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Housing Shortages - Is Prefab The Solution?

For at least a decade, there's been a steady drumbeat of news about the housing shortage. According to a November 2020 National Public Radio report, there are fewer homes for sale in the United States now than in the past 40 years. It's a standard economic puzzle: too many people are looking for too few houses, which then drives up prices. And these prices have risen more quickly than incomes, making housing unaffordable for many would-be buyers. According to the US Census Bureau, the median sales price of a newly constructed home in the United States in December 2020 was $355,900. Zillow puts existing median home values at $266,222. The Canadian Real Estate Association's Home Price Index benchmark is over $600,0000. This average is skewed upward by the costly housing markets in Toronto and Vancouver. The most affordably priced province, New Brunswick, has an average value of just over $200,000.

One solution that may help mitigate the housing shortage is to build homes — all or in part — in a factory and transport them to a site instead of building a house on site. Known as prefabricated or prefab housing, this type of construction has been around for over a century. Henry Manning, a London carpenter, built components for a house and shipped them to Australia in 1837. He advertised them in the newspaper as the "Manning Cottage." Sears brought prefab to the mainstream when they began offering homebuyers their kit homes back in the early 1900s.

By Stacey Freed, Rise Writer

12 min read

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What Is a Prefab Home?

Prefab homes are dwellings built either fully or partially in a factory. Various prefab methods include modular, panelized, kit houses, structural insulated panels (SIPs), insulated metal components, and more. Prefab homes may offer a more affordable option for homebuyers. Modular homes are sometimes confused with manufactured housing. Although both are manufactured in a factory, it's essential to distinguish modular homes from "manufactured homes." Manufactured Homes is the US Housing and Urban Development department's updated term for "mobile homes." These homes are built to a particular HUD code, have a red certification label on each transportable section, and be constructed on a metal chassis.

What Is Modular Construction?

Modular homes are built off-site, with the modules delivered on flatbed trucks to the construction site. They are made with various completions, from fully kitted out with plumbing, electrical, doors, closets, and stairs to just one or several boxes. They are completed on-site by a contractor.

What Is Panelized Construction?

Panelized constructed homes are shipped as flat units to a site and assembled like a jigsaw puzzle. They need more finishing work on-site than modular homes. Both take less time to build on-site than stick-built homes.

Prefab homes come in any style – a single-story ranch, a duplex, a Cape Cod, modern or traditional. They can accommodate off-grid living. They can be luxury homes. They can have as many bathrooms or bedrooms as specified and can be customized.

What Does It Cost to Build a Prefab House?

On average, an 1,800 square-foot prefab home costs $180,000 to $360,000 to build. That comes out to $100 to $200 per square foot — before factoring in purchasing the land or any other additional fees such as utility hookups. The base price, estimated at $40 to $80 a square foot, before customization, delivery, or installation.

In general, since prefab homes are created indoors on an assembly line with materials purchased in bulk, they will cost 10 to 25 percent less than a stick-built home. It might cost between $52,000 to $167,000 to have a prefab delivered and installed, depending on its size.

Are Construction Savings of Prefab Homes Passed On To Customers?

Since modular builders buy their materials in bulk and often have factories in regions where labor costs are lower, they save money. So, a prefab house should cost less than a stick-built home, but this is not always the case. Some reasons for this are as follows. As with any product, the sticker price depends on many factors:

overhead
consumer choices (fixtures and finishes vary wildly, and many buyers choose custom options)
possible third-party salespeople
transportation
delivery
on-site labor costs, and of course,
profit.

But, keep in mind, a prefab house is likely more energy-efficient than a standard site-built home, so there are future utility savings. Also, keep in mind that many modular builders are still small and are still scaling their businesses to meet demand.

Hopefully, once manufacturers have scaled in the future, customers will see some of these savings reflected in the sale price of their future homes.

Sol Haus Tiny House Prefab — Tiny House Prefab. Photo Credit: Sol Haus

How Do Market Forces Affect Prefab Costs?

As with any new home construction, prefab builders face rising material and labor costs. This past year, COVID-19 restrictions caused first a slump in construction and then a surge, leading to increased demand on a supply chain that hadn't caught up. Take lumber, for example. Professional Builder reported a more than 170 percent increase in composite lumber, leading to an additional $16,000 cost for a new single-family home. Prices for Oriented Strand Board (OSB), an alternative to plywood, tripled last spring. And delivery times for these materials have grown.

How Do Labor Costs Affect Prefab Home Building?

