Scaling Housing Innovation: Financing and Alignment With Climate Policy

Scaling Housing Innovation: Financing and Alignment With Climate Policy

Creating a benchmark accreditation or scorecard framework for offsite construction could potentially reassure investors about the quality of offsite products and make them more likely to finance housing innovations.

Terner Labs and HUD concluded their yearlong Housing Technology series with "Financing and Scaling Housing Innovation," a discussion among innovators, investors, and federal policymakers that doubled as the finale of the Innovative Housing Showcase Educational Sessions held in Washington, D.C., on June 6 and 7. Solomon Greene, Principal Deputy Assistant Secretary for HUD's Office of Policy Development and Research, said that when it comes to affordable housing, "we are in a moment of necessity, and innovation isn't a luxury — it is what we need to be doing to rise to the moment." As the Innovative Housing Showcase highlighted many examples of promising advances in housing construction on the National Mall, Greene and other panelists discussed a critical next step for meeting the moment: scaling those innovations. The final session featured two panels that explored ways to increase production of innovative housing types: one focused on overcoming barriers to financing projects and the other on aligning climate and housing resources to produce affordable, energy-efficient, and climate-resilient housing.

Jan Lindenthal-Cox, chief lending officer of the Housing Accelerator Fund; Santiago Ossa, principal of ADL Ventures; Abigail Suarez, head of neighborhood development at JPMorganChase; and moderator Ben White, director of the Builders Lab at Terner Labs, discussed the challenges of financing scaled construction. Arpita Bhattacharyya, senior advisor and chief climate officer in the Loan Programs Office at the U.S. Department of Energy; Laurie J. Schoeman, senior advisor for Housing and Urban Policy for the White House Domestic Policy Council; and David Widawsky, director of the Office of the Greenhouse Gas Reduction Fund at the U.S. Environmental Protection Agency, joined Greene and moderator Michelle Boyd, chief strategy officer at Terner Labs, to discuss the alignment of climate and housing policy to scale construction.

Financing Industrialized Construction at Scale

One of the primary challenges for financing housing innovations such as modular construction is lenders' unfamiliarity with and uncertainty about these practices and how they differ from traditional construction. Summarizing points raised in earlier educational sessions, White recounted reports of modular developers needing to approach 30 to 40 lenders before finding one comfortable with nontraditional construction. In any project, lenders seek to understand and price for risk, but their lack of experience with and understanding of new construction practices make determining risk more difficult. Compounding this dynamic is modular construction's relatively higher upfront costs. Philanthropy can play a role, said Suarez, by providing developers with favorable loans. Lindenthal-Cox added that philanthropic investments can reduce the barriers that high upfront costs pose for developers.

Ossa said that funders will be more comfortable if they view offsite construction as a standardized process that yields predictable results. Creating a benchmark accreditation or scorecard framework could potentially reassure investors about the quality of offsite products, he said. Suarez added that standardization would make "products" transferable across geographies, meaning that components for stalled or canceled projects could be reused elsewhere. Currently, regulatory frameworks such as zoning and building codes are highly fragmented across state and local governments. Greene said that HUD has been considering establishing national performance code certification for modular construction similar to the successful HUD Code for manufactured housing, but he noted that achieving this goal may take some time.

Ossa pointed to the semiconductor industry as an example of government and industry partners working together on research, development, and the standardization of processes and products, and he suggested that a similar collaboration could help offsite construction processes gain momentum in scaling. In the second panel, Boyd facilitated discussion among federal policymakers about coordination in the form of industrial policy that both supports the scaling of housing construction and advances climate goals.

Aligning Federal Support to Meet Affordable Housing and Climate Goals

Greene said that rejecting the "false dichotomy between affordable housing and climate goals" is critical. In fact, innovative housing construction can support the nation's response to the dual crises of insufficient affordable housing supply and climate change through housing that, as Schoeman notes, "not only deal[s] with the causes of climate change but also the consequences." Housing innovations such as offsite construction can achieve high standards for energy efficiency, yielding both reduced climate impact and lower utility costs for residents. Because housing innovations deliver benefits in both areas, builders and developers can draw on federal funding for both housing and climate as they stack together capital sources to fund projects.

Bhattacharyya explained that the U.S. Department of Energy can provide low-cost financing to support housing-sector advances such as net-zero manufactured housing. The U.S. Environmental Protection Agency’s Greenhouse Gas Reduction Fund offers an additional source of capital that could go toward home loans as well as toward businesses that are manufacturing low-energy buildings. Widawsky said that the fund’s programs, which include the National Clean Investment Fund, the Clean Communities Investment Accelerator, and Solar for All, devote particular attention to funding initiatives in communities that historically have been denied access to financing.

Necessity, Innovation, and Scale

Affordability challenges are pervasive, and the urgency of climate change mitigation and disaster resilience are only increasing. Innovative housing construction promises relief for both, but their impact will be meaningful only if they are brought to scale. Standardization and certification in modular housing; philanthropic, private, and public partnerships; and coordinated federal housing and climate investments can better position the innovative housing industry to scale up to meet these critical needs.