Testimony to the Select Committee on Housing Construction Innovation

On January 6, 2026, Terner Center Managing Director Ben Metcalf testified at the first hearing of the California State Assembly Select Committee on Housing Construction Innovation.

Watch the hearing video (testimony starts at 53:47)

Ben Metcalf, Terner Center for Housing Innovation, University of California, Berkeley

Good afternoon, Chair Wicks and members of the Select Committee. Thank you for the opportunity to present and to support your efforts more broadly over the next several months.

My name is Ben Metcalf, and I am the Managing Director of the Terner Center for Housing Innovation at UC Berkeley, CEO of Terner Labs, and on the faculty of the Department of City and Regional Planning.

Previously, I led California’s Department of Housing and Community Development (HCD). Before that, I worked in the Obama Administration running HUD’s Office of Multifamily Housing, and before that, I actually built housing here in California as a developer.

Of particular relevance to the Select Committee’s charge, I oversaw the State of California’s Factory-Built Housing Program in my role as HCD director and have spent the past six years at Terner growing our engagement in this space—including building out a body of research and running an accelerator program to support new kinds of industrialized construction start-up companies.

We’re here because of the affordability crisis.

Low-income households, and even middle-income households, struggle to afford housing in California. The primary reason for that is a shortage of homes. We are short ~2.5 million homes by 2030, according to projections,^[1] and we are producing less than half of the housing we need on an annual basis.^[2] Notably, California produces fewer homes per capita than every other state in the nation but one.^[3]

There are two key contributors. The first is land use and regulatory constraints, an area in which this legislature has made real progress. The second is construction costs, the focus of today’s hearing. It’s important to understand that construction costs are high in California^[4] relative to other states.^[5] A recent analysis with Colorado and Texas showed that multifamily construction costs in California can be 2.3 times higher than in Texas for the same product and 1.5 times higher than Colorado to build the same product.^[6]

Total development costs for multifamily housing in California routinely exceed $500,000 per home, excluding land, and are most pronounced in the higher-cost metros where our state’s housing needs are most acute.^[7] Not only are our costs high relative to other states, but our costs are also growing consistently at a rate that is faster than inflation. In fact, costs have grown faster than inflation in the construction area for the last 30 years and have risen at a rate double that of inflation since 2019.^[8]

There are many reasons for that, but one that I would highlight is our labor challenges.^[9] Specifically, skilled construction workers are aging out or leaving the workforce faster than new entrants are coming in. Indeed, more than two-thirds of California contractors cite skilled worker shortages as their top concern, and the state has faced a net loss of construction workers just in the last year.^[10]  What does that mean? It means delays in getting jobs started and the ability to proceed, but also higher and higher wages that must be paid to attract workers and so that workers themselves can afford to live in the communities in which they work.^[11]

Unfortunately, current federal policy trajectories—particularly on tariffs and immigration—will worsen these trends in the near future, according to most estimates. Indeed, approximately 85 percent of import categories relevant to construction source more than one-fifth of their materials internationally.^[12] And foreign-born workers represent more than 40 percent of California’s construction workforce, with undocumented residents making up an estimated one-quarter of that share.^[13]

These factors clearly point to the need for efficiency and innovation in our construction industry. Construction is one about the only major industry where productivity has declined over the last several decades, where other industries—manufacturing being one—have consistently increased in productivity over that same timespan.^[14]

For the Committee’s discussion today, we will focus on innovations in the space of industrialized construction, which applies manufacturing methods to building. This can include an array of advanced technologies, such as 3D printing and robotics and the widespread use of prefabricated components, but the largest segment is factory-built housing, where substantial portions of a home are built off-site and installed on-site. This category of factory-built housing includes volumetric modular, where entire units can be built off-site and shipped as a “box.” It also encompasses panelized construction, where walls or floors can be assembled off-site with integrated plumbing, electrical, etc., and then shipped as a “flat pack,” like Ikea furniture. It also includes manufactured housing, which is a HUD federal code that supports mobile homes, and while that’s not a space we’ll be talking about as much, there are federal bills in both the House and Senate that propose to make HUD’s manufactured mobile home code more usable, potentially allowing it to be used for limited multifamily housing in some contexts.

In Terner’s review of the literature, we find that factory-built housing has potential to reduce hard costs by 10–25 percent, under the right conditions.^[15] It can also reduce construction timelines by 20–50 percent. This time reduction is consistently attainable.^[16] For example, on-site workers may pour the foundation at the same time as a modular factory assembles those units with the integrated wiring and ducting, while a typical project would have to wait for that foundation to be built, installed, and settled and then to build floor-by-floor more slowly.

