Modular construction has the potential to reduce residential construction costs by 20–30% and accelerate construction timelines by 30–50%. While widely adopted throughout the developed world, however, modular construction represents less than 5 percent of new construction in the U.S. Its adoption has been limited by a patchwork regulatory environment, risk-averse financing and development practices, and high upfront costs for manufacturing facilities. Furthermore, the economic benefits of modular construction diminish when homes must be transported great distances, necessitating strategic placement of factories near areas of housing demand.

Pre-purchasing agreements or financial guarantees by local governments offer a promising approach to solving these challenges. When local governments, housing authorities, or cooperative arrangements among multiple localities commit to purchasing a base level of modular homes, they generate sufficient demand to justify investment in local construction facilities. This approach diffuses risks, reduces cost, and establishes the necessary pipeline to expand the modular industry across broader regions.

The Challenge This Tool Solves

Construction costs have increased at more than double the rate of overall inflation over the
past decade across the spectrum of housing: for sale, for rent, market rate, and affordable. Contributing factors include national shortages of construction workers and skilled tradespeople, increased costs of raw materials including lumber, and regulatory requirements that make housing increasingly scarce and expensive. Modular construction addresses these challenges through economies of scale, improved efficiency in material usage, the ability to continue work independent of weather conditions, and accelerated construction timelines. Pre-purchasing agreements empower local jurisdictions to reduce modular manufacturers’ risk, encouraging them to establish or expand production facilities in or near their jurisdiction, and making it more likely the potential cost savings from modular will translate into reduced production costs and greater housing affordability.

Types of Communities That Could Use This Tool

The establishment of offsite manufacturing requires sufficient regional demand for new housing units of a similar type — whether single family, townhouses, small apartments, or larger apartment buildings. There are numerous transportation, regulatory, and labor issues to consider when communities choose to invest in a modular factory. Communities experiencing housing shortages that have available land for production, and a regulatory environment conducive to inspections and building permitting of housing units constructed off site are prime candidates for this tool.

Expected Impacts of This Tool

In ideal conditions, estimates suggest that modular construction can reduce construction timelines by 30–50%, and overall construction costs by 20%. Investing in recruiting an offsite manufacturing facility can increase the pace of construction of housing in a region, while decreasing the per-unit costs over time.