The Diffusion of Innovation in Home Building

Abstract

Studies of housing demand and finance have dominated recent empirical research related to the housing industry. Housing supply has received considerably less attention, and empirical studies exploring the determinants of technological progress in the housing industry are quite limited. This paper investigates the factors that influence the propensity to adopt ten innovative methods and materials for a sample of 417 individual home building concerns obtained from the 1987 NAHB Builders' Profile Survey. A diffusion index reflecting the number of innovations used serves as the dependent variable in an ordered probit framework. Explanatory factors include economic conditions, characteristics of the firm and its operating head, the type of construction, and institutional and regional variables. Alternative specifications accurately predict the number of innovations adopted for about 32 to 34% of the sample. The estimation results suggest that firm size, type of construction, and regional effects are the key determinants of the propensity to adopt the innovations examined in this study. We find some evidence that demographic characteristics of a firm's operating head influence diffusion. Our results do not support the hypotheses that fragmentation reduces the likelihood of adopting innovations or that unionization of its employees affects a builder's propensity to adopt innovative methods and materials.