Terner Center Blog: No Limits

Building Affordability by Building Affordably: the case for Off-site Multifamily Construction

Posted on by Carol Galante and Sara Draper-Zivetz

To remain relevant and successful over time, every industry must modernize and adapt to changing demands and opportunities in the marketplace. The housing development industry is no exception, and over the years, has experienced its fair share of evolutions and revolutions in business model and product design. Today, as housing developers face rapidly changing consumer preferences, population demands, technological advances, and an ever- rising cost of construction, the adage “innovate or perish” may be timelier than ever.

How will the housing industry adapt to these new realities? As a recently released report from McKinsey & Company points out, the construction sector is especially ripe, or better said, overdue, for an infusion of innovation. Inefficiencies in traditional construction have hampered productivity and driven costs up for decades, resulting in increasingly costly development. Today, in many regions in the United States, the production of housing - especially infill multifamily housing – has become so costly to produce it demands rents or sale prices that are unaffordable for most people. While the cost of construction is not the only reason housing prices continue to increase, they are certainly a major factor.

Source: McKinsey & Company report: Reinventing construction through a productivity revolution February 2017

 

Off-site construction of housing, which leverages the efficiencies of factory production to achieve significant cost savings, represents a much needed solution to this problem. It has the potential to revolutionize the way homes and apartments are built.

Producing housing off-site involves manufacturing modules or components of a unit in a factory, and then transporting these to lots for installation and stacking in a process akin to interlocking Lego blocks. This method is sometimes referred to as modular or prefab development, though there are technical differences. With up to a 50 percent shorter production time and up to 20 percent savings on construction costs alone, off-site construction methods allow for more housing to be produced more quickly at a lower price. The potential result of this innovation at scale? Lower rents and home prices for millions of American families currently burdened by high costs of housing.

Photo courtesy of BRIDGE Housing

 

While a number of other countries such as Sweden have already broadly integrated off-site construction, only a few off-site factories are currently in operation in the United States. Today, the Terner Center is releasing a new paper exploring the benefits, barriers, and breakthroughs needed to significantly expand this construction method in the American market, particularly in the multifamily development sector. The paper documents the potential cost savings, time savings and other benefits of off-site construction, identifies some of the key reasons it hasn’t yet taken off, and puts forth several ideas for how to overcome these challenges to bring it to scale.

Solving the complex housing affordability challenges facing many high-cost regions in the United States is ultimately going to require innovation and leadership from all sectors. Local land use policy decisions, state approvals processes, and federal housing expenditures are all important, but just as essential is the willingness and audacity of private sector leaders to work through the complexity of innovation and bring good ideas like off-site multifamily construction to scale. As a business opportunity and a pathway to addressing the growing lack of affordability in the United States housing market, there is much to be gained by expanding the practice of off-site construction. The time is now for the industry to take this leap forward.


Federal Policy Outlook: 2017 and Beyond

Posted on by Terner Center Team
Filed under: Informing the Dialogue,

Since November's federal election, many have been considering what the incoming Administration portends for housing policy and practice in the next four years. Last Tuesday, California Housing Consortium and the Terner Center for Housing Innovation welcomed over 100 people to a panel discussion in Oakland intended to explore this question. The event brought together housing experts Michael Novogradac of Novogradac & Associates, Chris Gouig of Alameda County Housing Authority, Matt Schwartz of California Housing Partnership Corporation, and our Faculty Director, Carol Galante. CHC Policy Director Marina Wiant moderated the conversation, asking questions about tranistions in federal leadership in housing, the nature and implications of impending tax reform,…


Opening Doors to Homeownership Series Part 1: Lease-Purchase

Posted on by Carol Galante, Carolina Reid, Rocio Sanchez-Moyano

A number of recent studies suggest that the American Dream, with its promise of upward mobility, is diminishing for current and future generations as the racial wealth gap grows and access to opportunity shrinks. This troubling trend is most evident in one of the dream’s most potent symbols: homeownership. In recent years, alongside widening inequality, rates of homeownership among young adults and minority families have declined precipitously and, in 2016, the national homeownership rate fell to its lowest level in more than 50 years.  What explains this trend? Working families (and especially lower-income and minority households) seeking to buy their…


