. Yeah, 0:01:00.000 --> 0:01:01.840 we still the building still is a super right, you know, 0:01:01.880 --> 0:01:05.000 the landlord just deals with replacing something. And then I 0:01:05.040 --> 0:01:07.920 think literally the day after we closed, there was like 0:01:07.959 --> 0:01:09.760 a window leak and it's like, wait, is there no 0:01:09.840 --> 0:01:11.800 longer a number? Do I have to pay for this myself? 0:01:11.959 --> 0:01:13.959 So who did you find to fix the window. 0:01:14.560 --> 0:01:16.360 Dad, I don't remember. There is still a super of 0:01:16.440 --> 0:01:18.280 the building of the super, but we had to write 0:01:18.280 --> 0:01:18.640 a check. 0:01:18.760 --> 0:01:19.120 Okay. 0:01:19.240 --> 0:01:21.840 One of the things that has surprised me about being 0:01:21.840 --> 0:01:25.679 a homeowner is like how low tech a lot of 0:01:25.720 --> 0:01:29.039 the housing construction and fix it actually is. Right, So, 0:01:29.560 --> 0:01:32.280 if there's a leak in your ceiling, in your roof 0:01:32.400 --> 0:01:35.680 or something, it's literally either you or some guy that 0:01:35.720 --> 0:01:38.839 you hire going up on a ladder and like putting 0:01:38.880 --> 0:01:40.800 down a few more shingles with a nail gun. 0:01:40.920 --> 0:01:42.319 Right, it all seems very old. 0:01:42.440 --> 0:01:43.720 What did you think was going to happen? 0:01:43.720 --> 0:01:46.240 But is it gonna be like some like unit tree 0:01:46.280 --> 0:01:48.640 like robots crawl up? Then? 0:01:48.880 --> 0:01:51.760 No, Seriously, it's the year twenty twenty five and we're 0:01:51.840 --> 0:01:55.720 still putting houses together with like, you know, the hammers. 0:01:55.160 --> 0:01:57.760 And someone someone comes with the box and they look 0:01:57.800 --> 0:01:59.760 through to the difference like, no, this doesn't fit this 0:01:59.800 --> 0:02:00.240 does it? 0:02:00.280 --> 0:02:00.440 Oh? 0:02:00.440 --> 0:02:02.240 I got it? And then the one second I don't 0:02:02.280 --> 0:02:04.240 have the right screw it, and they go around to 0:02:04.320 --> 0:02:07.040 a construction store a little right back, I got this, 0:02:07.120 --> 0:02:09.720 I got Yeah. Yeah, it's still pretty probably the way 0:02:09.760 --> 0:02:10.880 it looked when we were kids. 0:02:11.080 --> 0:02:13.480 Okay, well, anyway, I've been thinking about it because a 0:02:13.480 --> 0:02:15.840 couple months ago the Richmond Fed put out this paper 0:02:15.919 --> 0:02:19.880 and it was all about productivity in housing construction and 0:02:20.160 --> 0:02:25.000 the fact that construction labor productivity in housing has fallen 0:02:25.200 --> 0:02:28.760 by more than thirty percent from nineteen seventy to twenty twenty. 0:02:29.200 --> 0:02:31.880 So you think about the arc of economic development. You know, 0:02:32.200 --> 0:02:36.760 normally there are productivity improvements as we invent new efficiencies 0:02:36.800 --> 0:02:39.440 and as we invent new technology and ways of making things. 0:02:39.840 --> 0:02:42.800 That hasn't happened in housing. It's still the guy showing 0:02:42.840 --> 0:02:43.760 up with a toolbox. 0:02:43.880 --> 0:02:46.840 This strikes me as a really important element of the 0:02:46.840 --> 0:02:50.080 housing affordability conversation that I don't think gets enough attention, 0:02:50.200 --> 0:02:53.400 which is, it's easy to talk about zoning, and I'm 0:02:53.440 --> 0:02:55.959 sure there are issues there that need reform. It's easy, 0:02:56.160 --> 0:02:58.240 you know, permits and all that stuff. It's easy to 0:02:58.280 --> 0:03:02.639 talk about financing, et cetera. However, housing is a product 0:03:02.760 --> 0:03:05.640 and things get built at a cost and then sold 0:03:05.639 --> 0:03:08.920 as some profit margin above that. And if that underlying 0:03:09.000 --> 