# Shattering Industry Norms: How Mike Kaeding Slashed Construction Costs to Fix Affordable Housing > Published: 2024-08-22 | Category: podcast-episode | Tags: podcast-episode, affordable-housing, multifamily, real-estate-development, construction-costs, company-culture **Guest:** Mike Kaeding Norhart CEO Mike Kaeding on cutting construction costs, fixing affordable housing, and building a company culture that lasts — on The REI Agent. ## Content # Shattering Industry Norms: How Mike Kaeding Slashed Construction Costs to Fix Affordable Housing Everyone in real estate agrees housing is too expensive. Almost nobody attacks the actual reason why. Mike Kaeding does. As CEO of Norhart — a Minnesota company that designs, builds, and rents its own apartments — he's spent years dismantling the assumption that construction costs are simply what they are. His team applies manufacturing discipline to a trade that has been resistant to it for a century, and the result is a cost structure that's roughly 20–30% below industry norms. That number isn't a marketing line. It's the whole thesis. If you can build for meaningfully less, you can rent for meaningfully less and still hit your returns. Affordability stops being a subsidy problem and starts being an engineering problem. In this episode of The REI Agent, hosts Mattias and Erica — fresh off a family trip to Switzerland that opens the show — sit down with Mike to talk about vertical integration, rent control, hiring, capital raising, and the personal loss that reshaped how he thinks about time. ## The Origin: A Family Business and an Unexpected Transition Norhart began as a family business. Mike grew up around real estate development, but the moment that defined his leadership came when his father passed away and he stepped into the CEO role earlier and more abruptly than anyone planned. He's candid in the episode about what that did to him — not just operationally, but philosophically. Losing a parent young collapses the comfortable assumption that there's always more time. It shows up later in the conversation when he talks about family, travel, and intentionality, and it's clearly the engine behind how deliberately he structures his life now. For anyone running a family real estate business, this section of the episode is worth listening to twice. Succession is the most under-planned event in the industry, and it very rarely happens on the schedule you expect. ## Why Housing Is Expensive: Kaeding's Diagnosis Mike's analysis of housing affordability is refreshingly unsentimental, and it starts with rent control. His position: rent control treats the symptom and worsens the disease. Capping rents on existing units reduces the incentive to build new ones, and the shortage of new supply is the actual driver of price. You end up protecting a lucky cohort of current tenants while making the next cohort's situation worse. The alternative he proposes is not a policy — it's a cost structure. **If the cost to build an apartment drops by a quarter, rents can drop without anyone needing to be subsidized or regulated into it.** That's the strategy Norhart has been executing. Getting there means fighting on two fronts: **Regulatory friction.** Mike discusses the challenges of city regulations and shares his own experience with development project rejections. Entitlement risk is enormous — you can spend years and substantial capital on a project that a municipality simply says no to. That risk gets priced into every deal, and tenants ultimately pay for it. **The financial risk of development.** Development is not investing; it's manufacturing with a multi-year lead time and no guaranteed buyer. Mike is direct about how much can go wrong between land acquisition and stabilized occupancy. ## The Assembly Line Comes to Construction The core innovation is this: Norhart applies manufacturing techniques to apartment construction. Traditional development is a coordination problem dressed up as a building problem. A developer hires a general contractor, who hires subcontractors, who each optimize for their own margin on their own scope. Nobody is responsible for the total cost, and every handoff is a place where time and money leak out. Norhart's answer is vertical integration plus process discipline — treating a building the way an automaker treats a vehicle. Repeatable designs. Standardized components. Sequenced trades. Teams that work together across many projects instead of assembling fresh for each one, so that learning actually compounds instead of evaporating at project close. Mike emphasizes **team collaboration** as the mechanism that makes it work. You cannot run an assembly line with adversarial subcontractors. The cost savings come from alignment, not from squeezing anyone — which is precisely why the model has been so hard for the broader industry to copy. He describes the outcome as "the magic of achieving low costs," and it is genuinely magic in the sense that it seems impossible right up until you see the process behind it. ## Hiring Is the Strategy A striking amount of the conversation is about people, not buildings — and that's not a digression. Mike's approach to hiring is to build a strong culture first and let it do the filtering. He talks about creating a genuine community at work, and about the size and diversity of the Norhart team as a direct result of that investment. His advice to small businesses is simple and expensive: **hire the best, especially in property management.