Why can’t we buy a Chinese house at Walmart?

Forty years ago it cost $500 to buy a factory-made TV and $10,000 to have a nice house built from scratch on a plot of land, a ratio of 20:1.  Today the TV costs $200 and assembling the local tradespeople and lumber will probably set you back $200,000, a ratio of 1000:1.  Part of this difference may be ascribed to the TV being built with $1/day Chinese labor.

How about this for a brilliant business idea:  clearcut a Canadian forest (they love to cut down trees in British Columbia) and ship the lumber to China, build modular houses there and ship the completed houses back to the U.S. in container ships.  Sell them at Walmart (they’ll sell anything Chinese-made at Walmart).  The quality won’t be quite as good as the best custom homes in the U.S. but it will be good enough and when things start to get creaky in 20 years you can throw the house out and buy a new one at Walmart or Home Depot.

This is not a totally new idea, of course.  Nearly all houses in Scandinavia are factory-built.  We have it here in the South with http://www.topsider.com/ and in Quebec with http://www.profab.ca/ but I don’t think anyone has tried it with Chinese labor.  It costs less than $2000 to ship a container from China to the U.S. and a prefab house ought to fit in one or two containers.  So shipping shouldn’t be a killer.

Chinese-built houses wouldn’t have a huge impact where I’m sitting right now, on top of a $1 million plot of land in Berkeley, but in Maine or the Midwest, why not?  Think about all the poor people currently being housed in cities, occupying housing that could be sold to rich yuppies who would pay huge property tax.  The City of Cambridge just spent about $1.5 million buying and renovating the house behind my condo so that they could park a poor family there.  Why not give the poor family the $1.5 mil in cash and they could buy some land in an uncrowded part of the country ($20,000) and a house at Walmart ($40,000) and live comfortably for the rest of their lives off the interest?

Or consider the vacation house dilemma.  Do you really want to spend a year or two dealing with contractors and paying big bucks when you could buy a second house at Walmart for $40,000 and put your money into travel, jet aircraft, etc.?

21 thoughts on “Why can’t we buy a Chinese house at Walmart?

  1. I fear your proposal is already in the works — if not yet at the “Chinese pre-fab houses for export back to the West” stage, certainly at the China building houses with British Columbia forest products stage — and the current BC provincial government, which calls itself Liberal but should in fact be called “The Corporatist Party,” is busy trying to figure out how to clearcut as much forest for export as possible. There was an article in the Vancouver Sun a while back (which I pointed to) that talked of this government’s initiative to spend many millions (40, I think) to build a dream home in China designed to convince the Chinese to switch to wood (they typically use steel & concrete). (The Vancouver Sun link will be dead by now, but try Gordo’s speech, linked to above.)

    Wood frame construction isn’t nearly as energy-efficient as other alternatives, of course, which makes it just perfect for over a billion new consumers: we can be sure to find it necessary to heat and cool our way straight to unsustainability hell. On Saltspring Island, BC, on the other hand, there’s an alternative springing up: rammed-earth construction, very popular in Australia, very energy-efficient ….and very very expensive. Throw that into your equation, too: a nice split economy, with no natural resources left for anyone after another hundred years of this.

  2. Okay, I don’t normally engage in cheap rhetorical cynicism, but just this once I can’t resist: If you give all the city land to rich yuppies, where will all the cleaning staff and Dunkin’ Donuts employees live?

    More seriously, a lot of people who work in the ciy get paid poorly and live in massively substandard housing. We live in a weird society; some folks who work hard for 50+ hours/week live in cars. This includes a certain percentage of WalMart employees, cleaning staff, etc.

    Sure, you could make cheap buildings to house these people, and look for cheap land in the Maine boondocks, but there aren’t many jobs in Maine–and especially not anywhere with cheap land.

  3. Lowell, I was under the impression that the wooden forms are re-usable; the ecological angle is the house’s energy efficiency after it’s built. Apparently, you can make them really tight, those thick walls keep the temperatures even, the heat / air exchangers makes it healthy, etc. blah, blah, and so on. Expected life expectancy can be around 1000 years: think Legacy House. Build it in the Romanesque-Big Noble Pants style so your ancestors won’t be tempted to tear it down. Not a throw-away house. But really expensive to build initially.

    But anyway, now we’re getting away from Philip’s original polemic, which I think Eric gets at more succinctly.

    Philip, question: I have two young children. What should I encourage them to think about, career-wise? All the manufacturing jobs are moving off-shore, and now all the engineering jobs are going the same way. I tell them their best bet is to smoke a whole lot of pot and become hippies, but somehow they’re not buying it and insist on thinking they have a future. My daughter is writing a book in the fantasy genre, for heaven’s sake. Do you think that’s a promising future, producing diversions?