0:03:12.399 cost keeps going up, and it definitely has in say 0:03:12.440 --> 0:03:15.640 New York City and other areas, if that underlying cost 0:03:15.720 --> 0:03:18.680 keeps going up, then that is going to push up 0:03:18.720 --> 0:03:21.880 the cost of housing regardless of what you do on 0:03:22.240 --> 0:03:25.760 now again, like maybe zoning can make help with productivity gains, 0:03:25.760 --> 0:03:29.160 et cetera. Nonetheless, it continues to get more expensive for 0:03:29.200 --> 0:03:33.600 the actual construction of a home, unlike many other built goods. Right, 0:03:33.720 --> 0:03:35.440 I mean, the issue is that we don't build homes 0:03:35.440 --> 0:03:37.960 in China. Unfortunately, if we did, that would solve the problem. 0:03:38.040 --> 0:03:39.600 We don't, and maybe we could talk a little bit 0:03:39.600 --> 0:03:42.600 about why we don't, but maybe one day will but 0:03:42.720 --> 0:03:43.520 that would help a lot. 0:03:43.680 --> 0:03:43.880 Well. 0:03:44.400 --> 0:03:46.720 On that note, I mean, there happen attempts through history 0:03:46.760 --> 0:03:49.000 to have prefab houses, right, And some of the old 0:03:49.040 --> 0:03:51.720 prefab houses that you order from, like the Sears catalog 0:03:52.000 --> 0:03:54.440 in the nineteen twenties or nineteen thirties, those are gorgeous 0:03:54.480 --> 0:03:56.560 and I would happily live in one of those today. 0:03:56.760 --> 0:03:59.680 But we should talk about why it seems difficult to 0:03:59.680 --> 0:04:02.600 build houses or at least more expensive than some other things, 0:04:02.800 --> 0:04:06.200 and also why it seems that manufacturing other products seems 0:04:06.200 --> 0:04:09.840 to get more efficient over time while housing seems to 0:04:09.920 --> 0:04:12.040 kind of sect up all right, So we do, in 0:04:12.080 --> 0:04:14.560 fact have the perfect guest, I'm very happy to say 0:04:14.600 --> 0:04:17.080 we have Brian Potter, who is the author of the 0:04:17.120 --> 0:04:21.200 Construction Physics newsletter on Substack. I subscribe to this and 0:04:21.200 --> 0:04:22.000 it's fantastic. 0:04:22.200 --> 0:04:22.960 He is also the. 0:04:22.920 --> 0:04:26.320 Author of the new book The Origins of Efficiency, and 0:04:26.400 --> 0:04:30.440 a senior infrastructure fellow at IFP. So really the perfect guest. Brian, 0:04:30.440 --> 0:04:32.040 Thank you so much for coming on the show. 0:04:31.839 --> 0:04:32.560 Thanks for having me. 0:04:32.920 --> 0:04:36.720 Congrats on the book Origins of Efficiency. Are we right 0:04:36.800 --> 0:04:40.560 in thinking that housing hasn't become that much more efficient 0:04:40.640 --> 0:04:41.440 of a process? 0:04:41.600 --> 0:04:45.400 You are correct, and you know the productivity metrics. Those 0:04:45.400 --> 0:04:47.800 metrics are quite complicated and you can measure in different 0:04:47.800 --> 0:04:51.400 ways and different things right, slightly different trends. Some of 0:04:51.440 --> 0:04:55.160 them just show flat productivity rather than fall in productivity. 0:04:55.279 --> 0:04:58.000 But the general point is yet, yes, it has not improved. 0:04:58.080 --> 0:05:01.440 Unlike almost every sort of other like physical good has 0:05:01.440 --> 0:05:03.839 gotten you know, cheaper and less expensive to make overtime. 0:05:03.880 --> 0:05:05.159 Housing is not like that at all. 0:05:05.600 --> 0:05:10.320 And you worked for several years for a prefab housing 0:05:10.320 --> 0:05:11.240 company or something like that. 0:05:11.360 --> 0:05:14.159 Yeah, my background is as an engineer. I worked as 0:05:14.200 --> 0:05:16.839 a structural engineer for about fifteen years. That's what my 0:05:16.880 --> 0:05:20.159 training is and just that is basically just designing buildings. 