Fostering Housing Innovation to Improve Affordability and Resilience

Fostering Housing Innovation to Improve Affordability and Resilience

HUD and the National Association of Home Builders hosted the inaugural Innovative Housing Showcase on the National Mall in Washington, D.C. from June 1–5, 2019.

Faced with rising housing costs and increasingly frequent natural disasters, housing officials, builders, and developers must examine innovative technologies that can both decrease production costs and strengthen homes’ resistance to storms. HUD partnered with the National Association of Home Builders (NAHB) to host the inaugural Innovative Housing Showcase in Washington, DC, from June 1 to June 5, 2019. “In response to the affordable housing crisis facing our country, new construction technologies and development techniques play a pivotal role in lowering the cost of production and increasing the affordability of new homes for millions of hard-working Americans,” HUD Secretary Ben Carson stated in his opening remarks. The event brought together homebuilding experts, congressional representatives, federal officials, and private-sector innovators and featured several panel discussions during which experts examined the need for housing innovations, strategies to foster and overcome barriers to innovation, and the federal government’s role in assisting communities.

The Need for Innovation

DuPont senior research fellow Theresa Weston said, “The two areas that are most critical for our country right now are affordability and resilience to natural disasters,” which are therefore the areas presenting the greatest need, and opportunity, for innovation. In 2017, according to the Joint Center for Housing Studies of Harvard University, 37.8 million households spent more than 30 percent of their income on housing. Extreme weather events in 2017 such as Hurricanes Harvey, Irma, and Maria and the California wildfires resulted in more than $300 billion in losses. Developing innovative housing will become increasingly important as adverse weather events become more frequent. HUD associate deputy secretary Janet Golrick emphasized that the traditional response of simply rebuilding damaged or destroyed structures is no longer useful. Advancements in building technology for manufactured homes, for example, employ durable building materials and less labor-intensive methods to increase affordable housing and disaster resilience.

Barriers to Innovation and Adoption

One of the primary barriers to housing innovation and the adoption of new techniques and technologies is the highly segmented nature of the housing industry and housing markets, said Home Innovation Research Labs president and chief executive officer J. Michael Luzier. Few builders construct housing at every price point, and some may develop expertise in only one market segment rather than trying to master all of them. Housing solutions are also context dependent, and a solution that is successful in one area may not work well in another. In addition, said Luzier, any new building product or process has to adhere to state and local regulations, which can vary widely even within a regional housing market. Another challenge for innovators is ensuring that new products and processes are cross-functional. For example, a product that improves energy efficiency is not helpful if it increases a home’s moisture and mold risk, said Weston.

HUD research conducted by the NAHB Research Center and Virginia Tech found that a new technology takes an average of 10 to 25 years to gain full market share. Because tested techniques exist that can do the job well, builders may be less willing to experiment with new techniques that might be more effective yet carry greater risk. Once builders set specifications for a technique that they know will work, they are unlikely to change them. Builders also have little incentive to innovate unless they can monetize adoption of the innovation and the risk it entails. Someone has to bear the costs and risks associated with innovation, and consumers may be unwilling to do so. Complicating this challenge is the fact that builders must anticipate what the market will want in one to two years because that is the time that it takes to construct a house.

Strategies for Innovation

The aftermath of natural disasters can provide opportunities for innovation, but many families struggle to afford the cost to rebuild. Forming partnerships between communities and lending institutions can help residents finance renovations and make homes more resilient, said Michael T. Hernandez, vice president of disaster recovery and rebuild at Fannie Mae. The Disaster Response Network offers families with mortgages owned by Fannie Mae case management support; assistance filing Federal Emergency Management Agency insurance and U.S. Small Business Administration claims; and free counseling to help maximize available federal, state, and local funding.

In almost every disaster, new housing outperforms the old, which proves that building techniques have become more resilient, said Luzier. Hernandez suggested that stakeholders work to shift consumer preferences toward less expensive housing options such as manufactured homes, which are built in a factory to HUD specifications and can be more resilient to natural disasters than some existing homes. Prefabricated housing is one construction method that has become increasingly common in response to the shortage of skilled labor in the building and construction industry. Retrofitting the existing housing stock will also be critical for building resilience, especially in desirable housing markets that lack buildable lots for new construction. Rather than repairing houses on their existing foundations, elevating houses can reduce storm damage and mitigate disruptions to local economies in coastal areas, which are prone to floods from heavy rain and storm surges.

Government’s Role in Promoting Innovation

Panelists identified several ways in which the federal government can promote innovation, such as convening stakeholders for networking opportunities, generating data on housing markets, reducing regulatory barriers, correcting information asymmetry, and funding research and demonstration programs. Another way in which government can mitigate risk for innovators, said Urban Institute senior fellow Carlos Martin, is by supporting the testing of innovative technology products. Weston added that the government can also develop accurate testing methods and measures. Furthermore, panelists suggested that federal tax or other monetary incentives can encourage consumers to purchase high-performance homes. For example, HUD’s Green Mortgage Insurance Premium Reduction Program (Green MIP), which allows owners of HUD-insured multifamily rental housing to pay a lower mortgage insurance premium for housing that meets higher standards for construction and renovation, incentivizes builders to integrate energy-efficient elements in their construction.

A Vital Response

Housing affordability pressures that are reaching crisis levels and increasing threats from natural disasters necessitate multifaceted responses from the public and private sectors. Among other approaches, innovation in building technology, construction, bureaucratic processes, and financing can improve housing affordability and disaster resilience. Federal and local governments can take steps to reduce barriers to the innovation and adoption of new products and processes, facilitate networking and demonstrations, and develop standards for testing as well as set goals for affordability and resilience.