Housing Costs, Manufacturing Shifts, and Energy Bottlenecks: A Week in Infrastructure Analysis

The infrastructure landscape continues to evolve through a complex interplay of regulatory burdens, manufacturing shifts, and energy constraints. This week's analysis reveals how seemingly invisible costs shape our built environment, how housing markets function as interconnected systems, and how global competition is reshaping entire industries.

The Hidden Cost of Housing Permits

One of the most striking revelations comes from economists Evan Soltas and Jonathan Gruber's new paper examining permitting costs in Los Angeles. While the difficulty of getting housing projects approved in US cities is widely acknowledged, quantifying this burden has remained elusive. Their innovative approach uses an implicit market for "ready-to-issue" permits, where landowners can prepay permitting costs and sell preapproved land to developers at a premium.

Their findings are sobering: developers pay 50 percent more—$48 per square foot—for preapproved land. More tellingly, preapproval increases the probability of completing construction within four years of site acquisition by 10 percentage points, a 30 percent improvement. When extrapolated across the Los Angeles housing market, permitting costs can explain one-third of the gap between home prices and construction costs.

This research methodology—using repeat-listing difference-in-differences estimators to compare similar proposed developments—provides a concrete framework for understanding how regulatory complexity translates into actual dollar amounts. The $48 per square foot figure represents not just paperwork fees but the cumulative cost of uncertainty, delay, and risk that developers must factor into their projects.

The Trickle-Down Effect of High-End Housing

Countering conventional wisdom about luxury developments, The Atlantic explores how high-end housing can actually increase supply across income levels through a cascading effect. When people move into expensive new units, they vacate lower-cost apartments, which then become available to others, creating a chain reaction down the housing ladder.

A detailed case study of the 43-story Central condo project in Honolulu demonstrates this phenomenon. The building's 512 units created at least 557 vacancies across the city, with some units triggering up to four vacancies elsewhere as people moved through the housing system. This "trickle-down" effect suggests that restricting high-end development may inadvertently constrain supply at all levels, as the movement of residents through different price tiers becomes blocked.

Manufacturing's Shifting Landscape

The week brought news of significant transitions in global manufacturing. Panasonic's exit from the TV business, following Sony's recent spin-off of its television operations into a joint venture with Chinese partners, marks the end of an era for Japanese consumer electronics. Chinese company Skyworth will now handle manufacturing, marketing, and sales of Panasonic-branded TVs, representing another step in the consolidation of consumer electronics manufacturing in East Asia.

This shift reflects broader competitive pressures, as highlighted in The Economist's analysis of the Chinese threat to German manufacturing. The article describes what Germans call "China shock 2.0," playing into fears about the hollowing out of industrial heartlands. In Baden-Württemberg, candidates are warning about becoming the "Detroit of Europe," illustrating how manufacturing transitions create political as well as economic anxiety.

Energy Infrastructure Bottlenecks

Perhaps most consequential for future infrastructure development are the bottlenecks constraining US electricity generation capacity expansion. Gas turbine suppliers have become a critical constraint, but major manufacturers are now significantly expanding their capacity. Projections suggest available equipment capacity will increase from 19 GW in 2028 to 49 GW by 2029 and 76 GW by 2030.

This expansion could finally unlock stalled energy projects, though environmental regulations continue to create unexpected obstacles. The construction of a $100 billion Micron memory fab in New York faces delays from a lawsuit by six local residents arguing that the environmental impact study was "unnecessarily rushed" despite taking nearly two years to complete. This case exemplifies how environmental laws, while serving important purposes, can provide tools for project opponents to create endless delays.

The Institutional Ownership Debate

The ongoing political debate about restricting institutional investors from owning single-family homes received additional context this week. A 2022 Dutch ban on investor purchases of homes for rental didn't affect home prices, and there appears to be little relationship between institutional ownership and home price appreciation at the city level. These findings suggest that focusing on institutional ownership may be addressing a symptom rather than a cause of housing affordability challenges.

Looking Forward

The infrastructure challenges we face—whether in housing, manufacturing, or energy—share common threads of regulatory complexity, global competition, and the need for systemic thinking. As we grapple with permitting costs that add tens of thousands to home prices, witness the consolidation of entire industries, and confront bottlenecks in critical infrastructure expansion, the need for comprehensive solutions becomes clear.

Next week's longer essay on Operation Breakthrough promises to explore these themes further, examining how ambitious infrastructure initiatives succeed or fail in the face of institutional inertia and competing interests. The patterns emerging from this week's reading suggest that progress in the built environment requires not just technical solutions but also political will to address the hidden costs and systemic barriers that shape our physical world.