Modular housing offers a solution to a long decline in homebuilding productivity : The Indicator from Planet Money : NPR

Jan 17, 2024

SYLVIE DOUGLIS, BYLINE: NPR.

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ADRIAN MA, HOST:

Rome may not have been built in a day, but Kim Girolamo's house was.

KIM GIROLAMO: Well, I actually saw the house get dropped. So it came in four different pieces - two boxes for the downstairs, two for the upstairs. And it only took them a few hours to put it together.

MA: Wild, right? I mean, housing like Kim's could change how we build in America. And Alana Semuels, senior economics correspondent at Time magazine, is back with us to talk about it. What's up, Alana?

ALANA SEMUELS: Hey, Adrian. I visited Kim in Wappingers Falls, N.Y., where her house sits at the end of a cul-de-sac.

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COMPUTER-GENERATED VOICE: Front door open.

MA: Were you breaking into Kim's house? What is going on there?

SEMUELS: It has top-of-the-line security, Adrian.

MA: Apparently.

SEMUELS: So it was built in pieces in a factory, and then it was assembled on her land, which makes it a modular home - also known as a prefab home.

MA: Like prefabricated.

SEMUELS: Prefabricated, exactly.

MA: Ah, OK. So I don't think I've ever been in one of these. Like, what is it like in there?

SEMUELS: It actually looks a lot like all the other single-family homes on her street. There's vinyl siding. It's two stories. There are some big windows. There's a porch.

GIROLAMO: Oh, the porch is my best friend. I got two rocking chairs up there, and it's just nice to be able to rock there and read a book and stuff.

SEMUELS: But the thing that's different about Kim's house is the speed with which it was built.

MA: This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.

SEMUELS: And I'm Alana Semuels. It takes almost twice as long to build a home now than it did a few decades ago, and that slow pace is part of what's causing an affordable housing crisis in America.

MA: So today on the show, we look at why the construction industry has struggled to improve productivity and also how some builders think a resurgence of prefab homes might just be the thing to solve the problem.

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MA: Almost every industry you can think of has become more efficient over time thanks to technology. Factories, where people used to sew clothes by hand - now they use machines. On farms, farmers used to use horse-drawn plows, and now they use big tractors. The way that single-family homes are built, on the other hand - that has not changed that much in the past century.

MARGARET WHELAN: When I started my career in the early '90s, builders would quote delivery times to consumers in days - 30 days, 40 days, 50 days. And then it went to weeks, and now it's months.

SEMUELS: Margaret Whelan is an investment banker who's been working in the housing industry for decades. She's really frustrated by the slow pace.

WHELAN: There's really not a lot of industries that have gone backwards. And we laugh, but it's terrible because the consumer is often waiting. They're often waiting to lock in a mortgage rate. They're waiting - they have family dynamics that are changing, and they need these homes.

MA: If you combine all U.S. industries, productivity has tripled over the last several decades, meaning that, in 2019, workers were making three times as much stuff per hour than they were in 1949. Now, by contrast, productivity in overall construction - you know, everything from commercial spaces to single-family homes - that productivity remains flat.

SEMUELS: And not only does this mean that it takes a long time to build housing, it also means that the cost of housing hasn't fallen like, say, the cost of a sweater that's now made in a factory. One reason for that is that every house that's built on-site is a little bit different.

WHELAN: The CEO of one of the big public builders told me a couple of years ago that they never build every - any house exactly the same, and they rarely build a house to plan. And I was laughing. I was thinking, imagine if he was the CEO of Boeing, you know? We'd really be in trouble.

MA: But building a home is different than making something in a factory. Like, I can't really imagine building a Boeing airplane out in the open on a runway where it'll take off. Building sites are uneven, and they're open to the elements and have a lot of people coming in and out, which can lead to mistakes. And Margaret says, imagine a plumber trying to put pipes in, and the frame for a house isn't precise.

WHELAN: The mechanic might figure it out, but the electrician coming in behind him has to work around that guy, and it just goes on and on.

