Landmark Links June 26th – One Stop Shop


Lead Story….  A couple of weeks ago, I posted an article from the NY Times about prefabricated home construction and how soaring construction costs are leading to substantial new investments in the space.  I want to revisit that article written by Conor Dougherty today because it contains one of the best descriptions of the inefficient mess that is the development industry that I’ve seen.  Via The New York Times (emphasis mine):

The global construction industry is a $10 trillion behemoth whose structures determine where people live, how they get to work and what cities look like. It is also one of the world’s least efficient businesses. The construction productivity rate — how much building workers do for each hour of labor they put in — has been flat since 1945, according to the McKinsey Global Institute. Over that period, sectors like agriculture, manufacturing and retail saw their productivity rates surge by as much as 1,500 percent. In other words, while the rest of the economy has been supercharged by machines, computers and robots, construction companies are about as efficient as they were in World War II.

To understand this, consider how buildings are actually built. It all starts with the developer, who doesn’t actually build anything but instead secures a piece of land and a loan, and gets the project approved by the government. At that point the money is passed to the general contractor that made a successful bid to build the project, who passes it to subcontractors that won the bidding for things like plumbing and sheet metal work, which often pass it to even more subcontractors.

Contractors describe this handoff as “brokering risk.” What they mean is that while everyone in the chain has agreed to build a certain piece of the project for a set amount of money and in a given amount of time, none of them are sure they can do so as cheaply or quickly as they’ve promised. They broker that risk by paying someone else to do it for them, minus a small fee.

“Say you’re a general contractor and your subcontractor agrees to do a job. Once we have a contract I don’t care how many man hours you put into it because that’s your problem now,” said Randy Miller, chief executive of RAD Urban, describing the thinking behind the process.

The goal of prefabricated building companies is to turn this model on its head. Instead of offloading risk, the contractor assumes all of it. Instead of sending jobs to subcontractors, they hire their own factory workers. “The general contractor says, ‘Oh my God, construction is scary, let me broker all that risk,’” Mr. Miller said. “I’m saying, ‘Oh my God, construction is scary, let me plan and control it.”

The final paragraph in that quote is why prefabricated construction could hold the key to productivity and bringing housing costs down.  By introducing an assembly line in a controlled environment and relying on specialized employees rather than subcontractors, builders of homes can greatly streamline the process.  However, there are also some problems in large scale implementation somewhat unique to the United States. More from the NY Times (emphasis mine):

One reason the United States has lagged behind Europe, Australia and Asia — which all have well-established companies doing modular and prefabricated building — is that it is a predominantly suburban nation, and the vast supply of open land has kept the cost of single-family-home building relatively low. Another is that the construction industry has slim profit margins and invests little in research and development.

The chances of being burned are high, and each high-profile failure leads to a furlough of the concept. In the mid-2000s housing boom, Pulte Homes, one of the country’s largest builders, opened a prefabrication plant that aimed to revolutionize how homes were built. The company closed it with the onset of the housing bust in 2007.

Indeed, these challenges aren’t going away anytime soon.  While suburban housing cooled in the wake of the Great Recession, it has picked up again.  In addition, new technologies like driver-less cars will mitigate some of the pain of long commutes, opening up more outlying areas to development in the coming years.  Builders of prefabricated homes also have to contend with building codes that can differ substantially by municipality which is not an issue for traditional construction but is potentially catastrophic in a situation where an entire factory would need to be re-configured.  I suspect that this is the sort of thing that will need to be dealt with at the legislative level in order to achieve some level of efficient uniformity.  However, the amount of money being invested in the space by large players with deep pockets indicates that it will likely have staying power, which is much needed in a sector as stuck-in-the past as the development industry.


In the Wrong Direction: Retiring Baby Boomers are pushing the the ratio of retiree-aged adults to those of working age -also known as the old-age dependency ratio – to unprecedented high levels.  This will have a massive impact on entitlements like Social Security and will likely sharpen the national debate on the role of immigration in the workforce.

Finger on the Scale: The $3.2 trillion corporate pension industry has been buying up long-dated treasuries, in part due to a tax loophole that expires in September.  There is a very reasonable case to be made that this is causing demand to pull forward and leading to a flatter yield curve.  I guess we’ll find out this fall…

Falling Behind: American Millennials are worse off financially than the generations preceding them in just about every way possible.  See Also:53% of Millennials expect to  become millionaires. Who wants to break the bad news to them?

Smooth Sailing: Strong financial indicators such as manufacturing activity, housing starts and jobless claims indicate that a recession is highly unlikely in the next 12 months absent an “extraordinary set of events outside of the typical business cycle dynamics.”


Stacked: Demand for same-day delivery in dense urban markets could lead to the development of a new sub-asset class – multi-story distribution facilities.

The Tax Man Cometh: In a major victory for brick and mortar retail, the Supreme Court ruled that online retailers can be required to collect sales taxes in states where they have no physical presence.


I Hate Headlines Like This: The Wall Street Journal published an article last week entitled Why Home Prices Have Nowhere to Go But Up.  While the author makes good points and the methodology is solid, statements like this in main stream publications tend to embolden people to bid up assets above their reasonable value.

Spreading Out: Why self-driving cars will lead to more sprawling suburbs by unlocking new regions to housing development.

Bottoming Out?  There is growing evidence that housing inventory may have bottomed out in the US as several key markets have seen YOY positive change, albeit from historically low levels.


Jackpot: How a Chinese lens manufacturer created an entire town – including cooks, and janitors – of millionaires.

Three Card Monty: Banks may be using repos to make their debt ratios appear lower for regulators just like they did in the bad old days of Lehman.

Occupied: From Uber to scooters to tunnels and even Dominoes Pizza fixing potholes – how tech companies conquered America’s cities.

Chart of the Day


Source:Joint Center for Housing Studies of Harvard University


Down for the Count: A fan nearly got a concussion and had to undergo a CT scan when a hot dog, launched out of a cannon by the Philly Phanatic hit her in the face because Philadelphia.  (h/t Chris Gomez-Ortigoza)

Always the Ones You Least Suspect:  A man with a large gun tattooed on his forehead was arrested for possession of a firearm (and it shockingly didn’t happen in Florida).

Homesick: A man broke into his old apartment and threatened to kill the new residents before stealing a pulled pork sandwich from the refrigerator and fleeing the scene because Florida.

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