Reframing Housing Development: New Approaches to Construction

SPEAKER 1: That was a
great start to the day. As Katie said, there’s
aspects of that that really make me feel optimistic. And I think it starts,
with each of these cases, with a very conscious
focus on how do you design for units to be affordable? In this case, we’re just
designing out materials, making use of space. The other thing
that struck me was, it’s great to have
this panel talk about the solving the problem
in different contexts. So we have rural areas, we
have infill in urban areas, and we have– Micheal’s firm is getting
into the larger scale. I think as we think about
this problem, again, there’s not going
be one solution. It’s going to have
to be a solution across different contexts. It’s really exciting
to see different ways in which design approaches
can help address that. The other thing is
that this panel already highlights just the ways in
which all these issues are interconnected. So clearly I think, it’s sad
to learn that Brian’s not having luck in the Boston
area because of the approval process. So clearly, the regulatory
process, parking and other things matter. With Andrew’s project,
his first thought is, how do we get the
financing to work for these? We can start with these really
innovative ideas in one sector and they’re going to
bleed into others, which is a great segue
to our second panel. I’m going to bring up the
moderator for this panel, Frank Anton. Frank is a senior industry
fellow at the Joint Center. We have two of our industry
Fellows here as moderators. The Joint Center has a group we
call our policy advisory board of companies in the housing
sector that help support us and we engage with. Frank is one of the folks
who has been long involved with our– we’re really,
really pleased to have him come and play this role with us. He’s a vise chairman emeritus
of Hanley Wood, premier media information and marketing
services company, serving the residential,
commercial design industry. He’s an innovative
thought leader, focused on creating ways
that Hanley Wood can better serve the residential
and commercial industry. He was a CEO, he was also the
publisher of Builder Magazine. Frank is one of the most
creative thinkers in this space that I’ve met, so we’re
really pleased to have him with us here today. He’s also a fellow
Dartmouth alum so I have to give a shout
out to the Big Green here on the crimson campus. Our friends back
at Dartmouth will be pleased, Frank,
that you’ve got the podium here at Dartmouth. So please come up
and then introduce the next panel for us. FRANK: About once a
week, my wife says to me, you’re a cynic. And I always say to her, I am
not a cynic, I am a realist. I’m going to insert some
realism into what we’re talking about today, I think. But first I want to
ask you a question. Do you know who you are? As a group. You’re the converted. And the speakers are
preaching to you. That’s great, that’s great. There’s nothing wrong with that. If you understand
my experience, it’s really with the mainstream
in the housing industry. The mainstream in the housing
industry is not converted. You’re fighting a
guerrilla warfare. The mainstream in
the housing industry has amassed armies, with
missiles, planes, tanks, and automatic weapons. The mainstream of
the housing industry doesn’t really care
about this almost at all. Whether they should or not,
I think the industry should, but it doesn’t, it doesn’t. And the mainstream of
the American population, I don’t think, cares about it. An example: the
American auto industry. They’re not making Fiat 500s. Half the vehicles being
sold right now or SUVs. Half of the vehicles sold to
American consumers are SUVS. They’re big. The analogy to the
housing industry is that the median size
of a single family home today is 2,500 square feet. That’s six– 160 square
feet, not 500 square feet. It’s 2,500 square feet. The political pressure
that this industry puts on Congress, local
jurisdictions, states, zoning, and all that good stuff,
think about the tax reform legislation that passed. The housing industry’s main
concern, there were two, was that the mortgage interest
deduction, which is now capped against a million
dollars of mortgage, they didn’t want
that to be reduced. So it was, to $750,000. There aren’t very many $750,000
mortgages in the United States but that was what the
housing– because builders make a ton of money when
they sell a $750,000 house or a million dollar house. They don’t make
very much money– well, they would argue that they
could make no money building a 500 square foot house. The mainstream in the
industry doesn’t even think about rental housing, it
thinks about for sale housing. I’m not a cynic. I’m just telling
you the way it is. And that’s the way it is. I’ve been involved with Habitat
for Humanity for a long time. Millard Fuller,
the founder of it, always said that we’re
going to solve the housing problems in the country
one unit at a time. That’s great, but when
tens of millions of people don’t have adequate housing– subtract one from
tens of millions and you made somebody
happy, but you didn’t solve the problem
for tens of millions of other people. You can multiply one
times 100 or 1,000 but, we’ve been
talking about, you can’t multiply one times 40
million and solve the problem. So there is a lot of work to do
here, a lot of work to do here. If I just think about
the world I live in– in the world I live in,
people go around bragging about owning houses in
the most expensive housing markets in the United States. My wife and I just
moved to New York and they’re very
excited in New York because the price
of luxury housing is about $4,000 a square foot. Wow. We have the highest price
per square foot housing in the United States,
isn’t that great? Isn’t that great? I took a weekend
trip to Palm Beach, and they’re very
disappointed there because their average
high price per square foot is only around $1,500
or $2,000 a square foot. I’m not a cynic. We’re kind of operating
in that world. Insofar as this
mainstream industry talks about affordability,
it’s usually focused on, why are millennials not entering
the first time buyer market? The industry says to
itself, we don’t get it. And they cite statistics
that kind of try to refute some of the stuff
that Chris showed you. They say, among
other things, that– just let me make sure I
get these numbers right– in the last year, a
house they define, this is the National Association
of Realtors, as suitable for first time buyers,
the price has gone up about 11% in the last two years. But the index that says, is
that house affordable or not, is only declined from– I mean, I forget how
they get to the index, but it’s a completely
bogus way– but they get to an index of
109 two years ago to 106 today. So they’re saying
