The housing market in the U.S. has been stuck in a conundrum for a while now. After the recession of 2008, housing needs had understandably plummeted, flushing the market with excess supply but no visible demand. As the economy improved over this decade, the housing market gained steam as well, leading to a situation of sky-high real estate prices and too many interested buyers on the scene.
The situation has been further worsened by the trade tariffs imposed on housing-related imports like steel, aluminum, and lumber which has risen building costs by the thousands. The National Association of Home Builders (NAHB) estimates that for every $1,000 increase in the cost of building a house, 150,000 people would be priced out of the market for good. This is reflected in the SONAR housing starts data (HOUS.USA) which clearly outlines the drastic fall in new housing construction over the last two months.
Housing supply has been woefully less, with reports stating a shortage of 7.3 million units in the country. A part of the blame on supply-demand mismatch could be pinned on the pittance that is spent in bolstering the R&D of the construction industry. A study carried out by McKinsey shows that the U.S. construction industry invests a paltry 0.5% of its annual construction value in R&D.
This shows on ground zero – there has been little innovation in construction over the last few decades. Housing reveals an overarching dependence on traditional methods of construction, making building processes a very localized affair – as nearly all of the construction happens on-site. Today, investment is pouring into startups in the construction space, as investors understand the potential that new technology and innovative construction methods could have on the housing market.
Offsite prefabrication is a solution that saves labor costs, reduces concrete consumption and also quickens the pace of construction. The usage of steel and aluminum in construction could also be reduced by standardizing design elements. Machine learning models could design frames that are 2x times lighter than a standard frame, but with the same tension capacity as the existing one. Reducing the weight of design elements is critical, as it is both optimized and economical.
Startups are mushrooming in the prefabrication space, as it nearly equates construction to the DIY style of furniture building brought in vogue by IKEA. Prefabricated pieces will be designed, configured, and manufactured in factories, with only the process of integration done on-site. Timber is also being used increasingly, due to its availability and also because it is 30% lighter than steel and 60% lighter compared to concrete – leading to the possibility of smaller building foundations.
That being said, one of the reasons associated with the high costs of house ownership is the regulations that come into play in densely populated urban spaces. For instance, single-family housing space dominates the market in Seattle, with 49% of all developable land area being allotted to it. Multi-family residences get only 8% of the available area, severely constricting space for the lower and middle-class Americans who cannot afford to own a single-family housing structure.
The lack of affordable housing options in cities is forcing people to commute long hours to work every day, thereby impacting the collective economy of the area. Labor markets are only as good as the housing availability of a region, as the lack of the latter would mean lesser labor mobility. A sectarian regulation like in Seattle would also alienate different economic classes, making it caustic to societal health.
IT giants like Alphabet, Apple, and Facebook are already looking for ways to accommodate their employees on campus with affordable housing structures ranging from modular housing, community housing complexes, and gated communities.
Another issue that crops up in the housing debacle is the ubiquitous presence of parking lots around cities, especially in downtowns. FreightWaves covered the problem in detail, listing the need to reduce the number of parking lots as a significant chunk of them is empty at any given time. For instance, downtown Seattle sees a 36% vacancy in its parking lots, with occupancy rates even lesser in its outskirts. Judicious use of parking lots and employing data analytics to understand the frequency of parking space usage would help the cause.
However, the real solution lies in opening up more spaces for multi-housing structures, easing zoning regulations in cities, and in adopting technology that could reduce construction costs by optimizing the use of concrete, steel, and timber.
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.