Friday, January 19, 2024

Post 42: The Housing Crisis -- Nuts and Bolts

In the late 1940s, our country was suffering from one of the worst housing shortages in our history. The depression decade of the 30s saw an extremely low level of investment in new housing due to lack of demand and capital, and the World War II years of the early 1940s saw construction investment funds redirected toward the war effort. Consequently, soldiers returning from overseas who wanted to get married and start a family had precious few housing options to choose from. 

At the time, economic prospects were generally good. America was the only world power with a fully functioning manufacturing and transportation industry. Consumer optimism was high, employment was strong, and returning servicemen had access to the benefits of the Servicemen's Readjustment Act of 1944 (commonly known as the G.I. Bill). These benefits included low-interest, zero-down-payment mortgages for purchasing a home. The problem was finding a home to buy at a reasonable price. 

Across the country, homebuilders stepped up to the challenge. One of the most innovative was Levitt and Sons who built three massive residential developments in the New York City - Philadelphia area, and later spread to 13 other states. Prior to the war, the firm built primarily high-end houses for wealthy clients, but during the war one of the sons constructed barracks for the military and learned techniques for mass production of standardized housing. 

In 1947, Levitt and Sons bought 4,000 acres of farmland in the middle of Long Island, New York (roughly 25 miles from downtown Manhattan) and started building small, highly standardized homes designed and marketed for young families. Known as Levittown, the development initially offered only one house design – an 800-square foot Cape Cod. The house had two bedrooms, one bathroom and a kitchen with modern appliances, but it had no basement, no garage and the attic was unfinished. The houses were boxy and plain, with shutters on the front windows as the only ornamentation. They were, however, extremely affordable with prices starting around $7,990, or roughly $112,000 to $200,000 in current dollars depending upon which inflation index is used. 

Hundreds of buyers lined up to sign sales contracts when the development first opened up. In the next few years, other models were added with more room and more features, but the focus remained on building a standardized product at a low price. Eventually, Levittown, New York contained more than 17,000 houses and nearly 80,000 residents. 

Levittown, New York

The Levitts kept costs low by using an assembly line approach to housing construction. The process was broken down into 26 steps that were virtually identical from house to house to house. Construction teams were trained on one specific step and would repeat that step from one home to the next. Some components such as stairways and cabinets were prefabricated at a Levitt-owned factory and shipped to the site. To save on costs and simplify logistics, the company built a concrete plant in New York and bought a lumber mill in California so that wood could be custom cut to the required sizes. The process became so efficient that dozens of homes were ready for occupancy each week. [1]

There were disadvantages to the Levittown approach, of course.  Many considered the end result to be boring and somewhat soulless.  Pete Seeger famously sang a song titled “Little Boxes” critiquing this approach to urbanization:

There’s a green one and a pink one

And a blue one and a yellow one

And they're all made out of ticky-tacky

And they all look just the same

My point is not to necessarily advocate a return to Levittown-style housing but to illustrate that there are ways to reduce housing construction costs if we are willing to think creatively.  My goal with this post is to look at possible techniques for reducing construction costs and increasing production quantities.  As I pointed out in my previous post, the current housing crisis is particularly acute with respect to moderate cost housing options.  While building expensive housing does help the situation by increasing total supply, a more effective approach would be to build moderate cost housing so that the “trickle down” impact on the market can reach low- to middle-income families more rapidly.  Consequently, I will focus on techniques that are most applicable to moderate cost housing.

Some Caveats 

I will not, however, directly address the problem of housing the homeless or those households living in extreme poverty.  It is my opinion that neither the private sector nor local governments can effectively create long-term housing solutions for that segment of the population without significant financial assistance from either the state or federal level – and that is a topic for another post.

I am also not going to address the rehabilitation of the existing housing stock even though this is probably the most effective way to provide housing at a relatively modest cost.  Almost every major city has a large number of housing units that are slowly decaying into a blighted condition or are already so blighted that they need to be demolished.  Allowing houses to become so deteriorated that they must be torn down is a travesty that cities should do all they can to avoid.  Rehabbing an existing house can extend its useful life for decades and provide a safe and reasonably efficient dwelling at a cost that will almost certainly be well below the cost of building something new.  But again, I will save that topic for another post.

