It’s long been believed the constantly rising costs of new home construction, and lackluster improvements in construction productivity more generally, are fundamentally a problem of production methods.
I've been soo curious about this. I think what could be better than factory built homes is factory built fully structural elements (e.g. 8-10ft tall walls of various lengths) in a partially/mostly-automated factory environment. Local construction teams can simply go to the dwelling-construction-mart for walls, roofs, etc. like they go to a rock/gravel vendor. Thoughts???
SIPS panels are attempting to approach the problem from this angle, but demand is not high enough to allow mass production of the panels in an economically satisfactory manner. Add to that the lack of a highly trained work force capable of assembling said panels into houses that people want.
Build lots of cars, there are roads to put them on. Build lots of houses, which have to be near jobs so the houses can be paid for, and there isn't enough land to put them on...is one more thing.
Housing moves in boom and bust cycles; it's the story of home building. The big guys come and go. Remember US Homes? Exactly. Boom and bust doesn't lend itself to factory production methods. Build the factory, start cranking out homes, and about the time things are going great, it's another bust.
I see, interesting points! SIPS have extra labor to customize them, though... right? The idea I propose is simply studs and nails / screws (maybe a vapor barrier, too) aligned and fastened together by robots - that's it. Although, what are your thoughts on flat-pack structures - standalone residential or standalone commercial?
Wow...big question. The biggest. I spent 45 years in the gig. I love the idea flat pack, but the world doesn't. Someday it may. I was recently in the Holon factory at Broad Corp. in Changsha. They're the folks that recently put up the 150 unit high rise in the UAE in...I think it was 96 hours. I think this link will work.
The simplest fact is the standard single family residence in the forms that Americans demand or will accept is outdated and can't be made "affordable". I've long held a thesis that the American home building industry should be understood as a fashion industry, and is subject to all the sorts of foolishness associated with fashion. If folks want "affordable" housing, different forms have to be accepted.
I use scare quotes on affordable, because there ain't no such thing. "Affordable" is the politician's not so tricky name change from subsidized housing...so as to fool the average American....which is what "affordable" housing in America means. It's not affordable. It's subsidized, and if something has to be subsidized by the government, then by definition it is not affordable to the average person trying to buy a house.
I suspect that one of the hidden costs of home construction, which is differentially impacting prefab more than manufactured housing, is the complexity of local zoning ordinances.
Manufactured housing is manufactured to occupy lots that are effectively pre-negotiated with local residential zoning authorities. The number of variables left to negotiate and reconfigure to make a particular manufactured home development work is relatively small.
With prefab, the complexity explodes multiplicatively into the same range as regular home construction. Whatever savings there might be labor less the cost of transportation from where the labor is cheaper to where the home is assembled is more than offset by the increased cost of negotiating with local zoning authorities in order to complete the project.
The hypothesis then is that it's the cost of understanding and demonstrating compliance with local ordinances (and, where necessary, negotiating variances) that has prevented prefab from taking off, not the labor and materials that are holding up the projects. It's not a technology problem, it's a human nature problem.
An interesting corollary is that AI may reduce the search and translation costs of compliance with local zoning ordinances. Previously, it would have been completely infeasible to pay humans to try and figure out how a prefab housing plan might be compatible or incompatible with 100s or 1000s of different local zoning requirements. We can do that now. But note that the demonstrating compliance and/or negotiating for variances remains what it has always been.
This is a manifestation of what I have been calling the "synchronization tax" — effectively an extension of Coases's transactions costs to account for the costs of establishing a mutual understanding, which fundamentally requires counterparties to rewrite their descriptions of themselves and the world.
Good article. I would like to see an analysis that places an economic value on the time savings from using modular construction. E.g. what is the $ value of, say, a 2-month acceleration in start-to-finish turnkey home delivery for the buyer and builder?
Sweden and Finland have huge forestry sectors, with many local prefab industries having evolved near sawmills to capture more of the economic value. With the huge efficiency gains in forestry there has been a surplus of labor and cheap production facilities in these more rural areas.
It is also a mature industry. My parents prefab manufacturer was established 80 years ago. I’d say there are 10 or so strong brands that capture 50% of the market for single-family homes. That is were you start looking if you think of building a home. Different brands have different constructions imprinted in people’s mind. You don’t contract an architect, you browse a prefab brand website that suits your preferences. Or you might go for the same as your parents did when you grew up.
