The Modular Construction Revolution That Hasn’t Happened (Yet)

Ivan Rupnik, an architectural and urban design researcher, wants to demolish our assumptions about modular home construction.

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There’s a housing shortage in the U.S., and it’s fueling an affordability crisis. Labor and material costs have risen. And restrictive zoning, land use regulations, and building codes make it costly, or even impossible in some places, to build new homes.

When Ivan Rupnik was a young architect, he wondered why the United States had failed to deploy its culture of industrial innovation to the home construction sector. As part of his doctoral studies at Harvard University, he studied a Nixon-era HUD program called Operation Breakthrough that sought to revolutionize how we finance, regulate, and build homes in the U.S. He looked into why that project ran aground here, and how its recommendations were adopted elsewhere.

What Rupnik learned made him a believer in modular, or “offsite,” housing — in which components are fabricated in a factory and assembled onsite — as a way to build housing more efficiently, without sacrificing quality or safety. One big obstacle to offsite construction is a chaotic patchwork of codes and zoning regulations that vary by state and even by city. To help address these issues, Rupnik and fellow scholar Ryan E. Smith co-founded MOD X, a firm that helps educate companies and governments about the benefits of modular construction and streamlined regulations. They were later joined by Tyler Schmetterer, an industry veteran who has delivered high-performance offsite constructed homes throughout the eastern seaboard. Their goal is to make housing not just more affordable, but higher quality.

Appraisal Buzzcast host Hal Humphreys spoke with Rupnik about his work. This transcript has been edited for length and clarity.

 

Hal Humphreys: How did you get interested in modular housing?

Ivan Rupnik: It started when I was a young architect working on multifamily condominiums in New York City. It was frustrating that we worked so much and created so little value. I wanted to have an impact. So I worked in Korea and Europe, and I found that architects worked more efficiently there. It had to do with training and types of construction, but it also had a lot to do with the regulatory environment where they worked. So I decided to go back to school and research, Why in a country like ours, which is very innovative, don’t we get to have nice things? And then I found some innovative ideas we had in the 1960s and 70s. We just didn’t realize them, and other countries did.

Humphreys: You’re talking about Operation Breakthrough. Tell us that story.

Rupnik: Planned unit developments (PUDs) had been the model for starter home affordability in the 1940s and 50s. The people who invented starter homes, Levitt & Sons, went to Congress in 1969 and said: We’ve got a problem. We don’t have enough plumbers. We don’t have enough electricians. We don’t have enough framers. We don’t have enough material, and we don’t have enough land for more PUDs in the places where we have economic activity. 

Congress said: We just sent a man to the moon. We can fix this. They funded Operation Breakthrough to encourage experimentation, and to figure out the effect of local housing codes and zoning regulations on large-scale use of new housing technologies. For reasons that still aren’t clear to me, those regulatory changes — which had bipartisan support — were never implemented at scale in the U.S. But those American-taxpayer-funded solutions were implemented successfully in Japan and much of Europe over the last 50 years.

Humphreys: What’s the legacy of Operation Breakthrough?

Rupnik: Japan brought delegations during Operation Breakthrough. After years of experimentation, they developed a housing system certification program where companies that invested in R&D could fast track through code compliance, permitting, and inspection because their housing solutions were already pre-approved. Instead of the slow and costly process of designing and engineering each solution and then having an inspector (who may or may not be up to date on the latest materials and processes) review it, you have review processes that can often take mere days.

There’s a manufacturing mindset in Japan in the industry AND among regulators — making regulation smarter. 

Humphreys: How does offsite construction work in Japan and other places?

Rupnik: In Japan, the offsite construction sector was first focused on single-family and then expanded to lowering the cost of missing-middle housing. There are a dozen or so firms, recognizable brands with commercials on TV. You walk into a consumer center, sketch for four hours with an architect, sign on the dotted line, and in two months, you have a home. The house is higher quality, more resilient, more life safety, and zero energy. It’s market-rate housing, but it costs thirty percent less than it would have without that regulatory shift. So, Japan has not deregulated; they’ve streamlined regulation for manufacturing and innovation. And another surprising thing about offsite construction: It gives you more customization than you would expect. 

Sweden has focused more on affordability and multi-family housing. There, 85 to 90 percent of single-family is made in a factory. Multi-family, it’s about 20 percent, quite high by global standards. They’re building ten-story towers out of light-frame construction — twice as tall as we can build in the U.S. These companies have in-house research and development departments that create innovative solutions AND bring them to market rapidly.

Humphreys: What’s the difference between prescriptive codes and performance-based codes, and why does this difference matter?

Rupnik: Prescriptive basically gives you a recipe: You must use this material, it must be this thick, it must be affixed in this way. Performance codes say that a wall needs to prevent fire from penetrating for X hours or minutes, and you can achieve that goal with any material that works. For example, in Sweden, instead of mixing sheathing for structural rigidity and drywall for fireproofing, they used two layers of a more expensive gypsum product because for their factory processes, it was more efficient. 

In performance-based regulatory environments, products developed for the aerospace or automotive industry make their way rapidly to housing. If we want cost savings, efficiency and materials alone won’t do it. We need to change the way we design, manage, and regulate building.

Humphreys: What would you like to see happen in the U.S. home construction industry over the next ten years? What should appraisers be watching for?

Rupnik: I think we’re seeing it. The ten largest production builders are all looking at how they can incorporate offsite construction into their existing business model or even a new business model. We’re seeing startups trying to create the kind of brand recognition that I think an appraiser would appreciate. 

In Japan, the only buildings that don’t depreciate are modular buildings built by recognized prefabricated house companies that stand behind their products. When offsite construction first appeared in Japan in the 1950s and 60s, Japanese homeowners found the quality lacking. Government and industry listened. Fifty years later, factory-built housing produced by these companies consistently appraises at a higher value than more conventional forms of construction — partially because of the higher quality of the build, and partially because of the accountability of these large, reputable companies. Much of this change in appraised value can be attributed to Sumstock, a new trade association of prefabricated house builders whose mission is to ensure the accurate appraisal of factory-built homes.

Humphreys: Do you see an opportunity for appraisers in this evolving field?

Rupnik: The most significant opportunity I see for appraisers is to get educated about offsite construction. What are its strengths and weaknesses? Visit a factory. Watch the assembly process. I’d also like to see appraisers be even more demanding of the “bones” of a building. A factory process often results in better bones, but those bones are covered up by the time of an appraisal. The quality is more easily understood in the factory and at the construction site. 

Bottom line: Issues from the 1960s and 70s are now worse. Less material. Less labor. So going forward, some form of prefabrication and pre-design will be necessary. We don’t have an alternative. And MOD X would welcome the opportunity to share what we’ve learned with the appraisal community in more detail through one of our in-country Exchanges.