Finally, I am looking for ways to reduce the cost of residential construction but I am not going to advocate for housing that is inexpensive because it is badly built.  Durability and energy efficiency are sources of long-term value and should not be compromised in order to save a few thousand dollars on the initial sales price.  There is, however, a point of diminishing returns.  New code requirements for additional safety features or additional energy efficiencies should have their cost evaluated against the anticipated impact on the eventual residents before being adopted.  There are organizations, for example, who use climate change to argue for extreme energy efficiency requirements to the detriment of affordable housing production.

The Current Home Building Process

Like Levitt and Sons, there are large homebuilders that control the entire housing process from buying the land, to installing the basic infrastructure, to building the house, to marketing the final product.  However, it is more common, particularly in the midwest, for the process to be split between a variety of smaller businesses.  A Developer typically buys the land and oversees the creation of finished lots that are ready for a home.  The lots are typically sold to a Builder/General Contractor who oversees the construction of the home and its sale to the final owner.  Most of the work is actually done by a variety of Subcontractors who typically specialize in a portion of the construction process and might work for several different builders.

This diversified approach spreads the risk of a relatively cyclical market among all of the participants, each of whom can expand or contract as needed, or who can shift temporarily to another aspect of the construction industry during a housing downturn.  The end result is flexible and adaptable to shifts in housing demand.  Since each business entity is relatively small, the barriers to entry tend to be low which means that new players are frequently entering the market, and less efficient players go out of business or reform themselves to focus on a different niche.  This is particularly true for subcontractors who use relatively inexpensive tools and equipment, buy materials on an as needed basis, and frequently employ recent immigrants who are willing to work for relatively low wages.

The actual technique that is used for building virtually all new homes or apartments is known as wood frame construction.  The basic principles of this construction approach are widely understood, relatively easy to learn, and flexible enough to build anything from a modest cottage to an elaborate mansion.  The other major advantage of wood frame construction is that the resulting home can be easily expanded or remodeled.  In fact, if you were to visit the original Levittown today you would find few of the simple, 800-square-foot Cape Cods.  Most of the homes have additions or have been extensively remodeled so that the “tract housing look” is largely gone and current sale prices are typically between $500,000 and $750,000.

The Factory Approach

The fractured nature of the current approach, however, slows down the entire process and creates numerous inefficiencies.  In addition, on-site construction – which takes place in all kinds of weather – leads to less precision, wasted or damaged materials, and mistakes due to poor communication or coordination.  Most site-built homes are plagued with unintended gaps, door and window openings that aren’t quite the right size, nooks that are missing insulation, and walls that aren’t completely square. Caulk, shims and drywall cover a multitude of sins.  Consequently, there have been calls throughout the past 60 years for a more “modern,” assembly-line approach to home construction.  Surely, a vertically integrated and automated factory could create housing units that were both better and cheaper.

The most vigorous attempt to realize the potential of factory production was a 1969 HUD-funded program called Operation Breakthrough.  The intent was to transfer advanced manufacturing technology into an industry that was perceived to be resistant to change, and to push local and state governments into standardized building regulations that would make mass produced units easier to deploy.  The first phase was to select promising construction technologies.  A request for proposals was sent to nearly 5,000 companies across the U.S. and Canada.  Over 600 responses were received, and 22 were selected for prototype development.  Some of the selected companies were experienced builders such as Levitt Technology, a spinoff of Levitt and Sons, who proposed building “box modules assembled from plastic wall panels.”  Others were huge national manufacturers with advanced technology but little home building experience such as Alcoa, General Electric, Boise Cascade and Republic Steel.

Modular housing built as part of Operation Breakthrough

Operation Breakthrough was conceived and implemented during the height of the Apollo space program with the assumption that the processes behind that success could be applied to the housing industry.  The head of the program was Harold Finger, a former NASA administrator and literal rocket scientist.

