Modular houses value much less and are used throughout California. Why not in San Francisco?

During the next year Factory OS, the modular housing manufacturer on Mare Island, will truck its units to development sites in South Lake Tahoe and Santa Cruz, Morgan Hill and Palo Alto, San Jose and Los Angeles, as well as other cities.

Everywhere in California, it seems, except for San Francisco.

Five years after opening, the Bay Area’s only modular housing factory has churned out 2,000 units in 17 projects. By the end of the year, that number will be up to 2,400 units and 20 developments. All but three of the projects that have been built or are underground have been for affordable, nonprofit clients. And about half have been supportive housing for the formerly homeless, mostly studio units that Factory OS said can go from design to occupied in about a year — with a cost of $350,000.

For Factory OS founders Larry Pace and Rick Holliday the last year has been a welcome boon after a dark stretch. During the first year of the pandemic, the factory was short as many as 125 workers on any given day. The cost of materials shot up — if they could even get them. Deliveries were late, causing consternation to clients, who were on the fence about moving forward with projects.

Factory OS housing units are built on an assembly line with 32 stations. Work starts at the bottom with the floor and what lays below — pipes and ducts for plumbing and electrical wiring. Each modular is a 25-foot by 12-foot. By the time it is through the line, workers will have added the roof, windows, built-in cabinets, doors, bathtubs, heating and air conditioning units — everything that will be found in a conventional apartment. Once completed, the units are typically wrapped up and stored on Mare Island until the project’s concrete podium is ready. Then the boxes are trucked over to the site and set by crane onto the building’s foundation.

“We fought our way through COVID and now we are stronger than we have ever been. It was a wild ride,” said Pace. “We have come a country mile.”

But from the start, San Francisco, the city with the region’s highest housing construction costs, has had a tense relationship with Factory OS. While the factory’s workforce is primarily made up of 300 union carpenters — who make an average of $44 an hour — San Francisco building trades object to the fact that its workers are doing some of the work of trained electricians, plumbers and others who are paid more and go through rigorous apprenticeship programs.

A worker assembles the interior of a modular home at Factory OS on Mare Island in Vallejo, Calif.

Bronte Wittpenn/The Chronicle

In the factory’s early days, San Francisco nonprofits ordered four supportive projects for the formerly homeless — in Mission Bay, SoMa and Treasure Island — totaling 629 units. Three of those projects are still under construction. Two of them are behind schedule. The one that is open, 833 Bryant St., was built for $382,917 a unit, or 25% less per unit than similar projects in San Francisco, according to a case study published by UC Berkeley’s Terner Center for Housing Innovation.

A spokeswoman for the San Francisco Mayor’s Office of Housing and Community Development said that there are no plans to do more with modular homes.

“MOHCD is not currently considering modular for any of our pipeline projects,” said spokeswoman Anne Stanley. “We haven’t seen clear indication that modular housing improves costs or timelines, and in some cases modular construction projects have ended up being more expensive than non-modular.”

That decision comes as the San Francisco building unions have stepped up criticism of factory built housing. Four local unions — electricians, iron workers, sheet metal workers and plumbers — created the Honest Builders Coalition, which has a mission to “bring attention to factory built housing and how it’s failing San Francisco.”

The group’s website includes photos of the four modular projects in San Francisco and details of various alleged code violations and construction defects. They include “inconsistencies between technical drawings and the delivered product, incorrectly sized pipes, HVAC issues” as well as things like “hot water lines not in the correct location and vents that could not be tied down.”

A modular home prototype can be seen at Factory OS on Mare Island in Vallejo, Calif.

Bronte Wittpenn/The Chronicle

Pace, who in addition to Factory OS is founder of Cannon Constructors North, once one of San Francisco’s biggest conventional contractors, said the criticisms are bogus.

“I’ve been in this business for 45 years. I can walk on any job site, anywhere, built by anybody and take a few photos and say ‘Look at this, look at that,’ ” Pace said.

Jay Bradshaw, executive officer of the Nor Cal Carpenters Union — which represents workers at Factory OS — said his organization has been beefing up training and recruitment, with an emphasis on workforce diversity. The factory has eight inspectors, three of whom are third-party inspectors who answer to the state Department of Housing and Community Development.

