How Can Housing Manage Much Needed Productivity Growth?

Housing is in desperate need for efficiencies in productivity. The labor issues and increasing demand are putting builders in a position to challenge themselves with new processes. This research says that many technological advances are not providing the payback anticipated.

Some economists see low business investment, poor skills, outdated infrastructure, or excessive regulation holding back potential growth. Others note wide disparities in productivity between leaders and laggards among industrial manufacturers. Still others question whether information technology is really so distinctively powerful.

But the explanation may lie deeper still. As we get richer, measured productivity may inevitably slow, and measured GDP per capita may tell us ever less about trends in human welfare.

Our standard mental model of productivity growth reflects the transition from agriculture to industry. We start with 100 farmers producing 100 units of food: technological progress enables 50 to produce the same amount, and the other 50 to move to factories that produce washing machines or cars or whatever. Overall productivity doubles, and can double again, as both agriculture and manufacturing become still more productive, with some workers then shifting to restaurants or health-care services. We assume an endlessly repeatable process.

But two other developments are possible. Suppose the more productive farmers have no desire for washing machines or cars, but instead employ the 50 surplus workers either as low-paid domestic servants or higher-paid artists, providing face-to-face and difficult-to-automate services. Then, as the late William Baumol, a professor at Princeton University, argued in 1966, overall productivity growth will slowly decline to zero, even if productivity growth within agriculture never slows.