The Factory Isn't the Problem: What's Really Holding Back Modular Housing in America?
Why hasn't modular housing gained market share? Explore how permitting, financing, site preparation, and inconsistent factory orders limit growth in factory-built housing.
INDUSTRY INSIGHTS
We've Improved the Factory. But What About Everything Outside of It?
For decades, the factory-built housing industry has promoted the same fundamental advantages: faster construction, controlled manufacturing environments, reduced material waste, improved quality control, and greater predictability.
And those advantages are real.
Modern modular factories can produce homes with an impressive level of precision. Materials are protected from the weather, workers operate in controlled environments, and multiple construction activities can take place simultaneously rather than sequentially.
Yet after decades of technological advancements, better manufacturing processes, and billions of dollars invested in off-site construction, modular housing still represents a surprisingly small portion of America's housing production.
According to the National Association of Home Builders (NAHB), modular and panelized/pre-cut construction combined accounted for approximately 3% of single-family homes completed in 2024.
Think about that.
We have spent decades developing a better way to manufacture homes, yet the industry continues to struggle to gain meaningful market share.
Perhaps the biggest obstacle to modular housing isn't what happens inside the factory. Perhaps it's everything that happens outside of it.
1. The Factory Can Build a Home Faster Than the System Can Deliver It
A modular manufacturer can establish production schedules, coordinate material deliveries, assign labor, and move a home through a predictable manufacturing process.
But once that home becomes part of an actual construction project, the manufacturer must depend on an entirely different system.
Local permitting departments, building officials, engineers, lenders, transportation companies, foundation contractors, crane operators, utility providers, and general contractors must all work together.
Unfortunately, they frequently operate on different schedules, with different requirements and different levels of experience with modular construction.
A home can be ready for shipment while its foundation isn't finished.
A crane can be scheduled while a transportation permit remains unresolved.
A lender can delay a payment because its traditional construction draw schedule doesn't match factory production requirements.
And a building department may still be reviewing site-specific documentation after the manufacturer has completed its approved portion of the work.
A factory can operate efficiently and still be part of an inefficient construction project.
That distinction deserves far more attention than it receives.
2. Permitting and Regulatory Fragmentation Remain Significant Obstacles
Unlike HUD-code manufactured housing, which is built to a national federal construction standard, IRC modular homes must satisfy applicable state and local building codes and factory-built housing program requirements.
These requirements vary by jurisdiction.
Some states have established factory-built housing programs with clearly defined inspection and approval procedures. Others require different approaches to plan review, third-party inspections, labeling, and coordination with local building departments.
Even where the factory-built portion of a home receives approval through a state program, the project may still require local approvals for zoning, foundations, utility connections, site work, installation, and completion.
Those responsibilities are legitimate. Local conditions matter.
But inconsistent interpretations, unclear divisions of authority, and unnecessary duplication can create costs and delays that reduce the economic advantages of factory construction.
We don't necessarily need fewer inspections.
We need clearer, more coordinated, and more predictable approval processes.
A manufacturer operating across multiple states should not have to reinvent its entire compliance and approval strategy for every project.
3. Construction Financing Still Favors Traditional Building Methods
One of the most frequently overlooked obstacles to modular construction is financing.
Traditional construction loans are commonly structured around work completed and inspected at the jobsite.
Factory-built construction operates differently.
Manufacturers must purchase materials, schedule labor, and invest significant capital before a home reaches the property.
Depending on the contract, substantial payments may be required before shipment.
That creates a challenge when lenders are unwilling or unable to release funds for construction occurring inside a factory.
The result can be a financing gap between what the manufacturer needs to maintain production and what the lender is prepared to disburse.
This is not a minor administrative problem.
It affects factory cash flow, builder working capital, customer confidence, and the ability to scale production.
The Urban Institute highlighted these financing barriers in its 2026 examination of factory-built housing and the opportunities for expanding starter-home production.
If financing systems remain designed primarily around conventional site construction, modular manufacturers and their customers will continue to encounter unnecessary obstacles.
Our lending practices need to recognize how factory-built construction actually works.
That means more predictable factory-stage funding, appropriate safeguards for lenders and consumers, and financial products designed around the actual construction process.
4. Site Preparation Can Erase the Factory's Time Advantage
Let's consider a common scenario.
A manufacturer completes a home on schedule.
The modules are ready for delivery.
But the project site isn't ready.
The foundation contractor is behind schedule. Utility connections are incomplete. Access for oversized loads has not been finalized. Or the crane location hasn't been properly evaluated.
Suddenly, the manufacturer's production efficiency becomes irrelevant to the homeowner's completion date.
This is one of the most important distinctions between manufacturing a home and delivering a completed housing project.
Factories can control their assembly lines.
They cannot directly control every contractor, agency, or supplier involved at the destination.
Unless those activities are coordinated from the beginning, the advantages of off-site construction can quickly disappear.
The solution is not simply to manufacture faster.
It is to treat the entire project as an integrated construction process, with factory production, site preparation, transportation, installation, and final completion planned together.
5. Factories Cannot Survive on Promises of Future Orders
There is another serious issue that deserves attention: consistent production volume.
Factories are expensive to operate.
Buildings, equipment, machinery, insurance, utilities, management, and a trained workforce represent substantial ongoing costs.
Those expenses don't disappear when production slows.
A factory might have the capability to produce hundreds of homes annually, but that capacity means little without a dependable order pipeline.
Developers may announce ambitious housing projects.
