Layla Zulfa
Offsite construction, encompassing methods like modular and manufactured housing, currently accounts for a mere three out of every 100 newly built U.S. homes annually, according to the National Association of Home Builders (NAHB). However, a suite of provisions within the recently enacted 21st Century ROAD to Housing Act is poised to significantly accelerate this segment of the residential construction market. Lawmakers are increasingly turning to factory-based fabrication as a critical solution to the nation’s deepening housing affordability crisis and the persistent shortage of available homes. Proponents argue that offsite construction offers a tangible pathway to delivering housing faster and at a lower cost compared to traditional, on-site building methods.
The optimism surrounding modular housing is palpable among key figures in the housing sector. Frank Cassidy, a former Commissioner of the Federal Housing Administration (FHA) and Assistant Secretary for the U.S. Department of Housing and Urban Development (HUD) until June, now serves as a Senior Managing Director at Walker & Dunlop. Cassidy is a vocal advocate for modular construction, believing that increasing housing supply is the most effective strategy for improving affordability. He emphasized in an interview with HousingWire TBD that the nation has focused too heavily on demand-side subsidies, neglecting the fundamental need to build more homes more efficiently. "We can’t subsidize our way out of a housing shortage. We have to build our way out of it," Cassidy stated. He further articulated that factory-built housing should be recognized as essential housing infrastructure, capable of rapidly and cost-effectively bringing more homes online through innovative construction techniques.
Federal Initiatives to Propel Modular Housing Forward
The 21st Century ROAD to Housing Act introduces several key measures designed to bolster the offsite construction industry. One significant alteration is the removal of the permanent chassis requirement for manufactured housing. This change is expected to empower manufacturers to develop higher-density, more aesthetically diverse, and better-designed homes, potentially igniting a new era of innovation and growth for the manufactured housing sector.
Beyond this, two less publicized but critically important sections of the act directly address long-standing bottlenecks hindering modular construction.
Addressing Regulatory and Code Barriers
Section 302 of the legislation mandates HUD to identify and dismantle barriers that impede the construction of factory-built housing. These obstacles can range from rigid construction draw schedules that don’t align with offsite manufacturing timelines to limitations imposed by FHA loan caps and the inconsistency or inefficiency of state and local building codes.
Crucially, Section 302 also directs HUD to commission a study aimed at developing a standardized building code for modular housing. Cassidy strongly supports this initiative, suggesting that the federal government could leverage the existing HUD code for manufactured housing as a template. Such a move could establish a single national standard, preempting the patchwork of fragmented state and local codes that currently stifle industry growth and create costly complexities for builders.
Cassidy highlighted that the technological capacity for innovation is already present within the modular construction sector. Builders possess the technology and manufacturing capabilities to produce homes rapidly and potentially at reduced costs. However, he asserted, "the regulation needs to catch up with the technology." He advocates for a performance-based regulatory approach, where the federal government sets robust health and safety standards without dictating the specific methods manufacturers must employ. This approach, he explained, would foster innovation while ensuring consumer protection and standardizing both the construction process and the final product.
State and local zoning regulations were also identified by Cassidy as significant impediments. "Federal policy can improve, but we need states and localities who control their zoning and land use to adopt more favorable policies that allow this type of product," he urged. The success of offsite construction is intrinsically linked to local land-use policies that permit diverse housing typologies and densities.
Streamlining Financing for Offsite Construction
Section 303 of the ROAD Act is dedicated to updating federal regulations to facilitate the construction of Accessory Dwelling Units (ADUs) and improve financing options for manufactured homes. This section expands FHA loan limits for offsite builders and introduces more adaptable financing mechanisms for both homeowners and prospective buyers.
A 2026 report by the Modular Home Builders Association (MBHA) previously illuminated the significant financing challenges confronting modular builders. A substantial portion of modular construction costs is incurred at the factory before the home is delivered to its final site. This necessitates that lenders develop non-traditional draw schedules that diverge from the conventional construction loan models. Lenders unfamiliar with this process may perceive modular construction as inherently riskier, making it difficult for builders to secure the necessary capital. The MBHA report identified the challenge of finding knowledgeable lenders as a major obstacle to industry expansion.
