Assembly Select Committee on Housing Construction Innovation

Wait, is this thing on? Wait, can you guys hear me? Is this thing on? Okay. Wow. I love that. Just okay. Hi everyone. I hope everyone had a great holiday. We are back in the throes of trying to figure out how to solve our housing crisis.

I'm very excited to have the first select committee on Housing Construction Innovation select committee hearing. Thank you to everyone who has joined us. The livestream can hear, right. We think I get the buttons confused. I should make sure we're good. We're good. Okay, great. Very excited to be here and to dive into this conversation.

Many of us have spent the fall really kind of geeking out on this issue, which some of the findings from that geeking out will come to light here. But I think a lot of us just have a lot of questions on how we can make this more of a reality.

And the purpose of the select committee is to explore kind of cross sectional issues and things that don't fit into the cookie cutter standing committees. And I think this is certainly one of them because it explores a lot of issues with really the whole goal of how do we bring down the cost of construction.

We have done enormous work over the last 8-ish years on streamlining, on making sure we have land available to build, on the entitlement process, making sure it's timely and objective. We obviously had a bang up year this past year on SQL reform work and other huge hurdles that even a couple years ago didn't seem possible.

With great help from obviously the speaker and the Governor and others who've really leaned in on this issue. And that streamlining work I think is we're starting to see the fruits of that labor and also we still have to really confront the cost of construction.

And in my mind, and I think for many of us, that manifests itself in innovation. How do we have innovation in this space? When you look back at how we've built homes, I don't know, 100 years ago, it's the same in a lot of ways.

When you look back on the telephones you talked on 100 years ago, they're very different than what we have now or any other mechanism, modern mechanism that exists. And yet our housing is built similarly the same. There's obviously a lot of factors when it comes to cost and why housing is so expensive.

There's obviously high impact fees and we have taxes and we've got labor issues and so many other kind of issues that it results in a pricey door.

But also this idea around innovation on construction I think is a part of the solution I have been in some far fung places this past fall, went to Sweden, took a delegation there to look at what they are doing in terms of modular prefab housing was blown away with what I saw, in terms of what they're doing.

It's impressive. Obviously Sweden is different than California in many ways, but there's a lot we can learn. And I know in California we like to think that we create everything and that we're the innovators on everything and yet we can learn from other places. And Sweden is certainly one of those.

I think they build about 85% of their single family homes. Their new homes are modular and I think about 30% or so of their multifamily is modular. So there's a lot we can learn there.

Also was able to go to Idaho and visit some of the really innovative factories that they have there, in terms of what they're doing in Idaho, which was also very exciting and inspirational. And then made it to Topeka, Indiana to look at factory there as well.

So have been all over, have been talking to a lot of different folks. We've conducted a lot of interviews. We're going to have a couple public hearings here to really try to dig into this question of how do we bring in the cost of construction, how do we support innovation? What can the state do?

What's the state's role in trying to figure that out with, again, the idea of how do we make homes more affordable. And we've had a lot of interest from members on the committee and members not on the committee even.

I welcome any member of the legislature who wants to work on this to come join us for this robust conversation. Many of you did these trips with me this year. We will go to see other factories as well in the coming months.

And with that I want to first open it up to members of the committee to make a couple opening remarks. And we are also joined by a Assemblymember, Jeff Gonzalez, who's not a member of the committee, but he's going to be a member of the committee today.

So, we were at an event yesterday and he said, "I'm so excited what you're doing on Mag-" I said, "Come to the committee. You can be part of the committee." Select committee; it's my rules. So, you're welcome.

And I want to hear from everyone else for opening remarks before we get into the meat of the panel today because I know people have opinions, thoughts, and questions. So who would like to go first? Ms. Quirk-Silva.

Thank you to the Chair for not only convening this, but also the important select committee the year before, which was on permitting. And as she stated in her opening remarks, this housing discussion and crisis has been years in the making.

And in the last 10 years we have steadily made progress and yet we know there's more to do and focusing on not only building the units we need, but lowering that cost.

I had the privilege to travel on the delegation to Sweden and we certainly saw some impressive models of what we could possibly do in the future here in California.

One of the things that stuck out to me was that they are doing much of this building is in very cold weather and they have learned the systems that they need. And many times we think of construction on site, kind of brick and mortar and so forth.

And when you really see these factories where much of the housing is built in pieces and then transported, those are all parts of the conversation is the transportation, the factories, getting it to the sites.

But since that trip, I've had the opportunity to see a small development of modular housing right in Los Angeles, in the city of El Monte. It's for very low income units. And those were what - again, in this space you're learning new terminology constantly.

And these were very much focused on, they called it kind of the YETI design, meaning that it's made from this very durable type of foam and the insulation and so forth is quite good. So, I think that for all of us as legislators, it's certainly going to be quite a bit of learning and education.

I think it's not just the legislators, but it's everybody who works within the building industry, including our labor partners, to see, like you say, updated way that we can live and work in the future. Thank you.

Thanks. Ms. Quirk-Silva. Anyone - Mr. Carrillo.

Thank you, Madam Chair. First, I just want to thank you for convening us again on this, Select Committee on Housing Construction Innovation. I also had an opportunity to see what's been done in other countries like in Sweden. And it's inspiring.

I came out inspired of what we saw over there, the way that they are producing housing units and actually doing what they said they were going to do. And I think we're going to be doing what we say we're going to do here, actually producing those units.

But one thing that I also discovered is when we came back is that there are some small scale that are producing this manufactured housing within our own backyards. When I came back, there's actually a small, very small factory in Palmdale, literally three miles away from my house.

I went and visited what they're doing, they're just doing a different construction material. They're using metal. And that's something that I hope that we can support those that are here and explore the potential that we have in producing those units in the massive numbers that are doing in other countries.

So, I want to thank you again for having me. And again, it's inspiring to see what other nations are doing. Inspiring to see what we can accomplish in California. Thank you again.

Mr. Harabedian.

Thank you, Madam Chair. Just want to again say thank you for having me be a part of it.

I was lucky enough to go on the Boise trip and we see our good friends from the Terner Center, good friends from Ottava, which, you know, hosted us and it was such an educational experience for me and I know all the members-

And I will just say that I think that the key phrase here in the title of the select committee, as our chair said, is innovation. And I think that we have innovated on so many different levels and the number one issue facing the state is housing affordability, it's housing supply.

And frankly, the innovation on that front has not kept pace with innovation on a number of different policy areas. And I think that the Chair has been at the forefront of this and I just want to thank her for her leadership. And I'm a believer.

After that trip, after learning so much from our partners here that we'll hear from, I think that the key is really, as we've learned, is creating a sustainable demand; making sure that there is a market so that when folks are putting the money where their mouth is and building out these factories and spending millions and millions of dollars, they need to know that there are going to be partners waiting to actually utilize for single families and multifamily factory built housing.

And after you take these tours, you realize that the quality is incredible. Anyone would be happy to live in these factory built housing units. And I think that as policymakers, we have to figure out how best to do that and efficiently do it. So I'm excited to be a part of it.

Don't have all the answers, probably just have more questions. But appreciate the opportunity and look forward to the conversation.

Thank you. Ms. Hadwick? Or... okay, Ms. Ransom? You guys pick.

Thank you. I just want to thank Buffy and the Chair for her leadership on this. I was also able to go to the Boise trip and it was really fascinating. I represent a very rural district and so we don't have quite the same problems with building.

We just, we don't have companies to build and we struggle because we're so remote. So I'm very excited that you guys will hear from one of the companies in my district today. Very excited to see that they're here.

And I have to run soon, so I can't stay the whole time, but I hopefully will be back because I have meetings. But I just want to thank you for, I think, the innovation part and the just thinking outside the box.

I think we're at that point right now in the state and really, really need to think outside the box. So thank you for, for having this.

Thank you, Ms. Ransom.

Thank you, Madam Chair. First of all, I want to thank you for putting this select committee together. I do appreciate one, your consistency and tenacity as it comes to housing affordability. As a mom, as a Californian, I think it's so important that we continue to make housing affordable.

I want to make sure my children, your children, that folks in the audience, their children can continue to live and grow here in California. And I think we can only do that by changing the narrative of we've always done it that way or there's only one way to do something.

I know that there are so many different demonstration projects, one in my own district of apartment complex that was built, that it was manufactured. The cabinets were built in the facility, the walls were built, and they just put it together like Legos, and it's a quality project.

And so as we look to reset, you know, how we are approaching housing affordability in California, we have to look at design, housing design, and different ways that, you know, we need to catch up with where the technology and the opportunities are. And so I look at this as a step to bringing California forward.

And so I appreciate this opportunity and look forward to the conversation today.

Great. Thank you. Any other opening? Mr. Gonzalez?

Thank you, Madam Chair. Thank you. Ms. Wicks. Thank you to the staff and everybody for being here today. And I remember getting the call I was not able to go to Boise. I was had a conflict that day. But I want to thank Ms. Wicks for reaching out.

I represent the 5th poorest district in the state, 54th Assembly district. 70% of my district speaks another language other than English, and 85% of my district are renters. And so I am the epicenter of every business group, every labor group, construction firm and so forth that are in the district.

And so a couple of my smaller cities who've been up here the last couple of days are advocating for housing. They have to meet their arena goals. And so those are big conversations that we have to have, and this might be the solution is a solution to go forward on that as well.

But at the same time, we can't rely just on nonprofits to be able to get us out of our housing crisis as well and continue to sort of work with this new development and workforce housing. And so, thank you Madam Chair for having that conversation.

Great. Mr. Gonzalez?

The other Gonzalez. Thank you Madam Chair for inviting me to the, to sit in and then come up to, to join the team up here. Ford looked at a problem and created a solution through putting a pieces of a car on a conveyor belt and that was done inside of a factory.

The other piece is where I live and represent in the 36th Assembly District. It gets to be 125, 126 degrees. So my electricians, my HVACers, my carpenters, all my labor folks: it's hot.

So if we can find a way to do the same job, but innovate and do it in, if you will, a factory with climate control, let me tell you something, they would be very happy. And then from, from a safety, a health place, they would also be a lot healthier. So I'm excited about that.

I told you about my, my dream and I'll share it here quickly is as the only veteran in the State Assembly, my dream has always been, even before this, was to create this housing community here in California for, for homeless or at risk veterans where they can get in and live and excel in California.

And unfortunately housing prices makes it a little bit difficult to do that. But if we could find that solution, imagine what we could do for our veterans, for our seniors, for all of our community. So I'm excited to just be here, and I look around the dais and I see all these dragon slayers.

So I'm glad you picked a great group of hard working folks and I'm thankful for it. Thank you.

Dragon slayers. I like that a lot. I get the slayer thing a lot, but I like the dragon slayers. Ms. Wilson.

Thank you Madam Chair. I appreciate you for being a part of this important conversation. Although I didn't go to Boise, wasn't able to do that to scheduling conflicts. I'm glad to be able to be here as a part of this discussion.

Also in my district we have Harbinger who's been doing this for some time previously, obviously Factory OS, and glad to see that they're here a part of this conversation.

But one other thing I wanted to add in terms of opening is, you know, I had the opportunity prior to coming to the assembly to work for a home builder. I did the operational finance.

And so I was in charge of the Proforma, looking at all the dollars and cents from the moment of acquisition, or identifying prior to acquisition, all the way to delivering keys to the home buyer.

The companies I work for wanted to innovate, had ideas about innovating, in terms of building a house in a more efficient and effective way, delivering for our consumers and making sure they had a home. And I know that sometimes it was extremely difficult because it didn't pencil out.

A lot of times, not because you couldn't do the project, but the warranty issues following it, how do you construct it, how do you bring it to scale?

