As housing costs soar, a revolution in affordable homes

The housing crisis in the United States has worsened, especially in recent months. But fortunately, social innovators have been laying the groundwork for years for a revolution in affordable housing, including energy-efficient prefab (factory-built) housing. Stacey Epperson, founder of Next Step Network is one such innovator and expert. Ashoka's Michael Zakaras and The Motley Fool co-founder David Gardner caught up with Stacey last week to find out more.

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

Stacey Epperson: For most low-income Americans, the underlying driver of wealth creation is home ownership. A home will be the biggest purchase they've ever made - an investment that will pay dividends for future generations. So, if we want to give these families a ladder towards the middle class, we must remember that the acquisition of a home, as well as the education and support that will allow them to find financing, are essential steps to climb that ladder.

Zakaras: You sometimes tell the story of a trip to Appalachia early in your career and noticed the old mobile homes were a defining feature of the landscape. What thoughts did this experience spark?

Epperson: I had just graduated from my masters degree, first day on the job, and I was taking a bus through 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 houses that had been badly built and were falling into disrepair. People owed them more than they were worth. Becoming aware of the extent of poverty, or seeing it up close, was a profound experience for me. That's when I first asked myself, "What would it take to solve this problem?" And this question has been the common thread of my career.

Zakaras: Prefab habitat is now the focus of your work. Could you quickly define prefab housing for us?

Epperson: In the United States, we are facing an all-time low in housing supply. We can build new houses in two ways: build these houses on site or build them in a factory. A manufactured home has a legal definition that is regulated by our federal government and has to do with building codes. These homes are built off-site, can be very high quality (just like on-site built homes), and can be shipped to any state.

David Gardner: How long does it take to build houses offsite? Because something we hear regularly as investors is, "We'll have to get out of this crisis, but it won't happen overnight." But I suspect what you describe could be built quite quickly.

Stacey Epperson: Okay, within days, if we had enough factories to meet the demand. At the moment there is considerable backup. Additional investments would solve this problem.

Zakaras: Your motto, "well-made prefabricated houses", suggests that historically they have been poorly made. Tell us about this and the implications for a broader conversation about financial freedom.

Epperson: Let me set the table: 22 million Americans live in a manufactured home. That's 6% of homes in the United States. It's a niche market, but important for people with a median income of $30,000 per year. Manufacturers used to build 340,000 homes a year, but that number has fallen to 100,000. We clearly need more factories and more labor to catch up with demand.

So what are the problems we face? Well, you need lenders and banks that will finance this type of home. You need public policy that supports the secondary market to buy these loans, so that the investors are there. Another problem is that this particular market has been largely funded by personal home loans or household loans. These loans offer fewer consumer protections and carry higher interest rates that reduce a family's ability to earn money.

Social stigma is also a persistent problem. We've worked to change that mindset among consumers and local governments, to prove that prefab homes can be very high quality and look like a home built on site, but the stigma creates tangible challenges, such as with zoning.

Zakaras: How do you stop the...