However, to consistently achieve the “right conditions” to make factory-built housing cost effective is more challenging. It requires the right project type and team, design standardization, aligned financing, and flow of on-site work. All of that has to be working together, with supporting local land use and building permit regulations to allow that to happen. One example that the Terner Center profiled recently is 833 Bryant, the Tahanan project in San Francisco. We documented that the project achieved 30 percent time savings and 25 percent cost savings, compared to comparable multifamily buildings, due to its use of modular.^[17]

Factory-built housing in other countries, where these practices are much more the norm—such as Japan and Sweden—we see hundreds of thousands of homes being built this way every year with a systemic, across-the-board 10–20 percent cost savings.^[18]

Factory-built housing has a range of other non-cost and non-time benefits. It can improve building quality by shifting work into controlled environments;^[19] support safer and better working conditions by eliminating hazards, such as falling and high heat;^[20] can make work more ergonomic; and can provide stable hours to workers. Collectively, these benefits can help attract a more diverse workforce that is younger and older. In our interviews, we found that women make up 20–30 percent of the workforce of factory-built housing companies, compared to 4 percent of the on-site trades.^[21]

In addition, factory-built housing supports climate goals by reducing material waste and making sustainable homes more affordable in ways that are quantifiable.^[22]

However, the output of the existing factory-built housing sector in California and the West more broadly amounts only to a few thousand units per year today compared to 125,000 total being built. In California there are only a small number of high-production factories capable of delivering multifamily housing at scale: ones like Volumetric Building Companies in Tracy; Harbinger (formerly Factory_OS) in Vallejo; and Plant Prefab in Arvin (between Los Angeles and Bakersfield); as well as a dozen smaller or mid-scale factories, such as US-Offsite in Redding and SoLA Impact in Los Angeles.

Interestingly, a significant share of factory-built housing for multifamily production in California is produced out of state—particularly in Idaho—and in some cases, overseas. Idaho is the primary non-California hub for modular housing production, with some manufacturers reporting to us that they are exporting as much as 90 percent of their output to California in certain years.^[23] 

That total output combined is still very modest. Why is it so modest, when costs and demand are so high?

There are a few barriers, and I want to share four of them.

First, financing. Today’s financing tools are still structured around traditional, site-built construction. Factory production requires earlier design finalization and earlier financial commitments in order to reserve manufacturing capacity on the production lines. However, most financing sources are not designed to support those early deposits or progressive drawdowns until components are installed on-site—forcing the developer to rely on their own funds or much more expensive equity sources.

Second, building codes and design approvals were primarily written in California for site-built housing. HCD operates a state-run certification where units can be certified to meet code at a factory—a highlight in California’s system. However, the State give substantial deference to local priorities, requiring that housing be designed to meet the sometimes bespoke needs of local communities. Sometimes those localities’ requirements on the design side can functionally lead to factory-built housing not being effective. In addition, cities can subject properties to multiple rounds of design review, so a property that may start as being cost-effective may go through round after round of design until it is no longer.

Additionally, the state’s building code is very prescriptive and comparatively onerous relative to other states in the nation. And the State does not have a timely system for accepting alternative code changes in a way that developers are actually actively using, and developers do not have a process on the ground to appeal decisions being made at the local level and provide alternative methods that achieve the same outcomes.

Third, demand and pipeline uncertainty make it hard for a factory to rely on a constant flow of purchases. A factory has to be able to give their employees work day after day, and in a world where housing projects are approved one at a time under various local rules and designs, and sometimes after years of piecing together financing sources, it’s hard to build out that pipeline for a factory. Furthermore, market rate real estate operates cyclically. We have booms, we have busts, we have booms, we have busts again—and all of that makes it very hard. And the State does not directly incentivize a predictable flow of factory-built housing through its subsidy affordable housing programs or state-owned land in ways that could backstop the market.

Last, system fragmentation is a structural barrier to progress. We have today in California very limited research and testing capacity to support continuous improvement in the system. We have insufficient, fragmented data collection; minimal sharing of best practices; and a scarcity of research to uncover potential next steps.

It’s important to understand that real estate is not like other sectors. We don’t have a lot of consolidation, where you have a “Big Five,” an Amazon or a Google that control all of the work and can afford to invest in R&D. There aren’t deep-pocketed private actors that can do this work. So the State has to serve as the place where this research and innovation originates. We are hampered. The state of California has many different governmental entities that touch factory-build housing in one way or another—on the housing side, on the code side, on workforce development, on financing—but we don’t have one individual or entity, a commission, an agency that is the place where all this stuff is brought together in a fully coherent and cohesive way.

The good news is, you will hear today and next week lots of examples of scalable best practices that will offer solutions to many of the problems that I’ve outlined today. I encourage you over these next two hearings to keep in mind that factory-built housing does offer a real opportunity if we can create these enabling conditions, if we can make progress on multiple different fronts at the same time.

