Factory-built housing hasn't taken off in California
latimes.com31 points by PaulHoule 3 hours ago
31 points by PaulHoule 3 hours ago
Token reduction in labor costs are not going to solve housing to start with. It doesn't cost a 2 million dollars to build a house in California because we pay framers $1,000 an hour, it is property costs and a shitty political class blocking competition to their and their buddy's current investments.
What surprised me the most was the fees that just piled on. I knew the land, labor and materials costs.
Just the sewer (the capacity only, no work done) was $11k. Then add on the park and school fees which both were over $10k. No wonder it a builder has to build something over 2000 SQFT to make it pencil out.
The reason for most of those fees for parks and schools is because Prop 13 has prevented property taxes from raising with the market on older property owners (and the LLCs that own commercial properties), so cities and school districts have to instead turn to newcomers to get some amount of revenue to cover the costs of providing public services.
It shouldn’t be a surprise.
Buying property should have the same transparency (into costs and fees) as breakfast cereal with nutritional labels.
> No wonder it a builder has to build something over 2000 SQFT to make it pencil out.
I'm with you up until that. Maybe there are places where you have to build over 2000 sf due to regulations. For the most part, this is an industry talking point to justify building expensive houses on the limited land that gets zoned for residential. It gets repeated a lot.
You can build smaller houses but you can't charge as much for them. I'm not faulting the builders for maximizing profits, but it's still a talking point. (And in the grand scheme of things, it's not the reason housing is unaffordable.)
> I'm with you up until that. Maybe there are places where you have to build over 2000 sf due to regulations. For the most part, this is an industry talking point to justify building expensive houses on the limited land that gets zoned for residential. It gets repeated a lot.
I kind of feel it is the inverse.
If you can build a house for X$/sqft, you have a linear relationship. If it costs 100k _plus_ X$/sqft (for sewer, permits, etc) now you have a floor. You can sell a bigger house for 600k, or a 35% smaller house for 425k, odds are you’ll sell the bigger house quicker. I bet the 325k homes would sell like beanie babies in the 90s in places like sf.
The actual problem, the elephant in the room, is that California is expensive, both by popularity and regulation. This makes for an embarrassing conundrum where California is simultaneously pushing poor people out while trying to subsidize their life via social programs.
I don’t think it’s working.
Tangibly related.
IMO the North America economic-societal "model" is High cost + More regulation. Everything is legal and proved by some experts, and regulated to the maximum, but in reality they also build moats after moats for existing interest groups (landlords, insurance companies, big contractors, etc.).
And everyone thinks this is the right model for "democracy" and "ruled by law". People may blame for part of the model (e.g. landlords) but never realize that the whole model is built to support this.
This is my observation so definitely biased.
It’s wild to hear people scape goat REIT funds and campaign for rent control when the real problem happens to be “average people” owning investment properties. Step 1 of fixing the problem is the immediate repeal of Prop 13.
Repealing Prop 13 would be good, but wouldn't fix the core problem, which is that CA (and most of the US) is literally decades behind on building sufficient housing units for population growth because of self-inflicted zoning and permitting problems. California isn't unique in this, Prop 13 just makes it even more painful because old people hang onto houses that are too big for them and so constrain the already-limited supply more.
Prop 13 isn’t the reason old people hang on to their property. You can downgrade and maintain your Prop 13 tax advantage.
Most of the smaller, walkable places that are not car dependent do not allow that Prop 13 transfer, because it's mostly rental places.
Condo defect law is far far more onerous than defect law for single family homes, to the point that it doesn't make sense to offer units for sale. There are those working on reform but it's a slow process.
I have see it happen with older friends: they could move to a smaller place that's more appropriate but they'd had to pay a ton more.
The Prop 13 distortion on the market is very extreme. Perhaps even more so than the super low pandemic interest rates compared to today's interest rates.
I completed our modular home/factory built [Honomobo] single family home last year in CA. Over all it was worth it. The whole process took a year. It only took four hours to land and install on-site with a crane. The uphill battle was convincing my local city that it was viable, up to code and possible.
I bought a prefab backyard office after the pandemic for about $30K. I love it, even after the final price came to about $80K.
We figured out that overhead power lines would prevent it from being lifted in by a crane, so we decided to have it assembled onsite. Then the county decided -- after full approvals -- it needed a concrete foundation. We asked how to do that when the backyard already had a concrete foundation. Building department said pour it on top of the existing foundation.
I've mentally blocked my memory of the other ways the county came up with to make it hard to place this cuboid shape in my yard, but each time added another $10K. And the end result, other than being a foot off the ground because of the duplicate foundation, was nothing more than the $30K structure I originally bought. I can't point to where the extra $50K went and say at least I got value from it.