Cassidy stressed the need for federal agencies such as the FHA, Fannie Mae, and Freddie Mac to adapt their financing and liquidity rules. These adjustments would enable developers to more readily finance modular projects and consumers to more easily afford them. Without these adaptations, the inherent efficiencies of modular homes may not translate into scalable adoption due to financing limitations. "The financing hasn’t caught up to the advances in the product," Cassidy noted. "I think building more factory-built homes doesn’t help if developers can’t finance the product. As policymakers, we should continue working towards greater flexibility and liquidity access across the agencies, so FHA and Fannie Freddie and even primary financing makes sense."
The Modular Building Institute has also voiced support for Sections 302 and 303, recognizing their potential to positively impact the industry. The organization specifically commended the potential for a uniform commercial code for modular homes and the proposed federal financing reforms. Their statement highlighted that Section 303 acknowledges the distinct nature of modular construction and the requirement for capital deployment at different project phases, differentiating it from traditional on-site building.
Cassidy foresees the greatest potential for modular housing in high-cost suburban and tertiary markets located on the periphery of major urban centers. These areas often grapple with expensive housing and labor shortages but still possess more available land than dense urban cores. Many modular developers also identify high-cost urban markets as prime candidates for their solutions.
Learning from Past Setbacks to Shape Future Success
The construction industry has witnessed a history of high-profile failures in modular housing, leading to a degree of skepticism among some stakeholders. The collapse of Katerra in 2021, after a substantial investment of over $2 billion in just over six years, stands as a prominent example of a company that failed to translate industry potential into sustained success.
However, a new wave of homebuilders, such as ARO Homes, backed by the venture capital firm Innovation Endeavors co-founded by former Google CEO Eric Schmidt, are leveraging modular construction techniques with the conviction that they can overcome the challenges that led to past failures. Simon Boag, CEO of ARO Homes, stated that the company conducted a year-long research project into the industry before its launch, examining numerous companies that had raised significant capital without achieving success.
Despite these past challenges, Boag also pointed to many builders who have successfully implemented offsite construction methods. Clayton Homes and Volumetric Building Companies, which specializes in urban high-rise apartments, student housing, and hotels, are notable examples.
ARO Homes differentiates itself by applying principles of automotive product design to housing, drawing on Boag’s extensive experience in the automotive sector with General Motors, Chrysler, and Daimler. The company utilizes data analytics to design a single, net-zero home adaptable to most lots within a target geographic area, then secures land for these standardized designs rather than creating bespoke plans for each parcel. ARO Homes focuses on building high-end homes in the San Francisco Bay Area, specifically targeting replacement dwellings in older, infill neighborhoods. This strategy allows them to stand out in markets with limited new-construction inventory.
Boag emphasized that the ability to construct homes significantly faster at ARO Homes’ 86,000-square-foot Sacramento plant, with a capacity of 100 homes annually, is a key differentiator. "It is in fact cheaper, and it’s more efficient, but that’s not what’s driving the business model. The fact is, housing—you’re constrained by debt, and because we can build homes six times faster… that means we put our debt to work and build six times as many homes as our competition, and that’s the unlock," he explained. This accelerated production cycle allows for a more efficient use of capital.
Boag also identified several obstacles to the broader adoption of modular housing. Transportation logistics present a significant challenge, a concern echoed by the Modular Home Builders Association. Factors such as narrow access roads, low-hanging wires, bridge and weight restrictions, weather delays, complex permitting and escort requirements, and insufficient staging space can all complicate the delivery of modular components to job sites. Furthermore, coordinating crane plans, ensuring foundation readiness, and aligning inspection schedules require meticulous collaboration between the factory, the on-site setting crew, and the crane company.
Another critical hurdle is public perception. While countries like those in Scandinavia have fully embraced modular construction, the United States has been more hesitant to adopt alternative building techniques. Boag suggested that this reluctance may stem partly from the fact that many U.S. regions, such as California, do not face the same extreme weather challenges that can disrupt traditional building methods. In contrast, harsh climates often compel countries like those in Scandinavia to adopt offsite construction earlier. "In Scandinavia, you’ve got weather, which is a huge factor. So, they’ve been forced into [modular] sooner," Boag observed. "We’ve had the luxury of not having to do it. But once you start doing it, you start realizing the benefits of it." The 21st Century ROAD to Housing Act represents a concerted federal effort to overcome these historical barriers and unlock the transformative potential of offsite construction for the American housing market.
