Voters made it clear in the midterms that housing affordability is a top priority. Jon Wright thinks real estate agents have a bigger role in fixing it than they might realize, starting with overcoming the stigma around modular housing.
Wright is the founder and CEO of Spear Partners and a former Obama administration staffer. Spear Partners is a real estate investment, development and advisory firm that uses artificial intelligence to build modular homes on infill lots in the Midwest — starting in Warren, Michigan — and is also pursuing small residential infill projects in the San Francisco Bay Area and Los Angeles.
He recently spoke with Inman about the post-midterm housing policy outlook, the local barriers blocking new housing and the middle-income financing tools agents should know about.
Inman: Why do you think housing, and not just general cost-of-living affordability, drove voters in Michigan particularly?
Jon Wright: It’s hard to say exactly. Was it gas? Healthcare? Housing? But I can tell you this: housing costs in Michigan are too high. Whatever side of the aisle you’re on, whether you were happy with the outcome of the midterms or not, it’s very hard to argue that affordability wasn’t front and center.
We have a housing shortage in this country, and it’s not just in coastal markets or the Sun Belt. Wherever you go, whether it’s Michigan or Kentucky or Tennessee, you hear the same thing. There aren’t enough homes, whether for millennial families or Boomers who are trying to downsize. In particular, there’s not enough detached housing. There’s not enough housing of any kind, but especially single-family detached homes for working families. We need to refresh our housing stock with that.
Housing has become a bipartisan issue. Where do you think Democrats and Republicans may still disagree on how to fix the housing shortage and affordability problems?
What I’ve been seeing is a convergence on this issue, and it’s getting hard to answer that question because the lines are blurring. There’s not really a big ideological divide. Look at the 21st Century ROAD to Housing Act — it passed with massive majorities in the House and Senate. We haven’t done a housing bill in this country in a long time.
I see it at the local level, on city councils. There’s just no divide. Everyone wants to [build more housing], and cities are finally coming to grips with what they need to do to make it happen. They’re abandoning these old views like “It all has to be owner-occupied; it can’t be rental,” or “It has to be rental here but owner-occupied there.” All that dogma is going out the window because, ultimately, they just want more homes for working families. Whether it’s a tax abatement, a zoning change or a subsidy, they’re saying, “If you’re providing a solution that reduces cost and produces new quality housing, we will do it.”
Maybe there’s some division between the parties about which subsidy, how much or where it’s applied, but it’s really starting to blur.
What should newly elected officials — state, local or federal — do immediately to address affordability?
Let me speak from what I’ve seen work. They’re all saying housing is a priority, so that’s step one: admitting there’s a problem and saying you want to do something.
Jon Wright
In cities like Warren, Michigan, where we’re building, the city council is doing the right things. First, they sent a signal to the market a couple of years ago when they started a land bank. They said, “We want to encourage new housing development on our vacant and distressed lots. We want you to build houses within our existing neighborhoods.” So they invited developers and builders in.
Step two, they listened to the practical concerns and obstacles to getting housing in place: zoning, taxes, staff flexibility and letting us come in and do the diligence we needed. And they’ve allowed that to happen.
Cities and elected officials who want to be practical and embrace getting new housing stock in whatever form the market is driving will win. They’ll get investment in their communities. And being practical really means doing anything they can to reduce cost.
What are the biggest barriers to more housing? Does it change by market?
It does change by market. In Michigan, property taxes are really high. That’s a barrier to new rental development and also to owner occupancy at certain income levels. People can’t pay those taxes alongside a mortgage. That’s less of an issue in some other places.
In other places, it’s zoning. For 60 years in this country, we’ve been a little aggressive with detached housing rules. We made the setbacks too far, and in some areas we basically zoned it out of existence. A modern house won’t fit given the constraints put in place since the first housing stock was built in the 1950s. So zoning comes up everywhere.
Another thing a lot of people are recognizing is deferred infrastructure. If you’re a city and you want to encourage housing in a neighborhood that hasn’t had investment in a long time, you can’t make a new owner-occupant or a housing developer pay for 50 years of deferred maintenance because you never issued a bond for it, whether that’s stormwater drains or water and sewer infrastructure the new house needs to plug into.
Oftentimes a city will say, “We’ve got new construction, let’s make them upgrade and put in new manholes and a private conveyance system for stormwater,” which may not even be in the code. That can add cost to a little house, making it totally infeasible. We can’t put that burden on small development.
So taxes, zoning and deferred infrastructure are the key things to solve.
In our market in Warren, Michigan, with resale values as they are right now, it doesn’t necessarily pencil out for us to do for-sale housing at the beginning. If we build a house, we can’t sell it for enough to make it work, for us or anyone really, without some type of government subsidy. So if you want to spur new homeownership, you can do down payment assistance or direct subsidies to developers.
