TBL Thinks: US Weapons Production & Shrinking Homes

Jun 28, 2024

Dear Readers,

It’s Thinking time. This week we cover US efforts to bring home and beef up production of ammunitions, the shrinking size of single-family homes, and a KKR bet on apartment buildings.

TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.

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You Get a Gun! You Get a Gun!

How a Texas Factory is Emerging as a Key Ammo Supplier for the US, Ukraine (WSJ) As the conflict in Ukraine wages on, the US and its allies are left in need of shells and other firepower, triggering a push to ramp production as the Pentagon works to revamp World War II era plants with modern equipment and increase output at new facilities.
US production of 155mm shells was about 14,000 per month in 2022 when Russia invaded Ukraine. Current production stands at approximately 30,000 shells, with the government aiming to increase it to 100,000 by the end of 2025—the “Texas facility would take the nation more than halfway to that target, with the first of three production lines set to start this fall.”
The shell factory is one of many efforts to bring home the production of materials critical to national security, such as explosives, rare-earth minerals, and semiconductors.
- Explosives: the Pentagon has long relied on a single source, American Pacific, for the main ingredient that fuels its missiles, an issue that has been flagged as a national security risk by Pentagon logistics experts. Northrop Grumman is hoping to provide the country with a second source, but its self-made fuel is not yet being used in US missiles.
- Rare-earth minerals: F-35 jet fighters, missile-guidance systems, predator drones, and nuclear submarines all need rare-earth magnets to power them, with the issue being that China makes 92% of the world’s rare-earth magnets. The US is working overtime to establish rare-earth mining in the country.
- Semiconductors: the US has launched several schemes and incentives to bring chip production back home, as we have covered earlier.

Tiny Home Nation?

Free Modern Building Against Sky Stock Photo

The Typical New Home in the US is Shrinking (CNBC) The size of a typical American home continues to come down. Homes under construction in 2023 dropped down to the smallest in 13 years, averaging at 2,411 sq. ft. or a median of 2,179 sq. ft.
In the first quarter of 2024, newly built single-family homes had a median of 2,140 sq. ft compared to a median of 2,256 sq. ft. in 2023, according to the US Census Bureau.
New builds have been getting smaller consistently since 2015, with the exception of 2021. While smaller-sized homes help reduce costs, the trend is being fueled by buyer demand.
According to the National Association of Home Builders (NAHB) “more than a third (38%) of builders say they built smaller homes in 2023, and more than a quarter (26%) plan to construct even smaller this year.”
As homes become smaller, buyers are becoming savvier, using one space for multiple uses. According to this piece by The Atlantic, “the dining room is the closest thing the American home has to an appendix”, as homeowners sacrifice a dedicated space to eat to make the most of their square footage.
The NAHB also found that “nearly 4 out of 10 buyers would be willing to give up land in exchange for owning a home and more than a third (35%) will accept a smaller house if that’s what it takes to buy it.”

Multifamily buildings

Free A city skyline with tall buildings and tall buildings Stock Photo

KKR Makes its Biggest Foray into Apartments, Betting on Rising Rents (WSJ) KKR just completed its largest-ever purchase of apartment buildings, sending a strong signal that most prominent investment firms are betting on the rebound of multifamily.
KKR’s deal for 18 new mid- and high-rise buildings across the country is worth $2.1 billion and includes more than 5,200 apartments.
This is a bold move in an economy in which developers sit on empty lots, and rent growth for new leases has been flat for more than a year. “Apartment-building prices were down more than 20% in May from their July 2022 peak, according to data firm MSCI Real Assets. Sales of buildings were 44% lower than year-ago levels in May.”
Investors are swooping up distressed apartment building sales as more landlords miss payments in the face of increasing debt costs on variable-rate loans.

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Until next time,

TBL Thinks