Most people assume that building more houses automatically makes them cheaper, but Brian Potter dismantles that intuition with a rigorous look at the data. In a sector where we desperately need efficiency, the evidence suggests that simply getting bigger doesn't help. This piece is vital because it challenges the default policy response to the housing crisis: the belief that industrialization and massive consolidation are the silver bullets for affordability.
The Myth of the Big Builder
Potter begins by establishing a frustrating reality: construction productivity has stagnated while manufacturing has soared. He writes, "construction costs almost always rise at or above the level of overall inflation." This sets the stage for his investigation into why the usual mechanisms of efficiency fail here. In manufacturing, producing more units drives down the cost per item through fixed cost spreading and learning curves. Potter notes that "economies of scale work by eliminating the difference between the costs of the raw inputs to a process and the final costs of production." Yet, in homebuilding, that gap is already narrow, leaving little room for scale to squeeze out savings.
The data on industry concentration is particularly striking. One might expect the largest builders to dominate due to superior efficiency, but Potter points out that "the four largest firms held around 18% of the market, compared to 90% in aircraft manufacturing." This fragmentation persists despite the sheer volume of housing starts—over 1.3 million last year. Potter argues that if scale mattered, we would see a clear correlation between size and profitability. Instead, he finds that "large and small homebuilders had similar gross margins on homebuilding."
This finding upends the conventional wisdom that bigger is better. Potter observes that even giants like Lennar, which built over 80,000 homes in 2025, operate with margins nearly identical to tiny firms selling just over a thousand units. The implication is that the "learning-by-doing" effect, which drives down costs in other industries, is muted in construction. As Potter puts it, "What little technology exists is available to all." The barrier isn't a lack of know-how; it's the nature of the work itself. Critics might argue that large firms simply choose to reinvest savings into market share rather than margins, but the consistency of this trend across decades suggests a deeper structural limit.
In homebuilding, the limits to economies of scale are in large part dictated by the nature of the production process.
The Factory Fallacy
If on-site building doesn't scale, the logical next step is to move construction into a factory. This is where the industry has pinned its hopes for decades, yet Potter's analysis of manufactured homes reveals a similar ceiling. Manufactured homes offer a perfect test case: they are built in controlled environments, subject to a single federal code (the HUD code), and produced with high repetition. "Economies of scale require repetition," Potter writes, "and such repetition is particularly achievable with manufactured homes."
Despite these advantages, the industry remains surprisingly fragmented at the factory level. While the top three manufacturers control 90% of the market, they achieve this not by building massive single plants, but by operating dozens of smaller facilities. Potter notes that "a single modern car factory will produce several hundred thousand cars a year," whereas a manufactured home facility might produce only a few hundred. Even the largest players, like Clayton Homes, spread their 49,000 units across 41 different factories.
The financial data reinforces this. Smaller manufacturers like Nobility Homes and Legacy Housing actually report higher gross margins than the industry giants. Potter concludes that "there do not appear to be large economies of scale at the factory level." The savings from volume purchasing are real but modest—group buying organizations offer discounts of only about 6% on material costs. This is a sobering reality for those hoping that prefabrication will drastically lower prices. As Potter summarizes, "the cost savings from prefabricated construction are frequently much less than hoped, often never materializing at all."
The Historical Context
This isn't a new problem. Potter digs into the history of the industry, noting that the post-war boom of the 1940s and 50s, exemplified by Levittown, already captured most of the available efficiency gains. He cites Ned Eichler, who observed that "[n]ot even the largest firm has any of the advantages of dominant companies in other fields." The "reverse assembly line" used by Levitt and Sons, where teams moved from house to house, did not yield the massive cost reductions seen in automotive production. Potter connects this to the concept of surface-area-to-volume ratios, a topic explored in his companion deep dives, explaining why physical structures resist the scaling laws that apply to discrete goods like cans of vegetables or car parts.
The argument here is that the physical constraints of building—transporting materials to unique sites, dealing with weather, and navigating local regulations—create a friction that factories cannot fully eliminate. Potter writes, "Conventional homes are constructed on-site, and those sites might have substantial variation between them." This variation disrupts the learning curve, preventing the kind of continuous improvement seen in manufacturing. A counterargument worth considering is that new technologies, such as 3D printing or advanced robotics, might eventually break this logjam. However, Potter's historical lens suggests that without a fundamental change in how we define the "product" of housing, these tools will likely face the same diminishing returns.
Bottom Line
Potter's strongest contribution is his refusal to accept the narrative that consolidation and factory-building are automatic solutions to the housing affordability crisis. The evidence that larger firms and factory production do not yield significantly lower margins is compelling and often overlooked. The biggest vulnerability in this analysis is the potential for disruptive technological shifts that could alter the cost structure of site work, though history suggests such shifts are rare. Readers should watch for whether new policy initiatives ignore these structural realities and continue to bet on scale where the data says it won't work.