And so one of the things that you know as a part of this conversation is looking not just how we do, like what we're doing at Harbinger, but how do we allow our existing home builders to be able to innovate in a way that is not so costly, so that after they built the home, after they've made a really efficient and cost effective home, that after the fact, and the cost to now put a warranty on that, or the issues with lawsuits are so great that it makes it cost prohibitive to even do the good idea in the first place.

So I'm glad to be a part of this conversation. I've seen you do great work in the housing space and lots of good results came out of your previous select committee. And I know that with this host of dragon slayers, as my counterpart or colleague has said, we're able to do the same thing and replicate it.

Thank you to you, Madam chair.

Thank you, Ms. Caloza.

Thank you so much to our Chair, Buffy Wicks. Just wanted to express and echo all the praise that you're getting that's so deserved because you see the crisis before us and you're actively trying to find solutions, not for you and your team to learn about, but for really the collective assembly to learn about.

And you're bringing those solutions in house. And that's what's exciting about today. We finally get to bring that conversation to the public eye and get to hear in a public forum all these incredible things that we have been learning about thanks to your leadership.

So just really excited, grateful to be here and looking forward to the rest of the hearing. Thanks for everyone for being here.

Thank you, Ms. Papan.

Thank you so much, Madam Chair. My apologies for being late. You know, I came out of local government and I've been in Sacramento since 2022. And when I left local government, there were some 3,000 plus units that we had approved and haven't been built. And that is largely a function of financing and interest rates.

But nonetheless, I'm here and I thank you for the opportunity to go to Boise. It was very eye opening, but I'm here to see how we can enhance the financing and get units built. So thank you for zeroing in on it and I look forward to discussion. Let's go.

Great. Okay, with that, everyone, let's start our first speaker, Mr. Metcalfe, if you could step up to the hot seat. And this. Mr. Metcalf, heads up, the Terner Center and Terner Labs at UC Berkeley and has been a great thought partner. And with that, I will let you take it away in whichever seat you are most comfortable.

The hot seat here. I found it. Okay. Good afternoon, Chair Wicks and members of the select committee, the "Dragon's Lair Committee." Thank you for the opportunity to present and to support your efforts more broadly over the next several months. My name is Ben Metcalf.

I'm the Managing Director of the Terner Center for Housing Innovation at UC Berkeley, CEO of Terner Labs, and on the faculty of the Department of City and Regional Planning. Previously, I led California's Department of Housing and Community Development. Before that I worked in the Obama Administration, running HUD's Office of Multifamily Housing.

And before that, I actually built housing here in California as a developer. A particular relevance to the select committee's charge, I oversaw the State of California's Factory built housing program in my role as HCD Director, and have spent the past six years at Terner growing our engagement in this space, including building out a body of research and running an accelerator program to support new kinds of industrialized construction startup companies.

So the committee is here, first and foremost, because of the affordability crisis. Low income households and even middle income households, as you know, struggle to afford housing in California. The primary reason for that is a shortage of homes.

We are short two and a half million homes by 2030, according to projections, and we are producing less than half of the housing that we need on an annual basis. Notably, California also produces far fewer homes per capita than every other state in the nation, but one. There are two key contributors.

The first is land use and regulatory constraints, which I would argue is an area where the legislature, under the leadership of many of you, but Chair Wicks in particular, I acknowledge you in this front, has made real progress. But the second is construction costs: the focus of today's hearing.

And it's important to understand that construction costs are high relative to other states. So a recent analysis with Colorado and Texas showed that multifamily construction costs in California can be 2.3 times higher than in Texas for the same product, and 1.5 times higher than Colorado to build the same product.

Total development costs for multifamily housing in California routinely exceeds half a million dollars per home, excluding land, and those costs are much more pronounced in our higher cost metro areas where our housing needs are most acute.

Not only are costs high relative to other states, but our costs are also growing consistently at a rate that is faster than inflation. In fact, costs have grown faster than inflation in the construction area for the last 30 years and have grown risen at a rate of double that of inflation since 2019.

There's a bunch of reasons for that, but one that I would highlight obviously is our labor challenges. Specifically, skilled construction workers are aging out or leaving the workforce faster than new entrants are coming in.

Indeed, more than two thirds of California contractors cite skilled worker shortages as their top concern, and the state has faced a net loss of construction workers just in this last year. What does that mean?

Well, obviously delays in getting jobs started and the ability to proceed, but also inevitably to higher and higher wages that must be paid to attract workers so that workers themselves can afford to live in the communities in which they work. Unfortunately, current federal policy trajectories, particularly on tariffs and immigration, will worsen those trends in the near future, according to most estimates.

Indeed, approximately 85% of import categories relevant to construction source more than one fifth of the materials from international sources, and foreign born workers represent more than 40% of California's entire construction workforce, with undocumented residents making up an estimated one quarter of that share.

So these factors clearly point to the need for more efficiency, more innovation in our construction industry.

And as we're saying here, construction is just about the only major industry that you can think of in which productivity has actually declined over time over the last several decades, where other industries, manufacturing being one, has actually consistently increased in productivity over that same time span.

So for the discussion that the committee will be having here today, it's worth just saying a couple things. First of all, we will be focusing, the committee will be focusing its time on innovations in this space of industrialized construction, which applies manufacturing methods to buildings.

So this includes an array of advanced technologies that you may have heard of, such as 3D printing or robotics, widespread use of prefabricated components. But the largest segment is factory built housing, where substantial portions of a home is built off site and installed on site.

So this category, factory built housing, includes volumetric modular, which will be a big subject of our discussion, which means entire units are basically built off site and then shipped as a box.

It also encompasses panelized construction where walls or floors can be assembled off site with integrated plumbing and electrical and so on and so forth, and then shipped as a flat pack like IKEA furniture. And it also includes manufactured housing, which is a HUD federal code that supports mobile homes.

And while that's not a space we'll be talking about as much, it's worth noting that there is actually a lot of federal policy change. There are bills both in the House and the Senate that propose to make HUD's manufactured mobile home code more usable, potentially allowing it to be used for limited multifamily in some contexts as well.

Something to keep an eye on. In Terner's review of the literature, we do find factory built housing has the potential to reduce hard costs by 10 to 25% at least under the right conditions, and can reduce construction timelines by 20 to 50%. This time construction time reduction is consistently attainable.

So to give an example, on site workers may pour the foundation at the same time as a modular factory assembles those units with the integrated wiring and ducting, while a typical project would have to wait for that foundation to be built, installed, settled, and then to build floor by floor by floor much more slowly.

However, to consistently achieve the right conditions to make factory built housing cost effective, that is a little bit more challenging and it requires the right project type and team design, standardization, aligned financing, flow of on site work.

All of that has to be working together with supporting local land use and building permit regulations to be able to allow that to happen. One example that Terner Center profiled recently is 833 Bryant, the Tahana Project in San Francisco.

We documented for that project 30% time savings and 25% cost savings compared to comparable multifamily buildings due to its use of modular, and as a couple of you have noted, factory built housing in other countries where these practices are much more the norm delivers.

So, Japan for example or Sweden, we see hundreds of thousands of homes being built this way every year with a systemic across the board 10 to 20% cost savings. It's also worth noting the factory built housing has a range of other non-cost and non-time benefits.

Improving building quality by shifting work into controlled environments, supporting safer and better working conditions by eliminating hazards, such as falling and high heat, and can make work more ergonomic, providing stable hours to workers. Collectively, these benefits do help attract a younger and more diverse workforce. Actually younger and older.

In our interviews we found that women make up 20 to 30% of the workforce of factory built housing companies compared to only 4% for on-site trades. In addition, factory built housing supports climate goals by reducing material waste and making sustainable homes more affordable in ways that are quantifiable.

However, the output of the existing factory built housing sector in California and the west, more broadly, amounts only to a few thousand units a year today, compared to 125,000 total getting built. And in California itself, there are really only a very small number of high production factories that are capable of delivering multifamily housing at scale.

Ones like volumetric metric building companies in Tracy, Harbinger, former Factory OS in Vallejo, Plant Prefab and Arvin, and maybe a dozen or so smaller or mid scale factories: US-Offsite in Redding or Sola Impact in LA are examples of those smaller factories.

Interestingly, a significant share of factory built housing for multifamily production in California is actually produced out of state.

So particularly in Idaho, as the committee members are familiar with and in some cases overseas, Idaho is the primary non-California hub for modular housing production, with some manufacturers reporting to us that as much as 90% of their output is actually going to California in certain years, but that total output regardless, all of it combined, is still very modest.

So why? Why is it so modest when costs are so high and demand is so high? Well, there's a few barriers and I want to just go through four of them. First, financing. So, our financing tools today in the marketplace are really still structured around traditional site built construction.

Factory production does require earlier design finalization and earlier financial commitments in order to reserve manufacturing capacity on the production lines. However, most financing sources are not designed to support those early deposits or progressive drawdowns until components are installed off site, forcing developers to rely on their own funds or much more expensive equity sources.

Second, building codes and design approvals are really primarily in California written for site built housing. So HCD, the state does offer a state run certification program where units can be certified to meet code at a factory.

It's a highlight actually for California, but the state gives substantial deference to local priorities requiring that that housing still be designed to meet the sometimes bespoke needs of local communities.

And sometimes those requirements of localities on the design side can functionally lead to factory built housing not being effective or cities can have subject properties to multiple rounds of design review.

So a property that might start as being very cost effective as it goes through round after round of design may end up in a place where it's no longer. Additionally, the state's building code is very prescriptive and comparatively onerous relative to other states in the nation.

And the state does not really today have a timely system for accepting alternative code changes, at least in a way that developers are actually actively using. And developers don't have a process on the ground functionally to be able to effectively appeal decisions being made at the local level.

And Purdue provide alternative methods that still achieve the same outcomes. Third, demand and pipeline uncertainty simply make it hard for any factory to be able to rely on a constant flow of purchases. So you know, a factory has to be able to give their employees work day after day after day after day.

And in a world in which housing projects are approved one at a time under various local rules and designs, and sometimes after years of piecing together financing sources, it's hard to build out that pipeline for a factory. Furthermore, market rate real estate operates cyclically. We have booms, we have busts, we have booms, we have busts again.

And all of that makes it very hard. And of course the state itself does not directly incentivize a predictable flow of factory built housing through its subsidy affordable housing programs or through its state owned land in ways that could sort of backstop the market. Lastly, system fragmentation is really a structural barrier to progress.

We have today in California very, very limited research and testing capacity to support continuous improvement in the system. We have insufficient and fragmented data collection, minimal sharing of best practice and the scarcity of research to uncover potential next steps. I think it's important to understand like real estate is not like other sectors.

We don't have a lot of consolidation where you have a big five, an Amazon or a Google that control all of the work here and can afford to invest themselves in R&D. There simply aren't deep pocketed private actors who can do this work.

So, the state really has to serve to some extent as the place where this research and this innovation originates from. And also I'd note that we are hampered. This state, in particular California, has many different governmental entities that touch factory built housing in one way or another.

On the housing side, on the code side, on workforce development, on financing. But we don't here in California really have a single individual or entity, a commission, a agency. That is the, you know, the place where all of this stuff is brought together in a fully coherent and cohesive way.

I think the good news is you will hear today and next week of lots of examples of what I would call scalable best practices that will offer solutions to many of the problems that I've outlined today, and I think I encourage you over these next two hearings to really keep in mind that factory built housing does offer a real opportunity if we can create these enabling conditions, if we can make progress on multiple different fronts all at the same time.

And it doesn't have to mean, certainly when we look at international, successful international example, it doesn't have to mean that every house is built in the factory.

It just has to mean that we get to a place where a sizable share is consistently year after year after year, where factory built methods can be a valid alternative for developers looking to avoid taking on extra root risk.

I think it means that manufacturers can plan their production knowing demand is real, that workers at least some material share have these safer, stabler year round jobs and that, ultimately, this is a way to ramp up the capacity to meet the additional housing that has to get built here in California in the years to come.

