As Housing Costs Soar, A Revolution In Affordable Homes

America’s housing crisis has become acute — especially so in the last few months. But thankfully, social innovators have been laying the groundwork for years for a revolution in affordable housing, including manufactured (factory-built) housing that is energy-efficient. Stacey Epperson, founder of Next Step Network is one such innovator and expert. Ashoka’s Michael Zakaras and David Gardner, co-founder of The Motley Fool, caught up with Stacey last week to learn more.

Michael Zakaras: Stacy, this is a conversation about financial freedom, including the pathways for Americans to get and stay there. Help us understand the role of housing in this equation.

Stacey Epperson: For most low-income Americans, the underlying driver for wealth creation is home ownership. A house will be the biggest purchase they ever make — an investment that will pay dividends for future generations. So if we want to give these families a ladder to the middle class, then we have to remember that home acquisition, and the education and support that will allow them to find financing, are critical steps up that ladder.

Zakaras: You sometimes tell a story about traveling through Appalachia early in your career and noticing that old mobile homes were a defining feature of the landscape. What thoughts did that experience spark?

Epperson: I had just graduated with a master’s degree, first day of work, and I was taking a bus across Appalachia. I’m from rural Kentucky, but it was a shock to see the number of old mobile homes scattered across the landscape. These were homes that had been poorly constructed and that were falling apart. People owed more for them than what they were worth. Realizing the extent of the poverty, or seeing it up close, was a profound experience for me. That was when I first asked myself, “What would it take to fix this?” And that question has been the throughline of my career.

Zakaras: Manufactured housing is now the center of your work. Could you quickly define manufactured housing for us?

Epperson: In the U.S., we’re facing a historic low in housing supply. We can build new houses one of two ways: build those homes on site or build them in a factory. A manufactured home has a legal definition that’s regulated by our federal government, and that has to do with building codes. These homes are built off-site, can be of very high quality (just like homes built on site), and can be shipped to all states.

David Gardner: How long does it take to manufacture offsite homes? Because something we regularly hear as investors is, “We’ll need to build our way out of this squeeze, but it doesn’t happen overnight.” But I suspect that what you’re describing could be built quite quickly.

Stacey Epperson: Right, in a matter of days, if we had enough factories to meet the demand. At the moment, there’s considerable backup. More investment would solve that problem.

Zakaras: Your motto, “manufactured housing done right,” suggests that, historically, it’s been done wrong. Tell us about that, and the implications for a wider conversation about financial freedom.

Epperson: Let me just set the table: 22 million Americans live in a manufactured home. That’s 6% of homes in the U.S. It’s a niche market, but an important one for people with a median income of $30,000 a year. The manufacturers used to build 340,000 houses per year, but that number has decreased to 100,000. We clearly need more factories and more labor to catch up with demand.

So what are some of the problems we’re facing? Well, you need lenders and banks who will finance this type of home. You need public policy that will support the secondary market to buy these loans, so that investors will be there. Another problem is that this particular market has largely been financed by personal property loans or chattel loans. Those loans have fewer consumer protections and carry higher interest rates that cut into a family’s ability to earn wealth.

Social stigma is also a persistent issue. We’ve been working to shift that mindset in consumers and local governments, to prove that manufactured homes can be very high quality and look like a home built on site, but the stigma creates tangible challenges, like with zoning.

Zakaras: How do you bust these myths surrounding the manufactured house?

Epperson: Firstly, we lead by example at Next Step by building safe, durable, attractive homes. Secondly, we spent years getting local officials and community members comfortable with what we’re doing. I think there’s a real opportunity on the national level, because of this historic supply gap. The Biden administration is looking for zoning innovations, so there’s incentive for local communities to remove these barriers.

Gardner: Stacy, part of what we do at the Fool Foundation is look at conventional wisdom and say, “How can we break those rules?” So is there a rule you’re interested in breaking?

Epperson: One rule we’re breaking is going straight to where the money is and trying to enact policy change. We went to Fannie Mae and Freddie Mac and the Federal Housing Finance Agency that regulates both those organizations. This has allowed cities to say, “We’ll allow this housing, even though our zoning is against it, if we see that Fannie and Freddie would buy a loan on it.” That’s been a game changer. It’s breaking the rule a little bit, bypassing the zoning issue, because cities know the money’s going to be there.

Zakaras: And in addition to working with the public sector, you’re partnering with companies too, including most recently IKEA.

Epperson: Yes, through Ashoka in fact we’ve teamed up with IKEA and compiled a national home buyer study to understand the needs of potential buyers. We’re also figuring out if IKEA could provide kitchen, bath and storage solutions for our factory-built homes. Among other things, that study revealed that millennials are more open to factory-built housing than previous generations,and we believe the power of Ikea’s brand would attract new, younger consumers.

Zakaras: What lies ahead, now that your reach is so much bigger than when you started?

Epperson: The first thing we want to do is change the consumer experience of buying a manufactured home. Instead of going to a lot, I want the customer to see a community like the one in the photo behind me. They should get to walk through their potential home, experience it, and meet with a lender to take out a conventional loan – just like you would do when buying a home built on site.

The second thing will be improving energy efficiency for all these homes, which have historically been terrible (in fact, many families living in mobile homes spend more per month on energy costs than on their mortgage.) In five years, Next Step wants to move toward zero energy ready homes for all our projects. We want to raise the bar in this industry for sustainability.

Zakaras: In closing, Stacey, going back to this theme of financial freedom, what call to action would you leave us with today?

Epperson: We can all ask ourselves, “What am I doing to help get more affordable housing in my community?” Why not show up to a zoning meeting and say, “We need more worker housing in our city. I support this kind of housing moving forward.” If you are an investor, ask yourself, “How can I get involved through investing?” It will take both those things, community action and private investment, to meet this nationwide urgent need for housing supply.

This conversation is part of the Spark Conversation Series, co-produced by Ashoka and Motley Fool Foundation. In the series we turn to creative social innovators and experts across the country whose solutions to financial freedom span housing, health, education, work, and money. Stacey Epperson is an Ashoka Fellow.