Technology

Will Prefabricated Homes Solve The Housing Crisis?

Prefabricated homes

There is a severe shortage of affordable housing around the world. The problem is not caused by the lack of housing, financing or building materials, but rather the logistics required to meet the demand. Housing prices have been on the rise due to a couple of factors including low interest rates, low housing inventory and high demand, a seismic shift in consumer sentiment brought about by the pandemic. The ability to work remote efficiently is driving white collar workers to seek to own their own property as opposed to renting.

In order to build a home from scratch you will need input from a variety of different professionals including architects, land surveyors, designers, engineers, inspectors, and general contractors. You will then need to get a plan in place, apply for a permit with the regulatory authority, prepare the land, footings and foundation before the actual construction of building commence. Once that is done the framing, plumbing, electrical, HVAC, insulation, drywall are installed before the interior and exterior finishes are applied. Then the fixtures get installed followed by the flooring and appliances. The final inspection is conducted to certify the home safe for living. A typical process often takes months or even years before it is completed by more conventional developers.

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Picture Courtesy of Elemental Green

 

Prefabricated homes are often manufactured offsite before being either assembled or transported on to the prepared land. It can come in various shapes and sizes and oftentimes looks more aesthetically pleasing compared to conventional homes.  A prefabricated home like Elemental Green not only comes in various shapes and sizes, they can be prepared in 2 – 5 months and produce less waste compared to more conventionally built homes.

A prefabricated home typically costs somewhere between $100 – $400 per sqft and depends on several factors including build quality, appliances and modifications made to any module. Prefabricated homes are modules like Lego pieces which are glued together to create the housing structure or individual units. The flexibility prefabricated homes provide and the ability for prefabricated home manufacturers to buy housing materials in bulk, leads to costs associated with the construction of one being 20% to 30% cheaper compared to conventionally constructed homes.

Prefabricated homes are gaining investment from major players in the tech space, with Amazon investing into Plant Prefab’s USD5 million Series A round and Dvele raising USD14 million in its Series A round. Softbank backed Katerra which builds prefabricated buildings, recently raised a further USD200 million from Softbank to finance the completion of its current active projects. Larger players in the business are Blu Homes (USD180 million in funding), Project Frog (USD92 million in funding) and Prescient (USD45 million in funding).

There is rising acceptance among state and city officials to make the process easier to construct prefabricated homes to meet rising demand for city and suburban homes. Financing on prefabricated homes are now being finance through typical mortgage like financing opening up the industry to more first time home buyers. The financial trend for prefabricated homes is gaining strong momentum within the investment community and rising home demand will create major tailwinds in the prefabricated home industry.