The third thing you can do is what Warren is doing: Allow us to do some build-to-rent as a transition state to homeownership. We’ve got a 150-unit project, and the bulk of it is build-to-rent. The idea is that once we get all that new housing stock in, it’s going to completely change the market composition, and we’ll be able to do for-sale housing profitably with private capital. We are doing some for-sale homes right now with a grant from the state, but the bulk is for rent.
So if you’re an elected official, do whatever you can to get lower-cost, working family housing into the market. If it’s a rental, let the market drive that. There’s such a shortage right now that working families, whether owners or renters, just don’t have any leverage because there’s not enough stock. That drives up rents, and it relegates a certain stratum of the population to 70-year-old housing.
If you say, “We’re only going to allow for-sale,” it ignores the lived reality of a huge part of the population that isn’t ready to buy, or could be if they were in a more stable situation. Renting lets them get there, and then maybe buy that starter home next. Don’t try to engineer it too much. Do what the market wants to get the new housing in.
Our readership is mostly real estate agents. What role can agents and brokerages play in expanding access to housing?
Two things. First, the brokerage and appraisal communities need to get more familiar with the type of housing I’m building: modular, or factory-built, housing. Modular is built to state codes, just like a house built on site. It’s not manufactured housing, and it’s not a mobile home, but it comes from the same manufacturers who build manufactured housing.
There’s still a stigma. A lot of people think it means a mobile home or a manufactured home, and they don’t know how to price, sell or market it. Most buyers or renters of our houses would have no idea it was built in a factory, and frankly, they don’t care. But you always get that question from agents: “What does that mean? What’s different about it? Is the quality different?”
Factory-built housing is only going to grow as a share of home starts. Right now it’s around 9 percent, and the industry really wants to grow it. I think the federal bill is going to push that.
Second, there’s a ton of down payment assistance from federal, state and local governments and banks, plus a bunch of affordable mortgage products. I’m not talking about traditional very-low-income affordability programs. I’m talking about middle-income options, creative financing tools to get people into housing. Smart agents who want to target this market will educate themselves on these debt options.
When the media talks about housing affordability, it’s really affordability across the board, right? A lot of people can’t afford the cost of living in general.
At Spear Partners, we can’t control the macro environment or the rate environment. We’re meeting this demand by being laser-focused on cost reduction: How do we build a quality single-family home on these lots as affordably as we can? That’s what we can control.
We reduce costs through scale and back-end efficiency. We use a lot of AI and every tool available to be as efficient as possible. We also use volume discounts through large manufacturers like Champion Homes to source and build as efficiently as possible, which keeps costs low and lets us rent or sell at an affordable price.
I think the whole industry needs to focus on this. Large production builders are great at building a strong product, but they don’t build on infill lots in existing neighborhoods. They never have, and they never will. That opens up a big niche for groups like us. We need everybody building more housing, and the infill market hasn’t been served in a long time. There’s endless demand.
You mentioned modular. Do you see it becoming more mainstream in the next few years?
We’re all in on modular. It’s a core business thesis for us. Once you do it, it’s hard to go back to stick-building on site, because the efficiency and speed are so much better, and cost and speed are really intertwined.
I think three things have happened. One, large manufacturers like Champion Homes and Clayton Homes have gotten better at producing high-quality modular products affordably and fast. It’s always been around, but innovations have driven costs down.
Second, the millennial family formation curve for detached homes is driving huge demand, which is pushing the market toward infill, where modular serves really well.
Third is the federal bill that passed [this summer]. Once it’s fully implemented, which will take about two years to get all the regulations in place, things like taking the chassis off manufactured housing, allowing two-story builds, and blurring the lines between the HUD code and state codes are going to make more options available to the market. Those are all tailwinds for factory-built and modular housing.
Anything else you wanted to add?
Part of our origin story at Spear Partners: If you look around, there’s a lot of 70-year-old housing stock built in the 1950s. These 700- to 900-square-foot houses are called GI bungalows. They were built after World War II and were often purchased by people using the GI Bill after World War II or the Korean War. They were built to minimum property standards, very uniformly, and they provided lower-cost housing for a generation. Boomers were raised in these houses.
We used that as a model and a first principle when we considered infill in those same areas. How do we go back to that simplicity? We added a bathroom, so we’re at a 3/2 instead of a 3/1, but it’s a crawl space, not a basement, and in the first model, no second story and no garage. It’s a base 3/2 product that’s attainable and affordable for working families.
The GI bungalow had a standardized floor plan. They didn’t build them in factories, but they built them fast on small lots, and it got people into housing and helped them get stable. They didn’t call it a starter house back then; they just called it a house.
It often became a starter house because people moved up as they had more kids or got better jobs, but many people stayed and raised three or four kids in a 3/1 or a 2/1. What matters is the stability of having a home, and the wealth-building opportunity it created as it appreciated.