housing is still about as affordable as it was. The monthly payment for this
first time house, and they’re assuming a buyer with about
$45,000 worth of income, has only gone from– they say, only gone
from– $846 to $951. $100 more, that’s no
big deal, it’s $100. It’s $100. The income during that time
has gone from 41,000 to 46,000. The government, they assume
things like– these people can afford a 25% down
payment, that they have high credit scores,
they don’t have student debt. Does the index mean much? Probably not, but
the housing industry convinces itself that this means
that the reason millennials don’t buy houses is because
millennials are lazy, disorganized, for some reason
they don’t get married, if they get married,
they don’t have kids. They’re not normal. They’re not normal, that’s why
millennials don’t buy houses. But the reality is, they
can’t afford to buy a house. I know that when we’re
talking about $45,000 income, that’s much more than
what’s going on in Alabama or whatever. But that’s the definition
of a first time buyer. The federal government has a
housing affordability index. In the last two years,
it’s basically flat. It was at 170 two years ago,
and very briefly dropped to 150, but it’s now at 165. So I’m not a cynic. But there needs to be
a lot of stuff going on to change the dynamic that’s in
the mainstream of the housing industry. And part of that is what
we’re talking about today. It will make a
difference, but it won’t solve the problem quickly,
and it won’t solve it easily. You’re going to have three
speakers, James Shen, number one. Randy Miller, number two. Fritz Wolf, number two. I’m supposed to
stop, and I will. JAMES SHEN: Hello everyone. Thanks for being here. I’m James, I run an
office based in Beijing, called People’s
Architecture Office, with two other partners,
Zeng Fang and He Zhe. I’ll be showing some things in
a different part of the world but I’ll bring it back to home. So that we can also try to
connect different worlds here. I’m going to start with a
prefabricated building system that we’ve been
developing ourselves. Just to explain a little
bit about what that is. I’d really like to bring
in different dimensions to the issue of cost. Certainly the first,
the beginning, will be the economy of scale. Yes, mass production
does allow you to lower costs, increase
quality, all those things that we’re probably all
pretty familiar with. I think it also doesn’t
mean that everything needs to be the same. I think there’s a lot of
work to be done there. What we’ve been developing
is a panelized system. It’s not concrete,
steel or wood, it’s all insulation,
pretty much. The core is
polyurethane insulation. It’s a sandwich panel
with a mixture of steel but that could be other things,
and the interior surface is a kind of dry wall
type material called MgO, that’s the fireproofing. These are sandwiched
together, it’s an injection molded process. The result is a panel that is
a structural, highly energy efficient, and it’s light,
it can be shipped flat. One of the things that’s
really interesting about this is that we’ve also molded
in these locks that allow you to lock these
panels together very quickly. That means you don’t
require skilled labor. These houses can go up in a
very short amount of time. This is me and my partner
Zeng Fang putting one of these together, you see that the
panels are quite light. You can integrate all kinds
of things such as electrical. The speed of the process
is quite important. If you’re talking about the kind
of housing you’re developing, but I’ll talk about
that a little bit later. This is the factory,
and as you can see– we do have panels that
are fairly standard and we have ones
that are different. The way we do that, is we have
a mold that is adjustable. These molds can be
changed according to the needs of the people
that we’re building for. We can do this in a way that
is still economical, doesn’t increase costs very
much, and still be able to provide for designs
that fit the unique situations. And we’ve found that every
situation has been unique. I’d like to move into, also,
the economy of location. Where we build things matters
a lot, in terms of costs. I know that’s obvious. But how do you go about that? How do we deal with that? Our work started in these
historic areas in Beijing. In one neighborhood,
in particular, called the Dashilar. This is a very
interesting situation because this is one of
the most expensive cities to live in the world. It’s also one of the
most central locations that you can find in Beijing. It’s right next to Tiananmen
Square and the Forbidden City. Surprisingly, you
have a large number of these houses that are vacant. The reason for that is
this is a historic area, it has slum-like conditions. There’s been a lot of
disinvestment, flight, and so forth. These are all centuries-old
buildings that are degrading. We wanted to come up
with an alternative to the typical kind of urban
renewal that you would find. We came up with an
approach, to say that you don’t need
to relocate people, you don’t need to
tear anything down. You could build a
house inside a house. This is an illustration
of how we do that. We keep all the original
structures as they are. You can think of it as a
method of retrofitting, upgrading, or infill. You can see here, this
is some of the results. These are before
and after images. Through this process,
we began thinking about cities that just
continually expand outwards, following cheap land. Understanding that cities just
can’t continue to do that, we have to find other
ways of building inwards. Here you can see
an example of this. This is actually not
in the historic area, this is in an urban village. This is actually
rural land that’s been surrounded by the
expansion of the city. Similar conditions,
where properties that have been abandoned
and it’s very complex issues with property
and land rights that prevent a lot of
development and adaptive reuse. We try to skirt around
some of these issues through this approach. This idea of developing
in places where people already live, or
are already there, means that you
also take advantage of existing communities,
community networks, infrastructure, social
services, and you can imagine how difficult it is,
the costs that you would have to come up with to
bring all of that to these locations that are
further out of the city. In fact, what I’m
trying to say is that we can’t think
about the cost of housing as just materials,
technology, and design, but also all those
other things around it. And think a little
bit more long term, but still think
of it as something that we can engage in as
designers and builders and policymakers. We’ve also built these
extensions, additions. And you see that
we’re really learning from the people around us. All of that stuff is– those are all additions,
