Can Modular Housing Improve the Affordability of Housing?

At some point, you will have to consider becoming a homeowner. You can’t rent forever. Who wants to do that? Renting is sometimes referred to as tossing money down a drain because there’s no real investment. Whereas with homeownership, you’re investing. But over the years the prospects of purchasing a home has become more of a challenge than a reality. Houses have increasingly become less affordable due to an increase in cost and stagnant wages—homeownership becomes more unaffordable daily. In about 80 percent of U.S. markets, housing prices are rising faster than wages.

The standard for gauging affordability is the 30 percent standard which derives from an old maxim “a week’s wages to a month’s rent.” Around the mid 20th century in America, twenty-five percent of wages a month to pay for rent became the standard, until it was updated in the ’80s by the US to 30 percent. Whether or not an economic policy based on an aphorism is valid, people today are well exceeding their means when purchasing a home. About two-thirds of renters say they can’t afford to buy a home, in general.

Part of the problem with affordability is the cost of construction, which can easily exceed the intended budget when building with traditional construction methods. That’s where modular construction comes in. Can modular construction improve the affordability of housing? The simple answer is yes, it can. However, there’s a lot to dissect, so let’s dive in to learn more about what we mean by affordability and how modular construction can help renters today become homeowners tomorrow.

The Average Cost of Construction

According to McKinsey Global Institute, the construction industry’s productivity rate has been stagnant since 1945. Even though other industries over the years have seen significant growth, for some reason construction has not seen similar returns. This may be due to the inefficiencies that drive up the cost of construction practices, as well as a decline in skilled labor that’s needed for construction projects.

In addition, there’s a decrease in construction, which has reduced the supply of affordable housing units and raised the cost of homes. With a shortage of skilled construction labor, a low supply of lots, tight conditions for lending and restrictive construction laws, housing has taken a dramatic hit (for the last few decades).

It is these factors that contribute to the challenges that home builders and other industry professionals are running into. Each construction project produces a collection of expenses such as site planning, materials, labor, equipment and insurance. A standard construction project will start accumulating costs before the project even breaks ground.

When it comes to overages, a large percentage of building projects incur large losses; projects are produced with a finishing date and when finishing dates aren’t met, the budget is exceeded.

Budget and timelines not being met have become remarkably common in construction. Over the last few years, only about a third of all construction projects have come within 10 percent of their budget.

When you’re building a house on-site it can create a surplus of opportunities for unnecessary loss. Losses in on-site construction from traditional methods include:

• Material theft
• Building supplies exposed to the elements
• Unsystematic job site
• Labor troubles
• Mismanagement

Labor loss is a heavy burden and due to a labor shortage, this is fairly common. With a shortage of experienced labor, numerous construction firms are forced to pay overtime. Research has exhibited a 10% reduction in productivity for every additional 10 hours added onto a worker’s week.

Modular Construction and Housing

The simple fact is that America is suffering a housing shortage due to the factors mentioned above. With labor shortages and land-use restrictions, construction productivity in the US has been stagnating for decades. In fact, the rate of new housing units being built each year is more than 20 percent below the average between 1975 and 2000. Because of this home prices nationwide are rising at twice the rate of incomes. Since 2000 construction prices have been increasing sharply, mainly due to labor issues. Because of this, today’s rising demand for housing is being met by fewer firms.

RELATED: What’s the Difference Between a Modular and a Manufactured Home

This is why now is the time to begin building more strategically with modular construction. Modular construction can help eliminate issues, such as skilled labor shortages. Since modular construction takes the brunt of the build off-site to a factory, it requires less skilled construction labor and more factory labor, which is significantly less costly to builders, since off-site construction takes the whole process out of the hands of fate due to inclement weather and into a climate-controlled facility and a well-planned operation.

The modular construction industry is estimated to be worth upwards of $129.67 billion by 2023. That’s up from $92.18 billion in 2018. With a steady climb of $37.49 billion or 28.9%, modular construction has the potential to change the world.

In the next few years, the modular construction industry is primed and ready to see a near 30% increase in its market shares. This is in part due to the rise in demand for newer and more technologically advanced structures at affordable rates; in part due to the rapid urbanization of neighborhoods—you can expect to see the outlook for the industry to be popular in the next few decades as more and more areas require the speed and affordability that other construction methods cannot match.

Modular Construction is The Future of Housing

The home building companies that utilize modular construction incorporate up-to-date budgeting and schedule management as well as lean production methodologies into their modular construction production process to prevent cost inefficiencies.

There are 3 major benefits to this kind of construction:

1) Reduces uncertainty, eliminating concerns for bad weather and property theft that sometimes increases the likelihood of completing the project outside of scope and budget;

2) Decreases overall budget (when compared to traditional construction methods) since factory labor is significantly cheaper than construction crew labor. Also, many of the factory crew will have worked for the company for years, as a result, there is less of a learning curve which can save time and money;

3) modular construction is a much greener application than other construction methods since many traditional construction methods result in larger environmental footprints because of extended onsite construction which increases the risks associated with air and water pollution.

Modular construction offers a vast array of options that can help decrease the cost of a build, thus saving money and making the home more affordable.

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