Like all home construction or remodeling, each misstep was outrageous, but tolerable because it was surely the last hiccup before completion. Only later do you realize it's Zeno's Paradox and you're always halfway from the finish line.
Was the office considered an ADU?
Yes and no. It was approved under the California state rules fast-tracking ADUs, but the thing I bought didn't have plumbing or sewer. Had I known I would be in for that much time and money, I'd have chosen something with a bathroom, so that it could have someday been an in-law unit. This is just an office or studio.
Which model did you get, and how much did it end up costing per square foot (if you don't mind me asking)? Just curious how much the real costs end up comparing with the sticker pricess on their website.
We went with the HO3 (2b/2b 960 SQFT) due to the site. Cost per SQFT is tricky as it depends on what you include in the calculation. Overall less than a stick build.
Overall the price you see on the website is the price for the unit. You need to factor in delivery, upgrades, installation and site design).
As mentioned, it wasn't a cheaper option, but rather a better investment with the quick build and quality control. Our total for the build (with land) was still a savings compare to what is available in our local market.
Now you get to enjoy decades of perpetual harassment under a microscope by that same governing body!
A developer in my hometown tried to build a manufactured/modular housing development. He got the approvals, demolished most of the existing structure that was on the parcel, purchased the modules from a supplier in Quebec and began to assemble them. Everyone was on board.
It was a complete disaster. The developer hired contractors who didn't know what they were doing and ignored stop work orders when the city learned of the problems, which included setting the modular units on their foundations without the proper permits and in violation of state building code. A separate fire department inspection deemed the structure "unsafe for interior firefighting or for interior response by first responders." The site has been abandoned for about 5 years, and the development company filed for bankruptcy.
Sounds like a sad story, but hard to know what went wrong. Did a safe design collide with regulations that weren't written with modular housing in mind? Did the modularity cause normal approval processes to happen out of order, allowing construction to mistakenly start before fire approval? Or was this simply the often Kafkaesque permitting process actually correctly identifying serious issues?
From the description given, "The developer hired contractors who didn't know what they were doing and ignored stop work orders when the city learned of the problems" seems like it might have a lot to do with it.
> hard to know what went wrong
> contractors who didn't know what they were doing and ignored stop work orders
I mean... if you can't even stop when told...
I live in a double-wide 3-bedroom manufactured home in the Sierra Foothills.
It cost me less than half the median CA home price, with 7 acres, most of which I made walkable. I just had a nice morning walk through my "arboretum" of mostly manzanita plants. Real pretty ones, and I took some nice photos.
I could't move the home, nor place a new one in most locations, including the vicinity of my local downtown area. I checked, just for jollies.
Land costs drive CA housing. Look at charts or ask ... you know who.
Were the market functioning, there would be sufficient additional housing near jobs that investors could not sit on and rent-seek reselling property near those jobs as a source of profit.
The market is not free. It is heavily regulated by what can be built where when. There is a distinct lack of planning and regulation to protect consumers in this market.
It's true that there are heavy regulations on what housing can be built where, but I don't think this is primarily driven by "investors" (in the sense of people who make their money by being commercial or residential landlords). I think it's primarily driven by homeowner-occupiers - people who own the homes that they themselves live in, who are not professional investors trying to maximize their rental profit, and who care a lot about the ways in which new construction or the ability of more people to live near them might negatively effect their quality of life in the place they live.
I agree, except those homeowner-occupiers are still investors, and profiting just the same.
The moral difference between BlackStone and the random NIMBY homeowner is that the homeowner exerts control over the planning process while Private Equity just piggybacks on the homeowner efforts.
Here in SF in particular, there are a huge number of people both at the local level and in the city government who just categorically oppose any change of any kind, leading to cases like the historically-designated laundromat [1] where the property owner had to fight the city for years in lawsuits and pay for a $23,000 historical report just to be allowed to demolish that laundromat to build housing [2].
[1]: https://missionlocal.org/2018/06/the-strange-and-terrible-sa...
[2]: https://sfyimby.com/2022/05/san-franciscos-historic-laundrom...
Of course, the tone of thse first article makes the problem even more obvious, in a black comedy kind of way, with the writer complaining about "luxury prices" of the resulting apartments without considering even for a second why the prices might be so high.
The free market consolidated into this on its own. Some actors became too powerful for it to remain "free".
