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May 2020: Modular Multifamily for Affordable Housing Developers


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The modular production line at Factory OS in Vallejo. DBA is currently working with Factory OS on a number of Bay Area affordable housing developments. Image: Christie Hemm Klok via The New York Times

Attaining the cost and time benefits of prefab where the need is greatest.

 

by Brad Leibin, AIA 

May 2020

According to the California Housing Partnership, the state needs 1.4 million more affordable homes in order to meet demand. California Governor Gavin Newsom is calling for 3.5 million units of new housing between now and 2025. At the same time, construction costs are escalating five to 10 percent a year in the Bay Area, and public funding sources are relatively stagnant. Modular construction is one technology that holds great potential to bring down the costs of building affordable housing. Some private developers are already reaping the benefits in market-rate housing. There are additional challenges for affordable housing developers, but with careful attention to the advantages and potential pitfalls, they, too, can realize modular’s cost savings without sacrificing quality.

Modular Benefits

Modular construction can realize a time savings of up to 40 percent, cut construction costs by five to 10 percent, and yield a better quality of construction. Units are built in a controlled factory environment at the same time as the foundations are being poured and site utilities are being installed, significantly shortening the construction schedule. Once the mods are complete, they are weather sealed and shipped to the site, where they get staged then stacked. Then all that is required is to connect the utilities and close up the building. This is an advantage over traditional construction, which requires the General contractor to wait until after this site work is complete to get started on building the housing. 

With factory-built construction, the speed advantage primarily comes from the ability to overlap the production of the housing units with site work like foundations, site utilities, and podium construction. Image: David Baker Architects

Overbidding Challenges

But there are some wrinkles. First, general contractors and subcontractors may not be as familiar with modular construction. In the past, subcontractors would often overbid for projects involving modular because they did not know where their scope stops and the factory scope begins. Clearly distinguishing work to be performed in the factory from work to be completed onsite is important to getting accurate bids.

DBA typically provides two architectural drawing sets, one showing the factory scope, the other showing the onsite scope. The two drawing sets are effectively mirror images of one another. One set grays out the factory work to highlight the onsite scope, and the other does the reverse. This way, trades who may be unfamiliar with prefabrication don’t feel the need to allow for uncertainties by overbidding. It has also helped that modular construction has become so much more popular in the past five years or so. As a result, the general contracting and subcontracting communities have become more familiar with the process and are able to bid more accurately. However, there is still room for improvement.

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Inverse versions of the same detail. In one (left) the factory work is ghosted to highlight the site scope, while the other (right) is reversed to show the factory scope. Image: David Baker Architects

Permitting, Bonding, and Timing

Modular also involves a unique permitting and inspection process. In California, the local jurisdiction is responsible for permitting and inspecting the site-built portions of the building. However, it’s the state of California that exclusively handles permits and inspections for the factory-built portions. Another benefit of having two separate drawing sets—one showing factory-built scope and one showing onsite scope—is that it makes it easier for state and municipal regulators to see their review scope clearly. Although having two sets of permit processes and inspections adds a certain amount of complexity, we have found that the state inspectors are very efficient and thorough in their reviews, which generally expedites the permitting process relative to traditionally-built projects.

A bigger challenge can be labor unions, who have voiced opposition to modular projects because they aren’t constructed locally and because they don’t have to follow local codes. Here, affordable housing developers may have an advantage over developers of market-rate housing, because there have been cases of unions dropping their opposition for a project that will give the homeless a place to live. And not all modular homebuilders are union-free: for example, Factory OS in Vallejo, California, has an agreement with the Carpenters Union of Northern California to use union labor in its factory.

Affordable housing developers who rely heavily on public funding also need to map out the timing of financing relative to the modular construction schedule. Because of the need to guarantee a spot in the factory production line, the developer needs to give the factory a down payment while the project is being designed. Additionally, long lead time items such as windows often need to be procured before construction begins. Public funding for affordable housing is structured around traditional construction methods, and it often does not come through early enough for the factory down payment or materials procurement schedule. Affordable housing developers need to start borrowing money and paying interest sooner than they would with traditional construction. So even though the construction timeframe is reduced, the construction loan timeframe might not be. We need new lending sources that can bridge the funding gap for affordable housing developers until the traditional sources of money arrive.

Factory bonding is another sticking point. Some affordable housing developers have rules that prevent them from hiring unbonded subcontractors. Unfortunately, modular homebuilders do not tend to be bonded. In other words, the modular factory is responsible for a significant portion of the construction budget but may not have enough equity to balance the risk. Market-rate developers have the resources to pull together the capital they need early as well as to absorb the risk associated with some modular factories, but many affordable housing developers do not.

