High prices have made homeownership a stretch for many borrowers, and while interest rates may be falling, there are still many ancillary costs associated with closing loans that can make a difference in whether a borrower refinances or gets a new mortgage.
In this two-episode series, we will look at how lenders may be able to accommodate alternative forms of housing that can be more affordable than the traditional single-family home, and provide a streamlined path to closing that doesn't break the bank for the borrower.
Transcription
KUHN: It looks like toothpaste coming out of a tube.
KUHN: So imagine the outline of the home, it goes all the way around the outline of the home, including the walls, interior walls, and then it'll stop, and it'll do the next layer, layer by layer, kind of like building a cake.
KUHN: We printed it one layer at a time. and it prints the entire layer of the home.
LEE: That's Jared Kuhn of Texas-based Icon, describing the process of constructing a 3D printed home. 3D printing is among the solutions that could help the U.S. tackle one of the most pressing economic problems it faces today: the housing shortage.
NBC NEWS: A new report found the pace of construction slowed, creating a shortage of 5 and a half million units.
BLOOMBERG: "Estimates are between 4 and 7 million homes that we're short as a country."
CBS: "Right now, there's a shortage of 5 million homes for sale or rent."
LEE: Regardless of whether that exact number is 4, 5 , 7 million — or something else— one point just about everyone working in housing today agrees on is that the U.S. is vastly undersupplied. It's an issue that dates back to the underbuilding that followed the Great Financial Crisis. And scarce supply combined with ongoing demand does nothing to help lower prices.
While home price growth is moderating in 2024, even small increases this year keep setting all-time highs. This summer, the US home price index was 47% higher than where it was in the pre-pandemic period of 2020, according to the Harvard Joint Center for Housing Studies. The surge in prices since then has pushed the median sales price to five times the median household income.
But there are companies trying to introduce new construction techniques and lead the way in growing supply. Whether the end-products turn out to be full-sized 3D homes, small accessory dwelling units or manufactured housing, technology has a role to play.
From National Mortgage News, I'm Spencer Lee, and this is Getting People into Affordable Homes and Loans, a podcast that looks at what it might take to achieve housing affordability.
LEE: While there is widespread agreement on the housing supply problem, thus far, nobody has come up with an easy fix. The U.S. today is only beginning to make headway to meeting housing demand that followed the years of underbuilding. But when it comes to emerging developments to address the current situation, it's worth keeping an eye on the tech startup scene.
KUHN: My name is Jared Kuhn. I'm the Vice President of Real Estate and Sales at Icon.
KUHN: We call ourselves a tech company specializing in robotics and AI.
KUHN: We're actually really trying to solve a new construction methodology that can be applied to all assets. And so that could range from single family to multifamily to commercial even.
LEE: Icon was founded in 2018 in Austin, Texas. Here is its co-founder and CEO Jason Ballard back in 2022 speaking about his ambitions to apply technology in the home construction space during a talk at the South by Southwest Festival.
BALLARD: It is time for the built environment to join the digital automated robotic revolution that has brought so much good to other industries.
BALLARD: And I think, in the future, neighborhoods and towns and cities will be built by robots and drones, and I think that future is more diverse, more beautiful, more exciting, more equitable than the world we have today.
LEE: Using what's called a gantry-style printer, Icon can create the walls and structure of a unit leading to the construction of a 2,000 square foot home in less than 100 days, Icon says.
The printing technique can best be compared to what a child's toy printer does with two rails and a beam, according to Kuhn.
KUHN: It goes back and forth. That is what our main printer does, and it extrudes concrete and builds a structure completely automated without the use of manual labor.
LEE: In a new development in Central Texas, you could already find people moving into the types of printed homes created by Icon this past summer.
KXAN: Homebuilders have partnered with Icon to build 100 in Georgetown's Wolf Ranch community.
The community offers three and four-bedroom homes with eight unique floor plans.
LEE: About half the properties in the suburban Austin community have already been sold, Kuhn says.
KUHN: We know these printers better than anyone and in our arms, we can make them do what they need to do. And we're excited to be the ones to use those initially and then teach the world how to use them kind of out of necessity.