informal additions. The funny shape that
we have, that actually has nothing to do with
building regulations but more about navigating the dynamics
between the neighbors. They said, don’t block my
light, here don’t block my air, and that’s the design really. These become also projects
that are negotiating very complex social dynamic,
social relationships, in these locations. Here we’re building
on top of buildings. This is actually
all rental housing. And I think that’s
also an important issue we want to engage in. We’ve also been
building in rural areas, this is the countryside
for a farmer. I’d like to get to
something that I think is closer to
our situation here, is accessory dwelling units. This is what we’re
interested in the US. We think that this is
something that could be applicable to the States. The idea of accessory
dwelling units is, basically,
the homeowners can build a house in the backyard
and the city would open up this regulation
and give incentives for homeowners to do this. Cities without land,
without funding, would be able to rely
on private homeowners. The rental units, these
would only be rental units, would provide secondary income. The hope is that you
would have more inclusive neighborhoods, lower income
people that could move in. It would be a counter to this
Nimbyism that we find a lot. Fortunately, it’s been very
successful in many cities across the US, so this could
be a very exciting area. The last thing I’d like to touch
on is the importance of people. There’s so much value
captured in the communities that we try to engage in. So often, we don’t
extract that knowledge. Part of the way we do
that, is we start off– we actually didn’t start
off with the product. We moved into this neighborhood
without having any idea how to deal with the issues– well, we didn’t
understand the issue so we moved into
this neighborhood– It was a way for us
to engage with locals. We also used our system
for our own office, for redesigning, or
designing our office. So this was also
[? quartered ?] house. This is not all ours, we
share this with other locals. Through this process
we’ve also engaged with lots of people around us. They become our
clients directly. Some before and after images. You can see that the
relocation process is not such a big, or the
upgrading process, it’s not such a big deal
because they can basically move their furniture
out for a little bit. We do this for a day or two and
then they move stuff back in. These are very small, they
are about 250 square feet, 300 square feet. Through this process
we’ve really learned a lot and the design has
continued to change as we’ve gone along this process. The last thing is, we’re
working with the city here on a couple of
demonstration uses to bring this
process of engaging with people to the States. We’re working with the
Housing Innovation Lab out at the mayor’s office. We’ll be building a
plug-in house at City Hall. This will be there
on May 4th, we’ll be there for a couple
of weeks, and we’ll have all kinds of activities
and events around that. It’s going to be also
at Harvard Yard here, actually earlier, it’s
going to be here on April 26 and will be here
for about a week. We’ll be doing the same
thing, to engage people with some of the issues
surrounding housing. Thank you. RANDY MILLER: Where I’m
from, and all over the US, millions and millions
of people live in suburbs and
drive hours a day, sometimes even a
hundred miles in total, to get to central
business districts where they make their
livelihood or they go to school. I’m one of these people. The reason for this,
and for many people, but not all, is
because they can’t afford to live near the center
of cities where their work is and where universities are. So why is that? A big reason is because
of the cost of housing, and a major part of
the cost of housing is the cost of construction. So why is the cost
of construction so large and so out of control? Well, one reason is
because in 100 years, not a whole lot has changed. If we look at the Salesforce
Tower, recently completed in San Francisco, and compare
that to the Empire State Building, and just
change one thing, put the photograph
in black and white, you really can’t
place the time frame. Even though hundreds
years separates the– almost 100 years
separates the construction of these two buildings. It gets worse, because the
fact is the Empire State Building is a third larger
than the Salesforce Tower and was built in 13 months,
while the Salesforce tower took five years to complete. Contrast that with just
about every other production based industry, where
over the same time period, we’ve seen 2x, 3x, 4x,
5x productivity gains, but we haven’t seen
that in construction. My name is Randy Miller,
my company is RAD Urban, and our mission is to deliver
transformative construction solutions to fulfill our
vision of better cities, and our goal is to
be able to build a 40 story residential high-rise
and do it in 12 months, and do it at half the cost of
today’s standard construction. People look at me like I’m
insane when I say that, and we’re not there today. But we’re well on the
way and I’m not a cynic, I’m an optimist, and a realist. I am 100% confident
that it is achievable. It’s more a question of
execution, at this point, than even technology. If we can do that, if
we can build a 40 story tower at half the cost of
conventional construction, then we can place our
costs at less than the cost of suburban multi-family
construction. And we can reverse
the pressure on cities to sprawl out for miles
and miles and miles and create pressure to
build up our urban cores. So how do we do this? Our thesis is that
we need to rely on a manufacturing
basis of construction and housing delivery. This is our factory in the
California Central Valley. Our workers are not
local to the Bay Area. The fact is, if our workers
weren’t working here, they would be driving
two hours each way to work in Berkeley, San
Francisco and Oakland, because they are
trade workers but they can’t afford to live in
the construction markets that they serve. They can’t afford to
live near our factory. So you can see, it’s
an assembly line. What we’re trying
to create here, that has evaded the
construction industry, is that Model T moving assembly
line moment, when automobile manufacturing achieved
almost a 90% productivity improvement very, very quickly. To the question of what is
left for the local workers and the local
subcontractors, I’ll remind people that the
introduction of the moving assembly line was not the end
of the automotive workforce. It was the beginning
and created an explosion in manufacturing employment that
lasted for many, many decades and supported millions of
families for a long time. You’ll also notice that our
factory, the modules are steel, they have a structural
steel chassis, but we are using light
