United Hope Builders in the News • Are modular homes the answer to Bay Area's affordable housing demand?

Story by Lloyd Lee of Palo Alto Weekly / Palo Alto Online.  This article was posted originally by Palo Alto Weekly.

Photo by Magali Gauthier, courtesy of Palo Alto Weekly

Two steel houses were delivered on the back of a big rig on Jan. 7 to a parking lot in East Palo Alto, one coming all the way from Pueblo, Colorado, and the other from Caldwell, Idaho. They're not exactly ready-to-live-in homes, but in a few weeks, possibly by Valentine's Day or earlier, they can be.

For Pastor Paul Bains, that's just part of the beauty and benefit of modular houses — factory-built homes that come ready-made in sections to be stacked or put together like Lego blocks. One of the newly delivered modular dwellings is a 960-square-foot, three-bedroom house made of three sections; the other is a 640-square-foot, two bedroom home made of two sections.

The big-rig delivery marked a new chapter in the Palo Alto native's 21-year pursuit to address homelessness in the Bay Area.

"My goal has always been to disrupt generational poverty," Bains said. "You do that through education and home ownership, and this makes it much more affordable for people to own their own home."

Bains and his wife, Cheryl, founded East Palo Alto's We Hope nonprofit in 1999, which now operates 100-bed shelters in San Francisco, a 74-bed shelter and Safe Lot RV parking program in East Palo Alto and mobile fleets that provide showers, bathrooms and laundry services in 17 cities, across four counties, according to Bains.

But to address homelessness more directly, a problem made worse by the pandemic, the pastor is venturing into affordable housing development with his new nonprofit, United Hope Builders. "We cannot solve a homeless problem without having housing, no matter what," he said.

Through a partnership with IndieDwell, an Idaho-based B corporation that manufactures modular housing units, United Hope Builders will construct a roughly 60,000-square-foot factory by leasing 7 acres of the old Romick Environmental Technologies site on Bay Road. The facility will churn out steel modular homes like the two recently delivered to East Palo Alto's RV Safe Lot at 1798 Bay Road.

A burgeoning trend in housing

Prefabricated homes are not a new concept, but they've become an increasingly popular answer to the Bay Area's affordable housing crisis. In August, as part of San Jose's goal to provide emergency housing for the homeless, the city broke ground on one site that will host more than 100 beds, using modular dwellings that each cost $85,000, according to a report from San Jose Spotlight.

Sand Hill Foundation, the nonprofit arm of Sand Hill Property Company of Palo Alto, purchased the modular units for the San Jose project, Bains said.

As another sign of the demand for modular housing, Factory OS, a 3-year-old Vallejo-based modular housing factory, recently completed 1,000 housing units, according to multiple media reports, and raised $55 million in Series B funding, receiving support from tech and finance corporations such as Facebook, Google and Morgan Stanley.

In September, the company announced that it will open a second facility there to meet the demand.

"The floodgates have opened," Bains said. "I'm getting inquiries every single day about this product and people wanting to come see it."

Two of the most attractive reasons for the shift toward modular homes lie in time and cost.

"Modulars can reduce construction expense, but most importantly, reduce (construction) time sometimes by as much as 40%," said Michael Brownrigg, United Hope Builders' chief of staff.

In 2019, the average cost of building affordable housing in the Bay Area was $664,455 per unit. According to the Bay Area Council Economic Institute, an economic and policy think tank, that figure includes construction, land acquisition, materials, labor and legal fees, among other costs, unique to the region,

'The floodgates have opened. I'm getting inquiries every single day about this product and people wanting to come see it.' -Paul Bains, co-founder, United Hope Builders

Brownrigg couldn't yet provide the total price tag for a United Hope Builders modular home, due to some of the uncontrollable variables beyond construction, but he is certain that modular units will cost a "small fraction" of the typical new home.

"Even when you peel all those different expenses away, we're still, we think, much more competitive from a cost point of view," he said.

Construction time is also a big selling point, especially for a region where supply can't meet the demand.

Unlike traditional stick-built homes, modular homes are put together off-site in a factory, without any of the on-site construction delays that might arise from factors like weather.

Solving the land problem

There are, however, hurdles both generic to any type of affordable housing development and unique to modular housing, Brownrigg said.

"Challenges for all of us in the Bay Area is the availability of land — I'd actually put that as No. 1," he said. "Then, No. 2, just the red tape and cost of building."

One way United Hope Builders wants to address issues of land availability is by targeting "non-traditional landholders" such as the churches and other religious organizations throughout the Bay Area that own often wide-open parking lots. Citing research from U.C. Berkeley's Terner Center for Housing Innovation think tank, Brownrigg claims there are about 5,000 acres of unused land controlled by religious organizations in the Bay Area.

"We think there's an opportunity to work with other mission-aligned people in the Bay Area who want to create great, beautiful, environmentally sound, affordable housing," he said.

Photo by Baris Akyurt Photography

And to move through red-tape, Brownrigg said modular units can come already compliant to state code before developers have to put them together.

Specific to modular housing, however, one of the biggest hurdles is facilitating the shift in the housing industry's approach to development, where, traditionally, design decisions such as flooring, windows and appliances are made over a longer period of time rather than early-on as required with modular houses.

A study on modular construction by McKinsey and Company, published in June 2019, found that while modular homes can cut the development schedule by 20% to 50% and construction costs by 20%, "modular projects currently tend to take longer to design than traditional projects" because of the early decision-making process.

"Design decisions need to be made upfront and changes later in the process are both more costly and more difficult," the study said. "The industry is not used to working in this way."

This, as a consequence, also requires larger down payments at the front end, and Brownrigg finds that it can discourage some developers who may rely on low-income housing tax credits to fund an affordable housing project.

Without greater control of the construction process, Brownrigg said, a developer may be nervous to pull tax credits early on since there are very strict deadlines between the moment tax credits are issued and when a tenant moves into the property.

"If (developers) missed the deadline, they put at risk their allocation of future tax credits, which for an affordable housing developer is like an existential threat," he said. "I think we have a solution to that. I think we can find a way to finance that sort of downpayment stage so the affordable housing developer doesn't have to."

To date, United Hope Builders has raised $4 million through foundations and private investors. Some of the largest investors include Anastasia Vournas and Bill Uhrig, who is the owner of Three Cities Research investment firm, and both helped lease the factory site on Bay Road, according to Bains. To get the factory open by the third quarter of this year, the organization will need to raise another $2 million.

With the opening of United Hope's factory, Bains also hopes to bring around 100 jobs to East Palo Alto, where employees will earn equity by owning 20% of the factory.

The organization is projected to produce around 400 homes per year at a minimum for the Bay Area, Bains said.

As for the homes already delivered, two families who are clients of We Hope will be surprised with them in the next few weeks, with a ribbon-cutting ceremony on the site planned on Valentine's Day.