It’s a strange phenomenon about builders.
Many–even most–feel it in their bones that their industry is ripe for disruption.
The overweening dependence on a shrinking force of skilled laborers. The runaway regulatory costs heaped on every building lot, especially at the local level. The financial friction, both around mortgages and AD&C. The high-risk of errors on the job-site that set in motion a spiral of time and money costs.
Meanwhile, net-net, externalities show–increasingly clearly–something’s not right with the current model. More and more households in more and more markets and sub-markets–in absolute numbers–are priced out of what builders can build. More homes than ever are prone to natural disaster.
And fewer of the best and brightest young people are picking home building as their chosen livelihood.
In their guts, builders wonder. Something or someone’s going to come along, sooner or later, that will make all the ways things get done today seem primitive, inexplicably expensive, ill-fit for a planet de-compensating from over-emission of CO2, far more complex than necessary, … and old-fashioned and unappealing to teen and 20-something talents.
It’s the cause of a fair amount of anxiety.
Smart builders know the model’s not working. They know disruption, disrupters are out there. Yet, they’re not visible yet to the naked eye. Most of what’s out there looks like variations of what’s been tried, again and again, in the past, but didn’t take.
This is the plight of what the recently-deceased business practice giant Clayton Christensen would call the incumbent.
Incumbents are established players whose position in a market is secure in a current, steady-state world. Like builders.
They’re between a rock and a hard place, however. They’re doing okay serving markets where they can command a premium, but those markets are shrinking as a percentage of the total addressable universe.
They run too expensively to go seriously downmarket, where there’s a far bigger pool of potential customers.
So, people and firms on the fringes that dont’ play the same rules, and don’t have the same processes and hand-offs and hardwired inefficiencies crop up way downmarket. Selling something self-avowedly cheaper.
“The rock” for builders is their current success; the “hard place” is the recognition of the very high likelihood that a player with a very different operational and investment model will come along, perhaps enabled by technology and data, and apply it to meeting the vast and growing market of people and communities currently not participating in today’s new residential development economy.
The other “hard place” element is that “best and brightest” young talent will be more attracted to such an up-and-coming insurgent than to an established legacy organization seen as vulnerable to a sector disruption.
Incumbents, Christensen asserted, become aware of the susceptibility of their operational, capital, and customer models. They’re self-aware, but they’re also not motivated to change, because the risk and downside to self-disruption loom as too high a price to pay, especially when the current model produces adequate performance results.
Ironic, isn’t it, that one of Christensen’s classic case studies in disruption focused on rebar?
Lowly rebar.
Lowly rebar disrupted big steel.
Lowly friction-free delivery to your doorstep disrupted retail.
Lowly 140-character Tweets disrupted media.
Before you can say, “Warren Buffet and Clayton Homes,” builders may be seeing a company known for its “lowly” manufactured homes turn its distribution, automation, robotics, supply-chain, and employee-associate commitment model into a true site-build model disrupter.
They’ve got to feel uneasy about what’s going on below, where there’s a growing, vibrant, enthused, and energized force of fringe players galvanizing, coalescing, and open-sourcing their way toward making a home attainable to a modest, working household.
In the country. In the suburb. In an infill location. Downtown.
Here’s some examples, some upstarts and some maturer players focusing on growing pockets of unmet need. They’re the equivalent of the “mini-mills” Clayton Christensen wrote about in his case analysis of what happens “when giants fall,” in the steel business.
Check this. It’s happening. It’s confirmation and affirmation and evidence of why builders are wise to be uneasy about current models, current ways of doing business, current processes, and current value chains:
Ivory Innovations announced the Top 25 finalists for the 2020 Ivory Prize for Housing Affordability. Now in its second year, the Ivory Prize recognizes innovators seeking to make housing more affordable across three distinct categories: finance, construction and design, and public policy and regulatory reform. The Prize is focused on applicants with ambitious, feasible, and scalable solutions to housing affordability. The Top 25 were selected by the Ivory Prize’s Advisory Board, which is comprised of some of the top minds in housing across the U.S.