I'm pretty sure we've had a collapse in trade hours available per capita at a rate that's far exceeded productivity gains. If a GC has a fixed labor pool that can build at either 200$/ft or 600$/ft, then labor constraints basically makes the housing market an open auction. Housing costs have gone up because you're bidding on the final cost overhead per foot. The result is the trades aren't paid more: just the house does. (Nicer finishes, etc.)
> Factory-built housing has the potential to reduce hard (labor, material and equipment) costs by 10 to 25% — at least under the right conditions,
It's surprising to me that even the most optimistic estimate here is so modest.
Stick-frame single-family construction is pretty inexpensive. For a single-story structure, rough framing and roof can be done by a couple of low-wage laborers with simple tools in a week.
Prefabrication doesn't save all that much money: you still need several guys, now with a crane, and you need to ship and deliver an oversize load. A lot of the cost is finish (including cabinets, countertops, appliances), and in California, land and compliance.
The modern construcion site is a factory. They move the entire factor to the job, but that doesn't mean it isn't a factory.
It's sort of a blend. For many houses, the walls and roof trusses are delivered pre-built. Possibly even pre-wired, insulated, and drywalled. They are then stood up on site, and a moderate amount of connecting framing and finish work done by hand.
Labor and materials isn't the problem with housing costs. It's onerous permitting and zoning and code requirements.
Can you give me an example of a code requirement on a modern home that you think is wrong or onerous?
The nice thing about a factory built house compared to an independent contractor is you don't have to wait weeks between job types, your plumbers are on hand as soon as it's ready for them to get started.
With that said, the advantage disappears compared to national builders- the guys who buy up big farm fields and build entire subdivisions all in one go before they even have buyers. They can keep crews rotated between jobs in a fairly predictable schedule, so the only thing holding anyone back compared to the factory is bad weather preventing digging out room for foundations.
Even you little homebuilder can do that. the planning is standard and predictable so they line it up as needed.
you as a one off can't because the plumber isn't going to give you the priority needed.
My hot take as some one who follows the space is that traditionally a big blocker of factory built housing has been unionized trades people who lived in the area of the housing developments. These trades people had purchased their homes prior to housing costs skyrocketing in California.
For them, blocking factory built housing meant they had a monopoly on the local housing development projects and easy commutes from their homes (which are protected from property tax increases by Prop 13) to the local job sites.
As these original local trades people have aged out of the workforce they are replaced by younger trades people who can't actually afford housing in the area face 1-2 hour commutes, I think there will be less resistance..
The thought of living in a huge home in Riverside or Fresno with a 10-20 minute commute and building in houses in a climate controlled, OSHA inspected building will start looking more attractive.
Isn't land use and zoning the real problem? (Interesting that there is no occurrence of "land" in the article.) Who cares how the houses are built when you have nowhere to put them anyway. The most recent housing developments are in the literal fucking middle of a hill where you have to drive for 30 minutes for any signs of human life.
That's absolutely it. The most absurd case is of course San Francisco, where literally one single building allowed by recent state law overriding local zoning is adding 100 years worth of total housing units and 15 years worth of affordable housing construction at current rates to the Marina district (https://www.sfchronicle.com/realestate/article/sf-safeway-to...), but the same problem exists in a lesser form across the state.
What people do not understand about housing crisis:
1. Baby boomers biggest demographic group holding on to homes, that means a huge decrease in housing supply
Read it twice as that is the major obstacle, nothing more nothing less; and notice you cannot solve it by asking retirees to sell that home and downsize as over time they lost purchasing power to do exactly that move!
> have been pining for a better, faster and cheaper way to build homes.
And they've gotten it. Build quality and durability is the poorest it's been in decades. Do you really think I want to live in a 200 unit timber framed apartment building with the thinnest walls legally allowed by code?
> Henry Ford, but for housing
Do these people not live in houses? Or do they just assume that the lack of luxury is something people /want/?
> Will the state step in?
Haven't they done enough damage already?
After watching a lot of Cy Porters work, I kind of suspect (maybe too negatively) that everything built in the last 5-10 years isn't even close to being compliant to code and the city and regional inspectors are asleep at the wheel (at least in Arizona, but probably everywhere).
What we're witnessing isn't just an issue of localizing policy failure or even state policy failure but systemic failure. And we just need to look at China for how to do this correctly.
China treats housing primarily as providing a place for people to live, not a speculative asset. In the West, housing is largely a speculative asset where everyone from investor companies to individual homeowners become incentivized to make housing scarcer and more expensive at every level. China, on the other hand, makes it more expensive and more difficult to own second and third homes.
