Why don't multifamily developers use/advocate for more modular/prefab construction?
It seems like an enormous reason construction costs are so high are directly related to the cost of on-site construction. I'm not a developer, just an advocate for more housing, so I'm hoping to get some perspective from some developers - what's the barrier to you using prefab or modular construction? 

I would also be very interested in your experiences if you *have* done multifamily housing development with a prefab/modular construction before.
[{"id": "i4ar3t2", "text": "Prefab is a capital intensive way of building because you need a manufacturing facility. Most developers don\u2019t want to buy, build or rent a large warehouse building and pay for it every month even if they are not actively building a project.\n\nYou also need to be able to transport the prefab pieces to the job site.\n\nSo, it\u2019s a different way of organizing a construction firm.\n\nThe companies that do it either build a lot of the same model (e.g. planned community developers) or they build in one place but ship to a wide area. If the second, they still have an open question of site prep, which needs to take nonstandard lots and make them standard to receive the structure.\n\nAlso, codes are different in different locations so if you have a large geo, you need to spend a lot up front on creating a product that will work in many locations.", "replies": [{"id": "i4asgb4", "text": "I'm confused by this answer a little bit - totally due to my ignorance, please bear with me! \n\nWhat do you mean when you say you need to \"buy or rent a large warehouse building\"? \n\nMy understanding is that a developer would contract with a company like [this](https://www.plantprefab.com/models/brooks+scarpa-nest-livinghome-toolkit) instead of with a general contractor.\n\nWhen you say capital intensive, how much more money generally would you say the developer would need upfront compared to traditional construction? Do the cost and time savings of this type of construction not balance out once the building is completed?", "replies": [{"id": "i4ats2c", "text": "I guess if all the permits were in place, and the planning commission of the city signed off on it, and parking wasn\u2019t an issue then it could work. \n\nBut construction costs are small compared to land costs and permitting costs. \n\nMost of these structures are cookie cutter anyway, the common complaint is that they all look the same, so I would imagine it may be an issue of nobody does it, so nobody does it.", "replies": [{"id": "i4avv3q", "text": "I know I'm obviously an outlier, but the \"cookie cutter\" complaint seems so pointless to me because it's not like residents aren't going to say the exact same thing about traditionally built multifamily homes. No matter what it looks like they're going to say it's ugly, because it's really more about opposition to new housing and to density than it is to any specific building.", "replies": [], "depth": 4}], "depth": 3}, {"id": "i4auffq", "text": "* You still need a GC for site work, etc. A prefab manufacturer likely isn't managing the day-today or site prep, landscaping, utility hookups, etc.\n* A developer or GC would have to put down a deposit, get their pieces scheduled with the factory, wait for the components to be manufactured, rent a warehouse and store components as a secondary staging ground. Add in any type of delay at the factory or in the development process and your costs add up very quickly. You're adding a lot of upfront and fixed costs to the process and causing cashflow issues for the firm. With a typical development, the developer and GC coordinate to bid out trades and materials, draw down on their construction loan as needed. Maybe rent storage for some materials if it all can't be kept on site, but they don't have the same scheduling lead-time or incur the same rent/transport costs they would with modular/prefab.\n* Prefab/modular is at best 10% to 20% cheaper than conventional construction but is arguably even more risky. What if the factory order is placed but something kills the deal? Now the developmer is stuck with bespoke components they can't use and can't offload. That's money out the door with little chance of recouping costs.\n* Financing gets tricky. Generally speaking, a typical project has a predevelopment loan to cover costs as you near financial close, then the construction loan which is sized for the project cost, and finally the perm. With prefab/modular, you'd need financing for the hard costs of prefab pieces well in advance of actual construction. That's a long term for a construction loan, and high total cost of financing.\n* Depending on where you are building, the planning/zoning board might tell you to eff off. Many places don't like the drab/lifeless look of prefab/modular - or really anything that doesn't fit into their vision of 'community character'.", "replies": [{"id": "i4awbfk", "text": "Thank you for the information, this was pretty helpful. It still seems to me that the potential benefits of prefab vs traditional construction would be significant to increasing the supply of housing (hopefully lower cost, more affordable housing!), but I can see why there might be barriers to its usage.", "replies": [{"id": "i4cypjw", "text": "The industry is working on it. Costs are skyrocketing and we need a better way. Icf is doing pretty well. The hard costs are not that much better but it\u2019s way faster and speed is $$$", "replies": [], "depth": 5}, {"id": "i4djzhc", "text": "I'm for anything that would reduce the development costs, expand supply, and put downward pressure on rents at every tier of the market. But broad acceptance of modular requires a major shift in how zoning regulations are promulgated, how developments are financed, and how GCs and their subs do their work. In every arena, there's inertia and S.O.P. that inhibit change.