18 Feb Affordable Housing – Lessons from the Model T
Why does it cost more to build a living room than a car? The average cost to build a home addition is $48,000.(1) And those costs are only expected to increase with labor shortages and increased material costs. Consider the materials used and the complexity. Generally this requires two by four studs, drywall, mud, nails, pulling some wire and rearranging air flow.
Meanwhile the average cost to purchase an automobile is $37,185.(2) These costs also increase year over year, but there seem to be many added benefits with these costs. Consider the over 800 moving parts and the complexity of an engine, transmission, smart braking systems, driverless capabilities, leather seats, climate control, transforming interior spaces, and an ability to take you safely down the road at 65 mph in a snow storm with your favorite song with surround speakers and just the right amount of heat hitting your fingers and toes. And it seems like automobiles are adding new features and new technology with every model.
Obviously this is an oversimplification, but the differences remain dramatic.
When the automobile was first invented it was custom made with wood and nails. Then Henry Ford introduced the assembly line and quality went up and costs went down. Costs went from $850 to $350.(3) He was also able to help the workers with double the pay with less hours to $5 for an 8 hour day. The automobile was now within the reach of the average American worker.
So what is the solution to the affordable housing crisis across the US? And globally? History has a lesson for us, if we will just pay attention.
First it requires an efficient supply chain. This is readily available today with global sourcing for the best products and materials. And it can all be centralized in a factory without layers of suppliers and wholesalers. Manufacturers work directly with product suppliers in a competitive landscape. And the costs come down for complicated formed parts, such as engines, when there are thousands of them made.
The second lesson from Henry Ford that can be applied towards housing is quick and automated assembly with a high level of precision and accuracy. The steel frame moving down the assembly line with parts added to it can be applied just as well towards housing as making an automobile. The front end begins with structural steel. The back end is a home – or major housing parts that can be quickly installed together on-site.
Third, it requires fewer choices. Yes, this is what drives architects crazy and initially makes people cringe. The more we can agree on standard measurements and options the better. Think this is impossible? Again, think back on the automobile industry. Tremendous time is devoted towards designing a new model so that it will have broad appeal and last for decades and various users. This is consistent whether you want a Toyota Camry or a Chevy Silverado. Yes, there are color options and upgrade options such as the leather seats, but the frame, doors, windows, engine, etc. are consistent. The same pattern can be followed with homes. Standard features per model with upgrade options available.
Fourth, Henry Ford brought down the costs of automobiles as he was able to obtain efficiencies in the manufacturing. Rather than take larger profits, Ford brought down the prices so their products could be available for the ‘common working man’. Today, we are faced with a housing crisis where the common working man pays over 30% of their gross income towards housing costs. It is expected the Generation Z will spend the first decade of their working life spending over 50% of their gross income on housing costs.
Where else can things become outdated and deteriorate and increase in value at the same time like housing? Homes increase year over year despite lack of any changes or improvements while costs for new construction continues to rise.
Is it any wonder that most auto loans are 5 or 7 years in length, while home mortgages are 20 or 30 years? Build it like a car and you can finance it like a car. Build it with traditional home construction and you can finance it like a home.
Toyota has created a housing divisions that operates in Japan and they make beautiful homes in the factory with stainless steel frames. Over 12% of new homes being built in Japan are built in the factory.(4) and Over 84% of homes built in Sweden contain modular components.(5)
Perhaps it is time for the west to learn some things from the east. Or from our past. And find real solutions to tackle the affordable housing crisis.
Scott Huish has directed technology driven companies in finance, agriculture, energy, construction, and real estate. Scott has completed advanced education at Oxford, Harvard, and London School of Economics and Political Science.