Another custom which might be unique to Sweden and Finland is to build the house yourselves to various degrees, as it was done traditionally. You order the house from the well-known prefab company that deliver all materials by truck, the prefab company has hired local building contactors to do the time critical assembly of the outer shell to get a weather proof frame. Your contract is with the prefab company and the construction is guaranteed by the prefab company. You don’t have to get to know and trust a local contractor that might go out of business. The rest of the assembly can be left to the home owner to do themselves in their spare time to save on cost, material and building plans delivered and code compliant for ready-to-stanp approval of the authorities. My parents did this 45 years ago while working jobs and raising kids. Doing the DIY route without help from a prefab company is out of reach for most.
Prefab companies also have a very optimized marketing and purchasing process to decide various options, mostly done online. None of my friends or family has hired an architect and then hired a builder. Prefab houses dominate. It is not due to cost primarily I think. A customer will not shop around for the cheapest option, rather go for the safest and most friction-less option for a once in lifetime investment.
The Swedish (Finnish?) prefab industry is worthy of a case study in itself! Wanted to illustrate with one local (small) prefab company from which a friend recently bought a garage/shop that he mostly raised himself. Pay attention to the online 3D CAD construction/customization tool, with on the fly cost calculation.
I live in one of the most expensive areas of SoCal. Typical houses cost a fortune (close to a million), and one block over we have cute, clean, affordable single and double wide mobile home (manufactured homes) parks at less than half the cost, even adding on the site rental.
The barrier to affordable housing in this state is political and regulatory. And virtually nobody is talking about this easy solution.
Homes don't require the precision in construction that mechanical equipment does: and the equipment portions of the homes (electrical panels, HVAC equipment, Stoves, etc.) come premanufactured. When there are areas where premanufacturing is helpful, it is done to the portion needed (example: Gluelam beams), not the entirety.
Interesting insight. High tolerances allow for manual labor to substitute well. Plus the cost movement and assembly requires special equipment due to size.
If I understand it correctly, the main problem is that homes that are bigger than very small units (so the vast majority of homes) incur in big transportation costs, still high on-site work, and possibly still not optimal "industrialisation" because of the more variable shapes and configurations. And maybe even customer personalisation of homes.
What about 3D-printed ones? There is the Austin-based startup (don't remember the name) that built two machines to 3D print homes.
The theory (not fully proven yet) is that you pay the transportation cost once (and that by itself should not be very high either) and bring a few specialised workers that can build an entire neighbourhood by just printing them. By printing you "solve" (or greatly mitigate) the problem of "how do I build this thing in a standardised way", and by shipping just some equipment a single time, you should be able to cut a lot on the transportation costs. And you need a ton less people to operate the machines.
1. What effect do interest rates and home construction costs have on long-term total cost of ownership? Including utilities, repairs, renovations, etc. I kind of imagine 30% savings on the building doesnt really matter in the long run.
2. What structural factors exist that push to keep home prices high? Envisioning tradesmen as craftsmen resistant to factory labor.
3. What if we just lowered the cost of labor? Could zoning and permitting reform enable a virtuous cycle, where houses get cheaper, so labor gets cheaper, so houses continue to get cheaper?
One market where manufactured homes might have done well is in rural areas. Our family ranch is in Junction, TX, where there are few builders, electricians, plumbers, etc. Building something here generally means doing it yourself or waiting a long time and paying a lot for one of the few skilled trades people around or using semi-skilled (at best) people who can do parts of a job. Similarly, a friend in Wyoming reports 2 year waits for construction there, due to short building season and lack of labor. Even if not cheaper, the speed of installation would be a great benefit in these sorts of markets.
The value of a new house is decided by the value of pre-existing houses in that area. So any cost efficiency gains would not benefit the end consumer. He/she will be willing to pay the same price as for any other house. If new housing were markedly cheaper they would all just sell and move to a newly constructed house. And house values would suffer, which no one wants. So I guess in the end consumer cost will always be decided by the rate of income he/she is willing to spend on housing.
Ita is more a question of where in the supply chain any efficiency gains can be made, and if that particular chain can lock in the profits from that effort. I know nothing of the North American building industry, but am curious if there are any vertically integrated players that could develop next-level production processes to disrupt the industry, or if the industry is to fragmented to allow it?
I've been soo curious about this. I think what could be better than factory built homes is factory built fully structural elements (e.g. 8-10ft tall walls of various lengths) in a partially/mostly-automated factory environment. Local construction teams can simply go to the dwelling-construction-mart for walls, roofs, etc. like they go to a rock/gravel vendor. Thoughts???
SIPS panels are attempting to approach the problem from this angle, but demand is not high enough to allow mass production of the panels in an economically satisfactory manner. Add to that the lack of a highly trained work force capable of assembling said panels into houses that people want.
