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Regulatory capture across the country is a huge impediment to improving people's lives. Matt highlights one area in this post (essay?, blog?, I never know how to describe a substack writing), but it extends into almost every part of our lives. Licensing rules for everything from hairdressers to car dealerships to real estate brokers inhibit competition and act as a hidden tax on consumers while protecting entrenched interests.

President Biden's recent executive orders are a good step, but they are limited in scope. The battle against these silly regulations - is it really necessary to require 2,000 hours of training to be a barber? - happens primarily at the state level. This should be an area where conservatives and progressives come together - more competition, enabling a pathway for lower-income people to improve their lives and a shrinking the regulatory state. Entrenched interests, though, have captured so many of the licensing bodies, it will take dedicated people working the details. I'd love to know how to find and support anyone who is working in this area.

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I write the newsletter Construction Physics, which is what Austin based most of his post on, and have written about this issue a lot.

First, a bit of a clarification. Manufactured homes are homes that don't meet local building codes, but instead meet the HUD code for manufactured homes (which, among other things, requires the permanent chassis). But there's nothing stopping anyone from building a home in a factory that meets local building codes, and putting it up on a normal site just like a normal house. The reason this isn't more popular is that it tends to be more expensive than traditional construction.

The main issue preventing returns to scale in home construction is shipping and logistics. Homes are so big that to prefabricate them you have to either break them into panels (adding a lot of upfront complexity and still having significant site work) or ship them as large modules that require carefully planned routes, follow cars, large cranes to set, etc. The result is that you tend to see prefabricated homes (and other buildings) shipped relatively short distances, generally less than 500 miles. This fundamentally limits how big a market you can serve and what sort of scale you can achieve.

Even manufactured homes don't really get around this. Clayton has something like 17 factories around the country to deliver a relatively small number of homes (in the neighborhood of 50,000).

Many, many companies have tried and failed to overcome this, Katerra (a 2B-dollar prefab construction startup that just went bankrupt) being the latest.

Also, I think Matt is overstating the importance of high land cost. The vast majority of population growth (and thus new construction) occurs in the south and the southwest, places where the land cost is very low and the cost of a new house often approaches the cost of construction. You actually see a fairly strong correlation between cost of construction and population growth, but NOT any correlation between home cost with the price of land and population growth. So lowering the cost of construction would have fairly enormous effects if you could figure out how to do it.

For manufactured homes, I think the larger issue than zoning is the way they're financed. These are almost never financed as real estate, but as personal property. So the loans for them have higher interest rates, and they don't maintain their value over time the way a traditional home does. But there's a new type of manufactured home called a "CrossMod" that's advertised as built like a manufactured home but financed like a traditional home - we'll see how that does.

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The biggest driver of low end housing costs is the illiquidity of poor people and the transactions costs of rent default.

When I was a public defender in Hall County, I was up for an adventure and I looked at a few single wides in the country. The rent wasn’t much cheaper than the ($815/month in 2005) apartment I ended up leasing. The difference is rent was due weekly rather than monthly and the deposit was only one week’s rent. You could move in for $375, but it still cost $675 a month to rent a trailer that cost ~$32k new and was on a quarter acre of rural land that might have been worth $2k. The annual rent was 24% of the cost of the trailer and land.

Decreasing the cost of that single wide by 15% would not have decreased the rent by anywhere near 15%, because much of the rent covered the landlord’s risk in renting to people with spotty credit and evicting them if they didn’t pay and fixing the place up if it got trashed.

This problem extends further up the market. In my exurb (Peachtree City, GA) a 815 sf apartment goes for about $1550 a month, plus utilities. At a discount rate of 6%, that implies a value of $310k per unit. Conversely, you can buy a 2100 square foot home for $370k. Obviously, the apartments are cheaper to build per square foot than houses because they are built on top of each other, share walls, share plumbing and utilities and use less land. Yet houses sell for $176 a square foot while apartments rent for the equivalent of $380 a square foot.

Cheap construction does not mean low payments.

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"When factories are running at capacity, unit costs are lower. When demand is sufficient to open more factories, shipping costs fall. So you can have a flywheel of falling costs and higher quality."

It's generally pointless to rail against idioms, and this one may be too entrenched to eradicate, but may I point out that actual flywheels do not do anything like what your metaphor wants them to do?

You're imagining some sort of accelerating virtuous circle here, where every complete rotation makes the next rotation faster.

In fact, adding a flywheel to a system does just the opposite: it stabilizes the rotational speed and increases the rotational inertia. It smooths out small deviations, so that the output shaft tends to keep rotating at the same speed even if there are deviations in the power pumped into it.

What adding a flywheel to a system will never do is to increase the speed of the system, or increase the acceleration of the rotation. Of course, you can also make a system with a flywheel accelerate, but it will accelerate despite the flywheel, not because of it.

I don't know what the right metaphor for a virtuous circle of accelerating rotation might be, but a flywheel ain't it.

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My wife project-managed an affordable housing project which was essentially buying and renovating a mobile home park that was dilapidated.

It was insanely complicated because a whole bunch of the existing... I'm not sure what to call them. There are sort of modular pieces of business process that you apply to affordable housing. Ways to get money for certain kinds of activities, processes that apply to people you have to displace because they're units are unsafe and must be condemned, etc. They're like components of a piece of machinery, but they aren't real, they're business processes. And they're based on regulations.

A huge number of these standard business processes were regulatorily excluded from her project because they didn't apply to manufactured homes. They couldn't help the residents get the kind of loans they normally could, because those loans don't apply to manufactured housing. They had insane relocation costs because two laws interacted in ways probably nobody anticipated when it came to manufactured homes. Etc.