This year’s Top 25 finalists highlight emerging advances in construction and design, including AI-enabled construction equipment, innovative construction practices to address homelessness and affordability, and efforts to further streamline and standardize modular and panelized housing construction. Innovations in the finance category have potential to bring the FinTech revolution to housing, expanding access to homeowner equity and empowering renters to achieve homeownership. Finalists in the regulatory reform and public policy category include recent efforts to “upzone” communities to allow for higher density, facilitate ADUs and affordable housing projects, and addressing construction and labor challenges.
“The Advisory Board is very impressed with the second group of applications for the Ivory Prize,” said Kent Colton, Chair of the Ivory Prize for Housing Affordability Advisory Board. “In this era of housing shortages, these finalists – and ultimately, winners – highlight the mission of the Ivory Prize to recognize and reward those that make housing more affordable, more accessible, and more abundant. We look forward to sharing further information about their innovations in the coming months.”
The Top 25 for the 2020 Ivory Prize for Housing Affordability are:
Construction and Design
- Built Robotics – San Francisco, California Built Robotics retrofits off-the-shelf heavy equipment with AI guidance systems, enabling the machines to operate fully autonomously while still preserving manual operation. Their technology makes construction safer, faster, and more productive.
- Entekra – Modesto, California Entekra is implementing a fully integrated off site building technique that streamlines their panelized building process from permitting to assembly so that it can be completed in just a couple of days.
- Fullstack Modular – New York, New York FullStack Modular merges modular building with new construction technologies to bring a higher level of control, predictability, and scalability to development. Fullstack is the first fully integrated modular solution, allowing them to innovate modular building in the areas of design, manufacturing, and construction. FullStack Modular built the modules for 461 Dean Street, which currently is the tallest modular building In North America.
- Hammr – San Francisco, California Hammr is a professional network and labor marketplace for the construction industry. Hammr empowers the people who boot up and build our world.
- New Story – San Francisco, California New Story is a Y Combinator-backed nonprofit that pioneers solutions to end global homelessness. New Story creates breakthrough tools, drives innovations, and identifies best practices to share with other nonprofits, governments, and businesses that are working towards building communities for the over 1.6 billion people in need of shelter.
- Panoramic Interests – San Francisco, California Panoramic Interests is designing a high-density, prefab, studio apartment building. The prototype, CITYSPACE Studios, is a prefabricated affordable dwelling with units for the homeless that can be easily configured into apartment complexes on existing underutilized city-owned lots.
- United Dwelling – Los Angeles, California United Dwelling partners with homeowners to convert garages into accessory dwelling units (ADUs). United Dwelling handles every aspect of the remodeling process, including permitting, partnering with a contractor for construction, finding suitable tenants, and managing the property.
- oWow – Oakland, California oWOW constructs, renovates, and remodels spaces in order to implement its innovative and affordable unit design, which consists of ‘magic walls’ in its MacroUnit product and a CLT podium structure called oDeck.
Finance
- Digs – Chicago, Illinois Digs is a financial platform that empowers a consumer to build wealth through their home. Digs’ educational product allows renters to set and track savings goals leading up to buying their first home and existing homeowners to monitor their equity and optimize their mortgage. The company works with mortgage lenders as a way to help them build a relationship with their customers outside of the transaction.
- EasyKnock – New York, New York EasyKnock is a financial service focused on making the home a more liquid asset. EasyKnock’s Sell and Stay product provides homeowners with access to home equity without the burden of moving before they are ready.
- ESUSU – New York, New York Esusu is a digital platform that helps renters save and build credit. Users report their rent payments, which increases their credit score and join online communities that help create accountability for saving.
- HomeFundIt – Baltimore, Maryland HomeFundIt is an online crowdfunding platform that allows home buyers to use gifts from family and friends for the down payment on a home. HomeFundIt also incorporates a grant opportunity and a cash-back shopping network to help home buyers increase their down payment even more.
- Housing Partnership Network – Boston, Massachusetts Housing Partnership Network (HPN) is an award-winning business collaborative of 100 of the nation’s leading affordable housing and community development nonprofits and a top-rated CDFI. Creating partnerships and enterprises that achieve ambitious social missions, HPN and its member organizations work together to scale innovation and impact, helping millions of people gain access to affordable homes and thriving communities that offer economic opportunity and an enhanced quality of life.
