5-Minute Explainer: How factory construction can help housing affordability

Faster, more predictable projects can translate into big savings for residents, not just developers.

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The housing affordability crisis in high-demand cities needs no introduction. It does need solutions of all shapes and sizes — and urgently.

Government funding and affordable housing programs are the essential starting point, and the most critical path to creating options for households that can’t afford to pay market prices. But to tackle a problem this broad, and to create the volume of housing needed to move the needle in big cities, the private sector must play a greater part in supporting public-sector priorities.

One potential new source of funding comes from a fundamental shift in how buildings are built. Our Toronto Tomorrow vision proposes such an approach: factory-based construction designed to accelerate project timelines and improve cost predictability, and in so doing, unlock substantial support for below-market housing while still enabling developers to hit returns.

The full factory concept is explored in great detail in Volume 2 (Chapter 3) of Toronto Tomorrow. But if you prefer the whole brevity thing, here’s the five-minute version.

Why should cities explore new forms of construction?

Traditional urban construction — done primarily at a development site, typically using concrete or steel — has run into significant challenges lately that have a downstream impact on affordability.

Perhaps the biggest challenge is the unpredictability of finding (or, in developer speak, “sourcing”) a set price for building materials. Costs keep rising for concrete and steel, and customized designs make each project time-consuming. All these factors can lead to construction delays or project cancellations, even in high-demand markets.

The result of such uncertainty, and the need to cover the massive costs of developing high-priced urban land, is often luxury towers — or, in the case of Toronto, market-rate condos that can be sold before breaking ground, rather than purpose-built rental apartments.

What makes us think a construction factory can help?

The idea of off-site, factory-based construction goes back more than a century. But the difficulty of manufacturing heavy building materials and of coordinating a full construction supply chain has meant that, in general, mass-produced construction has yielded repetitive designs applied mainly to single-family suburban homes, hotels, and temporary housing.

That’s starting to change. A new wave of companies is taking advantage of lightweight materials such as mass timber and building information modeling (BIM) software to construct and coordinate architecturally distinct buildings faster, and at a lower cost.

These include Lindbäcks Bygg in Sweden, Legal & General in the U.K., Sekisui House in Japan, Admares in Finland, and Katerra and Factory OS in the U.S. Toronto has also seen the emergence of higher-quality modular construction, such as the Great Gulf Home factory, although this work has focused on low-rise buildings.

So how would a construction factory work?

The proposed off-site factory in Ontario would work with local foresters, sawmills, and suppliers to create and assemble a library of mass timber building parts. These parts would be produced in sufficient volume to reduce “sourcing” costs and improve predictability, supported by a BIM tool designed to coordinate the entire supply chain — connecting suppliers, developers, architects, regulators, contractors, even landlords.

Once the factory was running at peak efficiency (a refinement period that would take an estimated 6 million square feet of development), it could provide a wide range of benefits:

  • Construction speed would accelerate by 35 percent, thanks to the easier on-site assembly of prefabricated mass timber parts, which are designed to snap together quickly.
  • Deliveries to a construction site would decline by 85 percent, thanks to the ability to fill a truck with far more mass timber building parts than is possible with heavy steel parts.
  • Waste would be cut by 75 percent, thanks to standardized building parts ready for assembly.
  • Overall project costs could drop by up to 20 percent, if factory-based construction reached peak efficiency across a large-scale development area.

There’s also the environmental benefit of using mass timber, which acts as a vault to store carbon; using this material for a neighborhood with 2.6 million square feet of development, for example, would be equivalent to removing over 20,000 cars from the road annually.

Won’t all this factory work lead to cookie-cutter buildings?

Not necessarily. A well-designed library of building parts can be combined in thousands of ways. Using the same library of mass timber components, three global architecture firms designed strikingly different concepts for the Toronto Tomorrow proposal:

(Image: Heatherwick Studios)

(Image: Snøhetta)

(Image: Michael Green Architecture)

That sounds great for developers. How does this translate to affordability for residents?

Factory-based construction helps developers address two of their biggest challenges: project timelines, and cost predictability.

Faster construction speeds mean developers can recover their investments more quickly, reduce exposure to interest rate changes, and potentially complete more projects over the same time period. Similarly, a more reliable way to source designs and materials would reduce the need for developers to build “contingency” (or unexpected extra) costs into their project estimates.

Together, these factors could enable more affordability in a couple ways:

  1. Raise land prices and capture the value. Developers who recognize the benefits of factory-based construction could be willing to pay more for publicly owned land, and cities could apply that premium toward below-market housing.
  2. Raise housing requirements. Alternatively, government could keep the price of public land steady but increase affordability requirements, knowing that developers could meet these requirements while still clearing returns, because factory-based construction improves project economics.

Based on the first assumption, the Toronto Tomorrow proposal estimates that factory-based construction could generate up to $639 million for below-market housing across the full project geography by 2048. But either approach could work, and both are a win for below-market housing options and mixed-income neighborhoods more broadly.

Can this help affordability in the city more broadly?

Yes — it can help long-term affordability overall for a city by improving project economics on purpose-built rental units, which typically require a greater upfront investment and longer time-horizon than condos do.

For example, given its focus on condo construction, Toronto has missed out on decades of “filtering,” the process by which new purpose-built rentals age and thus become more affordable over time. According to research by Ryerson University and Evergreen, Toronto needs to build roughly 8,000 purpose-built rental units a year through 2041 to rebalance its market.

While Toronto’s trends are unique, all high-demand cities share a need for more housing options — and factory construction is one path to get there.

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August 13, 2019