How Modular Construction Could Offer a Lasting Solution in the Affordable Housing Crisis
by Matt Alderton
March 15, 2019
Image: A Factory OS construction project for Holliday Development in San Francisco. Courtesy WSJ.
Modular building is positioned to have a profound impact on affordable housing construction in the coming years. “Housing prices for both homeowners and renters are going up at exponential rates compared to wages,” says Carol Galante, I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy at UC Berkeley’s Terner Center for Housing Innovation, where she also is faculty director. “The gap between wages and rents for low-income families has created a housing hardship of epic proportions.”
A 2017 analysis by the National Low Income Housing Coalition (NLIHC) reported that the US has a shortage of 7.2 million rental homes for extremely low-income households. This means that 71 percent of those households are forced to spend more than half of their income on housing; federal guidelines recommend spending no more than 30 percent. “To make ends meet, severely cost-burdened renters make significant sacrifices on other basic necessities,” including food, transportation, child care, and health care, NLIHC reports.
Galante attributes rising rents to a “perfect storm” of conditions, including the subprime-mortgage crisis, which continues to flood the market with renters; the urban influx of educated millennial workers, whose high earnings relative to low-income families have driven rents upward; and high construction costs, which are swelling as materials become more expensive and land and labor more scarce.
Although such a complex problem demands numerous solutions, modular construction holds promise, with a new generation of startups bringing a manufacturing mindset to multifamily construction. With structures being prefabricated on an assembly line, construction schedules can potentially be shortened from by anywhere from 30 to 50 percent, which in turn drives down manufacturing costs. Assembly line construction also broadens the types of people who can complete construction work.
“If you industrialize construction, you really open up who can work in the industry,” says Galante, who also serves as director of the Housing Innovation Lab at Factory_OS, a Vallejo, California–based manufacturer of modular multifamily housing. “It’s much easier to take unskilled labor and train people inside a factory, and it’s better working conditions for the workforce—you can commute to and from the same location, close to your home, every day, and factories are ergonomically structured on the factory floor to avoid creating a burden on the body.”
Increasing housing supply quickly also has a moderating effect on rents. “We’re already seeing this in San Francisco, where rents are plateauing at the upper end of the market thanks to some new buildings that have come online in the past year,” Galante says.
She adds that modular buildings can have a ripple effect throughout the market; when supply pushes luxury rents down, more people can afford them, which reduces housing competition and cost for middle-income housing, and so on. “When more folks can afford to go into the newly built housing, that takes pressure off the rest of the residential market.”
At the low end of the market, meanwhile, increased efficiencies can help public-housing authorities build more homes with fewer dollars. For that reason, many cities—including New York City and Seattle—are bullish on modular’s prospects, and have subsequently launched modular-construction pilot programs for their public-housing projects.