In a challenging real estate climate, a century-old housing concept may resurface.

• The modular construction concept, with its century-old origins, may see a surge in popularity due to new funding from investors.
• While many modular home builders are small and local, Clayton Homes, a subsidiary of Berkshire Hathaway, is a national homebuilder company.
• While the idea of sustainable and affordable housing attracts both homebuyers and startups, it remains a niche market in the U.S., accounting for less than 4% of inventory.

In the past, a first-time homebuyer may have started their search for a kit-built home from Sears and other catalogs. However, in today's real estate market, this idea is rarely considered. However, with affordability being stretched to its limits and more buyers focusing on sustainability, the modular home, the descendant of the kit home, could be in the spotlight.

If you want to construct an eco-friendly and efficient home, modular construction is worth considering. Experts in green construction agree that modular construction reduces waste and minimizes disruption to plants and animals on construction sites. Unlike traditional kits, modular homes today are made in larger pieces that are assembled in a factory and then shipped to the site. These modules can be as big as entire rooms, and the only thing built on-site is usually the foundation.

Modular construction has garnered interest from affordable housing advocates due to high mortgage rates and rising home prices in major metro markets. In Chicago, the first of 2,000 single-family modular homes is being assembled, with a down payment of only $1,000 possible thanks to a partnership between city, state governments, and non-profits. A smaller affordable modular home project is planned for the Maryland suburbs outside Washington, D.C. Modular dwellings have also been used to combat homelessness in the U.S., Canada, and other countries. This issue was raised in an op-ed in the New York Times this week.

Modular housing can be lower cost

Modular homes are subject to state and local building codes and are financed in the same manner as traditional construction. The difference lies in cost, with modular construction being 10-20% cheaper on average, according to HomeGuide. As a result, the cost of building a typical modular home ranges from $120,000 to $270,000, compared to $155,000 to $416,000 for traditional construction.

Modular building construction can save money by utilizing scale, as offsite construction of repeatable units has been shown to save up to 25 percent of vertical construction costs, according to Dave Dauphinais, associate partner at McKinsey & Company.

According to Rocket Mortgage, the construction costs, down payment, and monthly mortgage expenses for a 30-year fixed mortgage at 7.25% interest for a high-end modular home would be $13,500 and $1,749.78, while for a traditional top-end $416,000 home, these expenses would be $20,800 and $2,695.96 monthly.

Modular construction has attracted investment from several venture capital firms, including Khosla Ventures and Y Combinator. One of the largest recent deals was led by Waed Ventures and Bold Capital in September, where Mighty Buildings, a startup in the sustainable, modular-home space that uses 3-D printing to automate the construction process, raised $52 million in funding.

The net-zero lifestyle goes well with prefab homes

These modular dwelling manufacturers, such as Deltec Homes, Dvele, and S2A Modular, offer residential home options that include solar panels to help consumers achieve net-zero living and maximize efficiency.

"Considering prefabrication in modular home building is worthwhile as it can minimize waste and carbon emissions, according to Lisa Carey-Moore, director of buildings at the International Living Future Institute, a nonprofit promoting regenerative building practices," said Lisa Carey-Moore, director of buildings at the International Living Future Institute.

The modular assembly method utilizes fewer materials than traditional construction methods because it offers greater control over the building process and reduces the likelihood of materials being stolen, damaged, or wasted. Additionally, it is easier to recycle excess materials in a factory setting than on a typical outdoor job site or to utilize excess material from one job on a later one.

A sustainable building consulting firm, Gaia Development, founded by Ryan McEvoy, has noted that more than 15 percent of traditional home construction materials can become waste, but with modular construction, waste is only about five percent.

Speed of construction and portability are advantages

Modular construction companies offer cost and sustainability benefits, as well as other advantages. These homes can be constructed quickly in a low-inventory housing market, with move-in readiness achieved in eight to 12 months, compared to the traditional construction time of 18 to 24 months. Additionally, modular homes can be easily relocated to a new location if needed, since the structures can be disassembled and reassembled with ease.

Major retailers such as Costco, Home Depot, Lowe's, and Walmart have started selling tiny home kits at prices starting under $10,000. These are not the same as modular homes and are not suitable for everyone. At the low end, these structures are essentially storage sheds and are marketed as such. Even larger units from these retailers are typically less than 600 square feet, which is about a third the size of the average American home. Unlike most modular and traditional homes, these little dwellings lack foundations for extra storage. Instead of basements or crawl spaces, they generally feature metal frames meant to be secured to concrete slabs or mounted on wheeled trailers.

Warren Buffett is in, but modular remains out in the market

While most modular companies are small and operate on a regional scale, there are some larger manufacturers, such as Champion Home Builders, Kent Homes in Canada, and Clayton Homes, which is part of Warren Buffett's extensive conglomerate empire.

In the U.S, modular homes have not been as popular as overseas, despite being built quickly and making up less than 4% of current housing stock. This is due to a lack of familiarity among contractors and the need for financing upfront to cover the full cost of construction and modular components.

Some environmental experts are skeptical of the sustainability claims, too.

Chris Magwood, a co-founder and director of research at Builders for Climate Action, stated that modular and prefab construction is not inherently more environmentally friendly than traditional building methods. It is possible to assemble materials with high climate impact, major toxicity concerns, and problematic building science attributes when using prefabrication, resulting in a bad prefab home. The prefabrication process itself does not significantly affect the environmental impact of the final product.

To ensure that building products used are not toxic, sourcing of materials is responsible, and waste is minimized and diverted appropriately, it is crucial to evaluate the sustainability credentials of homebuilding companies, particularly in a market where greenwashing has become prevalent. Carey-Moore emphasized this point.

Modular construction has the potential to be more sustainable, according to Dauphinais.