frame metal stud framing. That’s a function
of current building codes and historic practices,
but that is not the way forward. One of the things
that a manufacturing basis for construction
allows is we can move away from legacy materials that were
based on what a construction worker could carry up a ladder
or a stair or a scaffold, and we can move to larger, more
efficient panelized assemblies, like what James is
producing, but even larger. Things that you can only
achieve in a factory. These are some examples of our
pre-finished volumetric modules going into a
project in Berkeley. I’ve got a few more
pictures of projects later. We’ve now completed
three projects, we have two projects
underway, and are our first tower’s
approved and we’re hoping to break ground
before the end of the year. Now we need to marry the
manufacturing process to an end to end project delivery
scheme, and that includes design and engineering. One of the advantages
of modular construction is, as a manufacturer, we
have a bill of materials and that bill of materials is
connected to a supply chain. Suppliers and prices are
attached to each line item in that bill of materials. So when we take a
module and change it, we know how the cost
changes instantly. As an architect, or a
designer, or developer, we can now actually
design right to a budget. As we pull modules from a
catalog, into a massing model, we can instantly
see what we’re doing to the cost of the building. Similarly, we can standardize
the structural assemblies. We don’t need 100 or 1,000
different building cores. We can have some
standardized core assemblies. Then we can apply site
specific forces to them. That’s the Loma
Prieta earthquake. Then we can apply
the member sizing to the standardized
configuration and go into manufacturing. We also have to think about
what we do at the job site. We need to extend the
manufacturing ideology to how we build on-site,
moving away from the notion that construction is risky. So as a general contractor,
I’m going to be a broker and subcontract
away all my risk. And I think Fritz will probably
speak to this even more. But our perspective is
to manage the job site as an extension of the
manufacturing process where we manage a supply chain
outside the gates of the job site and then on
the job site, we have receiving, material
handling, and installation. And those are all
different activities performed by different crews. In a factory, you would never
take a production worker away from his station to
go unload a truck. But on a high rise, that’s
exactly what happens, only the crews are coming
down in a material lift from 30 stories up. So where are we today? That’s our pilot project, 6137
MacArthur, a little five unit project, to make sure that
we could engineer modules, we could manufacture
them, we could stack them, we could rent the building,
we could sell the building, and that we could make money. We lost a million
dollars, but we saw that it would work at scale. The next project was a student
housing project at UC Berkeley, and this was a success. We achieved a
substantial savings. We’ve now completed three
projects, and like I said, two projects are underway,
including 5110 Telegraph, and Franklin is our first tower. You can see, our
cost on the first one was almost double market cost. But now we’re achieving
20% to even 30% savings over conventional construction. And notably, we’ve
gotten to the point where our budget for our first tower
is consistent with the market cost for a low-rise
building in the same market. Now remember, our goal
is to build that tower at a cost that’s less than the
cost of a low-rise building in the suburbs. And we’re not there yet, but
that’s where we’re heading. Thank you. SPEAKER 3: Thanks everybody. There’s so much good work
that’s been done up here, I don’t know if I
have much left to say. Typically, I would start by
walking through this slide deck, but given the context
of the discussion that’s been had to date,
I’m not even certain that I’m going to get to it. The reality is that this
business, from my perspective and I started this with
two of their partners, was a manifestation to help
solve the acute social crisis, that we’ve all been
here talking about. The problems that surround us. I think it’s probably more
contextually helpful for me to start around that
journey for a few minutes and talk to you about
how that journey led us to this pathway to better,
faster, cheaper construction to help unearth and curb the
social crisis that exists in the central housing today. So first, thanks
for the preamble that Chris and Kathleen
and Frank, you guys, gave. That helped shave what would
be a 20 minute discussion into eight or nine. I’ve had a front row seat
to the social housing crisis for the last
20 or 25 years, being a market participant,
as an investment manager, a developer, and a financier
of other people’s projects. I own that investment
management business with two other partners, which
otherwise wouldn’t be worth mentioning, but today it will
because it intersects what became this business, Katerra. One is a guy by the
name of Jim Davidson who co-founded a technology buyout
business called Silver Lake Partners, which has focused,
for the last 20 years, on trying to find industries
where there are technologies that are under optimized
and figure out strategies to help unearth and
increase productivity in those industries. Another is a gentleman by
the name of Michael Marks who did the same thing in
the OEM ODM business making things like these
computers and cell phones, with a business
called Flextronics, and his rival competitor, a
guy by the name of Terry Gou, at Foxconn. So I sat down with Jim and
Michael about five years ago and said riddle me this, we’ve
had negative productivity gains for the last 40 years
in construction. You literally pay more
and get less every year than you did last
year, the year before, and the competitive
response from the industry is either smaller assets,
older housing stock, or people that go without,
and it’s a growing problem. So just from a procurement
exercise, just a supply chain exercise, tell me
this– if I were to commit to 100,000
toilets, 100,000 rooftops, you’ve all heard
the story, how far could we bend the cost curve,
just using traditional methods, as a supply chain exercise? What we ultimately
came to, was let’s back up and talk
about all the lessons that have been learned
in consumer electronics manufacturing, all of them,
over the last 30 years. Were their mistakes,
throw them out, where they are not
applicable to construction, throw them out, where they are
applicable, let’s fast forward, not relearn those mistakes,
and see if we can apply them to the construction industry. Where we ultimately landed was
that we believe fundamentally, and it may be