0:05:20.160 --> 0:05:23.040 So I designed parking garages and water treatment plants and 0:05:23.080 --> 0:05:26.000 apartment buildings and stuff like that. And I had, yeah, 0:05:26.080 --> 0:05:28.360 worked at different facets of the industry, and as you say, 0:05:28.440 --> 0:05:31.680 it seemed extremely inefficient to me. We're putting up these buildings. 0:05:31.720 --> 0:05:34.000 We're putting up these houses, you know, on site by 0:05:34.080 --> 0:05:36.560 hand with a guy with a hammer. You know, it 0:05:36.600 --> 0:05:39.720 doesn't look that different than it did one hundred years ago. 0:05:40.200 --> 0:05:40.440 You know. 0:05:40.640 --> 0:05:42.880 On my side, it was like, we're designing these buildings 0:05:42.920 --> 0:05:45.320 from scratch every single time, instead of designing at once 0:05:45.360 --> 0:05:47.280 and then making you know, a million copies of it 0:05:47.320 --> 0:05:49.800 like you do with a car or something like that. So, yeah, 0:05:49.839 --> 0:05:51.640 it seemed when I was, you know, much younger, it 0:05:51.680 --> 0:05:55.360 seemed like incredibly backward and inefficient to me. And then 0:05:55.520 --> 0:05:58.400 in about twenty eighteen, I had a chance to join 0:05:58.680 --> 0:06:03.880 an extremely well did constructions prefab startup called Kata that 0:06:04.000 --> 0:06:06.160 promised like, oh, we're going to come in, we've raised 0:06:06.160 --> 0:06:08.240 all this money, we're going to change all that. We're 0:06:08.240 --> 0:06:10.600 going to build buildings and in factories and it's going 0:06:10.640 --> 0:06:12.479 to be so much more efficient. We're going to be 0:06:12.960 --> 0:06:15.320 the Henry Ford of housing, and we're just going to 0:06:15.360 --> 0:06:18.599 sweep away these old methods of building and uh it, 0:06:19.520 --> 0:06:21.640 long story short, they did not work out at all. 0:06:22.000 --> 0:06:24.680 They had raised a very very large amount of venture capital, 0:06:24.800 --> 0:06:27.359 about like two or three billion dollars in VC. 0:06:27.800 --> 0:06:30.240 And they burned through it in a few years and. 0:06:30.640 --> 0:06:34.080 Declared bankruptcy and then the Yeah, and in the aftermath 0:06:34.120 --> 0:06:37.159 of that, I wanted to understand why had it all 0:06:37.440 --> 0:06:41.080 gone so wrong? Beyond just you know, startups are hard, right, 0:06:41.240 --> 0:06:43.160 startups to have a high, you know, a naturally high 0:06:43.200 --> 0:06:46.800 failure rate, you know, and whatever operational missteps they may 0:06:46.839 --> 0:06:49.400 have made. I kind of came to believe that there's 0:06:49.400 --> 0:06:51.760 sort of fundamental thesis that if you build these things 0:06:51.800 --> 0:06:54.560 and in factories like we build everything else, it will 0:06:54.560 --> 0:06:56.800 get cheaper. I came to believe that was either sort 0:06:56.839 --> 0:07:00.880 of not quite correct or at least missing a very 0:07:00.920 --> 0:07:04.080 big piece such we didn't know specifically what we needed 0:07:04.120 --> 0:07:05.880 to do in these in these factories to make the 0:07:05.920 --> 0:07:06.800 cost fall. 0:07:06.960 --> 0:07:09.920 So why are houses, I guess so customized and not 0:07:10.400 --> 0:07:11.800 standardized to your point. 0:07:12.000 --> 0:07:14.160 Yeah, So there's a lot of reasons. One is just 0:07:14.320 --> 0:07:16.280 you know, to go back to your point about permitting, 0:07:16.320 --> 0:07:19.080 there's a very very large number of permitting jurisdictions in 0:07:19.120 --> 0:07:22.040 the US something like twenty thousand different jurisdictions, which each 0:07:22.160 --> 0:07:26.600 might have their own slightly different versions of building codes 0:07:26.600 --> 0:07:29.240 that sort of need to be enforced. There's just you know, 0:07:29.320 --> 0:07:32.120 different building sites or different sizes and shapes and