While the idea of manufactured homes may sound like news to a millennial, or anyone who hasn’t been involved in home building for the last 60 years, if you’ve been around the business long enough, you know that panelized, modular, and full-on prefab homes are the future that seems to never arrive.
Sure, there are plenty of companies with a solid business model in all of these types of construction, but they still account for only a fraction of the home building industry, despite their promise of speed, affordability, and quality control. Even with steady growth in their sector of the market, manufactured homes accounts for only 10% of yearly housing starts according to National Mortgage News. Given a bunch of recent news stories however, it seems that once again, the time may have come for factory-built housing, which the industry is now also watching for the potential to both close the skills gap in the home building industry and/or put skilled builders out of work.
From the assembly line to the printer
There’s a new article from Fast Company titled “Can new home building tech help solve the affordability crisis?” Citing rising construction costs, particularly in metropolitan areas, the author suggests that off-site construction may be the solution. The article focuses on a few different companies approaching manufactured housing from the common assembly line setup to new automated construction techniques to next-generation 3D printing.
One California company called FactoryOS is currently manufacturing modular apartment buildings for the Bay area market. FactoryOS owner Rick Holliday, says the steep rise in construction costs in California is due in part to the labor shortage. According to the article, FactoryOS can build twice as fast and for half the cost of a conventional builder.
Another California company featured in the article is focused on high-end custom homes. Plant Prefab’s factory is about an hour outside of Los Angeles where the costs of living offer two advantages. Construction workers can afford to live in the area and the company doesn’t have to pay the pricey wages that workers need to make in urban areas. This is one of the ways that they lower their cost which in turn lowers the costs of their homes. They are looking into automating more of the process however, to lower costs further.
And at least two companies, Mighty Buildings and Icon Technologies are entering the 3D house printing business. While Mighty Buildings is still not releasing their plans, Icon Technologies is at work printing affordable concrete homes in El Salvador, and expects to be working in the US next year.
Also, earlier this month the Grand Forks Herald published an article about a North Dakota startup that aims to make home building faster and less costly. Nordic Steel Systems is entering the home building market with factory framed panels that use steel framing, instead of wood, to reduce a builder’s labor costs by as much as 30%, with the promise of a speedier build to boot.
The potential loss of jobs in the building industry is not lost on the company owners. In the Fast Company article, Mighty Buildings founder Sam Ruben says, “We’re seeing it across the board with technology that’s really starting to impact whole swaths of jobs that traditionally have been unionized. There’s a conversation that needs to be had there about what it looks like to responsibly expand technology.”
But other factory owners see the potential for closing the skills gap. The owners of Nordic Steel claim that the learning curve to make their panels is low, which will allow them to hire unskilled workers who they can train. The company plans to start with just a few employees, but says they could easily employ 100 workers if things go well. And to their credit, the company plans to offer jobs to at-risk people in the community giving them a chance at employment.
FactoryOS has a similar plan to hire “second chance” workers through the Carpenter’s Union. And their Vallejo factory location has the same advantages as Plant Prefab—more affordable costs of living compared to the high-rent areas where their apartments are being installed for employees mean lower payroll costs for the company. Factory employment also often comes with consistent and steady hours, benefits, and vacation time, which are not a reality for many workers in the mainstream home building industry.
A proven disruptor enters the market
It seems that automation could definitely be a game-changer in the manufactured home model. Until now, most factories have been assembly line affairs with workers, often skilled carpenters, building houses with the same tools and materials that they would use on site, just in a more controlled environment. As cool as it is to see a concreted house printed, it’s hard to imagine a day any time soon where these homes could replace the style and comforts of even the most ubiquitous production homes, except for the fact that tech companies have proven themselves as industry disruptors—think Amazon, Uber, and Airbnb, who is indeed considering entering, or perhaps given their history, invading, the home building market.
In late November, Airbnb, who nearly over night turned the hospitality industry on its head when it launched in 2008, announced that their product development team, Samara, is looking into possibility of getting into the home building business with their “Backyard” project. Here’s a excerpt from the company’s announcement:
the Backyard team surveyed the construction industry in search of practical solutions, ranging from eco-friendly building materials to fully prefabricated homes.
“Simply put, nothing addressed long-term adaptability from a systemic perspective,” project lead Fedor Novikov said. “The only way to close the gap was to work from first principles and imagine entirely new approaches for building homes.” With a team that includes industrial designers, roboticists, mechanical and hardware engineers, and material specialists, it doesn’t look like they believe building on site is a model worth considering.
Who knew financing was a problem?
According to Statista, the total value of mortgage debt in the United States amounted to $14.9 trillion in 2017. It’s safe to say that the financing industry has the potential to make or break any new idea in the home building industry. We’ve watched home owners struggle to get financing for “green” homes that are built with alternative technologies. Lenders often won’t finance energy upgrades that have higher upfront costs but lower the costs of operating the home. Sometimes, they won’t finance small homes, because they fear no comps will make resale challenging. But it turns out that the home financing industry may be turning favor towards factory-built homes.
According articles in HousingWire and National Mortgage News, lenders are seeing the potential for growth in the manufactured housing market for the same reasons builders and home buyers would be—low labor costs and faster build times. They are also intrigued by upward trends in quality in the manufactured sector.
Just a few weeks ago, mortgage giant Freddie Mac announced their new CHOICEHome program, a two-year trial that will allow certain manufactured homes to be financed similarly to more conventional site-built homes, using existing homes as comps for the appraisals, as long as the homes meet the Department of Housing and Urban Development requirements that are a must-have for all of their mortgages. CHOICEHome is part of the lender’s Duty to Serve plan, an effort to help potential home owners in underserved markets.
What we know about manufactured housing
While the Manufactured Housing Institute may not be representative of the Fast Company startups or the tech sector market invaders, it is the biggest factory-built housing association with a huge pool of data to help put this sector of the building industry in context, here are some statistics about manufactured housing from their website that may or may not surprise you:
- There are about 22 million manufactured homes scattered across the US
- The average cost of a manufactured home is $70,600
- The average manufactured home costs $49 per sq. Ft.
- 93,000 manufactured homes were built in 2017
- 24 states have home manufacturing facilities
- At 20, Texas has the most factories
- Manufactured housing employs about 40,000 people in the US
Perhaps it’s time to take the headlines seriously
It’s true, factory-built housing has been making headlines for decades. But this is the first decade since the US housing market essentially crashed our economy and we plummeted into one of the worst recessions since the Great Depression. It’s a decade featuring a housing affordability crisis that is making it nearly impossible for new home owners to enter the market in many areas. It’s a decade with a pervasive and problematic skills gap. Given the impact high-tech startups have had on other industries and the potential impact startups in the manufactured housing sector could have on the building industry and its current and future workforce, its seems this is also the decade that we should finally take these headlines, and the potential of factory-built housing, seriously?
-Brian Pontolilo