SEMUELS: And that's part of what adds to the delays. Remember, Adrian - most homebuilding companies don't actually build homes. They develop land, and they find homebuyers, and then they outsource building and plumbing and electrical work to a lot of different subcontractors. The idea behind factory-built housing is to bring some of those variables, like weather, under control and to have the same workers repeat the same task over and over again to construct parts of a home.

MA: I mean, it sounds nice on paper, but this still is not the dominant way we build homes, even though it was possible decades ago, right? I mean, in the aftermath of World War II, manufacturers built thousands of homes in places like Levittown for returning veterans.

SEMUELS: Right. Those manufactured homes were built to address a major housing shortage. And once that shortage eased, people wanted a little bit more variety in what their houses look like. But, Adrian, it's important to make a distinction between manufactured housing and modular housing, like the type Kim lives in. Manufactured housing is made completely in a factory - think of a trailer home, for instance. With modular housing, parts of the home are made in the factory, but then they're assembled on-site.

MA: Now, in recent years, there have been some sort of prefabricated home startups, right? And some of these prefab homes look really high-end, like something you'd see in a design magazine, though a lot of those have gone belly up.

SEMUELS: Yeah, they couldn't achieve economies of scale. In other words, they were offering custom houses to a really small customer base. What's different now is that some of the big builders are looking at prefab homes as they try to insure themselves against a lack of workers. Margaret has a theory about why it's taken them so long to take a look at this.

WHELAN: So I came up with this very funny phrase, PMS - that the industry is pale, male and stale. As a professional speaker at a lot of these events, I'm often standing on a stage looking at thousands of all-white guys and wondering why nothing's changing, right? And that's why nothing's changing. And it's the diversity of thought. For me, I think generational diversity is absolutely critical - bringing young people in.

SEMUELS: Now that big homebuilders are starting to experiment in modular, they're trying things a little differently, though. They're not building individual rooms, like the kitchen or the bathrooms, in a factory. Instead, they're focusing on pieces, like wall panels or floors or roof trusses. PulteGroup, America's third-largest homebuilder, is doing a lot of this. The company's CEO actually told me he hopes to supply 70% of his company's homes from factories in the next decade.

MA: It's easy to imagine that this, like, might not rub construction trade groups the right way. Like, you're essentially taking some of their construction jobs in places like New York City and moving them to factories in other places, where labor is cheaper.

SEMUELS: Yeah, and I'd say that's one of the modular industry's biggest problems right now, and there's been some pretty heavy lobbying and opposition to them. The New York Legislature passed a bill earlier this year that says that modular construction destined for New York City has to be built under the supervision of a New York City-licensed laborer, regardless of where the factory is located.

MA: But companies like PulteGroup are trying to get around that by building only pieces of walls and roofs and floors in factories. And then, they have locally licensed journeymen install plumbing and electricity on-site. Margaret says other builders are watching what PulteGroup is doing and seeing how fast these homes are going up.

SEMUELS: Studies by the McKinsey group have estimated that modular could speed production time by 20% to 50%.

WHELAN: The framing is perfect. They build every house twice. The first time is on a computer in 3D. They rationalize the plans. They reduce the waste. They reduce the risk of error. And then they go out on the job site, and they build it in days versus weeks.

MA: And that is why it is not just private companies looking more into modular housing. Affordable housing nonprofits are also experimenting with it.

SEMUELS: Right. Kim, from the top of the show - Kim's house was, in fact, built by Habitat for Humanity of Dutchess County. The group was so frustrated with the slow pace of construction during the pandemic that it looked into modular, and it found that it could save both time and money.

MA: Other Habitat for Humanity groups in places like New York and Buffalo are also looking to build more with modular. Of course, they are concerned about that bill on the New York governor's desk, and they say it could make the process a lot more expensive.

SEMUELS: Oh, nothing's getting more expensive these days, Adrian.

MA: In this economy, whoever heard of such a thing?

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MA: This show was produced by Viet Le and Brittany Cronin and engineered by Maggie Luthar. It was fact-checked by Dylan Sloan and Sierra Juarez. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.

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