California lawmakers are weighing legislation that would push developers toward factory-built housing, an approach proponents say can speed construction and reduce costs in a state where housing remains scarce. The proposals, introduced by Assembly members Buffy Wicks and Juan Carrillo as part of a broader bipartisan package, include multiple bills aimed at standardizing or trimming regulations for construction that begins in factories and ends on-site. A central element is Assembly Bill 2166, which would have the state step in to support certain insurance payouts for factory-based housing projects when bonds are called.
Supporters say the concept responds to a financing problem that has prevented factory construction from scaling to the level envisioned by advocates for years. Rather than treating the issue as a construction process challenge alone, the bill targets an insurance and surety-bond bottleneck that can determine whether developers and lenders will move forward. If developers and lenders can be more confident about coverage for projects that fail, supporters argue, more companies will be willing to contract with factories, allowing those factories to sell more units, build a track record and eventually lower costs.
Tyler Pullen of the Terner Center for Housing Innovation at the University of California, Berkeley, said the effort represents a shift because the state would be taking on a role he described as unprecedented for housing. “This is the first time I have seen something like this be suggested, drafted and potentially implemented by a state for housing,” Pullen said, describing his technical assistance work for Wicks and other legislators. He also said a similar concept appeared in interviews he and colleagues conducted with industry stakeholders for a recent Terner report on industrialized construction, while calling the bill “the most open-ended and technically complicated” item in the legislative package.
The bill frames the financing obstacle as a “self-reinforcing cycle.” In that cycle, developers and project lenders are wary of starting projects with a factory builder, particularly one that is newer and has limited proof after high-profile industry failures. Those concerns then translate into a requirement that factory projects be bonded. But the bill’s proponents argue that factories struggle to secure that bonding coverage without the financial track record that comes from completed projects, leaving factories with fewer opportunities to win work—and reducing their chance to build the track record that would make future bonding easier.
AB 2166 would attempt to break the loop by having California take on a re-insurer-style backstop. In the event a bond is called due to a project failure, the state would cover a portion of the payout in certain extreme circumstances, though the legislation’s text as described in the reporting did not specify the size of that portion or what qualifies as “extreme.” The goal is to make surety companies more comfortable offering the coverage that developers and lenders want, which supporters say could encourage developers to sign with factories and help the industry ramp up production over time.
The insurance backstop concept, the reporting noted, resembles other state and federal efforts that guarantee parts of housing-related lending risk. The U.S. Department of Veterans Affairs and government-sponsored enterprises Fannie Mae and Freddie Mac guarantee privately issued mortgages to help expand access to cheaper lending, while the Small Business Administration guarantees surety bonds for small businesses. California also operates loan guarantee programs for health care facility construction, but the reporting said the state does not currently run a housing guarantee program. A prior bill last year that would have replicated the model for affordable housing projects did not advance fully through the Assembly.
Not everyone involved supports the approach as the best next step. Jan Lindenthal-Cox, chief investment officer at the San Francisco Housing Accelerator Fund, a nonprofit that backs cost-cutting affordable housing projects, described the proposal as needed to scale the industry. “This is what’s needed if you really want to scale the industry,” Lindenthal-Cox said.
But some off-site construction proponents questioned how the insurance backstop would affect the incentives around factory-based building. Ryan Cassidy of Mutual Housing California, a Sacramento-based nonprofit that said it plans to use factory-built housing for most of its future projects, questioned who the policy would encourage to enter the market. “We’re incentivizing developers whose only go/no-go is whether the factory stays in business. To me, that’s a developer who is probably not very savvy,” Cassidy said. He said the bill’s structure could help new factories with limited experience win contracts, but he argued that his organization’s perspective on risk differs given its project history.
Cassidy also said he would prefer what he described as a “more direct” approach, such as providing factory-built projects with more money rather than adding a state backstop for surety payouts. Michael Merle of Autovol, an Idaho-based housing factory, said the bonding idea would likely benefit newer manufacturers that have fewer projects and limited histories, and he described Autovol’s own situation as more stable in terms of securing coverage. “If you’ve only got two or three projects and a couple years under your belt, those are the ones that are required to bond,” Merle said, adding that those same newer makers are the ones that “very much struggle to bond.”
Lawmakers are expected to weigh whether California should tie its financial commitment to a still-developing industry and define how any state support would work. The reporting said the bill is scheduled for its first legislative committee hearing in late April, but it also noted that the total amount that could put state taxpayers on the hook remains unanswered. For supporters, the premise is that state support for early adopters could be temporary—until private insurers and lenders become comfortable without the public backstop—while for critics, the policy needs clearer answers about risk, qualification and the scale of any liability.