Odd Lots Podcast Summary
Episode Title: Why It's Still So Expensive to Build Homes in America
Host(s): Joe Weisenthal & Tracy Alloway
Guest: Brian Potter (Author of the Construction Physics newsletter & "The Origins of Efficiency")
Release Date: October 27, 2025
Episode Overview
This episode explores the persistent and increasing cost of building homes in America, focusing on why housing construction has not become significantly more efficient or affordable over the decades—unlike almost every other area of manufacturing. Joe and Tracy are joined by Brian Potter, a structural engineer and industry commentator, who offers comprehensive insight into the underlying causes, the history, and the limits of innovation in housing construction.
Key Discussion Points & Insights
1. Construction Productivity Stagnation
- Observation: Housing construction labor productivity in the US has fallen by over 30% from 1970 to 2020 ([03:41]).
- Contrast: Most manufactured goods get cheaper and more efficient to produce over time; housing does not follow this trend.
- "Almost every sort of other physical good has gotten cheaper and less expensive to make over time. Housing is not like that at all."
— Brian Potter [06:11]
- "Almost every sort of other physical good has gotten cheaper and less expensive to make over time. Housing is not like that at all."
2. The Low-Tech Reality of Building
- Tracy and Joe reflect on personal experiences as homeowners, surprised by the persistent use of old-fashioned, manual construction methods ([02:48]).
- The basic process of putting up houses—and even repairs—remains largely unchanged over decades.
3. Attempts at Innovation: The Prefab Dream
- Historical cycles: Repeated attempts to revolutionize homebuilding with prefab and modular construction (e.g., Sears catalog homes, Lustron, Sterling Homex), all ultimately failing to "be the Henry Ford of housing" ([10:13], [11:16]).
- Modern failures: Brian shares his experience with Katerra, a well-funded prefab startup that collapsed despite raising billions ([06:41], [08:02]).
4. Why Is Housing So Hard to Standardize?
- Fragmented Requirements: 20,000 different US jurisdictions with their own building codes ([08:42]).
- Site-Specific Variables: Soil, lot shape, wind, environmental risks (earthquake, hurricane), local regulation—all make standardization and mass production difficult.
- Customization Dominates: Even large homebuilders only manage partial standardization.
5. Limits of Prefab and Factory Building
- Logistics Problem: Buildings cannot roll out of a factory like cars; they must be modular, which adds cost due to the logistics of transport and on-site assembly ([13:11]).
- Economies of Scale Are Elusive: High transport costs restrict factory's catchment areas (~1 day’s drive), preventing the gigafactory model—"the economies of scale that you can capture in like a given operation are just fairly limited"
— Brian Potter [20:59] - Risk Aversion: Construction projects have skewed risk: massive overruns are possible, but cost savings are capped ([17:33]). This discourages unproven methods.
6. Comparison to Other Industries
- Optimal Manufacturing Processes: Chemical manufacturing with continuous flow is the opposite of housing (fully standardized, uninterrupted processes) ([21:23]).
- Aircraft & Advanced Manufacturing: Only a handful of firms can successfully build aircraft—highlighting how specialization, skill concentration, and sustained investment matter ([27:57], [34:19]).
7. Economic and Labor Market Shifts
- Talent Drain: Skilled engineers and ambitious talent are incentivized to work in finance or tech for higher rewards, diluting quality and innovation in "traditional" industries ([33:08]).
- "If you're smart enough to be a structural engineer, you're smart enough to, you know, switch to like software development and make a lot more money and have a much less stressful job."
— Brian Potter [33:08]
- "If you're smart enough to be a structural engineer, you're smart enough to, you know, switch to like software development and make a lot more money and have a much less stressful job."
8. Material Choices: Why Wood in America?
- Abundant Supply: The US's huge historic timber reserves made wood-framing dominant; other regions had less wood and developed with stone or concrete ([43:09]).
- Persistence in Other Regions: Timber framing is still used where forests are plentiful (Canada, Nordic countries).
9. Barriers to Efficiency Gains in Construction
- Few Paths for Disruption: Unlike other industries, construction cannot easily:
- Gain economies of scale
- Swap in new materials/technologies without huge risk/cost increase
- Squeeze more efficiency from already cheap/baseline construction materials ([41:12])
- Regulatory and Physical Constraints: Zoning, local code, logistics and geography enforce fragmentation and inefficient practices.
10. Future of Housing Construction
- Is There Hope for Prefab? Not entirely bleak; much would depend on a credible, explicit thesis for "what's different this time" (e.g., breakthrough automation or material change) ([44:18]).
- "If you have, like, a robot that costs $5,000 and, like, basically duplicates 90, 95% of what a person can do, that would effectively solve your problem."
— Brian Potter [45:33]
- "If you have, like, a robot that costs $5,000 and, like, basically duplicates 90, 95% of what a person can do, that would effectively solve your problem."
- Potential of Automation: Robotics could be the "magic bullet" if costs become competitive.
Notable Quotes & Memorable Moments
-
On the false promise of prefab:
"Every decade or two, you will kind of see these trends like some big company will come along, like, oh, I'm going to revolutionize the housing industry... And over and over again... people are trying to use prefab to dramatically reduce the cost of construction. Nobody has managed to be the Henry Ford of housing."
— Brian Potter [10:13 – 12:04] -
On risk aversion in construction:
"The risk involved in introducing some new system that you're not sure really how it works... it's so much more likely to cause a massive overrun than to save a relatively small amount."
— Brian Potter [17:33] -
On the limitations of scale:
"It's not like a semiconductor where you can make a million in a factory and ship them all over the world... the cost of moving [housing modules] is so large that it’s typically not economic to ship it more than a day's drive."
— Brian Potter [19:15 – 20:59] -
On engineers shifting fields:
"If you're smart enough to be a structural engineer, you're smart enough to switch to like software development and make a lot more money and have a much less stressful job."
— Brian Potter [33:08] -
On what could change the industry:
"I'm not completely pessimistic... but you need a strong thesis as to what this time is different."
— Brian Potter [44:18]
Important Segment Timestamps
- [02:48] – Discussion on the stubbornly manual nature of home construction
- [03:41] – Fed paper: productivity in homebuilding down 30%
- [06:41] – Brian’s background in prefab, Katerra’s story
- [08:42] – Why housing is hard to standardize (codes, soils, regulation)
- [10:13–12:04] – The endless cycle of prefab optimism and disappointment
- [13:11] – Why modular/prefab isn’t a panacea
- [17:33] – Explaining risk aversion and project overruns in construction
- [19:15] – Limits of scale and logistics in prefab/ modular
- [33:08] – Brain drain: Talented engineers moving to tech/finance
- [41:12] – Why generic building methods don’t get more efficient
- [43:09] – Why the US builds with wood, not concrete/stone
- [44:18] – Will prefab or automation ever win?
- [45:33] – The potential of cheap robotics to transform homebuilding
Summary & Takeaways
- Housing construction is stubbornly resistant to the productivity gains seen elsewhere.
- Attempts at prefab/modular construction have failed repeatedly due to regulatory, logistical, and economic barriers.
- Fragmentation, high risk of overruns, lack of standardization, and talent shortages all contribute to stagnant efficiency.
- Major advances may require disruptive innovation (e.g., cheap and capable robotics) or seismic shifts in logistics/materials—none of which are guaranteed.
- Until then, building homes will likely remain “shockingly low-tech”—and expensive—despite our modern era.
If you care about how and why things still literally get built the hard way in America, this wide-ranging, accessible conversation is a must-listen for anyone interested in economics, urban policy, and the realities of innovation.