Modular as a solution to US under-housing? [NYT shared link]


Of interest to this community [this should be readable, no paywall]: 

I’m of the mind that US is too money crazy to do modular in any kind of friendly way — likely disastrous results akin to the idiotic no-window dorm proposal we saw a few years ago.

I’m open to being wrong, but my guess is that all the customization required to make modular building not terrible is exactly what will be deemed to expensive to build in reality.

Jun 10, 24 11:04 am

I think what drives modular as a solution is speed and potentially cost. Factory workers are typically paid less than on-site labor and produce more in a shift. The increased productivity is based on being inside a controlled environment compared to the realities of being site based. (there are of course other factors that drive increased productivity...) 

The US housing shortage is not really driven by the cost of construction. It has more to do with institutional money and macro benchmarks for a return on investment. This is of course an oversimplification, and there are numerous factors currently that have slowed the construction of new, higher density, projects. 

What interests me is some sort of return to publicly owner and/or subsidized housing solutions. I think we can agree the housing projects of the past in the US were not successful and we have swung the pendulum the other way expecting the free market to provide enough supply to meet the demand. 

For me, in short, modular construction will likely not make a significant impact on the number of units build, or the cost to own or rent these units. Which isn't to say it should be abandoned, or is inherently doomed to fail. I just don't see it as a significant factor to changing housing affordability. 

Jun 10, 24 11:59 am  · 

i think you're dead-on regarding the issue of fitting pro forma targets vs other talked about issues (simplifying zoning, offering incentives to build affordable units, etc)

Jun 10, 24 12:18 pm  · 

Currently, here in Seattle, we have multiple projects that are permit ready, but shelved because banks want more equity to debt than in previous years. On a $50M project (construction cost only) it can be as much as an additional $5M in equity, but even $2-3M is really hard to find right now.

Institutional investors are hesitant to make that additional investment when U.S. Treasurys are 4.5% and as high as 5.1% for a 1 year note. Add to that a Presidential election year and the Fed is still over 5%. Investing in real estate right now just doesn't make financial sense.

Jun 10, 24 12:49 pm  · 
2  · 

As I learned from years of housing shortage in an underdeveloped country, the cost problem is not in the construction but in the land, adding a lot of externalities (negative) when you keep pushing outwards because cities are speculation war zones. The phrase "Drive until you qualify" was well known in urban circles 15 years ago, I guess they stopped using it when they realized how sick it was.

Jun 10, 24 12:07 pm  · 

The failure of Katerra was a blow to the whole idea of a vertically integrated building company. The thesis of that company - that the principles of electronics contract manufacturing are directly applicable to the AEC sector - is not without merit. But while the sheer failure in execution doomed the whole thing, the central thesis was flawed.

Put it this way - a laptop or iPhone is pretty much the same wherever it is sold. Moreover, it is shipped as a complete product.

But even the most volumetric blocks of construction don't work that way. Modules have to be assembled on site, and building materials and codes vary by region - sometimes by quite a lot! Imagine iPhones with different materials and forms of construction being sold in different markets. It would be a nightmare in the production line.

The US is a massive country with very different climates and code requirements.

The facade industry actually does a lot of standardization and assembly line manufacturing - so its not like this stuff is new to the sector. I think there's a lot of innovation and ways to go in the unitized curtain wall business that just don't grab the headlines the way sexy modules do, though I'd admit the unit economics of this particular sector is probably emblematic of the business as a whole - even established companies are a bad project or two from going bankrupt.

Jun 10, 24 1:02 pm  · 

Katerra could have been successful if they could focus on one thing... They had a significant advantage in the marketplace around mass timber. When they finally went under, they were busy trying to design and manufacture everything... door hardware, plumbing fixtures, etc.

Jun 10, 24 1:14 pm  · 
1  · 

Yep. They really went all in on the vertical part of the business model, from developing their own software platform to owning forests and assembling toilets. I read that they tried to do everything at the same time and it was just pure chaos. They seemed to have everything going for them on paper, with all the Saudi billions and a co-founder with a ready pipeline of multifamily projects. But the execution was horrendous.

Jun 10, 24 2:33 pm  · 

In the end, GCs and developers simply didn't want to work with them. Which suggests a deeper problem with the electronics analogy behind the whole business model. Fundamentally, Katerra was doing B2B rather than B2C. Apple and Samsung sell their wares to individual customers but the Katerra was selling to developers and GCs. Notice that the halcyon days of modular and prefab housing had companies selling to individual home owners, which vastly expands the market.

Jun 10, 24 2:40 pm  · 
1  · 
Wood Guy

I used to be operations manager at an offsite construction business based on Swedish platform framing, the first business in North America dedicated to panelized Passive House construction. (Other companies were doing it but we were the only ones to offer ONLY Passive House-level assemblies.) I know several other businesses building high-performance, panelized buildings and a couple doing modular. 

In all cases, customizing is indeed expensive. We did some very complicated buildings--including some of the most complicated I've ever worked on, even without considering panelizing, and in some cases it took months of work to figure out how to build them effectively. It's far, far easier to build simple geometries and to build multiple buildings off one set of construction documents. 

The investment in getting set up to build homes in a factory is expensive. Factory workers are paid far less than skilled on-site carpenters but the costs are offset so there is not a huge savings to the client. The time on site is greatly reduced, which helps with carrying costs, and quality control can be better, at least in theory, when construction is performed in a factory setting. 

Jun 10, 24 2:31 pm  · 

There was some discussion about this back in January:

Can modular housing startups be saved at a critical time for the industry? | News | Archinect

Jun 11, 24 3:41 pm  · 

Only if it can be approved, delivered and executed in an efficient and prompt manner....That's what the objective has always been, but government / approving authorities / zoning bylaws get in the way making it may less effective than it could be.

Jun 14, 24 3:18 pm  · 

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