Build lots of cars, there are roads to put them on. Build lots of houses, which have to be near jobs so the houses can be paid for, and there isn't enough land to put them on...is one more thing.
Housing moves in boom and bust cycles; it's the story of home building. The big guys come and go. Remember US Homes? Exactly. Boom and bust doesn't lend itself to factory production methods. Build the factory, start cranking out homes, and about the time things are going great, it's another bust.
It's complicated.
I see, interesting points! SIPS have extra labor to customize them, though... right? The idea I propose is simply studs and nails / screws (maybe a vapor barrier, too) aligned and fastened together by robots - that's it. Although, what are your thoughts on flat-pack structures - standalone residential or standalone commercial?
Wow...big question. The biggest. I spent 45 years in the gig. I love the idea flat pack, but the world doesn't. Someday it may. I was recently in the Holon factory at Broad Corp. in Changsha. They're the folks that recently put up the 150 unit high rise in the UAE in...I think it was 96 hours. I think this link will work.
http://en.broad.com/m/VideoDetail-106-54.aspx
The simplest fact is the standard single family residence in the forms that Americans demand or will accept is outdated and can't be made "affordable". I've long held a thesis that the American home building industry should be understood as a fashion industry, and is subject to all the sorts of foolishness associated with fashion. If folks want "affordable" housing, different forms have to be accepted.
I use scare quotes on affordable, because there ain't no such thing. "Affordable" is the politician's not so tricky name change from subsidized housing...so as to fool the average American....which is what "affordable" housing in America means. It's not affordable. It's subsidized, and if something has to be subsidized by the government, then by definition it is not affordable to the average person trying to buy a house.
I suspect that one of the hidden costs of home construction, which is differentially impacting prefab more than manufactured housing, is the complexity of local zoning ordinances.
Manufactured housing is manufactured to occupy lots that are effectively pre-negotiated with local residential zoning authorities. The number of variables left to negotiate and reconfigure to make a particular manufactured home development work is relatively small.
With prefab, the complexity explodes multiplicatively into the same range as regular home construction. Whatever savings there might be labor less the cost of transportation from where the labor is cheaper to where the home is assembled is more than offset by the increased cost of negotiating with local zoning authorities in order to complete the project.
The hypothesis then is that it's the cost of understanding and demonstrating compliance with local ordinances (and, where necessary, negotiating variances) that has prevented prefab from taking off, not the labor and materials that are holding up the projects. It's not a technology problem, it's a human nature problem.
An interesting corollary is that AI may reduce the search and translation costs of compliance with local zoning ordinances. Previously, it would have been completely infeasible to pay humans to try and figure out how a prefab housing plan might be compatible or incompatible with 100s or 1000s of different local zoning requirements. We can do that now. But note that the demonstrating compliance and/or negotiating for variances remains what it has always been.
This is a manifestation of what I have been calling the "synchronization tax" — effectively an extension of Coases's transactions costs to account for the costs of establishing a mutual understanding, which fundamentally requires counterparties to rewrite their descriptions of themselves and the world.
Good article. I would like to see an analysis that places an economic value on the time savings from using modular construction. E.g. what is the $ value of, say, a 2-month acceleration in start-to-finish turnkey home delivery for the buyer and builder?
Thank you for an interesting article!
Sweden and Finland have huge forestry sectors, with many local prefab industries having evolved near sawmills to capture more of the economic value. With the huge efficiency gains in forestry there has been a surplus of labor and cheap production facilities in these more rural areas.
It is also a mature industry. My parents prefab manufacturer was established 80 years ago. I’d say there are 10 or so strong brands that capture 50% of the market for single-family homes. That is were you start looking if you think of building a home. Different brands have different constructions imprinted in people’s mind. You don’t contract an architect, you browse a prefab brand website that suits your preferences. Or you might go for the same as your parents did when you grew up.
Another custom which might be unique to Sweden and Finland is to build the house yourselves to various degrees, as it was done traditionally. You order the house from the well-known prefab company that deliver all materials by truck, the prefab company has hired local building contactors to do the time critical assembly of the outer shell to get a weather proof frame. Your contract is with the prefab company and the construction is guaranteed by the prefab company. You don’t have to get to know and trust a local contractor that might go out of business. The rest of the assembly can be left to the home owner to do themselves in their spare time to save on cost, material and building plans delivered and code compliant for ready-to-stanp approval of the authorities. My parents did this 45 years ago while working jobs and raising kids. Doing the DIY route without help from a prefab company is out of reach for most.
