CEO Jack Truong’s Solution to the Housing Shortage: Prefabricated Homes | Marketplace | sfexaminer.com

Oct 31, 2024

As experts predict that the U.S. housing shortage will continue despite recent lowering mortgage rates, many are gearing up for a potential market crisis as current policies fail to remedy downtrodden sales. Jack Truong, the accomplished C-suite exec in powerhouses like 3M and Electrolux, has a firsthand understanding of our current crisis and — with estimates that the country faces a shortage of 5 million to 7 million homes — believes that it's rooted in the country’s antiquated approach to building homes.

“The existing home sales are quite limited, and hence new home construction needs to really ramp up. But the issue here in the US is that the builders have really not been adopting the new technology of building homes, and they have been building homes the same way they've been doing for the past 100 years,” Jack Truong explains. “And the way that they build is very sequential. That's why it takes six to 12 months on average to build a home.”

Traditional building methods, typified by ever-expanding labor requirements, budgets, and time frames, have been long considered unsustainable in addressing the ongoing housing shortage.

With a little over 1 million homes built last year, the U.S. is missing the demands of homebuyers by a wide mark. More than half of all Americans — 52% — think homeownership is unattainable, especially for Generation Z and Millennials, a justifiable statistic as the cost of starter homes in many major cities has risen above $250,000.

As starter homes become increasingly unattainable and homeowners continue to hold on to their residences for longer than in the past, there’s an urgent need for solutions to the housing crisis that address the expensive and time-consuming nature of building new homes. Jack Truong believes prefabrication is the answer.

“The key to the fast way to really help the first-time home buyers and alleviate housing shortage is to accelerate the prefabrication adoption in home building, Truong says.

“It is there, it just needs to be introduced to the market. This is how we're going to solve the housing crisis in the country today,” he continues.

Prefabricated homes are houses manufactured in a factory and shipped to a lot for assembly — think of it as a bookcase from Ikea, but for homes. With prefab homes taking two to four months to construct, they can often be built in a third of the time it takes to build a traditional home from the ground up, and at as little as 25% of the cost. This has made prefabs a desirable option for first-time homeowners around the world despite remaining relatively unknown in the U.S.

In European countries like Germany and the Netherlands, prefab homes are quickly becoming the standard for addressing housing shortages, and the prefabricated market is expected to outpace the overall housing market within the next five years.

“Now, more than 25% of new homes in Germany are prefabs, and those homes are of good quality and value”, says Truong.

As Americans continue to aspire to the dream of a single-family home with a white picket fence and expansive backyard, prefabrication may be the only way this vision remains attainable and keep that American dream alive.

One of the significant issues surrounding the housing market is that it’s highly speculative. Everyone saw the damaging effects of this during the real estate bubble in the early 2000s when entire newly developed communities were left abandoned.

Prefabrication offers an innovative fix to housing speculation, as mass production facilitates a scalability in accordance with supply and demand, allowing for fast adjustments to market trends.

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“The components are built in the factory and hence the built prefab homes can be flexed up and down based on demand. It would alleviate the boom and bust in housing cycles that we experienced between 2005 and 2015” Jack Truong explained.

When the demand for affordable starter homes far exceeds the supply, like the current situation in the U.S., this mass production can be put to the test to swiftly develop single-family housing communities at scale around the country, which, according to Truong, will drive affordability.

“The issue today is that there's not enough production of new homes, particularly in the starter and move up categories, in the market to keep supply well ahead of rising demand. Of course, the more supply of these new homes is in the marketplace, the more affordable the homes will be. This is the dynamics today that does not exist in the current market,” he comments.

With the National Association of Home Builders reporting that only 1% of multifamily and 2% of single-family homes built in 2021 were prefabricated, Truong believes policy must be enacted to support the development of more prefabricated housing.

“You see a lot of these small prefab builders crop up around the country, but they need to be supported. They need to be invested. If the government wants to help new home buyers, this is where they should really put the attention on” Truong declares.

One simple way to support prefab housing is to position it at the forefront of solving the housing crisis and dispel any misconceptions surrounding these innovative dwellings.

While many picture prefab homes as the very image of suburban sprawl — cheaply built, cookie-cutter structures with no aesthetic appeal — modern prefab houses are characterized by their high quality, efficiency, with multiple design aesthetics, and elevated degree of customizability on par with traditional homes.

“There’s a variety of homes that are actually in the U.S. today that you can get through prefabs. And those are nice homes, they look amazing,” Truong attests. “Technology has changed a lot, and now, with advanced computer-aided designs, and advanced [artificial intelligence] with digital animation, you actually can design your own homes, and then they would be able to fabricate it.”

With approximately 60 prefab factories around the country, the U.S. would also need to invest in its scale, developing more large factories to meet current and future demand. While much remains to be done before prefab homes can fix the housing crisis, with the right policies, Jack Truong is bullish on their potential as a solution.

“We need to inject new homes built in America, at a much faster rate and at a lower cost,” he says. “And there's a way to do that. And we have to make sure that the building methods change because we have a solution [with prefab].”

Truong knows that to make this work on a large scale, government participation is necessary. But he doesn’t see the support he believes is needed — on either side of the aisle.

“Vice President Kamala Harris’ plan of $25,000 assistance to first-time home buyers not only won’t solve the problem but will make it worse by housing prices going up,” he says. “While former President Trump’s plan of opening more federal land won’t solve the problem of having a lot more homes built.”

“The key is to be able to produce significantly more homes — two to three times more — each year, especially in starter home and move-up home categories.”

*The San Francisco Examiner newsroom and editorial were not involved in the creation of this content.