Factory Built Housing: A new age of experimentation

From February 6 to February 8, I met with innovative housing thinkers from Scotland, England, Ireland, Japan, Sweden, and various U.S. cities; academics; and colleagues from the Federal Emergency Management Agency and our own HUD team to tour U.S. factories that are completely or partially manufacturing homes. This trip was organized by the National Institute for Building Sciences (NIBS) and the research collaborative MOD X under a grant from the Office of Policy Development and Research that included similar factory tours in Sweden, Japan, and the United Kingdom.

The goal was simple: to better understand offsite (factory-built) housing construction, identify barriers to its wider use in the United States, and explore whether this construction method could solve the conundrum of providing more resilient and energy efficient rental and homeowner housing at a cost that is affordable to more people. In short, can building homes in factories lead to better, more rapidly delivered, and cheaper housing in the United States?

The answer is not yet — at least, not at scale. If this brief factory tour and conversation with industry experts is representative, the United States may be starting a new wave of experimentation, this time being driven by builders themselves. The federal government has a role to play in bettering our odds of being able to change that answer to "yes." The role of NIBS and MOD X is to recommend ways in which the federal government can further that goal.

Historically, the regulations governing the construction of homes in the United States have been strongly influenced by past practice, disasters, housing finance policies, and construction and energy costs. These regulations have continuously evolved over several defined periods from the 1930s to the present:

• Pre-1934: The "anything goes" age. Before 1934, builders constructed most housing based on established past practices. Some localities established their own codes, including Chicago, which in 1875 developed local building codes in response to the city's devastating fire of 1871.

• 1935 to 1958: Advent of the federal minimum construction standards. After the Great Depression, the housing construction industry depended on buyers obtaining Federal Housing Administration (FHA)-insured mortgages. FHA required that the homes it insured meet minimum construction standards. Local government standards would apply if they exceeded this minimum. Because most U.S. localities lacked building codes, however, most builders adopted FHA's minimum construction standards, which FHA staff in each state modified based on local practice. This practice resulted in more than 50 standards.

• 1958 to 1968: A single de facto national prescriptive code. In 1958, FHA created a single national standard. The Minimum Property Standards (MPS) were prescriptive and based on the best scientific knowledge available at the time. They served as a de facto national building code for most homes constructed during this period.

• 1968 to 1975: Operation Breakthrough experimentation in industrialized construction. In addition, FHA substantially updated the MPS in 1973.

• 1976: The manufactured housing performance-based code. One of the recommendations resulting from Operation Breakthrough was that codes in industrialized construction should be performance based (for example, mandating how much weight a floor must be able to support) rather than prescriptive (for example, rules outlining the exact procedure for building a floor). This recommendation led HUD to create a performance-based code for manufactured housing. Unlike MPS, which served as a de facto national code, the manufactured housing performance-based code could be enforced nationally because the ability to move manufactured housing across state lines meant that the interstate commerce clause of the Constitution, granting the federal government the power to regulate the industry, applied.

• 1950 to 1979: The rise of local prescriptive building codes. Building from MPS, several regional associations of building code officials, including Building Officials and Code Administrators (BOCA), the Southern Building Code Council International (SBCCI), the International Conference of Building Officials (ICBO), and the National Fire Protection Association (NFPA), began creating model codes that local governments gradually adopted. These codes generally exceeded MPS requirements and eventually superseded MPS.

• 1980 to 1993: The end of MPS and the age of many prescriptive model codes. In the 1980s, FHA decided to use the various regional model codes — BOCA, SBCCI, ICBO, and NFHA — rather than MPS as the building standards for its mortgage insurance program. Builders were now constructing housing that conformed to the adopted codes of local jurisdictions, which varied based on the model code adopted and the update year that each local jurisdiction used.

• 1994 to the present: The age of the International Code Council (ICC). The BOCA, SBCCI, and ICBO model codes were merged into the ICC. Although this merger has reduced the number of code versions local governments have adopted, many jurisdictions still modify the model codes to suit local needs.

Today, state and local codes govern approximately 90 percent of home construction. Most of these codes are based on some version of the prescriptive model codes that ICC created. Approximately 10 percent of U.S. homes are built under the single national performance-based code HUD created for manufactured housing.

Standards matter when constructing factory-built housing, because the success of factory-built housing depends on several factors:

• Repeatability. Factories are most efficient when they build the same thing over and over.

• Volume. Factories need to build in large quantities to support the substantial upfront capital costs of building the factory as well as ongoing operating costs.

• Innovation. Standards should account for the fact that factories can take approaches to construction that differ from what traditional methods can accomplish.

• Transportation. Companies that move panels or modules to a building site must account for local rules about truck size and weight that affect timing and the cost of placement; in addition, the use of cranes or forklifts to place the homes is a major expense.

During the factory tour with international and domestic housing experts, my colleagues and I saw four different models of industrialized construction — two targeting the single-family homeownership market and two targeting the multifamily rental market:

Panelized construction for single-family homes: Unity Homes/Bensonwood. Unity Homes’ factory is in Keene, New Hampshire. The company fully designs and engineers the homes before construction begins. The homes’ walls, floors, and roofs are built and insulated in the factory, including the installation of windows and doors, and leave the factory as panels for assembly onsite. Their customers are primarily individual homeowners building in the New England area.

