Housing’s Supply-Side Revolution

IndieDwell’s 960-square-foot house, made from three shipping containers, on display at the Richmond Convention Center. (Does not include peaked roof, which would not fit in the convention center.)

IndieDwell converts shipping containers into affordable housing. The Idaho-based business has taken an idea championed locally by entrepreneurs Sheila and Sidney Gunst (see “Thinking Outside the Container“) and turned it into a growing business enterprise.

The company now sells 640-square-foot dwellings, including the cost of delivery and installation, for $78,000. Add $11,500 to build a foundation (IndieDwell’s estimate), plus utility hookups if applicable, plus, say, $10,000 for a tiny lot, and it should be possible to create a new unit of affordable housing in Virginia for less than $100,000 — roughly half the price of what it costs public housing authorities in Virginia today.

IndieDwell was just one of the businesses presenting fresh perspectives on affordable housing at a Virginia Housing and Development Authority (VDHA) event yesterday organized to exploring new approaches to affordable housing. Other speakers addressed the phenomenal productivity gains in the manufactured housing industry and explored new concepts in modular housing. It was evident that a supply-side revolution in the housing industry is gathering momentum that holds out the potential to slash the construction cost of workforce and lower-income housing.

Traditional housing policy in Virginia, as in the rest of the United States, has focused on government-driven solutions. Government either builds public housing projects itself or subsidizes private developers to do so. What little innovation that occurs has focused on mobilizing resources from government, credit markets, or the nonprofit sector to bring down the cost. But compared to more dynamic sectors of the economy, the housing industry has seen few productivity gains. For the most part, housing is built the same way it was after World War II — on-site. Innovation has focused almost entirely on the introduction of new designs, appliances and features — not on the cost of construction. The biggest breakthrough in stick-built construction arguably was the invention of the nail gun!

Interior view of IndieDwell’s 960-square-foot house.

Deb Sheehan, executive director of the Chicago-based CannonDesign firm, told the audience that the housing industry has seen less than a 5% gain in productivity over the past 20 years. The industry, which she variously described as archaic, outdated, low-tech and wasteful, is “grounded in old paradigms of delivery.” But the potential exists, she added, to embrace neural network thinking, Artifical Intelligence and big data to integrate project delivery, drive down costs and get product to market faster.

Standardization is another route for squeezing out costs, suggested Ted Benson, CEO of New Hampshire-based Bensonwood Homes, a manufactured housing company. Benson made an analogy between the bicycle industry and the housing industry. The bicycle industry has agreed upon certain standards for how the key elements of a bicycle — frame, wheels, pedals, gears, handlebars, etc. — should interconnect. That standardization allows bicycle makers to manufacture bicycles incredibly inexpensively or to create near-infinite customization at higher prices. While specific parts of the housing industry are standardized — interior doors, kitchen cabinets, plumbing fixtures, electric fixtures, appliances — the structure of the house is not. Benson argued that standardizing elements such as wall panels, floor panels, stair systems, roof panels, and decks could drive tremendous gains in productivity and cost.

Building housing in modular units is another productivity- and cost-enhancing strategy. Brian Gaudio, CEO of Pittsburgh-based Module, outlined his company’s vision for transforming how houses are designed and built in the U.S. The last disruptive innovation in housing, he said, was the invention of the autocentric suburban subdivision in Levittown right after World War II. Since then, consumer preferences have changed, the Internet has created a channel to connect consumers and home builders and bypass the middleman, and skilled labor shortages have created a housing construction bottleneck. Module’s model for a 21st century home builder contains three elements:

  • Design dwellings that can be constructed in modules and easily added onto as a family’s needs and income changes.
  • Create an online platform where customers can customize elements of their own modular house.
  • Outsource as much construction as possible to off-site manufactured housing companies. Much construction work can be performed in-factory at lower cost and with better quality control than on-site. Panels and modules can be delivered to the building site for finishing work.

Gaudio’s vision is for new families to build small starter homes that can readily accommodate new modules as new family members — whether children, elderly parents, or other — are added. The idea, he said, is to “grow into” a house rather than “move up and out.”

Module’s business model right now is geared to infill development — building on vacant urban lots. (Pittsburgh has 27,000 of them.) In time, he said, the company could expand into other market niches.

Bacon’s bottom line: The VDHA event also addressed innovations in housing finance, digital mortgages, and manufactured housing. Unfortunately, unable to attend the afternoon sessions, I missed much that is undoubtedly worthy of sharing with Bacon’s Rebellion readers. But the big-picture takeaway is that Virginia policy makers should, in the words of VDHA director Susan Dewey, make an effort to identify new ideas. VHDA has formed an “emergent thinking group” to do precisely that.

As more than one speaker observed, the definition of insanity is doing the same thing over and over and expecting a different result. Well, Virginia has approached affordable housing the same way for decades now with the same dismal result — housing consumes an ever-increasing share of household income. Dwellings that lower-income households can afford are in desperately short supply. Evictions and homelessness are an increasing problem. The VHDA conference represents a huge step toward addressing these problems at the source — the cost of building a home.