When we look at successful international examples, it doesn’t have to mean that every house is built in a factory. It just has to mean that we get to a place where a sizable share is consistently, year after year, and where factory-built methods could be a valid alternative for developers looking to avoid taking on extra risk. It means that manufacturers can plan their production knowing demand is real; workers—at least some material share—have safer, stabler, year-round jobs; and ultimately, this is a way to ramp up the capacity to build the housing we need in California in the years to come.

Thank you for the opportunity to share with you today. I’m happy to be a resource and to take your questions. My colleague, Tyler Pullen, who specializes in industrialized construction, will be back to chat with you next week.

 

Endnotes

^[1] Christopher, B. (2025, September 26). “How bad is California’s housing shortage? It depends on who’s doing the counting.” CalMatters. https://calmatters.org/housing/2025/09/california-housing-shortage/

^[2] Addressing a Variety of Housing Challenges. (n.d.). California Department of Housing and Community Development. Retrieved January 2, 2026, from https://www.hcd.ca.gov/policy-and-research/addressing-variety-housing-challenges

^[3] Finch, T. (2025, October 6). “What states have the most new construction in housing?” The Sacramento Bee. https://www.sacbee.com/news/business/article312403705.html

^[4] Ward, J. M., & Schlake, L. (2025). The High Cost of Producing Multifamily Housing in California: Evidence and Policy Recommendations. RAND Corporation. https://www.rand.org/pubs/research_reports/RRA3743-1.html; Reid, C., et. al. (2024). Low-Income Housing Tax Credit Construction Costs: An Analysis of Prevailing Wages. Terner Center for Housing Innovation, University of California, Berkeley. https://ternercenter.berkeley.edu/wp-content/uploads/2024/08/Low-Income-Housing-Tax-Credit-Construction-Costs-An-Analysis-of-Prevailing-Wages-August-2024.pdf; Reid, C. (2020). The Costs of Affordable Housing Production: Insights from California’s 9% Low-Income Housing Tax Credit Program. Terner Center for Housing Innovation, UC Berkeley. http://ternercenter.berkeley.edu/development-costs-LIHTC-9-percent-california; Raetz, H., Forscher, T., Kneebone, E., & Reid, C. (2020). The Hard Costs of Construction: Recent Trends in Labor and Materials Costs for Apartment Buildings in California. Terner Center for Housing Innovation, UC Berkeley. https://ternercenter.berkeley.edu/hard-construction-costs-apartments-california

^[5] Single-family homes are cheaper to build, but here, too, California has 44 percent higher construction costs than the national average—higher than every other state except Alaska. Using estimates provided by Home-Cost construction cost estimation tool, which provides statewide estimates using data from 40,000 projects nationwide.

^[6] Ward, J. M., Schlake, L., & Lo, M. (2025). The High Cost of Producing Multifamily Housing in California: Evidence and Policy Recommendations. RAND Corporation. https://www.rand.org/pubs/research_reports/RRA3743-1.html

^[7] Garcia, D., et. al. (2023). Making It Pencil: The Math Behind Housing Development (2023 Update). Terner Center for Housing Innovation, UC Berkeley. https://ternercenter.berkeley.edu/research-and-policy/making-it-pencil-2023/

^[8] California Construction Cost Index (CCCI). (2025). California Department of General Services: Real Estate Services Division. https://www.dgs.ca.gov/RESD/Resources/Page-Content/Real-Estate-Services-Division-Resources-List-Folder/DGS-California-Construction-Cost-Index-CCCI; Data sources from Engineering News; California Consumer Price Index (1955-2025). (2025). California Department of Industrial Relations. Retrieved from: https://www.dir.ca.gov/oprl/CPI/EntireCCPI.PDF

^[9] Raetz, H., et. al. (2020). The Hard Costs of Construction: Recent Trends in Labor and Materials Costs for Apartment Buildings in California. Terner Center for Housing Innovation, UC Berkeley. https://ternercenter.berkeley.edu/hard-construction-costs-apartments-california

^[10] The Home Builders Institute (HBI) Construction Labor Market Report. (2025). Home Builders Institute. https://hbi.org/wp-content/uploads/2025/10/Fall-2025-Final-Construction-Labor-Market-Report-Update.pdf; California Construction Workforce Trends 2025. (2025). ABLEMKR. https://ablemkr.com/california-construction-workforce-trends-2025/