have 0:07:32.160 --> 0:07:35.280 different you know, soils will which require different things, different 0:07:35.360 --> 0:07:38.320 environmental design factors. You know, different wind speeds. If you're 0:07:38.320 --> 0:07:40.240 in California, you need to design for earthquakes, if you 0:07:40.360 --> 0:07:42.400 need in Florida, you need to design for hurricanes. So 0:07:42.440 --> 0:07:47.200 there's all these factories that kind of conspire to make 0:07:47.320 --> 0:07:50.840 these sort of housing market very kind of fragmented, and 0:07:50.920 --> 0:07:54.320 it's hard to build a very very large number of 0:07:54.400 --> 0:07:58.080 like a uniform product. The builders do try to do that, 0:07:58.120 --> 0:08:00.960 they have somewhat standardized designs. It will punk down in 0:08:01.000 --> 0:08:04.200 like different developments across the country, but it's quite difficult 0:08:04.240 --> 0:08:06.320 to do in really really large numbers. 0:08:06.720 --> 0:08:10.560 Talk to us a little bit more about prefab housing specifically, 0:08:10.760 --> 0:08:14.560 or housing in a factory. There have been multiple attempts, 0:08:14.560 --> 0:08:16.840 and as Tracy mentioned, you used to be able to 0:08:16.840 --> 0:08:19.679 buy a home from seers. Talk a little bit about 0:08:19.680 --> 0:08:22.440 the sort of recent trends in this area, because you 0:08:22.480 --> 0:08:25.280 do over the last several years, you've heard a lot 0:08:25.280 --> 0:08:27.240 of maybe the last decade you've heard a lot of 0:08:27.280 --> 0:08:29.520 excitement about this idea. And as you mentioned, you worked 0:08:29.520 --> 0:08:32.440 for a well funded startup. Why now, like what's the 0:08:32.600 --> 0:08:35.320 general thinking and then maybe we could get into the 0:08:35.400 --> 0:08:37.760 sort of the gap between the theory and then what 0:08:37.880 --> 0:08:38.680 happened in practice. 0:08:38.840 --> 0:08:42.079 Yeah, so prefab is like this perennially popular Yahni. 0:08:42.400 --> 0:08:43.640 It's always it's always the next time. 0:08:43.679 --> 0:08:45.120 Yeah, It's always the next big thing that's going to 0:08:45.200 --> 0:08:47.880 come along. And so every you know, decade or two, 0:08:48.080 --> 0:08:51.080 you will kind of see these trends, like some big 0:08:51.160 --> 0:08:53.240 company will come along like, oh, I'm going to revolutionize 0:08:53.240 --> 0:08:57.000 the building with the housing industry with prefab construction. So 0:08:57.120 --> 0:09:00.600 and yeah, these these attempts stretch back a pretty long way, 0:09:00.920 --> 0:09:03.040 you know, And I became something of a student of 0:09:03.080 --> 0:09:06.440 these companies that have tried and failed. So right after 0:09:06.520 --> 0:09:08.800 World War Two you have this company called the Lustron 0:09:08.880 --> 0:09:10.920 Home Company, which made these very interesting homes, many of 0:09:10.920 --> 0:09:11.640 which are still around. 0:09:11.679 --> 0:09:12.839 You can actually go look at them. 0:09:13.040 --> 0:09:16.119 But they're made these like steel panels covered in porcelain 0:09:16.440 --> 0:09:19.320 that turned out to be quite well made and quite durable. 0:09:19.440 --> 0:09:21.840 And they got government financing to sort of fund their operation. 0:09:21.880 --> 0:09:24.160 They had set up shop in this big what was 0:09:24.200 --> 0:09:26.560 once one time the biggest factory in the world. It 0:09:26.600 --> 0:09:29.360 was three purpose to aircraft engine factory. 0:09:29.400 --> 0:09:30.400 Well they looked pretty cool. 0:09:30.480 --> 0:09:31.480 Yeah, they're very neat. 0:09:31.600 --> 0:09:33.360 I live in Atlanta, and there's some in Atlanta that 0:09:33.360 --> 0:09:35.760 you can go and look at. But they went bankrupt 0:09:35.840 --> 0:09:39.000 after quite a few years. In the nineteen sixties, there 0:09:39.080 --> 0:09:41.760 was this company called Sterling Homes that said, oh, we're 0:09:41.800 --> 0:09:44.120 going to be the next you know, Henry Ford of construction. 