America's great experiment in housing of the past eight years may have reached an inevitable conclusion.
The experiment's hypothesis, roughly, was this. Households with discretionary means, buying highly-valuable new move-up and second-time move up homes, and renting--by choice--high-end apartments could not only generate faster returns on real estate capital investment, but could self-perpetuate. We're now witnessing how that's working out.
18 million job holders added to payrolls in the last nine years--most of whom have nowhere to go in the American new housing business equation--may have gotten their foot in the door to social and economic mobility, but they're beginning to wonder whether they'll actually get into the full virtuous cycle of reward for hard work.
Fact is, a recovery without new "starter homes" and a healthy stock of transition neighborhood rental options can only go so far, and only take the broader economy so far. It's setting up as a failed experiment.
Luckily, although it looks for all the world as though a lot of the heady, fundamentals-fueled momentum in housing demand many were so confident would last through at least 2020 may have headed for hibernation for an unknown duration, necessity's hard bite may be just what the moment calls for.
The moment calls for this. A suspension of disbelief.
Do you believe the "starter home" is dead?
Do you believe attainable market-rate rental housing means developing and building it now and waiting 40 years?
If you are convinced of those present-day realities, you disbelieve in both the plausibility of a profitable starter home business, and the plausibility of profitable market-rate essential worker housing.
So, my holiday 2018 wish for you is this: suspend your disbelief.
Three legs to an innovation stool that could change housing's ability to serve a bigger market, reignite the ability of market-rate players to build and develop both starter homees and essential worker rentals, and make [insert place identifier here] great again, by giving all working households clarity about their path to social, educational, and economic mobility.
- Increased productivity in construction design, engineering, and start-to-completion cycle via advanced technology and automation
- Inroads on political will to remove costly and time-sucking regulation that does not add value to people who buy or live in the home or neighborhood
- Elimination of friction from households who want to borrow for a mortgage, can pay for it, but currently live outside the mortgage qualification box
Not attending to all three is like sitting on a stool with two legs, or worse, one leg.
This--as a byproduct of human nature--stifles action, for if one stakeholder group believes that either of the two others may not deliver up on the necessary change in either productivity, political will, or friction-free access for qualified borrowers, each one sits back and waits.
This dynamic of paralysis describes the current state of things, leading us to this hand-wringing moment of doubt and uncertainty as to whether--after a breather to digest higher interest rates, lower incentives, higher prices, and tricky consumer sentiment patterns--housing demand will rediscover its mojo.
In 2018, we've seen strides--albeit anomalous incidents that may or may not coalesce into sector-wide forces--on the productivity front, with serious, strategic, sustaining investment in areas new and almost eerily strange to endemic players, r&d on technology, automation, data applications, and a general modernization of outdated process.
Too, we've seen gains, puts and takes, really, in the trench warfare around regulatory over-reach at the local jurisdictional, county, state, and national level--in sharper recognition that rules--zoning, code, entitlement, etc.--that do not add to housing and construction's value stream--safe, durable, connected, sustainable, and resilient nodes in a community--are rules for rules' sake. Check out this break-through recently in Minneapolis, a potential case study in zoning transformation.
Finally, of late, focus on finance--the housing credit box--and who gets to access it. A new pilot from Freddie Mac will allow conventional mortgage financing for homes defined as "manufactured housing," adding a category class that includes various types and product lines now being developed under "modular," "factory-built," "pre-fabricated" design and construction processes.
Fannie Mae and the Department of Housing and Urban Development are also said to be working on programs to unleash finance--open the credit box--for homes currently classified as manufactured housing.
Private sector players, large and small, are toiling to crack the code--aligning efforts on productivity gains, policy progress, and inroads to a more accessible credit box--and on a random, exceptional, niche-level basis, are pioneering housing's future pivot point, a huge, unmet opportunity in a big, untapped universe of essential worker households. A final piece of the puzzle has to do with total-cost-of-ownership benefits that offset initial price friction for potential buyers.
