Modular housing is gaining attention as a proposed way to increase the supply of housing. This is an approach where the majority of the home construction is done off-site. The factory builds the entire room of the house with all the wiring and plumbing connections already installed. At the final construction site, the actual building process consists of the final steps of connecting rooms, plumbing, etc. to complete the building. Building this way is faster and cheaper than traditional home building. And technology has advanced in recent years, with companies around the world building distinctive, highly customizable, and extremely high-quality modular homes.
People might think that these companies are increasing the supply of housing by building more homes. But building more housing is not an increase in supply, it is an increase in supply. An increase in supply means an increase in the ability to produce something. A recent interview with engineer Ivan Rupnik discusses two different ways modular housing can help increase supply.
One way is simply through the technology itself. Changes in technology are an important way to increase the supply of everything. Once upon a time, all houses had to be built using all hand tools and human muscle. As technology advances, the number of potential homes that can be built by a given number of workers increases. In economic terms, the supply curve shifts to the right.
Another way to increase housing supply is through changes to housing regulations. Rupnik talked about how Congress tried to encourage modular housing back in the 1960s.
“Funded [Nixon-era HUD program] Operation Breakthrough aims to encourage experimentation and understand the impact of local housing codes and zoning regulations on the large-scale use of new housing technologies. For reasons that are still unclear to me, these regulatory changes that received bipartisan support were never implemented on a large scale in the United States. ”
As a result, the potential increase in supply implied by new technology could not be realized in the United States because the regulatory barriers that would have made it possible were not removed.
But even if the U.S. didn’t, other countries took notice and used the lessons. “85 to 90 percent of single-family homes are built in factories,” Lupnik said, referring to Sweden. Japan has also “streamlined regulations on manufacturing and innovation,” allowing new technologies to be used to increase housing supply.
My favorite point that Rupnik makes is the distinction between normative regulation and performance regulation. He explains that prescriptive regulations are those that tell companies to do something very specific, such as making walls at least this thick or using a certain amount of a certain material. Performance regulations, on the other hand, simply specify thresholds that must be met, leaving it entirely up to companies to find the best way to achieve those goals. So I put it,
“Performance regulations state that walls must prevent the entry of fire.
The change from prescriptive to performance regulation gives companies greater flexibility to find the most effective and efficient way to achieve their goals that best suits their unique circumstances and processes. Performance goals do not force a one-size-fits-all approach, allowing you to adopt many competing and customizable approaches, learn from them, and continually improve. This flexibility in the regulatory structure also helps increase housing supply.
The goal of increasing the supply of housing is important. Any serious discussion about achieving that will likely involve some reference to either technological improvements or regulatory reform. If these are not included in the discussion, then we are not talking about increasing the supply of housing, we are simply discussing increasing the supply of housing. An increase in supply without an increase in supply means that prices will rise.
