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  • Writer's pictureJoe Nigro

A Simple Solution to Affordable Homes?

Since COVID-19 hit the United States, the average national home prices have inflected vertically rising nearly 50% in a mere two years without any signs of decelerating. The common assumption is presumed to be due to an increase in demand from families and workers migrating from cities to suburbs, shifting from in-person to remote work. However, with the pandemic fading and the country re-opening, prices have yet to show any signs of decelerating.

The reality of the rising home prices is beyond a change in living preference, but due to a problem that has been prevalent since the end of the Great Recession. Post financial crisis, nearly 50% of homebuilders left the market. Either filing for bankruptcy or shutting down. This has inhibited productivity, leading to the under-building of residential homes with housing starting at below-average levels in the past decade.

And now as the largest generation, the Millennials, enter an age of home buying (as illustrated below), the demand for homes has significantly outpaced the slow rise in units available. Resulting in a rapid rise in price as many buyers compete over limited supply. This has led to many homebuyers being priced out of the market. Furthermore, with mortgage rates near tripling since the beginning of the pandemic, the housing crisis has only been further exacerbated.

The simple solution to mitigate the overblown home prices is to build more homes, however with an emphasis on speed and efficiency to meet the growing demand. To tackle this problem, we must turn to the innovative businesses in the homebuilder industry that is developing partial offsite construction. Known as prefabricated homes, this form of construction has existed for over a century. However, due to the desperate need for immediate and affordable homes, factoring the existing deterrents from supply change constraints, rising labor costs, and elevated commodity prices, prefab homes have never been more relevant.

What Are Prefabricated Homes?

Prefabricated homes are residences that are constructed either partially or fully offsite in a factory. These forms of construction include modular, panelized, and kit houses. Modular homes are constructed offsite, with the structure delivered on flatbed trucks to the construction site. Fully equipped with plumbing, electrical systems, and other necessary home equipment. Once instilled on-site, contractors then begin the “rough-in” stage by assembling the pre-kitted systems. Like modular homes, panelized homes require the extra step of structural assembly and other accessorial touchups post-completion. Although these options are perceived to be too “basic,” prefab homes are customizable depending on the developer’s scale, style, and expense, thus suitable to a variety of customers.

Why Prefabricated Homes?

Going back to the problem of under-building, speed is the most important aspect of tapering home prices. Especially now with Millennials entering the market, entry-level homes have the greatest demand. Yet these homes are the most structurally under-built with current starts at 80% lower than the amount in the 1970s. This is where prefab homes make the most difference: the smaller the modular home the more cost-saving the process, thus making homes more affordable. On average, an entry-level home between 1400 to 1800 square feet will cost 10% to 25% cheaper than the traditional stick-built homes, due to assembly-line construction, bulk purchasing of materials, and lower labor costs. Because of the difference in process, the construction time is significantly reduced. Without hindrances from weather disruption, delayed material deliveries, and on-site building protocols due to COVID, the timeline is significantly reduced from 12 to 3 months. And since prefab homes are constructed indoors, precision manufacturing techniques allow for tighter seems, stabler structure, and overall higher quality. This results in more efficient electrical and HVAC systems making the home more energy efficient. Prefab companies also reuse and recycle factory wastes thus making the process more efficient and eco-friendlier.

Apart from the appeal of cost and time, prefab home process is continually innovating towards tech utilization. This gives the industry an appeal to the younger generation to participate in the future of construction, especially since the current trade industry is in decline.

Maybe prefabricated homes will not only lead to more affordable housing but pivot the trade industry towards a more efficient future.


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