provocative in this room, that the classic hub and spoke
system, of owner, architect, contract, general contractors,
and subcontractors, are broken, the whole concept is broken. So general contractors go away. Subcontractors go away. Architects, engineers, how
they interact today, go away. And a proxy for that is if
you look at the cell phone that I don’t have in my
pocket, in 1980 dollars today, if you were to
look at those productivity gains of a cell phone, it
would cost us roughly $750,000 to buy an Apple iPhone today,
using the same productivity gains of negative
1% year that it takes us to build a building. That doesn’t seem that logical. One of the lessons learned
in consumer electronics that have deeply bent the cost
curve and the time curve was, you have to own everything. We mean everything. When Michael left Flex, 400,000
employees, Terry has a million and a half employees. There are no
subcontractors, there are no hand-offs,
period, end of story. You have to be one solution
from, absolutely, end to end, from materials cost to
the delivery of the site. Ambitious and crazy,
I know, but that’s what we thought it would take
if we were actually going to deliver a problem at scale. And we were willing to burn
our own boats at the beach as a market participant to try. Let me see if I can move my
way through a couple of slides. The business we have
is called Katerra. You’ll see a lot of analogs
to RAD, the great presentation we just saw. Other than we started in low
and mid-rise applications, versus high-rise
applications, just because that’s where the launch
customer, ourselves, came from. That’s where we had to learn
our lessons in construction. What do we do? We do architecture, interior
design, engineering, manufacturing, building, general
contracting, skilled labor, renovations, and it
includes subcontracting. So we’re all the final
field labor as well. Here we are today, we are adding
between 500 and 1,000 people a month, that’s a global team. Comes from manufacturing,
design, construction, supply chain, software, engineering. Of the core executive team,
one comes from construction, and I feel sorry
for him every day but we give him all
the support possible. But this is the background
of where the groups come from as we think about how do
we really innovate and have a clean sheet of paper of
thinking about driving down cost. We have global procurement
supply chain, so everything that goes into a
building, we either physically make or buy
manufacturer direct over multi-year global
supply chain agreements. We design to that supply chain,
as you saw in the RAD example. Actually, we designed our
supply chain and auto price through a computer system
that breaks that down into manufacturing,
and then treat the job site as an extension of the
factory, which is an assembly site, not a construction site. Where are we today? As of today, we have about
4,000 units underway. We will deliver just
under 9,000 units this, year about 115 projects
underway, about a third of those are our own
principally and the others are other large
scale, developers who are committing
either a large scale or a significant amount
of their pipeline. And that represents
about 20,000 units, that will be delivered next year. I will tell you that one of
the big frustrations I have had with the industry is watching
90% of the capital flows and 90% of the supply
go to the top deciles of the affluence
pyramid, because it takes that amount of rent
to mask the dysfunction in construction. We’re heavily focused on
prioritizing our own market participation and others’
market participation, where we can bend the cost
curve and socialize those gains with a
for-profit economic model into the pockets of residents,
which today is less than 5% of the supply being
delivered to the country. We have one factory
underway that’s up and operating in Phoenix. We have four more that will
be completed by the end of ’19 that are committed to. We have the US covered for
a minimum efficient scale standpoint. Here’s the jobs that we have
underway and pending projects. And I’ve only got a
couple of minutes, so I’ll move through this fast. I think we’ve already
been through this. We have an end to end
ERP system, which we’re told by SAP we’re one of two
of the country, which means we know where every last
stitch of material is, from when it gets pulled
out of the forest, until when it hands
to the job site, with no hand-offs in between. Which is standard protocol in
most industrialized businesses, but in construction
that seems to be novel. Auto design and pricing,
we’ve walked through that. One other item that I
think is of note coming from the consumer
electronics industry, in a lot of the executive
team, is the cost of– not to use brand
names– but the cost of designing in the Crestrons,
and Lutrons, and Nests of the world. Doing that at the
materials level, and not at the brand, level
the cost would be eight, 10, $12,000 a unit, we
think is generally free. If not less than free at
the materials cost level. That’s something that, if you
treat this as a manufacturing and engineering problem, not as
an architecture and component problem, there’s great
opportunities too. We have a consortium of
architects, obviously, lots of the connotations
of prefabrication modular that come
from the industry, think that of standardization,
lack of quality. So we have a consortium of
great third party architects that we work with that
help work on design. One other thing, when we say we
make a lot of the components, we not only make components, but
from an ergonomic standpoint, we think about putting
everything from the appliances that we either make or design
and have from a supply chain standpoint, down to
the radios on the wall having the same consistent
patterns and themes, like you will see the
stitching of a car put together other than one
brand of appliance and another brand of another
component in the home. Design variations, this
is just the ability to deliver different
designs with the same basic architecture. Sustainability is a
huge issue for us. Somebody mentioned,
in the last panel, CLT, which I’ll
go to in a moment. I’m actually going
to skip through, in the interest that I’ve
only got one minute left, I’m going to skip through a
video we don’t need to see. But for us, it’s the
same concept of drive half the time, half the
cost, half of the variable OPEX out of buildings, by
being absolutely everything, from the supply chain to
the finished delivery site. And also do so in a
very sustainable way and do so in a way that we
think will drive the long term optimization of
buildings to a better place than how we’ve seen the
footprint over the last 100 years. To that end, I know I’ve got
one minute left that says stop. We’re underway on
the largest US CLT factory, cross-laminated timber
factory, in the Americas. That will be up and