** That last emphasis matters for investors. Property management is where multifamily returns are actually won or lost. A great manager keeps occupancy high, turns units fast, catches maintenance problems while they're cheap, and keeps good tenants from leaving. A mediocre one quietly erodes 200 basis points a year and you'll blame the market for it. Mike's framing is that paying up for excellent property management isn't an expense line — it's the highest-ROI capital allocation in the business. ## Capital: Reg A and an International Fund For listeners interested in the passive side, Mike discusses Norhart's capital raising efforts, including a Regulation A offering and an international fund. Reg A — sometimes called a "mini-IPO" — allows a company to raise capital from non-accredited investors, not just the accredited-investor pool that governs most private real estate syndications. It's a meaningfully different structure from a typical 506(b) or 506(c) offering, with more disclosure obligations on the sponsor and broader access for the investor. The strategic logic is clean: a vertically integrated operator with a durable cost advantage wants permanent, patient capital, and wants to widen the pool of people who can participate. Mike walks through the Reg A investment approach and gives an overview of the portfolio and property management strategy that sits underneath it. As always, this is a description of a structure, not investment advice — anyone evaluating a Reg A offering should read the offering circular and do their own diligence. ## Problem-Solving as a Personality Trait Asked what drives him, Mike lands on problem-solving. Not real estate specifically — problems. Buildings happen to be the problem in front of him. That comes through in one of the more practical personal habits he shares: a Sunday running routine. He describes a direct connection between physical activity and his ability to solve problems, which will surprise exactly no one who has ever solved something on a long walk that they couldn't solve at a desk. His favorite book is **"No Rules Rules" by Reed Hastings**, the Netflix culture book built around talent density, radical candor, and removing controls in favor of context. That's a revealing pick for someone running a construction company — an industry that traditionally runs on control, hierarchy, and process rigidity. It suggests the Norhart cost advantage is as much a management philosophy as a construction one. ## Intentionality, Family, and the Cost of Time The closing stretch of the episode is the holistic-living core that defines The REI Agent, and Mike doesn't dodge it. He talks about balancing family life with the demands of running a growing company, and about the intentionality that requires. Not balance in the sense of an even split — balance in the sense of deliberate choices about which hours belong to whom. He returns to his father's death and how it shaped his perspective on freedom, travel, and family experiences. The hosts' own Switzerland trip opens the episode on the same theme: Mattias's Swiss family background, a visit to the family farm, the local greeting traditions, and the honest difficulty of traveling with kids. It's a fitting bookend. Both conversations land on the same idea — the point of building wealth is to buy back time, and if you never actually spend it, you've just built a very elaborate cage. ## Key Takeaways **Cost is the affordability lever.** Rent control redistributes scarcity. Lower construction costs eliminate it. Attack the input, not the output. **Vertical integration compounds learning.** When the same teams build repeatedly under one roof, improvements stick. When every project reassembles a new cast, they don't. **Entitlement risk is real and underpriced.** Budget for rejection. Municipalities can and will kill viable projects. **Property management is where returns live.** Hire the best people you can afford, then afford better ones. **Reg A opens the door wider.** Non-accredited investors can access institutional-quality multifamily through this structure — with the diligence responsibilities that come with it. **Time is the actual asset.** Mike's clearest lesson didn't come from a deal. It came from losing someone and realizing the schedule was never guaranteed. Mike Kaeding is trying to do something the industry has largely stopped believing is possible: make housing cheaper by making building cheaper. Whether or not the model scales nationally, the diagnosis is correct, and that alone puts him ahead of most of the conversation. --- *Listen to the full conversation with Mike Kaeding on The REI Agent podcast. Learn more about Norhart at Norhart.com, and connect with Mike on LinkedIn, Facebook, Instagram, and X.* *The REI Agent is hosted by Mattias and Erica Clymer — real estate meets holistic living. New episodes every Tuesday and Thursday.* ## Related Episode This post is based on Episode 21 of the WELLthy Investor Podcast. - [Listen to Episode 21](https://reiagent.com/episodes/) ## Links - [Watch on YouTube](https://www.youtube.com/watch?v=AecaZ32oHJo) - [Listen on Spotify](https://podcasters.spotify.com/pod/show/thereiagent/episodes/Shattering-Real-Estate-Industry-Norms-and-Reshaping-Affordable-Housing-with-Mike-Kaeding-e2nfud2) - [Full HTML version](https://reiagent.com/blog/mike-kaeding-norhart-affordable-housing-construction-costs/)