The housing industry brings a lot of opportunity for labor, shelter and happiness to the US.
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The United States is currently waging a tariff war with China, a war that promises escalating costs to manufacturers and is now at a point that will be come at a cost to American consumers as well – one estimate by the Federal Reserve Bank of New York shows that the average US household will be paying an additional $831 annually due to the impending tariffs.
The tariffs are one lever that the government is using to invigorate domestic manufacturing, which would also stimulate the national job market. This just so happens to be something that housing is good at and something that housing has been doing for a long time. Not only does housing support local labor markets, it also is a major factor in stimulating local economies.
According to Metrostudy, a provider of primary and secondary market information to the residential construction industry, the Houston metroplex expects 40,968 housing starts in 2019. An April 2015 report from the National Association of Home Builders, “The Economic Impact of Home Building in a Typical Local Area,” says that the estimated one-year impact of building 100 single-family homes generates $28.7 million in local income, $3.6 million in taxes and other government revenue and 394 local jobs. So, the 40,968 housing starts in Houston would translate to $11.8 billion in local income, $1.5 billion in taxes and 161,414 jobs.
Metrostudy forecasts 33,779 starts for Dallas-Fort Worth-Arlington; 25,005 for Atlanta-Sandy Springs- Roswell; 23,350 for Phoenix-Mesa-Scottsdale; and 16,748 in Orlando-Kissimmee-Sanford; and these housing numbers don’t even meet the demand. But what is holding back the needed supply?
Imports
How does that compare to other industries? Daniel Workman, founder of World Top Exports, reports that last year the US imported $2.6 trillion in goods from around the world, which represents an 8.5% growth from 2017.
Of course you wouldn’t see housing on the list of imported products, but many of the products that go into housing fall into some of the categories. Yet the number of building products show up on the list of imports from China and the far East is very slight compared to the volume of automobiles, an industry reliant on foreign manufacturing.
“Most of what homes are made of is manufactured here in the United States, mostly because it’s too heavy to be shipped from other countries, like cabinets, cement, timber, drywall, roofing,” said Tim Costello, president and CEO, BDX and Builder Homesites, Inc.
Provia, a manufacturer of doors, windows, vinyl siding and manufactured stone products with a revenue of a quarter of a billion dollars, operates 100% of its manufacturing facilities in the U.S. “We buy some components from outside the U.S., but the vast majority of what we purchase is sourced from the U.S.,” says Joe Klink, director of corporate relations at Provia.
Whirlpool is another popular home product manufacturer with roughly $54 million in annual sales in the US alone. Renee Catania, head of shopper marketing at Whirlpool Corporation says that of the products that Whirlpool makes, more than 80% of those sold in the U.S. are assembled in the U.S. and the majority is manufactured in the US.
The following product groups represent America’s import purchases in 2018—machinery including computers is about 15%; electrical machinery and equipment is 14%; vehicles represent 12%; mineral fuels including oil 9%; pharmaceuticals 4.5%; optical, technical, medical apparatus 4%; furniture, bedding, lighting, signs, prefab buildings 3%.
At the same time, housing is very reliant on the imports of timber from Canada, which has its unique issues and is another source of increasing costs for home building.
Disrupt Regulation
Despite its role as a key driver in employment and economic activity, the housing industry is subject to extreme regulation – creating costs that are invisible to most consumers. As reported by the National Association of Home Builders, regulation accounts for more than 30 percent of the cost of a multifamily development and almost 25% of the cost of a typical new single family home is from regulation, which rounds to $85,000. As the US continues in a housing affordability crisis, finding a way to reduce some of this regulation might help with a solution.
All of the home building activity happens here and is regulated here, driving this number up year after year, to account for improvements in health solutions, sustainability, resiliency, and other factors like worker safety. If you don’t consider the extra layers of cost that regulation adds, it has very positive outcomes for housing and home owners.
In many other countries, where other industries are thriving, the work and the job sites are not regulated; the lower cost to consumers is the competitive edge. Despite much different working conditions, millions of cell phones are produced every year overseas creating a marketplace for much more disposable products that could only exist with access to this lower cost labor and non-regulated use of resources.
On home sites and in building product manufacturing facilities, there are environmental considerations here in the US that are not the same in other countries where so many products are being made. In housing, the regulation costs come in many forms, including in the soft costs of delays, zoning approvals, impact changes, land, permits, and hookup fees.
“Housing construction is running well below levels that would be expected given growth in housing demand, with the result that the residential sector’s contribution to GDP growth is well below its long-run average,” says Chris Herbert, Managing Director, Harvard Joint Center for Housing Studies. “Reducing regulatory barriers would provide a needed boost to both housing supply and overall economic growth.”
The big question here is how can we get to a point that these regulations are a positive to both the livability of the home and to the final cost of the home?
Innovation and Disruption
Not only is the practice of offshoring damaging the economy and labor market, it also damages innovation. Professors Gary Pisano and Willy Shih at the Harvard Business School have studied the impact and show that not only will offshoring impact a company’s ability to innovate, but it will impact the country’s ability as well. When sourcing product goes overseas, so does the design and the critical thinking behind it, leaving nothing here in the US to be a center for growth and advancement.
“Not only does that mean companies’ intellectual property goes abroad, but a foreign government actively collects it in order to give its own state-subsidized industries an upper hand,” says Jesus Espinoza, press secretary at the Alliance for American Manufacturing. “Competition takes a direct hit.”
Maybe what needs to be disrupted is consumer mentality. Housing is built here, creates labor here and is regulated here. With all of those factors aligned, it should be something that is a strong part of the future health of the country. Where will it be in terms of the 2020 ballot, when much of the US is suffering from an affordable housing crisis that threatens to separate social classes and create more political division?
Do you want to say anything about Elizabeth Warren, Kamala Harris and Cory Booker’s housing proposals? https://www.dataforprogress.org/blog/housing