Very often builders and developers are slowed down by local or regional jurisdictions on the path to create more housing. Or, suffer from additional costs implemented by these entities. What if there was more collaboration? Or even more standards created that improved transparency and therefore productivity?
America’s cities have a problem: There isn’t enough affordably priced housing to go around. Today, city leaders and home-seekers alike are frequently left wondering why builders won’t simply build more housing that is affordable to a wider range of incomes, particularly middle- and lower- income households.
For starters, the math doesn’t work. Private developers face an insurmountable gap between the cost of producing new housing and the amount that American households can afford to pay to buy or rent. Many affordable housing options don’t get built as a result. Cites are doing much to help close this gap through financing mechanisms, policy tools and incentives — but further steps need to be taken to help families better access safe, quality homes.
Now, rather than increasing subsidies, some city leaders are looking at ways to bring the cost of constructing housing down.
The high cost of housing construction is due in part to a persistently low rate of productivity growth within the sector. In economic terms, productivity is a measure of the quantity of output generated for every unit of input. In the global economy, the productivity growth of the construction sector has been outpaced by the manufacturing and retail sectors by rates of nearly 4-to-1 and 3-to-1, respectively.
In Reinventing Construction: A route to higher productivity, the McKinsey Global Institute (MGI) reveals that a whopping $1.6 trillion of economic value is being lost by the global construction sector — one third of which is forgone by U.S. firms alone. Firms with the lowest levels of productivity tend to be some of the industry’s smallest participants who work as trade-based subcontractors on housing and other projects, and struggle with issues of scale and a lack of resources that larger firms may have overcome.
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