Builders may express interest in converting to modular construction.
Investors may forecast strong demand.
But expressions of interest don't keep a production line operating.
Factories need funded orders, committed customers, and dependable production schedules—not just projections.
An October 2026 Urban Institute research brief examined why modular manufacturers have struggled to scale. Among its findings was the difficulty of translating project-specific construction into a stable, repeatable manufacturing business.
The research also emphasized the importance of dependable production pipelines, builder and developer relationships, and expansion based on demonstrated demand.
This is a critical lesson for both existing factories and those considering entering the market.
Factory capacity should be developed around sustainable business demand, not simply optimistic housing forecasts.
6. The Industry Still Has an Education Problem
For all the progress made in modern modular construction, misunderstandings remain widespread.
Some homebuyers still associate modular homes with older mobile homes.
Some builders believe modular construction eliminates their role in the project.
Some local officials have limited experience with state-approved modular systems.
And some lenders continue to approach factory-built construction as though it is an unfamiliar or unusually risky building method.
These misconceptions can influence decisions long before a manufacturer has the opportunity to demonstrate its capabilities.
The reality is that IRC modular construction is a method of building—not a separate category of housing quality.
A properly designed, approved, installed, and completed modular home must satisfy the applicable building-code requirements, just as a comparable site-built home must.
The industry needs to do a better job explaining the distinctions between IRC modular, HUD manufactured, panelized, and other factory-built systems.
Education must extend beyond the homebuyer.
It needs to reach lenders, appraisers, builders, developers, inspectors, public officials, and the professionals responsible for making construction projects work.
If the people involved in the process don't understand modular construction, they are less likely to recommend it, finance it, approve it efficiently, or build with it.
7. What Needs to Change?
If modular housing is going to become a larger part of America's housing solution, the industry needs to move beyond improving manufacturing efficiency alone.
Here are six priorities worth pursuing:
First: Coordinate approvals before production begins. Manufacturers, builders, engineers, and permitting authorities should establish clear approval responsibilities and address site-specific requirements early.
Second: Develop financing products that support factory construction. Lenders need practical funding procedures that recognize off-site production milestones while protecting their financial interests.
Third: Make site readiness a condition of production scheduling. Foundation completion, utility planning, site access, transportation, and crane requirements should be coordinated with realistic delivery dates.
Fourth: Build dependable partnerships between manufacturers and developers. Repeatable designs, reliable orders, and long-term business relationships can support more efficient factory operations.
Fifth: Invest in builder and installer education. Experienced local construction partners are essential to turning a factory-built structure into a completed home.
Sixth: Educate the market. The industry must explain the performance, code compliance, costs, and limitations of modern factory-built housing in language that homebuyers and construction professionals can understand.
None of these solutions requires inventing a revolutionary new manufacturing process.
They require the industry to operate more effectively as a coordinated system.
8. The Real Opportunity Is Bigger Than the Factory
Factory-built construction has an important role to play in addressing America's housing challenges.
But we should be careful not to suggest that modular construction automatically makes every project cheaper, faster, or easier.
It doesn't.
Freight distances, design complexity, production volumes, labor costs, local regulations, site conditions, and project management can all influence the outcome.
Some projects are excellent candidates for modular construction. Others may be better suited to panelized or traditional site-built methods.
The objective should not be to force every housing project into a factory.
It should be to identify where factory-built construction offers measurable advantages and establish the systems necessary to deliver those advantages consistently.
Manufacturers, builders, developers, lenders, suppliers, regulators, and policymakers all have a role in that effort.
We have already demonstrated that homes can be built efficiently in factories.
Now we need to demonstrate that the entire housing industry can work efficiently with those factories.
Final Thought: Maybe We're Asking the Wrong Question
For years, the modular housing industry has asked:
How can we build homes faster?
Perhaps it's time to ask a more important question:
How can we get completed homes into the hands of buyers faster, more affordably, and with fewer unnecessary obstacles?
Because at the end of the day, the customer isn't purchasing factory efficiency.
They're purchasing a completed home.
And until the entire delivery process works as efficiently as the manufacturing process, modular housing will continue to struggle to reach its full potential.
The factory isn't always the problem. The system surrounding it may be the bigger challenge.
About the Author
Lance Duke is the founder of Factory-Built Housing Consultants, LLC, an independent advisory and advocacy firm serving the factory-built housing industry. With more than four decades of experience working with manufacturers, builders, suppliers, and construction professionals, he brings a practical industry perspective to the opportunities and challenges facing modern off-site construction.
Factory-Built Housing Consultants, LLC
Independent advisors and advocates for factory-built housing.
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1. Urban Institute — October 2026
Why Modular Construction Struggles to Scale and What More Durable Models Do Differently
https://www.urban.org/research/publication/why-modular-construction-struggles-scale-and-what-more-durable-models-do
2. National Association of Home Builders — August 2025
The Offsite Construction Market Share Flattens Nationally in 2024
https://www.nahb.org/blog/2025/08/the-offsite-construction-market-share-flattens-nationally-in-2024
3. Urban Institute — 2026
The US Needs More Starter Homes. Factory-Built Construction Can Fill the Gap.
https://www.urban.org/urban-wire/us-needs-more-starter-homes-factory-built-construction-can-fill-gap
4. U.S. Department of Housing and Urban Development
Offsite Construction for Housing: Research Roadmap
https://www.huduser.gov/portal/sites/default/files/pdf/Offsite-Construction-for-Housing-Research-Roadmap.pdf
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