California lawmakers are advancing a new strategy to tackle the state’s persistent housing shortage, exploring a first-of-its-kind approach that would involve the state stepping into the construction insurance space to support factory-built housing.
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A bipartisan group of legislators, led by Assemblymember Buffy Wicks, recently introduced a package of bills designed to encourage cost-efficient construction methods. Central to the proposal is the expansion of factory-built housing, where homes are constructed off-site and then transported to their final location for installation.
Factory-built housing has long been viewed as a promising solution to rising construction costs and housing demand. Supporters say the method can significantly reduce build times, improve worker safety, and lower overall project costs. These efficiencies could ultimately make housing more affordable in high-cost markets like California.
However, despite years of optimism, the industry has struggled to achieve widespread adoption. Developers and manufacturers continue to face regulatory hurdles and financial constraints that limit growth and scalability.
To address these challenges, most of the proposed bills aim to streamline regulations and remove barriers to innovation. But one proposal stands out for its unconventional approach.
Assembly Bill 2166, introduced by Wicks and Assemblymember Juan Carrillo, seeks to provide insurance guarantees for developers and lenders working with factory-built housing projects. The measure would position the state as a reinsurer in certain cases, offering a financial safety net that could encourage broader participation in the sector.
“This is the first time I have seen something like this be suggested, drafted and potentially implemented by a state for housing,” said Tyler Pullen, a researcher at the Terner Center for Housing Innovation at UC Berkeley.
He added that while the proposal is complex, it has emerged repeatedly in discussions with industry stakeholders. “This could be one of the highest impact things, but it has a lot of open questions,” he said.
At the heart of the proposal is an effort to break what experts describe as a “self-reinforcing cycle” that has hindered factory-built housing.
Construction projects inherently carry financial risks, including cost overruns, delays, and potential legal disputes. To mitigate these risks, developers and lenders often rely on surety bonds—financial agreements that guarantee compensation if a contractor fails to meet obligations.
“A bonded project is one that ‘puts the developers and the lenders at ease,’” said Michael Merle, business development director at Autovol. “If any portion of the project fails, they are not going to be holding the bag.”
However, securing these bonds can be difficult for factory-based builders, particularly newer companies without established track records. Developers may require bonding before committing to a project, but manufacturers often cannot obtain bonds without prior experience—creating a cycle that limits growth.
Under the proposed legislation, the state would step in to partially back surety bond payouts in extreme cases. By reducing the risk for insurers, lawmakers hope to make bonding more accessible, which could in turn encourage developers to partner with factory-built housing providers.
The concept mirrors existing guarantee programs in other sectors. Federal entities such as the U.S. Department of Veterans Affairs, Fannie Mae, and Freddie Mac support mortgage lending through guarantees, while the Small Business Administration provides similar backing for surety bonds.
Industry reactions to the proposal have been mixed. Some stakeholders see it as a critical step toward unlocking the potential of factory-built housing, particularly for newer manufacturers seeking to establish themselves.
Others remain skeptical about whether the approach addresses the most pressing barriers.
Ryan Cassidy, vice president of real estate at Mutual Housing California, questioned the effectiveness of the insurance-focused strategy. “Who are we incentivizing?” he asked, suggesting that direct financial support for projects might deliver more immediate results.
Merle acknowledged that the proposal could primarily benefit smaller or newer companies. Larger, more established manufacturers typically face fewer challenges in obtaining coverage due to their track records and financial stability.
Lawmakers are expected to review the bill in a legislative committee hearing later this month. Key details, including the extent of the state’s financial exposure, remain under discussion.
Pullen emphasized that the proposal is intended as a temporary measure to support early adoption. Over time, he suggested, private insurers may become more comfortable underwriting factory-built housing projects without state involvement.
For now, the initiative represents a bold and experimental step in California’s ongoing effort to address its housing crisis—one that could reshape how construction projects are financed if successful.
Originally reported by Associated Press in US News.
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