Offsite Construction: An International Perspective

Jagruti Rekhi, Social Science Analyst, Affordable Housing Research & Technology Division, PD&R
Mark Reardon, Social Science Analyst, Affordable Housing Research & Technology Division, PD&R

The United States is grappling with a housing crisis driven partially by rising construction costs, including higher costs for labor and materials and a growing disparity between housing supply and demand. To keep housing affordable, the nation needs to increase its supply of homes to meet the current demand. One approach to building new homes rapidly is to build them offsite. HUD historically has sought to resolve obstacles preventing large-scale housing production, including its 1969 demonstration Operation Breakthrough (OB), an ambitious program aimed at increasing the production of quality housing for all income groups.

Operation Breakthrough’s core mission was to pave the way for innovative systems of housing production, financing, marketing, management, and land use. Although the program ended prematurely, it contributed to the development of the HUD Code for manufactured homes. It also succeeded in demonstrating methods that could increase production of quality affordable units, serving as a model for housing production in other countries for decades. Three nations in particular — the United Kingdom (U.K.), Sweden, and Japan — have successfully implemented offsite construction methods similar to those envisioned through Operation Breakthrough. In 2023, HUD sponsored a comparative study of these countries to understand how the federal government and other stakeholders can facilitate the more efficient offsite production of homes.

During the study, a team of industry stakeholders, researchers, and HUD representatives visited each country to engage with industry and government representatives. Jagruti Rekhi (Japan and U.K.) and Mark Reardon (Sweden) represented the Affordable Housing Research and Technology Division in HUD's Office of Policy Development and Research. All three countries needed to rely on innovation to address the rising demand for housing. Although labor shortages, regulatory hurdles, and housing deficits have significantly affected the housing industry in these nations, each country has leveraged the efficiency of factory-built housing to increase the number of homes built while also improving safety and reducing the environmental impact of home construction.

In 1964, Sweden introduced the Million Homes Programme, which aimed to construct 1 million high-quality homes within 10 years, a goal it accomplished in 1974 by relying heavily on prefabricated construction. In 2016, Sweden invested more than 11.1 billion SEK, or roughly US$1 billion, into constructing and renovating public housing. Complementing this investment was the Swedish parliament's adoption of the Policy for Designed Living Environment in 2018, which set national objectives for using architecture and design to create a sustainable, equitable, and less segregated society in which everyone has the opportunity to influence the shared environment.

During the group visit to Sweden, the delegation traveled to Skellefteå and Bygdsiljum to learn about Sweden's commitment to minimizing environmental disruption through adaptive reuse and innovation as well as sustainable forestry through a forest-to-city value chain, including the use of mass timber, or engineered wood — a lightweight and strong material that can support buildings of nine or more stories. At Piteå, the delegation viewed Swedish factories that employ panelized, volumetric modular systems to construct affordable units at scale. In Stockholm, the group learned how mass timber allows developers to expand existing buildings by adding wood structures on top of them, such as the Trikåfabriken project, which involved constructing a five-story addition to the roof of a 1920s textile factory. This wood-on-top approach allows builders to customize designs to user preferences and revise these designs to meet changing needs. The delegation also met with companies such as MoKo, Martinsons, Lindbäcks, and BoKlok and visited sites demonstrating innovative construction practices that increase productivity by 10 percent over traditional methods. In meetings with Swedish government officials at the U.S. embassy in Stockholm, the officials detailed plans to rely on industrialized housing delivery to build more affordable and environmentally sustainable housing units over the next 25 years through sustained and continuous collaboration among government, industry, and universities.

In the United Kingdom after World War II, the housing industry faced a crisis – a labor and material shortage coupled with an urgent need for new homes. Resolving this crisis required quick and efficient construction methods, which led government and industry stakeholders to explore prefabricated housing solutions. Because the demand for housing was so urgent, the government prioritized quantity over quality. In 2017, the U.K. government created an industry working group to help the mortgage finance, insurance, and pricing industries better understand modern methods of construction. The U.K. has advanced its homebuilding industry by shifting to performance-based construction standards rather than prescriptive methods.

During its visit, the delegation learned that the U.K. government has adopted Modern Methods of Construction (MMC): a set of alternative off- and onsite construction practices intended to improve the nation's housing productivity and quality, such as incorporating robotics and electronic inspections into the construction process. The U.K. government detailed how it incentivizes homebuilders to adopt MMC practices to reduce waste and increase speed and efficiency regardless of the construction method used. U.K. officials also discussed how the government has used its influence to increase buy-in from lenders and insurance companies, ensuring that homes built using MMC practices can secure both mortgage loans and insurance coverage. During the site visit, the delegation traveled to Built Environment – Smarter Transformation's labs in Scotland to learn about how the organization is testing new building materials.

The delegation also visited factories using wood building products such as cross-laminated timber at Legal & General and closed panel timber frames at Conceptual Construction Group. During travel south towards London, the delegation visited several factories that incorporate robotics and assembly-line building into their manufacturing processes. These visits also helped the delegation understand one notable benefit of fostering MMC practices: the increased use of robotics in U.K. factories to lift and hold panels. The use of robotics not only reduces worker injuries but also broadens the hiring pool by allowing nontraditional construction workers, including less-skilled workers and parents with young children who need flexible schedules, access to stable factory jobs.

Japan has been heralded as a global leader in providing affordable housing, having both an increasing supply and decreasing demand. Japan's factory-built housing industry is well capitalized and vertically integrated, meaning that the developers themselves provide financing as well as build and site the homes. The delegation observed how involved Japan's homebuilders are in the home purchasing process by visiting housing parks, where homebuilders educate potential customers about their homes, including the source of the homes' raw materials, the homes' safety and resiliency features, and the manufacturing process. As a result, unlike homebuyers in the United States, who hold many misconceptions about the quality of factory-built homes, Japanese homebuyers are willing to pay more for factory-built homes, which they consider to be safe, dependable, and of high quality.

One of the common elements found in the three countries is a shift away from adopting prescriptive codes and toward performance-based codes. Prescriptive codes specify the materials and methods developers must use, whereas performance-based codes specify the standards and thresholds required, allowing the industry to develop and employ materials and methods that meet or exceed current standards. Sweden's embrace of performance-based codes has made the nation a global leader in sustainability in home construction, with housing-related carbon dioxide emissions at only 0.36 tons per capita compared with 1.64 tons per capita in Japan and 2.7 tons per capita in the United States. Inspection practices in Sweden, the U.K., and Japan were particularly efficient because inspections occur at the factory, where mistakes can be more easily corrected. The Japanese homebuilding industry has invested in technology and skilled laborers outside of the traditional building trades while making homes constructed offsite eligible for lower-interest mortgages. By contrast, inspections of all U.S. factory-built homes (other than HUD Code homes) take place onsite. Furthermore, apart from the HUD Code, the United States lacks a single, standard housing code for factory-built homes; instead, state agencies impose varying building codes, which complicates efforts to ship factory-built homes across state lines and scale growth.

The final report of the comparative study is scheduled for completion in 2024. For more discussion of performance-based codes, regulatory barriers and zoning issues, and case studies, please visit the Regulatory Barriers Clearinghouse. Forthcoming research regarding similar issues will also be made available as the result of awards from the 2023 Increasing the Supply of Affordable Housing through Off-Site Construction and Pro-Housing Notice of Funding Opportunity (NOFO).