First Principles: Housing WWTD/WWED?
This post has two purposes. 1) It’s a thought experiment for us to improve the way we serve our housing customers. 2) It has a chance, and there’s always a chance, of encouraging the Tesla team to think about entering the housing industry.
The Tesla Model H (not the RV they unveiled)
Why would Tesla even consider entering the housing market? Their mission is to accelerate the world’s transition to sustainable energy. One challenge in adopting solar and battery technology is in the amount of energy needed to fully cover a house’s energy consumption, especially an older home like the current housing stock. If Tesla wanted to further advance the world into sustainable energy, they might consider making a Tesla Home to go along with their Tesla Roof and Tesla Battery.
This need for more energy is worsened by homes with inefficient designs and insufficient insulation. Despite pricing parity between renewable and nonrenewable energy sources, as of 2015 the median age of US housing stock was at 37 years old, which having an older housing stock means converting to renewable energy sources with batteries is still one of the last items in priority of decreasing energy costs. For the everyday homeowner with an older home, there are higher returns to be had in sealing windows, adding insulation, and decreasing the energy load. Often, only after those items are covered is it economically advantageous to add solar.
One additional factor discouraging sustainable energy investment in housing is the rental market. Considering 36% of US households are renter-occupied, and with landlords not paying for the energy costs in most unit, there’s little encouraging landlords to invest in sustainable energy. A silver lining, increased energy efficiency can be a differentiator in competitive rental markets, but as a whole, it’s unlikely for landlords to invest in sustainable energy any time soon.
Much how Tesla’s Solar Roof becomes a more realistic purchase when considering lifetime cost of ownership, a future Tesla home will likely have a lowered total cost of lifetime ownership than any other new home in it’s class.
How do we make the best housing for a lower cost of ownership than normal new housing? Step 1 is to make the best housing from the ground up (first principles). Step 2 is to make the housing in a way that costs less in the long run (sustainability). Step 3 is about moving the housing industry towards a better future (change the industry).
First Principles applied to Housing, Step 1
Part 1: What is the best house? Part 2: What is the true material cost that makes up our best house?
These questions serve as our foundation for this thought experiment. We’re not looking at how are things currently done, or what do things currently cost. We’re instead looking at it from a place of first principles.
Part 1: What makes a house the best housing?
This list is an organic one. We’ve included our thoughts here, but we’d love to consider new options and features. So feel free to drop a note or suggestion.
The best housing:
has high energy efficiency, with the ability to fully utilize sustainable energy with grid backup
is the economic no-brainer with a better lifetime ownership cost than any other new house
has the ability to build equity in the short term by paying rent (see our earlier post on this idea)
doesn’t need a huge down payment to get started building ownership
is available at all stages of life from children aged to college to post college to retirement
gets updated and refreshed over time
is easy to repair and to perform preventative maintenance, that’s cost effective to hire out
has neighbors who are actively involved in getting to know you and vice versa
makes it easier for you to get more connected in the immediate community and civically
is built by a company looking after their customer’s best interest, personal growth, & happiness
has flexible space available for visitors/guests
had flexible space available to support side hustles
has lighting that encourages circadian rhythm and makes it easier to sleep, at any hour
has good sound absorption qualities and sound filtering from the outside
has a calming feel so people feel safe and relaxed at home
has amazing air and water treatment, like a bioweapon defense mode
has safe storage and accessible excess storage spots
has quality, lasting furniture available, while also allowing to bring your own furniture
moves stuff when you move, without much risk or extreme costs (caring employees?)
