Key facts
- Offsite construction accounts for only 3% of newly built U.S. homes annually.
- The 21st Century ROAD to Housing Act contains provisions to increase modular housing adoption.
- Section 302 of the act directs HUD to identify and remove barriers to factory-built housing.
- Section 303 aims to streamline financing for ADUs and manufactured homes, expanding FHA loan limits.
- Past failures like Katerra highlight challenges, while new companies like ARO Homes seek to succeed with innovative approaches.
Modular construction currently represents a small fraction of new home builds in the U.S., but legislative efforts and industry innovation aim to significantly increase its scale and impact on housing affordability. The 21st Century ROAD to Housing Act includes provisions designed to remove regulatory and financing hurdles that have historically limited the growth of offsite fabrication.
Frank Cassidy, a former Federal Housing Administration commissioner and Assistant Secretary for Housing and Urban Development, now a Senior Managing Director at Walker & Dunlop, advocates for treating factory-built housing as mainstream infrastructure. He emphasizes that addressing the housing shortage requires building more homes faster and at a lower cost, a goal modular construction is well-positioned to meet.
The ROAD to Housing Act targets key bottlenecks. Section 302 directs HUD to identify and eliminate barriers to factory-built housing, such as rigid construction draw schedules and inconsistent building codes. It also mandates a study to create a standardized national building code, which Cassidy believes could preempt fragmented state and local regulations that hinder the industry. Cassidy advocates for performance-based regulation that encourages innovation while ensuring consumer protection.
Financing remains a critical challenge, as modular construction requires different draw schedules than traditional onsite building. Section 303 of the act seeks to address this by updating federal rules to streamline financing for accessory dwelling units (ADUs) and manufactured homes, including expanding FHA loan limits and offering more flexible options. Cassidy stresses that agencies like FHA, Fannie Mae, and Freddie Mac must adapt their financing rules to make modular products more accessible and financeable at scale.
Despite past high-profile failures like Katerra, new companies such as ARO Homes are emerging with strategies to succeed. ARO Homes, led by CEO Simon Boag, leverages experience from the automotive industry to design standardized, net-zero homes and focuses on replacement dwellings in established neighborhoods. Other successful modular builders include Clayton Homes and Volumetric Building Companies.