LEE: While Icon sits at the forefront of what it thinks will be a game changing development for housing, it's not the only startup trying to make waves.
EIDELMAN: I'm Gene Eidelman, co-founder of Azure Printed Homes. We started Azure Printed homes two and a half years ago, so March of 22. We 3D print homes using recycled plastic with positive environmental impact.
EIDELMAN: 65% is recycled plastic and the balance is fiberglass and other additives that make our structures strong and fire resistant. The material itself is a trade secret and we patented the process and design.
LEE: With much of the Southern California-based company's current focus on creating smaller ADU-type units that can fit in someone's backyard, Azure is building them in a way that is quite different from Icon's technique.
EIDELMAN : We like the 3D printing, but we wanted to bring it into a factory. And of course, to make it in the factory, you need to make it lighter and easier to transport. We couldn't find anything like this in the construction industry, so we looked at other industries. Automotive and aerospace used 3D printing with plastic for a while.
We started with just one 3D printer, but this year moved into a much larger manufacturing facility, triple the size. We're looking to expand all over the country with this concept.
LEE: Once the parts are finished in the factory, they go off to the construction site, where they are pieced together like Legos, Eidelman said. His interest in trying to develop new construction methods comes from a wish to address two of the country's — and the world's — problems. Namely, the housing supply shortage and environmental waste.
EIDELMAN: We have a tremendous shortage of supply. If we just continue to build in traditional ways, we'll never catch up.
EIDELMAN: In the globe, we generate 52 million tons of plastic every year. Only 5 to 6% gets recycled, so there is a lot of material that's available. Why not recycled plastic?
LEE: So far, most of the interest in Azure's products comes from homeowners who want an ADU in their backyards. But the potential exists for much more given the capabilities 3D printing can offer.
EIDELMAN: You have developers who are planning larger subdivisions and then now you have a lot of apartment developers who have apartments or build-to-rent communities. Now they can add ADUs at scale.
LEE: In working with nontraditional material, Eidelman also had to make sure it could withstand threats from the natural environment.
EIDELMAN: We're in California, so we want to make sure it'll survive the earthquakes, the wildfires, and also, plastic fades in the sun. So we wanted to make sure that we can have a UV stabilizer to make sure that the color stays on.
LEE: One of the selling points of 3D-style construction is that it can create something aesthetically appealing whether homes are built in a factory or on site.
The manufactured and prefabricated homes of today are a far cry from the plain and shoddy reputation they held decades ago. And in that era, reality often lined up with reputation.
At Icon, a design team that includes in-house architects plays a big role in the way its homes are being built, Kuhn says.
KUHN: Where 3D printers really sing is that we're not bound by linear shapes. So we can really print whatever the architect or designer can dream. Whether that's curved walls or curved streets in a master plan — because the buildings could be curved, the new world of design is opening, and also it's going to allow all price points to have that great design.
This technology allows that to happen.
LEE: Some of the design elements that can make a 3D printed home appealing has some correlation to a different modern building technique known as modular construction. It's also referred to as cross mod.
A different kind of factory-built prefabricated home, cross mods consist of individual modules constructed off site, then later transported to a new location where they are pieced together.
BATTANY: if you look at one of these new homes, either from the outside at street level or inside, you really cannot tell it was not a site-built home. The overall aesthetics on the exterior really looks like a site-built home and does not look like a giant box that just has some shutters and a fancy door put on outside.
LEE: That's David Battany, executive vice president of capital markets at Guild Mortgage, He is also a longtime advocate for modular building. Just like Azure's Eidelman, he sees this modern method of manufactured construction as an effective way to quickly create supply that will cut costs, while being environmentally friendly.
BATTANY: What's amazing about it when they're built in a factory, they're indoor in a closed controlled environment. And what makes it so efficient is that all the materials, the labor, all the tools needed are already in place and already staged. So you could literally build the home in a factory within 10 days.
One of the benefits in the factory is you can use materials much more efficiently. As an example, if you build this home in a factory, the entire waste materials for the entire home will fit in two 50-gallon trash cans. If you compare that to your typical site-built home, the amount of waste materials is measured in numerous large dumpsters.