Prefab companies also have a very optimized marketing and purchasing process to decide various options, mostly done online. None of my friends or family has hired an architect and then hired a builder. Prefab houses dominate. It is not due to cost primarily I think. A customer will not shop around for the cheapest option, rather go for the safest and most friction-less option for a once in lifetime investment.
The Swedish (Finnish?) prefab industry is worthy of a case study in itself! Wanted to illustrate with one local (small) prefab company from which a friend recently bought a garage/shop that he mostly raised himself. Pay attention to the online 3D CAD construction/customization tool, with on the fly cost calculation.
Lövångers Bygg
https://lovangersbygg.se/
I live in one of the most expensive areas of SoCal. Typical houses cost a fortune (close to a million), and one block over we have cute, clean, affordable single and double wide mobile home (manufactured homes) parks at less than half the cost, even adding on the site rental.
The barrier to affordable housing in this state is political and regulatory. And virtually nobody is talking about this easy solution.
Homes don't require the precision in construction that mechanical equipment does: and the equipment portions of the homes (electrical panels, HVAC equipment, Stoves, etc.) come premanufactured. When there are areas where premanufacturing is helpful, it is done to the portion needed (example: Gluelam beams), not the entirety.
Interesting insight. High tolerances allow for manual labor to substitute well. Plus the cost movement and assembly requires special equipment due to size.
If I understand it correctly, the main problem is that homes that are bigger than very small units (so the vast majority of homes) incur in big transportation costs, still high on-site work, and possibly still not optimal "industrialisation" because of the more variable shapes and configurations. And maybe even customer personalisation of homes.
What about 3D-printed ones? There is the Austin-based startup (don't remember the name) that built two machines to 3D print homes.
The theory (not fully proven yet) is that you pay the transportation cost once (and that by itself should not be very high either) and bring a few specialised workers that can build an entire neighbourhood by just printing them. By printing you "solve" (or greatly mitigate) the problem of "how do I build this thing in a standardised way", and by shipping just some equipment a single time, you should be able to cut a lot on the transportation costs. And you need a ton less people to operate the machines.
What about this?
You have to ship all the material to site anyway. This is way more cost effective.
I have some big-picture questions about this:
1. What effect do interest rates and home construction costs have on long-term total cost of ownership? Including utilities, repairs, renovations, etc. I kind of imagine 30% savings on the building doesnt really matter in the long run.
2. What structural factors exist that push to keep home prices high? Envisioning tradesmen as craftsmen resistant to factory labor.
3. What if we just lowered the cost of labor? Could zoning and permitting reform enable a virtuous cycle, where houses get cheaper, so labor gets cheaper, so houses continue to get cheaper?
One market where manufactured homes might have done well is in rural areas. Our family ranch is in Junction, TX, where there are few builders, electricians, plumbers, etc. Building something here generally means doing it yourself or waiting a long time and paying a lot for one of the few skilled trades people around or using semi-skilled (at best) people who can do parts of a job. Similarly, a friend in Wyoming reports 2 year waits for construction there, due to short building season and lack of labor. Even if not cheaper, the speed of installation would be a great benefit in these sorts of markets.
Yes this seems to be the selling point. Less variety (good and bad). More predictable build time.
Super interesting history. But I still didn't understand why (in detail) the cost prefab hasn't dropped.
Materials and permitting as % of build too high?
Assembly on site still too high?
Shipping cost to high?
I'm working on a longer report that will go into detail about this.
The TLDR seems to be that assembly is only 30% of home cost.
Land. Permits. Utility hookup. Financing...
All unaffected by the prefab approach.
So even 50% savings through mfg can only yield 15% in total build deflation.
Need a fully integrated machine for siting/approval AND construction.
This seems like multi family/apartments? Curious why that hasn't really been the case.
The value of a new house is decided by the value of pre-existing houses in that area. So any cost efficiency gains would not benefit the end consumer. He/she will be willing to pay the same price as for any other house. If new housing were markedly cheaper they would all just sell and move to a newly constructed house. And house values would suffer, which no one wants. So I guess in the end consumer cost will always be decided by the rate of income he/she is willing to spend on housing.
Ita is more a question of where in the supply chain any efficiency gains can be made, and if that particular chain can lock in the profits from that effort. I know nothing of the North American building industry, but am curious if there are any vertically integrated players that could develop next-level production processes to disrupt the industry, or if the industry is to fragmented to allow it?
If you build on site you still need to transport all the material there which must be more costly.