operating in November. 5% of the global CO2
emissions come from concrete, we think we would like to
minimize it where possible. We think this is a better,
faster, cheaper, and prettier solution. We’re hoping it’s applicable to
all the rest of the development community that’s in
the room and elsewhere. This is one way where we hope
we can collaborate on high rise to build much better,
faster, cheaper, that will help aid and abet the
modular designs of the world. So that’s it. SPEAKER 2: We’re going to have,
again, a discussion period, but keep it to like five to
seven minutes because I talked too long at the beginning. A couple of things that I think
you should probably think about is how do we scale– all this stuff is happening
on a gorilla level– how do you scale this so that
instead of producing hundreds of units, you’re producing
hundreds of thousands of units this way? Hundreds of thousands. And really dramatically change
the equation about the way housing is being
provided to people and make that housing
significantly less expensive. We’re going to ask you, just as
we did after the first panel, to react, to answer
four questions. What are the things
that you think are making it so difficult,
seemingly so difficult, to really make housing
more affordable? Once you answer the question,
speak to your table mates or seat mates and
we’ll be back in action here to have a discussion
with the panelists in about seven minutes. It sounds like the presentations
engendered a lot of questions and comments and discussion. Stop talking, how’s that? Well, it’s good that you’re
talking because that, I think, means that these presentations
got you interested and excited. But we have time for you
to ask them questions. The question that we ask,
that there’s really, clearly, no consensus, that there’s
some single factor that’s outweighing the
others, they all seem to contribute in almost an equal
way to the problem of providing more affordable housing. We’re going to now
open up to questions. I’m going to ask
the three of you, I have an idea that the way
the home building industry is now, there’s 50,000
builders out there all doing the same thing, collecting
materials, and putting them together, and then trying to
sell or rent the property. Imagine if that was the way
the auto industry worked, that there were 50,000 people– 120 years ago, there were
hundreds of auto manufacturers, then eventually
there became three and they provided
dealers with cars. I have a notion that,
all three of you were talking about
manufacturing, housing in a way. Can you see that
same thing happening to housing, that there are
six or or seven or four manufacturers, who have
plants all across the country, and that there are builder
dealers, in effect, using your product. Do you see an upside to that? SPEAKER 3: I can speak to that. I think that the construction
market is hugely fragmented. The construction market is one
of these strange markets where there tends to be
dis-economies of scale. The guy working out of a pickup
truck has the biggest margin, and as soon as he hires someone,
that cuts his margin in half. When he gets an office, his
margin is further reduced, and by the time he’s
Turner Construction, he’s down to working for 1%. When you introduce a
manufacturing basis of construction,
all of the sudden, there are economies of scale. The larger you are, the
more efficient you can be, and I think Katerra is going
after that aggressively. But I think that there
will be consolidation in the construction industry
and that it’s a natural process of an industry maturing. Where you go from hundreds
or thousands or millions of players, and in construction
the top 400 general contractors have 27% of the market. I expect that over
the next 20, 30 years, I think we’ll get to
a place where we’re 10 or 20 major technology
manufacturing-based construction firms will end
up with 80% of the market. We could debate whether
that’s good or bad, but I do believe it’ll
bring efficiency. SPEAKER 4: I just
echo the sentiment. Which is, give you
just two data points. There’s 750,000 construction
companies in the United States, and 745,000 of them have
less than 10 employees. That, in and of itself,
tells you there’s no room in latitude
for innovation, unless there is
some consolidation. So by definition, if
we’re going to innovate, there has to be
some consolidation. The pathway of supply chain
manufacturing and assembly has been the proven path in
almost every other industry and it’s not logical why this
wouldn’t be the same one. SPEAKER 5: I’m actually trained
as a product designer as well as an architect, so I think
this discussion about bringing architecture into the
era of mass production is definitely important. But I think that
architecture is also very different
from other fields, different from furniture,
from our computers We have to deal with a site, a location,
and the communities that are there. I don’t know if
that’s necessarily where we’re going to go, a
few manufacturers and product that is all very similar. Standardized. I actually don’t think
the manufacturing for products themselves are
going to go in that direction. There’s something called
mass customization that’s interesting. It doesn’t exactly exist yet. But I’m also interested in ideas
of incremental development, meaning you build
as you need it, you build according to the
resources that you have, and you have to change
and adapt to the city, to the environment. I think those are things that we
have to do with in the building industry as well. SPEAKER 2: Questions
from the audience? Kent? Here he’ll give
you the microphone. SPEAKER 6: The question is,
of the million two houses that were built, single family and
multifamily, in the United States, 30% of them were multi
family, 70% were single family. What in Katerra– I was
fortunate enough to ask, you’re basically
building tires, Brian. Are you doing any single
family or are they all multi family structures? SPEAKER 4: Over time, we intend
to have every application of the construction industry. Today, it’s high density
residential, and high density residential is the
adjacencies of residential. So senior housing, student
housing, multifamily, hotels, anything with a
kitchen and a bathroom, that is non high-rise. And we’re delivering,
and starting to deliver in high-rise now, but
of the first 10,000 or 20,000 units of we’d call beta units,
the first 50 or 60 projects you saw, very few of those
are high-rise, most of those are traditional, institutional,
multifamily, or senior housing, assets that deliver
into the workforce. SPEAKER 6: Relating
your conversation to Frank’s introduction,
and I don’t want to put words in
your mouth, Frank, but much of what he
was talking about wasn’t on the most
the multifamily side, it was on the