That's another benefit that a lot of people who might be looking to buy a home may not understand.
LEE: Still, even if new methods make construction easier, it's not as simple as going out in a field and saying
FIELD OF DREAMS CLIP: If you build it, he will come.
LEE: The stigma associated with the 20th century image of manufactured homes still lingers in the minds of many that could steer them away from any type of related constructions. And it's not just home buyers who have that perception, Battany says.
BATTANY: When people hear the word manufactured housing, their brains immediately go to a trailer park. If you're a local zoning official, you're not excited to have manufactured housing units come in, you feel it's going to pull down the quality and the visual appeal of the neighborhood. So I think just the historical negative connotations of manufactured housing by itself is a barrier, whether it's with a home buyer or a loan officer or a zoning official.
LEE: Contributing to that misunderstanding of today's manufactured factory-built homes is the historical, government definition of the term 'manufactured housing.' U.S. policy rules enacted in the 1970s have had the effect of muddling the meaning, according to planning experts. It even has some modular builders preferring to use the term 'prefabricated.'
JORDAN: I'm Jason Jordan. I'm the principal for public affairs at the American Planning Association.
This is a weird housing space in a sense because it has this national-level regulation as opposed to stick-built housing, where those codes and those regulatory restrictions are all imposed at the state and the local level, they're not federal.
JORDAN: A quirk, if you will, in federal law dating back to the middle 1970s basically says that to be defined as manufactured housing, you have to have a permanent chassis, permanent steel chassis has to be attached to the house. This was, of course, in an era where manufactured housing is essentially synonymous with what we would today maybe think of as mobile homes.
That requirement can only be changed by Congress. And having that requirement there creates at best confusion, and it works as an outright obstacle for some of the new techniques and technologies at play in the manufactured and modular space.
LEE: Rather than standing on a steel chassis, most modular homes today sit on permanent foundations, but many consumers don't understand that. A survey conducted by The Amherst Group earlier this year found that a 44% share of Americans thought modular homes were movable, just like mobile homes are.
But developments are in place to eliminate the steel-chassis requirement and also create regulatory models that would better align federal policy with state rules, Jordan says.
JORDAN: There needs to be — I think we're in the process of sorting out these definitions so that we're actually regulating what we intend to regulate because from the industry's perspective, they need some uniformity in order to leverage the benefits and the potential benefits that are at play here.
LEE: In the court of public opinion, the winds also appear to be moving in a direction that would make builders of these newer types of homes happy.
The same Amherst Group survey found more than 80% of Americans open to living in a modular home. An even larger 90% share held favorable views of modular housing.
And along with potentially removing the steel-chassis requirement, the Department of Housing and Urban Development is making an active effort at promoting manufactured home development, modular and otherwise. The space is growing at a fast-enough clip that the Federal Housing Finance Agency launched a new manufactured housing index this summer.
So whether the term used is 'manufactured' or 'prefabricated', inroads are being made both in perception and federal policy. But work still needs to be done on a local level to drive the building of these types of homes, or for that matter, any type of smaller housing units to help narrow the supply gap.
One state is trying to set an example in the legal and zoning front to encourage construction of more affordable housing, in particular accessory-dwelling units, according to Jordan.
JORDAN: California has been a leader, but there are a number of states that have taken state-level action and an even greater number of local jurisdictions that have updated their own codes.
And while ADUs don't have to be and often aren't manufactured or modular in nature, the opportunity for a modular product to fit the ADU typology is very high and can dramatically lower the cost for a homeowner who's looking to do that kind of construction.
LEE: But outcomes in California have also shown that it's not as simple as just enacting legislation to achieve the desired result.
Still, the state's efforts offer lessons on the dos and donts in developing policies that could provide a road map to increase the building of affordable homes.
JORDAN: The California experience suggests that there's some things we need to do beyond just allowing it as a permitted use. We have to do things like tackling owner-occupancy requirements, parking requirements, providing other kinds of support to the homeowner who's looking to do the construction, whether that's expedited permitting or financing support.
Similar to the ADU reforms, we're seeing a new evaluation of a series of codes largely related to lot coverage.