Now you might be tempted to object and point to things like the Evergrande bubble. And that's actually evidence of success not failure. Xi Jinping quietly changed China's policy, starting around 2014 to focus on living not investment, and Evergrande was essentially allowed to default because housing access is a priority over investors.
You really see this plays out with trains.
Chengdu has the 5th largest (by rail length) metro system in the world. It didn't exist before 2010. China standardized rolling stock so there's no time-consuming and expensive procurement process and there are economies of scale.
China has spent less than $1 trillion building ~50,000km of high speed rail. They initially bought high speed trains from Germany and Japan (IIRC) but now they make their own. To compare, the California HSR, if it ever happens, is estimated to cost in excess of $130B.
The point I'm getting to is that in the West every aspect and level of this is treated as a profit opportunity, which ultimately is a wealth transfer from the government to some company. Procurement, maintenance, track building, land acquisition, track maintenance, station building and so on. These are all state enterprises.
Back to housing, IMHO nothing will solve this problem so long as housing remains a speculative asset. There'll simply bee too much resistance to change.
> China treats housing primarily as providing a place for people to live, not a speculative asset.
Where and who did you get this idea from? Speculation in China makes speculation in the USA look like child’s play. Speculation is such a huge part of China’s housing economy that the government has to constantly fight against it, or for it when they fight too hard and the economy starts to teeter, and then fight hard against it again when normal people can’t compete in a market full if Wenzhou housewives. I mean, that even Wenzhou housewife is still a meme for property speculator should give you a clue. The government only ever tolerated speculation in the first place because it used housing as a jobs program for a huge under employed rural population.
Whatever the USA does to fix its problem, copying China’s problems isn’t going to help, and will actually make things worse.
HSR isn’t used for commuting in China like the Shinkansen is used for commuting in Japan. It just isn’t very viable to transit from an HSR station to your job, HSR stations aren’t very central even in tier one cities. Example: you work in Beijing chaoyang and want to live in cheaper hebei, let’s say right on the HSR line so let’s not count commute times on your home end. But just getting from Beijing South to…anywhere let alone chaoyang (and chaoyang is huge, let’s say the CBD just for kicks), is going to take an hour or two even with the subway in place.
What we need to copy from China is there ability to get projects done on time and on budget. But everything else…china has its own problems that it’s still working on.
> Where and who did you get this idea from? Speculation in China makes speculation in the USA look like child’s play.
This information is so out of date it borders on misinformation. China's real estate market "crashed" at least 5 years ago at this point. And it didn't just crash in the same way that, say, the Toronto condo market has crashed. It crashed because the government burst the bubble, deliberately, to make housing a priority not an investment. Put another way, like I said above, housing people was made a priority over investor returns.
> HSR isn’t used for commuting in China
China's HSR now has over 4 billion passenger movements a year [1]. It's largely an alternative to short=to-medium distance air travel eg Beijing to Shanghai is ~1200km, roughly equivalent to Chicago to NYC. What's commuting got to do with it? Are you comparing to Japan where people might live 2 hours commute away from work for various reasons?
No, it’s still crashing. Still plenty of room to go very badly.
https://www.atlanticcouncil.org/blogs/econographics/chinas-p...
First, I never said the crash was over.
Second, this is a good thing. It is a success not a failure. I mean it's bad for the investors but China has decided people having affordable housing is more important than the investors. The investors aren't being bailed out.
Why is this a good thing? Because the only way we can correct Western housing markets at this point is by doing what China has already done. That is, crashing the housing market. And that is political suicide so we are where we are and it's not going to get better anytime soon.
How is “speculation leads to crashing” mean that China is over their speculation phase? It took Japan a decade after their bubble to pop for them to completely detach from property speculation. China is basically Japan 2.0+ in this regard. Hopefully it lands at a Japanese equilibrium where property is priced more sanely, but they are definitely not there yet. My family owns a villa in a tier 88 so I have skin in this game.
Half right. I’d use Singapore or Vienna as the ideal housing model instead. China started off using housing as a financial instrument. People were pouring their life savings into 2nd and 3rd apartments because the stock market was unreliable & capital controls prevented investing abroad. Prices skyrocketed. Now the bubble has burst, and the state is desperately trying to pivot to the Singapore/Vienna model, where local governments buy and own unsold inventory. It’s not going so well.
https://en.wikipedia.org/wiki/Chinese_property_sector_crisis...
https://en.wikipedia.org/wiki/Public_housing_in_Singapore
https://en.wikipedia.org/wiki/Housing_in_Vienna
Of course none of this matters to the US or to this thread. Half this country won’t even wear a simple mask to save their neighbors lives. Forget about coordinating public housing.
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