So thank you for your opportunity to share with you today. Happy to be a resource and take your questions. I'll note my colleague Tyler Poland, Special Industrial Construction, will obviously be back to chat with you at the end of your next hearing next week. Thank you.

Great, thank you. Little round of applause. I like that. Okay, let's open up to committee members for questions for either of our experts here from the Terner Center. I have a ton, but I will defer to my colleagues first. Mr. Carrillo.

Thank you for the presentation and the time for being here.

One thing that I notice is in the effort of the state to increment the number of units that we need for housing, the unhoused, and for many different reasons and different types of housing units, developers tend to be the ones that we target as far as giving them tax credits.

The financing mechanisms that you mentioned that are difficult and they have to be aligned according to the project, the size of the units, et cetera. But it's very seldom if I can remember anything that would actually incentivize cities.

For allowing multifamily or even ADUs, those type of things, other than them being able to get credits for being allocations.

I think, in my thinking, if we were able to provide cities some kind of incentive for them to be able to welcome, in this case, manufactured housing, whether it be in multifamily, even in single family with ADUs, you name it. We always hear that local governments that their local controls being taken away.

In your professional opinion, is there a way that we can explore how we could incentivize cities that would welcome this type of housing innovation?

Yeah, great question. The state does currently have a pro-housing certification program for cities in California. Those that demonstrate a bunch of actions then get on a sort of favored list for being more competitive for a range of different funding sources, some of which are non housing, so planning grants, so on and so forth.

There was historically also a housing related parks program in California which gave cities that could do a lot of permitting extra money to invest in parks. So, I think those are the kinds of things that definitely do help. But I think cities are strapped. They worry about it from a capacity perspective.

They also worry about it from a financial perspective. So offsetting some of the costs that cities take on when they give up property taxes or make available, you know, have to invest in infrastructure is critically important.

Thank you.

Ms. Wilson.

Thank you for the presentation. Very informative. Learned quite a bit just from what you were hearing.

I have a follow up question on when you're talking about the demand pipeline and the projects being moved one at a time, understanding a little bit more of how that impacts that pipeline, but also wondering when it relates to demand pipeline and system fragmentation the state's role.

Would there be any benefit to the state being able to help the factory bills by buying the units and then it being then distributed throughout the state with the different housing projects? Could that be an opportunity where that allows for solving some of the demand pipeline but also some of the system fragmentation?

So I wonder your thoughts on that. But just definitely I wanted to understand more how the cities approving projects one at a time impact the ability to go with factory built type housing.

Yeah. So factories typically want to have their entire production pipeline programmed out for ideally the next year, at least six months, so they want to know where each project is going to slot in over time.

And that means that if you're a developer and you're trying to get in line for that project, the factory is going to insist that you put real money down to guarantee that slot.

But if you are not yet approved, or if you have your entitlements but don't yet all have all of your state money, it puts you in a very difficult situation.

So somehow we need to figure out how to make that work better where you don't need so much lead time or hard money to be able to get your slot in line. And one way to do that is to give developers more certainty from an entitlements approval and financing perspective. Is that?

Yeah, that does answer what you meant when you were talking about.

Yeah, and then I would say on the second one, there's lots of models of this. And I think, you know, going back, the Federal Government made a big investment into factory built housing in the 1970s.

And you know, you look at other countries, the Sweden's and the Japan's and the UK's, there's almost always some form of state-backed, state backstop that is going to help boost the capacity. And that can take a lot of different ways.

I mean it could look like the state buying, you know, units out of a factory directly for disaster recovery.

So like just just buying directly, it could look like providing an incentive so that affordable housing developers are sort of a - share of them will, not all of them, but a share of them would always be going to to the factory built housing space over time.

Or it could look like some other kind of direct incentive to factory. I think there's a number of range of different kinds of opportunities.

One, follow up.

You mentioned that back in the 70s, we did this from a federal point of view. Where could I find more information?

Sure. It's a good question. The program's called Operation Breakthrough, and there's HUD HUD-funded off-site construction research roadmap that's easy to Google and it's a very long and extensive report, but very skimmable that runs through some of the history and a lot of the open questions.

And to your point and Ben's comments around the state potentially just buying units, I think it's a great question to keep in mind for the factory built housing company panel later, and also to say that the question then becomes like, what are we buying? What is the state buying?

Because currently, there is no way to build a unit without having a site in mind. Part of that relates to building codes. It has to be built to the specific local code. And part of that's because factories are building different things. They're using different materials.

Some are doing single-family units or ADUs, others are doing large multifamily projects. And so it's an open question for the panel later, I think that what type of units could the state purchase that would actually support factories that are serving very different markets and typologies?

Mr. Gonzales.

Thank you, Madam Chair. You were talking about R&D and the lack thereof. Is there currently any R&D happening here, and this is the first part of my question, in the state of California?

It's a lot coming down to Terner right now, which isn't to say there's a huge footprint of research in the space in California or otherwise. Currently, I have led all of our work at Terner in this space for the last five or so years.

But there is a lot more research to be done, including on this very topic and on this Committee and topics we've talked about with a lot of folks in the last few months.

But to something I'm actually going to talk about at the close of next week's hearing, I'm going to point to a little bit more specifics on I think areas for research that could be deeply supported by the state and I think it's going to be a recurring topic in a lot of the other panels. What are the open questions?

And just also to add. Sorry, I didn't mean to interrupt. Just to add to that, Mr. Gonzalez, we're working, the committee's working collaboratively with the Terner Center and Terner Labs.

We've conducted a ton of interviews, and we're kind of co-producing a white paper that's going to be released that will hopefully be a roadmap to help answer some of the questions and figure out more kind of concrete policy proposals that is happening soon and being worked on right now, but with enough time for us to do bills from it.

So, there will be ample, I think, work for all of us to tackle here in the coming weeks on this with some actual research.

I mean, this is one of the rare places where there is pretty strong alignment between the feds are doing and what California is doing. And there could be some federal money that becomes available in the next couple of years to support research in this area, but it's not on the ground yet.

There are also a couple of the biggest real estate players, think like Lennar Homes or Gensler, a couple of other architecture firms that may have one or two people that are sort of in a sort of researchy kind of space. But even there, it's very, very small and subscale.

And I'll just say broadly too, really quickly, that it's not specific to innovative construction methods. Really, the building industry writ large suffers from a huge void of research. There's not a lot of reliable data on why costs have risen or what specific features have contributed to that, how that differs regionally or across trades.

There's massive voids in what is well known and well proven in the building industry writ large.

The second piece to this puzzle is it's being done somewhere, right? And someone's doing it at a massive level. We're not here in California. You've already identified some of the challenges that are going on. There's the building codes piece. That in itself is a significant portion of that.

I think when we look at things like the NEC, the electrical code. That is pretty simple because code is code when it comes to electrical, with respect to a residential or commercial facility. As an electrician.

My concern is, or my thought is that as we're going down this pipe, are we including, like the state building trades, in this conversation? So that way we don't get too far ahead, and it's like, let's play catch-up. Right? Is that taking place?

Yes. I mean, I think we do have representatives that are going to be speaking to the Committee. Certainly we in our work are interviewing the Building Trades Members and trying to get their input and learn from work that they're seeing as being successful in this space.

And next week's panel, both the Building Trades and the Carpenter's Union will be at the panel. So, you're welcome to attend that one as well. Great. I think we're. Yes, exactly. Ms. Ransom, Ms. Quirk-Silva, and Mr. Gonzalez.

All right, well, thank you, Mr. Metcalf, for the presentation. I have so many questions, but I'm going to try to just stick to a couple of them really quickly. As we are talking about research and development, I'm wondering really what it is that we want to address. What's the priority to address?

Like, do we need to address, you know, have data that says that this type of home could be just as a sustainable or just as safe? Like, what is it that we need to be able to show in order to generate, you know, more energy and more interest in incentivizing? That's kind of like my first question. I'll start with that one.

Yeah, I mean Tyler said this. We just don't actually have good data on construction costs that are freely available.

So, some of the best work that's been done, I mentioned one comparing Texas and Colorado was only possible because the researcher in that case worked with a single developer who was building literally in all three states the same product and could actually compare them together.

But now developers don't have a good way to validate that this factory-built housing will result in a cheaper product, other than going off anecdotal conversation. So, we need to build a body of evidence that can sort of prove out. And I think it's tricky too because there are, you know, we wouldn't.

There are many different factories doing this in slightly different kinds of ways too. And we wouldn't want to suggest that either all of them are great or that one is necessarily better. But we need to figure out a way to help identify if you're going to do this kind of innovative work, what's the pathway that's most likely to give you what you need.

So, we need to have a better infrastructure to be measuring, documenting, and evaluating that progress over time if we go down this path.

Got it. Thank you. Sounds like potentially a pilot of some sort where you can like look at, you know, apples to apples would be helpful. I don't know, I'm just thinking out loud here.

But my, I guess my next question would be in regards to establishing a standard or if there is kind of a standard because as we think about, you know, being able to incentivize and also hearing you talk about some of the delays that come from things like entitlements and things like that, that's a Problem that's already existing in traditional, right?

But as we saw, the ability to kind of come up with some uniform standards as we look to rebuild areas that have been impacted by wildfires. That's an opportunity for us to apply that approach potentially.

Is that something that you think would be helpful to kind of set a standard and have a uniform plan that could be expedited? Is that an opportunity?.

For sure. I mean, I think we're. So, I mentioned briefly one example of a project that we had studied very closely in San Francisco. Much of its success there is attributable to the fact that it was operating in the context of a, what's called, ministerial or by right, local design approval.

So, it was completely clear up front to the developer what the rules of engagement were and what was expected them to be able to build. The developer optimized for that in their site selection. Literally like that.

They went and found a site because they knew it would fit what they wanted to build and they knew they'd be allowed to build it and then they proceeded forward. So I think we need more of that kind of regulatory certainty. And the other challenge is on the building code side. So building code can be very complicated.

The state is approving what's inside the boxes, but subject to the requirements of localities, the locals are then inspecting the connection points and the site. So, I think there's opportunities there to make that simpler, easier, cleaner, and to reduce some of the areas where we currently have some overlap and conflict.

Okay, so you just answered my next question, which is building codes, having alignment, or maybe it sounds like having your own kind of carve out. So you kind of answered my next question.

There isn't, I mean there are lots of good examples in California of this being done well. The challenge is how to get them to scale.

So for example, in the LA County area over the last few months, there's been an amazing effort to bring together some of the local jurisdictions in the county to do a shared building plan concept that can be sort of pre-approved. So, like that's a great model. Okay.

There's a process that has already been worked through with the locals in the state to come up with some pre-approved designs that will actually work. So, I think we can analogize from that. The question is, how do we do that everywhere and for all kinds of factory-built housing?

Okay, sounds like we just solved some of the problems.

Sounds easy.

Problem solved. Great. Good job, everyone.

Awesome. Thank you for your help.

Great. Ms. Quirk-Silva.

Thank you. A lot to unpack in your initial statements, but really, when we're talking about traditional construction to now, what could be in the future, and we compare ultimately the price of building traditional versus factory.

I think one of the things that continues to be very difficult conversation for many legislators is the labor in the traditional market versus what this could look like in factory. You did state that according to your numbers it is less expensive to build these types of units. Pinning down a number on that, I'll just give the.

I'm not going to ask you to do that, but I'll say from the El Monte visit that I just went on less than a month ago. And these were not for family units. These were more homeless for formerly homeless individuals. And that base price was about 300,000, including land and everything.

And I know that we've heard many politicians say things like if I'm elected, I'm going to build 300,000 units of permanent supporter at much less rate than what we're building.

But I do think that the cost point is a very important part of this conversation because we often get told we've spent billions of dollars on housing, and we have very little to show for it. And that's real, particularly when we're looking at the affordable units.

