13. Construction
"We used to build things in this country."
Construction is the great American productivity puzzle. While manufacturing productivity has doubled, retail has been transformed by logistics and technology, and agriculture has achieved miracles of output per worker, construction has gone backwards. A house takes longer to build today than it did in 1970. A highway costs more per mile in real terms. The sector that literally builds America has somehow forgotten how to get better at building.
This is not a statistical artifact. Goolsbee and Syverson (2023) systematically tested whether the productivity decline was measurement error and rejected the hypothesis. Construction really has become less efficient, even as every other major industry has improved. Understanding why—fragmentation, regulation, the inherent challenges of project-based production—is essential to understanding why housing is expensive, why infrastructure takes so long, and why the industrial policy ambitions of the CHIPS Act and Inflation Reduction Act face serious execution risk.
Overview
Size and Scope
GDP Contribution: $1.3 trillion (4.5% of GDP)
Gross Output: $2.2 trillion annually (including intermediate inputs)
Employment: 8.3 million workers
Establishments: 800,000 firms, the vast majority with fewer than 10 employees
Value Put in Place: $2.1 trillion annually in new construction (2024)
Construction is both cyclical and foundational. It builds the physical infrastructure of the economy—houses, offices, factories, roads, bridges, power plants—but its activity swings wildly with interest rates, credit availability, and economic confidence. In recessions, construction employment can fall 20-30%; in booms, labor shortages become acute within months.
Key Subsectors:
Residential: Single-family homes, multifamily apartments, renovations (40% of total construction spending)
Commercial: Offices, retail, hotels, healthcare facilities, data centers
Heavy Civil/Infrastructure: Highways, bridges, airports, water systems, public transit
Industrial: Manufacturing plants, refineries, power generation facilities
Each subsector operates differently. Residential is fragmented and local; heavy civil is dominated by a handful of giant engineering firms; industrial construction often involves specialized expertise (petrochemical, semiconductor fabs) concentrated in specific geographies.
How the Industry Works
Construction is fundamentally different from manufacturing. You cannot build inventory. Each project is unique, produced at a specific site, subject to weather, local regulations, and the idiosyncrasies of the land. This project-based nature makes standardization difficult and scale economies elusive.
The Project Lifecycle
Design: Architects and engineers create plans. This phase can take months for a house, years for a hospital or highway.
Bidding: Most commercial and public projects use competitive bidding. General contractors submit proposals based on plans; the lowest responsible bidder typically wins. This creates pressure to underestimate costs, leading to change orders and disputes later.
Delivery Methods:
Design-Bid-Build (DBB): Traditional model. Design is completed, then contractors bid. Clear separation of responsibility, but slow and adversarial.
Design-Build (DB): One entity handles both design and construction. Faster, but owner loses some control.
Construction Manager at Risk (CMAR): A hybrid. CM provides input during design and guarantees a maximum price.
Construction: General contractors (GCs) manage the site but typically self-perform only 10-30% of the work. Everything else flows to specialty subcontractors: electrical, plumbing, HVAC, concrete, steel, drywall, roofing. A major commercial project might have 50+ subcontractors.
Payment Chains: Money flows down a long chain: Owner pays GC, GC pays subs, subs pay their suppliers and workers. Payment delays are endemic—60, 90, even 120 days is common. Mechanic's lien laws give unpaid contractors claims against the property, but collecting is difficult. Cash flow kills more contractors than lack of work.
Bonding and Insurance
Public and major commercial projects require surety bonds:
Bid Bonds: Guarantee the contractor will honor their bid
Performance Bonds: Guarantee the work will be completed
Payment Bonds: Guarantee subcontractors and suppliers will be paid
Bonding capacity is a major barrier to entry. A contractor can only take on projects up to their bonded limit, which depends on their financial strength and track record. This limits competition on large projects to established firms.
Cyclicality
Construction is among the most cyclical sectors in the economy:
Interest Rate Sensitivity: Residential construction is directly tied to mortgage rates. When rates rise, housing starts collapse.
Credit Dependence: Developers finance projects with construction loans. When credit tightens, projects don't start.