833 Bryant Street. Image: David Baker Architects

On 833 Bryant, a 146-unit public housing development for formerly homeless that David Baker Architects is currently working on with Mercy Housing California for a site in downtown San Francisco, private philanthropic equity was provided through the San Francisco Housing Accelerator Fund. This eased the burden of early procurement costs as well as the downpayment. The Accelerator Fund also helped to underwrite the risk for lack of factory bonding capacity and their equity contribution eliminated the need for a city of San Francisco contribution. As a result, neither the Mayor’s Office of Disability nor the Mayor’s Office of Housing and Community Development are involved in design review for the project. This has reduced overall development cost and schedule for the project. This kind of public/private partnership can help circumvent the financing hurdles that affordable housing developers face with modular construction.

Recessed balconies on the modular Union Flats project in Union City, CA. Image: Bruce Damonte

Design Opportunities

Modular also does not have to mean boxy and boring. We’ve designed more than 1,400 modular apartments over the years, including the 242-unit Union Flats in Union City, completed in 2018. For Union Flats, we varied the elevation and placed some of the units deeper than others to create beautiful recessed balconies. With the factories we work with, all finishes are installed onsite, which can allow for a lot of creativity in terms of what cladding systems we can use. On 833 Bryant, we are working with a local, innovative architectural metals contractor to create a textured skin and we are angling the units to create a sawtooth façade.

Detail of the site-installed BOK corten rainscreen system bay windows. Image: David Baker Architects

The modular interior of an 833 Bryant micro-apartment for formerly homeless residents, currently in production at Factory OS in Vallejo, California. Image: David Baker Architects

Gaining Efficiency

It is also important to note that affordable housing developers generally have smaller production runs and more unit types than developers of market rate housing. This lowers the efficiency gains that modular can provide. A market-rate developer going modular with a large, 600-unit building will have a high percentage of the project built in the factory, and so realize greater savings. This is especially true if the market-rate units are all studios, where one module = one unit, which avoids the costs of opening up and connecting two or more modules for a multi-bedroom apartment. An affordable housing developer is more likely to build a smaller building (often under 100 units) due to funding limits, and their funding can require a large percentage of two-and three-bedroom apartments (resulting in more modular onsite work to internally connect multiple modules within individual apartments). So, generally speaking, it can be more difficult for affordable housing development to move as high a percentage of the construction budget into the less expensive factory setting.

The modular industry has come a long way and grown significantly in recent years, with factories all over the country, not to mention the world. Recently, we visited Lindbäck’s new modular home factory in Sweden, which is huge and highly sophisticated, relying much more heavily on automation than U.S. factories do. They've been doing this a lot longer in Europe, of course. As domestic factories catch up, the cost savings are likely to increase.

In designing for affordability, speed, density, and cost are very important considerations, and we are always looking for a new edge. But it is important not to forget about quality. The goal should never be simply to cut as much cost and save as much time as possible. Those savings should be a means to achieve the space in the budget to do the job right.

There is plenty of room for design creativity with modular. And as construction costs soar and the housing crunch becomes even crunchier, we are confident that we’ll see creative solutions to make modular a more available option for affordable housing providers. For the many people being squeezed out of the Bay Area or being forced to live on the streets, modular holds the potential to offer a lifeline—one factory-assembled unit at a time.

Contact us about modular design and construction here.

The modular production line at Factory OS in Vallejo. DBA is currently working with Factory OS on a number of Bay Area affordable housing developments. Image: Christie Hemm Klok via The New York Times

The modular production line at Factory OS in Vallejo. DBA is currently working with Factory OS on a number of Bay Area affordable housing developments. Image: Christie Hemm Klok via The New York Times

With factory-built construction, the speed advantage primarily comes from the ability to overlap the production of the housing units with site work like foundations, site utilities, and podium construction. Image: David Baker Architects

Inverse versions of the same detail. In one (left) the factory work is ghosted to highlight the site scope, while the other (right) is reversed to show the factory scope. Image: David Baker Architects

833 Bryant Street. Image: David Baker Architects

Detail of the site-installed BOK corten rainscreen system bay windows. Image: David Baker Architects

Recessed balconies on the modular Union Flats project in Union City, CA. Image: Bruce Damonte

The modular interior of an 833 Bryant micro-apartment for formerly homeless residents, currently in production at Factory OS in Vallejo, California. Image: David Baker Architects