According to a growing number of developers, the highest-quality homes and apartments are built with modules and panels.

From San Jose, Calif., to Harlem in New York City, builders are using factory-built modules and panels to help make all kinds of buildings, from mid-rise and high-rise structures to townhouses and stacked flats. Many of these developers are saving a great deal of money as a result.

The factory-built housing business is growing quickly. A few years ago, builders didn’t know how to make townhouses or apartments out of modules, but today multifamily projects, including townhouses, make up as much as 25% of the modular housing business. “More and more people are turning to modular,” said Lad Dawson, owner of Guerdon Homes, a manufacturer of modular units in Boise, Idaho.

Using modules and panels to create housing often shaves months off the time it takes to build. That means the project’s construction financing can be retired sooner and the property can start earning income by renting or selling its units.

Modular and panelized construction can also save money because of the cheaper labor and materials in factories far away from expensive urban markets.

Manufacturers, and developers who’ve been won over, maintain that housing constructed with factory-built components is not just “as good” as conventionally built housing, it’s better. That’s because under the roof of a factory, the pieces of a project can’t get rained on, frozen or vandalized. Quality-control standards and precision-measuring equipment ensure that the pieces are as close to perfect as possible.

From humble roots

Only five years ago, “manufactured housing,” which was then the industry’s name for housing built in factories, was a thinly veiled euphemism for a trailer park. Even the fanciest communities, where the manufactured houses had multiple stories, bay windows and other add-ons, were still close to their trailer park roots. Although the homes were owned by their residents, they sat on rented land.

Manufactured housing that sits on rented lots has its own building code, created by the Department of Housing and Urban Development (HUD). The HUD code is not as stringent as most local building codes, according to Pat Fricchione, CEO of  Scranton, Pa.-based Simplex Industries, Inc., and chairman of the Building Systems Council.

But the latest generation of factory-built housing doesn’t sit on small, rented lots in a trailer park. The lots are sold, not rented, so the homes and apartments must meet the tougher standards of local building codes, just like a conventionally constructed building.

The basics

The building block of many factory-built housing projects is a module, which has about the proportions of a single-wide trailer home. A module can be up to 16 feet wide, 14 feet tall and 70 feet long. The only limits on size are what can travel down a road on the back of a truck and what a trucker is allowed to carry by the laws of the states the truck must pass through.

These modules can be stacked up to four stories high in almost any arrangement and work especially well for townhouses (see the case study of Cahill Park on page 32).

Modular components can be used as elements in conventional construction, even in high-rise buildings. For example, Full Spectrum Building of NY, LLC, is intending to use factory-built modules for the kitchens and bathrooms at the Kalahari, its planned 12-story project in New York City.

Factories can also make large insulated panels for use in exterior walls. These walls can be made of brick or any other building material and are already being used in high-rise and mid-rise projects.

Panelized construction provides many of the same benefits as factory-built modules. The main difference is that the pieces delivered to the site are smaller: pieces of wall rather than entire rooms or floors. Developers can save up to 40% on the hard costs of building walls with panelized construction.

Wage differential

Depending on the cost of hiring local workers, a developer can save as much as 10%, or even 20%, on the hard costs of construction by building townhouses or stacked flats with factory-built modules.

Factories are typically located in low-wage areas. Even when the factory workers are unionized, and they often are, the labor costs may still be much lower.

“You can imagine the wage rate difference between rural Pennsylvania and coastal Connecticut,” said Henry Walthery, general manager of Forest Homes, a maker of factory-built panels in Selinsgrove, Pa.

Using modules reduces work done at the site by 70% to 80%, Dawson said. Thus, when wage differentials between the factory and the site are big, so are the savings.

But in markets where labor is already cheap, developers might not realize any savings at all from using modular construction.

Finding local talent

Saving money on hard construction costs is not the best reason to choose to use modular housing anyway, said Dawson. Using modules also spares the developer some of the difficulties in finding local contractors that do good work. In many markets, the best contractors are busy and developers must struggle to line them up, or settle for lower-quality contractors. “In many, many markets, we find builders very frustrated with quality and timeliness,” Dawson said.

“Finding the good, qualified labor is getting harder and harder to do,” said Roger Lyons, president of Penn Lyon Homes, a module manufacturer in Selinsgrove.

Lower costs of construction financing

Building with modules is much faster than conventional construction. A small project could be ready for tenants to move into in just 90 days after the workers first break ground. “You’re going to save a number of months,” Fricchione said.

Those months mean money. The more quickly a project is completed, the sooner it can bring in cash from rents or the sale of its units to pay off its construction loan.

Conventionally built projects can take well over a year to build, meaning that developers are paying interest on their construction financing for all that time without getting any income from the property.  

Some helpful advice

Developers thinking of using factory-build modules in their projects should contact modular-housing experts before they draw up any plans, or even chose a site. Though modules can be combined to make a huge variety of shapes, they’re more suited to some projects than others.

For example, although garden apartments arranged around open hallways can be created with modules combined with conventional construction, it’s not an efficient way to use the modules compared to stacked flats or townhouses.

Another consideration is the size of the modules: constructing smaller components is often more expensive. “We don’t like to build boxes less than a certain width,” said Lyons.

Constructing pieces of your project hundreds of miles away from the job site requires more careful planning than building on the site. Difficulties are harder to correct once the pieces arrive on assembly day. “All the problems show up at once,” when the modules arrive at the job site, Lyons said.

The advance planning should also include a very clear breakdown of who is responsible for what work in the process of construction, from who sets the modules or panels in place to who connects the plumbing. Make sure that all the preparatory work is done before the pieces are scheduled to arrive. Otherwise, the delivery date might have to be delayed.

“We can only deliver these things as fast as your job site is prepared to accept them,” Lyons said.