So, if you could speak to that, because as we know, this conversation about labor is not going away anytime soon. It's a difficult conversation. It's probably going to be here long after I'm here. But speaking to that.

And then last year we also had a Bill that was presented and signed, I believe, but somebody can correct me here, went through housing and it was on building codes that we would have a stay on codes for I believe six years. So how would that affect what we're talking about?

Which could very well be code changes to align what we are hoping to do. So those two things, price affordability and codes.

Yeah, I mean, the price one is a hard one because we don't actually consistently see cost savings in factory-built housing approaches. Contrary to everything I just said, it's not necessarily the consequence that you will achieve direct cost savings. It does require certain things to be in place.

You have to have a development and design team, you have to have financing, you have to have favorable regulatory environment. When those pieces are all there, then however, we do see the cost savings, and we tend to see them in an amount of. We see typically 10 to 25% of the project.

So, is 20% savings going to solve the affordable housing crisis on its own? No, but you know, if you're going to anyways be investing, you know, billions of dollars into it, let's see if we can get up 5 units instead of 4 for every money that, whatever money we can put on the table.

And I would say in any scenario, we are seeing time benefits. So projects are getting done faster. And that in itself does result in financial savings because your cost of capital is less, because you have less bank debt and equity that's outstanding for a shorter period of time.

And I'll highlight too on the cost piece, but also to the other benefits and actually mostly echoing what Assemblymember Hadwick said before she had to leave was even in the scenario that it is the same cost or even at a slight expense compared to traditionally built projects in certain regions, writing included, it's purely just providing capacity where there is not local, there are not local builders capable of producing the homes that are needed to meet demand.

So, even in the scenario and in certain regions or site conditions or project logistics where it is not saving 10 to 20%, it's still providing a benefit of raw capacity that the existing building industry is not and cannot in the near future.

On your second question, we don't have a single building code in California. We have functionally, you know, 500 different building codes that have accreted over time, with each city having their own requirements of literally, you know, what goes into the wood and the panels and the structural and so on and so forth.

The freeze mitigates some of that variability by putting a blocker for locals to add more. Unless there's a direct health and safety requirement, it doesn't in and of itself, solve the problem that we have in Sacramento today, a factory-built certification program.

But the factory built homes that are being certified by the state still need to meet those local requirements, which may be quite different on the ground. Now, not every community has that varies. Some cities are hugely different local codes with local amendments and some aren't.

But it's an issue that makes it hard for factories to be able to effectively turn their lines and for developers to be able to effectively make this product cancel.

Any other questions? We've also been joined by Mr. Hoover, Mr. Haney, our Housing Chair. Any other questions from Committee Members? Okay. Well, thank you all so much for coming.

My pleasure. Thank you.

We will have more questions, I assure you.

See you next week.

Our next panel are developers who have a lot of fluency in this space. If you guys want to step up to the hot seat and I'll let you all self introduce is probably the best way to do that.

Yeah. Why don't we start with Mr. Roope? You can go first, and I believe you have AV here.

Would you like me to present first or just do a quick introduction?

Why don't you do your introduction when you present and everyone can hear your introductions when you present.

Well, thank you, Madam Chair, and thank you, committee members. It's a privilege to be here today with you. My name is Caleb Roope. I'm the CEO of the Pacific Companies. And then for click and slides, will you just do that on your own? Okay. Great. This is available to you guys to take with you, but our company was founded in 1998.

We're really-- we're affordable housing developers first and foremost. We've been around for 27 years and got about 26,000 units that we put on the ground, but also done schools and commercial projects and things like that, about 575 employees.

I think one of the things that makes us a little bit different is we actually own factories as well as being a developer. So, next slide. Our history in modular is really we started in the single-family space in 2003 and did our first multi-family the next year, did a school in 2015. These are all modular, and then opened our first factory in 2020 and then took an interest in that Tracy factory that's been mentioned recently.

But to date, total, we've been involved in 51 modular projects representing about 6,700 units. So-- and if you want to flick the next slide, that's just a shot of the factory. Some of you on the committee were able to go visit that factory. Thank you for being there. Next slide. Just, you can kind of click through every few seconds. There's some inside shots of the automation and whatnot.

And, you know, this little section I just want to do quickly on modular building process to make sure that you guys are clear, but, like, these factory units are built in a factory, they're shipped to a job site, they're assembled, and then there's still quite a bit of work.

About 40% of the of the job is built in the factory. The rest is on-site work. That's kind of our average, and then you get a completed product. So, you know, kind of to the labor question, there's still actually quite a bit of labor that goes into these projects on site. Next slide.

This is just meant to show you pictures of kind of what it looks like inside. You can just kind of click through these. They're just fine. There's work to be done. Here's an example of some of the on-site work that needs to be done between siding and corridors and things like that.

So this gives you a feel. And then, you can kind of go through these every five seconds, but this is just some renderings, some shots, some actual project photos of local projects to the Bay Area and the State of California.

Just kind of gives you a feel for the quality you see and the opportunities there are in this space to build really great product. And this is an example actually of one in Mammoth Lakes, California, which is another reason you build in these used modular in these sort of high-cost, limited building season environments.

And we've done many successful projects in the mountain region of the western U.S. and then a couple other shots there. So kind of finally, this is one under construction in Hayward, just to kind of let you guys see a little bit of what's happening, you know, on the ground when these projects are going together.

We can set about 15 of these boxes a day, and so a project like this, it's 170 plus units; will be on the ground as a full building within essentially 20 days. So it moves that quickly. So why you do this: reduces costs. We average about 20% on our end over conventional.

We save on the schedule, but product quality is better, worker safety is better. We can build in difficult climates and we can address labor shortages. And then this next little slide is just an example of a project we did. We had a traditional and modular going up together.

And you can see these were two affordable housing projects built about the same time in 2021. So we saved about 23% on our modular building, and that was a difference between needing $18 million in public subsidy or not. So that was really the delta that made this thing work.

And then you kind of-- up in Boise, we talked a little bit about this, but just had a few slides on some of the things that we think could be done in these different categories. And so how do you incentivize the adoption of modular technology?

Well, to me it's always going to be about how does-- you know, how does that adoption save the state money? How does it produce more housing? And so to the extent you can reduce costs, perhaps you can set aside your state affordable housing funding.

Could you exempt on-site fabric or off-site fabrication from sales taxes and things like that, like they do in Hawaii? Here's one that I love, which is not really my space I work in, but I think to your question, how do you incentivize local government?

What if you give them 2x housing credit for doing homeownership projects, you know, that are affordable using off-site fabrication? So much of the time, you know, we target and we do the projects at the lower end and then, of course, the market does the market, but that missing middle is where it's at a lot of times.

But local jurisdictions are not incentivized to build at lower densities because it messes up their Housing Element. So what if they get these for-sale projects to be built and actually have them get the benefits of that, of constructing in that way?

The next slide is just, you know, how do you make this a factory-friendly environment? I think one way is to, you know, create a property tax exemption if you're building a certain percentage of a unit is affordable in a factory, make state-owned sites available, enhance and streamline the manufacturing credit system and state credit system that exists in our system in California. And then how about a CEQA exemption? And then finally to close it out, to stay on schedule for time, how do we make volumetric modular easier to use?

Allow builders to use third-party inspectors for both the factory work and the on-site work. That would be a huge difference. Prohibit those local variations in building codes, allow state funding to draw for those factory deposits, and then, kind of one that's my personal one, when you run a box over basically 15 feet wide, you got to have the CHP, California Highway Patrol, escort you.

Well, not in Nevada, not in Oregon, not in Idaho. Only when you hit the California border does that happen. So it limits what kind of size of a building you can build, and that is a deterrent to maybe using it on the market side. So I'll stop there. Thank you guys very much, and I'll turn it over to my colleagues.

Thank you.

It's like a fire hose of stuff, so--

Yeah, exactly. Yeah. It's great. Thank you.

Staying on time, though.

We gave them strict audience. We gave everyone strict orders, five minutes only, so do you want to begin? Yeah.

Great. Hi everyone. I'm Lois Kim, and I am with Mutual Housing California, a nonprofit affordable housing developer, property manager, and resident services provider with over 25 communities in Northern California. We are based in Sacramento. Currently, I was with the California-- or sorry. Previously, I was with the-- next slide, please.

Previously, I was with the California Strategic Growth Council where I developed and launched the first factory-built housing pre-development pilot program. Mutual Housing is proud of our growing portfolio of over 1,500 units in Northern California and recognizes that each unit of housing helps support and stabilize people in need.

Yet, we also see the reality. Housing production has not kept pace with demand, and affordable housing in particular has only become more expensive to build and manage. As an industry, we must change to meet this challenging demand. Next slide, please.

In 2024, with the challenge of housing demand in mind, we committed a pipeline of over five multi-family projects to one factory, one general contractor, and one architect. This includes over 660 units across six jurisdictions. The projects will all be zero net energy. Our first project is named Fairview Terrace and will begin construction in March in Stockton.

To do this, we had three separate RFPs to first select a factory, then an architect GC, then an architect. This structure inverts typical development timing and prioritizes scalable and a replicable factory building product. Next slide, please.

While Fairview Terrace is Mutual's first factory-built housing project, we went all in because we understand the benefits of factory-built housing are best realized through scale. Our pipeline of projects enables us to reduce construction links by 40% and total development costs by at least 10% by streamlining design, production, and constructability.

This makes our projects more competitive in financing applications, thus bringing housing to market faster and more cost-effective. We also leveraged our scale to negotiate with partners early on, enabling us to bypass barriers to affordable housing developers-- enabling us to bypass barriers affordable housing developers typically face like high pre-development costs and early payments to factories.

Our structure enables our factory, GC, and architects to create efficiencies and accelerate learnings across projects. The predictable pipeline also ensures stability and encourages deeper investment in innovation for all partners both internally in their organization and externally on project design and production.

As this group is well aware, while factory-built housing has the potential to be cheaper and faster, it is often constrained by supply and demand. In California, demand is limited by the fears associated with modular construction, like water damage and underperforming factories.

In affordable housing, developers, lenders, investors, and other key partners who can make or break a project are wary and risk-averse. However, we know that this does not represent the majority of modular projects. Demand for factory-built housing is also constrained by the traditional developer process, as factory-built housing decreases the developers' control, changes the timeline, and introduces new designs, permitting paths and more.

In affordable housing, this is exasperated by the rigid timelines with their financing and little availability of flexible pre-development funding. To address these concerns, the state can demonstrate confidence and incentivize utilization of innovative construction.

This can be done by creating explicit funding for factory-built housing projects or by implementing friendly policies in existing funds like creating more flexibility in the timing of funding and extra points for projects utilizing factory-built housing. In affordable housing, everything is based on competitiveness. If the policy changes even for just one point, projects will follow.

By increasing demand, supply will follow as it addresses a key challenge for factories, consistent pipelines. We are also interested in the solutions raised earlier on how state and local supply can can procure units and sell those or RFP those to developers.

However, through our RFP process to select a factory, we found that factories in California that produce multi-family housing did not have consistent track records or competitive pricing. While the factories in California have great potential, they lack the experience we needed to commit over five projects at once.

After months of due diligence and stakeholder engagement, we ultimately selected a factory in Idaho. Overall, Mutual is demonstrating that innovative construction can dramatically reduce the time and cost of delivering zero net energy affordable housing while setting a scalable standard for California's housing solutions.

Factory-built housing enables us to develop and provide services for over 660 apartment homes in six local jurisdictions and transform currently unused land into thriving communities for low-income households. We believe our strategy greatly aligns with the committee's priorities on reducing construction costs for innovative methods to amplify housing demand. We're very excited to be here today and appreciate your time. Thank you.

Thank you.

Can you guys hear me okay?

Pull a little bit closer to you. There you go.

Okay. Now better?

Think so. Yep.