Lag Effects: Projects take 1-3 years to complete. Activity today reflects decisions made years ago.
The 2008-2009 crash saw construction employment fall from 7.7 million to 5.4 million—a 30% decline. Recovery took a decade.
Industry Structure
The Construction Productivity Puzzle
Construction is the only major sector where productivity has declined since 1970, even as manufacturing productivity doubled. Goolsbee and Syverson (2023) documented this finding and rejected measurement error as an explanation.
The Productivity Puzzle
Goolsbee and Syverson systematically tested potential explanations for this decline:
Measurement Error: Rejected. Using multiple data sources and methodologies, the decline persists.
Quality Improvements: Buildings are better (more code requirements, energy efficiency), but not enough to explain the decline.
Input Shifts: The industry has shifted toward more intermediate inputs relative to labor, yet efficiency has dropped.
Why has this happened?
D'Amico, Glaeser, et al. (2024) point to regulation and fragmentation:
Land-use regulations limit project sizes, preventing economies of scale
If homebuilding firms had manufacturing's size distribution, productivity could be 60% higher
Small, fragmented firms cannot invest in technology, training, or process improvement
Regional misallocation: construction activity has not shifted to high-productivity regions, suggesting regulatory frictions prevent efficient sorting
Allen (1985) identified another factor: de-skilling. The shift from large-scale commercial projects (built by skilled union crews) to smaller residential work (built by less-skilled labor) reduced average productivity. The workforce became less capable even as buildings became more complex.
Market Structure
General Contracting: Extraordinarily fragmented. Of the 800,000 construction firms in America, most are tiny. The median construction company has fewer than 5 employees. Entry barriers are low (a truck, some tools, a contractor's license), and failure rates are high.
Homebuilding: Consolidating. The top 10 builders now control 45% of new home sales, up from 27% two decades ago. Large public builders (D.R. Horton, Lennar, PulteGroup) achieved scale through land acquisition, standardization, and vertical integration. They operate more like manufacturers than traditional builders.
Heavy Civil/Engineering: More concentrated. Megaprojects (airports, transit systems, LNG terminals) require capabilities that few firms possess: bonding capacity in the billions, specialized engineering talent, multi-year project management experience. A handful of firms dominate this space.
Major Players
Engineering and Heavy Civil
Bechtel
$18B
Energy, infrastructure, defense (private, family-owned)
Fluor
$15B
Energy, chemicals, mining (public)
Kiewit
$15B
Transportation infrastructure (employee-owned)
Jacobs
$16B
Buildings, infrastructure, advanced facilities (public)
AECOM
$14B
Design and construction management
Source: Engineering News-Record Top 400 Contractors, 2024
Commercial Building
Turner Construction
$16B
Commercial, healthcare, data centers (German-owned via Hochtief/ACS)
Whiting-Turner
$10B
Commercial, institutional
Skanska USA
$8B
Commercial, infrastructure (Swedish parent)
Clark Construction
$6B
Government, commercial
Source: Engineering News-Record Top 400 Contractors, 2024
Homebuilders
D.R. Horton
$35B
90,000
Lennar
$34B
73,000
PulteGroup
$16B
28,000
NVR
$10B
24,000
Toll Brothers
$10B
10,000
Source: Company 10-K filings; Engineering News-Record Top 400 Contractors, 2024
Note that the largest American engineering contractors (Bechtel, Fluor, Kiewit) are essentially engineering firms that happen to build, while the largest commercial builders (Turner, Whiting-Turner) are project management operations that coordinate subcontractors. Neither model achieves the vertical integration that characterizes large homebuilders like D.R. Horton or global construction giants. This fragmentation reflects the industry's project-based nature: each job is custom, making standardization difficult.
International Giants: Global construction is increasingly dominated by European and Asian firms with scale American companies cannot match. VINCI (France, $70B revenue), Grupo ACS (Spain, $45B, owns Turner and Hochtief), and Bouygues (France, $45B) operate worldwide. Chinese state-owned enterprises (China State Construction, China Railway) are the world's largest but focus on Asia and Africa. The American absence from the global top tier reflects the domestic industry's fragmentation—no U.S. firm has achieved the scale or international reach of these foreign giants.