Just one word of caution: There is a wide and increasing gap between the cost of fabricating new houses and the market price of housing. Because of the endemic shortage of new places to build, developers and and home-builders, not low-income households, are capturing the delta between cost and market price. Until Virginia localities adopt land use policies and build supporting infrastructure (primarily transportation) that allow the housing supply to increase, supply and demand will remain out of whack and costs will remain unaffordable.

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12 responses to “Housing’s Supply-Side Revolution

  1. “But the potential exists, she added, to embrace neural network thinking, Artifical Intelligence and big data to integrate project delivery, drive down costs and get product to market faster.”

    No blockchain? You can lose your buzzword spraying license by forgetting to add blockchain to any buzzword-laden sentence.

    “Standardization is another route for squeezing out costs, suggested Ted Benson, CEO of New Hampshire-based Bensonwood Homes, a manufactured housing company. Benson made an analogy between the bicycle industry and the housing industry. The bicycle industry has agreed upon certain standards for how the key elements of a bicycle — frame, wheels, pedals, gears, handlebars, etc. — should interconnect.”

    Bicycles, cars … there are lots of examples. This comment is on point.

    So, why aren’t state and local governments mandating these half priced affordable housing options that would effectively double the amount of affordable housing without a budget increase. Oh, yeah … the development and realty industry is the single largest contributor to Virginia politicians under Virginia’s unlimited campaign contributions regime. $150m+ from 1996 and counting. I wonder what they would prefer – building affordable housing at $200k a unit with Virginia based companies or ordering $100,000 units from out-of-state suppliers?

    “Until Virginia localities adopt land use policies and build supporting infrastructure (primarily transportation) that allow the housing supply to increase, supply and demand will remain out of whack and costs will remain unaffordable.”

    Virginia’s anemic cities and two counties make their own transportation decisions (sort of … funding still comes from Richmond). That constitutes … what … 20% of Virginia’s population? The other 80% is managed by the state. Not sure how localities can build transportation. This illustrates the other unending problem in Virginia – land use decisions made by localities; transportation decisions made by the state.

    Both of these structural problems in Virginia are easy to solve. First, join 46 other states in limiting campaign contributions. Second, de-evolve local road funding and management to localities or regions. Yet neither of these changes will happen since maintaining the status quo is in the interests of our politicians-for-life in the General Assembly (and, to an extent, the localities). Is there an answer? Sure. This November Virginia voters need to ….

    THROW. THE. BUMS. OUT.

  2. Oh, for Mr Moret … if this is a legitimate trend … why aren’t the companies locating in Virginia? Couldn’t we save money on affordable housing and attract these companies to Virginia through a simple quid-pro-quo:

    We’ll buy our affordable housing from you if you relocate to Virginia (at least partially).

    They get business, we get more affordable housing and more good jobs. Sounds like a win-win to me with no “corporate bribe money” needed.

    • used to be that companies would actually provide the housing for workers!

      And those companies knew how to get it built for cheaper than letting developers run amok or government screwing it up.

      Maybe that is what Arlington should have required from Amazon, eh?

      i.e. “sure, we’d love to have you locate here – just provide housing for your workers” !!!!

  3. just for context:

    Virginia Housing Development Authority is a public housing agency in Richmond, Virginia that participates in the Section 8 Housing Choice Voucher (HCV) program.

    There are 31 agencies that manage the Section 8 Housing Choice Voucher program for the Virginia Housing Development Authority (VHDA) in 64 of the 95 counties in the State of Virginia.

    The interesting thing to me is just how many rural areas have Section 8 housing and where land should be plentiful and cheap compared to urban places.

    Bay Aging Housing Essex County, Gloucester County, King and Queen County, King William County, Mathews County, Middlesex County

    Buchanan County
    Campbell County
    Fauquier County, King George County, Spotsylvania County, Stafford County
    Amelia County, Caroline County, Charles City County, Chesterfield County, Cumberland County, Fluvanna County, Goochland County, Hanover County, Henrico County, King and Queen County, King William County, Louisa County, New Kent County, Powhatan County
    Prince George Dinwiddie County, Hopewell City, Prince George County, Sussex County
    Clinch Valley Community Action Russell County, Tazewell County
    Dickenson Rental Assistance Office Dickenson County
    Fluvanna-Louisa County Housing Foundation Fluvanna County, Louisa County
    Hanover Community Services Board Hanover County
    Charles City County, Henrico County, New Kent County
    Nelson County Community Development Foundation Amherst County, Appomattox County, Nelson County
    Pembroke Management Inc – Craig and Giles Craig County, Giles County
    Pembroke Management Inc – Floyd and Montgomery Floyd County, Montgomery County
    Pembroke Management Inc – Pulaski Pulaski County
    Rockbridge Area Rental Assistance Office Rockbridge County
    Rooftop of Virginia Community Action Program Carroll County, Grayson County
    Shenandoah County Department of Social Services Page County, Shenandoah County, Warren County
    Step Inc. Bedford County, Franklin County

  4. The ultimate in tiny housing is camper vans. Shoot, you can get one for 50K or less and it’s completely self-contained… and you can get dozens of them in a campground for a lot less than tiny homes on “vacant lots”.