0:09:44.520 --> 0:09:45.760 They went bankrupt in a few years. 0:09:46.720 --> 0:09:47.280 Yeah, they were. 0:09:47.280 --> 0:09:50.760 Part of this government program called Operation Breakthrough, which was 0:09:50.800 --> 0:09:54.680 trying to fund the development of like mass production housing techniques. 0:09:54.960 --> 0:09:58.280 That program basically failed. None of their companies that they funded, 0:09:58.280 --> 0:09:59.640 and there were quite a few of them ended up 0:09:59.679 --> 0:10:03.200 sort of succeeding and breaking through and creating sort of 0:10:03.200 --> 0:10:05.760 these mass produced housing products. So you kind of see 0:10:05.800 --> 0:10:08.240 the same thing happening over and over and over again 0:10:08.280 --> 0:10:11.640 where people are trying to use prefab to like dramatically 0:10:11.720 --> 0:10:15.280 reduce the cost of construction. And there's ways that you 0:10:15.320 --> 0:10:18.240 can do that in kind of like a very limited sense, 0:10:18.880 --> 0:10:22.040 and you can also like build a successful business off 0:10:22.080 --> 0:10:24.240 of prefab where you're not necessarily trying to compete on 0:10:24.320 --> 0:10:26.600 low cost, but things like oh we can build much 0:10:26.600 --> 0:10:29.719 faster or stuff like that, but nobody has managed to 0:10:29.760 --> 0:10:31.800 do what everybody is trying to do, which is like, 0:10:32.080 --> 0:10:33.800 you know, be the Henry Ford of housing. 0:10:34.160 --> 0:10:35.719 Okay, what's the sticking point? Then? 0:10:35.760 --> 0:10:37.679 I know you walk through some of the reasons that 0:10:37.760 --> 0:10:40.640 houses tend to be customized, things like soil types and 0:10:40.720 --> 0:10:44.000 zoning and regulation. But is that just the story of 0:10:44.040 --> 0:10:48.240 why we can't have prefab houses that are like across America? 0:10:48.360 --> 0:10:50.200 So there's yeah, I kind of look at this in 0:10:50.320 --> 0:10:52.560 two ways. I think of it as terms of it's 0:10:52.679 --> 0:10:56.760 very hard to introduce some of these like improvements, these 0:10:56.800 --> 0:11:00.520 sort of strategies you have for improving efficiency into the 0:11:00.600 --> 0:11:06.200 construction process without accumulating like more costs elsewhere in the process. 0:11:06.240 --> 0:11:08.120 And then so at the same time that the gains 0:11:08.160 --> 0:11:10.719 that we've found in terms of like these strategies for 0:11:10.760 --> 0:11:14.520 efficiency improvement have historically been much more limited than you 0:11:14.600 --> 0:11:16.760 see and like if you're producing you know, a car 0:11:16.880 --> 0:11:17.839 or a light bulb. 0:11:17.640 --> 0:11:18.360 Or something like that. 0:11:18.600 --> 0:11:21.640 And at the same time we've continually added like more 0:11:21.720 --> 0:11:25.560 regulations and more difficulty you know, more administrative overhead and 0:11:25.559 --> 0:11:28.440 getting stuff built, which is slowly like driving up the 0:11:28.480 --> 0:11:30.839 cost even as like a you know, we're not sort 0:11:30.840 --> 0:11:32.920 of accumulating these productivity improvements. 0:11:33.080 --> 0:11:36.640 What's an example of Okay, this on paper looks like 0:11:36.840 --> 0:11:39.440 a productivity gain that we get in a factory, but 0:11:39.480 --> 0:11:40.960 then you pay for it somewhere else. 0:11:41.320 --> 0:11:43.319 Sure, so you know a very simple example. You know, 0:11:43.360 --> 0:11:46.080 if you're building a car in a factory, you build 0:11:46.160 --> 0:11:48.880 the entire car right, it rolls out of the factory 0:11:48.880 --> 0:11:51.960 line and the car is complete. A building is too 0:11:52.040 --> 0:11:55.080 big to come out of the factory all in one 0:11:55.120 --> 0:11:57.720 piece and get sent to the job site or whatever. 