Geographic Distribution
The Sunbelt Boom
Construction activity has shifted dramatically toward the South and West:
Texas: Dallas-Fort Worth and Houston are the nation's top markets for housing starts, industrial construction, and commercial development
Florida: Tampa, Orlando, Jacksonville lead population-driven residential construction
Arizona: Phoenix metro has seen explosive growth in both housing and industrial (semiconductor fabs)
Tennessee: Nashville has emerged as a corporate relocation destination
This geographic concentration reflects population migration, business-friendly regulatory environments, lower land costs, and available labor. It also creates severe local labor shortages when multiple large projects compete for workers.
Coastal Constraints
In contrast, construction in coastal metros (San Francisco, Los Angeles, New York, Boston) faces severe constraints:
Permitting and environmental review can add years to project timelines
Land costs are prohibitive, requiring higher-density projects that are more complex to build
Union labor requirements raise costs (but also quality and safety)
NIMBYism delays or kills projects entirely
The result: housing construction in high-demand coastal cities is a fraction of what market prices would suggest is needed.
Specialty Clusters
Certain geographies have developed specialized construction expertise:
Houston: Petrochemical and energy facility construction (refineries, LNG terminals)
Las Vegas: Gaming and hospitality construction
Silicon Valley/Phoenix: Semiconductor fab construction
Nuclear Regions: A handful of firms with nuclear construction expertise concentrate where plants exist or are planned
The Workforce
Employment Profile
Construction employs 8.3 million workers, 5.5% of total US employment. The workforce is distinctive:
Demographics: 97% male (one of the most gender-skewed major industries); median age rising steadily
Education: Most workers have high school education or less; formal credentials matter less than experience and skill
Immigrant Labor: Approximately 30% of construction workers are foreign-born, rising to 50%+ in specific trades (drywall, roofing, concrete) in states like Texas and California
Unionization
Union density varies dramatically by geography and subsector:
National Rate: 10.3% (2024)
High-Union Markets: New York City, Chicago, Boston, San Francisco—building trades unions (IBEW, Carpenters, Laborers, Ironworkers) dominate commercial construction
Low-Union Markets: Texas, Florida, Arizona—residential and much commercial construction is "open shop"
Union projects typically have higher wages, better safety records, and more formal training (apprenticeships). They also have higher costs, which is why developers often choose non-union contractors where possible.
The Labor Crisis
The industry faces a structural labor shortage:
Aging Workforce: For every 4 workers retiring, only 1 enters the trades
Image Problem: Decades of "college for everyone" messaging stigmatized skilled trades
Immigration Policy: Restrictions have tightened labor supply precisely when demand is surging
Competition: Warehouse and logistics jobs (Amazon fulfillment centers) offer comparable pay with climate-controlled environments
The Associated General Contractors estimates the industry needs 500,000+ additional workers to meet current demand. The gap is growing.
Wages and Safety
Wages vary enormously by trade and geography:
Laborers: $18-25/hour
Carpenters: $22-35/hour
Electricians: $28-45/hour
Ironworkers: $30-50/hour
Union Premium: Union workers earn 20-30% more than non-union in comparable roles
Safety: Construction is one of the most dangerous industries. Falls are the leading cause of death, followed by struck-by incidents, electrocution, and caught-between accidents (the "Fatal Four"). OSHA heavily regulates the industry, but enforcement is challenging given the number of worksites and the prevalence of small firms and subcontracting.
Regulation and Policy
Building Codes
The International Building Code (IBC) and related codes (plumbing, electrical, mechanical, fire) provide a baseline national standard, but adoption and enforcement are local. States adopt the IBC with modifications; local jurisdictions add their own requirements. The result is a patchwork: what's permissible in Houston may be prohibited in San Francisco.
Code updates (typically every 3 years) ratchet requirements upward—more energy efficiency, seismic resilience, fire safety, accessibility. Each requirement adds cost. Builders argue codes have become excessive; safety advocates argue they save lives and reduce long-term costs.
