Pre-Purchasing to Increase Modular Construction Capacity

Pre-purchasing agreements represent a solution to these challenges by establishing a reliable pipeline of demand for modular housing in particular regions. These agreements aim to create a fly-wheel effect where initial investments to attract modular manufacturers to a region promote the broader adoption of modular construction methods by other developers, enhancing its overall impact on housing affordability.

While local governments traditionally do not procure housing (apart from Public Housing Authorities), they influence housing creation through public land disposition, developer incentives, and subsidies for specific populations. These mechanisms provide avenues for supporting modular construction, which in turn could reduce the need for other incentives by lowering overall development costs.

The City of Cleveland recently implemented this approach under the leadership of Mayor Justin Bibb. Cleveland’s Site Readiness Fund for Good Jobs Fund (SRF) issued an RFP in December to attract an off-site construction manufacturer to help address the city’s 15,000-unit housing shortage. The RFP seeks to identify and select a modular manufacturing partner who will site a new factory on a 20+ acre parcel of land. The RFP process consists of two rounds: the first will identify manufacturers who are the best fit for the initiative and city; the second will involve discussion, site visits, evaluation and negotiations, with the goal of selecting up to three developers who will construct a pilot to build 15 homes for direct purchase by SRF.

The city and its partners are providing a number of incentives and other forms of support to encourage manufacturers to respond to the RFP and increase the chances of long-term success. The city is securing base demand among nonprofit, governmental agencies, and for-profit developers, with a targeted commitment of 100-200 homes annually over ten years beginning in 2026. Prior to the release of the RFP, SRF partnered with the City of Cleveland, City Council, and the Cuyahoga Land Bank to identify 18,000 vacant lots ready for development (and on which modular homes could be deployed). Manufacturers will also be able to leverage the city’s existing TIF and tax abatement tools, as well as state and local tax credits and incentives for projects that lead to 50+ new jobs. The city is also committed to streamlining zoning, permitting, and inspections processes to accelerate the production and deployment of these new homes.

The city is focused on deploying the homes in a concentrated way to catalyze neighborhood revitalization, with the target of deploying up to 100 homes in one neighborhood or district annually. Neighborhoods will be selected by a combination of elected officials, staff, and CDCs. Selection criteria including neighborhood interest, the presence of a high concentration of vacant lots conducive for development, recent or planned infrastructure investments, and the presence of other organizations interested in investing in affordable housing. This approach will also allow the city to better target focused infrastructure improvements through TIF and other tools. Ultimately, the city ultimately aims to develop a redevelopment playbook that can be applied annually to improve efficiency and streamline future projects.

Notably, a new modular factory in Cleveland is expected to not just serve the city, but also the 2.5 million people in the broader metro area, as well as the cities of Columbus, OH, Toledo, OH, Pittsburgh, PA, Detroit, MI, and Buffalo, NY, which are all within three hours and have easy interstate access.

The Minneapolis Public Housing Authority (MPHA) has similarly leveraged modular construction for its Family Housing Expansion Project (FHEP, creating 84 units of public housing across 16 developments. The project comprises 26 two-bedroom and 58 three-bedroom homes in fourplex and sixplex configurations, all serving households at or below 30% of Area Median Income (AMI). Minneapolis Public Housing Authority (MPHA)—the developer, owner and property manager of the project—estimates these 84 new homes can serve approximately 420 families over the next 30 years.

To reduce costs and speed the development time, MPHA issued an RFP for a developer to design and build these units, selecting a consortium including Rise Modular, an existing Minnesota based modular construction company, Frerichs Construction, a general contractor, and DJR architecture. This approach reduced neighborhood disruption and accelerated delivery by 30% compared to conventional processes.

MPHA was able to provide 84 project-based vouchers to fully subsidize the units to achieve the project’s deep affordability and made a significant contribution with a $12.5 million dollar loan to the project. Additionally, the project benefited from a $1.4 million Local Housing Incentives Account (LHIA) award from the Metropolitan Council, a $500,000 award of Hennepin County’s Affordable Housing Development Accelerator fund, and more than $500,000 in equity through solar tax credits. The project was one eighteen finalists for the Urban Land Institute’s 2024 Americas Awards for Excellence.

Another mechanism for expanding modular construction is cooperative pre-purchasing agreements between neighboring jurisdictions. Cooperative pre-purchasing, or purchasing consortia, is already used in states, cities, and municipalities across the U.S. to get the best value, ensure favorable contractual terms, and encourage competition and innovation. For example, states including California, Illinois, Massachusetts, New Jersey, New York, Virginia, Ohio, Pennsylvania, Rhode Island have established “Community Choice Aggregators (CCAs)” to source cheaper electricity for local communities resulting in lower utility bills and more renewable energy sourcing. However, co-operative purchasing has rarely been used for housing.

The Department of Housing and Urban Development recently awarded the Boston-area Metropolitan Area Planning Council (MAPC) a $3 million Pathways to Removing Obstacles to Affordable Housing (PRO Housing) grant to explore innovative ways to build and install modular housing in the Greater Boston region. The grant application specifically noted “that the lack of a manufacturing facility within 50 miles of Boston is the most significant barrier to the use of offsite construction due to the transportation and logistical challenges of transporting modules across state and country boundaries.”

Grant funding will help determine the best mechanism for the towns of Boston, Cambridge, Everett, and Newton to pool enough demand to locate a modular facility in the Greater Boston region, with the goal of producing 500 units annually by 2030. The initiative also engages labor representatives to ensure that off-site construction complements on-site work to strengthen the overall construction industry.