0:11:58.120 --> 0:12:00.160 So what happens is you have to sort of build 0:12:00.200 --> 0:12:01.800 you're building in chunks. 0:12:01.880 --> 0:12:02.040 You know. 0:12:02.200 --> 0:12:05.080 That's why prefab construction is often called modular construction, because 0:12:05.120 --> 0:12:07.840 you build it in these modules. And there's different strategies 0:12:07.880 --> 0:12:10.280 for like how you break a building into modules, but 0:12:10.280 --> 0:12:12.680 you're always like breaking it into these pieces. And what 0:12:12.760 --> 0:12:15.760 happens when you break it into pieces is that you 0:12:15.880 --> 0:12:18.120 have to add a bunch of extra stuff that you 0:12:18.120 --> 0:12:20.720 wouldn't have had to add if you were just building 0:12:20.720 --> 0:12:23.880 it on site. So transporting it down the road, you 0:12:23.920 --> 0:12:26.720 have to sort of design that to be rigid enough 0:12:26.760 --> 0:12:29.040 to like not collapse under like the load of like 0:12:29.080 --> 0:12:31.480 being bounced along on a truck. I used to work 0:12:31.520 --> 0:12:34.480 at a company that build concrete parking garages, which are 0:12:34.520 --> 0:12:37.120 built from prefabricated you know materials. They build these like 0:12:37.120 --> 0:12:40.240 big concrete pieces and then drive them down the road, 0:12:40.320 --> 0:12:43.160 and that was like the controlling design factor is designing 0:12:43.320 --> 0:12:46.079 to survive the loads that it would concur during transportation. 0:12:46.640 --> 0:12:49.440 And then once you have those pieces driven down and 0:12:49.440 --> 0:12:51.280 gotten to the job site, you have to like stitch 0:12:51.360 --> 0:12:54.240 them together, and so you have all these extra connectors 0:12:54.240 --> 0:12:57.600 and this extra complexity and attaching them together that again 0:12:57.720 --> 0:13:01.000 doesn't exist in sort of the conventional construction process. 0:13:01.120 --> 0:13:03.079 It's kind of crazy to think that, whether we're talking 0:13:03.080 --> 0:13:07.000 about a house or a parking garage that's presumably designed 0:13:07.080 --> 0:13:10.920 to last for decades, that a very significant factor in 0:13:11.040 --> 0:13:14.880 engineering is that few hours that it goes down the road. 0:13:14.960 --> 0:13:17.040 I mean, that's what sounds like, yeah, like that that's 0:13:17.080 --> 0:13:19.040 like that's going to last forever, but it has to 0:13:19.080 --> 0:13:21.559 be there just for that, like that short transport perer. 0:13:21.559 --> 0:13:23.560 In the case of parking garages, for sure. I guess 0:13:23.559 --> 0:13:26.360 that's why We do have some prefab houses in the US, 0:13:26.440 --> 0:13:35.040 and they're called trailers because you can actually move them, right. 0:13:45.080 --> 0:13:47.600 How much of this is also maybe a liability question 0:13:47.679 --> 0:13:51.280 where if you were producing prefab houses, presumably it's not 0:13:51.320 --> 0:13:53.960 the company that's putting them together on site. It's usually 0:13:54.320 --> 0:13:56.880 contractors or someone you hire to do it. And I 0:13:56.880 --> 0:14:01.319 imagine there's like a disconnect between the contractors on the 0:14:01.360 --> 0:14:03.720 ground who are putting this stuff together and the company 0:14:03.760 --> 0:14:04.800 that's building the parts. 