Here's a case--Ojai, Calif.-based Oak Haven, a 22-lot development from Modular Lifestyles--that illustrates aligning stars of productivity driving price attainability, political will receptiveness, and housing finance programming that could model more widely, not only in California, but other infill-oriented markets.
The developer, Modular Lifestyles, worked with the factory to develop a series of options to present to the buyers, typical of modular house design. For the houses at Oak Haven, the company also specified construction that would exceed California Title-24 requirements by approximately 20% and have a number of additional low-energy features common to ZNE performing houses.
Building Envelope – Insulation and Windows
The factory was given direction to construct the walls of the modules thicker than the standard and filled with insulation, achieving R-28. The roof space between the shallow trusses was filled with 12” of blown cellulose insulation to create a high R-42 value. The plywood roof sheathing is a radiant barrier, with low-emissivity foil facing the interstitial space and suppressing heat gain in that small volume. Windows are double-glazed, as required by Title-24, but they have the additional feature of argon gas within the glass unit, lowering the U-value of the window by an additional 33%. There also a low-e coating on the glazing, which reduces the thermal transmission via radiation, further improving performance.
Building Envelope – Air Tightness
The factory was also directed to seal the envelope at the window joints and penetrations, which was straightforward to execute at the factory. The developer took the additional step of testing the completed module for air tightness after it left the factory and before it was delivered to the site using the Blower Door Test6. The house at Lot 18 tested at 4.5 ACH50, which is a good value per California Title-24 energy standards. (The developer continues to improve on this one energy-efficient design feature in new modular houses, currently reaching 4.0 ACH50 in a recent test.)
Daylighting and Electric Lighting
General lighting throughout is provided by 10”-diameter solar tubes7. Daylight admittance, which can produce bright lighting on sunny days, is controlled at the ceiling to create an unusually well illuminated, glare-free interior in addition to reducing energy use. Where appropriate, electric light fixtures are used. These employ LED or CFL lamps for energy efficiency.
Heating, Ventilating and Cooling Systems
Heating and cooling is provided using an Energy Star air source heat pump with a SEER8 rating of 13. This is more energy efficient than a combination of a gas heater and traditional air conditioner—it is also carbon-free. Energy Star now requires a minimum SEER rating of 14.5, but at the time of construction of the house of Lot 18, 13-SEER was the minimum to qualify for Energy Star. Conditioned air is delivered to the various rooms via air ducts in the shallow attic space. In addition, a 90-cfm whole house fan can be utilized to pre-cool the house at night when the temperatures are low enough to be effective. This reduces the cooling load during the following day.
Domestic Hot Water
To keep cost as low as possible, the domestic hot water is supplied via a gas-fired water heater rather than a more expensive add-on feature to the heat pump system. However, the houses were pre-plumbed to add a solar-thermal water heater at a later date.
Plug Load and Equipment
All electric appliances meet the Energy Star standard, providing energy-efficiency guarantees for internal equipment loads. A gas stove is utilized for cooking. <
A game-change research and development effort--marrying the newly acquired knowledge, talent, and experience base of site-build home builders and an industry-leading position in manufactured housing is going on, as we speak at Clayton Homes.
Clayton--at the behest of company namesake and CEO Kevin Clayton--is currently invested in developing a "new class," that would fuse the best of Clayton's both worlds of construction know-how into no less than a "starter home" reboot.
Affordable, aesthically compelling, and operationally both efficient and sustaining for people and the planet.
It may take a shape roughly like this:
Kevin’s thought is to work with HUD to design a new HUD code class of home. We could tweak the set up or foundation slightly, and look at ways to create better exteriors. As an industry we could then promote this hybrid to zoning officials, etc and show how this could be constructed on par with site built homes and should be able to get the same type of mortgages. A new advertising campaign geared to millennials would support this initiative.
So, to repeat, my wish for you is this potential source of joy: Suspend your disbelief.