Prefabricated Housing: An Innovative Solution To America’s Housing Crisis

While the United States currently faces a number of pressing economic issues, few are as impactful as the nation’s affordable housing crisis. As urban and suburban areas continue to thrive, property values are being driven through the roof. High prices are compounded by a shortage of housing units nationwide, a massive lack of skilled labor, and a highly fragmented construction industry.

Traditional Construction Struggles To Keep Up

These factors combine to make America’s housing market one of the most fragile sectors of the U.S. economy. There is currently an estimated affordable housing shortage of over 7 million units nationwide, with California alone projected to require at least 3.5 million additional units in the coming years.

After 50% of the country’s skilled labor pool left the market in the wake of the Great Recession, today’s up-and-coming tradesmen simply can’t keep pace with the growing housing market. This has led to far fewer laborers, which in turn has yielded significantly inflated prices.

These trends are magnified by a fragmented construction industry, where over 25 individual subcontractors can be routinely required to complete a standard build. Coordinating dozens of teams is difficult for even the best project managers, and can lead to unnecessary inefficiencies, unexpected schedule delays, and significantly increased costs.

This has lead to a minefield for the development of affordable housing, where delivering projects on time and under-budget is nearly unheard of in today’s industry.

Prefabricated Housing: A New Way Forward

Needless to say, the legacy construction industry is in rough shape. Thankfully, innovative new approaches to the fabrication of affordable housing have the potential to improve this outlook drastically.

Specifically, a new construction sector focused on developing affordable housing using prefabricated construction methods is growing rapidly. Instead of constructing each and every piece of a building on-site, prefabrication takes a vastly different approach. With this method of construction, components of a structure, such as walls, floors, and even entire micro-apartment units are manufactured off-site, typically in a factory or warehouse.

Once they are completed, these prefabricated pieces are assembled together at the building site, which saves time and money when compared to traditional construction. Furthermore, there are numerous different methods, with notable categories, including:

● Modular construction, where fully built module-like housing units are constructed off-site, then combined into fully-fledged apartment buildings on-site.

● Panelized construction, where exterior walls are fabricated off-site, then constructed on-site like the pieces of a jigsaw puzzle.

● Kit houses, which have been around in one form or another in the United States for decades. Today, they’re closely associated with the tiny house movement.

While kit houses are great for individuals looking for a do-it-yourself housing option, they aren’t as scalable as modular and panelized construction methods. With this being said, most prefabricated methods surpass traditional construction in terms of sustainability.

Legacy approaches to housing developments are notoriously wasteful, with poor materials purchasing decisions and project management resulting in lost revenues and unnecessary environmental damage. In comparison, prefabricated housing units are very resource-efficient, as manufacturers know exactly what they need when it comes to materials purchasing and in-house fabrication.

Prefabricated Construction: By The Numbers

The strongest support for the rise of prefabricated housing is given by the industry’s current trends. Looking forward, the prefabricated housing market is projected to grow to $19.3 billion by 2024, which underlines the financial incentives associated with this innovative approach.

In 2020 alone, prefabricated housing is expected to account for the development of 123,500 new units, with an estimated valuation of $7.3 billion. More importantly, residential developers aren’t the only firms leveraging prefabrication. For example, Marriott International has become heavily reliant on prefabrication in recent years and just built the world’s tallest modular hotel.

Those looking to detract from the potential benefits of prefabricated housing are likely to reference that its present-day U.S. market share is relatively small. Yet, projections of impressive global growth and rising levels of consumer adoption in the United States provide sufficient support for a bullish outlook in the years ahead.

In the near future, it’s unlikely that traditional construction methods will disappear completely. However, prefabrication has much to offer as a potential solution to America’s housing crisis. Traditional building processes are sluggish and lack scalability, while prefabricated methods can provide increased production and output of new housing units in less time. Looking forward, it appears that the future is set to be lucrative for investors in the prefabricated housing space.

Real Estate VC @ Second Century Ventures . Former VC @ Plug and Play Ventures, Partnerships @ Kash (acq.), Analyst @ Real Facilities (acq.), Founder StayTO.

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Kia Nejatian

Kia Nejatian

Real Estate VC @ Second Century Ventures . Former VC @ Plug and Play Ventures, Partnerships @ Kash (acq.), Analyst @ Real Facilities (acq.), Founder StayTO.

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