For those of us hoping innovative startups might succeed in solving the affordable housing shortage, recent news has not been reassuring.
One of the most heavily funded unicorns in the space — modular housing developer Veev — was reported last week to be on the verge of shutting down. Previously, it had raised $585 million in venture funding, including $400 million just last year.
Veev is a prominent name in a long list of affordable housing-related startups that scaled up during the boom years. While the San Mateo, California-based company only produced a limited number of dwellings to date, it had a longer-term vision of enabling mass-production of new homes with prefab components and standardized building processes.
It was one of several hefty fundraisers in the space. In our last report on funding to affordable housing-related startups in the summer of 2022, we put together a list containing 24 U.S. companies that had collectively brought in close to $2 billion.
There were plenty of compelling-sounding business models in the mix too, from high-tech construction robots to mass-produced backyard cottages. Some were even rolling out 3D-printed houses.
So what happened post-peak? Broadly, funding to startups focused on affordable housing and more efficient construction technologies is down significantly from a couple years ago. This isn’t surprising, given that global startup funding to most sectors has contracted sharply.
Who’s getting funded?
Even with the funding pullback, we are still seeing some investment around the affordable housing theme.
This includes some startups on our 2022 list that raised funding this year. Oakland, California-based Mighty Buildings, a maker of factory-built, 3D printed panels that can be efficiently assembled into homes, picked up $52 million in a September financing. And Rialto, California-based Plant Prefab, which also develops prefabricated panels for residential construction, secured $44 million in a January Series C.
As for early-stage rounds, one standout was Samara, a startup founded by Airbnb co-founder Joe Gebbia that builds backyard cottages for homeowners. A month ago, the company landed a $41 million Series A led by Thrive Capital.
In a similar vein, Villa Homes, a maker of prefab accessory dwelling units, picked up $6.3 million in July, per a securities filing. Meanwhile Boxabl, a developer of mass-produced homes known for its backyard casita model, picked up a few million more in crowdfunded investments this year.
But while rounds are getting done, no one would call affordable housing a hot theme for startup investment. We’re not really seeing new unicorns, nor are there any buzzy companies expected to be going public soon.
Not exactly cheap
One issue confronting startups innovating around housing affordability is that their initial products often aren’t cheap.
Veev, for example, has sold a few homes developed using its components and production processes, but they’re on the high end. A six-bedroom Palo Alto home, for example, sold for $7.6 million this year. A condo in the Silicon Valley city of San Carlos sold for $1.3 million.
In an interview last year, Veev CEO Amit Haller told Crunchbase News that the goal of more affordable housing will require building at scale. In a more ideal world, he envisioned that building homes would be more like churning out iPhones. The resultant product would be available at mass scale and of high enough quality to appeal to consumers of all means.
But this presents a sort of chicken-and-egg dilemma. It’s tough to make affordable housing without scale. And it’s difficult to scale something that people can’t initially afford to buy.
Other startups have cheaper offerings, but still not exactly low cost. Samara’s lineup, for instance, starts at $279,000 to put a small studio in the backyard of an existing home. Villa estimates that its smallest cottage — a 569-square-foot one-bedroom — would cost $295,000 to build and install.
Boxabl, by contrast, racked up a long wait list a couple years ago by saying its casita tiny house would cost around $49,000, not including installation. Currently, however, the company says it can no longer promise a fixed price.
Meanwhile, affordability isn’t improving
The tough fundraising climate for startups working on scalable approaches to housing comes as consumers continue to struggle to afford homes.
In August, the National Association of Realtors reported that U.S. housing affordability hit a historical low, driven by rising mortgage interest rates and low inventory of homes for sale. In the least affordable metros, including New York, Miami and Los Angeles, buying a home remains financially out of reach for most residents.
Venture investors, however, seem to be indicating with their wallets that they don’t believe many startups are presently poised to find a way around this particular problem.
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Illustration: Dom Guzman
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