- Rhino – New York, New York Rhino works with landlords to eliminate costly security deposits and replace them with a small monthly insurance payment, helping users avoid cutting into their savings when they need to move.
- ROC USA – Concord, New Hampshire ROC USA is a nonprofit social venture that partners with homeowners in Manufactured (“Mobile”) Home Communities who want to purchase and operate their communities as Resident Owned Communities (“ROCs”). These Resident Owner Communities allow owners to increase the value of their homes and maintain rental costs. ROC USA serves its currently 253 ROCs in 17 states through a national network of regional nonprofits for training and a national Treasury-certified Community Development Financial Institution (CDFI) for financing.
- Small Change – Pittsburgh, Pennsylvania Small Change is a real estate crowdfunding platform that connects investors to developers to build better cities. On Small Change, anyone over the age of 18 can invest in affordable housing projects, community-centric projects, transit- oriented projects, and projects that make better places for everyone.
- Starcity – San Francisco, California Starcity is an owner, operator, advocate, and builder of co-living communities with a mission to make great cities accessible to everyone. Starcity accomplishes this by creating comfortable community homes that inspire people to live a more intentional life. They are currently working In Northern California to implement inclusionary zoning for co-living spaces.
- Till – Alexandria, Virginia Till’s platform transforms a renter’s ability to pay, stay, and thrive in their home by using real-time data to predict a renter’s ability to pay rent and develop personalized lease structures and payment solutions based to proactively address the renter’s needs. These personalized structures reduce the avoidable costs of delinquency, eviction, and moving out. In addition, as rent is often a renter’s largest household expense, Till drives meaningful improvements across a renter’s entire financial landscape.
Public Policy and Regulatory Reform
- Casita Coalition – San Francisco, California Casita Coalition fills a unique need in California’s housing policy landscape by focusing on and advocating for policies and practices to encourage the construction of small homes such as ADUs throughout all types of neighborhoods.
- City of Boston: ADU Financing – Boston, Massachusetts The City of Boston provides gap funding for those approved for an ADU through a zero-interest loan, which can be used for renovating their homes to become ADU compatible. These loans have no monthly payment until the owner either sells or refinances, making this an affordable way for homeowners to secure additional monthly income and create more housing at a minimal cost.
- City of Minneapolis – Minneapolis, Minnesota The City of Minneapolis is “upzoning” nearly the entire city, which will allow more units to be built in areas that previously only contained single-family homes, while promoting transit-oriented development and inclusionary zoning. The so- called Minneapolis 2040 Plan is unprecedented and transformative, providing a model for other cities to broadly address affordability challenges associated with single-family zoning.
- Community Action of Allegan County – Allegan County, Michigan Community Action of Allegan County’s Dual Community Development Program (DCDP) addresses education, employment, and housing through a single program. The core of the DCDP is education in the Home Building Trades industry. The current operational program provides the Pre-Apprenticeship Certified Training (PACT), which is an education curriculum preparing students for careers in the building trades. The program is 20% classroom, and 80% applied learning for actual home construction and remodeling projects.
- Minnesota Construction Revolution – Minneapolis, Minnesota is a cross-sector collaboration to reduce the cost of housing by creating an innovation hub based in Minnesota tosupport the effective use of off-site construction techniques.
- The State of Oregon – Salem, Oregon expanded affordable housing options through the passage of HB 2001 in 2019. The law requires all Oregon cities with populations over 10,000 to allow duplexes on all residential lots on which a single-family home is allowed. Cities over 25,000 and Portland Metro jurisdictions must also allow triplexes, fourplexes, townhomes, and cottage clusters in areas where single family homes are allowed.
- Symbium – San Francisco, California Symbium is a computational law platform that mechanizes the rules and regulations of planning codes to help homeowners, design professionals, and planners quickly determine if an ADU is allowed on a property, what the development standards are, and processes needed to build these units.
The 2020 Top 10 finalists will be released in mid-February, with final winners announced in April. Winners are awarded more than a total of $200,000 and provided support through Ivory Innovations’ network that includes interns, capital partners, and strategic planning.