Permitting
Permitting is a local function with enormous variation:
Fast Markets: Some Texas and Florida jurisdictions issue permits in days
Slow Markets: California projects can spend years in permitting and environmental review
Discretionary Review: Beyond code compliance, many jurisdictions require neighborhood approval, design review, or other discretionary processes that add time and uncertainty
CEQA (California Environmental Quality Act) is the poster child for regulatory delay. Intended to protect the environment, it has become a tool for project opponents to delay or kill development through litigation.
Labor Regulation
Davis-Bacon Act (1931): Requires "prevailing wages" (typically union scale) on federal construction projects over $2,000. Raises costs but supports union labor.
State Prevailing Wage Laws: Many states have similar requirements for state-funded projects
Occupational Licensing: Contractor licensing requirements vary by state, from minimal (Texas) to extensive (California)
Zoning
Land-use regulation, covered in Chapter 5, is the dominant constraint on residential construction. Zoning determines what can be built where, and restrictive zoning in high-demand areas has created the housing affordability crisis.
Trade Associations and Lobbying
Major Associations
Associated General Contractors (AGC)
27,000+ firms
General contractors; infrastructure, commercial
National Association of Home Builders (NAHB)
140,000+ members
Residential builders; housing policy
Associated Builders and Contractors (ABC)
23,000+ members
Open-shop/merit-shop contractors
North America's Building Trades Unions (NABTU)
3 million workers
Union labor; prevailing wage, apprenticeship
Political Dynamics
The industry is politically divided:
NAHB: Focuses on housing affordability, land-use deregulation, immigration (labor supply), lumber tariffs
AGC: Infrastructure spending, workforce development, regulatory streamlining
ABC: Opposes prevailing wage requirements and project labor agreements; promotes "merit shop" (non-union) construction
Building Trades: Defends prevailing wage, promotes apprenticeship programs, supports project labor agreements on public work
Infrastructure spending attracts bipartisan support---everyone likes ribbon-cuttings on bridges. Housing policy is more contentious, with builders seeking deregulation while labor and community groups resist.
The mechanisms of influence are concrete. The AGC and NAHB lobby aggressively on building code adoption cycles, because codes directly determine materials, labor requirements, and construction costs. When the International Code Council updates energy efficiency standards every three years, NAHB routinely opposes stricter requirements, arguing that each incremental energy code mandate adds $8,000--$15,000 to the cost of a new home. This creates a persistent tension: stricter energy codes reduce long-term operating costs and carbon emissions, but raise upfront prices that worsen housing affordability---and the homebuilders' lobby ensures that affordability arguments carry weight in state legislatures deciding whether to adopt updated codes.
The Davis-Bacon Act is another focal point. ABC, representing non-union "merit shop" contractors, has spent decades lobbying to repeal or narrow prevailing wage requirements, which effectively mandate union-scale wages on federal projects. The building trades unions counter with equal intensity, defending Davis-Bacon as the floor that prevents a race to the bottom. The practical effect is that federal construction costs run 10--20% higher than comparable private projects, a premium that ABC frames as waste and NABTU frames as fair compensation.
Immigration policy may be the industry's most consequential lobbying arena. With 30% of construction workers foreign-born---and over 50% in trades like drywall and roofing in Texas and California---the industry's labor supply depends on immigration flows. Both the AGC and NAHB have lobbied for expanded visa programs and against aggressive enforcement measures, creating an unusual dynamic where a politically conservative industry quietly advocates for more permissive immigration policy because its workforce depends on it.
Recent Trends
1. The Manufacturing Supercycle
Construction spending on manufacturing facilities has tripled since 2021, driven by industrial policy:
CHIPS Act: $52 billion in subsidies for domestic semiconductor production has triggered massive fab construction
Intel's Ohio fab: $20 billion project, 7,000 construction workers at peak
TSMC's Arizona fabs: $40 billion commitment
Samsung's Texas fab: $17 billion
Micron's New York fab: $100 billion over 20 years
Inflation Reduction Act: Clean energy subsidies driving battery plant and EV factory construction
Battery plants across Georgia, Tennessee, Kentucky, Michigan
Solar and wind manufacturing facilities
This manufacturing construction boom is unprecedented in a generation. It is also straining labor markets—workers are being pulled from housing construction, exacerbating affordability problems.