Okay. Good afternoon, Senators. Thank you for inviting me here. Thank you, Caleb, for the stopwatch that I saw you put on, so I'll put it on too because I could talk for hours if it wasn't for this five-minute stopwatch here. So thank you for leading the way.

You're in a room full of politicians. We know the feelings.

You know the feeling. I have a lot to say. So I'm not a-- I'm not a physicist, so I can't tell you how to put a man on the moon. I'm not an AI researcher, so I can't talk about AGI and when it's going to come here. But I am an entrepreneur who knows how to build things, and I can tell you this. California's housing crisis is a solvable problem. I think Senator Papan-- am I saying your name correct?

You said my name correct and you improved my <inaudible>.

We're Assembly Members. Yeah.

Assembly, sorry. Work in progress. Anyways, I think you mentioned that there's 3,000-- there's 3,000 homes when you were-- 3,000 homes that were approved, and out of those 3,000 homes that were approved, how many were built?

They haven't been built.

They haven't been built, and the reason why they haven't been built is we've improved planning significantly, but with all the improvements that we've made in planning, it just costs too much to build. That's the bottom-line problem today, and it's a solvable problem. So my name is Danny Haber, and I am the co -founder and CEO of OWOW, and our mission is simple.

We want to make housing as accessible as running water. And what I'm about to say to you guys today might seem a little bit outrageous, but I'm going to talk to you, and I'm going to back it up with a-- we just completed a $100 million mass timber tower in Oakland.

And this timber tower that we finished, it's all built out of wood instead of concrete. It's 19 stories tall. We built it at a 35% less cost than market and a 35% faster schedule. Completed, done, can back it all up with subcontractor pricing. And we're just getting started.

So today in the Bay Area, using affordable housing as a metric, it's about 750,000 per home cost if you pull up the 4% LIHTC program. But if you look at the urban info mid-rise to high-rise, it's closer to 900,000 plus, or if you see some of the new high-rises that are affordable that are being built in San Francisco, it's about 1.2 million plus.

We're going to break ground at OWOW on an affordable housing site in Oakland. It's 11 stories, 284 units. We're at $325,000 per door. All in. It's an 11-story building, it's at a cost that's 50% less than market plus, and with the same public dollars, we're able to build two or three homes for the same amount of dollars. And unlike the cost savings traditionally, our cost can compound. The more we can build, the lower our cost can go.

Okay. So why and how? Well we're treating these buildings like products, products that are repeatable, standardized. We're componentizing everything. Similar to what SpaceX or Nvidia are doing in the tech world, we're doing it in the construction world. So what we're doing is we're linking design to factory production, to transportation, to on-site insulation.

And the problem is if we miss one of those gaps, we're going to take a huge cost hit. So we're really looking at from step one of input to insight on site install. How do we reduce cost every single step of the way?

And we're starting with design first. So number one, for a standardized design, we have six repeatable floor plans from a studio to a three-bedroom family unit. They can stretch in length but not width because we have a preset structural grid, and that way we can mix and match any type of unit.

We can make them longer if it's a specific site condition or a city that wants larger units, but we don't break a preset structural system that could work for a high-rise or a mid-rise. This helps bring the benefits of the industrial revolution, which comes from 100 years back, into multi-family housing today.

Second, we're doing componentized construction. So we're not doing modular construction. It's flat-packed components. Each one of the components we're designing and engineering, they have a 30% plus cost savings and a 30% plus schedule savings. And we're not just building components that save time. Our key is cost. We're constantly looking at cost. Okay. Finally, installation.

We're not building proprietary, unique installation. We're keeping the installation very simple and very easy so any subcontractor that knows construction can do the install, which opens up an entire marketplace where we no longer need specialized subcontractors to do the work, which brings down significant costs on install. Okay, so three quick examples for you guys.

So one: we're using mass timber. Mass timber we can install an entire floor in one day. We can go from traditionally, where nobody builds higher than eight stories due to the cost increase, and now we can start doing nine to 28-story buildings at a lower cost than an eight-story building.

We're 30% less cost on concrete and far more sustainable using mass timber. We could tour you around buildings we built. We have our own prefabricated exterior walls that we're designing and engineering. These prefabricated exterior walls, they're 9.5 high, 35 feet long.

They're 75% cheaper than a kern wall and they're 80% lower cost to install on a kern wall. We have our own prefabricated steel seismic system. It's an X-brace that we're making in a factory. Everything is shop-welded and sight-bolted.

We're 30% lower cost on our lateral system compared to concrete, and we can install in one day three floors compared to traditional concrete, where you install two and a half floors for one day. So today our cost is $325,000 per home, but we think with some improvements and some help from Sacramento, we can get to $200,000 per home. And it looks like I'm out of time, so I don't have ideas for the solutions, but I do have three quick things. So 10 seconds--

Go for it. Yes.

One--

Chair's prerogative. I-- yes.

Thank you. All right, so one outdated building code. I could go on and on, but just one example is we're using cast iron for all the vents and drains. If we move from cast iron to ABS, that alone on a 250 unit product saves $1 million, and there's hundreds of these out there.

If we go from cast iron to ABS to plastic, it's a million dollar plus savings on one project alone. This is an example, but there's hundreds of these examples of these building codes that just don't make any sense at all. That's number one. Number two, there's monopolistic fees that we're paying to different local jurisdictions and utilities.

One example is while we get very fair pricing from PG&E for local water utility hookups, we're paying 10,000 plus dollars per unit, which means on an affordable housing development, we're spending over $2.85 million when the cost should be no more than $500,000.

Number three, if we are putting money into R&D and we're taking risks, we're not getting any significant benefits for innovation ourselves other than the ability to do projects. So there's concepts that could come from the State of California.

One quick idea is what if there is a state-backed guarantee on permanent debt? And that could help lower the permanent loan costs, and a 50 basis points, a half a percent decrease in permanent loan interest on a 250 unit project brings us $3 million savings to the overall budget.

So different incentive ideas would be the third. So, bottom line, removing unnecessary regulation, preventing monopolistic fee pricing, and rewarding innovations with different ideas from the state that don't cost taxpayers any additional dollars. Thank you.

Thank you. Our last presenter, and then we'll open it up for questions from committee members.

Thank you, Madam Chair. Thank you. Danny for President. I too, I can talk about my lane for hours, and so I'm going to just do my best to stick to my script because I know it's within that five-minute window. My name's Don Ajamian. I'm owner and founder of Emergent Construction.

I've been a licensed general contractor here in California since 1985. I entered the 3D concrete printing space after the 2018 Carr Fire that we had up in Redding because it-- as a contractor, 3D printing seemed like it was going to address all the pain points that I was facing in the construction industry.

Like we've all talked about, the shortage of skilled labor, I figured that 3D printing with the automation could help address that by reducing the number of people needed on a site. Also, it offers an opportunity to create beautiful designs economically and also inherently delivers disaster-resistant and climate-resilient structures.

Emergent was the first company to gain Building Code approval in California and we've since built seven homes statewide and are currently completing a project up in Redding called Haven Humane Society. It'll be California's first commercial 3D printed building. We're about 80% complete with that one.

And thus far, our 3D printing solution has gained Building Code acceptance in five separate jurisdictions here in California. In February, we plan to break ground on an approved 28,000 square foot rehab facility in Redding using Prop 1 BHCP funds. This will be the largest 3D-printed structure in the country this far.

Additionally, we've got several Altadena Fire rebuilds under contract. Our hope is to begin construction on those homes very soon. You can go to the next slide. Just like a small desktop 3D printer, our system utilizes computer code to follow a sequence to extrude the printer ink. In our case, the ink is concrete.

This material makes a structure naturally fire resistant and energy efficient. This method of building makes a structure naturally organic looking and in my opinion, aesthetically pleasing. The software that runs this eliminates on-site errors since print files are generated directly from the files created by our California licensed architects and engineers.

Although I currently live in Redding, I was born and raised in Altadena. Lived the first half of my life there. Like many, I was devastated by the Eaton Fire that took so many structures. In fact, three of the homes that I lived in as a child burned to the ground in that fire last year.

As a California licensed contractor of 40 years and one of but a few that are innovating in the concrete 3D printing space, I knew that I could offer the fire survivors of Altadena a strong option for rebuilding responsibly. Stated earlier, we currently have several clients in Altadena under contract.

Every home we've designed for these clients is unique and designed based on their needs and special requests. Several of the homes have already been submitted to LA County Building Department, the first of which was submitted in June of last year. One of the challenges we face is that the current Building Codes simply haven't caught up to this new building method.

Without specific building regulations in the Building Code dedicated to 3D concrete printing, we're forced to design within current codes that do not have the capacity to take advantage of the many structural benefits of this building method, thus creating redundant structural systems that are unnecessary and expensive and substantially extend the construction process.

Higher costs and longer build times only serve to delay the healing and recovery process. So what do we do in the meantime? How can we leverage this construction technology to address the current need? One of the things I learned as we re-entered the market down in Altadena is that LA County implemented a self-certification program for having plans approved.

The idea was if you build it, you know, if you design it with a licensed architect or a licensed engineer, you just stamp and certify that it's per code and they will issue the permit.

My request is that 3D concrete printing be allowed to participate in this program since we already incorporate California licensed architects, structural engineers, and builders. By approving this request, the county would divert risk by assigning professional accountability to licensed design professionals and third-party testing agencies.

The Eaton and Palisades Fire ignited one year ago tomorrow, specifically, and took over 16,000 structures before those fires were extinguished. Rebuilding these communities is a task that will require responsible creativity. The automation of concrete 3D printing checks several important boxes.

It leverages a diminishing workforce by automating much of the construction process, it truly is building back better with a structure of concrete as opposed to wood--sorry--it ensures quality and structural integrity by precisely executing the design intents of the licensed design professionals, it delivers beautifully designed structures that are normally reserved for the high-end custom market, and it trains a new tech workforce in the construction methods of tomorrow while building real homes for real people.

Go to the last slide. Necessity is often the mother of invention. The Carr Fire of 2018 caused me to enter the concrete 3D printing space. Now, seven years later, we have the wonderful opportunity to leverage our gained knowledge and experience to deploy this technology where it's needed the most in disaster recovery as well as the greater housing needs of California. Thank you for your time.

Thank you. Good job, everyone.

Thank you.

Let's open it up to members of the committee. We'll start with Mr.--sorry--Ms. Papan and then Ms. Ransom.

Well, thank you so much for the presentations. They were complete and quick. Unusual in this building, so-- but I do have some questions. Well, first of all, I like the idea about some sort of incentive for ownership. So I come from suburbia, and not adverse to infill, but it would be great to have some ownership that goes along with it because that obviously improves generational wealth and that's something I definitely, you know, am honed.

So I appreciate-- I don't know whether two times the housing allotment would be palatable for some folk, but I'm intrigued by it, so, not a question, just a comment. But I do have a question for you, Mr. Haber, because there were a couple of things I didn't follow. I thought if you went above five stories, you had to have steel. Did I-- am I-- like, is there a theory?

There's a new technology out there, not new for the world, but new for California. Was approved in the 2021 California Building Code, and it's called mass timber. It's a type of for-construction. And basically this new Building Code change allows you to go up to 270 feet in height with wood. So you could now build full on 27, 28-story towers out of wood.

And that's because, what? The wood is considered--

It's basically-- it's similar to a glulam. It's pressed and glued together in a perpendicular fashion. It's engineered wood.

So you're using denser wood.

Right. And it's been around in Europe for years, it's been around in Canada for years, and now it's approved in about half the states in the country.

Okay, fair enough. And so I also liked what you said about how you may not be able to go wider, but you can go longer to accommodate three bedrooms and whatnot, which again accommodates families because it's not only that we need studio apartments, you know what I mean? So I was very pleased to hear that part of it. And so-- but I did have one question because you went very quickly, and I appreciate that, but on the--

I still was over time, though.

