Housing USA: Prefab Construction

6 min read

Making Housing Cheaper and More Efficient  

Developers who build market-rate housing are increasingly turning to prefabricated construction techniques, because they represent, in multiple ways, a path to efficiency. The trend also appears promising—maybe even more so—for affordable home developers, including those who use Low Income Housing Tax Credits. 

There are several benefits for prefab home construction, which is defined as assembling structures fully or in part off-site and then moving them to where the dwelling will be permanently located. One of these benefits, according to Seagate Mass Timber, is environmental: they provide greater ability to reuse materials while avoiding waste.  

“Prefab typically saves ten percent in lumber costs,” the organization claims, by reducing the need for on-site cuttings. Given how said lumber costs have shot up recently, this is huge. And that reduction of waste allows “the owner or general contractor to collect valuable LEED points.” Seventy-seven percent of developers using offsite methods managed to cut material waste. 

Different materials can be used for prefab development. Wood does in fact remain one option, such as cross-laminated timber projects. Another option, more popular in urban infill projects of greater than four floors, is steel, such as the structures built by RAD Urban. But the prefab genre, due to its mechanized assembly techniques, tends to attract other materials beyond this traditional “wood vs steel” framework. For example, the Singapore-based firm Nevhouse builds prefab homes in developing-world slums using recycled plastic waste. 

A second advantage of prefab construction is timesavings.  

“I would say the main advantage is time,” says Lana Cook with Prefab Logic, a consultancy specializing in the pre-construction stage of prefabricated structural development, in a Zoom call. “Everybody would love for it to be cost, but cost is a factor of many other things working well.”  

With prefab construction, developers can expedite other work while the structure itself is being built offsite, namely foundation development. “You’re cutting out at a minimum four to six months of production time,” Cook says. 

Cost savings are, nonetheless, a third benefit. Cook cites the savings at ten percent overall, but it is possible for that figure to be higher depending on the developer and project. Caitlyn Crosby, the media relations manager for Clayton Homes, America’s largest prefab home builder, makes similar points. 

“Building materials and name-brand appliances are purchased in bulk and distributed to the network of building facilities nationwide, utilizing economies of scale to forward the savings to our customers,” she writes, adding that material reuse and assembly tactics further reduce costs. 

Labor efficiencies account for additional savings, as there are fewer total workers needed in a factory – meaning fewer wages, benefits and workplace injuries. There is also less complexity involved in installation; a window within a prefab building, for instance, is being installed effectively at ground level, whereas in standard structures, installation may require carrying the window up multiple floors or having to use a ladder. 

BRIDGE Housing, a California-based affordable developer, and the nonprofit Stewards of Affordable Housing for the Future compiled a white paper on modular construction. In one case, a firm was able to achieve 20 percent cheaper construction while building eight homes a day. Time savings, they found, range from 30 to 50 percent. BRIDGE used these savings from prefab to “mitigate a funding gap in a San Francisco Bay Area project.”   

Cook estimates that three-fourths of Prefab Logic’s home projects have been affordable, whereas the others are market-rate. She notes that the relative lack of customization needed for affordable housing works well for prefabricated construction, in contrast with high-end market-rate products that demand more customization.  

Housing structures are not the only types of construction that can be done through prefab development. Shockey Precast, a division of the Metromont consortium, has built several prefabricated parking garages, particularly in the mid-Atlantic region. Given the cost of structured parking—which adds $50,000 on average to housing units—these efficiency gains would prove beneficial for affordable projects. 

Prefab is also, more than on-site construction, fit for adapting certain modern technologies that improve the design process, such as virtual reality. Observes Architizer, “Building information modeling (BIM), computer-aided design (CAD), robotic construction and 3D printing systems all lend themselves perfectly to the repetition of modular design elements, making the prefabrication process increasingly efficient.”  

But one problem that modular construction encounters even worse than traditional on-site construction is land use-regulations and local NIMBYism. A 2011 HUD report found that “manufactured housing placements…are influenced by a variety of regulatory barriers, including the lack of by-right zoning, burdensome fees, permits, snow load standards, fire codes, zoning codes, subdivision regulations, architectural design standards and environmental regulations.” 

Many localities have a “snob zoning” apparatus that is meant to discourage prefab under the premise that it is somehow lowbrow or hostile to public health. In particular, manufactured trailer homes—which are a subset within the genre—are a target of these regulations, often squelched by minimum unit size regulations as well.  

The Department of Housing and Urban Development also notes that there have been challenges to financing; Quicken Loans, for instance, does not lend for modular construction except in certain circumstances. As part of the Biden administration’s Housing Supply Action Plan, Freddie Mac is considering purchasing chattel loans, which is a mortgage for a manufactured home or other piece of movable property. Fannie Mae, Ginnie Mae and the Federal Housing Administration are also experimenting with different loan programs to encourage prefab home purchases. President Biden’s plan would involve dangling federal financing to jurisdictions that reduce barriers for manufactured development.  

Regulatory and financing hurdles aside, the demand for prehab is steadily growing. Since 2012, the total annual market size of prefab housing has increased 39 percent. ”Industry wide, new manufactured home shipments were up from 94,000 homes in 2020 to almost 106,000 in 2021 – the most in 15 years,” says Crosby.   

For these reasons—the cost efficiency, the time savings and the growing consumer appetite—prefab construction and the affordable housing industry are a great fit. Prefab trailer homes have long been an organic free-market path to affordable living, generally in rural areas. But a huge forward step would be for the genre to become codified into government housing policy, including LIHTC. Housing finance agencies ought to give strong consideration to prefab construction projects in their Qualified Allocation Plans, while other agencies at state and federal levels can work with zoning authorities to ease the barriers to construction.  

This article featured additional reporting from Market Urbanism Report content manager Ethan Finlan.