  4. Eric: A lot of the folks on welfare in Cambridge don’t have jobs at all. So they wouldn’t be disadvantaged by moving to a place with a lower cost of living (actually anywhere in the country would be cheaper except maybe certain parts of Manhattan). Service industry workers in the Boston area would typically live in a non-fancy suburb that is on the T. In the sprawling cities of the West it seems that the service workers endure long commutes in cars that, thanks partly to Chinese labor, are really cheap.

    Right now it would probably be cheaper to buy a bunch of TVs and superglue them together to form a house than to pay American contractors to build one for you. That’s what I think is the unsustainable situation.

    Yule: I think I’ll have to answer your question in a separate blog entry. It deserves one and its own comment area.

  5. Have you ever thought of why Chinese labor is actually cheaper than American or European labor ? If yes, think again. And once more.

    If I get you correctly, you suggest to use underpaid Chinese slaves to build cheap houses so that you can move poor people out of any valuable land property and put them where they won’t bother rich people, working their poor life their own way ?

    While you’re at it, maybe you could give one of those cheap house to the home builders you stole the job from ? Maybe you think it’s their fault that they lost their job, that they should have accepted to work like Chinese slaves ?

    Did you know more and more white collar and scientific work was exported to India, China or Russia, leaving American and European ‘overpaid’ people without a job ? I can’t wait till you are confronted to the problem yourself. It will certainly teach you a lesson about capitalism.


  6. Philip,

    A house is more than an assembly job. Most people want modifications on their homes that they have built. You may go thru several mods to the architectural plans before it is done. This takes craftsmanship. Sure you can build an assembly home, but unless it has certain amount of craftsmanship to it, it will quickly become a slum project.

    I’ve built a garage before and I can tell you that it doesn’t take much to throw up a 2×4 wall. But you had better make sure the foudation is square and level. How about the doors and windows? Ever try to install the them? It takes patience and practice I can assure you. It doesn’t take much to throw off a door or a window and then the damn thing will *never* work right. I guess the solution to your problem is for America to quit denigrating skilled hand work. There is a certain intelligence to it that not just everyone has it(or the time or patience). Either that, or just import all the Chinese and Indian laborers ya want.

  7. Nicolas, the reason Chinese labor is cheap is because wages are set on a national level (labor can move freely within a country, but not across borders), and _average_ labor productivity in China is low compared to the US.

    Paul Krugman discusses this:

    “_Wages are determined in a national labor market_: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn’t happen, it is a sign that something has gone wrong. …

    “Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.”

  8. Russil,

    Thanks for the pointer to Paul Krugman’s archive. I am not an economist so the article feels a bit unnatural for me. If I may try to badly sum up the article with regards to our chinese house story, the fact that we decide to build houses in China is just an epiphenomenon of China’s competitive advantage in mass production. We don’t need to worry about American jobs lost because this loss of competitive advantage in mass production while be made up by gains in competitive advantages in other economical sectors.

    I think I’ll buy one or two books on economy, because I’m way out of my league here, but it just feels plainly wrong, for two reasons.

    First, it is said in the article that as soon as third world countries reach the same productivity level as West countries, their wages will be the same. The catch is : will they be the same because the wages of third world countries will go up, or because the wages of western countries will go down ? Oh, I guess it’s actually time to share a bit of our wealth… But who will be the ones to share ? House builders watching their wages go down or wealthy individuals ?

    Second, if their is indeed a specialisation leading to competitive advantage, how can it scale up ? What are the competitive advantages of the USA, and can it scale up to a point where everybody work in those branches ? Say USA competitive advantage are weapons, will everybody work in the weapon industry ?


  9. Tsk, tsk, Dr. Greespun with those charges of “unsustainability”:

    <quote>Right now it would probably be cheaper to buy a bunch of TVs and superglue them together to form a house than to pay American contractors to build one for you. That’s what I think is the unsustainable situation.</quote>

    Is that the noise of a frustrated homeowner’s having to pay “too much” to have a contractor come out and “do something?” Or are you just trolling to provoke a response from your apathetic readership. (NB: It worked, though it makes me question what you really believe.)

    Home ownership in this country is in it’s own bubble…Much like the one with which you (and I) had recent experience.

    I do not believe that we would see homes that much less expensive than we have today (after all, if you want to live in South Carolina, you can find a home–away from the beach–for less than $60,000, with lots of land, still). The question would be, where does the money saved go…And where do the increased profits go.

    Free marketeers insist that the captial will be freed up to be invested in the “host” economy (in this case Canada or the US)…Those opposed the free trade assert that the money would stay in China. These days, I don’t see how anyone can predict the future…Since, after all, there are no assurances.

