There are different ways in which modular construction can lower the cost of a new home. We look at three of them.
by Zena Ryder
- Modular doesn’t guarantee lower costs but it can enable them if the builder and manufacturer begin with that end in mind
- Each company profiled here targets a different type of affordable housing
- Cost-reduction strategies include taking advantage of regulations, subsidizing affordable with market rate homes, and making highly standardized products
Overlapping offsite and on-site processes makes modular construction a very real time saver. The factory can start building modules while the site is being prepared and the foundation poured and cured.
While shorter timelines can reduce some costs, modular construction doesn’t guarantee overall lower project costs than conventional construction. (Not least because of factory overheads and the expense of transporting modules.) So why do some modular companies see themselves as key to solving the lack of affordable housing?
To answer that I look at three different approaches by three different companies. To help you understand what they’re doing, I’ll first clarify some terminology.
Affordable For Whom?
You have probably heard the terms Affordable, Supportive, Transitional and Attainable. What do they mean? And why does the difference matter?
Affordable Housing. This term can apply to people with a range of incomes. The US Department of Housing and Urban Development and Canada’s national housing agency, the Canada Mortgage and Housing Corporation, both define affordable housing as housing with yearly costs of less than 30% of a household’s before-tax income.
Whether a home is affordable, or not, depends on family earnings. What’s affordable for one family, might not be for another.
Supportive and Transitional. These terms refer to affordable housing for people with needs that go beyond earnings.
Supportive housing projects include on-site services such as mental health support, addictions counselling, and job search help. It may be permanent or temporary housing.
Transitional housing is temporary housing, specifically for helping people transition from homelessness to permanent housing. It also includes on-site services.
So, transitional housing is a form of supportive housing. But supportive housing isn’t always transitional: it could be permanent housing, or it could focus on a population other than the homeless, such as veterans or people with disabilities. (Supportive and transitional housing can be owned by a government entity, a private business, or a non-profit organization. Typically, though, at least some funding comes from a government source.)
Attainable Housing. This term is income specific. It’s housing that’s affordable (by the above definition) for people earning the median income in a specific area. In other words, housing is attainable if people earning the median income spend less than 30% of their income on it.
If there’s a shortage of attainable housing in an area, it doesn’t mean that only “poor” people can’t afford a home. It means that average earners can’t afford one either.
How Bad is the Problem?
In September of 2021, the US Department of Housing and Urban Development reported that about 30% of all US households—more than 37 million— spend more than 30% of their income on housing. And according to the National Low Income Housing Coalition, no state or major metropolitan area in the nation has enough rental housing for its poorest residents. In fact, seven in ten extremely low-income renter households spend more than half of their incomes on housing.
Although things are better north of the border, affordable housing is still lacking. Statistics Canada (the government’s national statistics office) says that over three million Canadian households spend more than 30% of their income on housing. That’s about 22% of all the households in the country.
There’s clearly a need to build more homes that are affordable for more people. Accomplishing that means reducing the cost of building.
Every company involved in affordable or attainable housing has its own approach to lowering housing costs for occupants, and may specialize in a different housing type. So I decided to look at three such companies: Crate, Fading West, and NRB Modular Solutions. If you’re eyeing this market, their experiences could be helpful.
Work With Regulators
Crate builds supportive housing in California, typically in private-public partnerships, such as with the City of Los Angeles and a private developer. It’s “modules” are shipping containers. The company lowers overall costs, in large part, by building in a way that excludes them from prevailing wage laws.
Crate’s Care First Village in Los Angeles consists of two three-story buildings made from re-purposed shipping containers. It provides 132 units for people transitioning from homelessness
Amanda Gattenby, Crate’s VP of Development, explains that when a construction project in California uses public funds it’s required to pay prevailing union wages for work done on the construction site. “That means labor costs are 40% to 50% higher than on privately funded projects,” she says.
But this requirement doesn’t apply to offsite factory workers, who aren’t required to be paid the prevailing wage of construction workers. That reduces Crate’s on-site labor costs to “the concrete, the utilities, and the installation work,” Gattenby says.
Crate passes these savings along to the municipalities it works with.
Mix and Subsidize
Colorado-based Fading West builds communities that include attainable and market-rate homes. They have lowered costs for all of their units by vertically integrating their operations.
Fading West’s development, The Farm, showing the variety of housing types.jpg
Fading West’s vertically integrated operation reduces costs. That, along with profits from its market-rate homes, make it possible to build attainably priced units.
The company owns a modular factory, which means they can manufacture, finish, transport, and install modules themselves. There’s no markup between stages performed by different companies.
Middle-income buyers benefit from Fading West’s mix of housing types. The profits earned from building and selling market-rate homes help make it profitable to build attainable homes. In effect, the market-rate homes subsidize the attainable ones.
There has been a learning curve, though. Homes in the first phase of Fading West’s first development appreciated by about 30% per year. “Units we sold at $200,000 are now selling at $325,000 and are no longer attainable,” Fading West’s CEO, Charlie Chupp says.
To prevent that from happening again, more than half the homes in phase two will be deed-restricted for a maximum annual appreciation of 3%. The deeds on all the homes will also require that they serve as primary residences — owners can’t use them as short-term rental properties for tourists.
Think Like a Manufacturer
The difference between a home builder and a home manufacturer is that the latter sees its offerings not only as homes, but also as products. And products can be manufactured the same way, again and again.
NRB makes affordable housing profitable by a productized approach in which it builds the same designs again and again
One manufacturer is Canada-based NRB, with plants in Ontario, Alberta, and British Columbia (BC). They reduce the cost of affordable housing by manufacturing repeatable products within and across projects.
“Repeatability makes manufacturing more efficient. Building 100 modules of the same type is much more efficient than building modules of varying types. That means our costs are lower,” says Darren Richarz, VP of Sales.
NRB’s customers include BC Housing, a public sector organization that develops and manages subsidized housing across British Columbia. NRB has provided about fifty buildings to BC Housing — each consisting of 40 to 50 units — that are based on fundamentally the same design.
Thinking like a manufacturer means you come to the table with a product that has been pre-engineered and pre-designed, and that has predictable costs.
NRB recently completed two supportive housing projects in Toronto in about eight months, from the beginning of the process to residents moving in. Each was a three-story, 50-unit building. By reusing a design the company had already used in BC, NRB was able to speed up the projects and also cut costs compared to creating new designs.
But while every unit NRB builds is a standardized product, customers do have choices. Over time, NRB has accumulated “a library of affordable designs,” it can bring to any project, Richarz says.
These three companies show that it’s possible to make a profit and build a name in the affordable housing game. But they also illustrate that success requires creativity.
Zena Ryder is a freelance writer, specializing in writing about construction for businesses, magazines, and websites. Find her at zenafreelancewriter.com