\n\nHeck, I tried to to get an investor to accept a 7 month old environmental Ph I but noooo, we'll have to update it a third time despite conditions not changing and having a very recent Ph II with 2 add-on scopes, i.e. beating this environmental horse to death and then again in the afterlife. But industry standard is that a Ph I is no good past its 6 month sell-by date, and that's how virtually everyone underwrites. Inertia, man.\n\nAnyway, check out Bethany Terraces by RiseBoro in East Flatbush, Brooklyn. Modular senior affordable development. Google might yield you some helpful info.", "replies": [{"id": "i4f0nxz", "text": "The FHA will get involved as they were in the 1940s and 1950s.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "i4f0ime", "text": "No one produces multifamily prefab products like they have in China.\n\nThere is a crisis of affordable housing.  This is the only viable long term solution.", "replies": [], "depth": 4}], "depth": 3}, {"id": "i4av6c1", "text": "Why would a developer contract with\u2026another developer?\n\nIf you want to build prefab, then you build a factory and start churning out panels.\n\nIf you want to buy prefab panels from an existing contractor\u2026then they are the contractor.", "replies": [{"id": "i4avoec", "text": "I wouldn't have thought of them as a developer, that's interesting. I thought of them as analogous to a manufacturer, or the general contractor that developers hire for site management. They have a section on their website on contracting with developers. I get the impression that companies like this (I have a few others bookmarked) don't actively look for places to build, they wait for others who have already identified places to come to them with requests.", "replies": [{"id": "i4blxkm", "text": "Ok I get the distinction you are making\u2026I\u2019ll use your language for clarity. In that case, the developer ends up being responsible for permits, plan approval, site prep, etc. Typically these tasks fall to a GC. So, when using a prefab product, there are gaps that someone has to fill as compared to the traditional build process.", "replies": [{"id": "i4boolf", "text": "So it sounds like for this model to really work, either the prefab construction company would need to have some labor willing to travel to work sites to do that kind of work, or the developer would need to be someone specialized in prefab construction and already have people willing to do that \"gap\" work you mentioned.", "replies": [{"id": "i4byo0b", "text": "Yes exactly. This is like an unbundling of a developer\u2019s role but someone still has to do the work.", "replies": [], "depth": 7}, {"id": "i4dkm5r", "text": "Disagree with the above commenter. The developer typically *is* responsible for permits, plan approval, etc. So, it'd be on the developer to secure the municipal approvals for a prefab/modular project. Site prep is on the GC in coordination the owner's rep (which might be a job function subsumed under the development team if the GC is in house).", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "i4gzyoq", "text": "Ever heard of a sub-contractor? Same idea. Just taking construction up a level. GC still key to bringing it all together, just swap out labor management for vendor management.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i4awl6d", "text": "I\u2019d also add that laborers who are experienced in this type of assembly are not as common. Construction is very cautious about new adoption as it affects speed, safety, profitability when trying something new. \n\nEven guys who do stick build can\u2019t easily pivot to metal studs.", "replies": [{"id": "i4f12wt", "text": "In my opinion, wood frame construction should be banned, just like it is in New York City.  The number of buildings I've seen that go to hell in under 10 years is shocking.  Avalon in particular always unloads them after 20 years.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4awmix", "text": "Other than the reasons stated above, there\u2019s also a high risk of inaccuracy. Say a panel is just a .5\u201d to short, spread that over the entire facade and you could be missing a foot of structure that normally could be built on site. The costs are somewhat better. But not at the rate where they outweigh the risks.", "replies": [{"id": "i4axkca", "text": "I'm curious about this statement, because prefab/modular construction is generally a lot more common outside of the US, and construction timelines are usually shorter/construction costs are lower as a result. I knew we had a different regulatory and labor market than other countries, but I wouldn't think that the accuracy issues in prefab are what make it not worth it in the US?", "replies": [], "depth": 2}, {"id": "i4bb26m", "text": "Are you talking about panelized or modular? You know they frame it out before they ship it for panelized, so this is unlikely to happen and if it did, then the factory would redo it.", "replies": [], "depth": 2}, {"id": "i4d2sch", "text": "Factory built is 10x more accurate than stick built. So much easier to control specs with templates and machines in a factory plus QC before it ships. If the architect designs to the product specs and the foundation rough in and pour is done right there should not be a problem. Stick built is what's all over the map.