single family side. The houses that are being
built around the country. Are you in Katerra
thinking it all about– because that’s really
where the dinosaurs are– in terms of really
getting into that. That’s where if you can
bring a 30% cost reduction and build houses
that people will buy, I think there’s a great market. You can disrupt the housing
market in the United States. SPEAKER 4: The short answer is,
this is a progression of this as a young business. We’ve been at the
Katerra business, notwithstanding we have close
to 100 projects underway and it’s only three years old. But it acquired a lot
of principal activity that we were doing. And that happened to be
that principal activity. So those are the skills
that they honed first. And once they did those,
unpacking it into single-family is a less complicated
problem, in our view. SPEAKER 6: The
one thing you will have to add to it will be land
purchase, and land development, and all the subdivision kind of
things, in terms of doing that. Which they are very good at. SPEAKER 4: That’s right. To be clear, Katerra
is a services business. In consumer electronics,
analog, it’s the Intel Inside, we’re not intending to be
the out facing customer. We’re trying to enable that. The public and private
home builders of the world will still have their place to
organize land and title land. Complete horizontal
infrastructure. Maybe that’s us,
maybe that’s them. And be marketing and delivery
ventricles to their customers. We just intend to be a solution
provider for everything in between. SPEAKER 3: I just want to
say that I have the view that solving housing
affordability, and also environmental
sustainability, I think it’s going to happen on
the multifamily side. A lot of people would
be happy to live in a less expensive
single-family home, I just don’t see that as where
the general solution to housing affordability and sustainability
is going to come from. SPEAKER 2: Question back there. SPEAKER 7: Hi, from
what I understand, prefabricated housing
and modular housing has been a thing
since the 1890s, when you could buy a flat pack
house from the Sears catalog. So why do you think it’s taken
over 100, almost 130, years to get to this point where
we’re talking about it in a more serious way
than we have in the past? SPEAKER 4: I would answer it
in two ways, which is one, I think that there’s a
social fabric that has become a tipping point that
wasn’t a tipping point, because of urbanization
trends and demography over the last number of decades. That has been the
case and the other, is that the development
construction community has been able to get away with
pro-cyclical behavior and lack of innovation until it hasn’t. And now it’s hit
a tipping point. That’s the quick
answer I would give. SPEAKER 2: Or a lot
of builders would say, is if you
manufacture housing, the industry is cyclical. You have a big factory that
cost millions and millions of dollars or tens of
millions of dollars, and this is a big country. It’s not Denmark where you can
service the whole country out of one factory. You have to build factories
all over the country. There’s a downturn, housing
starts declining by 60%. That factory, you’re
dead, you’re dead. We’ve talked about
that, you don’t agree that that’s the case,
but the housing industry has felt that way for
a long, long time. So that’s another reason. Another reason is
that local communities resist manufactured housing. Consumers associate manufactured
housing with mobile homes up on concrete blocks. In a lot of places, even if
you have a beautiful unit, and these units that you
saw are pretty handsome, you’re going to get
incredible resistance from local communities. There’s a whole bunch of reasons
that manufactured housing, or factory build housing, or
whatever you want to call it, didn’t catch on the way people
thought it would after World War II. Yes? SPEAKER 8: How much do regional
factors play into the models that you deploy? Certain weather and a lot of
what we heard on the design panel was about how labor
specific or the distance at which you can ship things. And then also on the other
side, ceiling heights that have been used in certain
regions for a long time are there because it responds
to the heat or the cold. I’m just curious how
this model gets deployed on a more regional basis? SPEAKER 5: Well, I
want to combine this with the previous question. Actually, prefab has been
around for much longer than the Sears houses. I think part of the
issue is the sameness. Regional concerns are very
important if you’re going to talk about sustainability. But there are also a lot of
cultural and social issues. I think this is
a social problem, and we need a social solution. I think technology
can support that. But we were all talking about
here, one thing is density, the future of housing does
have to be multifamily, higher density, multi stories. That’s a social issue. The materials that
we use, you were talking about electrical
conduit and so on. Those are social
issues, it’s not a problem of the technology. Hopefully, designers,
engineers, we can work much closer with
policymakers, regulators, to try to push these changes. SPEAKER 3: I think
regional issues matter. But that the regional
markets are large and diverse enough that they can be serviced
well on a manufactured basis. I also think it’s
definitely easier to operate within your region,
than to go across states. If you’re focused on a
particular area, even a municipality, many of
the people here know this. If you know you’re
planning department, it makes a big difference in
getting projects approved, as opposed to showing up for
the first time in a new town. So those are all things
that have to be addressed. SPEAKER 2: There’s a
question over here. SPEAKER 9: Thank you very much. Very interesting discussions. I think part of this is that the
whole system we’re working in is a complex
socio-technical system. Where you have
institutions, technologies, and actors trying to make
the system work together. But the regulatory
system is dysfunctional. The construction system
is dysfunctional. So having the technology
alone isn’t going to help. You can look at a country
like Singapore, that’s already building 40 story modular
residential buildings, because they can
very well control the regulatory environment,
the construction environment, and everything else. How do you actually expect
to be able to make progress in a country with 30,000
different jurisdictions, with groups called
fire departments, that are really concerned
about the fire performance of modular
construction in the past. In the labor issues
that came forward. The supply chain technology
part seems pretty easy. Everything else seems to
be the big challenges. SPEAKER 2: Good question. SPEAKER 5: I think the supply
chain is also very, very complicated and very difficult.
