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.
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 ·
·
proto
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 ·
·
betonbrut
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.
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.
Development is driven by high land values, not inhibited by it. If you want more housing you have to make the land under those new homes valuable enough that someone will build them.
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 ·
·
betonbrut
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.
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 ·
·
monosierra
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.
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.
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.
The thing these articles are missing with vertical integration is ownership and management not just the construction technics. I would encourage everyone to read Jack Self's article linked here: https://leidiniu.archfondas.lt...
Where for him the purpose is to keep management locally via a land trust, thus making reliable and long term dividends which investors would be interested in.
There are a million prefab modular construction companies now but why aren't we seeing society get better? Ownership - you need to fully integrate over the entire vertical and have the construction people also own the land and manage the buildings... If you leave the vertical when the module hits the ground, all you've done is save the greedy developer 10% on schedule time. The underlying motive for the developer is still to make housing cost as high as possible and construction cost as low as possible. This is where we are so far - and why everything sucks - value gets sucked out of the vertical in operations.
Jul 3, 24 6:03 pm ·
·
monosierra
Katerra went full vertical ... but their godawful execution was their downfall.
Vertical Integration is when a business enterprise owns and self-performs operations at all steps in bringing a product to market from resources/raw materials to production to sales and support. https://en.wikipedia.org/wiki/Vertical_integration
Thank you. I was baffled reading about “the vertical”. I do know about that. I guess I didn’t scan back to the beginning to find the original antecedent.
housing shortage is mostly due to zoning and permitting time and costs - and land availability. Some municipalities it can take multiple years just to get through permitting before you even break ground - and by that time the market could have completely changed.
I’ve worked on modular projects. Overall cost vs stick built isn’t much different, but there is some time savings during construction. The downside of modular is the size of the boxes/structure. It takes up more space than stick built, spaces aren’t as efficient, and there are limitations on structure, which can cause some issues if there are site constraints and you’re looking to extract as much value out of the project as possible.
Last two residential projects I worked on took 6 and 7 years respectively from initial filing to zoning approval. And neither of them have broken ground. Together they’re over a thousand units of affordable and market rate housing in a high cost of living metro with a major housing shortage. Last I heard they were both having trouble securing financing.
I disagree on the zoning/permitting time being mostly the reason for a housing shortage. It's not getting built because it's not lucrative enough.
While the outlier cases get attention, most development is properly done by staying in the by-rights development standards and using the most prescriptive paths available. These in many ways are "dumb" projects not pushing the bleeding edges of anything.
The housing shortage is mostly due to developers wanting to make more money than is easily available on the middle & low income housing that would satisfy the country's needs.
I'll agree land availability is an issue many localities. Lending requirements are also often an issue, esp if public money is involved.
It isn't that developers want more money...In some cases these projects don't make any money on paper and so they don't get built. Investors want a return on investment and there are plenty of better investments right now than developing any form of multifamily projects.
Proto - vast majority of housing being built right now is in places where it’s easier to build as of right - the metros with the worst housing shortages tend to have highly restrictive zoning. My neighborhood, for example, none of the lots conform to zoning close. Even building a single family
Requires going before zoning board because none of the lots meet minimum lot size for single family. And my neighborhood has apartment buildings on lots smaller than the minimum lot size for a single family. The zoning board are political appointees, so they sometimes have their own agenda of what gets built. It’s like this everywhere in my metro. Nothing conforms. The only hope you have of building large scale multifamily is getting a special permit or complete zoning rewrite for your property. Otherwise you’re trying to sell a 2 million dollar single family in the middle of the city just so you can break even.
Jul 15, 24 2:15 pm ·
·
axonapoplectic
It could also be the political climate. If it takes you 6 years from conception to CofO I’d want to
Jul 15, 24 2:22 pm ·
·
axonapoplectic
Have some assurance of stability in the market.