The second phase was prototype construction at nine sites across the country.  Eventually, 2,800 units were built, but with 22 systems spread across a variety of locations none of the manufacturers could come anywhere close to the volume needed for the expected economies of scale.  Consequently, the process was heavily subsidized by the Federal government.  Prototype construction was completed by 1973 and while many of the participants started preparing for full scale production, others were disillusioned by the difficulties they encountered and either left the program or went bankrupt. 

The final phase was to build 25,000 federally subsidized units for the general public.  By 1976, 18,000 such units had been built through the program, and several thousand more units using Breakthrough designs were built outside the program.  Excitement for the program, however, quickly faded away.  Public response to housing made from mass produced modules was lukewarm at best and the hoped for cost savings proved elusive.  Only a handful of participants continued production after subsidies ended and none of the systems are in production today.  In the end, Operation Breakthrough did not produce any system that was clearly superior to conventional construction, although efforts to standardized local regulations did make substantial progress and are still providing benefits today. [2]

There are efficiencies to be gained by factory-built modular housing, but one of the key problems is that any large-scale manufacturing business is very capital intensive and involves hiring a large, permanent workforce.  That means that success depends on having a market that can absorb a steady stream of a very standardized product – something that the cyclical housing market prone to the changing whims of the public has a hard time guaranteeing.  In addition, the transportation of large housing modules is complicated and expensive, meaning that the necessary demand needs to be relatively close to the factory.

Still, the dream lives on and several high-tech startups such as Blokable and Factory_OS are trying to prove that factory-built modular housing is a viable solution for housing production.  For the most part, these companies are located in areas (such as California) where housing demand is enormous and prices are high.  Companies that focus on multi-family housing where repetitive unit designs are the norm and are located where demand is consistently high may indeed succeed.  It is also clear, however, that factory production of standardized modules is not the panacea that it was once thought to be.

The Humble Mobile Home

If any form of housing needs a good PR campaign it would be the mobile home – or as the industry strongly prefers, the manufactured home.  This form of housing is actually experiencing a bit of renewed popularity, primarily because of the expense of other options.  Total shipments have roughly doubled over the past 10 years to about 100,000 units annually.  However, this is still just a third or less of yearly shipments during much of the 1980s and 90s. [3]  There is a stigma attached to living in a manufactured home despite the fact that new units are safe, full of modern conveniences, and reasonably well-built.

Manufactured housing is, in fact, required to be mobile.  It is built on a frame (or chassis) which can be lifted onto a trailer or mounted with wheels so that it can be towed from place to place.  The reality, however, is that once a manufactured home is towed from the factory to its first occupied location it very rarely moves again.  Most units are affixed to a foundation and connected to utility lines such as water, sewer, gas and electricity in a manner not too dissimilar to a site built home.  There are, however, important distinctions.

First, manufactured homes are exempt from local building codes.  They are built to a code established by the federal Department of Housing and Urban Development in 1976, and updated periodically to keep up with modern building materials and practices.  This dramatically simplifies the process of building a standardized product and shipping it to any community.  It has led, unfortunately, to a perception of being distinctly inferior to site-built housing in terms of quality, which in turn has led to not-so-subtle forms of discrimination in terms of development approvals by local governments.  A more fair assessment would be that a manufactured home is roughly equivalent in quality and energy efficiency to a site-built starter home.

Source:  Clayton Homes

Second, manufactured homes have historically been placed on land that is leased from the owner of a “manufactured home community” even if the unit itself is typically owned by the occupant.  This practice goes back to the early assumption that the unit would be moved periodically from place to place, which meant that owning land was a hassle to be avoided.  Now that it has become clear that units rarely move, more manufactured homes are being placed on land owned by the occupant of the home.  Manufactured home communities are still prevalent, however, and they have a distinctive look and feel that is different from a standard subdivision.

Third, manufactured homes historically have not appreciated in value at the same rate as conventional homes, and can fall in value even if they are reasonably well maintained.  This has made traditional lenders reluctant to finance manufactured homes in the same way as conventional homes.  As the quality has improved and homes are increasingly placed on individually owned lots, this practice is beginning to change.  In many cases, federally insured loans are available through traditional mortgage lenders.

