Why Is Housing So Expensive? It All Comes Back To Workforce

Forbes

30-05-2025

At a recent Achieve team dinner, the discussion turned to someone's friend, a recent business school graduate, who was raising a search fund in a bid to acquire multiple heating, ventilation, and air conditioning (HVAC) installation and maintenance businesses. Oddly, several colleagues also knew other recent MBAs who were attempting similar 'HVAC rollups.'
Coincidence? An HVAC rollup is a long way from the well-traveled B-school path of joining an investment bank or consulting firm. The conversation pursued whether this was, in fact, a trend. Search funds are by no means new, although it appears they've become more popular for new MBAs. But all agreed on one thing: if there was a meme about new business school grads attempting HVAC rollups, it was indisputable. I doubted it and bet Achieve Principal Cassidy Leventhal $10. Well, the meme-savvy Gen Z analysts began looking and, within seconds, found this one. I paid Cassidy her $10. And although I conceded the trend (and would never underestimate the tendency of MBAs to follow one), the affair of the HVAC rollup meme led me to suspect there's a meme for pretty much everything.
Turns out it's not limited to HVAC. New business school grads are also attempting to roll up roofing, plumbing, and landscaping companies. These businesses are easy to understand. So it could be a reaction against complex tech and AI. But it's also because no matter what happens in the economy, 330 million of us need a place to live, and tens of millions are having an extraordinarily hard time.
America is missing between four and eight million homes. As in any shortage, prices rise. Adjusted for inflation, new homes cost twice as much as they did in 1960. So the existing housing stock is increasingly out of reach for low- and middle-income families, particularly in coastal states. The shortage of affordable housing is a gargantuan problem that limits quality of life and economic opportunity in nearly every community while leaving nearly a million Americans – including 150,000 children – without a home.
The only solution is to build more new houses and apartments. With a shortage of around a million units, California is Ground Zero of the housing crisis. Homes in California cost more than twice the national average. So six million Californian families rent rather than own with two million spending more than half their monthly income on rent. So far California has attempted to tackle the problem by forcing cities and towns to allow apartments in neighborhoods of single-family homes and threatening to strip land-use authority from municipalities that don't approve new housing more quickly. Nonetheless, California's housing crisis continues to grow.
What we need more of.
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The fundamental problem is that it's more expensive than ever to build new homes. The cause isn't tariffs on Canadian steel and lumber, at least not yet. It's labor. There are about 250,000 unfilled jobs in the construction sector. Builders can't find enough carpenters, plumbers, or electricians. Without enough new tradespeople, the workforce is aging; since 2018, there's been a 6% drop in the percentage of construction workers below the age of 55. To replace laborers who've labored long enough, builders need to recruit nearly 750,000 new workers each year. And that number is from the Biden years, before the country decided illegal immigrants were the cause of all our problems. (Immigrants – legal and not – constituted over 40% of California's construction workforce.) It's not only building new homes; it's maintaining existing homes. Every year America needs to produce over 40,000 new HVAC technicians. If we don't, things might get uncomfortable. And some recent business school grads might find their rollups at risk.
When there aren't enough workers, builders pay more. When Engineering News-Record initiated its construction cost index for non-residential buildings, labor was 38% of total construction cost. Today it's 81%. For housing, Procore, the leading SaaS platform for construction management, reports labor is as much 60% of total cost. And when builders don't have available crews, they turn down projects. The result is that new houses and apartments don't get built and the ones that do get built cost a lot more.
Builders aren't totally helpless. Their ability to find new workers isn't limited to driving their F-150s to the Home Depot parking lot to see who happens to be standing around. They can also drive to the nearest high school and try to sell students on a future in home construction. The problem is that students won't be productive on day one, or maybe in year one. They need apprenticeships, internships, or similar earn-and-learn pathways to make the trades attractive: jobs that pay a living wage from the drop, with the promise of making much more as they master the trade.
But these programs are expensive to set up. Builders need to invest in recruiting as well as developing and delivering training, both formal and on-the-job. Which means convincing experienced workers to play ball. And finding and paying someone to manage it all, not to mention mentoring. While trade unions help, they don't address builders' biggest constraint: paying workers who aren't going to be productive for months, and maybe much longer. Also, unions are disincentivized to increase the supply of new workers, which could depress the wages of their members.
It turns out homebuilders are singularly ill-suited to make these investments. My friend Bob Lerman, co-founder of Apprenticeships for America, alerted me to a new paper from the National Bureau of Economic Research which surfaces a remarkable fact: 40% of single-family housing employees work in firms with fewer than five employees and 63% work for companies with fewer than 10 employees. This means two things: first, an opportunity for recent business school grads to roll them up; second, a constitutional inability to invest in earn-and-learn pathways. Homebuilding may be America's last mom-and-pop business.
