Brian Potter's work unpacking hard and soft costs and hard realities of home building expenses lives true to a promise of clarity and precision as he answers, "what makes housing so expensive?"

A "nut paragraph" in Potter's analysis reads:

We can divide the costs of a new home into roughly three buckets: “hard costs” (physically constructing the home), “soft costs” (design, administration, marketing, and other non-physical construction costs), and the costs of land. Per the NAHB, on average hard costs are about 56% of the total costs, soft costs (including builder profits) are about 25%, and land costs are about 18%."

Potter peels back each of these buckets, probing for a glimpse of opportunity to "bend those cost curves" in a direction that would result in improved or expanded attainable access to housing for households who need it or want it.

His conclusions? Here's the wrap on hard costs:

Overall, the hard costs of construction — the costs associated with putting up the actual, physical building — are the largest and most important cost of a new home. But they’re also the hardest things to improve, and there’s no simple or obvious path for doing so."

For soft costs, Potter arrives at roughly the same place:

As with hard costs, so with soft costs: No one dominant item, and few obvious paths for cost reduction."

Opportunity to impact the cost to buyers or renters is not much more hopeful when it comes to the land basis, partly because of its smaller 20% share of overall costs to people. Just one area appears to offer a shot at bending that cost curve. Potter writes:

While the price of a lot is not a particularly large fraction of the cost of new housing, it's a much larger proportion of the cost of existing housing. And in dense metro areas (the places that need housing the most), it can be even higher, exceeding 70% of the cost of a home. This high cost of land, in turn, isn’t because people value having lots of space for their kids to play on — it's because of regulatory and zoning restrictions that limit how much housing can be built on a given parcel or in a given place."

A single, glaring opportunity for cost impact, according to Potter's framework, comes here:

What is different about construction is the level of coordination that takes place: whereas in a car everything is carefully designed to tightly integrate together, in housing construction the work can be done (and often is) with surprisingly little coordination between the various trades. Even something as seemingly basic as getting subcontractors together at the beginning of the design process to come up with a coordinated design is a very unusual practice in home construction. This style of work organization reduces upfront cost required, and allows homes to be built with an unusually inexpensive design process compared to other products, but it also means that innovation is risky, and new products tend to be evolutionary ones that don’t change the overall construction process."

This must-read Brian Potter analysis provides a timely context for an update on a homebuilding industrialization initiative we first looked at last Fall. At that time, we wrote,

t's anybody's guess as to which of the current cohort of innovative ventures may make it out of their capital-intensive, multi-year, pre-profitability development runways to business viability, scale, and sustainability.

One relative new-comer to the dance floor, Cuby, would offer what its co-founders believe solves both the daunting CapEx riddle and the capability to drive the advantages of deep, local, high-velocity scale that could impact pricing, profitability, and sustainability: a scale-able mobile micro-factory model. Most of the pre-development capability for Cuby is happening overseas, in Europe and Asia."

However, in a conversation with Cuby Co-Founder Aleks Gampel last week, we got an update on what's new for the enterprise in the U.S., and what's next.

Let's curate a few of Alex' comments from our TBD Player conversation:

What Is Cuby?

Cuby is full stack technology company that develops scalable hardware and software systems. for process improvement and automation in new home construction. To put it in other words, and maybe more simply, we design develop and deploy mobile micro factories that manufacture and assemble homes for the masses."

How Is Cuby Different?

We stepped away from the idea of the giga factories that need to produce millions of square feet of output. We believe in a localized distributed network of manufacturing. The idea is we can bring the manufacturing to this industry and make it work. What we come back to is we design a mobile micro factory: We build machines that basically get containerized, and we can quickly go rent the parking lot wherever there's a lot of demand for homes, set up shop and essentially – $10 million later – we have a fully functioning factory that can do about 200 single family homes a year, or 430,000 buildable square feet of output.

The big bet that we made is that we think we can scale factories and that's our product. We think that we can get that product into the hands of many different builders and anyone who wants to launch a factory locally. But the idea is we can scale these things we can make hundreds of them over the course of the next 10 years and employ them in markets where there's a lot of demand. So bet number one is low- CapEx high-output mobile micro-factory."

What's the U.S. Update?

We're building a single-family home in Detroit right now, and just started the process. We expect to do more model units in the US over the next couple months. We're starting to commercialize the factories. We're a full turnkey solution to homebuilder. Our business is to go launch mobile micro factories, like McDonald's. We go partner with local operators and the factories' customers end up being whom we call 'the magnificent middle.' For example, a builder who builds and sells 20, 40, or 50 homes a year in that locale would be the off-taker of our factory. We're giving that group a full turnkey solution."

Big Bold Vision

We don't think that us trying to take on the industry is the right approach. We want to provide a tool that the industry can then use to change the industry. In order to change any industry you have to invest 5x the size of the industry. I don't remember I heard that anecdote, but it's an interesting one. We're not trying to radically change the industry because we can't invest 5x the size of a trillion dollar industry. Therefore we want to provide a tool for the industry to let it apply to itself. But in 10 years, our goal is to provide it around 275 mobile micro factories out in the world, the bulk of those likely in the US, which means that we'll be able to do an aggregate over 10 years of 200,000 homes, provide 300,000 jobs and reduce about 800,000 tons of waste. So we have pretty big aspirations but the goal is just to make sure we get the first couple of mobile micro factories right: Reduced costs, extremely efficient, and un-bundle from skilled labor. That's really our target and also do this in the most capital efficient possible way."

What would be interesting then is for Brian Potter to take a look at how this might change the question about housing he asks in, say, 2030.