Last night, I scrolled through Amazon, entranced. You can buy a whole house for only $30,000!

Some were as cheap as $15,000. But being Mr. Fancypants, I had my eyes on one for $72,000.

I better hurry — there’s only 10 left in stock!

But as exciting as manufactured Housing is, it won’t fix the high cost of housing. Here’s why…

Palo Alto and Oshkosh

Where is housing really expensive? In NYC, the Bay Area, and a few other spots.

Even the small towns aren’t as cheap as they used to be. But compared to paying $1.6 million for a glorified garage in Palo Alto, they look pretty reasonable.

The thing is, that house in Palo Alto is probably built pretty much the same way as a house in Oshkosh, Wisconsin where I grew up. Light frame wood is the rule for single family houses most anywhere in America.

And yet, prices in Oshkosh are much lower. Check out this place, twice the size for $270k:

Why Is Palo Alto So Expensive?

How the heck do you explain this?

Everyone wants to live in Palo Alto and not that many people want to live in Oshkosh. And yet…their populations are almost identical.

There’s a lot of pent up demand for Palo Alto. So why doesn’t it grow?

Because zoning makes building there extremely difficult.

Let’s put some numbers on this. I found some great data from the American Enterprise Institute (AEI)…

In Palo Alto’s 94301 zip code, the cost of land accounts for 84% of a home’s value. One acre in this wealthy town goes for a staggering $18 million — if you can even find one.

The AEI data set only includes larger metros, so Oshkosh is left out. But let’s use Cedarburg, WI, a Milwaukee suburb where a friend of mine lives.

In Cedarburg’s zip code (53012), land makes up only 33% of the cost of a house. Lots are more than I thought — $600,000 an acre. But that’s still about 97% cheaper than Palo Alto.

And since Oshkosh is much more remote than Cedarburg, the prices are even lower.

Zoning Is the Key

So, land is why Palo Alto costs so much. Now, what exactly has made that land so expensive?

In major coastal cities, zoning pretty much determines a lot’s value.

If it’s zoned to build housing, especially a big multifamily, it’s worth a fortune. If not, it’s worth peanuts.

In fact, Harvard economist Edward Glaeser found that in nearby San Francisco, over 95% of a lot’s value comes from zoning.

Prefabs Won’t Move the Needle On the Coasts

Even if we took construction costs to zero, home prices in Palo Alto would only fall 16%.

What’s more, manufactured housing may not be that much cheaper anyway.

A huge percentage of the cost of construction comes from raw materials like lumber, drywall and steel. Manufacturers face those same costs.

Give Me Some Hope, Francis!

I know, depressing blog right?

Manufactured housing may not make housing cheaper in the major metro areas. But there are signs that zoning, that critical component, could be changing.

NYC Mayor Eric Adams has proposed a new law to let developers build larger and taller. It’s has too many affordable housing requirements for my taste, but it’s something.

Palo Alto too is taking action, spurred on by state mandates.

Wrap-Up

I love the idea of manufactured homes. And in the heartland, it could make a real difference.

But here in Coastal Bizarroland where everything costs a fortune, prefab houses just won’t move the needle.

The change we need isn’t technological. It’s political.

What do you think of housing costs? Leave a comment and let us know!

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