Could Industrialized Construction mitigate America’s affordable housing crisis?

Author: Conor Larkin

Multifamily and affordable housing woes

As you probably know, America is experiencing an affordable housing crisis. According to the National Low Income Housing Coalition (NLIHC), 580,000+ people are experiencing homelessness on any given night, while 70% of all extremely low income families pay more than half their income on rent. The NLIHC estimates that only 57 rental units are affordable and available for every 100 very low-income renters.

Source: National Low Income Housing Coalition, 2019

There are a number of factors that have led to this crisis: the pandemic, high construction costs, zoning laws, local regulations, and wealth inequality represent just a few. In an attempt to address this nation-wide concern, the federal government has shifted its focus from funding public housing projects to implementing voucher programs, which aim to fill the financial gap between what a low-income tenant can afford and what a landlord might expect to get on the open market.

However, these programs don’t have the resources they need to meet high demand: one recent study found that the federal government has provided funding for only a quarter of the vouchers needed to help house eligible families — and many housing authorities have simply stopped taking names to avoid leaving tenants in the lurch. The State of the Nation Study indicated that the number of cost-burdened renters has grown in recent years while housing assistance has been deprioritized.

Source: Joint Center for Housing Studies of Harvard University, 2020

San Francisco Case Study

San Francisco is the most expensive US city to live in, and it has the fourth highest number of chronically homeless individuals out of all urban centers in the nation. Exacerbating this issue are local zoning regulations that prohibit construction of any building type other than single-family detached houses.

Source: UC Berkeley Othering and Belonging Institute, 2021

As a counteracting measure, San Francisco’s Mayor pledged $100M in 2018 to build an offsite factory in the city and use offsite construction projects to address their housing crisis (the term “offsite construction” generally includes modular, panelized, prefabricated and industrialized construction). The announcement was met with major pushback from SF building trade unions because it infringed upon the use of SF-based trade labor in favor of cheaper offsite labor outside of the city. Since the announcement the only thing that has been released by the Mayor’s office was, according to trade union secretary- treasurer Tim Paulson, a “lightweight and unhelpful” study on the feasibility of locating a modular construction factory in the city. Factory construction has yet to begin, with cost concerns cited as the major roadblock.

Despite this lackluster public effort there have been outcroppings of offsite construction developments in the city, including a 143-unit modular supportive housing project which, once completed, will be the city’s first 100% affordable housing modular project. Proponents of the Factory OS built development tout the cheaper cost and 40% reduction in time to completion for the project compared to traditional stick-built developments.

It is interesting to note that in a letter to the Mayor, the San Francisco Building & Construction Trades Council Board President stated that “We are against modular housing, unless it is built in San Francisco with union workers and craft-specific employees.” In parallel, San Francisco trade union leaders argued that modular construction reduces the quality of building and pushes down wages. Reduction in quality is often cited as a mark against modular/offsite construction, but the measures taken in the controlled environment of a factory to ensure peak standards have largely debunked this stance. The specific pushback around lower wages was rooted in the lack of SF-based union labor. While a legitimate critique, Factory OS employees are on average paid $50,000 less and offsite work requires less variety of trades, this also reflects the large discrepancy in labor costs outside of the city compared to inside. Of the 513 employees at Factory OS, 460 of them are members of the carpenters union – which should indicate potential collaboration opportunities between the offsite construction industry and trade unions.

Expansion of Offsite Construction

Under the right conditions, offsite construction can reduce end-to-end timelines by an average of 30% and in some cases up to 50%. This speed of production is a key catalyst to addressing the urgent housing shortages, and as a result offsite construction is slowly gaining recognition as a promising solution to meet the affordable housing need. 

For example, Salt Lake City recently voted to adopt the new offsite construction standards developed by the Modular Building Institute and the International Code Council. Amy Fowler, Salt Lake City Council Chair, noted that the “lack of affordable housing is a crisis” and that offsite construction “would allow the city to include another stock of housing that can be quick, affordable, and attainable.”

We are already seeing an increasing trend of offsite construction in the multifamily residential market, which includes the vast majority of affordable housing. The National Institute of Building Sciences conducted a 2018 survey across a range of construction practices to indicate where off-site construction is most often utilized: out of more than 500 respondents, almost 40% said that they were most often using off-site methods for multifamily construction, a 14% increase from the 2014 study.

The multifamily residential market is uniquely positioned to address the housing shortage because of the high volume of units on a single property, and we continue to see more and more promising examples of how this can be successful. Volumetric Building Companyestablished plans to construct modular housing units to address market-rate multifamily housing shortages in Philadelphia. Meanwhile, Factory OS, a modular manufacturer in California, built 110 affordable apartment studios in West Oakland (as seen in image below) and recently received $17 million from Google and Autodesk to develop more affordable housing in the Bay Area. Such financial support from large tech giants is yet another strong indicator of offsite construction’s wide potential and increasing value.

Source: The New York Times, 2021

In Austin, another one of the least affordable cities in America, a modular multifamily housing production company Juno broke ground on its first project this past September. The project will provide a small portion of its residential units for households making less than $34,650 per year or a family of four making less than $49,450. And on Martha’s Vineyard, a long-planned modular home development project is scheduled to open next April. The project will provide housing for 20 low- and moderate-income households, and is the largest affordable rental housing development on the island in 15 years.

Looking Forward

In the midst of an urgent and under-resourced affordable housing crisis, faster and cheaper construction methods should be a go-to solution. Industrialized construction offers key advantages over traditional construction in that it increases the speed of deploying the high-quality, energy-efficient, and affordable housing units we desperately need. At a certain point the issue becomes one of supply; to address the housing shortage we need to build more housing units and we need them soon. Regardless of your stance on offsite construction, the faster we can build, the better we can address the crisis.