One thing I’d like to propose is– I’m an architect, I’m
not a policymaker, but my understanding
is policy is made based on data,
research, things that have existed in the
past, and current situations. But as a designer, we’re
thinking of what’s possible. It’s important, if you’re making
decisions like policy, that you can consider possibilities. And I think there’s
a disconnectedness between all these
different [? silos, ?] all these different fields. Hopefully there’s
a way that we can have a more productive
conversation around this. And I think part of that
is through demonstrating some of these ideas. To put them into neighborhoods
and to try to build them. It’s very difficult
to build a tower. So that’s actually why
we’ve been building these very small houses, to
introduce some of these ideas and technologies. In fact, we are also building
multistory versions of this. But it’s just a
lot more difficult. So I think smallness is not
just a good direction forward, for communities, but
it’s also a great way to test things out,
experiment, and to interact. SPEAKER 2: They don’t
have red stop signs here, they have white stop signs. It’s still a stop sign, so
we’ve been asked to stop, and we will, thank
you very much. SPEAKER 10: Is this on? We’re trying to pack
a lot into this today. And so we are
running behind I do want to give people a chance
to get a cup of coffee. Two quick observations,
one is I just want to echo what James
was saying about how it means being social. It’s social in
how we live in it, and social in how we produce it. The challenge here is
bringing scale and linking it to something that also
works at a social level. I think Andrew’s problem
of trying to bring scale to what he’s doing,
but very much can be based at a community
level, both in terms of the people living in
it and how it’s produced. I think a lot of
the challenge here is bringing scale and
retaining community. And retaining some design
that’s sensitive to the site and the community around it. The social piece is also
important for the next panel, which is this is
a social problem and how we get things approved. That aspect, we’ll
talk about when we come back from the
break about regulation. One last thing that
Fritz kind of slipped in there, this notion that if
we get scale on these production methodologies, but
they’re not socialized, they can be absorbed and just
turn into higher profits. So how do we bring this
scale in a way that means that they don’t
get absorbed in profits, they get passed on
to the consumer. Something to think about. 10 minute break. We’ll come back at 4 o’clock. Thanks.

2 thoughts on “Reframing Housing Development: New Approaches to Construction

  1. High rise (40 + stories) mixed affordability units are what I see as the answer to gentrification displacement in large cities. If it can be done with modular construction I don't see why it wouldn't work. Community spaces and areas of social gathering must be part of all designs. The lifespan of these modular construction projects was not mentioned along with ease of systems maintenance.
    One thing I would stress is that the units be built with sound deadening/sound proofing. Sound is the enemy of high rise/multifamily unit success. People will put up with a lot but hearing their neighbors music/tv/computer/sound system/slamming doors/toilet etc. is a deal killer for most in the long run.
    Small homes in backyards is not the answer, one bad tenant and that small house will never be rented out again.
    Would factories eventually be moved out of US as happened with small scale manufacturing?

  2. This was a really thought provoking discussion. Thank you for putting this together! The JCHS is truly remarkable.
    I would first ask: what is the approach to dealing with trade unions?
    This question deals with a variety of positive and negative aspects. Unions provide fair compensation and safety for workers which is critical in sustaining the industry. They ensure proper working conditions, training programs, safety measures and equipment; in addition to an element of bonding that aides with communication in challenging working environments. They also pose a subtle social element of unity while holding families intact by instituting regular working hours and notification timelines regarding overtime and weekend production. I clearly understand these aspects as I was a concrete laborer for a union precast company during the great recession. The architecture job market was saturated so I decided to learn first-hand everything about concrete modular fabrication. Interestingly, on staff with a GC, I worked on a prison project that utilized a stacked concrete cell system with embedded utilities. Little did I know that I would actually go on to work for that manufacturer a couple of years later. Although laborious, loud, stifling hot and dangerous, my time there proved a great value in regards to intimately understanding the workflows on the shop floor. From my experience managing work for a GC on-site, I always saw unions as a headstrong force that could influence a project at a moments notice. I was on a job that had an Operator's Union strike and we were forced to implement a dual gate worker entry system (union/non-union) which is common in these situations. In contrast, as a worker under union protection, I found that there are many benefits through a rigorously upheld standard that established the process, safety and tempo of the work environment.
    There is also the reality that trade unions are entrenched politically, have supreme leverage, are well funded and can be extremely aggressive. I was on a project where two carpenter's union reps walked on to the job site and confronted the superintendent about a non-union company that was a second tier subcontractor installing counter tops. They threatened to put all other carpenter union trades on notice and they would walk off the job if the situation was not resolved. They literally walked into the trailer, looked around and said "this is what is happening and this is what we want you to do."
    Not every project needs to be built by union labor, however, I believe that the move to large scale projects will need to negotiate the fickle trade union waters; like it or not. Although union labor is at a premium, we must find common ground where we can keep a realistic labor cost that enables housing developers to maintain a consistent volume of work that keeps our tradesmen and women mobilized during any economic tide.

    I would also ask: how these companies look to handle construction liabilities regarding craftsmanship and defects – particularly waterproofing? It looks like Katerra may have that figured out if I am understanding them as a technologically adept investment group that creates partnered or subsidiary relationships with design/construction firms and manufacturers that execute the work, thus assume all liabilities. Although simple through diagrammatic representations I think that the various aspects of that logistical web is very complicated. I am, however, extremely eager to see how this new system works and encouraged to be proven wrong. I am equally curious how the multitude of challenges are handled that will present themselves during the development process with extended liabilities that remain after final completion. How will this model effect project insurance rates? As the projects gain in scale, will a traditional GC and construction delivery method need to be utilized because of bonding ability? (if a bond is even necessary on a turn-key operation with one company providing all services).

    I am skeptical about a purely technology based business model/process and plugging that into the construction industry. I hope that these new perspectives work because the scale could stimulate so many aspects of the city and economies in ways we have not yet seen. Just envisioning the positive potential is staggering. I am just not yet convinced that the analogy of the manufacturing process of a phone in a controlled environment is relevant to the construction of a building; modular or traditional on-site. Although my experience in design, construction and manufacturing solidifies my confidence that the building industry is, in fact, not broken; new models may change the way that we operate. It is possible that a fresh approach will open vast opportunities for smaller developers to supplement the larger projects and lead to better cities.

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