Since prefab homes are factory-built, labor is steady and salaried. Author and speaker Sheri Koones, whose work includes Prefabulous Small Houses and, most recently, Downsize: Living Large in a Small House, says, "Building prefab homes is a preferable way for home construction people to work since they are in a protected environment, and their jobs are not dependent on the weather. Also, labor costs may be lower for prefab than a traditional stick-built home because they are often built in areas where labor and living costs are lower." However, once delivered to the site, there are additional costs for tradespeople such as plumbers and electricians who must do the hookups on site.

What pushes up labor costs, in general, is, again, simple economics. There are not enough individuals in the skilled labor force. Builders cannot find qualified workers and those who are competent command higher value. On the positive side, many workers would prefer to work in a factory than on-site.

But labor issues could be a place where modular homes may be an answer for the housing shortage. The construction industry has long had trouble getting younger generations interested in the industry. Many younger people have been steered toward college and away from the trades. They don't want to work in what they perceive as dirty and strenuous manual labor. They don't envision a viable career path.

But prefab and off-site construction can be viewed as part of the technology sector, appealing to future generations entering the workforce. More women may see the construction industry as something they can be part of since technology aids those with less physical strength, on average than a large man has.

Who Builds Prefab Houses?

There are many prefab builders in the United States and Canada. In 2020, Rise released the list of our favorite prefab home construction companies for 2021. Most ship their products across state lines, but that adds costs.

The Modular Housing Association also is a good place to search for a modular home builder. In Canada, Modular Today offers profiles and consumer reviews of Canadian-based modular home builders.

How Long Does It Take to Build a Prefab Home?

Before the pandemic, it could take anywhere from three to twelve months to build a new conventional home. But with current delays in everything - from building materials to appliance deliveries as well as weather-related delays and pandemic on-site building protocols that may restrict the number of tradespeople on-site - that timeline can be a lot longer.

Prefab homes, despite similar material shortages, are built in a regulated atmosphere, unhindered by weather. If you already have the land, permits, and design, building a modular home can take less than three months. Design. Build. Modular sets the timeline this way:

Purchasing land and receiving permits: 6-9 Weeks
Designing the modular home: 0-12 Weeks
Preparation of land/site: 1 Week
Building foundation: 4 Weeks
Building modules: 1 Week
Installing/setting modules: 4 Weeks

Does a Prefab Home Have to Be Built in a Particular Order?

Yet another reason it takes less time to build a prefab home. The building process can be more flexible. A builder can prepare the land and the foundation while the components are being manufactured in the factory. Many off-site companies have multiple production lines and can work on a variety of projects at one time.

Are Prefab Homes More Energy Efficient?

Since prefabs are built in factories, building materials remain dry, unwarped, and undamaged. Precision manufacturing techniques make prefabs of high quality. Because the materials remain stable, they can have tighter seams, which will make HVAC more efficient. The prefab fabrication process ends in much less waste than a stick-built home, and prefab companies often reuse or recycle their factory waste. Because prefab homes have to be transported by trucks, they have higher structural standards and may be more resilient than stick-built homes.

Can You Build a Prefab Home Anywhere?

As long as you follow local zoning laws, you can build a prefab home anywhere. But zoning laws may be a deterrent for prefab housing to address the housing shortage issue.

For example, some suburban municipalities have minimum requirements for the lot and building size. For prefab homes to be affordable for most buyers, they will likely be smaller-sized homes. They may not fit a locale's zoning regulations. For example, according to the American Planning Association, "large numbers of communities have required minimum lot areas of 20,000, 40,000 square feet, one, two, and even five and more acres…."

Municipalities, particularly wealthy ones, developed regulations like these to keep away those considered "undesirable" buyers.

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What Is the New Market Like for Prefab Manufacturers?

Author and speaker Sheri Koones says there is currently a large market for Millennials and boomers. "Millennials are now burdened with massive school loans and are delaying marriage and having fewer children. When they do decide to buy a house, they are considering smaller houses that require less maintenance. This is a generation that wants to spend more time hiking and skiing than maintaining a large house. They are also the most environmentally conscious generation, having grown up with water filling stations in school and ecology classes. They are looking for more energy-efficient houses that have a smaller footprint on the earth." At the same time, she says, "many boomers, now empty-nesters, are also looking for smaller houses. They consider prefab a preferable method of construction since they can attain those houses in a shorter time. Prefab construction is the best-kept secret in America. When people learn about prefab, they often won't consider any other way to build."

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