Terner Center Blog: No Limits

Category Archives: Increasing the Supply of Housing

Modular Construction in the Bay Area: The Future is Now

This post originally appeared on the ULI San Francisco Blog on August 2, 2017.

After years of abstract discussions and false starts, modular building may finally be gaining the momentum it needs to make an impact in the Bay Area. Why now? And why here? On Tuesday, July 18, the San Francisco District Council of the Urban Land Institute hosted “Modular Construction in the Bay Area: The Future is Now”, an event moderated by Terner Center for Housing Innovation Faculty Director Carol Galante. The panel discussion featured four leaders committed to bringing this innovative housing method to scale in the Bay Area: Developers Rick Holliday of Holliday Development, Fei Tsen of Windflower Properties, Cannon Construction Principal Larry Pace, and Northern California Regional Carpenters Regional Council Representative Jay Bradshaw. They explored why modular construction is poised to take off in the Bay Area. A frank discussion revealed key challenges and lessons and learned, and their thoughts about the future of the industry.

For years, the Bay Area has faced a severe housing shortage and soaring housing costs. Though the causes of this crisis are multifaceted, construction costs are a key part of the equation, and traditional methods of building will not solve the affordability challenges the area is facing. Panelists agreed the urgency of the present housing crisis is a driving factor in experimenting with modular construction.

The benefits of modular construction – detailed in a March 2017 paper from the Terner Center – include reductions in construction cost by at least 20 percent, shortening of construction time by up to 40%, and minimization of impacts on the neighborhood surrounding construction sites.

Comparison of Construction Costs by Development Type

The finished product doesn’t sacrifice quality or customizability and in many cases is indistinguishable from traditional building. Personal testimony from panelists as well as images of their completed projects showed why they and their partners, financial backers, and others involved in the building process were won over by modular.

But as the saying goes, if it were easy to reap these benefits, somebody would have done it by now. There are several barriers, some physical and some mental, that need to be overcome before modular can become a larger share of building activity.

The construction industry suffers from inertia and skepticism related to the adoption of new technologies and methods. Fei Tsen noted that the construction industry has traditionally been slow to embrace change. She and other panelists expressed the belief that once a few initial projects demonstrated the high quality of projects and the benefits of modular methods, the rate of adoption will likely speed up. In Tsen’s experience, proactive educational outreach and visits to the manufacturing site were key steps in winning over stakeholders, including those from the public sector and finance communities.

Beyond the initial educational hurdles, the track record of previous modular projects includes several examples that give builders, developers, and others legitimate pause. Over the years, several modular companies have lacked viable business models and were unable to survive the cyclical nature of the housing development market. Logistical challenges have also come with the transportation and installation of modular units. Designers have struggled to adapt the unit design process for modular building, and there have been some notable quality control challenges. Lastly, high upfront costs can make projects challenging for nonprofit developers and below-market rate projects without adjustments to the current financing structures.

The impact of modular construction on labor was a hot topic. Modular construction can provide more reliable and well-paying jobs. Jay Bradshaw, who represents members of the Carpenters Union, perceives growth in modular a promising opportunity for better and different workforce training and employment for members of his union and other unions. The Carpenter’s Union is one of the few unions that has directly engaged with modular development, but they believe as the techniques are adopted more unions will engage as well.

To close panelists were asked to share thoughts on the future of the industry.  All enthusiastically agreed that the benefits far outweigh the challenges, and they’d like to see this innovation expand. While not every project should be built offsite, and there will always be a role for traditional building, but the modular is likely to become a viable option for more projects. It will play a major role in increasing the supply and decreasing the cost of housing, provided that some of the current barriers are overcome. All expressed a desire for more entrants in the modular industry, to build the ecosystem and make this innovation more competitive. Rick Holliday, who is in the process of launching his own modular development company, Factory_OS with Larry Pace, said he wants the industry to grow and he welcomes competition in Northern California. Holliday and Pace were motivated to open Factory_OS not only as a business opportunity but as a pathway to addressing the growing lack of affordability in the United States housing market and to combat underemployment in the Bay Area. More modular units being built will mean more good jobs and more housing units at a more affordable price, a true win-win.

Modular development has already begun to show its worth in time and money savings. These benefits will only grow as more players (modular builders, developers, contractors, and others) enter this field. Cumulative experience and economies of scale within and across companies will allow modular building to maximize all of the efficiency gains and cost savings that it has the potential to provide.

Jumpstarting the Market for Accessory Dwelling Units

This post originally appeared on the Berkeley Blog on May 23, 2017. It shares insights from our recently released report Jumpstaring the Market for Accessory Dwelling Units: Lessons Learned from Portland, Seattle and Vancouver.   ADU permitting explodes: Permits as a share of all residential permits. How did Portland, Oregon go from permitting two accessory dwelling units (ADUs) per month in 2009 to almost two per day in 2016?  Now, more than one of every ten housing units built in Portland is an ADU. Compared to other housing types, ADUs, or separate small dwellings embedded within single family properties, are…

Highlights from the Terner Center Promoting Affordability Conference

Though U.S. cities like Boston, New York, San Francisco and Los Angeles are important engines of the American economy, their rapid growth in jobs and populations has not been met with a comparable pace of growth in housing. The result? Increasing pressure on both the rental and for-sale housing markets, and skyrocketing costs of living for a larger and larger proportion of the people who live in these cities.  On Thursday June 1, the Terner Center hosted a special convening intended to delve into this issue, exploring solutions to that could help expand the supply of housing, lower the cost…

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…

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…

Why By-Right Affordable Housing in California is the Right Thing to do

Posted on by Carol Galante

The following piece was originally drafted as a letter of support for Governor Jerry Brown’s proposed legislation to streamline local housing approvals. The original letter, with citations, can be found here.   The Permit Streamlining Act. On May 13, 2016, Governor Jerry Brown proposed a change to state law that would streamline affordable housing proposals and spur much needed housing production. Introduced as a part of the administration’s May Revision to the 2016-17 Budget, the by-right bill would effectively change the way local jurisdictions approve housing projects. In doing so, Brown has acknowledged that in order to facilitate more building throughout…