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Illustration: Shoshana Gordon/Axios

Home construction is a deeply inefficient business. But the implosion of Katerra, a startup into which investors plowed some $1.9 billion, proves that disrupting it won't be easy.

Why it matters: The high cost of housing is inextricably linked to the high cost of building new homes. If they could be designed and built using assembly-line technology, that would mean more, cheaper houses in a country that desperately needs them.

The big picture: Automated homebuilding is nothing new. Prefabricated construction dates back to at least 1624, and Sears kit homes remain desirable to this day — as do the mass-produced houses of Levittown.

  • Such businesses tend not to last, however. Pulte Homes, for instance, closed down its high-tech in-house prefabrication plant in early 2007, declaring it "economically unviable."

How it works: Houses are expensive because the incentive at every level, from developer to contractor to sub-contractor to sub-sub-contractor and so on, is to pad costs rather than cut them. Successful builders learn to expect unexpected costs — and to incorporate them into their quotes.

  • By vertically integrating everything from design and materials to building and construction into a single company, Katerra promised not only economies of scale but also an unprecedented degree of control over costs.

The catch: Large factories require substantial and predictable demand, while the construction industry is notoriously cyclical. And while some things can be automated, others, like navigating local permitting processes, cannot.

What they're saying: "Solo attempts by any organization to single-handedly disrupt residential real estate and construction will go the way of Katerra," writes John McManus of The Builder's Daily.

  • "The future of housing," if it's ever to arrive, necessarily requires close collaboration among multiple stakeholders.
  • The holy grail of affordable new housing will realistically always require government subsidy, too.

The bottom line: Obstacles to new construction are invariably deliberate, placed there by existing residents in an attempt to maximize their own property values. When all building codes are local, it's impossible to confront them in a formulaic and centralized manner.

Go deeper

Dan Primack, author of Pro Rata
Jun 8, 2021 - Economy & Business

Softbank-backed Katerra's collapse is a failure of pattern-matching

Illustration: Annelise Capossela/Axios

Katerra, a Silicon Valley construction tech startup that had raised around $2 billion from firms like SoftBank, has filed for Chapter 11 bankruptcy protection.

Why it matters: This was ultimately about the folly of pattern-matching, a pervasive VC technique whereby the same sorts of founders get both funded and forgiven.

Exclusive: New York project to combine solar power with high-speed broadband

Illustration: Annelise Capossela/Axios

A new type of housing initiative kicking off in New York City seeks to address two major problems facing the U.S. today: The lack of widespread, high-speed broadband access for low-income residents, and the need to more widely deploy clean energy technologies.

Why it matters: The project is a unique marriage between two of the Biden administration's top infrastructure policy goals, except on a local level.

Biden calls on Congress to extend eviction moratorium as deadline looms

Photo: Michael M. Santiago/Getty Images

President Biden called on Congress on Thursday to extend the CDC's national eviction moratorium due to the threat of the Delta variant, after the Supreme Court ruled that the administration couldn't extend it past July 31 without specific legislation.

Why it matters: Millions of tenants across the country face the threat of eviction in the coming days. The moratorium was first implemented in September 2020 and extended several times to prevent a wave of evictions caused by pandemic-related economic decline.