Boston Fed's Collins: construction output per input is 40% below 1970, and higher rates slow building

Boston Fed President Susan Collins used the opening of the bank's 70th economic conference on Friday, November 13, to make a point that matters to anyone who builds, remodels or buys a house: higher interest rates can make homes "more expensive to buy and to build," and the building side is already weak. Her prepared remarks are posted on the Boston Fed's site, with the full text as a PDF.

The number behind the speech

Collins said construction is the one sector where productivity has not picked up. "By one careful measure," she said, the sector produced about 40 percent less output from a given set of inputs in 2020 than in 1970, and productivity has "fallen further since the pandemic." She cited a working paper by economist Chad Syverson prepared for the conference. In plain terms: the same crew, materials and money build less house than they did half a century ago, which keeps the cost of a new home high before a single interest payment is counted.

She also gave a figure on why housing matters to the Fed. Housing is a small share of GDP, she said, yet it drove about 17 percent of GDP growth in the mid-2000s boom and about 41 percent of the output contraction in the bust that followed. Her point: housing is a main channel through which interest rates reach the wider economy.

What she said about rates

Collins was careful. She said tighter policy "is needed at times to ensure price stability," and that stable prices are good for housing in the long run. But she added that "tighter policy in the near term can limit the expansion of the housing stock needed to ease housing market pressures," and can reduce buyers' willingness and ability to get a mortgage. She stressed that housing policy, including zoning, is outside the Fed's remit and that these were her own views, not the Federal Open Market Committee's.

On Saturday, Reuters and Bloomberg headlines reported Collins saying gradual rate hikes are the appropriate path. We could not open either article, so we are not reporting what she said there beyond those headlines. The Friday speech does not mention a specific rate decision. For the Fed's recent debate, see our earlier coverage of the Fed speakers and December hike pricing.

What it costs, in numbers

Freddie Mac's weekly survey put the 30-year fixed mortgage rate at 7.11% on November 12 and the 15-year at 6.45%, per its published history. Our own arithmetic: principal and interest on a $400,000 30-year loan at 7.11% is about $2,691 a month. At 6.11%, one point lower, it would be about $2,427, a difference of roughly $264 a month. That is the demand side of Collins's point. Builders face the same rates on their own construction loans, which is the supply side. Mortgage rates track the 10-year Treasury, which closed Friday at 5.15%, as we covered in our Freddie Mac story.

Who it actually hits

• Remodelers and small builders. They finance materials and payroll on floating-rate lines, so a hike lands on their costs while their buyers' payments rise too.

  141,913 independent construction and contractors are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 12,896 in TX, 12,642 in CA, 11,414 in FL. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

• Employers hiring away from home. Collins relayed what she hears on her New England visits: physicians, mechanics, scientists and hospitality workers who turned down job offers over housing cost and availability, and housing projects stalling for lack of skilled construction workers.
• Someone closing on a house this month. The rate you lock is the one in the table above, not the one you hoped for, and a few weeks of lower weekly readings do not change a monthly payment already locked.

What to watch

The conference continues Saturday with papers on why the 2022 tightening weighed less on households than expected and on how housing costs are measured in inflation. Collins noted that shelter is about one-third of the CPI. Freddie Mac publishes its next rate on Thursday, November 19. Our real estate section tracks each release.

Sources: Federal Reserve Bank of Boston (remarks as prepared for delivery, Nov. 13, 2026); Freddie Mac; Chronicle business counts. Payment figures are our own calculation on a $400,000 loan, principal and interest only. This is market information, not investment advice.