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Modular Housing, The Future of Construction?

· Real Estate,Consumer Trends

Modular Housing, The Future of Construction?

Construction, the largest industry in the world, has suffered incredibly low growth rates over the past two decades - while it accounts for 14% of Global GDP, its growth has been limited to about 1% annually. While one can point to skyrocketing costs, leading to decreasing EBIT margins, COVID-19 seems to show slim chances of a strong recovery unless there is a serious societal shift. Enter, modular construction.

Modular construction is defined as “Individual sections (called modules) that are constructed in a controlled, off-site manufacturing facility and assembled at a building site. Leveraging assembly line production methods, each module is fabricated with standard building materials.” (Vanguard Modular).

Though many may think that modular construction is a relatively new concept, the reality is that its roots trace back to the 17th century, where colonists disassembled houses and shipped them to America, where they were reassembled.

While the technology has changed over the years, one thing has stayed constant - they can be built in a controlled factory, which leads to strong quality control with reduced costs and waste. Given this, industry leaders believe that the answer to the world housing crisis is modular construction - “Access to affordable housing, anywhere in the world, is the foundation of a working society and economy” (Enterprise Times).

Beyond just speed and cost reductions, most frames in the modular industry are built from steel (as opposed to wood-framed homes), which brings greater strength, fire resistance, and flexibility in design, among other things. But, speed can not be ignored as the world was impressed by the 2,000 bed hospital China assembled in a matter of weeks for their Covid needs.

To provide a brief statistic, “The global modular construction market size is projected to grow from USD 85.4 billion in 2020 to USD 107.9 billion by 2025, at a CAGR (Compound Annual Growth Rate) of 5.7%” (PR Newswire). This growth is brought on by a plethora of factors: the further impending housing shortage (as outlined above) and the demand as a result, as well as shortages in the workforce, to name a few.

Drawing on the theme of modular housing as a method to solve the world housing crisis, let us draw on two examples where significant strides have been made in this regard.

The first location I will mention is in the Mission Bay neighborhood of San Francisco. The project, a 140-unit housing complex geared towards the formerly homeless, has been in the works since 2017 and is expected to be finished by 2021. Through its completion, it will not just create homes but also jobs in construction in order for the project to come to fruition.

Secondly, in Minneapolis, there is a new project in the works, “Mod42”, which was built at a remote location, with boxes “stacked” to create a thirty unit apartment complex - one of the first ones in the midwest, as modular construction is more popular on the east and west coasts.

To further build the case for modular construction, there has been a higher proportion of renters since the housing crisis in 2008, further burdened by millennials driving rent up, not to mention the rising costs of materials. With shorter time schedules for building, there are major benefits to cash flow and tenants can move in quicker than ever before, not to mention it limits the need for skilled labor, which is harder and harder to come by.

The future of modular housing has exciting technological breakthroughs on the horizon that could further add to their efficiency. 3D printing for instance has the ability to create parts and cut the delivery time down substantially for having tools ready onsite on demand is a game changer.

Other players such as Softbank-backed Katerra want to solve India’s Urban housing crisis through complete turnkey products such as their pre-built 500 square foot modular homes. Katerra India’s head of design and business strategy Najeeb Khan said “We’ll have to build one Chicago per year. Where are these people going to stay? They will need factories, offices, hospitals and much more.”

The reality is that the benefits of modular construction are endless, from touching areas with housing shortages, rising rents, to even building strictly for design - it touches all areas of the construction industry, from residential to commercial. Regardless of one’s opinion on the physical appearance of modular construction, it is hard to deny its merits and likelihood of gaining a serious market share.

Written by Jack Argiro

Edited by Alex Sheen, Alexander Fleiss & Calvin Ma

Sources:

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