Is factory-built housing viable?
Factory-built and manufactured products appeal for their quality, consistency, affordability, and speed. In contrast, home building is a business with endless variables, delays, and roadblocks. Modular homes, built off-site under controlled plant conditions, are a viable housing option that uses the same materials and adheres to the same codes and standards, but is complete in about half the time as a traditional build, according to the modular building institute. A far cry from mobile homes, modular homes have come a long way to combat the stigma in public perception and have matched the quality, creativity, and appearance of a stick-built home. This controlled form of construction may be the solution to help alleviate some of the issues driving the affordable housing challenges. With national, state, and local governments, as well as production builders struggling to provide low-cost housing options, manufacturing, and tech-forward industries will be equipped to offer elegant and affordable solutions. We think the current perfect storm of affordability, climate issues, and availability makes the promise of factory-built housing viable; but can the industry meet demand?
The state of affordable housing
The cost of building a home is increasing. Rising mortgage rates, labor shortages, high inflation, and material costs have contributed to higher home prices, widening the already significant gap in housing affordability.
The National Association of Home Builders reported in August 2022 that housing affordability has fallen to the lowest level since the Great Recession. The (NAHB)/Wells Fargo Housing Opportunity Index (HOI) for 2022 reported that “just 42.8% of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $90,000.”
Compared to 2022’s first quarter, where 56.9% of homes sold were deemed affordable to median-income earners, the steep decline exacerbates the demands on builders and those in the built environment to do more with less. Builders face challenges of workforce housing in a business with tight margins. The lack of affordable housing hurts customers and builders. The solution will take a holistic approach involving strategic thinking from builders and policymakers and innovation in the built environment.
Sticks & stones
Construction has the bragging rights of being one of the world's oldest businesses on record (check out the 1,400-year-old shrine carpenters of Kongō Gumi). Yet, in an industry notorious for “doing things the way we’ve always done it,” how do you introduce new methods and technology that could address affordable housing in an impactful and urgent way? Compared to other industries, such as manufacturing or retail, the home building and construction industry’s slow adaptation towards innovation and technology acceptance can shed light on the threshold for change. The McKinsey Global Institutes (MGI’s) report, Reinventing Construction: A Route to Higher Productivity (February 2017), says: “While sectors such as retail and manufacturing have reinvented themselves, construction seems stuck in a time warp. Global labor-productivity growth in construction has averaged only 1% a year over the last two decades, compared with growth of 2.8% for the world economy and 3.6% in manufacturing.”
Builders will be the first to admit there has been little change in construction methods over the past 40 years. In a report by Hanley Wood, LLC and the HIVE Action Partnership (Housing Innovation Vision Economics) entitled “A Home Building Perspective on Housing Affordability and Construction Innovation," 60% of the single-family builders and 69% of the multifamily builders say that there has been “little or no change or moderate change” in the construction methods used.
Although nearly 85% of housing construction is still dependent on “stick-built,” new ways are on the horizon. The same HIVE survey asked builders what production time would be if they plan to increase the use of innovative construction methods such as factory-built/modular, pre-cut, open wall panels, and closed wall panels. With 46% of respondents saying they would “increase their use in the next 2-5 years,” is it possible for an industry that is reactive in its DNA to embrace new methods to make housing more feasible in an urgent manner?
Big builder test kitchen
Many mid-sized production builders are not innovating of their own accord. Instead, testing the waters through a proven disruptor introduced by a startup or high-production builders tends to be the strategy. However, “Big” Builders, with their resources and eager vendors, are beginning to experiment with the latest alternative building methods and materials.
Reactive builders will wait until high-production field tests show proof. However, change is happening slowly. More attention from the media and policymakers is turning their focus to factory-manufactured homes and alternative methods.
After this past June’s Innovative and Housing Showcase presented by HUD, the US Housing Secretary, Marcia L. Fudge, is quoted, “We just can’t continue to build the houses we grew up in …. These houses are more efficient, more resilient. But the other thing is, we need so much new housing. These can be built quickly and installed quickly. They are at a great cost point. And so it is a big part of the solution.” With policymakers beginning to come on board, the once unclear cost benefits of factory-built homes are gaining momentum. Where a traditional stick-built home might require 20+ subcontractors, factory homes are 90% complete off the truck and can be set up in mere days by four workers.