  10. TVs are:
    –easy to transport, even across the oceans
    –sold in a non-spatial market: due to ease of shipping, price differences are relatively easy to arbitrage away, if TVs are cheap in Asia and expensive in Europe
    –composed of standard parts available from dozens of manufacturers with almost no customization required on a tv-by-tv basis
    –subject to intense price competition, due to economies of scale in production and improving technology
    –are produced using relatively little labor and quite a bit of invested capital (in factories)

    Houses are:
    –built on top of land which has increased in value
    –extremely costly/difficult to ship, even in partially assembled form (certainly on a relative basis).
    –subject to intense regulation and inspection by several levels of government when built or renovated
    –a relatively illiquid asset (one’s house can’t be converted to cash very quickly without serious transaction costs)
    –difficult to arbitrage with regard to price, as it’s rarely cost-effective to move a cheap house in Alabama to Massachusetts
    –often highly customized for each individual consumer
    –composed primarily of parts that are sourced regionally, rather than from around the world (try shipping concrete from Europe)
    –produced using a mix of capital and labor heavily tilted toward labor: no one has yet invented a machine that churns out custom bathrooms perfectly every time, while we can reliably produce TV tuner chipsets and CRTs with little labor.

    I believe that this has a lot less to do with Chinese labor than it does the various factors outlined above. TVs declined in price pretty rapidly even before the Chinese made significant inroads into the market.

  11. You’re welcome, Nicolas. I’d recommend Krugman’s “The Age of Diminished Expectations” as a good introduction to economics. (I’m not an economist, but I have a friend who is; I asked him to recommend a good introduction to economics, and he suggested Krugman.)

    “We don’t need to worry about American jobs lost because this loss of competitive advantage in mass production while be made up by gains in competitive advantages in other economical sectors.”

    Pretty much. Employment is determined by demand, and the Federal Reserve (i.e. Alan Greenspan) controls demand. If unemployment rises, Greenspan lowers interest rates. If unemployment falls (and inflation starts to rise), Greenspan raises interest rates.

    There are still reasons to worry: trade may not affect total employment, and it should benefit both countries _overall_, but it may lead to increased _inequality_. Krugman’s analysis suggests that international trade isn’t large enough as a proportion of the US economy to make that big a difference; technological change probably has more to do with the increase in inequality over the last two or three decades.

    “First, it is said in the article that as soon as third world countries reach the same productivity level as West countries, their wages will be the same. The catch is : will they be the same because the wages of third world countries will go up, or because the wages of western countries will go down ?”

    Wages in third world countries will go up. Wages are basically a more-or-less fixed proportion of production. As productivity goes up, wages go up.

    “Second, if there is indeed a specialisation leading to competitive advantage, how can it scale up ? What are the competitive advantages of the USA, and can it scale up to a point where everybody work in those branches ?”

    Not sure I understand your question. Some things can’t be traded. I doubt teaching and home construction will ever be traded (despite Greenspun’s thought-experiment proposals).

    More interestingly, as you become more and more productive in some industries, you need fewer and fewer people in those industries. So we end up with a lot of people doing things that we’re not very good at, and a few people doing the things that we _are_ good at. Think of software development vs. hardware development, or services vs. agriculture (there’s been very little productivity growth in the service industries).

  12. I grew up in what my parents said was a Sears house. Many of the houses in my 1920’s neighborhood looked a lot alike, although each had its own personality. Once, I helped a roofer/carpenter repair part of our roof damaged by a tree. We peeled back many layers of shingles, a few of traditional grey asphault, one of green octagons and two layers of cedar shake. Once everything came off and the attic was exposed the roofer pointed out the original markings on the heavy peices of lumbar that comprised the bones of the house. There were stencil markings near where the wood was cut. I guess that Sears sent the kit with the wood marked, but the local builder would use judgement in fitting it together.

  13. I almost bought a prefab modular house once, so I can see how this would work. It is not that hard to build a house to a spec, have contractors on site to hook everything up and do the inspections, etc. I think the biggest logistical problem is the size restriction. The company I dealt with would not consider a house with more than 1800 sq. ft. Anything above 1 storey was a dramatic increase in price per sq. ft. Lastly, and most importantly, the overland shipping costs would probably be prohibitive. Can you even move those shipping containers on the highway? Our builder had a limit of 100 kms for free, after that it was a very high price per km. We needed an extra 150 km and that erased almost the entire savings over an on-site build.

  14. Poor people can already get hand made houses in the midwest for under $40,000. Stuff is dirt cheap here (check out actual prices at http://www.jbor.net). Come to think of it, one of the guys that works with me bought land then built and furnished a pretty nice 3 bedroom house for a total of about $60-70,000.

  15. PS: that includes getting the architect to design the house and paying the contractors to build it…

  16. That idea sounds like it might work. Seeing some of the quality China made products tend to be would make me steer away from a house built there. That would be the day though, when you could by a house and everything for it in one place!

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