Balancing the Burden: Proposing a FAIR Tax Credit for Renters Facing Affordability Challenges

Posted on by Carol Galante, Carolina Reid, and Nathaniel Decker

By most accounts, rents have never been higher. In the United States, over 21 million people see more than 30 percent of what they earn go to rent each month. And over 11 million Americans are paying more than 50 percent of their income to rent their home, leaving little left over for other essentials like healthcare and food, and leaving too many facing a precarious stretch of days until their next paycheck. And this is not just a problem of poverty: because rents have risen faster than incomes, even renters who are working full-time and earning modest wages are…


Housing Highlights from the 2015 American Community Survey

Posted on by Jed Kolko
Filed under: Demographic Trends,

The Census Bureau has just released the 2015 American Community Survey (ACS), the most detailed and comprehensive regular source of housing data for the U.S. and local areas. The housing market continues to ease back toward normal, with a drop in vacancies, an increase in single-family owner-occupied units, and a decline in cost burdens. However, homeownership fell yet again, household formation remains below normal, and more young adults are living with parents (2016 Current Population Survey data). Here are the housing highlights from the 2015 ACS, with more detail available in this slide deck: Homeownership and household formation (slides 3-10): The…


A Golden Rule for the Golden State? How State Action Could Help Solve California’s Housing Crisis

Posted on by Carol Galante, Carolina Reid

In the United States today, over 20 million households are spending more than 30 percent of what they earn just to pay the rent or mortgage on their home. Both locally and nationally, the repercussions of this affordability crisis are taking center stage. In recent weeks, the resignation of one local leader over housing costs and frustration with chronic political inaction in her community set off a flurry of media coverage and social media conversation. Meanwhile, recent poll results have elevated the issue of housing affordability onto the national stage as well. Underlying these recent events is the reality that the…


Small Houses, Big Impact: Accessory Dwelling Units in Underutilized Neighborhoods

Posted on by Rocio Sanchez-Moyano and Carol Galante

As NIMBY’s (Not in My Backyard) continue to oppose new housing development, a new group of homeowners are saying yes, by literally building new homes in their own backyards.  Accessory dwelling units (ADUs), also referred to as in-law suites or granny flats, are smaller, independent units on the same lot as a single family home (sometimes even an extension or a reworking of the home itself). ADUs were common in the early twentieth century, but went out of favor post-World War II as single-family, suburban style development characterized by large lots and an emphasis on the nuclear family became the…


State Policy Solutions to the Short Supply of Housing

When it comes to a lack of affordability in housing, it’s no secret that California is outpacing the nation. Average home prices are about two and half times more expensive than the rest of the country, and rents are about 50 percent higher. A shortage in supply is a key contributing factor, and we need both public policy and private sector solutions that will help expand housing production to better meet demand. This week, the Terner Center is sharing an analysis of one important avenue to meeting this challenge in California: improvements to state land use regulations to promote an…


Putting the Tool to Work: Takeaways from the Housing Development Dashboard

Posted on by Carol Galante

The Terner Center’s recent release of the Housing Development Dashboard was met with enthusiasm from media outlets, practitioners, and policymakers, all commenting on its important contribution to our understanding of local housing production and related policies. I want to share some of my biggest takeaways from the Dashboard, to illustrate why and how I think it can provide critical insight into these issues, and help to pave a way forward in addressing our housing challenges in the Bay Area and eventually, nationwide. In many ways, the Dashboard validates, and provides evidence for, much of my intuition (honed from a career in…


Launching the Housing Development Dashboard

Posted on by Carol Galante

In the short time since we launched the Terner Center for Housing Innovation, I have been inundated with requests to weigh-in on the issue of how to best address the housing affordability crisis- not just at its epicenter in the San Francisco Bay Area- but in similarly situated high job growth regions from Boston to San Diego. While there are multiple contributing factors to the crisis, I keep coming back to one simple premise: supply matters, and we need to expand housing supply in equitable and environmentally sustainable ways.  This statement rarely makes anyone happy.  Most want to hear answers…