2. Infrastructure Investment (IIJA)
The Infrastructure Investment and Jobs Act (2021) committed $1.2 trillion over five years to:
Highways and bridges
Public transit
Passenger and freight rail
Airports
Water infrastructure
Broadband
Federal infrastructure dollars are now flowing at double-digit growth rates. Competition for heavy civil labor, equipment, and materials has intensified. Project costs are rising in part because everyone is building at once.
3. Cost Volatility
Construction costs have been exceptionally volatile:
Lumber: Spiked 300%+ during COVID-19 pandemic (supply chain disruptions, DIY demand), then collapsed, now stabilized
Steel: Tariffs and supply chain issues created price spikes
Electrical Equipment: Switchgear and transformers have 18-24 month lead times due to data center demand
Concrete: Steady price increases, regional shortages
Labor: Wage inflation of 5-8% annually in hot markets
The "time to build" has increased significantly. Lead times for materials that used to take weeks now take months or years. Projects that might have broken ground immediately now wait for equipment.
4. Modular and Prefabrication
Off-site construction—building components in factories and assembling on-site—promises to address productivity problems:
McKinsey estimates modular construction can reduce timelines by 50% and costs by 20%
Factory-controlled environments improve quality and reduce weather delays
Prefab is common in other countries (Sweden, Japan) but rare in the US
Barriers:
Building codes written for site-built construction
Financing: Lenders don't understand modular economics
Transportation: Modules must fit on trucks
Labor: Unions resist shifting work from jobsites to factories
Katerra Failure (2021): The most ambitious modular construction startup raised $2 billion and collapsed, demonstrating how difficult disruption is in this industry
5. Technology Adoption
Construction technology ("ConTech") investment has surged, but adoption remains slow:
BIM (Building Information Modeling): 3D digital models are now standard on large projects
Drones: Used for site surveys and progress monitoring
Robotics: Experimental bricklaying, rebar-tying, and concrete-pouring robots exist but are not widely deployed
Prefabrication: Growing but still a small share of total construction
Software: Project management, estimating, and scheduling software is improving but fragmented
The fundamental challenge is that each project is unique, making automation harder than in manufacturing.
Firm Profiles
Bechtel
Quick Facts
Headquarters: Reston, VA
Ownership: Private, family-controlled since 1898
Revenue: $18 billion
Employees: 55,000
Bechtel is America's megaproject builder—the firm you call when the job is too big, too complex, or too strategically important for anyone else. The company built Hoover Dam, the San Francisco Bay Area's BART system, the Channel Tunnel (with partners), Boston's Big Dig, and countless refineries, power plants, and LNG terminals.
Family-controlled for five generations, Bechtel operates with a long-term orientation that public companies cannot match. It takes on projects others won't touch: nuclear cleanup at Hanford, post-war reconstruction in Iraq, infrastructure in developing countries where political risk is extreme.
The culture is conservative and engineering-driven. Bechtel doesn't seek publicity; it delivers projects. When something goes wrong on a major infrastructure project, Bechtel is often called in to fix it. The firm represents what American construction can do at its best—massive scale, technical excellence, project execution under difficult conditions.
Turner Construction
Quick Facts
Headquarters: New York, NY
Parent Company: Hochtief AG (Germany) / ACS (Spain)
Revenue: $16 billion
Employees: 10,000
Turner is the giant of American commercial building construction. The company built One World Trade Center, Madison Square Garden, Yankee Stadium, and countless hospitals, data centers, university buildings, and corporate headquarters.
Founded in 1902, Turner pioneered concrete construction techniques that made skyscrapers possible. The company went public in 1917, was acquired by German construction giant Hochtief in 1999, and is now ultimately owned by Spanish conglomerate ACS—illustrating how even iconic American builders have become subsidiaries of larger international firms.
Turner operates as a union contractor, dominant in the high-cost, high-complexity urban markets of New York, San Francisco, and other major cities. Its expertise is in managing the chaos of urban construction: tight sites, complex logistics, demanding schedules, union labor relations, and buildings that must meet exacting standards. Turner doesn't build tract houses; it builds the skyline.
