Offsite construction, including modular and panelized building, has been called the future of building for as long as I have been in this industry, which is more than 25 years. Every few years there is a new wave of capital, a new round of headlines and a new set of factories. Then the numbers come out.
According to an analysis of Census data by the National Association of Home Builders, about 28,000 of the roughly 1,019,000 single family homes completed in 2024 were modular or panelized. That is 3%, the same as 2023. In 1998 the share was 7%. On the multifamily side, about 3% of buildings were modular or panelized in 2024, down from 7% the year before. Hotels are harder to pin down. The Modular Building Institute does not break out hospitality, but it estimates permanent modular at about 6.6% of all 2023 new construction starts in the markets it tracks.
After decades of promise, the share has gone down, not up.
For years a lot of offsite has run on the Field of Dreams business plan: "If you build it, he will come." We built the factories and the customers still don't understand what we are doing and how to benefit from it. Maybe we still need more factories to encourage adoption.
Construction productivity: the need is real
It is not for lack of need. Economists Austan Goolsbee and Chad Syverson documented a large, decades long decline in construction productivity. Federal Reserve researchers found that construction is the only major industry with negative average productivity growth since 1987, and that measurement problems do not explain the weakness away.
Construction has a productivity problem, and building in a factory is one of the best tools we have to fix it. So why is adoption so slow?
Five reasons offsite construction adoption is slow
First, the buyer takes the risk first. A developer who chooses offsite takes on new risks, like factory performance, transport, the set and unfamiliar contract structures, before seeing any of the benefits. Can something go wrong on a site built job? Absolutely. But lenders, insurers and contractors know how to price those risks. They are still learning how to price ours. Part of that is on us. Many buyers still do not understand what offsite is, what it changes in their process, or how they benefit from it, and we have not done a good job explaining it.
Second, one great project is not a track record. The market needs to see the same result delivered again and again.
Third, capacity is thin and uneven. If a buyer cannot count on a factory slot when they need it, they will not design around one. That may be the real answer to the Field of Dreams problem. We may not need fewer factories. We may need more of them, closer to the markets they serve, so buyers can see the product, trust the slot and keep transport costs in check.
Fourth, offsite rewards early decisions, and the traditional development process makes decisions late. That mismatch shows up as redesign, rework and lost time. This is where the risk shifts. The factory is then faced with slowing production to meet ever-changing demands. Slowing production is the same as removing capacity from the market, not to mention reducing margin and lengthening the schedule.
Fifth, the approval system was built around site construction, and every jurisdiction does it a little differently.
I will dig into each of these in future posts. What they have in common is that they are process, risk and trust problems. The technology to build well in a factory has been around for a long time. Fixing them starts with explaining offsite in the buyer's terms: their schedule, their pro forma and their risk.
The market does not need another promise that offsite is faster and cheaper. It needs proof that it is predictable. Speed and savings follow predictability, not the other way around.