Finally, manufactured homes just look different from site built homes which has made the stigma difficult to shake.  They are built as long, skinny modules that are typically 14 to 16 feet wide and placed as either a single unit (800 to 1100 square feet in area) or as a “double wide” in which two units are joined side by side (1600 to 2500 square feet in area).  The roof line is much flatter than a typical site built home, and porches, decks and additions are often nonexistent or minimal.

Still, they are a reasonably affordable form of housing that should be more widely utilized than is currently the case.  Typical costs (before transportation, land purchase, and utility hook-ups) range from $80,000 to $200,000 depending upon size, interior finish quality, and customized features.  In communities where land costs are low, this means that a manufactured home might be $50,000 to $100,000 less expensive than a conventional site-built home of a similar size.

Manufactured Components

The final category of construction technology that has a reasonable shot at impacting housing cost and volume is the factory assembly of housing components, sometimes referred to as panelization.  This approach is already widely used for select components such as engineered floor joists, roof trusses, cabinets and countertops which are rarely built on-site and have simplified the traditional construction process.  There are some companies, however, which have taken this approach to the point where the entire structure (excluding the foundation), is built at a factory as floor, wall and roof panels, loaded onto flatbed trucks, and then assembled at the home site in a matter of a few days.

The end result is not a fully completed house.  Instead, it is the shell of a house that is structurally complete and sheathed on the outside surfaces so that it is reasonably weather resistant.  The work that still remains includes exterior siding and roofing, interior plumbing and electrical work, and final finishes such as drywall, cabinets, countertops, painting and more.  That work, however, can be done in an environment that is largely protected from the weather, and by the types of subcontractors that are already common in residential construction.

Source:  Davis Frame Company

Like factory built modular housing, panelized housing has the advantages of factory precision, an indoor working environment, and the ability to order materials in large quantities at discounted costs.  Home designs can be computer optimized for efficient use of materials, structural strength and energy conservation, and can be scaled from a small bungalow to an apartment building.  The end product can be delivered more rapidly, be of higher quality, and (at least in theory) be 10 to 20 percent less expensive.

Panelized housing is different from modular housing, however, in several important ways.  To begin with, the production factory can be significantly smaller in size and less elaborate in the degree of automation.  This means that capital costs are substantially less for the same volume of housing output.  Secondly, transportation is far less complicated and expensive because the product being moved is far less bulky and fragile.  At the construction site, unloading and placement can be done with a forklift or small crane versus the large cranes that are needed to unload and place housing modules.

Finally, because the finished surfaces and interior details are completed on-site in a largely conventional manner, the final product looks like a traditional house and can be more readily customized to the needs of the buyer.  This minimizes any stigma associated with “cookie cutter” factory production.


The bottom line is that there are construction techniques that can speed the production of housing and lower its cost compared with traditional construction practices.  There are not, however, any “magic bullets'' that will instantly solve the housing affordability crisis.  And despite the occasional media hoopla, 3-D printed homes, shipping container conversions, or similar trendy ideas will not revolutionize the housing production process any time soon.

Even the best of the construction techniques discussed in this article are likely to have only a modest impact on the final cost.  Modular housing can be effective particularly for multi-family projects in areas with high housing demand.  Manufactured homes can be a moderate cost solution in a variety of locations if government approvals can be obtained, but are probably best suited to small and mid-sized cities where land costs are low and conventional development expertise is focused on the high end of the market.  Panelized housing has the greatest potential impact but only where there is a market that can absorb a steady flow of housing units without significant interruptions.  

To really achieve significant cost savings, the construction techniques discussed here need to be paired with a dozen other small improvements in the way we design, approve, finance and own our country’s housing stock.  Big improvements will not be realized through a single dramatic change, but through numerous small adjustments made by virtually all of the players in the housing industry.  Check back next month for the final installment in the Housing Crisis series.


1. Emory University:  The Architect + The City; “Developing the American Dream: A Comparison of Levittown, New York and Celebration, Florida; Spring, 2018;

2. Brian Potter; “Operation Breakthrough:  America’s Failed Government Program to Industrialize Home Production”; Construction Physics; February 2021;

3. The Federal Reserve Bank of St. Louis; “Total Shipments of New Manufactured Homes;” January 2024;