The NBER paper identifies the culprit: local land-use regulation and permitting. Each city and town sets its own ground rules (and its own revenue-generating permitting fees), making it prohibitive for builders to undertake bigger projects or operate across jurisdictions. Many communities require builders to engage in outreach to neighbors to gain approval, or at least quiet critics likely to attend a planning meeting. Whereas communities organize to protest big construction projects orchestrated by big, bad, out-of-town developers, critics are less likely to show up for small-scale projects or go against small, local builders. The result is small projects built by small builders.
Various studies have documented a decline in productivity in the building sector since 1970 – a dramatic reversal from the prior 30 years. Not coincidentally, 1970 marked the beginning of the local land-use regulation boom. The paper finds a strong correlation between areas with stricter, iconoclastic rules and smaller, less productive builders. Smaller builders are less productive because they don't invest in new technologies or new and more efficient building methods. And they don't invest in apprenticeships, internships, and other earn-and-learn pathways. Which means they don't have enough workers. Which means they end up spending more on labor for each project.
Hence a recent Wall Street Journal article on Father Judge, a Catholic high school in Philadelphia where companies are actively recruiting students into entry-level jobs in the trades. These include the local transit system, submarine manufacturers, an operator of nuclear power plants, a defense contractor, and a chain of auto body shops. But nary a homebuilder.
Why is America capable of manufacturing pretty much everything except homes? Because the vast majority of homes are custom-built on site – 'stick-built'– vs. mass produced or prefabricated. Prefabricated homes are built in factories, then transported to the site and assembled. More than a century after the assembly line revolutionized manufacturing, large manufacturers of durable and consumer goods capture 80%+ market share; in housing, it's only 13%. One reason is lack of competition: shipping costs make it prohibitive to offshore homebuilding. But domestic prefabrication – bringing the assembly line to housing – is possible and reduces labor costs.
Canada, which is experiencing an even greater housing shortage, is making a big bet on prefabrication. The newly elected Liberal government has promised $25B in loans to prefab housing manufacturers. If the U.S. made a comparable investment, millions of new houses and apartments would be prefabricated and builders with sufficient scale to invest in factories would be able to invest in apprenticeships, internships, and other earn-and-learn pathways rather than putting together a crew from whomever happens to be standing around the Home Depot parking lot.
It's not only homes. Lack of earn-and-learn pathways and the resulting labor crunch also explain why construction costs for roads and bridges have gotten out of control. And why America can't seem to build big things like subway line extensions. And don't get me started on the tram at Los Angeles International Airport: under construction for over six years, perhaps because I've never seen anyone working on it. Or high-speed rail in California, which depresses everyone who looks at it.
But I'd trade public infrastructure for affordable homes. Out-of-control construction costs aren't only limiting the number of units being built, but also what's getting built. Because less expensive units produce less profit, homebuilders have shifted to higher cost housing rather than units low- and middle-income families can afford. This luxury shift also creates a vicious circle as custom features and advanced technology require specialized workers, further fueling the cost of labor. The result is even less affordable housing. Which makes life even harder for those struggling with unemployment or underemployment and lack of career pathways – the very thing that's making homebuilding more expensive.
The shortage of earn-and-learn pathways stems from America's unique college-for-all approach to career launch, a trend that also dates from around 1970, and a trend that's led to taxpayers investing $1,000 in classroom-based, tuition-based, debt-based career launch infrastructure for every $1 invested in work-based, earn-and-learn career launch infrastructure. This imbalance is particularly problematic for the trades, which are better learned on the job than in a classroom. But the overall track record isn't great:
Just like college-for-all – a policy set by elites who went to college decades ago – local land-use and permitting rules are set by people who bought custom, on-site, stick-built homes decades ago. And just like college-for-all is no longer affordable for all, stick-built homes are no longer affordable for all. Particularly for those in greatest need of education and housing.
Both education and housing have become games rigged in favor of wealthy incumbents – older Americans who've already checked both boxes – while young Americans are left behind. While holding out hope for reform on both fronts at all levels of government, one way to kill two birds with one stone is to scale investment in earn-and-learn pathways to careers in the building trades. Builders should be incentivized to recruit students from vocational high schools like Father Judge, but also any grad with an interest in a trade apprenticeship regardless of prior skills or experience. Because that's what apprenticeship is for.
We need affordable new homes. But to build affordable new homes, we need to scale investment in earn-and-learn pathways to flood the (construction) zone with new tradespeople. We can't have one without the other. If housing costs too much, we need to continue to chip away at NIMBY local land-use rules while beginning to cover the cost of trade apprentice training in full and subsidizing the wages of apprentices until they become productive. And the funding should be formula-based and simple for a small builder to tap.
Perhaps some underemployed members of Gen Z will build memes about this. Because they're clearly not building homes.