0:14:05.000 --> 0:14:08.559 There is to some extent, I think that specific liability 0:14:08.679 --> 0:14:11.680 is not necessarily the biggest controlling factor. What is a 0:14:11.720 --> 0:14:14.520 big controlling factor, and I've written an essay about this, 0:14:15.160 --> 0:14:19.120 is that the construction cost, like the cost of developing 0:14:19.160 --> 0:14:21.960 and putting up a new building, the sort of distribution 0:14:22.040 --> 0:14:25.720 of that is extremely fat tailed and right skewed. Which 0:14:25.840 --> 0:14:29.040 so basically what that means is that a construction project 0:14:29.120 --> 0:14:31.960 that goes under budget, that goes really really really well, 0:14:32.200 --> 0:14:34.960 maybe you're like ten percent over budget or under budget, 0:14:34.960 --> 0:14:37.120 maybe you're fifteen percent under budget. You know, you can't 0:14:37.320 --> 0:14:39.720 push down that cost very much. But a project that 0:14:39.760 --> 0:14:42.320 goes over budget can be one hundred or two hundred 0:14:42.400 --> 0:14:45.160 or three per hundred percent over budget. So what that 0:14:45.240 --> 0:14:48.800 means is that the risk involved in like introducing some 0:14:48.960 --> 0:14:51.680 new system that you're not sure really how it works, 0:14:52.360 --> 0:14:55.320 it's just the payoff is so asymmetrical. It's so much 0:14:55.320 --> 0:14:57.880 more likely to cause like a massive overrun than to 0:14:58.000 --> 0:15:01.200 sort of save a relatively small amount that these sort 0:15:01.240 --> 0:15:05.080 of builders are like rationally incentivized to not introduce some 0:15:05.200 --> 0:15:08.360 radically new technology that's going to dramatically change how things 0:15:08.400 --> 0:15:11.640 go because the potential costs are so extremely high. 0:15:12.080 --> 0:15:15.440 Sort of maybe dovetailing with Tracy's question, you know, or 0:15:15.440 --> 0:15:17.520 maybe in the case of Kata or some of these others, 0:15:17.560 --> 0:15:20.200 it's like, Okay, they have some vision, but because they're 0:15:20.280 --> 0:15:23.480 not doing the entire thing all around the country, including 0:15:23.520 --> 0:15:26.720 presumably transport, et cetera, how much is the issue like 0:15:27.640 --> 0:15:31.680 maybe scale on those ends experience with that, Like in theory, 0:15:31.720 --> 0:15:36.040 if you had a really big experience on the ground 0:15:36.600 --> 0:15:41.400 distribution and final assembly workforce or whatever, it is, like, 0:15:41.440 --> 0:15:43.160 how much would that help? And how much is the 0:15:43.240 --> 0:15:46.160 issue that people who work on the ground, etc. Just 0:15:46.360 --> 0:15:47.560 aren't doing this full time? 0:15:47.720 --> 0:15:49.840 Yeah, that's like a part of it is, like, you know, 0:15:49.920 --> 0:15:53.240 this modular construction is kind of a somewhat niche aspect 0:15:53.280 --> 0:15:55.840 of the construction industry. There are quite a few experts 0:15:55.840 --> 0:15:57.120 in it that know how to do it, and they 0:15:57.160 --> 0:16:00.240 do it fairly regularly, and you can usually find them 0:16:00.240 --> 0:16:03.560 in like any given market. I would say a different 0:16:03.600 --> 0:16:06.240 point that you kind of alluded to. Scale is like 0:16:06.280 --> 0:16:09.920 another definitely big issue where it's like it's not like 0:16:09.960 --> 0:16:12.360 a semiconductor where you can make a million of them 0:16:12.400 --> 0:16:14.880 in a factory in Taiwan and ship them all over 0:16:14.920 --> 0:16:17.240 the world. Right, That's another big aspect that makes it 0:16:17.280 --> 0:16:20.520 hard to sort of gain efficiencies from factory production and 0:16:20.640 --> 0:16:22.280 goes to what I was talking about where it's hard 0:16:22.280 --> 0:16:24.720 to do that without introducing costs elsewhere in the system. 