32% rise in rents nationally between 2001 and 2015 without corresponding increase in wages. Wages remain flat and affordable housing scarce. Prefab housing may be a strategy

Affordable housing shortage highlights the need for construction to enter the tech age

Prefabricated modular housing can address the affordable housing crisis in a revolutionary way. It’s time to acknowledge and invest in the promise of factory-built housing once again.

Credit: Modular Building Institute/Capsys Corp.

Nigel Wilson, Dec. 4, 2019, Smart Cities Dive

Editor’s Note: The following is a guest post from Nigel Wilson, group chief executive of Legal & General.

With Apple’s recent announcement that it is committing $2.5 billion to affordable housing, matching the combined pledges of Facebook, Google and Microsoft, the ongoing issue of insufficient and inadequate housing is cast center stage.

California’s Bay Area is in perhaps a more deeply etched predicament than many other regions in the U.S., with a “low-income” designation applied to a family of four making $117,000 a year. The state of California has more than 134,000 homeless people, and in San Francisco, the homeless population has risen by 17% since 2017.

Tech companies are blamed — and to a degree, blame themselves — for creating the severe wage stratification that has exponentially worsened the crisis. Their response is to take their business elsewhere, to other regions and communities, along with the double-edged sword of prosperity. What this means is that the country is going to need real investment from business, not only to shelter the homeless but to create a lot of housing for low- to middle-income families. Apple’s pledge is the tip of the iceberg.

Looking more broadly across the U.S., the National Association of Realtors recently released its report on September 2019’s existing home sales, with the unexpectedly big 2.2% fall again attributed to inventory shortage, continuing a long-term trend — even as the nation enjoys lower mortgage rates and unemployment is at its lowest in almost 50 years. The enduring shortage of properties continues to push house prices to record levels, and again, the drop points to a severe shortage of affordable housing. Despite massive wealth increases for some, affordable housing is increasingly unavailable for many.

The National Low Income Housing Coalition reported in its 2019 Out of Reach report that, in the U.S., four million affordable rental homes are currently available to the country’s 11 million “extremely low-income” households, leaving a gap of seven million households without access to affordable housing. In the U.K., this shortage is estimated at an annual 300,000 homes needing to be built. Across the U.S., homes are being built at a rate lower than nearly every other period in history. Zooming out from a purely U.S. perspective, in the last 20 years, global construction productivity overall has stagnated, growing at only 1% annually, or about one-third of the rate of the world economy.

Multiple factors have deepened this crisis over time, but the fact remains that in no U.S. state is it possible to obtain a two-bedroom apartment at Fair Market Rate — the Federal Department of Housing and Urban Development defines an “affordable dwelling” as one that can be obtained for 30% or less of a household’s post-tax income — with a standard 40-hour workweek at the federally recognized minimum wage. This, again, is not only due to a dearth of livable wages, but also because in a system where scarcity of resources leads to inflation of cost, fewer homes being built will inevitably increase the cost of each home.

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Even despite the dropping unemployment rate and seeming economic boom in the U.S. today, there has not been an accompanying increase in new and affordable home construction. “Stagflation,” a compound term signifying both recession or slow economic growth and high unemployment, as well as inflation, presents a particular problem, as solutions for one problem tend to exacerbate the other. True to form, this has been a major factor in the in the U.S. with a 32% rise in rents nationally between 2001 and 2015 that has not been accompanied by a corresponding increase in wages. And although the economy has been steadily improving since then, wages remain flat and affordable housing scarce.

Financing a home has become increasingly difficult for young people and families. We’ve found that an estimated quarter of all housing transactions in the U.K. depend on financial help from family members. We’re calling this the Bank of Mum and Dad. But parents are feeling the financial strain, and can no longer afford to help as much as they once could – even parents are affected by affordable housing issues.

This deepening crisis makes it imperative for business to get creative: how can we “disrupt” construction, look at it from a new perspective and increase production while concurrently bringing down cost? Planning, funding, and building homes that real people can afford to live in, and eventually own, is a desirable goal, both in a societal as well as a business sense.

It’s helpful to look to history to find solutions to contemporary problems. The first houses (and houses for centuries to come) were built on-site using whatever materials were available – frames didn’t necessarily have set patterns or materials, corners could only be as close to 90 degrees and floors flat as possible under the circumstances. It’s hard to imagine DIY-ing anything bigger than an Ikea bed today, and yet most house construction today still follows this on-site construction approach.

