From Religion to Real Estate
My colleague Larry Iannaccone is not just the world’s expert on the economics of religion. He’s also got some intriguing views on real estate.
Cars have been mass produced on assembly lines for a long time, and the cost savings over one-at-a-time craftsmanship are considerable. But if you take a look at residential construction, we have yet to reach the age of mass production. Homes today are still usually “stick-built” on site, though admittedly many components are mass-produced in a factory. Why haven’t we switched to low-cost, high-quality modular construction? (For more info, see here).
Larry’s speculation is that local building codes are to blame. It is hard to mass produce a product when you face a patchwork quilt of regulations. His idea immediately struck home with me, because my friend in the insurance business regularly laments the costs associated with divergent state-level regulation. If 51 sets of regulation are a burden, thousands could be crippling.
But what about trailer parks? How have they thrived? The Apex Homes website succinctly explains the relevant regulatory minutiae:
I get confused when I see the terms “manufactured home” and “modular home.” What’s the difference?
“Manufactured homes,” often referred to as mobile homes or trailers, represent an entirely different type of building system than modular homes and are constructed to a different building standard. This standard, the Federal Construction Safety Standards Act (HUD/CODE), unlike conventional building codes, requires manufactured homes to be constructed on a non-removable steel chassis. Many communities have placed restrictions on where manufactured homes may be located.
Unlike manufactured homes, however, modular homes are constructed to the building codes required by your state, county, and specific locality and are not restricted by building or zoning regulations. Modular homes are inspected during every phase of construction, and evidence of this inspection is normally indicated by a State or inspection agency label of approval.
Is this consistent with Larry’s story? Maybe. Perhaps manufactured homes have thrived because the industry faces a uniform building code. And maybe modular homes would be a lot cheaper if they did not have to be tailored to local building codes.
On the other hand, if the problem were really analogous to state regulation of insurance, I’d expect there to be some “redlining” – localities or states that modular home makers do not serve because their regulations are unusually onerous. And at least my initial study does not confirm this. Halliday Homes lists the main drawbacks of modular construction:
Severely limited flexibility in terms of floor plan and design options Cannot be built in many locations, such as treed properties or waterfronts, because wide road access is required The trucks and cranes required to ship and assemble the home are costly and may be subject to permits and restrictions Modular homes may not be allowed in many residential developments Costs may be difficult to control because you are not able to choose the labour
Notice that redlining or delays due to building code variation do not make the list.
So is Larry barking up the wrong tree? Or are the most knowledgeable minds in the construction industry busy building houses, not speculating about how the effects of drastic regulatory changes that aren’t likely to happen?