Offsite construction accounts for just three out of 100 newly built U.S. homes annually, according to the National Association of Home Builders (NAHB), but multiple provisions in the recently passed 21st Century ROAD to Housing Act aim to supercharge that.
With housing affordability strained and the nation facing a worsening shortage of affordable homes, lawmakers point to off-site construction as a potential solution, claiming that factory-based fabrication can deliver homes faster and more affordably than traditional construction methods.
Frank Cassidy is among the lawmakers who are bullish on modular housing. Cassidy, now a Senior Managing Director at Walker & Dunlop, previously served as commissioner of the Federal Housing Administration and Assistant Secretary for the U.S. Department of Housing and Urban Development until June.
He believes that the most effective way to improve housing affordability is to deliver more supply, and that modular construction should play an important role.
“We spend so much time debating how to subsidize demand and not enough time figuring out how to build homes faster and at a lower cost. We can’t subsidize our way out of a housing shortage. We have to build our way out of it,” Cassidy said in an interview with HousingWire TBD.
“When you look at factory-built housing, I think it should be treated as really mainstream housing infrastructure,” Cassidy added. “If we want to get a lot of housing online quickly and cost‑effectively, we’ve got to look at more innovative construction techniques — and modular really gives us the ability to do that.”
The federal effort to boost modular housing
The 21st Century ROAD to Housing Act aimed to bolster off-site construction in several ways, including removing the permanent chassis requirement for manufactured housing. That change could allow manufacturers to build higher-density, better-designed homes and potentially usher in a new period of growth for manufactured housing.
Two lesser-known sections target key bottlenecks holding back modular construction.
Section 302 of the legislation directs HUD to pinpoint and remove barriers that make factory-built housing harder to build. These barriers can include rigid construction draw schedules, FHA loan limits and inconsistent or inefficient state and local building codes.
The section also instructs HUD to authorize a study to create a standardized building code, a change Cassidy supports. He argued that the federal government could use the manufactured housing HUD code as a model for modular housing, creating a single national standard that would preempt fragmented state and local codes that hold the industry back.
Cassidy said that the innovation is there. Modular builders have the technology and capacity to build homes quickly and at potentially lower costs, but “the regulation needs to catch up with the technology.”
“I think the federal government should establish strong health and safety standards, but regulation shouldn’t necessarily dictate how a manufacturer achieves them. So the objective should be performance-based regulation that encourages innovation while protecting consumers, but also standardizes the construction and the product type,” Cassidy explained.
Cassidy also cited state and local zoning regulations as major barriers.
“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 said.
Financing remains a key bottleneck
Section 303 of ROAD will update federal rules to streamline ADU construction and manufactured home financing. The section will expand FHA loan limits for off-site builders and introduce more flexible financing options for homeowners and buyers.
A 2026 report from the Modular Home Builders Association (MBHA) laid out the financing challenges facing modular builders. Because a large share of modular construction costs is incurred in the factory before the home reaches the final site, lenders must structure atypical draw schedules that differ from traditional construction.
Some lenders unfamiliar with this process may consider modular more risky for this very reason. As a result, the MBHA report cited finding knowledgeable lenders as a major obstacle to growth.
Cassidy argued that agencies like FHA, Fannie Mae, and Freddie Mac need to adapt their financing and liquidity rules so that developers can more easily finance modular products and consumers can more easily afford them. Otherwise, even if the homes promise efficiencies, they won’t be financeable at scale.
“The financing hasn’t caught up to the advances in the product. 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,” Cassidy explained.
In a prior statement, the Modular Building Institute also pointed to Sections 302 and 303 as positive steps for the industry. The organization praised the potential for a uniform commercial code for modular homes and federal financing reforms.
“This section specifically identifies construction draw schedules as a barrier to wider modular adoption. We believe this provision acknowledges the unique nature of modular construction and the need for capital at different phases of a project, as compared with traditional on-site construction,” the statement read.
Cassidy sees the most promise for modular in high-cost tertiary and suburban markets just outside major cities, places where housing is expensive, labor is scarce, but there’s still more available land than in the urban core. Many modular developers also cite high-cost urban markets as prime candidates.
Past failures can inform the present and future.
Many stakeholders in the construction industry are skeptical of modular housing due to a slew of high-profile failures. Katerra, which went under in 2021 after spending more than $2 billion in just over six years, is perhaps the most prominent example of a company that failed to translate potential into success.
ARO Homes, backed by Innovation Endeavors, a venture capital firm co-founded by former Google CEO Eric Schmidt, is among a new generation of homebuilders using modular construction techniques that believe they can succeed where companies like Katerra fell short.
“We spent a year as a research project just looking at the industry before we launched the company,” ARO Homes CEO Simon Boag said. “We looked at… a lot of companies that have raised significant amounts of capital and have not been successful.”
However, he also noted that many builders have successfully used off-site construction techniques. Clayton Homes is one prominent example, as is Volumetric Building Companies, which builds urban high-rise apartments, student housing and hotels.
ARO Homes aims to differentiate itself by treating housing like automotive product design, leveraging Boag’s experience working for General Motors, Chrysler and Daimler. The builder uses data to design a single net‑zero home that fits most lots in a target area, then finds the land for that home instead of custom‑designing for each parcel.
The firm, which builds high-end homes in the San Francisco Bay Area, focuses on replacement dwellings in older, infill neighborhoods where existing homes are often at least 40 years old. Building in neighborhoods with limited new-construction inventory helps the company differentiate itself from other builders, Boag said.
According to Boag, building homes much faster at ARO Homes’ 86,000-square-foot Sacramento plant, which can produce 100 homes a year, is a key differentiator from traditional homebuilders.
“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.
Boag pinpointed multiple challenges that he sees as obstacles to modular housing’s growth. One is transportation logistics, a challenge the Modular Home Builders Association also cited. According to MHBA, tight access roads, low wires, bridge and weight restrictions, weather delays, permitting/escort requirements, and insufficient staging space can all make transportation to job sites more difficult.
Once on the job site, getting the crane plan, foundation readiness, and inspections aligned requires tight coordination between the factory, set crew and crane company, according to MHBA.
Another challenge is perception. While some countries, such as Scandinavian nations, have fully embraced modular construction, the United States remains far behind and much more reluctant to adopt alternative building techniques.
Part of this is because many regions in the United States, such as California, don’t face the same weather challenges as Scandinavian countries. Off-site construction techniques can be quite effective in regions with harsh climates that can disrupt traditional building methods.
“In Scandinavia, you’ve got weather, which is a huge factor. So, they’ve been forced into [modular] sooner,” Boag said. “We’ve had the luxury of not having to do it. But once you start doing it, you start realizing the benefits of it.”
