Can factory-built homes curb the housing crisis?

Mar 9, 2016



In the Bay Area, one strategy for dealing with the housing shortage is to try to build ourselves out. But brand new housing can be too expensive for middle- and working-class people to move into. In San Francisco, it now costs $700,000-800,000 to build a new unit. That’s forced many developers in the area to ask if there is a way to build more quickly and for less money. There is. It’s the same way we build anything more efficiently—by using factories.

It’s been done before—you’ve probably heard of mobile double-wides from Sears Roebuck—but never on a scale big enough to work for higher-density apartment living. That’s because housing developers say they don’t want to take the risk on an untested method. But one affordable housing developer, BRIDGE, has finally taken the plunge. So have they pulled it off?

The factory they’re partnering with is a startup in Sacramento called ZETA. Inside, the factory is not what you might be picturing. It’s not one big machine whisking parts around and fitting them together one-by-one in a perfectly choreographed, unceasing blur. Instead, it just looks like a massive indoor construction site.

What they make are modules, like Legos, that get trucked out individually and stacked together on site to make a whole building. In this case, that site is BRIDGE’s affordable housing development in San Leandro; the first of its kind and size in the Bay Area.

The assembly line system at the factory begins with a raised platform on wheels the size of a flatbed truck. As the platform wheels from station to station, the module gets built up. The goal is that the modules leave here complete, inside and out—sometimes even with mirrors already hanging on the wall, if they want to show off. At which point they’re trucked to the site, stacked together, the exteriors are sealed and residents move in.

There are a few main reasons why this factory is faster than building on site: 1) you don’t have to deal with weather delays—being indoors means you can even work night shifts; 2) the assembly line means the work is more efficient; and 3) you can do all the foundation work over at the site at the same time as the modules are getting built, so you don’t have to wait to finish building down before you can start building up.


The Bay Area’s housing crisis shows we are not building fast or cheap enough. So you’d think a factory like this would be a developer’s dream come true. Howard Koenig, ZETA’s CEO, thinks so too.

“I actually believe that we are a central solution to the affordable housing crisis,” he says. But since Koenig started the factory in 2008, he’s seen many developers get scared away.

“You’d see a developer considering it,” Koenig says, “and at the last minute they’d back away and say it’s too risky and I don’t understand it or my bank has questions.”

Modular has a reputation for being cheap. People have been using the technique for single family housing for years but for a long time no one had tested it outside of that. Koenig broke the seal in the Bay Area when he found a developer that was willing to take the risk with him. That developer put up his own home as collateral. And Koenig lost a couple million dollars intentionally. He calculated that it would be worth it to get the visibility and prove that high-density modular was possible.

“I’ve been doing startups for 15 years,” says Koenig. “But, I have to say, this is the hardest and riskiest and the one that’s taken the longest time to be successful.”


That first investment project was small. Now, with the big, affordable San Leandro project almost done, Koenig’s risk might be paying off.

“Real estate, we're a conservative industry, we move slow,” says Adhi Nagraj, director of development at BRIDGE housing. BRIDGE is a nonprofit developer, which means they use government funds and tax credits to build affordable housing. They’re the developers working with ZETA on the San Leandro site.

“We felt like there were enough case studies of smaller modular projects that we could jump in and take the risks,” says Nagraj.

The project wasn’t going to be modular originally. When BRIDGE was crunching numbers in 2014, construction costs in the Bay Area were so high the project almost didn’t happen. BRIDGE was forced to consider modular. They were forced to listen to Koenig who was telling them ZETA could shave 15% off the cost, and could get it done 25-30% faster—saving even more money.

Construction is almost complete so Nagraj says the handwringing is over.


But developer Patrick Kennedy says “there’s a large graveyard of bankrupt developers that pursued [modular].”

He says there are a bunch of additional costs associated with the method, the insurance is much higher, the transportation is hard to control. Many of these things can become worth it when the project is big enough. Still, Kennedy says modular is very unforgiving of error. Instead of fixing little mistakes on site, you usually have to throw out an entire unit, and rebuild.

It has to be planned “with the precision of a SWAT team operation,” says Kennedy.

He gives the example of a modular project in New York that built twelve floors up to find that the building was leaning over by a foot. “When modular projects go wrong, they go wrong in a very big way and usually a very expensive way,” he says.

Kennedy believes modular is only a matter of time, but because it’s in in its infancy in California, there will be hiccups.


So how is the BRIDGE project over in San Leandro coming along? The units that are “house-ready” look great. You can’t tell them apart from traditional non-modular construction. But, it turns out, a bunch of them are about about half-done with no paint, unfinished flooring and no appliances. In other words, things didn’t go according to plan. They were supposed to arrive complete. It’s a sign that the method still has some maturing to do.

But still, the time and money they did save meant that BRIDGE was were able to pull off a 100% affordable development. This development will house people making half of what the median income is in the area. That means the apartments will be filled with families that make about $40,000 per year. 18,000 people applied to live here. So, that means thousands and thousands of people will continue to be left in the lurch by the Bay Area’s housing market.