Modular construction for single-family homes, townhomes, and condominiums: Van Metre Homes of Northern Virginia. Van Metre is a vertically integrated developer that buys and develops its own land and sells the homes it builds. It constructs 400 to 500 homes annually, of which 10 percent are modular. We visited their showroom in Ashburn, Virginia; the company’s factory is in Winchester, Virginia, but we were able to view several modules on a truck bed in the showroom’s parking lot. To avoid the need to obtain transportation permits to move the homes and reduce placement costs, the company makes modules small enough to transport on a trailer towed by a pickup truck. These smaller modules are light enough to be unloaded and installed on-site using a forklift. The modules are almost completely finished in the factory, so connecting the modules together onsite can be completed in a day. A single house could consist of as many as 5 to 11 modules.

Panelized construction for multifamily homes: Blueprint Robotics. The tour group visited the company’s factory in Baltimore who does contract work for multifamily developers from Washington, DC, to New York. The company believes that multifamily structures are best suited for factory-built construction because it allows both volume and repeatability in design. Blueprint Robotics builds the panels and serves as the contractor for mechanical, electrical, and plumbing (MEP). The MEP for the panels is roughed in at the factory. The panels are trucked to the site when it is ready for them to be installed.

Modular construction for multifamily homes: Volumetric Building Companies. Our group visited with design staff in the company’s Boston office. Volumetric has factories in Philadelphia, Pennsylvania; Tracy, California; and Poland. Volumetric performs contract work for multifamily developers, building primarily apartments and student housing in cities such as Philadelphia, Pennsylvania; Oakland, California; Washington, DC; and New York, NY. The company’s website indicates they have produced 6,000 units to date. Volumetric constructs the entire unit in the factory as modules, leaving the front façade open to allow customization onsite. Volumetric’s units come already equipped with appliances, which clients cannot customize, and can also include Volumetric-designed furniture. These features are key to supporting repeatable design and reduced per-unit costs.

The factories our tour saw in operation were the two panelized construction factories. Both of these factories achieved efficiencies and substantial reductions in waste because of the use of engineered wood and the accuracy with which the factories cut and drilled the wood. Both Unity Homes and Blueprint Robotics purchased glue-laminated lumber in the longest possible lengths (over 40 feet). This engineered wood is unlikely to warp and thus is easier for computer numerical control machines to cut and drill precisely; it is also a more sustainable material because it is produced using small-diameter trees. The lumber length results in fewer wasted ends and less waste overall. Both Unity Homes and Blueprint Robotics use sophisticated saws within noise absorbing boxes that were driven by computer aided design (CAD). The boxes reduced both noise and sawdust and increased safety, leading to a quiet, clean, and safer work environment. CAD improves the accuracy of the cuts and drilling, increasing the build quality of the walls, floors, and roofs.

Although panelized construction clearly improves quality and reduces waste, it may not yet significantly improve construction time or cost because so much of the work must be completed onsite. The two modular builders more dramatically reduce the time to build on-site:

• Volumetric Building Companies offers the most automated production model, and therefore its manufacturing facilities have the highest upfront costs and need the highest production volume to be successful. For areas with high rates of population growth that need substantial additions to their multifamily inventory, such as California and the northeastern United States, Volumetric's model is promising. The cyclical nature of multifamily development in the United States, however, may pose a problem for the company.

• Van Metre offers a compelling model for single-family housing because it seems highly replicable and entails fewer upfront capital costs; if the company maintains its current pace of innovation, it may manage to achieve the hat trick of building better-quality homes more quickly, at a lower cost, and with less waste than those built with traditional construction methods.

What is the lowest-hanging fruit that would benefit from a federal government nudge? I am looking forward to upcoming recommendations from NIBS and MOD X. Based on feedback from the speakers on our tour, here are some potential ideas:

• Standardizing offsite building codes to permit innovation. Other countries with more developed offsite construction industries have adopted a single performance-based code. This is a concept that the United States already adopts for manufactured housing. HUD is pursuing updates to its performance-based HUD Code that would allow builders to use manufactured homes to meet new housing needs. For example, recent and proposed regulatory changes would allow multistory and multiunit homes to be built under the HUD Code, which would expand the use of manufactured housing in infill development. In addition, HUD is tracking legislation currently before Congress that would remove the statutory requirement that HUD Code homes must be built on a permanent chassis, which currently is one of the distinguishing features between manufactured and modular housing. This change could allow modular builders to take advantage of the economies of scale that a national code offers. HUD has also collaborated with the ICC to urge states to adopt its prescriptive model modular code, and future opportunities may emerge for HUD to collaborate with the ICC on performance-based codes.

• Reducing lender risk for building factories. Homebuilding is a cyclical and risky industry, and factories require substantial capital and sustained business; these facts make financing factory construction challenging. Some form of insurance that can keep businesses operational during economic downturns might help, just as HUD insures the mortgages on homes and hospitals. Sweden has a similar program.

I close with a historical note.  When FHA created the MPS in 1958, it outlined eight goals – goals achieved. In my opinion, many of those goals are worth a second look in this century:

1. One set of standards would be established for use anywhere in the United States.

2. The title would be “Minimum Property Standards,” since standards of performance were the aim and purpose.

3. The standards would define the minimum level of quality acceptable to FHA and to [the Veterans’ Administration], keeping in mind the dual objective of reaching the needs of purchasers in low income brackets and at the same time assuring the purchaser full value for his dollar.

4. The standards would be designed for use by both small and large builders. They would cover everything necessary, and they would be spelled out so clearly that there would be the least possible need for interpretation and the least possible chance of misinterpretation.

5. In arrangement as well as content, the book would be planned for the convenience of those who would use it most — builders, architects, and engineers.

6. Generally accepted standards developed by nationally recognized authorities would be relied on for determining whether materials were suitable, how they should be tested and assembled, and how they should be expected to hold up when in use.

7. Illustrations should be used whenever they would help to explain a standard.

8. Requirements that would apply only in certain localities would be omitted.