Still looking to the past, however, other approaches to construction, radical for their time, evolved. In 1908, Sears began a new venture, selling prefabricated, “kit” houses. These homes arrived complete with framing, finishing, fixtures and all, with an instruction manual on assembly. Americans built some 70,000 of these affordable homes, from over 400 different Sears models. A good number of these have survived, and some even hold a spot in the national historic register.

These revolutionary constructions, however, eventually morphed into the American “trailer park,” with entirely different connotations and associations than the Sears kits. Mobile homes lost the quality and customizability of the Sears model, and became a home of last resort for many. This stigma against modular housing also exists across the pond in the U.K., where the term “prefab” has come to connote the quality of the hurried, leaky housing set up to replace homes bombed out during the Blitz.

The reality, however, is that modular, prefabricated housing can exceed the limitations put upon it by popular conceptions of trailer parks and postwar government housing. Not only are they certainly faster – an important factor in cost, as the cost of land and construction have as much as doubled in some parts of America within the past decade – but also of a higher quality. Manufacturing has come a long way since Sears began to sell its kits, and the precision techniques that have come to characterize automobile or jet engine manufacturing are eminently applicable to home construction.

A far cry from the “prefabs” of the 1950s, modules can be manufactured off-site in factories, in a cutting edge process of designing and building homes that can drive real change in an industry that has seen little change in centuries. Modular manufacturing permits us to get down to a level of detail and robustness that traditional architects, structural engineers and mechanical and electrical engineering consultants do not normally go into. The caveat is that, similar to other industries, where AI and robotics are creating a need for upskilling, so in cutting edge housing construction, new skills and training are a fundamental part of how we can move forward.

To future proof the sector and to make a real impact on housing availability, there needs to be a holistic approach, a combination of attracting the right skills to the sector, alongside adoption of technological innovation. Together this will ensure that we are continually improving and challenging our construction methods.

The strides in precision manufacturing are allowing not just cars, solar panels and wind farms to become cleaner and greener, but also home construction, with new materials and energy-efficient construction methods available to modular home-building that are changing the game. With the more accurate prefabrication under controlled factory conditions coupled with the reduction of on-site risks such as weather and topographical shifts in the natural landscape, it stands to reason that modular homes present an approach to the affordable housing crisis that is not only faster and more economical, but also quality.

All around us, we are seeing signs of this revolution today. Factory-built modular homes have moved beyond their connotations as trailers and social housing, and have become something you’d actually want to live in. Japan’s R&D-intensive Sekisui House has produced 2 million units of quality housing. Germany’s Huf Haus has made their name in highly desirable wood and glass modular homes.

And it would be remiss to discuss the evolution or disruption of any industry without mentioning Amazon, which has, perhaps unsurprisingly, also entered into the modular housing game. Prefabricated homes are already available for purchase on the platform – a simple search yields multiple options, from a 292-square-foot “getaway cabin,” albeit with no plumbing or electrical, for $18,800, as well as a 1,336-square-foot “proper home” for $64,650, that comes complete with two floors and an insulated roof. Not content with just that, however, Amazon has also recently partnered with the largest home builder in the U.S., Lennar, and invested in Plant Prefab, a California-based sustainable construction and smart home technology startup, and plans to hard-wire Alexa into new home constructions.

People are now making investments that they intend to last. People now need their homes to fill the needs of a living space, office, Airbnb and more. Wouldn’t they rather have a well-built, affordable, sustainable house that they won’t need to fix or straighten? Looking toward the expected lifespan of these homes, due to the precision of factory construction and the availability of new materials, some prefab or modular homes have the potential to even outlast traditionally-built, on-site housing. And alternately, looking at the beginning of their “lives,” these homes have the potential to be constructed quickly and used right away. For example, the DeLuxe-Built modular housing factory based in Pennsylvania offers steel-framed, multistory buildings designed by architects and engineers that arrive ready to move in – down to, for their hotels, sheets on the beds and towels on the racks.

It’s clear that this method has enormous promise, turning the holdout perception of the U.K.’s postwar prefab housing or the U.S.’s trailer parks upside-down. Prefabricated modular housing has the potential to address the affordable housing crisis in a revolutionary way. The key is not just for the amount of new homes to increase, but for the speed at which those houses are being built to increase, without a corresponding drop in quality or scale. And the speed at which modular housing itself is growing is increasing as well: about 3% of construction in America is currently modular and factory built, but this is anticipated to reach 10% over the next five years.

Looking back at the U.S. again, where the gap between available, affordable homes and the people who need them is even wider, and the potential return on capital invested is likewise far greater, is there any reason to hold out on prefab modular housing? It’s time to acknowledge, and invest in, the promise of factory-built housing once again.

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