How will Madelon’s REDtech platform help bring the cost of housing down while helping the modular prefab industry succeed?
The other day I was listening to a podcast in which Jay Leno was talking about his car collection. He was describing how a couple of years ago he was going 195 mph in a Carrera GT, one of my favorite cars, and a car that costs about $1m. After lifting his foot off the accelerator pedal, the car started spinning out of control and he almost went against the wall. He was comparing it to how he was recently driving at over 200 mph in a new Corvette, a car that’s approximately $65k. What caught my attention about this conversation was when he said that if you wanted to repaint the Corvette to factory standards, it would cost about $25k. I thought, how is Chevrolet capable of producing such a high performance car at such an accessible price point? Could you imagine if cars were produced in the same manner that our housing is? Nobody would be able to afford a car!
And that’s one of the main reasons a lot of people can’t afford a home. In the US, renters spend $500B a year on rent and yet, between 40% and 50% of residents in major cities have become cost-burdened — spending over 30% of their pre-tax household income on rent. In the city of Los Angeles, the number of cost burdened households jumps to 70 percent.
And the situation is only getting worse, as national median rent rose 20% faster than overall inflation between 1990– 2016, and the median home price rose 41% faster in that period. It seems really impossible to understand how so many people can’t afford rent when so much of the global wealth is in real estate, it is now worth more than $217 trillion dollars, it makes up to 60% of the world’s assets and the vast majority of that wealth, roughly 75% is in housing.
So why are we so incapable of housing our population in a relatively affordable and decent manner?
In short, a lack of supply.
Freddie Mac estimated the housing shortage to be 2.5 million units in 2018, and a deficit of 3.8 million units in Q4 of 2020, a 52% increase. So housing shortages were an issue before Covid, and have since only gotten worse.
Like all others, this is a supply and demand business, so the only way to decrease the cost is to increase supply. But building housing is risky, so most of the money invested in real estate goes into adapting existing buildings, not new construction.
Construction is a key industry across the world, representing approximately 13% of worldwide GDP, which in 2021 is estimated to be about $92 trillion dollars. It is one of the only industries that has experienced productivity losses over the last several decades. Today, McKinsey estimates that the average large commercial real estate project is delivered 80% over budget and 20 months behind schedule, i.e. there is a lot of room for improvement.
As with any other industry, in order for the construction industry to thrive, it needs to be industrialized. A few modular prefab companies have understood this, and they are trying to create products. But unfortunately, developers are used to creating projects, so prefab has for a large part failed to produce more housing, particularly for multi-family. (This is nothing new, architects have dreamed of modular and industrial production since the age of modernism, when architects like Jean Prouve had big dreams and wanted to solve big problems. See more here.)
Startups in the construction space have raised $1.5 billion this year alone, and yet we recently saw the most well funded construction startup, Katerra, go under. We have seen the floors of prefab factories sit empty for months because for every new project, they need to retool their production lines and recreate a new product to suit each developer’s individual needs. This process is backwards. So we fixed it by productizing the housing development process. In turn, Madelon is a reliable housing product provider to developers, and a constant sales channel for factories, producing the same (or very similar) modules across factories over and over again.
By productizing development, we are reverse engineering the entire development process. Working with our partner factories first to develop the product, creating design packages so that developers can choose the best product for the site (like in the hospitality industry) and then inputting all of that information into our REDtech platform so that developers can evaluate and underwrite properties in minutes (a process that normally takes weeks if not months and thousands of dollars to complete).
With our platform, we can unlock all of the vacant infill lots around our cities by allowing for faster analysis, streamlined acquisitions, and ultimately….more development. And let’s not forget, amazing partners who deliver the mods directly to the site, set them perfectly, and then fill it with residents. Essentially Madelon REDtech takes developers from land to cash flow, and everything in between.
Streamlining and productizing the development process is about innovation, not invention. We need to bridge the gap between what developers want to build and what factories want to design. We have the technology, it works (proven without a doubt by hotels) but in housing we constantly get stuck trying to put a square peg into a round hole and/or recreating the wheel.
This is Madelon’s vision.