Jul 15, 24 2:23 pm ·
·
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Modular as a solution to US under-housing? [NYT shared link]
Of interest to this community [this should be readable, no paywall]:
https://www.nytimes.com/2024/06/08/headway/how-an-american-dream-of-housing-became-a-reality-in-sweden.html?unlocked_article_code=1.yk0.ZFar.iclv18AiAAZA&smid=nytcore-ios-share&referringSource=articleShare
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.
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.
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)
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.
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.
Development is driven by high land values, not inhibited by it. If you want more housing you have to make the land under those new homes valuable enough that someone will build them.
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.
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.
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.
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.
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.
There was some discussion about this back in January:
Can modular housing startups be saved at a critical time for the industry? | News | Archinect
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.
The thing these articles are missing with vertical integration is ownership and management not just the construction technics. I would encourage everyone to read Jack Self's article linked here: https://leidiniu.archfondas.lt...
Where for him the purpose is to keep management locally via a land trust, thus making reliable and long term dividends which investors would be interested in.
There are a million prefab modular construction companies now but why aren't we seeing society get better? Ownership - you need to fully integrate over the entire vertical and have the construction people also own the land and manage the buildings... If you leave the vertical when the module hits the ground, all you've done is save the greedy developer 10% on schedule time. The underlying motive for the developer is still to make housing cost as high as possible and construction cost as low as possible. This is where we are so far - and why everything sucks - value gets sucked out of the vertical in operations.
Katerra went full vertical ... but their godawful execution was their downfall.
what is "vertical"?
Vertical Integration is when a business enterprise owns and self-performs operations at all steps in bringing a product to market from resources/raw materials to production to sales and support. https://en.wikipedia.org/wiki/Vertical_integration
Thank you. I was baffled reading about “the vertical”. I do know about that. I guess I didn’t scan back to the beginning to find the original antecedent.
housing shortage is mostly due to zoning and permitting time and costs - and land availability. Some municipalities it can take multiple years just to get through permitting before you even break ground - and by that time the market could have completely changed.
I’ve worked on modular projects. Overall cost vs stick built isn’t much different, but there is some time savings during construction. The downside of modular is the size of the boxes/structure. It takes up more space than stick built, spaces aren’t as efficient, and there are limitations on structure, which can cause some issues if there are site constraints and you’re looking to extract as much value out of the project as possible.
Last two residential projects I worked on took 6 and 7 years respectively from initial filing to zoning approval. And neither of them have broken ground. Together they’re over a thousand units of affordable and market rate housing in a high cost of living metro with a major housing shortage. Last I heard they were both having trouble securing financing.
I disagree on the zoning/permitting time being mostly the reason for a housing shortage. It's not getting built because it's not lucrative enough.
While the outlier cases get attention, most development is properly done by staying in the by-rights development standards and using the most prescriptive paths available. These in many ways are "dumb" projects not pushing the bleeding edges of anything.
The housing shortage is mostly due to developers wanting to make more money than is easily available on the middle & low income housing that would satisfy the country's needs.
I'll agree land availability is an issue many localities. Lending requirements are also often an issue, esp if public money is involved.
It isn't that developers want more money...In some cases these projects don't make any money on paper and so they don't get built. Investors want a return on investment and there are plenty of better investments right now than developing any form of multifamily projects.
(the rest of my post didn't make it)
agreed
Proto - vast majority of housing being built right now is in places where it’s easier to build as of right - the metros with the worst housing shortages tend to have highly restrictive zoning. My neighborhood, for example, none of the lots conform to zoning close. Even building a single family
Requires going before zoning board because none of the lots meet minimum lot size for single family. And my neighborhood has apartment buildings on lots smaller than the minimum lot size for a single family. The zoning board are political appointees, so they sometimes have their own agenda of what gets built. It’s like this everywhere in my metro. Nothing conforms. The only hope you have of building large scale multifamily is getting a special permit or complete zoning rewrite for your property. Otherwise you’re trying to sell a 2 million dollar single family in the middle of the city just so you can break even.
It could also be the political climate. If it takes you 6 years from conception to CofO I’d want to
Have some assurance of stability in the market.
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