D.R. Horton
Quick Facts
Headquarters: Arlington, TX
Founded: 1978
Revenue: $35+ billion
Employees: 13,000
Homes Delivered: 90,000 annually
D.R. Horton is what construction could look like if the industry industrialized. While commercial contractors struggle with productivity, Horton has systematized homebuilding into something approaching manufacturing.
The model is relentless standardization. Horton offers limited customization—pick from a set of floor plans, a set of finishes, and a set of lots. This enables bulk purchasing (every house uses the same cabinets, the same appliances, the same fixtures), predictable scheduling, and efficient deployment of trade crews who repeat the same tasks across hundreds of homes.
Horton focuses on the entry-level buyer—first-time purchasers and move-up families seeking value over prestige. The company doesn't build McMansions; it builds the affordable end of new construction. By controlling land pipelines (buying land years in advance), integrating mortgage services (DHI Mortgage), and achieving scale economies, Horton can deliver homes at price points smaller builders cannot match.
The contrast with commercial construction is stark. D.R. Horton achieves productivity gains through standardization and scale. Commercial and infrastructure construction, bound by custom designs and local regulations, cannot.
Cross-Cutting Connections
Inequality: The housing affordability crisis is fundamentally a construction problem, and significant wage gaps persist across trades, with non-union and immigrant workers earning far less for comparable work. Climate and Environment: Buildings account for 40% of U.S. energy consumption, and construction must increasingly prioritize both decarbonization and resilience to extreme weather events. Demographics: An aging skilled workforce and heavy dependence on immigrant labor mean that immigration policy and apprenticeship pipelines directly shape the industry's capacity. Technology and AI: Modular construction, Building Information Modeling (BIM), and emerging robotics offer paths to higher productivity in a sector that has resisted efficiency gains for decades.
Data Sources and Further Reading
Key Data Sources
Census Bureau: Construction Spending Survey (monthly); Value of Construction Put in Place
Bureau of Labor Statistics: Employment data by construction subsector (NAICS 23); Occupational Employment and Wage Statistics
Engineering News-Record (ENR): Top 400 Contractors ranking; Top 500 Design Firms
National Association of Home Builders (NAHB): Housing starts, builder sentiment surveys
Federal Reserve: Construction lending data; housing market indicators
Further Reading
Goolsbee, Austan, and Chad Syverson. "The Strange and Awful Path of Productivity in the U.S. Construction Sector." NBER Working Paper No. 30845 (2023). [The definitive documentation of construction's productivity decline.]
D'Amico, Leonardo, Edward Glaeser, Joseph Gyourko, William Kerr, and Giacomo Ponzetto. "Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation." NBER Working Paper No. 33188 (2024). [Links regulatory fragmentation to productivity—if homebuilders had manufacturing's firm size distribution, productivity would be 60% higher.]
Allen, Steven G. "Why Construction Industry Productivity Is Declining." NBER Working Paper No. 1555 (1985). [Foundational paper on de-skilling and the shift from commercial to residential work.]
Glaeser, Edward L., and Joseph Gyourko. "The Economic Implications of Housing Supply." Journal of Economic Perspectives 32, no. 1 (2018): 3-30. [How supply constraints in construction create housing affordability problems.]
McKinsey Global Institute. "Modular Construction: From Projects to Products." (2019). [The potential—and barriers—of off-site construction.]
Bernstein, Shai, Emanuele Colonnelli, Davide Malacrino, and Tim McQuade. "Who Creates New Firms When Local Opportunities Arise?" Journal of Financial Economics (2022). [On construction entrepreneurship and local opportunity.]
Exercises
Review Questions
Construction is the only major sector where productivity has declined since 1970. The chapter cites Goolsbee and Syverson (2023) systematically testing and rejecting measurement error as an explanation. What three structural factors does the chapter identify as causes of this decline? Drawing on D'Amico, Glaeser, et al. (2024), explain which factor---regulation and fragmentation, de-skilling, or input shifts---the evidence suggests is most important, and why.