has incredible fire risk prevention
is the safest house in the market
has smart speakers and ai assistants in each room that can be hard-turned off for privacy
knows when you’re coming home and prepares the house to your style/music/etc
has a garbage disposal that crushes anything
has a dishwasher that cleans the first time, every time
has laundry in unit with low energy usage
has a staff like your local coffee shop who gets to know you and is genuinely happy to see you
has vehicle easy access without getting wet or snowed on or facing the elements
has a fireplace for the best comfort and that primal human experience. (surround fire, not TV)
has ease of moving furniture in and out, like couches and stuff
proximity to normal life activities like child care, work, grocery store, etc
is beautiful and sexy both inside and outside
has great and full cell phone coverage
has great and full wifi coverage
has fast internet at reasonable price
has bedroom noise isolated from outside and inside noises (helping people sleep at any time)
smells pleasant and has clean common areas
is easy to rearrange and upgrade
has plenty out outlets and internet ports
doesn’t have extreme wifi interference across units
has natural light feeling during waking hours, and warmer light leading up to sleeping hours
has pet waste bag drops easily accessible and spots for pets to roam
makes money for the owner at the push of the button, using excess capacity of the asset
Part 2: What’s the material cost to make the best house?
We have quite the list to figure out from a material cost standpoint. Surprisingly though, the material cost to add these extra quality of life features aren’t as high as one would expect. Take for instance a couple key additions that can create a better environment for shift-workers.
Material cost to add extra sound-dampening for bedrooms
~$1,200 to Double layer the drywall for 3 bedrooms with a sound dampening insert. Considering this upgrade lasts over 30 years, we can improve 175,000 of awake-time for someone who sleeps in our sound dampened bedrooms. Or putting it differently, it costs less than 1 third of 1 cent per hour that someone is awake to get even better sleep cycles with fewer disruptions.
Material cost to add lights for helping circadian rhythm
~$900 to add extra fixtures and lights to allow circadian rhythm lighting to help people sleep easier at night or for whenever they need to set their sleep schedule. 45 light bulbs typically per house light bulbs are about $4/each to last 4 years. Fixtures are another $10/each which have an expected life of 30+ years. Using time value of money and all that jazz, we’re looking at about $10/month for circadian rhythm lighting setup in a house.
Make things sustainable, Step 2:
Make the total lifetime cost lower than a new home.
In order to win the economic advantage, our Model H(ome) needs to not just be the best house, it also should have a lower lifetime cost of ownership than other new homes. To help achieve this goal, the house would have some standard principles:
Minimize moving parts (at least this is one thing Tesla did, I guess it might be harder in a home)
Keep things simple and sexy.
Repairs are easy to access and make without specialized components/tooling
The parts that receive the most wear and tear are built to last the life of the property, instead of the life of the sale. I’m looking at you cheap siding/roofing/paint/flooring! Skimping on stuff like this gives people a false sense of cost of ownership, because after about 10+ years things can begin to cascade rapidly. Especially if construction is sloppy, and water leaks begin.
Sell directly and build vertical Integration of business model
Limit outsourced partners who take too long, and give too little. Basically avoid ‘takers’
Work with the sharpest people in the industry, attract the most devoted & talented team
Constantly stay on the lookout for an advantageous edge in technology, technique, and procedures. Test possibilities and see if it can improve way of doing things
Allow housing when not in use to be shared on the market. Turn bedrooms and the house into cash, mitigate risk from homeowner’s perspective, decrease true cost of housing with increased revenue and capitalization of asset. Like the Tesla network for their soon to be autonomous cars.
Move the entire industry towards something better, Step 3.
It’s not enough to just be the best developer with the sexiest, best housing options.
No, the true goal is to move the entire industry away from something that has so many negative long-term externalities, and towards a model that is more beneficial to users, owners, and everyone else in the world. That’s the real magic that separates Tesla from the traditional industry.
Companies like to brand themselves as working towards something bigger, but like Nassim Nicholas Taleb asks: where do they put their risk & resources, where do they actually stick their neck out? I think it’s safe to say Tesla is putting their words to action, and it’s high time we take that style of drive to new segments of the economy.
And if anyone at Tesla, SpaceX, or the Boring Company wants to help tackle housing, please let us know… we’ll share everything we’ve built, researched and continue to find.