A crane picks up four 15-foot-wide, 60-foot-long modular home segments and stacks them on top of each other to construct a new duplex in Aurora, Colorado, in 2018.
Hyoung Chang | Denver Post | Getty Images
A century ago, a first-time home buyer might begin his search in a self-built home catalog from Sears and others. In today's real estate market, the idea is rarely considered when looking for a home. But as affordability has risen to extreme levels and more buyers are considering sustainability, the modular home – the offspring of the modular home – could be thrust into the spotlight.
At least US consumers who want to build an efficient and sustainable home should consider a modular solution. Green building experts generally agree that modular construction creates less waste and is less disruptive to plants and animals on construction sites. And instead of the thousands of pieces of wood, nails, and roofing material that would have been obtained with the kits of a century ago, modular homes today consist of fewer but far larger parts – they are assembled at a manufacturer's facilities and then delivered to the construction site. where they are assembled. In fact, the modules that make up a modular home can be the size of entire rooms. Usually only the foundation of the house is actually built on site.
Modular construction has also drawn interest from affordable housing advocates as mortgage rates are currently declining, reaching as high as 8% this year, and home prices have risen in nearly all major metro markets. The first of up to 2,000 single-family modular homes will be built in Chicago's Southside and will be available for a down payment of about $1,000 thanks to a partnership between city and state governments and area nonprofits. A smaller, affordable modular home project is planned for the Maryland suburbs outside of Washington, DC. Modular housing has also been used to combat homelessness in the United States, Canada and elsewhere. The issue was raised in this week's New York Times editorial.
Modular housing can be more cost-effective
Modular homes must meet state and local building codes and are financed the same as traditional construction. The difference is the price. According to HomeGuide, modular construction costs an average of $80 to $160 per square foot, which is 10 to 20% cheaper than traditional construction. This puts the cost to build a typical modular home at $120,000 to $270,000, compared to $155,000 to $416,000 for traditional construction.
Modular design can save money due to scaling. “We’ve seen up to 25 percent savings in vertical construction costs by building repeatable modular units offsite,” said Dave Dauphinais, associate partner at management consulting firm McKinsey & Company.
Based on these construction costs, the down payment and monthly mortgage costs for a 30-year fixed-rate mortgage with 7.25% interest would be $13,500 and $1,749.78 per month for a top-of-the-line modular home, compared to $20,800 and $2,695.96 per month for a traditional top-end home. According to Rocket Mortgage, the home costs $416,000.
Several venture capital firms have invested in modular construction, including Khosla Ventures and Y Combinator. One of the larger recent deals was led this September by Waed Ventures and Bold Capital, a $52 million funding round for Mighty Buildings, a sustainable, modular home startup that uses 3D printing to automate the construction process.
The net zero lifestyle fits well with prefabricated homes
Some modular home manufacturers specifically target consumers who want to maximize efficiency or strive for a net-zero lifestyle. These include Deltec Homes, Dvele and S2A Modular, all of which integrate solar panels into their homes.
“Modular home construction has come a long way and is worth considering because well-executed prefabrication can reduce waste and associated carbon emissions,” said Lisa Carey-Moore, director of buildings at the International Living Future Institute, a nonprofit organization, that promotes regenerative building practices.
In general, the modular assembly method can use fewer materials than traditional construction methods in which everything is built on site because the construction process can be more controlled and there is less chance of wood, tiles, roofing and other materials being stolen, damaged or wasted. Additionally, it is easier to recycle excess material in a factory environment than on the typical outdoor construction site or to reuse excess material from one job for a later job.
More than 15 percent of the materials used to build a home the traditional way can end up as waste, but with modular construction, waste is only about five percent, noted Ryan McEvoy, founder and principal of a sustainable building consulting firm called Gaia Development.
Speed of construction and portability are advantages
Although modular construction companies tout their cost and sustainability — and have attracted big-name backers like Bill Gates' Breakthrough Energy Ventures in Vantem's case — there may be other benefits. These homes can be built relatively quickly in a real estate market where inventory is historically low. McEvoy noted that a modular home can be ready for occupancy in eight to 12 months, which is about half the time it takes to build a home the traditional way. And it can be easier to move a modular home to a new location if necessary because the structures can be taken apart just as easily as they are assembled.
Modular townhomes in Bradenton, Florida manufactured by Vantem's subsidiary Affinity Modular.
Vantem
You may have noticed that major retailers like Costco, Home Depot, Lowe's, and Walmart have started selling tiny home kits with prices starting at $10,000. These are different from modular homes and are not suitable for everyone. At the lower end, these structures are essentially storage sheds and are marketed as such. Even larger units from these retailers are typically less than 600 square feet – about a third the size of the average American home. Unlike most modular and traditional homes, these small dwellings also lack the foundation for additional storage space. Instead of basements or crawl spaces, they generally feature metal frames that can be secured to concrete slabs or mounted on wheeled trailers.
Warren Buffett is in, but modular remains out of the market
Most modular companies are small and regional, but there are also some larger manufacturers, such as Champion Home Builders, Kent Homes in Canada and Clayton Homes, part of Warren Buffett's sprawling conglomerate Berkshire Hathaway Rich.
Modular homes are more popular abroad than in the United States and are being built quickly. Globally, the modular home market is estimated to be over $100 billion, but even though modular homes have been around for decades in the U.S., they have largely not yet caught on with American consumers. The vast majority of U.S. homes are built on site using traditional methods. In contrast, according to a McKinsey report, less than four percent of the current housing stock was built using modular technologies. This makes modular construction less popular than even mobile homes, which make up 6.3 percent of the US housing stock. The research cited several factors that contributed to the relative rarity. These included a lack of familiarity with the contractors and the need for upfront financing to cover the full cost of construction and modular components.
Some environmental experts are also skeptical about the sustainability claims.
“Modular and prefabricated construction are not necessarily more environmentally friendly than traditional construction methods,” said Chris Magwood, co-founder and research director of Builders for Climate Action, a Canada-based organization that advocates for zero-carbon construction. “It is entirely possible to put together materials with high climate impacts, major toxicity issues and problematic building science properties and create a poor prefabricated home. … it’s not so much the prefabrication that makes it better or worse for the environment.”
In fact, in a market where greenwashing is all too common, no home building company should be considered more sustainable. Carey-Moore said it was critical to assess companies' sustainability competencies to ensure construction products used were non-toxic, materials were sourced responsibly and waste was minimized and appropriately diverted.
“But because sustainable construction is important to developers, builders and buyers, modular solutions often represent an attractive alternative to traditional methods,” said Dauphinais. “Modular construction has the potential to be more sustainable.”