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4ayv10", "text": "https://www.wsj.com/articles/how-a-softbank-backed-construction-startup-burned-through-3-billion-11624959000", "replies": [], "depth": 1}, {"id": "i4b37j6", "text": "I bet it's so much easier to get a basic sticks and bricks plan approved in various jurisdictions. \n\nMy understanding is every City, County and State have different requirements that the modular plans and specs have to clear to get approved. \n\nSo you might get one modular plan approved in San Bernardino, but Riverside down the road, may put up roadblocks or perhaps have already pre-approved another modular company's building specs and use them as the benchmark.", "replies": [], "depth": 1}, {"id": "i4b3ipz", "text": "We tried using Katara then they flopped.", "replies": [{"id": "i4bauxm", "text": "I was just going to point out Katerra as a company who did this and went belly up. \n\nLots of issues there and pre fab is great but you need people on the ground that know how to put it together. Knowing people who worked for Katerra is was a good idea but in the field made things tougher when GCs didn\u2019t like the change and thought things could get slapped together when it has to follow the plan to a T.", "replies": [], "depth": 2}, {"id": "i4go42b", "text": "What stage were you in? It seems a lot of folks are going to get burn on this.", "replies": [{"id": "i4pv5mp", "text": "They walked away after pouring the 3rd floor slab on a wrap. Our new GC hired all their employees and we are yet to collect anything from them.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i4bdpk3", "text": "I love the idea but wouldn\u2019t know where to start. How do I get competitive pricing between contractors? Deliveries and storage seem like a challenge if anything goes off schedule. Who is assembling? How modular are the parts? How do building and energy code come into play? When and where do we coordinate mechanical and electrical systems? What if I need to repair or replace parts later? Just thoughts\u2026.\nI could see it for a massive development but as a smaller developer it doesn\u2019t seem efficient. Going to go for the old school contractor attitude, \u201cthis is how we\u2019ve always done it\u201d", "replies": [], "depth": 1}, {"id": "i4bhrim", "text": "There are multiple cases where it actually ended up being more expensive than building on site. Onsite construction has been optimized for decades, it will take a long and concerted effort for modular to compete in many cases.", "replies": [], "depth": 1}, {"id": "i4cef1b", "text": "[Factory OS in California does this for apartments in an old Navy submarine factory.](https://www.nytimes.com/2021/09/10/realestate/prefabricated-modular-apartments.html) Watched Holliday Development put together a ~100 unit apartment building like legos near my place in Oakland last year.", "replies": [{"id": "i4celun", "text": "Thanks for linking this article. It was, in fact, this article that I read back when it was published that got me thinking about prefab construction as a potential answer to our increasing housing/affordable housing needs!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4cpcu0", "text": "My husband is a multi-family developer. He finished a 60 unit apartment complex here in Florida in 2019. His most costly line item?  Not concrete, not lumber but impact fees and permit fees. Site improvements are a huge expense also.\n\nThen factor in a year and a half to 2 years for rezoning, site plan approval and plans review/building permit.\n\nGiven that you have these significant fixed costs, regardless of going modular or site built, I'm guessing developers and investors would rather spend a little more for site built, and have a more valuable more marketable product. I'm guessing that financing would be an issue too. Lenders like projects that are familiar and homogeneous.", "replies": [], "depth": 1}, {"id": "i4cv0fu", "text": "Actually, I have a client who is doing just that. He is able to cut costs considerably by manufacturing many things in a factory and bringing them to the development site. The trick is volume, which this company has. Most developers would not be able to afford the investment.", "replies": [], "depth": 1}, {"id": "i4deg3g", "text": "I'm in the early stages of putting together a build to rent community utilizing modular construction. We're looking to build 100-200 units with a full amenity stack. \n\nOur motivation for modular is not so much because it saves money, but rather because it saves time. At least in theory. If I can begin sitework while the units are being built off-site and shipped in upon completion, then I could cut the development timeline down significantly. So rather than a 24 month construction timeline, I'm producing revenue around months 12-15. \n\nTo me that's incredibly valuable, even if the costs are only 10% cheaper (which is still significant). We're doing our research now so we'll see where we land in a month or two, but I'm excited at the possibilities.", "replies": [{"id": "i4doyry", "text": "Keep us posted", "replies": [{"id": "i4dvqe2", "text": "Will do", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i4dgr51", "text": "Have not done prefab construction before, but keenly interested in it.  