I've seen a survey that said as much as 60% of jurisdictions across the country require at least a half-acre lot size. Well, the economics of developing certain kinds of smaller-house products, modular products that are in the small-house market, that's going to be a barrier.
Communities and local jurisdictions still need to make reforms that allow these things to be built in the places they need to be built. So we can finance them or we can remove these kinds of macro challenges, but there's still the need for a variety of local reforms that will support the actual production of the units.
LEE: Developments are also appearing on the home finance front. In the past several months, the Federal Housing Administration revised rules that would open up construction of ADUs through its 203(k) lending program.
And there's also been a noticeable uptick in the number of grant programs available to assist buyers who want to purchase modular and manufactured housing.
MOSS: Several years ago we started carving out manufactured and eventually modular homes because we were starting to see this trend. The program providers that allow for manufactured home — I wouldn't even say a small subset. It's a growing and now material subset of all of the programs that are available across the country.
LEE: That's Sean Moss, executive vice president of sales and operations at Down Payment Resource, a company that tracks the number of buyer assistance programs across the country.
MOSS: There are about 900 down payment assistance or other home buyer assistance programs across the country that allow manufactured homes to be purchased with their program.(01:32):That's a significant portion of the 2,400 plus programs available across the country (01:49): that are opening the door to the purchase of manufactured homes and modular homes as well, not just your traditional single family detached, condo, townhome.
LEE: While some modular and 3D units above certain price points qualify for financing through traditional lending programs, knowledge gaps still exist in the mortgage and real estate community about new types of homes and the specialized loan products that can drive business toward them, Battany said.
BATTANY: If a borrower walks in the door and has one of these homes and a lender doesn't know any better, they might treat it like a traditional - either to say we can't do it - or there's a price hit or eligibility hit. So just getting those barriers removed would be a big step.
LEE: Education in the mortgage community is vital, but while there is increasing recognition that they might help ease supply problems, getting people to consider the options also requires lenders to make their own investments, according to Down Payment Resources' Moss.
MOSS: Do you offer the mortgage products that allow you to serve those borrowers?
Any learning curve, any new product is going to throw a wrench in the operations of a lender. So they've got to get it all built out in their systems, train up all their sales force, train up their underwriters.
LEE: But if awareness grows, housing advocates expect supply of more sizes and price points to return, which should also mean affordability can return.
Technology companies like Icon and Azure are ready to play a large part in solving the issues hurting the housing market and future buyers. And they feel their efforts can lead to a future wave of building construction.
In addition to the printed home development near Austin, Icon has built 3D units to serve unhoused communities and also has a hotel in development in West Texas. Meanwhile, Azure already has customers putting its ADU units into use as camping, or more specifically, glamping accommodations.
But as eager as they are to move forward, Kuhn and his colleagues at Icon also realize they are now only in the early stages of being able to fill the housing inventory gap.
KUHN: There's not enough robots in the world right now to really make an impact. That's what we need to see happen, and that's our goal is to put our robots in the hands of as many people as we can to really solve this housing crisis. But that day is not here yet.
KUHN: The good news for the industry is there are more and more popping up every day.
LEE: Eidelman also believes, though, that the U.S. will need to change its approach to housing development to move the needle further. That's particularly true in the case of manufactured products. The U.S. can begin by looking at policies elsewhere around the world. About 15% of the housing stock in Japan is prefabricated, according to a 2023 McKinsey study. In Norway, Sweden and Finland, that share rises to 45%.
EIDELMAN: We're not talking about some undeveloped countries. These are countries who really care about design and safety. Why is it happening? I actually would be curious to look at the history. Why did some other countries have accepted it and running with it, and why are we so slow at adoption? I don't have an answer to that.
What I expect is acceleration of building of affordable housing. And when that happens, do we want to go back to the old ways?
LEE: Thanks for listening to the first installment of the National Mortgage News series on getting people into affordable homes and loans. Please be sure to catch our follow-up episode with Capital Markets Editor Bonnie Sinnock, which will explore how lenders can chart the right course to a cost-effective digital closing. Be sure to visit us at www.nationalmortgagenews.com for daily updates on housing finance news.