0:16:25.200 --> 0:16:28.120 The cost of like moving these modules around is so 0:16:28.640 --> 0:16:33.560 large that it's typically not economic to ship it like 0:16:33.640 --> 0:16:35.920 more than a day's drive, because then the costs just 0:16:35.960 --> 0:16:38.800 gets so high. And so what you have instead of 0:16:38.800 --> 0:16:41.720 like one giant factory that can like produce really really 0:16:41.880 --> 0:16:44.800 large scales, even sort of these modular companies that are 0:16:44.840 --> 0:16:47.320 doing like large amounts of business, they all tend to 0:16:47.360 --> 0:16:50.920 be like done in factories like that are spread across 0:16:50.960 --> 0:16:54.520 the Yeah. So like so like you talked about, like 0:16:54.520 --> 0:16:56.960 trailers like manufactured homes, which is one area that you 0:16:57.000 --> 0:17:01.160 can actually see some pretty substantial loss reductions due to 0:17:01.240 --> 0:17:03.560 various things. Partly, it's like they're targeting a lower end 0:17:03.600 --> 0:17:05.040 of the market and stuff like that, so like the 0:17:05.080 --> 0:17:07.480 finishes and stuff aren't quite as nice. But if you 0:17:07.480 --> 0:17:09.440 look at like the way that their business is structured, 0:17:09.720 --> 0:17:13.240 they have like more than a dozen factories spread all 0:17:13.280 --> 0:17:15.840 across the US, and then each one is serving like 0:17:15.920 --> 0:17:19.080 a day's drive catchment area. So they're not building like 0:17:19.480 --> 0:17:22.040 fifty thousand houses or whatever in one factory. It's more 0:17:22.040 --> 0:17:24.320 it's closer to like five hundred or a thousand or 0:17:24.359 --> 0:17:27.320 something in one factory. And so the economies of scale 0:17:27.320 --> 0:17:30.680 that you can capture in like a given operation are 0:17:30.760 --> 0:17:32.120 just fairly limited. 0:17:32.960 --> 0:17:35.159 Joe, I have to mention here, we didn't tell Brian 0:17:35.200 --> 0:17:37.200 that we were going to be talking about housing construction 0:17:37.359 --> 0:17:39.359 and trailers and all of that. This is all just 0:17:39.480 --> 0:17:41.200 off the top of his head. 0:17:41.920 --> 0:17:43.440 He said, down, We're like, by the way, can we 0:17:43.480 --> 0:17:44.120 talk about this? 0:17:44.720 --> 0:17:44.880 Yes? 0:17:45.240 --> 0:17:48.000 Okay, you kind of alluded to it in your previous answer, 0:17:48.040 --> 0:17:51.360 But if you were going to choose a manufacturing process 0:17:51.359 --> 0:17:53.760 that was the polar opposite of housing. 0:17:54.040 --> 0:17:58.480 What would it be, oh interesting, probably something like chemical manufacturing, 0:17:58.600 --> 0:18:00.920 you know, or like you know, raw met real manufacturing, 0:18:01.040 --> 0:18:04.600 something like steel or something like that. Because chemical manufacturing 0:18:04.960 --> 0:18:08.280 it's you know, the sort of ultimate form of like 0:18:08.320 --> 0:18:10.879 a manufacturing process, which I kind of talk about in 0:18:10.920 --> 0:18:14.160 the book, is what's called like a continuous flow process 0:18:14.160 --> 0:18:18.280 where it just like continuously transforms your group of inputs 0:18:18.320 --> 0:18:21.000 into the output of what you're doing just one you know, 0:18:21.080 --> 0:18:24.840 continuously without any sort of waiting, interrupting or batching or 0:18:24.840 --> 0:18:28.280 anything like that is all flows and it's continuously transformed 0:18:28.359 --> 0:18:31.879 during the process. And that's what like chemical manufacturing, you know, 0:18:31.960 --> 0:18:35.280 very efficient chemical manufacturing is done, and most other like 0:18:35.400 --> 0:18:39.040 really efficient manufacturing processes they ultimately tried to sort of 0:18:39.400 --> 0:18:41.520 converge on something that looks like that. So like the 0:18:41.560 --> 0:18:44.159 assembly line and like mass production is kind of a 0:18:44.200 --> 0:18:47.359 way to like get something that approaches like a continuous 0:18:47.400 --> 0:18:51.199 flow process in these like very complex manufactured goods with 0:18:51.240 --> 0:18:53.160