^[11] And because hard costs reflect roughly two-thirds of total development costs in California projects, productivity gains in this area can have a significant impact on making housing more feasible to build. Reid, C. (2020). The Costs of Affordable Housing Production: Insights from California’s 9% Low-Income Housing Tax Credit Program. Terner Center for Housing Innovation, UC Berkeley. http://ternercenter.berkeley.edu/development-costs-LIHTC-9-percent-california; Garcia, D., et. al. (2023). Making It Pencil: The Math Behind Housing Development (2023 Update). Terner Center for Housing Innovation, UC Berkeley. https://ternercenter.berkeley.edu/research-and-policy/making-it-pencil-2023/

^[12] Potter, B. (2024, May 3). How Will the Trump Tariffs Affect Construction? Construction Physics. https://www.construction-physics.com/p/how-will-the-trump-tariffs-affect

^[13] Howard, T., Wang, M., & Zhang, D. (2024). Cracking Down, Pricing Up: Housing Supply in the Wake of Mass Deportation. SSRN Electronic Journal. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4729511; Raisz, A., et. al. (2025). The Economics of Mass Deportation in California. Bay Area Council Economic Institute, University of California, Merced. https://www.bayareaeconomy.org/files/pdf/EconomicImpactOfMassDeportation-June2025.pdf

^[14] Bertram, N., et. al. (2019). Modular construction: From projects to products. McKinsey & Company. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects-to-products

^[15] Bertram, N., et. al. (2019). Modular construction: From projects to products. McKinsey & Company. https://www.mckinsey.com/business-functions/operations/our-insights/modular-construction-from-projects-to-products

^[16] Pullen, T. (2022). Scaling Up Off-Site Construction in Southern California: Streamlining Production of Affordable and Supportive Housing. Terner Center for Housing Innovation, UC Berkeley. https://ternercenter.berkeley.edu/research-and-policy/off-site-construction-southern-california/

^[17] Critically, however, these outcomes depended on two additional, complementary interventions: streamlined permitting and an innovative financing product. Decker, N. (2021). Strategies to Lower Cost and Speed Housing Production: A Case Study of San Francisco’s 833 Bryant Street Project. Terner Center for Housing Innovation, UC Berkeley. https://ternercenter.berkeley.edu/research-and-policy/833-bryant-street-sf/

^[18] Lam, S. (2022). Promotion of Lego-like construction method in Singapore (ISE01/2022). Research Office, Information Services Division, Legislative Council Secretariat (Hong Kong SAR). https://www.legco.gov.hk/research-publications/english/essentials-2022ise01-promotion-of-lego-like-construction-method-in-singapore.htm

^[19] Grosskopf, K. R. (2023). Modular Multi-family Construction: A Field Study of Energy Code Compliance and Performance through Offsite Prefabrication. U.S. Department of Energy Office of Energy Efficiency & Renewable Energy. https://mbimodularbuildinginstitute.growthzoneapp.com/ap/CloudFile/Download/pj3Z4WdP; Killingsworth, J., Mehany, M. H., & Ladhari, H. (2020). General contractors’ experience using off-site structural framing systems. Construction Innovation, 21(1), 40–63. https://doi.org/10.1108/CI-05-2019-0038

^[20] Smith, R., et. al. (2023). Offsite Construction for Housing: Research Roadmap. U.S. Department of Housing and Urban Development, Office of Policy Development and Research. https://www.huduser.gov/portal/publications/Offsite-Construction-for-Housing-Research-Roadmap.html; Killingsworth, J., Mehany, M. H., & Ladhari, H. (2020). General contractors’ experience using off-site structural framing systems. Construction Innovation, 21(1), 40–63. https://doi.org/10.1108/CI-05-2019-0038; Ahn, S., et. al. (2020). Comparison of Worker Safety Risks between Onsite and Offsite Construction Methods: A Site Management Perspective. Journal of Construction Engineering and Management, 146(9), 05020010. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001890

^[21] Gender Composition of the Construction Industry. (2024). National Center for Construction Education and Research. https://www.nccer.org/media/2024/01/NCCER-Fact-Sheet-Gender-Composition-of-the-Construction-Industry.pdf

^[22] Thibault, D., et. al. (2024). Benefits and Opportunities of Off-Site Construction: Analysis of Indiana and Pennsylvania (2024 ACEEE Summer Study on Energy Efficiency in Buildings). American Council for an Energy-Efficient Economy. https://aceee2024.conferencespot.org/event-data/pdf/catalyst_activity_48299/catalyst_activity_paper_20240722160748328_a069946d_27fe_460e_8328_87b14558435f; Pless, S., et. al. (2022). The Energy in Modular (EMOD) Buildings Method: A Guide to Energy-Efficient Design for Industrialized Construction of Modular Buildings (No. NREL/TP-5500-82447, 1875070, MainId:83220; p. NREL/TP-5500-82447, 1875070, MainId:83220). https://doi.org/10.2172/1875070

^[23] Field visits to Idaho in December 2025.