Shortage of New Home Construction Causing Disruption
The United States is currently undergoing a residential housing boom, as evidenced by a short supply of homes for sale and soaring home prices. Surprisingly, this is occurring following a year that experienced the highest unemployment rate since the Great Depression. It is counter-intuitive to think it is possible to be experiencing such high levels of unemployment, and the highest economic uncertainty in over a decade, and yet residential housing demand is red hot.
There are several factors that have led to this situation. However, one of the biggest is that the residential real estate market is in the midst of an historical supply/demand mismatch. Emerging from the housing recession of 2008/2009, many large homebuilders severely cut back on new home construction. This was understandable given the state of the residential real estate market at that time.
Millennials Entering the Market and COVID19 Crisis Exacerbating Supply Issues
However, in the decade following the housing crisis, millennials began entering the home buying market in large numbers. This group had most likely delayed purchasing a home coming out of that crisis. However, only a few short years later, that group demographic accelerated family formation and home purchase activities.
In addition, during the pandemic, many consumers altered their home buying behavior. Many homeowners made the decision to remain longer in their homes, opting to remodel rather than move. Also due to the pandemic, many consumers shifted home formation away from large city centers into suburban locales.
These major home ownership trends turned upward at the same time that new home construction was at an historically low level. The result of these trends is a massive under-supply of new and existing homes for sale, soaring home prices, surging home construction material costs, and a short supply of labor for the construction industry. None of these challenges can be overcome in the short run, and the construction industry is searching for new solutions.
New 3D Printing Technology Entering the Marketplace
In this environment, entrepreneurs are now racing into the market to help solve these problems. For the first time, we are seeing 3D printed homes enter the residential real estate market. As recently reported by CNBC.com, “ICON, a pioneer in 3D-printed homes in the U.S., just completed four homes in East Austin, Texas. The two- to four-bedroom homes are now on the market, starting in the $400,000 range. A much larger community of 3D-printed homes is being planned in Rancho Mirage, California, by competitor Mighty Buildings.” Technology that would have sounded like science fiction just a decade or two ago is available today and is being deployed in the market.
3D printing technology has the potential to alleviate the challenges of supply, speed, and cost that the home construction industry is currently grappling with. As stated in the article, “construction of the homes is 10% to 30% cheaper and several months faster than conventional construction. This is especially important given the rising costs builders are seeing for conventional construction materials, like steel, aluminum and especially lumber. Mighty Buildings claims the 3D printing production process eliminates 99% of construction waste and is 30-40% cheaper than traditional construction.” 1 With the ability to construct a home quicker, at a lower cost, and with less waste, this technology has the ability to cause a generational-shift in the way the construction industry operates.
While home building techniques have certainly advanced with technology, the basic building concepts behind constructing a home have not changed significantly over the last several decades. The process of using 3D printing technology to construct a home could create incredible efficiencies through the entire process, including materials and labor – two of the largest expenses. As recently reported in a related article about 3D home construction in the LA Times, “A typical wood-framed house requires cutting the lumber down to size, and the leftovers often end up in a landfill, while 3-D printers generate the exact material needed. In addition, the automated process uses 95% less manpower because robots create the panels.”2
Cheaper, Faster, Stronger – Likely A Recipe for Success
While the technology has been maturing for a decade or more, deployment of actual 3D printed homes into the market is new. Skepticism will likely persist until 3D printed homes have been tested and lived in by consumers. However, many may be surprised at the durability of the end product. From the CNBC article: “Whether made of concrete or a polymer, these homes have shown to be far more energy efficient, sustainable and resilient than conventional wood-built homes. ICON’s homes in Mexico have already withstood a major earthquake with no damage. Given that the homes are concrete, they are resistant to mold, termites, water and rot.”1
At this early stage it is still difficult to predict how the product will ultimately perform, and how it will be received by consumers. As in all new and disruptive technologies, it will most likely take a long time before we experience high adoption rates of this building process. However, given the supply constraint of homes, the high price of building materials, an acute shortage of labor, and the potential for stronger, more cost-efficient homes – expect more 3D printed homes available in the future.
1 “3D-Printed Housing Developments Suddenly Take Off – Here’s What They Look Like” by Diana Olick, CNBC.com 3.12.2021
2 “Rancho Mirage Lands the Country’s First 3-D Printed Housing Community” by Jack Fleming, The LA Times 3.10.2021
Steve Sapourn is co-founder and portfolio manager at Aloha Capital. He specializes in designing low-risk portfolios that reliably out-perform benchmarks. Steve has managed alternative investments in a variety of asset classes for nearly 25 years. His accomplishments include creating and implementing quantitative trading strategies in the futures, stock, and volatility markets. He’s also served as portfolio manager for a Fund of Funds, where he analyzed hundreds of alternative investment strategies.