Frankly it seems inevitable to me.  In the SE US, construction is broken.  Average is the new excellent with subs.  Guys are pulling stuff that would ruin their reputations if there was more competition, but they get away with it because the demand for subs outweighs the supply.   Katerra is mentioned in these comments.  They were modeled after a Scandinavian multifamily modular contractor, that by all accounts is very successful.  I had high hopes for Katerra, but wow what an expensive flop.  I think it is the Architects that get squeezed out.  A modular manufacturer / GC is probably going to need to design / build so you get all the benefits of their system.  Construction has not fundamentally changed in a long long time. It is ripe for but highly resistant to disruption. Something has to change.  Modular seems like the next step.    Another fascinating question is how do the volume home builder build as cheaply as they do compared to the cost of a traditional bespoke stick built MF unit?  Answer is volume, repetition, and componentizing everything that can be.  I don't know when modular / componentizing / Pods takes over multifamily, but I suspect when it does it will be fairly swift.  Think electric cars. There were none, then attempts and failures, then bam, everybody is doing it.", "replies": [], "depth": 1}, {"id": "i4dhbam", "text": "Commercial metal framing manufacturer (stud and track) and we supply several panelizers. We see the cost benefit realized in the hotel industry, generally in high cost (Union) states or regions with severe winters conditions. The benefit of expedited erection/framing contributes to getting rooms filled more quickly and combatting short weather windows for construction. \n\nI think there\u2019s a gap on the front end where many cookie cutter multifamily projects could benefit from panelization but no one wants to re-engineer. Like others have said, outside of speedy construction, volume is a major deciding factor. \n\n\nLight gauge steel framing shill here /s \u2026", "replies": [], "depth": 1}, {"id": "i4dq622", "text": "Multi family buildings are a lot more \u201cmodular\u201d than you think. \n\nThe key to modular is repetition. If a building has a bunch of unique suite types then it\u2019s impossible to be modular. \n\nWood frame buildings have panels built off site and then are shipped in and raised on site with a smaller crew and crane. \n\nMechanical systems have the ductwork fabricated 10x over in a shop then shipped to site. \n\nPlumbing systems - shower valves are prefabbed in shops and then sent to site. \n\nIf you are asking why isn\u2019t more suites prefabricated with tilted up walls and then craned into place, then where is the architecture in that? Most developers want a brand of uniqueness to display. They don\u2019t want the facades to show the repetition inside. They want the building to be a showcase piece of what they provide to the community. \n\nIn honesty it\u2019s the balance of the two that is what makes a great developer. How can I do things as many times as possible without it being boring.", "replies": [], "depth": 1}, {"id": "i4eydat", "text": "My firm is actively doing a price comparison of modular vs. built-on-site.\n\nWe have found modular to be significantly more expensive due to some major inefficiencies:\n\n1. Materials being shipped twice (once to mod shop and then again to the site. There aren\u2019t a lot of mod shops, so your site location can swing the shipping costs by hundreds of thousands dollars easily.\n\n2. Mods have temporary roofing to protect when shipped out (something not needed in built-on-site\n\n3. Lose the cost efficiencies from competitive bidding all individual trades (modular company will perform a large portion of the project scope)\n\n4. Lack of trades familiar with work. Most subcontractors performing work after the mods are on-site are not comfortable or don\u2019t fully understand what the field conditions will be so they increase their pricing to account for this unknown.\n\nWe have found that the taller your buildings are and the tighter your schedule the more modular construction starts to make sense in pro formas. There is also a big benefit in cost predictability from an Owner\u2019s standpoint as they are locking in a large portion of material costs upfront (at the expensive of increased interest payments due to higher cash outlay upfront).\n\nFor now, if you have a traditional wood framed multifamily project, I would go with a traditional built-on-site approach as this is what the people doing the work (subcontractors) are experts at.", "replies": [], "depth": 1}, {"id": "i4f0655", "text": "The US does not have the logistics capacity for new heavy industry.  Another poster is correct - huge vertically integrated manufacturing facilities are needed.\n\nThere is a growing manufactured housing business. The prices are still niche and transport fees are high.\n\nThis will happen, but probably not for a decade.", "replies": [], "depth": 1}, {"id": "i4maw63", "text": "Financing for one", "replies": [], "depth": 1}]