In his newsletter, Brian Potter started a new series looking at why the construction industry seems to lack economies of scale, like you find in IT, media, and nearly every manufacturing business.
When you look at the data on construction, you find that there seems to be no or little advantage to scale when it comes to price or efficiency. A single-family residence costs about the same per-square foot to build as a high-rise condo (holding equivalent things like build quality, materials, etc.).
I thought this was an interesting figure — it also turns out that construction is a very diffuse ecosystem of companies, with limited concentration in large firms compared to other markets:
The same is true if we look at the construction industry more broadly - the US construction sector, for instance, has lower concentration than any other sector. The largest homebuilders have a market cap in the range of $25 billion, and the largest commercial construction companies have substantially lower valuations, compared to the $100B+ company valuations in most other sectors. By market cap, the largest US construction company is smaller than the 15th largest mining company, and the 20th largest car company, despite the fact that the construction industry is larger than the car industry and the mining industry combined. (View Highlight)
I’m looking forward to his future posts in this series. Construction has so many unique aspects to it, and Brian is doing great work in Construction Physics with his analyses.