Years ago, Brian Gaudio was filming a documentary about the global housing crisis in Santiago, Chile, when he noticed families building their homes one room at a time. In an area where mortgage financing isn’t commonly available and saving to build a larger home takes years, they instead tackled the project step by step, even if that meant starting with one room.
While the specifics were different, the experience made him think of the economic forces many of his millennial cohorts were facing back home. Student debt made saving for a down payment difficult, and few options existed for would-be first-time home buyers looking for affordable starter homes.
But what if first-time buyers in the U.S. were able to build just as much house as they needed at that moment, with the option of adding on when their income and lifestyle allowed in the future?
That’s how Module, a Pittsburgh-based startup that offers local buyers its own take on “incremental housing” with a build-as-you-grow business model, came into being. The company that Gaudio founded with designers Hallie Dumont and Drew Brisley provides modular homes that start small and are assembled using pre-built wall panels and roofs on-site, with designs that can make room for future growth, either by expanding to the rear of the house or adding additional floors.
Base models are well-thought-out to accommodate the future addition of stairs, and the firm has a patent pending on its removable wall and roof panels, so that future expansions can be done with a lot less teardown, dust, and debris than is common in traditional stick-built homes.
“We’ll have a patch panel where we are putting in the headers and thinking about the opening so that it’s easy to add on to,” explains Gaudio, Module’s CEO. “With the roof, we think about how the weather barrier and insulation are installed, and how it all connects to the rafters so it’s easier to remove in the future, and you don’t have to rip stuff out and throw it away.”
That means a young, single buyer could initially build a one-bedroom, one-bath cottage and easily expand it when he or she is ready for more space to accommodate a growing family, or they could convert some space into an attached rental—with a separate, private entry—to provide extra income into retirement.
The design team always presents possible future additions to the buyer to help think through his or her evolving needs, says Gaudio. “We categorize buyers into two buckets: those planning to add on in under five years, and those who may add on after five years,” he says.
To add on, homeowners go through many of the steps required for the original home, including design, permitting, and financing. Some additions are small enough that they can be financed with cash, Gaudio says. Others, like adding a full story, require buyers to refinance their house or take out a line of credit.
When adding on vertically, parts of the existing roof are removed so that an additional story can be placed on top. Gaudio notes that in most homes, bathrooms are stacked to make utility hookups easier and ductless mini-split systems are used to heat and cool the new spaces.
In Pittsburgh, a one- or two-unit residential dwelling can go up to three stories tall. Owners can also build out by adding on to the rear, and given that Module’s starter homes have smaller footprints than most local homes, there is usually room to expand, Gaudio says.
Starting Small
The firm’s smallest starter unit has a footprint of 640 square feet, while two mid-tier offerings come in at 1,000 and 1,280 square feet. Its biggest base model clocks in at 1,600 square feet. All are expandable, with the largest model designed to grow up to 2,500 square feet. Prices, without land, range from $150,000 to $300,000 for the starter units.
“We’re creating a pay-as-you-go entry point to homeownership,” Gaudio says. “It’s really about thinking of your home as a dynamic object—as well as a potential recurring revenue stream—compared to the traditional model of how we build homes today.”
Module works with potential customers via its in-house, proprietary platform to get a home built on a lot a buyer already owns, or it will help buyers find land and financing, while taking care of permitting and zoning at the same time.
“We have a network of wall panel and module home manufacturers who can execute on the building side, where we essentially act as the owner’s rep throughout the process,” Gaudio explains. “Design and construction management is really the core capability that we have in-house, and then we work with third-party builders to actually construct the houses.”
Module aims to approach home building in a fundamentally different way. “The model of home building in the U.S. today is really still based on the 20th century idea of a nuclear family with a mom, a dad, and two or three kids,” says Gaudio, a Fulbright Scholar who holds a bachelor’s in architecture from North Carolina State University. “But the No. 1 household in the country today is a single person living alone. As home builders, we need to think about how we can serve that market better.”
Module’s first target market is Pittsburgh, where there are currently over 27,000 vacant lots throughout the city. The company built a demo unit in partnership with Comcast-Xfinity Home in May 2017 and is now in the process of building its first customer home in Pittsburgh using fabricated panels from Walpole, N.H.–based Bensonwood, slated for completion in early 2019. Module has received approval to build a second unit in the city’s East End on spec. In addition, the company says it has non-binding letters of intent with a few residential developers who are considering the units for urban infill settings, once they see how the firm delivers on its initial homes.
Gaudio says other potential markets for the company include Philadelphia, Washington, D.C., and infill markets throughout the Mid-Atlantic and Northeast—basically any urban setting where empty lots are rife for redevelopment.
Customer Satisfaction
Module’s model is a departure from the traditional, single-transaction nature of the home building business. Because the firm focuses on starting small, it leaves opportunity to grow its relationship with customers down the road, too.
“The business model of a single, big transaction incentivizes builders to jam in as many options and upgrades as they can,” Gaudio says, an idea that works against keeping a starter home’s price low and can foment animosity from buyers when builders engage in the hard sell. “Our model is more about understanding who our buyers are, and what their budget is now, because we know they will make that addition or renovation later.”
That extended relationship could also apply to the move-in dollars families typically spend after they buy a home. Module is working on partnerships with furniture and appliance suppliers to capture that type of revenue, as well as looking into how to integrate home automation and entertainment systems into its sales process.
“There’s a reason why Home Depot and Lowe’s are billion-dollar corporations,” Gaudio says. “It’s because people continue to invest into their homes, even after they buy them, but no home builder is capturing that revenue at this point.”
The company is also developing an online platform to guide customers through the process of building a starter home as well as planning for future additions or upgrades. Customers enter information about their current needs, budget, and future possibilities, such as having kids; they can then use the platform to meet those pre-planned milestones as they purchase upgrades or additions.
To gauge demand, the company has set up a Tesla-like reservation system that allows buyers to pay a refundable deposit to save their place in line. While Tesla encountered issues of taking reservations for orders it couldn’t fill for years, Gaudio isn’t worried about similar problems at this point—as of late September, Module had received deposits from 10 customers.
“For us, the reservations just help us show demand and prove our model to our partners,” Gaudio says. “We don’t have to worry about having Tesla-like reservation numbers—yet.”
For now, the firm’s focus is to finish its first home, refine its business processes in its hometown, and see whether it can grow from there.
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