As housing costs soar, a revolution in affordable homes

The housing crisis in the United States has become acute, especially in recent months. But thankfully, social innovators have been laying the groundwork for years for a revolution in affordable housing, including energy-efficient prefab (factory-built) housing. Stacey Epperson, founder of Next Step Network is one such innovator and expert. Ashoka’s Michael Zakaras and The Motley Fool co-founder David Gardner caught up with Stacey last week to find out more.

Michael Zakaras: Stacy is a conversation about financial freedom, including pathways for Americans to get there and stay there. Help us understand the role of housing in this equation.

Stacey Epperson: For most low-income Americans, the underlying driver of wealth creation is home ownership. A home will be the biggest purchase they’ve ever made – an investment that will pay dividends for future generations. So, if we want to give these families a ladder towards the middle class, we must remember that the acquisition of a home, as well as the education and support that will allow them to find financing, are essential steps to climb that ladder.

Zakaras: You sometimes tell the story of a trip through Appalachia early in your career and noticed that old mobile homes were a defining feature of the landscape. What thoughts did this experience spark?

Nobody : I had just graduated from my masters degree, first day on the job, and was taking a bus through Appalachia. I’m from rural Kentucky, but it was a shock to see the number of old mobile homes scattered across the landscape. These were houses that had been badly built and were falling into disrepair. People owed them more than they were worth. Becoming aware of the extent of poverty, or seeing it up close, was a profound experience for me. That’s when I first asked myself, “What would it take to solve this problem?” And this question has been the common thread of my career.

Zakaras: The prefabricated house is now the focus of your work. Could you quickly define the prefabricated house for us?

Nobody : In the United States, we are facing a historic low in housing supply. We can build new houses in two ways: build these houses on site or build them in a factory. A manufactured home has a legal definition that is regulated by our federal government, and has to do with building codes. These homes are built off-site, can be of very high quality (just like on-site built homes), and can be shipped to any state.

David Gardner: How long does it take to build houses offsite? Because something we hear regularly as investors is, “We’ll have to get out of this crisis, but it won’t happen overnight.” But I suspect what you describe could be built quite quickly.

Stacey Epperson: Okay, within days, if we had enough factories to meet the demand. At the moment there is considerable backup. Additional investments would solve this problem.

Zakaras: Your motto, “prefab homes done right,” suggests that historically it has been done poorly. Tell us about this and the implications for a broader conversation about financial freedom.

Nobody : Let me set the table: 22 million Americans live in a manufactured home. That’s 6% of homes in the United States. It’s a niche market, but important for people with a median income of $30,000 per year. Manufacturers used to build 340,000 homes a year, but that number has fallen to 100,000. We clearly need more factories and more labor to catch up with demand.

So what are some of the issues we face? Well, you need lenders and banks that will finance this type of home. You need public policy that supports the secondary market to buy these loans, so that the investors are there. Another problem is that this particular market has been largely funded by personal home loans or household loans. These loans have fewer consumer protections and carry higher interest rates that reduce a family’s ability to earn money.

Social stigma is also a persistent problem. We’ve worked to change that mindset among consumers and local governments, to prove that manufactured homes can be very high quality and look like a home built on site, but the stigma creates tangible challenges, like with the zoning.

Zakaras: How to break these myths surrounding the prefabricated house?

Nobody : First, we set an example for Next Step by building safe, durable and attractive homes. Second, we have spent years making local authorities and community members comfortable with what we do. I think there is a real opportunity at the national level, because of this historic supply shortfall. The Biden administration is looking for innovations in zoning, so there is an incentive for local communities to remove these barriers.

Guardian : Stacy, part of what we do at the Fool Foundation is to look at the conventional wisdom and say, “How can we break these rules?” So, is there a rule you would like to break?

Nobody : One rule we break is to go straight to where the money is and try to enact policy change. We went to Fannie Mae and Freddie Mac and the Federal Housing Finance Agency which regulates these two organizations. This allowed cities to say, “We will allow this unit, even though our zoning is against it, if we see that Fannie and Freddie would buy a loan on it. It changed the game. It breaks the rule a bit, bypassing the zoning issue, because cities know the money will be there.

Zakaras: And in addition to working with the public sector, you also work in partnership with companies, including most recently IKEA.

Nobody : Yes, thanks to Ashoka, we actually partnered with IKEA and compiled a nationwide homebuyer survey to understand the needs of potential buyers. We are also looking into whether IKEA could provide kitchen, bathroom and storage solutions for our manufactured homes. Among other things, this study found that millennials are more open to prefab homes than previous generations, and we believe the power of the Ikea brand would attract new, younger consumers.

Zakaras: What awaits us, now that your reach is so much greater than when you started?

Nobody : The first thing we want to do is change the consumer experience when buying a prefab home. Instead of going a lot, I want the customer to see a community like the one in the photo behind me. They should be able to visit their potential home, experience it, and meet with a lender to take out a conventional loan, just like you would when buying a locally built home.

The second thing will be to improve the energy efficiency of all those homes, which have been historically terrible (in fact, many families living in mobile homes spend more per month on energy costs than on mortgages.) Five years from now, Next Step wants to move to houses ready to consume zero energy for all our projects. We want to raise the bar in this industry for sustainability.

Zakaras: In closing, Stacey, returning to this theme of financial freedom, what call to action would you leave us today?

Nobody : We can all ask ourselves, “What am I doing to help get more affordable housing in my community? Why not show up at a zoning meeting and say, “We need more worker housing in our city. I support this type of accommodation in the future. If you are an investor, ask yourself, “How can I get involved in investing?” It will take both of these things, community action and private investment, to meet this urgent need for nationwide housing supply.

This conversation is part of the Spark Conversation series, co-produced by Ashoka and Motley Fool Foundation. In the series, we turn to creative social innovators and experts across the country whose solutions to financial freedom span housing, health, education, work, and money. Stacey Epperson is a member of Ashoka.

About Ernest Decker

Check Also

Best RV Loans of 2022 – Forbes Advisor

Upgrade was launched in 2017 and provides online and mobile banking and credit services accessible …