Build Modular Housing Factories Near Areas with High Housing Costs

To improve housing costs and economic conditions at once, look to the locations of modular housing factories.

Image shows modular house under construction
Photo by Flickr user Reading News, CC BY-NC 2.0

Affordable housing developers are keenly aware of the growing need to house struggling residents quickly. The pandemic has only exacerbated the mismatch between housing supply and housing need. There is, of course, also an economic crisis, and affordable housing development is a proven strategy to spur job creation and spark positive ripple effects across multiple sectors.

However, operational challenges precipitated by the pandemic—not to mention the strain on public resources‚ have made affordable housing developers extremely sensitive to the costs of building new developments. This has increased the appeal of modular housing construction, which has been promoted as a way to boost productivity, cut costs, and force innovation in traditional construction. Modular homes are residences built to near completion in factory environments, and later transported in sections to construction sites.

However, that potential has not yet been realized, and one of the reasons is the expense and delay that comes from shipping the modular parts in from distant factories. If components of a modular home are built at a local factory situated nearer the construction site, developers have the convenience of both logistical and cost efficiencies, cutting down project time and contributing to a smaller carbon footprint.

A strategy that would address housing supply, construction cost, job creation—and even the jobs-housing mismatch—would be to locate more modular housing factories directly in regions with high housing costs, in parts of those regions that suffer from lack of jobs and long commutes to what jobs there are. Developers seek certainty in the building environment, and a robust set of local fabrication facilities could bring efficiency, reliability, and timely delivery.

Take Southern California, for example. The Southern California Association of Governments (SCAG), the metropolitan planning organization for the region, has been told by the state housing department that the region will need to add 504,970 units of housing over the next 10 years, according to the latest Regional Housing Needs Assessment (RHNA) Allocation Plan. This daunting figure doesn’t even include the 836,857 units that constitute existing need.

While Los Angeles may be booming, the Inland Empire—centered around the cities of Riverside and San Bernardino and located east of Los Angeles County—continues to lag behind the rest of California and the nation in wages and availability of well-paying jobs. The majority of Inland Empire jobs lost during the Great Recession were concentrated in some of the region’s highest-paying industries: manufacturing and construction. In combination with high housing costs in the region’s job centers, this has led to burdensome commutes. According to the Inland Empire Annual Survey, in 2018, 19 percent of respondents who worked outside the home had round-trip commutes of two or more hours. In Riverside County, there was a 29 percent increase in super-commuters, i.e., people who spend 90 minutes or longer commuting, between 2009 and 2017.

Situating more modular factories in the Inland Empire could play a key role in the revitalization of both its manufacturing and construction sectors, while increasing the efficiency of affordable housing development across the expansive Southern California region. 

While there are already a few modular construction companies operating in the Inland Empire, including the Perris-based Silver Creek Industries and US Modular in Moreno Valley, what if we could scale up the capacity of this area to serve the affordable housing construction needs of all of Southern California? SCAG’s RHNA number is indicative of the massive need for hundreds of thousands of units that cannot feasibly be met by just a handful of companies if Southern California is truly serious about addressing its housing crisis.  

There are several models of successful modular companies operating across the state. CRATE Modular, the leading manufacturer of container-based, multi-unit housing operates out of Carson on the Westside of Los Angeles County. Local nonprofit developer American Family Housing, based east of Long Beach in Midway City, used CRATE for Potters Lane, the first apartment building for chronically homeless veterans in the United States made out of recycled shipping containers. The development was completed in just five months and sourced materials from recycled shipping containers from the nearby Port of Long Beach. In 2020, CRATE manufactured the components for several homeless navigation centers, and this year, it is in the process of fabricating 21 market units for San Diego, 20 units for unincorporated Los Angeles County, shelter support units in Chula Vista, and several accessory dwelling units. CRATE’s highly varied portfolio shows the multi-functionality of modular.

Similarly, Factory OS offers an off-site modular process in Northern California resulting in homes that it says can be built 40 to 50 percent faster and 20 to 40 percent cheaper than traditional construction projects. Factory OS highlights that its manufacturing facility features “union-made components with valued full-time, thoroughly trained permanent employees.” Through an agreement with the Northern California Carpenters Regional Council, Factory OS recruits local workers and is expected to hire a workforce of more than 300 permanent, full-time construction workers.

Here in Southern California, Factory OS does not have a local manufacturing facility but it is partnering with local nonprofit developers LA Family Housing, Abode Communities, and Mercy Housing to deliver 360 supportive-housing prefabricated units. The work is being funded by $40 million in City of Los Angeles Proposition HHH Housing Challenge Funds stemming from a $1.2-billion homeless housing bond.

Modular construction is not for every project. Community Corporation of Santa Monica (CCSM), a nonprofit affordable housing developer, found that bids for three smaller projects using modular construction costs proved higher than traditional stick-build versions. CCSM attributes this difference to the fact that design must be optimized from the beginning for modular construction. In addition, larger projects optimize cost efficiency by bringing economies of scale. CCSM still recognizes the opportunity in modular construction, however; as Tara Barauskas, executive director of CCSM, commented, “We have seen from other projects completed by others that modular construction definitely cuts down on time. And in our world, time is money with regard to construction carrying costs.”

Edwards, vice president of project development at National Community Renaissance (National CORE), an affordable housing developer with its headquarters in San Bernardino County, echoes Barauskas’s comments, noting modular development proves most cost effective when projects are large in scale and volume, require prevailing wages, and achieve repeatability in materials and product type, such as easily replicated design of interiors. Edwards says that they are continuing to explore how they could incorporate modular construction into their future pipeline. Given her focus on cost-effectiveness, the ability to increase speed and output that would come with working with a local manufacturing facility is very appealing. If the Inland Empire were to be the site of a greater concentration of modular facilities, the state and region would be well-positioned to create well-paying, unionized jobs with strong benefits.

Developing additional modular housing factories close to the city of Los Angeles can generate a path to rapid development not just for Los Angeles but also the entire region of Southern California, essential in the state’s efforts to address a massive housing shortage and public sector demand for 504,970 units of regional housing, as determined by the state’s RHNA process. This method of building can solve lingering development challenges, if we create sufficient demand for modular among all sectors to make additional local capacity sustainable, and then scale up local fabrication facilities to meet that demand. Perhaps the surest catalyst to propel demand is government leadership; policies stemming from government could foster the siting of factory locations in the region by offering tax and other business incentives to capitalize on available land in a region with so much potential for job creation, housing, and economic growth.

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