    But we still have a nomenclature issue. “affordable housing” to the thousands of folks who commute up and down I-95 between NoVa and Fredericksburg is a whole different animal than “affordable housing” for service workers in NoVa.

    What the folks who commute from Fredericksburg want is a house in a subdivision, preferably on a cul-de-sac – for 300-400K that would cost over a million up in NoVa and the price difference is not because of construction – it’s because of the scarcity of land in NoVa. Virtually every square inch of NoVa has been developed with residential/commercial structures and what hasn’t is covered with asphalt parking or roads.

    The land required for a “tiny” house in NoVa would easily cost 3-4 times as much as the house itself. You can build that house on the cheap – make it small with “standardized”, modular construction – even a shipping container – but it’s the land itself that is the issue.

    • Interesting comment. However, it is the City Council of Mountain View, CA who just voted to kick those campers off city streets. I wonder how many on that city council are conservative Republicans?

      https://padailypost.com/2019/03/20/council-votes-to-ban-rv-parking-on-streets-city-looking-for-a-place-they-can-park/

        • Actually don’t you think the folks who already live in those urban areas – feel that there is no room for more and that if more come, it degrades their quality of life also?

          It’s totally true that cities are hard on people of modest means. They’re high dollar places but it’s also true that there are quite a few folks with the income levels that are required to have a good life in a city.

          What we see is the disparity – between those who do quite well and those further down the economic chain that do not – the worker bees… the service workers… the maintenance and cleanup folks, etc.

          Finally, as bad as cities are – they are way better than rural. There are rich folks in the rural but there are also a lot of others who are not rich…. who struggle for a basic living, often times without reasonable access to health care.

          • My point is that liberals will tell you how they are willing to make sacrifices for the betterment of society and how they have a plan for that betterment. Both statements are BS. Liberal town councils in liberal Santa Clara County, CA (Silicon Valley) don’t like the look of campers parked on public streets. Nothing I read or have seen while in Santa Clara County indicates that the campers constitute a safety risk or that those in the campers commit crimes. Just the opposite – the people in the campers are typically employed in jobs such as security guards for tech companies – positions that can’t be performed from afar but that don’t pay high wages. So, the liberal claim of being willing to make sacrifices to protect the vulnerable is bunk. They can’t even imagine straining their snowflake eyes by looking at campers.

            California has a top marginal income tax rate of 9.3%. The median household income in Santa Clara County is $119,035. Santa Clara County has a sales tax rate of 9.3%. The average property tax rate for Santa clara county is 0.79%. The median home vales is $1.08m.

            So, the government in California and Santa Clara County collects taxes at a very high rate. People have high incomes and high property values. Yet employed individuals are living in campers and the libflakes on the city council want the campers off the city streets.

            Silicon Valley may be the world’s technology heartbeat but it’s also a giant strip mall running from San Mateo (south of SF) along US101 to south of San Jose. All the liberal attitudes and all the sky high taxes haven’t fixed Silicon Valley’s human settlement patterns.

      • Here’s the problem. A campground for RVs has water/sewer/electricity hookups , showers, and a dumpster.

        When you camp on RV on the street – you got none of those.

        Many campgrounds, by the way, will actually rent by the month.

        In our travels – when we look for campgrounds to stay at – some of the mom/pops are more permanent parking for RV and trailers than short-term camping – especially if it is along a stream or some other scenic area – people just rent the space all year and park their RV there and pay by the month.

        Tiny Houses are all the rage right now – and they show them in backyards and other similar locations but they’re real structures that need water/sewer/electricity and garbage service if people live there.

        and that’s why Cities and towns don’t want them parked on streets – once the sewage holding tank is full – guess where the pee and poop go – where-ever they can find a spot…

  5. “and that’s why Cities and towns don’t want them parked on streets – once the sewage holding tank is full – guess where the pee and poop go – where-ever they can find a spot…”

    Absurd. Campers are just like boats. You go to an RV dump station and have the waste tank pumped out. There are two such RV dump points in Fredricksburg – RV Repair Collision & Paint and Corbin’s RV.

  6. It’s the holier-than-thou left taking the position that society must be open and generous to the poor but only so long as someone else pays for it. It’s just like Governor Blackface, who is making amends for his racist conduct by policy changes and spending more taxpayer money.

    I’ve mentioned before that I once had a boss who had a cowboy boot on her credenza. It contained a little sign that said “Walk your talk.” Damn hard to follow consistently but it sure is ignored by many on the left.

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