D'Amico, Glaeser, et al. (2024) estimate that if homebuilding firms had manufacturing's size distribution, productivity could be 60% higher. Explain the mechanism: how does the fragmentation of 800,000 firms (most with fewer than 10 employees) reduce productivity? What specific barriers---land-use regulation, local building codes, bonding requirements, the project-based nature of construction---prevent consolidation in construction the way it has occurred in manufacturing?
The chapter distinguishes three project delivery methods: Design-Bid-Build (DBB), Design-Build (DB), and Construction Manager at Risk (CMAR). For each, explain the allocation of risk between the project owner and the contractor, the advantages and disadvantages, and the type of project each method is best suited for. Why does the traditional DBB model tend to create adversarial relationships between owners and contractors?
Construction employment fell 30% (from 7.7 million to 5.4 million) during the 2008-2009 crash and took a decade to recover. Why is construction more cyclical than other sectors? Trace the specific mechanisms: how do rising interest rates reduce housing starts, how does credit tightening prevent new project starts, and how do the 1-3 year lag effects mean that activity today reflects decisions made years ago?
The chapter notes that approximately 30% of construction workers are foreign-born, rising to 50%+ in specific trades (drywall, roofing, concrete) in Texas and California, while the Associated General Contractors estimates the industry needs 500,000+ additional workers. How does immigration policy interact with the construction labor shortage? What would happen to construction costs and project timelines if immigration restrictions significantly reduced the available workforce?
The CHIPS Act triggered massive semiconductor fab construction---Intel's $20 billion Ohio project, TSMC's $40 billion Arizona commitment---while the IRA spurred battery plant and EV factory construction across the Southeast. The chapter notes this boom is "straining labor markets" and "pulling workers from housing construction." Using the concept of opportunity cost, explain how industrial policy spending on manufacturing construction can exacerbate the housing affordability crisis.
Katerra raised $2 billion to disrupt construction through modular and prefabricated building, then collapsed in 2021. The chapter identifies specific barriers to modular construction in the United States: building codes written for site-built construction, lender unfamiliarity, transportation constraints, and union resistance. Why have countries like Sweden and Japan succeeded with modular construction while the US has not? What would need to change for off-site construction to achieve McKinsey's estimated 50% timeline reduction and 20% cost savings?
Data Exercises
Using the Census Bureau's Construction Spending survey (https://www.census.gov/construction/c30/c30index.html), download monthly construction spending data for the three major categories: residential, nonresidential (private), and public. Create a chart showing all three from 2018 to the present. Identify the manufacturing construction supercycle described in the chapter. Compare the timing of the manufacturing spending surge to the passage of the CHIPS Act and IRA (both August 2022). How quickly did legislative action translate into actual construction spending?
Using the BLS Occupational Employment and Wage Statistics (https://www.bls.gov/oes/), compare median wages for electricians (SOC 47-2111), carpenters (SOC 47-2031), and construction laborers (SOC 47-2061) across three states: New York, Texas, and California. Calculate the ratio of electrician wages to laborer wages in each state. How do the interstate and inter-occupation wage differences relate to the chapter's discussion of union density (high in New York, low in Texas) and the 20-30% union wage premium?
Using the FRED series for New Residential Construction (Housing Starts, series HOUST) and the 30-Year Fixed Rate Mortgage Average (MORTGAGE30US), plot both from 2018 to the present on a dual-axis chart. How closely do housing starts respond to mortgage rate changes? Estimate the lag (in months) between a rate increase and a decline in starts. Does this support the chapter's claim that "residential construction is directly tied to mortgage rates"?
Deeper Investigation
The chapter argues that land-use regulation is the dominant constraint on residential construction and a major driver of the construction productivity puzzle. Select two metropolitan areas---one with restrictive zoning (e.g., San Francisco or Boston) and one with permissive zoning (e.g., Houston or Dallas-Fort Worth)---and compare their housing construction rates (permits per capita), median home prices, average permitting timelines, and construction employment growth over the past two decades. Use the Wharton Residential Land Use Regulatory Index and local permitting data to quantify regulatory burden. Do your findings support the chapter's claim that "housing construction in high-demand coastal cities is a fraction of what market prices would suggest is needed"? What specific regulatory reforms would be most effective at increasing housing supply?
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