In the U.S. today, almost all housing — single-family homes, townhouses, small apartment buildings, and large apartment complexes — are built through traditional, onsite construction, where workers assemble the materials and construct a building on the ground on which it will be occupied. Offsite construction, where a portion of the material assembly is done offsite in a factory before being transported to its destination for final assembly, can accelerate home development and increase housing supply at scale. The most advanced form of offsite construction, “industrialized housing delivery,” utilizes practices and methods associated with other fields of manufacturing to engage all parties from project inception and maintain this collaboration throughout delivery to increase efficiency and improve outcomes. However, the varied and layered building and land use requirements of states and local governments currently favor conventional design-bid-build site-built construction, limiting adoption of offsite construction methods in the U.S. even as other developed countries continue to lead in using these approaches. State and local governments can implement targeted reforms and actions to modernize and harmonize building codes to propel the offsite construction industry forward and effectively address the housing affordability crisis.

International examples like Japan, Sweden, and parts of the UK and the European Union demonstrate that governments leading through regulatory reform and demand aggregation actions can successfully accelerate and scale offsite construction. Regulatory reform includes aligning building codes across jurisdictions to eliminate arbitrary differences and streamline the process of permitting buildings for construction, which would decrease cost and increase efficiency for all types of housing, including offsite. In the U.S., regulatory reform would be achieved by migrating from the current “prescriptive” building code framework — which dictates the types of building materials and techniques given the size and use of a building — to performance-based building codes that focus on how building materials and construction techniques should perform. Demand aggregation is also often seen in successful modular construction efforts, as it creates the consistent project pipeline that offsite construction entities need to justify upfront factory investments and align with local, state, and federal governments on incentives and award criteria.

States and localities can accelerate the adoption of industrialized housing delivery by changing regulations and incentives, and procuring housing in ways that encourage greater speed, reliability, and consistency — areas where offsite construction excels. This includes different forms of demand aggregation, such as changing award criteria from housing authorities, city housing departments, and housing finance agencies for private-sector developers to focus on the total project cost, project delivery timing, and product consistency — areas where industrialized housing delivery can excel. In Virginia and Minnesota, state and local leaders have been taking steps towards these changes, as highlighted by the case studies in this tool. Additionally, states and localities can pursue building code and land use reform, including the adoption of new standards from the International Code Council and Modular Building Institute, toward a long-term shift focused on performance-based building codes, as has been done in Utah, Montana, and Virginia. In partnership with MOD X — a research-based advisory group focused on advancing the industrialization of construction to achieve broader societal goals— HUD and the National Institute for Building Sciences (NIBS) are also developing educational programming, strategic action plans, and implementation roadmaps to support state and local adoption of these regulatory solutions, and accelerate industrialized housing delivery.

The Challenge This Tool Solves

Construction costs have doubled over the last decade across the housing type spectrum, including for-sale, for-rent, market-rate, and affordable housing, driven largely by a national construction workforce labor shortage, increased material costs, and regulatory requirements that result in more time-consuming and expensive housing developments. Offsite construction can reduce costs by implementing manufacturing principles thereby optimizing labor, leveraging economies of scale, and improving material efficiency. Fostering a high-technology housing sector can address the current crisis and serve as a framework for the future of housing production across the U.S.

Types of Communities That Could Use This Tool

This tool may be used by states and localities that oversee building codes and directly or indirectly procure housing through the disbursement of grants, loans, and awards. Partners in advancing knowledge and research may include code councils, institutional housing, economic development think tanks, labs, and related nonprofits. Adopters may consist of state and city governments, metropolitan planning councils, public housing authorities, community and neighborhood housing organizations and consortia, offsite and industrialized housing companies, and developers.

Expected Impacts of This Tool

Our current regulatory framework, contracts, financing, insurance, and modes of project delivery are currently oriented around onsite construction. This tool aims to amend that framework placing conventional construction and innovative modes like offsite construction on a more level playing field to better utilize both delivery methods to achieve societal goals. By creating a framework more supportive of onsite and offsite industrialization and innovation can we properly address the nation’s increasing housing affordability and supply crisis. Implementing these institutional reforms at the state and local level provides the long-awaited possibility of accelerating innovative forms of construction that will in turn help increase housing supply, affordability, quality, durability, and performance. While tools like these have been proposed in  the U.S. for more than half a century, they have never been fully applied and realized, but have proved demonstrably successful in other countries that share economic and political similarities.