You're all good. Okay. And that was-- I think you said something about low-interest loans from the state to back up the purchase. And we brought this up on the trip as well. So something about the--and I kind of thought the same thing--something about the full faith and credit of the State of California perhaps could back up the purchase in your line of work too. And thank you for your hospitality, by the way, when we're in Idaho.

But the backup, the purchase of the materials, because there's a sufficient cash outlay when you're buying those materials, and a business can't absorb all of it, so if you have the backup of the good faith and full credit of the State of California, at least for the purchase of materials, would that be helpful, and is that what you were talking about?

I was talking about something a little bit different.

Okay.

In terms of purchasing materials, we're doing prefab, but we've got the time, the lead time down where it's not a significant problem for us. It's only an issue about a month or two before construction starts.

I was saying that there's a significant-- a significant part of the cost is the permanent loan interest rate, and if the permanent loan interest rate goes up, it makes--no matter how low your costs are--it makes building new housing impractical.

So if there's a way for the State of California to basically charge a fee, take a percent of profits, charge a tax, however it is, but if the state of California can charge some sort of fee or take some of our profits and give us some guarantee that will help lower our permanent loan interest rates, just by a half a percent decrease in interest rate going from a 6% permanent interest rate loan to a 5.5% on a 250 unit project will save $3 million.

No question. Okay. I got it. So you were talking about, you're in the marketplace doing conventional borrowing, but how can we help with that conventional borrowing?

Correct. And I think it's way that will save 5% of the cost, up to 5%, but if you guys charge a fee, it could be something that not only doesn't cost anything but you guys can make money from it too.

Right. And self-perpetuating.

Correct.

Fascinating. Thank you.

And I said you guys, but really it's us because we're all taxpayers here.

No question.

Thank you. Ms. Ransom.

I got questions for everybody, so get ready. Thank you. Thank you all for the great presentations. I want to start with Emergent. I don't want to butcher your last name, so I'm not going to do that, but you mentioned kind of the fire, the 2018, and so it's been about, what, seven years or so?

I love demonstration projects. How many successful projects have you been able to complete? And then also, do you have a better picture? Because that one that you showed at the end, I was like-- I wanted to see, like the-- what's possible.

So I'm just wondering if you can kind of show us like what's possible based on the work that you've done because one of the selling points that you made is, like, the ability to have these licensed architects and these folks come in, and then I was looking at the picture, like, give me something. So, can you help me with those questions?

Yeah, for sure. Yeah. So I have a handout that I can give you. I had a much bigger presentation and Steve had me really-- hey, Don, this ain't five minutes. So-- but I can give you-- I've got hard copies that I can give whoever wants, and it does have some of that. Certainly our website shows many more pictures of what's possible, and really that is part of the beauty of it.

But we have-- to date, we have built six homes up in Redding that people are living in and one down in the LA area, down in LA City at Burbank, at Woodbury University, and we are just now finishing about a 4,000 square foot overflow for an animal shelter.

What happens is we have these big fires and people have to evacuate and they have places for them to go, but there's no place for their pets to go, and that's what this building is. It's not a, we build it and they will come. It is just for an emergency overflow and they were using some fire settlement money to build that with, and so that's the last one we're doing right now.

Got it. And so I guess the challenge is-- because in that time frame, you probably wanted to build more. So are the things-- are there additional challenges that you did not mention that stopped you from building more than six homes through this?

Yeah. Is there-- you-- I know you mentioned some of the challenges already. Do you think-- is there anything else that we should know?

To date?

Well, Building Code's a big part of it, and, you know, generally speaking, we've been in the single-family detached housing market, and generally speaking, that is the biggest investment a person will make for the most part. And so pulling the trigger on something that's viewed as new, it's a slow acceptance, I guess I would say. So the more we do, the more accepted it's becoming.

Got it. Okay. And I think that's kind of what we talked-- thought about in the last panel. Thank you for those answers.

Of course.

I'm going to move over to Roope. Roope? Did I say that wrong?

Did great. Did great.

Gotcha. Thank you, thank you. Okay. So did you take over the Katerra? Was it originally the Katerra, then the Volumetric and-- is that-- that's the same one?

Yeah, that's the same facility. Not when Katerra had it we took over, but we-- another company came in and we then took an interest and we bought that factory from that company, and then they stayed on as partners with us.

That just happened at the beginning of the year.

Okay.

Okay. So for awareness and why I'm asking the question, I was-- I'm from the City of Tracy, served in local government there, was there for that on the Planning Commission, City Council, and it was like a really-- like, we were really looking forward to that being able to kind of, like, move the needs, kind of like what we're talking about right here in this committee.

And so I'm just kind of wondering, kind of seeing the challenges, is it based on kind of communities' acceptance of this or is this part of the broader concerns that there haven't been able to-- you know, I know the company originally had some challenges. Are those challenges based on community acceptance or is it about the statewide challenges that we're talking about today?

And the reason I'm asking is because I know that there was a lot of excitement, but then there was also a lot of Not In My Community type people were really concerned about, like, what it was going to look like.

So I want to know what stopped those companies prior to you taking over from being successful, if it was community will and partnership or if it was just all of the things that we're talking about today.

I think it's all the things you're talking about today. I mean, we haven't found local government and local communities to be a significant barrier any more than, you know, like modular versus traditional. It really isn't the means and methods of how you're building. The plant in Tracy really needed operating capital.

That was the main value we brought as well as a steady pipeline. When we founded the factory in Idaho, one of the values we brought was a steady stream of business and reliable stream of business, and so that that's kept that factory in great shape. The Tracy plant has never had that.

It's always had customer to customer to customer and then the unreliability of getting financing and market changes and stuff. Factories need stability. You know, it's one of the things we talked about. So that's what we bring to that as well as some capital to help stabilize the operating structure, and so now it's off and running and going to be-- it's set to be profitable-- will be profitable from last year. And this year's off to a good start, so it's doing well and it's building one of our projects here in the Bay Area.

Great. Thank you for that.

All right. Now for the most interesting thing to get into, and that's going to be for Mr. Haber. You'd mentioned, you know, some of the-- basically you had a number that just kind of caught my attention. You'd mentioned that you would be able to bring a project from, like, 325,000 down to 200,000, but based on local fees.

Yeah.

And I just kind of wanted to know, like, are these the local fees that-- are you talking about-- are there some, you know, optional local fees? I just want to kind of get into that because I know-- I don't know about other communities, but I know for the most part we're trying to-- in local government, you want to capture what you're going to spend and not, you know, have government-- other folks pay for improvements. So I'm just-- that's such a large, you know, savings.

I really wanted to kind of dig into that so that we can see if there's a policy response that maybe we need to come up with that would compel, you know, movement. That's a huge number.

Great question, because-- I'm sorry. Great question because I missed a step, which is, we're breaking ground at 325. It's kind of tough to look at you while you ask the question, but I'm going this way, so I'm gonna go look at you. So we're breaking ground at 325, right?

The market for urban infill, let's take Oakland as an example, because that's where this project is, would be closer to 800,000 plus. Now, we think-- this is using a higher land cost that we purchased a few years back.

So we think that the actual cost, with a lower land basis, number one, and some improvements that we can make at OWOW, we think we can get to 250. So right now we're at 325 with a lower land basis using today's market and some improvements at OWOW, we think we can go from 325 to 250.

We think that last jump from 250 to 200 could be done based upon some of the items that I mentioned. So it might be the authority having jurisdiction, utility hookup fees, which are 10,000 per door, or much more significant than that, it is the outdated Building Codes that in the hundreds can be fixed.

And it is in plumbing, it's in electrical, it's-- you name it, there's something there, and I think out of everything we're talking about, that would be the biggest opportunity is to go line item by line item through the thousands of Building Codes and say, hey, does that make sense today given all the different changes and improvements in the way society is? And we think that that outdated Building Code would probably bring somewhere between a 10 to 15% savings just by itself.

Okay, and in regards to like, hookups, water hookups, utility hookups, are they charging-- in your experience, are they subjective and charging more than it actually costs to deliver the service or?

They're giving a flat fee on a per-unit cost.

Okay.

They're not giving a fee that is based upon something of actual usage. PG&E, as an example, figures out how much electricity you're using, what the infrastructure upgrade needs to be, and the incoming revenue that's going to come in, and they subtract it. For, let's say, a utility hookup, they just charge a flat fee with no explanation how they come up with their number other than the fact that you need water for people to live in a building.

Got it. Thank you for your responses. Okay, thank you. And Ms. Kim, I don't have any questions for you. Thank you.

Other questions by committee members? One thing I wanted, it does seem like we keep coming back to the pipeline being a key issue, so we want to think creatively around that. One thing I wanted to also ask the panel, as I've learned about this, I think part of the constituency here for buy-in is the developer community.

And when you see something like Katerra so epically fail, and that I think sends sort of a shockwave through the developer community where they see all these investments and it was, I think, sort of maybe-- I don't know. I don't know the whole backstory there, and I shouldn't speak out of turn, but it certainly didn't succeed.

And I think for some developers, it's like, well, why would I go and take that risk of maybe a company not succeeding when I know that a stick-built, you know, works, right? And stick-built companies fail too, but there's another stick-built company right behind it who's ready to come in and, you know, take that work if something happens. How do you get the developer community to say, okay, this is actually worth taking the risk?

Well, I'll start by saying in my 20-something years of doing this, the first 15 to 18 were very lonely and nobody was doing anything, and I would say now there's way-- like our colleague right here is a great example of a company that has embraced this technology and invested in it and learned from it and is going to execute successfully with it because of their commitment to it. And I'm seeing that trend change.

So right now, I mean, more developers than I've ever seen before are interested in this technology. In fact, one of the reasons that I made an investment into the Tracy factory was because I was starting to get crowded out of my own factory with my own projects, and so I needed more supply and I wanted to make space because I had a great history at Autovol and I wanted to make space for those other developers.

So I do see it changing and I see a good trend happening, but it still can't quite get off the ground for all the reasons we've been talking about. But I do see it, I do see more and more developers embracing it. You want to say something about that?

Yeah, thanks, Mr. Roope. I think to add to that, so as I mentioned earlier, our first factory-built housing project starts in March or begins construction in March without-- while members of our team have done one-off factory housing projects in previous roles, this is Mutual Housing's first committed pipeline.

And how we took this approach was after doing a lot of stakeholder engagement with other factories, developers, policymakers, GCs, architects, we realized that a lot of folks in the past five or so years had done one-off projects and had a failure or had heard horror stories of Katerra or had mistakes that weren't always the factory's fault.

Sometimes it was just the mistakes that you make the first time you're doing something. And especially in a developer or construction community, there is a tend to stick to what they know because they feel like their work is hard enough, which is incredibly valid.

But because of the learnings that we saw across the ecosystem, we realized that with our first project, we will probably not hit all the targets that we're trying to make, but that is why we have to commit X amount more, and that's also why we have to do the same projects with the same-- different projects with the same partners in order to really take advantage of the experience that we're receiving so we're not making the same mistakes, we're not getting the same, and we're not, like, running into the same barriers.

And then also, as we know in affordable housing, it's not just we build a building and then we can sell it and then we can make profit and the story ends there. Especially with the different financing focuses now, our populations and the property management and the resident services are a huge priority even very early on in the design and construction phase.

So because we do in-house property management and resident services, we've been using their buy-in and use, making sure that their priorities align with how we're building and what we're designing and any profits that we're receiving because anything we can do to help our operational budget as well.

And I think because this is like a really big commitment from our organization, not just in our development team, but across all of our departments, it's making sure that we can succeed and we can really receive those benefits.

So for now, for instance, I cited that 10% total development cost, but that's only for a first few projects. We're going to be aiming higher. Hopefully we can get to the 23% as Mr. Roope here has. And I think also that was our approach.