My wife was fond of saying when she did the project that nobody has ever done this kind of project before (she found it interesting trying to problem solve it without, as it were, the rails and guides). But my takeaway is that nobody is likely to do that kind of project again because of the headache. And none of it is "real." We could make all those problems go away just by cutting through some of the regulatory barriers.

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Good post. I’m sorry if you addressed this in the article and I missed it but do manufactured homes appreciate in value over time like regular homes or do they lose value over time like cars? One argument I’ve heard against manufactured homes is that consumers view them as poor long term investments when compared to regular homes. Lots of home buyers take comfort in the fact that they can (barring another housing crisis) sell their homes at a price more than what they paid for originally and use the funds to pay for retirement whereas with a manufactured home there’s a bigger risk of losing money on it.

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Eh, this is not the best take. Matt leaves out one of the main points of Austin's piece, which is the transportation costs. If you build a home or parts of a home in factory, you have to then transport that to the customer site- I think we've all seen these huge flatbeds on the highway. This transportation mostly eats up any cost advantage. You can try to have a bunch of factories scattered all over the country to cut the transport down, but that gets mega-expensive, and there's still some transport. If you use a modular/assemble on site type of construction, you have to transport & house the construction crew to the site while they put it together. These kinds of costs just make the low end of housing financially impossible.

Austin has a quip about how every generation thinks they invented sex & modular housing for the first time.

I'm definitely open to this chassis deregulation thing, but in general I wouldn't look to manufactured housing as much of a solution. You can't pack them very close together because of the fire hazard, so you still get single family density. Trailers tend to age very poorly and become substandard housing for the very poor within a few decades (Matt you're in Maine, drive around some of the more rural parts for an afternoon and see!) Building small or modest stick-built homes onsite is probably a better solution for the rural low income

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I can't wait to buy my next home from Amazon. Seriously. High end, modular, and high value.

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Trailers, swift!!

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I fully support the idea of modular homes as an option to reduce housing costs, but Matt's post doesn't really discuss the biggest problem with the "mobile home park" model, which is that people only own the (rapidly-depreciating) building rather than the land underneath it. I've seen the marketing, and it's very predatory. They tell poor people, mostly seniors, that they can own their own home at a low, low cost that seems too good to be true, because it is. They're really just taking out something like a car loan for a house that will lose value, and then also paying rent on the land to the property owner. It's worse than normal renting, because at least with normal renting the landlord is responsible for maintenance on the house itself. In this case, you're stuck with an asset but don't own the land, so it's a bad deal.

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As your token fly over country commenter, and closest to white trash reader. (I do have a lot of kids), this is a subject near and dear to my heart. I have many friends who live in Trailers.

I’ve been reading a lot about this subject lately. Mainly because I bought a small cabin with some land and I have been exploring putting up two more cabins or buildings on it.

Specifically I started looking at boxabl. They are foldable portable buildings. Apparently Elon Musk. They are building a huge factory in Las Vegas. Starting out with a 20x20 fully furnished building. Eventually they will have 20x30 and 20x40 buildings. They will also be sectional. So I can have a living room module. And a kitchen module.

Anyway. I have been researching all the requirements of manufactured vs mobile vs normal buildings. Especially regarding foundations.

I suspect that the rules will change in the future. I’m so confident that I am investing!

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The amount of work Matt puts into uncovering the very worst housing ideas is commendable.

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This is just the sort of high-progressive-ideals-meets-brass-tacks brilliance that I love and expect from Matt. Seriously, who else does it better? I find his argument completely convincing and I'll probably agree with this position until I die.

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Does this mean we'd get an American adaptation for Trailer Park Boys?

My suspicion is that the "trailer trash" stereotype would lead to a lot more NIMBYism against permitting trailers vs. other types of cheap housing, though I suppose that in a lot of communities, the number of apartments/duplexes that ends up being built is zero so maybe the point is moot. But you do need a lot more land for a trailer than you would for other multi-family buildings... not sure how this plays out exactly in places with housing scarcity. Are you going to have trailer parks in places like Palo Alto or Paramus?

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So you do get a lot of stuff right. And other stuff you just don't know about. Wondering why construction productivity goes down? Well son get on a construction job. And the question you want to ask as a construction worker/supervisor/union agent is what's next when this job is done? Nothing booked when this job is done? Well let's slow this puppy down. I have never seen that not happen on major construction projects.

Now on to modular housing. The first thing you have to do is lose the idea that it is in any way inferior. It isn't. Not only are such structures built in clean well lit environmentally controlled factories they are also built to a much higher level of precision and use more and better fastening systems than site built construction. The need is obvious which is that they have to travel over sometimes crappy roads with potholes. They have to get where they are going intact. While still meeting the same building codes as any site built structure.

I am not the least bit surprised that anti-housing laws have been formalized. But thirty years ago the main barrier were local building codes designed to protect local construction trades from competition. Unless the factory is in your town it was considered the enemy. The rules you have laid out are dangerously stupid and risk the lives of their inhabitants. You can lag bolt 'mobile homes' directly to the slab and remove the undercarriage. Which can be reused for transport. Not allowing or insisting such structures be bolted to slab puts their residents lives in danger when storms with high winds like hurricanes or tornadoes arrive. That is the issue I would use to fight this particular stupidity.

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A huge part of this dynamic is the perception that modular or prefabricated homes do not hold their value as well. Which returns to the housing-as-necessity vs home-ownership-as-investment dichotomy that drives so very much of this-- I'm considering buying a home; but because I know that's where a substantial portion of my money is going to go, I'm not even remotely considering a prefabricated home.

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