4 Predictions on What Modular Construction Will Look Like in 10 Years

Modular construction has been commercially viable in the United States since 1908 when prefabricated home kits from Sears Roebuck and Co. hit the market. However, many still consider it a recent trend. On the surface, this approach seems to solve the construction sector's biggest woes, including workforce shortage, waste, pollution and safety.

Manufacturing standardized building components in a factory — a setting free from weather effects — and assembling them on-site can speed up project completion and minimize costs through efficient material usage. Yet modular structures only account for a small number of buildings in existence. Will they still be in limbo in 10 years? 

These four predictions give you a glimpse of the sector's near future.

1. 3D modules will be offered alongside 2D panels

Transportation is one of the factors holding modular construction back. The Modular Building Institute estimates that North America has 255 modular manufacturers doing business with commercial real estate developers. It's unclear how many factories mass-produce purely residential modules. Still, these dozens of regional manufacturing companies struggle to overcome their inherent logistical challenges.

Erecting more factories can shorten the ground trucks need to cover — a neat solution to increase manufacturing capacity and ship massive cargo more quickly. The problem is modular factory construction is capital intensive. Building more facilities near metropolitan areas where most of the module demand comes from drives up land acquisition costs. Setting up a plant in a strategic location merits tens of millions of dollars' worth of upfront investment.

However, transportation regulations limit the module dimensions. Since cargo size restrictions vary by location, factory-made building components usually measure 11.5-13 feet high, 50-60 feet long and 12-14 feet wide. In other words, there are limits to what modular factories can fabricate.

Another issue is oddly shaped architectural elements. Unstackable modules are a nightmare to ship, even over short distances. Although many modular players can accommodate complex construction design requirements, most project managers prefer building components with unique dimensions on-site. As a result, most of the orders modular manufacturers get are for standardized, repetitive elements.

This sentiment will likely persist in the perpetually high-stakes construction space. Stakeholders will use a hybrid approach to incorporate modules into their projects, encouraging modular manufacturing companies to market 2D panels and 3D modules in tandem.

Hybrid modular designs offer a healthy balance between the logistical simplicity and efficiency of 2D and 3D building components, respectively. Focusing on them may prove more profitable than fabricating unique architectural elements.

2. Modular residences will become more widespread

Multifamily real estate has been the most lucrative market for modular manufacturers for years, beating office, administrative and education. In 2022, it accounted for 32% of modular construction's total factory output — a jump of eight percentage points from the year prior.

The stars align for this trend to continue in the foreseeable future. The U.S. needs 4.3 million apartments by 2035 to meet rental housing demand across urban, suburban and rural communities. Many multifamily developers rely on factory-built modules to rapidly add more doors to the nation's housing supply.

Modular housing and multifamily real estate are a match made in heaven. Modular apartment floor plans offer some room for customization, allowing architects more freedom to design identical units more creatively.

The sustainability movement will only gain more steam over the next decade, generating more interest in modular construction in the multifamily space. More than 680,000 residential units bear the Leadership in Energy and Environmental Design certification — a testament to many developers' commitment to going green.

Modular construction trumps traditional construction in the sustainability department. Aside from using less material, modular manufacturers can fabricate building components optimized for deconstruction. Standardized modules are part of the circular economy because they're easy to disassemble, relocate, reconfigure and repurpose.

3. Modular players will build more Auxiliary Dwelling Units (ADUs)

Despite appreciating modular construction's upsides, most single-family home developers favor traditional building methods. That's why modular and panelized housing units accounted for merely 2% of all completed single-family homes in 2022 — a five percentage point decline from 1998.

Although residential real estate hasn't been kind to modular players in the 21st century, ADUs represent an opportunity for expansion. Industry observers forecast the ADU market to grow at a compound annual growth rate of 18.6% and reach $10.6 billion by 2030 due to housing unaffordability and the rise of multigenerational living nationwide.

Modular manufacturers can grab a large slice of the pie. ADUs are closer to amenity-rich apartments than primary residences design-wise, enabling modular factories to churn out code-compliant units to close the gap between housing construction and household formation meaningfully.

Prefab ADU kits aren't all modular — they can also be manufactured. Manufactured homes tend to be more affordable than their modular counterparts. However, modular players gain the upper hand regarding customization.

When given the chance, ADU residents will almost always want unique details in a standard-looking house, even if it means paying more. Modular home financing options are just as many as those for primary residences, making price less of a barrier to ADU ownership.

4. Modular market share will remain small

The North American modular construction industry has a history of falling short of its forecasts. The market for building modules expanded by 4% from 2018 to 2022 — far below analysts' annual predictions within this period, ranging from 6.1% to 12.2%.

Past performance doesn't guarantee future results, but history may repeat itself should modular players fail to learn their lessons. If modular manufacturers want to hit or exceed their growth forecasts over the next 10 years, they should:

• Avoid overdesign. Have a competent cost-engineering team that oversees pre production design reviews to minimize excess material usage, reducing fabrication time, transportation requirements and assembly costs.
• Boost installation efficiency. Investing in advanced project management solutions and increasing collaboration with construction professionals on the ground can help eliminate inefficiencies.
• Devise more favorable agreements with finance partners. Taking the phased bonding route can render much-needed capital available before project completion.
• Keep their factories busy. Using analytics to identify local market conditions enables modular players to bid where margins are higher and secure high-value contracts while maximizing production lines.
• Forge long-term strategic partnerships. Working with the same construction decision-makers — especially general contractors — translates into a high bid-win rate.

Modular Construction Has a Future

Although the industry has a long history of underperforming, modular manufacturing companies have momentum on their side over the next decade. They face tough challenges but can overcome familiar and new adversities if they learn from past mistakes.