And the one other thing I will add is not only is one off approach an issue, but the developers feel the cost of construction just as much as everyone else feels. Because the cost of construction higher doesn't mean that, like-- we don't savor that moment at all.

I would say that developers also really want to get into this space. They know it's a problem. They know that innovative construction methods have a solution and there is potential there, but because of what I mentioned earlier, like those challenges with one-off projects, there's a ton of risk, all your lawyers and insurance agents and your lenders, like, even if you really want to, sometimes you can't find the partners that make that that favorable deal for you, which is why we think it's so important that there are state policies that make really-- that it could be like one paragraph in a regulatory book that makes a difference in showing the state support and giving more empowerment and things to work off of to all those people that may say no to you even when you want to do it.

That's super helpful. Thank you. And before we-- just in closing here, I think one point I wanted to underscore, which I think highlights why we're here, Mr. Roope, you said in the example you gave that you likely saved $18 million in taxpayer money. That is-- for one project.

That to me is like underpinning this entire conversation, that if we can save that kind of money and have an ROI on this money, valuable taxpayer money that we know we need to stretch as far as we possibly can to build the units we can, then it's absolutely worth us exploring whatever policy mechanisms we can do to support this type of nascent but growing newer technologies to make that a reality.

Because if that's just one example of many, you know, and I've got a $10 billion housing bond that we're going to try to get out of the Legislature this month, fingers crossed, if you're listening, new pro tem Monique Limón, because it's over in the Senate, imagine that if we're saving that kind of money for that type of investment, how much more housing we can actually have. So with that, I just want to underscore that point. Thank you all so much for being here today. I know you all traveled from far and wide, so appreciate you coming to Sacramento today and looking forward to continued conversations.

Thank you.

Thank you.

Thank you.

We're getting rounds of applause--I love it--on a select committee hearing, because the geek fest is everyone's here in the same headspace, that we're all excited to be here right now. Okay. Session four, our last session of the day is our factory-built manufacturers.

If you all would like to step up to the plate and self-introduce when you present, and we can go in which order you are all comfortable or-- okay. We'll start however you guys want to start. We can go-- I know. I believe in them. Yeah. Kevin, do you want to go first? Mr. Brown.

Okay.

Madam Chair and members of the committee, thank you for the opportunity to be here today. My name is Kevin Brown. I'm President and Chief Commercial Officer of Harbinger Production, formerly Factory OS. Before joining the founding team, I spent 15 years as a developer of multifamily housing, which led me to the need of modular production.

I've experienced this industry both as a client and a manufacturer. Harbinger is located in Solano County and from the start of our operations we've worked in partnership with the Northern California Carpenters Union.

Over the past eight years, we've delivered more than 4,000 homes across California, primarily serving low income housing, tax credit projects, permanent supportive housing, transitional housing, student housing and emergency response housing. We're among the state's largest providers of new construction modular housing under the Homekey program. That experience matters because modular is not theoretical. It's hard work.

And nothing new is easy. And nothing new comes without a tough learning curve. Even today, there are general contractors taking on their first modular projects, subcontractors adapting for the first time, municipal inspectors learning about modular jurisdiction and factories. Ours included, continuing to refine and improve how we build.

Over the years, I've seen projects suffer from this learning curve and I've seen many factories suffer or close as well. But those struggles have created real experience and I've seen what success looks like when the system works.

We delivered permanent supportive housing in San Francisco years faster and at nearly 30% of the cost than comparable projects in Oakland. We delivered a first in the state model of middle income housing with no public subsidy. And under Homekey we delivered a project that moved from concept into production in just 45 days.

These outcomes come from process and from people. Our greatest asset is the 200 union workers who show up every day skilled in their craft, operating in a predictable safer environment. These are living wage jobs with health benefits, stable schedules, and short commutes.

Our workforce includes lifelong tradespeople as well as people new to the trades, second chance workers, and a level of diversity that greatly exceeds conventional construction. This is not just a housing strategy, it's a workforce strategy.

But to fully leverage that workforce and an efficient manufacturing process, a factory needs one thing above all else: a reliable level load of work. Factories cannot achieve peak efficiency when demand is volatile. Yet housing is inherently that unpredictable timelines, financing that often closes late and one off procurement.

While real demand exists in the marketplace, it exists within this volatile space and is planned and scheduled on a project by project basis. The lack of predictable aggravated - aggregated demand is the single biggest barrier to to long range planning, financial stability, capital investment, and cost reduction.

With Homekey, we've built near identical housing types across many many projects. But because each project is designed, contracted, financed, and scheduled independently, both we and the state lose the full benefits of that scale and repetition.

I can easily envision a world where a factory like ours delivers 2000 Homekey units for the state under a coordinated multi-year program at dramatically better speeds, costs, and consistency. And this approach has proven precedent. When government provides clear aggregated demand, industry responds.

Advanced purchase commitments, accelerated vaccine manufacturing, long term clean energy incentives and optic structures, scale renewable power, and, today, demand backed policy is unlocking private investment in domestic semiconductor manufacturing. In each case, demand certainty, reduced utilization risk, unlocked private capital and drove costs down. Modular housing is no different.

There are many areas to strengthen this industry, but my single strongest recommendation is this.

If the state can create policy to help create multi-year aggregated demand for modular housing through scaled procurement, standardized approaches, or policies that reliably expand the modular pipeline, it can be a powerful accelerant that drives innovation, spurs new factories, and allows the private markets to invest with confidence. All focused on delivering more lower cost housing to scale.

And lastly, I would urge you to consider California workers and businesses at the center of your strategy. We regularly compete with out of state factories that advertise lower prices based on cheaper labor and lower cost structures. And that is no criticism of them or their work. It's a simple market reality.

California has the opportunity to choose a model that rewards strong labor standards, builds in state manufacturing capacity, and creates a resilient high quality housing supply chain at a scale that this crisis demands. Thank you for your leadership and I look forward to your questions.

Thank you.

Good afternoon, Chair Wicks and members of the select committee. I'm Apoorva Pasricha, the COO for Cloud Apartments. Previously I have spent time in the public and private sector with a distinct focus on bringing innovation to make cities more accessible and livable for people. Cloud Apartments is a modular integrator.

When a project team decides to use modular, we are the group that steps in to bring a proprietary building system, get the delivery team together and manage execution from start to finish. Because we sit between developers, factories, general contractors, we've had a unique eye into what breaks in the system.

Today we have over 2,800 affordable and market rate units under contract in the state of California. Cloud was founded four years ago on a very hard truth. It's the fact that factory housing unfortunately has not created the cost savings that it promised to do so.

And if you ask why, that's the case, it's because efficiency that is gained in the factory is often lost in the field. We as a company track a very important ratio. It's the field to factory ratio for every project. The cost of what happens in the factory and the cost of what happens in the field.

And what we typically see is that most modular projects are third of the costs are in the factory and two thirds are in the field. In order to actually cut costs using modular construction, you need to flip that ratio. And to flip that ratio, you have to focus on the field.

The average affordable housing unit in this state can cost upwards of $1 million a door. And we all know that's unacceptable. We as a company are tracking to deliver this in San Jose for about 50% of that cost.

But what we found is that we need the state support in three key areas to actually unlock these savings at scale across the entire state. Those are, one, in market signaling. The second one is in enforcing the authority that it actually has under the factory built housing program.

And third is to expand the authority under that factory built housing program. So let's start with signaling. As you all know, modular goes through a dual permitting process. The state oversees what happens in the factory and the local building department oversees what happens on site.

Even though the local scope is much smaller than a conventional project, many cities still unfortunately take months to actually approve these. And the fees and timelines as a result are no better than traditional construction. The state has already shown through SB 35 that streamlining works. And so we should apply that same logic here.

If a project is using state approved industrialized construction methods, it should trigger expedited local processing as a way to reduce the cost and time of delivery. The second thing is the state ought to enforce the authority that it has under the strong factory built housing program.

We consistently see costs spike in what we call the "gray area" where local inspectors subjectively overrule state approvals. This happened for us on a project in Oakland where we had a fire detailing that was fully approved by the state .

But when it arrived on site, a local inspector was unhappy about it and required us to rip it off. And that single subjective decision was $100,000 in additional costs just for that particular moment.

So similar to how SB 35 and AB 130 have created a formal process for HCD to enforce entitlement requirements, our request is to create a similar hotline to enforce inspection approvals in coordination with local building departments. This will reduce field costs.

Finally, the state is an expert in modular expanding its authority in the factory built housing program would reduce the scope redundancy that kills modular in the field. So what we often see, the scope redundancy is the idea that cities require trade permits, specific trade permits for every connection that we have to do for modular.

And as a result, we have half a dozen subcontractors that are coming in waiting on each other to actually finish the work that needs to happen on site. For a moment of connecting two boxes that should be as simple and as quick as it could be, this process creates inefficiency and delays at the moment where it should actually be very efficient. So, we want to expand the state's modular authority to actually include the on site installation.

This would allow us to actually use specialized modular assembly crews to handle all the connections under the state's oversight, rather than paying a premium for redundant trades and reducing cost and time again to do modular construction. In conclusion, we really see a path to using industrialized construction to build more and do so cheaper and faster.

As a company, we are innovating, but we also recognize that the regulatory environment has to evolve with us in order for us to be able to achieve our mission of delivering more housing. Thank you and I'm happy to answer any follow up questions.

Thank you.

Madam Chair, subcommitee, thanks so much for having us. It's a pleasure to be a part of this, this tribe that's trying to push the ball down the field. I joke that offsite construction or prefab is kind of like nuclear engineering. It's been five or 10 years around the corner for 70 years.

So my name is Garrett Moore. I'm CEO of a company called TektonOS. I'm a little bit of a late comer to this, to this industry. My first career was as a Navy SEAL officer. Midway through that career, went to go settle down with my wife, kids, went to try and build a house in Southern California.

Couldn't pull it off. Thought we'd hack the system and build off site. So I went through six modular builders. Couldn't find anybody that would match the architectural needs of the city. So, we ended up going to Idaho to have the modules built. Fast forward a few years, I'm deployed to the Middle East.

My wife calls in the middle of the night, "Hey babe, we can't find the plumber." Like they won't - they don't know how to stitch the modules together.

And that was kind of a breaking point of for me and it developed my passion on how do we push this, this ball forward? How do we, how do we innovate in this space, because something's still not working. And so I still live in that house today.

Four modules stitched together, got some, some, some quirks that I live with. But it's given me a personal passion and awareness around some of the challenges around modular. So I'm going to probably present a more contrarian view than, than some of the other speakers here, just to keep everybody on their toes. So it's apples and oranges.

I believe modular fundamentally is a better technology. When you start talking multifamily. You start going vertical, you have high degrees of repeatability, whether that's hospitality or hotel student housing.

What I think where it starts to break down is when you have unique architectural demands or you've got unique design constraints that start to break that 15 box by 70, in which case my house was one of them.

So when we think about how this system scales, I look back at kind of a macro view and go, "How do we make housing affordable?" And I look at this kind of from my Econ 101 lens of like supply and demand. It's not necessarily about producing housing cheaper, that's means.

But the ends is we've got to alter the curve. Housing is not going out of style. So, we've got to figure out how do we get more supply into the system.

And so as we embarked on a journey to figure what this looked like, we went and talked to the 75% of the country that is is building single family housing and said, "What do you guys need?" And ultimately what we came back to, when you talk to those top 100 builders, is they're like, "I can't use modular.

There's too much variability. I'm a snowflake builder. It looks the same when it's falling from the sky, but city after city, jurisdiction after jurisdiction, there's a slight variance. I need a solution that drops in to my system as is." And so as a result, we came to a conclusion around panelization.

So for everybody's visibility, panelization is essentially two think a gingerbread house. You create a bunch of panels and they can start to get to put together in different orientations. And so what this does is it allows for the benefits of industrialization. It's kind of a Goldilocks. Not porridge too hot, not porridge too cold.

