Housing Shortages - Is Prefab The Solution?
Last Updated: Mar 28, 2025For 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.
Table of Contents
- What Is a Prefab Home?
- What Is Modular Construction?
- What Is Panelized Construction?
- What Does It Cost to Build a Prefab House?
- Are Construction Savings of Prefab Homes Passed On To Customers?
- How Do Market Forces Affect Prefab Costs?
- How Do Labor Costs Affect Prefab Home Building?
- Who Builds Prefab Houses?
- How Long Does It Take to Build a Prefab Home?
- Does a Prefab Home Have to Be Built in a Particular Order?
- Are Prefab Homes More Energy Efficient?
- Can You Build a Prefab Home Anywhere?
- What Is the New Market Like for Prefab Manufacturers?
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.
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.
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
Stacey Freed
I’m constantly on the hunt for a way to hike and write simultaneously.
