The need for new apartment units is increasing in the Northeast and across the nation. High construction costs, however, present a major barrier to creating enough affordable housing supply.
Modular homes have the potential to reduce construction timelines and costs, making them ideal for affordable housing solutions. These buildings have caught on in Japan, Scandinavia and other parts of the world, but not in the U.S. What’s holding us back?
Modular housing—also referred to as off-site or manufactured housing—uses a unique construction process. The building is constructed in modules at a factory under controlled conditions. The individual modules or panels are then transported and assembled on-site to form the full structure.
Misconceptions about modular-built homes often stand in the way of adoption.
Some of JPMorgan Chase’s developer clients are sold on modular-built housing, while others remain hesitant.
That’s usually because clients are unfamiliar with the process. For example, because construction takes place off-site under controlled conditions, some people assume that the materials aren’t as durable as those used in traditional construction. But traditional and off-site projects generally use the same materials and frequently satisfy building code requirements.
When David Gallo, President of Georgica Green Ventures, learned about off-site construction in 2015 he quickly adopted the method. Now, the New York-based real estate developer uses modular construction whenever possible.
“Off-site construction can offer employees safer work conditions,” said Gallo. “What’s more, the construction is often more environmentally friendly with less disruption to the neighboring community.”
Georgica Green Ventures adopted modular construction in 2015 and has used the method for projects across New York state.
There are several advantages to modular construction, including:
Most modular construction takes place in a factory, meaning the process can reduce waste by protecting building materials from the elements. Fewer people and materials traveling to the site can reduce carbon emissions. Plus, off-site construction helps keep moisture out of materials, which can improve air quality.
Manufactured construction can allow for more control over the project schedule. In addition to eliminating weather delays, factory construction can take place simultaneously with on-site work, which can shorten construction schedules by 30% to 50%, according to the Modular Building Institute.
Cost EfficiencyBecause modular construction can cut project timelines, it may also reduce labor costs. Adopters may also save money on materials, transportation, quality control, subcontractors and other expenses. As an added advantage, a shortened timeline means tenants can move in sooner, which may result in quicker returns and reduced market cycle risks.
A 2020 Freddie Mac Economic & Housing Research study found that, with state-level variations accounted for, the U.S. needs 3.3 million more housing units to make up for its shortage. A static estimate shows that 29 states have housing deficits, and six of them are in the Northeast, including Connecticut, Maryland, Massachusetts, New Hampshire, New York and Rhode Island. Washington, D.C. also faces the country’s largest housing deficit: 9.55%1
The urgent need for housing cannot be overstated.
With modular construction’s efficiencies, developers can potentially manufacture and install housing on-site in less time than traditionally constructed homes. Developers can pass the time and cost savings to tenants through increased affordable housing options.
Off-site construction can work particularly well in suburban or rural areas. For example, JPMorgan Chase has helped Georgica Green Ventures finance affordable modular-built housing throughout New York state, including Long Island and Westchester County.
Grand Street Apartments, a senior housing community, features six two-story residential buildings and one community building.
Manufactured homes can work in urban areas, too. But narrow roads and limited open space can present transportation challenges.
That problem may be short-lived. The industry continues to make advances, whether through new, lightweight materials or building information modeling technologies. The current administration has also prioritized climate change and affordable housing, which could fuel progress in off-site construction.
As modular housing gains more attention and investment, it can help increase the supply of affordable homes and eliminate housing deficits across the Northeast.
Provided by Freddie Mac®; Freddie Mac does not endorse JPMorgan Chase or its products and services