You get this sweet spot in the middle where you can put electrical and plumbing and all the additional trades without necessarily biting off some of the design constraints that you find with traditional volumetric. And so they said, hey, how do we get a solution like this that can drop in and I can repeat it jurisdiction after jurisdiction.

What does that look like? And so for us, one of the things that we helped kind of pull back the onion on is let's not standardize individual houses. This is not Soviet-era row housing where we're going to put shipping containers one after the other. How do we standardize homes as a kit of parts?

So you could have a Death Star, a Barbie dollhouse, and a Jeep. At the end of the day, it's all made from the same elemental building blocks and you can rearrange them as needed. And now you can start to mass manufacture or mass produce. And that industrialization ultimately drives out cost.

Well, as we started to embark on this and we realized: if you're going to build Snowflakes, it's really hard to build 100,000 homes in a one off way. We've got to figure out how the software, how the operating system for a future of prefab works.

And so where we come in is - I'm not a factory, I'm not trying to build a factory. I'm trying to build a prefab operating system that unlocks this capability for those top 100 builders because they're the ones that are living it day in and day out: building 10,000 homes, 50,000 homes, 100,000 homes. They're asking for prefab.

We just as the private market have not delivered a solution that meets them where that where they are. And it meets them with the building codes that they have in the trades that we have.

And so, while I jokingly say that our technology and our product is underwhelming because you walk a house and it looks the same as the house next to it, that's actually a badge of honor because ultimately that's what the customer is asking for.

And so the magic is in how it gets put together, and we focus on the software to do that. So, I'm out of my depth when it comes to public policy. That's well outside my lane.

But if you gave me a fairy wand for a day and said, "Hey Garrett, what's the single one thing you'd ask from us?" I'm very, I'm ruthlessly pragmatic. So I'd say, "Hey, how do we do, how do we work with what we currently have?" My ask would be, we currently have a building code that is highly prescriptive.

There is a process by which you can make it performance. However, construction is all centered around risk and risk arbitration or risk mitigation. If you've got a local authority that is not comfortable with anything outside the box. That's a risk to them that they don't want to take.

And so if you could somehow wrap up under HCD or something at the state level in Sacramento and say, "Hey, you want to go off site and you want to do performance based code?

Send it to this office, we'll fast track it and we as the state will absorb that risk or liability or we'll split it with the architect and engineer of record." Now all of a sudden the city's off the hook. They don't have the liability.

And now you're giving the ability for engineers and architects to truly innovate because the system is there in the code. We already have all the building blocks. We just don't necessarily have the risk tolerance at the local level. And so I look at that as kind of my one ask. Is it going to solve all the problems?

No, but ounces equal pounds. So thank you so much for hearing me out. I appreciate it.

Thank you.

All right, can you guys hear me? There we go. I'm going to move fast the first couple of slides. I'm Alex Shea. Well, firstly, thank you honorary members, the assembly. Thank you for having us. It's a privilege. We appreciate it. I move fast. What do we do? We build this Spanish mission style, Coastal California. Next slide.

Inner factory. Next slide. These are the finishes and we stack like Legos. And that final stack took about 36 hours to go for 24 boxes. Next slide, please. Endless applications. Affordable student housing workforce. My colleagues here have already mentioned that. But what I want to emphasize is that everything we build is appraisal, lendable, and appreciates in value.

There is a clear distinction between modular and manufactured home. We are not mobiles. Next slide please. So why modular? I'm not going to go through this list, but here you have on the right side, factory built. Minimal weather delays, if any, minimal environment impact, noise, and traffic. Next slide.

And so where we are currently; we occupy 65,000 square feet in Redding, California. We're pumping out a pace of 150,000 square feet of finished housing a year. I'm about two months away from closing our construction loan to go on our 220,000 square feet factory just five miles south of where we are.

And once stabilized, we should be pumping out about a million square feet of housing a year, which from our understanding is best in class. One day shipping: Seattle to San Diego. Next slide, please. Local impact: we've created 70 new direct jobs. We are a factory.

And since 2023, we plan to create another 250 to 300 within the next two to three years. There's also local impact of second chance employment. We love bringing those that are the underemployed into our factory floor. It is so much easier to do that versus other occupations.

We think that if done right, over the long haul, 10, 20 years can actually prevent chronic homelessness. And we have seen the fruits of that. And I'll introduce you to one of my colleagues in just a bit. Workforce partners: we got the rescue mission. Let's go back one. We have our juvie facility.

Visions of the Cross Smart Business Center, local high school, community colleges, refugees with work permits. We absorb them all. We give them a hammer and say hey, punch these three holes and go crush. Next slide please. I want to introduce you to Travis. Three years ago he was living under a bridge, homeless and high up on meth.

Today he's married with two kids. And this is a demographic we target; 20 to 30% on our factory floor actively, and if we think done right, we can actually prevent. We have a huge homelessness and drug abuse problem in Redding. And I'm sure it goes beyond in all of California too. Next slide please. Who are we?

Collectively we're architects, engineers, GCs. We've done prefab modular in Germany for 50 years. We're investment bankers, hedge fund allocators, bond traders, and I think that we have a decent diverse background that actually can address the problem at the 75,000 foot view. Next slide please. So I want to pose this is modular the silver bullet.

I actually to add housing, I'd actually say no. Standalone, we are not; we need partners. But modular is a crucial part of the solution. Next please. And so here are my three proposals. One, demand, demand, demand. In our focus group we talked about demand. So the first piece is like affordable housing, density bonus for factory built housing.

That could be an easy legislative shift. Number two, local plan check shot clock, similar to ADUs in 2018. 30 days, local has to get back on the site side as well. Number three, some of my esteemed colleagues here mentioned as well, third party plan checks for onsite and offsite. Next slide please.

Number two, this is a little wild but run with me here. Back on the trading floor on Wall Street, I traded corporate bonds and trip and derivatives. And what we need is financing and capital that actually greases the wheel of industry. And so my suggestion is we securitize FBH backed commercial mortgage backed securities.

And then we created CA tax exempt debt instruments like municipal bonds. So exempt at local, exempt at state, exempt at federal, so that you have CalPERS CalSTRS, UCRS, who collectively manage over a trillion dollars in assets. And my pitch to you guys is this: California public servants solving California's housing problem.

Another idea is at the federal level, but the Community Reinvestment Act, we expand the definition to actually incorporate FBH backed CNBS along with commercial banks. Because if you don't have the financing, which you've heard from developers and you've heard from my fellow colleagues, factory operators, then you have no deal. Next slide, please. Last one.

Little higher, higher level, but if we can expand the FBH program to allow compliant housing built prior to tying it to an APN, it could be inventory. And the inventory is what actually can absorb the flow of production, which we so oftentimes - when our investors ask us, what's your biggest risk? One word, I look them dead in the eye.

Backlog. I need backlog. I can keep my guys employed, and so on and so forth. So with that said, next slide, please. We need all three legs of this stool to successfully and sustainably add housing. And we'd love to be a part of the solution.

Modular's part of the solution, but you guys are also a key part as well. So appreciate your time. Thank you.

Great. Thank you. Do we have questions from committee members?

I have a few comments first. Are we able to get the slides for all of these presentations? Yep. And then we'll get some notes from our note taker. Thank you. This is actually a really robust panels, and each panel I got more and more excited. As we know, the housing crisis in California can be really solemn.

I mean, we can hear and see and read many, many headlines that tell us we're just not doing enough, we're spending too much, and the cliff is coming of more and more people falling into homelessness. So as a legislator who's in her last year, it can feel despair - depressing, I guess, would be the right word.

But as I've continued to hear these presentations, all four of you and all of the presenters, including the developers, I'm going to say this is a good way to start the new year.

As somebody who's on the Housing Committee and as the Chair of the Budget Committee that has housing underneath it, because we don't often hear solutions, we usually hear we can't, it's not going to work. It's not going to - we just can't make that happen for the price you want.

And so we heard some solutions that I think are doable.

But I really do like the way you ended, which is, I don't think any of us up here believe that modular or factory built, you know, we're going to move from wood and the traditional building model all of a sudden in the next five or even decade to another. And we shouldn't do that.

I mean taking systems and looking - I'm an educator by profession and we've seen what happens when we throw out all the old, bring in the new. Fifteen years later we're scratching our head saying why did we do that? Technology is a good example. Not going too far down that.

But I was a teacher 15 years ago when all the older teachers like myself were considered dinosaurs if we weren't doing 15 PowerPoints a day with 25 slides. And now what do we see 15 years later? Oh, kids aren't speaking because they have too much technology.

So I think we can learn a lot from keeping tradition and incorporating innovation. So I just want to end with that. I have lots of stars here of potential legislation, but we certainly can we make sure we get their contacts.

So if we want to follow up with notes as far because we have a very short amount of time to get our legislation in for this year and I know there's definitely some ideas that came out of this. So I appreciate you and all of you that presented. Thank you so much.

Great. Any other comments, questions? Ms. Papan?

So, I know you're not going to want me to ask this, but I'm going to ask you anyway. So we have lots of projections about percentages. Like we can save upwards of 20% and we can increase productivity or reduce the time that it takes to construct something by X percent and there's a range there.

And I guess my question is: when we, and you mentioned a 1/3, 2/3 which was very graphic for us for certain and how can we improve and streamline, not to necessarily maybe reverse it so that you - or switch it as you suggested to get it where more predictability happens in the manufacturing process and less on site, maybe that will benefit. But I guess my question is I don't see the trades going away in the morning. So if I may ask this question and if you can't answer, that's okay.

But it's something I think we all have to think about as we think about keeping people fed in California. I'm sorry, I'm just looking at you, but you were so descriptive in your presentation. And so how much less trades work is there onsite? But is it, and I think we learned this when we went to Idaho, but it might be more efficient work such that one could, you may only you said you, you - I'm sorry, said that you built something in just a matter of days and it was student housing and it was quite nice looking, I might add, but that you did it very quickly.

And that would, of course, if you have trades on that project, you're then freeing up those trades to go somewhere else and do something. So what you may lack in time on a particular project, you might make up for in additional work or, you know, faster work done elsewhere - volume of work, if you will.

And so anybody ever speculate on how much less time a trade might be doing in the field? But then again, it frees you up to go elsewhere and perhaps make just as much money because you've made up for it volume wise, you know, in other words, you're not laboring on a... you get the point.

Not laboring on a project forever and ever, but you're making it up because, you know, that's a community we got to deal with too. And I know the carpenters are perhaps different than the other trades on this. So if you can't answer, don't sweat it. But I kind of feel like it's got to be asked.

I'm sure you love that I asked.

That anyone would like to opine, now is your chance.

If you can, and if you can't, don't sweat it. I just, you know, speaking of the carpenter.

In walks Danny Curtin. Perfect timing, Danny.

So in any event, has there been any concept about that and what that means in the field? Because I appreciated at least how you divided up the pie for us and then it kind of got me thinking.

But yeah, I can kick it off. So one thing that Cloud specifically is doing is actually focusing on building system that is requiring your traits in the field to come in.

And the way we're doing that is we have a patented mechanical engineering and plumbing system that is a part of the boxes that are getting manufactured in the factory.

And so what would typically, if you're doing modular the way it exists today, what would typically happen is that you would, in order to do all of the plumbing connections when the boxes are getting stacked, you would require a team of two to three plumbers over the course.

They're going to bid it to you for a course of, you know, three to four days to come on site and do those connections with the building system that we're using, which is not the case for every modular project because every project is not leveraging our system at the moment.

For us, it's a - most of that work happens in the factory. And so by the time you actually have to come on site, we don't require those specialized trades to have to be the ones finishing the connections.

And so that reduces the work to a magnitude of minutes as opposed to requiring the trades to be on site for multiple days and multiple people within the same trade to be on that on site. So that's just a data point. Specifically from our system, I think you'll get different.