Bradshaw called the Honest Builders group “spin.”

“You can roll up to any job site and pull it apart,” he said. “You take a hundred-unit project and go to look for a problem — you’re going to find something.”

In addition to the Honest Builders website, last June the executive committee of the San Francisco Labor Council unanimously passed a resolution to “prohibit the use of public funds for procurement of Factory Built Housing and modular elevators manufactured outside of San Francisco.”

The resolution states that “factory built housing and modular elevators are premised as a cost cutting scheme that relies on deep cuts from San Francisco’s prevailing wage rates to outsource affordable housing construction away from San Francisco.”

Rudy Gonzalez, secretary-treasurer of the San Francisco Building Trades Union, said any housing in San Francisco “should reflect San Francisco values.”

“We think local union hands should build our city like they have for 150 years,” he said. “I can’t support using public subsidies to send good San Francisco jobs elsewhere.”

Rick Holliday, CEO of Factory OS stands in a modular apartment that was built indoors and brought to the building site next to El Cerrito del Norte BART station in Oakland, in 2021.

Paul Kuroda/Special to The Chronicle

Meanwhile, the cost of building housing in the Bay Area continues to rise — in San Francisco affordable housing units in some cases top $1 million a unit — and most Bay Area cities are more than happy to give factory-built housing a chance. A McKinsey & Company Report released June 2019 found that off-site modular construction can produce finished housing units, ready for occupancy, 40% to 50% faster and at a 20% lower cost than conventional, on-site, stick-built construction.

“We are mission driven to lower the cost of housing. That is the reason we are here. That’s the reason I get up every day, suit up and get ready to fight,” said Pace. “But let’s face it, not everybody wants us to succeed.”

The nonprofit Eden Housing is just wrapping up Blue Oak Landing, a 75 unit project in Vallejo. Eden President Linda Mandolini said she has been trying to do a factory built project for 30 years, but every time she had came close the manufacturer went bankrupt. Factory OS, she said, seems to have figured out a formula that works.

“In the current cost environment we have to think of ways to invest in technology to do things more efficiently,” she said. “I think it’s really important that we start thinking about different ways to do this work,” said Mandolini. “After all, we are in California — the place that invents new ways of doing things.”

At 2121 Wood St. in West Oakland, Factory OS will build 235 units of workforce housing. Holliday, whose development company is the client on that project, said that the factory work will cost $120,000 a unit, about $28 million. The rest of the construction costs will be about $205,000 a unit, bring the total hard costs to about $325,000. All in, including soft costs and land, it will be about $450,000 per unit, about 30% to 40% less than it typically costs to build on Oakland.

Factory OS has a slew of tech companies as investors, including Facebook, Google and Autodesk, which developed the company’s software. The factory now uses a “configurator,” a tool that instantly provides hundreds of design permutations to help developers decide what to build. They also have a catalog of unit types—down to the faucets and tubs and stoves. Currently, about 75% of projects pick units from the catalogue.

“You come to us with a site and you tell us what you do, you know what your restraints are, what the setbacks zoning requirements are, and lickety split we can tell you what you can do,” said Pace.

Bradshaw said his organization has been beefing up training and recruitment, with an emphasis on workforce diversity. They have a training hub in Fairfield. “I see a lot of room for growth,” he said. “I could see having a couple of hundred more folks out there. The need for housing is greater than ever.”

“Any organization that believes in a healthy working class has to be focused on housing production,” Bradshaw said. “The real judge, the real sign of success, is the job of the end-user, the folks who are able to secure good-quality housing.”

Meanwhile, during a recent tour around the factory, employee Matthew Johnson was at one of the assembly-line’s 32 stations, installing ceilings on modular boxes, which take about 14 days to build. He said he was homeless as a teenager and lived in his truck before landing a job at Factory OS.

“This company has saved my life,” he said. “This is what puts food on my table and a roof over my family’s head.”

The fact that he is building apartments that mostly house low-income and homeless folks is what motivates him.

“I consider it a race,” he said. “I like being fast. I don’t stop sweating until I walk out that door.”

JK Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen