Prefabricated Housing: A Critical Solution in the Ongoing Worldwide Housing Crisis

Prefabricated Housing: A Critical Solution in the Ongoing Worldwide Housing Crisis
Written by Diana Hernández, BITA Analyst - Proprietary Data

Estimates using recent UN data indicate that 80 percent of cities worldwide do not have affordable housing options for half of their population. Affordable housing is defined as housing on which the occupant is paying no more than 30 percent of monthly gross income for housing costs, either in rent or mortgage payments and operational costs. Over the last few years, the issue of access to affordable housing has grown to affect every corner of the earth. Affordable housing growth in supply has fallen short of demand growth, actually, estimates in 2018 projected that the world needed to provide two billion homes by the end of the century, or 25 million homes per year to keep pace with demand. 

Taking the United States market as a reference, the housing deficit has deepened due to a shortage of land, lending, labor, and materials after the financial crisis in 2008. As can be noticed in the graph below, the home vacancy rate in the United States showed a negative trend between 2008 and early 2023, representing lower availability of housing.

Source: U.S. Census Bureau, Home Vacancy Rate for the United States [USHVAC], retrieved from FRED, Federal Reserve Bank of St. Louis

In this order of ideas, an article published by Realtor.com explains that between 2012 and 2023 there were 17.2 million household formations in the United States, while 14.7 million housing units were started in the same period, representing a gap of approximately 2.5 million homes. Further, if we consider only the construction of single-family homes, the housing shortage widens to 7.2 million homes, as the housing starts of single-family accounted to 9.98 million between 2012 and 2023.

Inclusive, safe, resilient, and sustainable settlements are explicitly defined as United Nations Sustainable Development Goal 11 (UNSDG 11). UNSDGs were developed as a means to create awareness of the urgent problems the world is facing and as a call to action to end them. By 2050, estimates show that more than two-thirds of the world’s population will reside in urban centers, deeming the goal of “making cities and human settlements inclusive, safe, resilient, and sustainable” crucial to achieving every other SDG.

When safe, affordable housing as a basic need is met, communities are able to focus on more advanced needs in their communities: education and healthcare, and the entire community benefits.

At present, an analysis of housing affordability from the IMF found that home prices in advanced economies, including the United States, most European Union countries, as well as Africa and the Middle East are 10 percent to 25 percent higher than pre-pandemic levels, which paired to raised interest rates has stretched housing affordability.

Currently, many factors converge, contributing to the housing problem, including scarcity of buildable land in cities and urbanized or developable land in their immediate surroundings, high housing prices and rental rates, increasing costs of basic needs, natural disasters, and destruction by war that boost pressure on housing needs, and labor and materials shortages in the construction market.

In this context, homes that can be built quickly and affordably are paramount in importance to meet demand. Prefabricated housing is a well-established industry which is best poised to meet existing constraints. Prefabricated homes refer to a specific type of construction, where entire modules, or panels from the structure, are built off-site and transported to the final location, allowing for reduction of on-site construction to the home foundation or completing interior finishes.

The aforementioned type of construction presents considerable advantages in the current housing scenario. Prefabricated homes are less labor-intensive than traditional construction, which reduces construction costs. Off-site allows the manufacturers to reduce construction time. The third major benefit to construction is efficient materials use across projects, which reduces waste.

Another outstanding feature that factory construction allows is the creation of Passivhauses, a design with insulation characteristics that require little energy to maintain temperature, reducing heating and cooling expenses as well as energy consumption. Further, by having to be transported later from factory to site, homes are required to comply with higher-quality standards to ensure that houses arrive on site in perfect conditions.

Prices of Manufactured Homes versus Site Built Homes

For comparison purposes, we took the information published by the U.S. Department of Housing and Urban Development as a reference for the average price of manufactured homes - a type of prefabricated home - and site-built homes. As the data portrays, between 2014-2022, there is an increasing trend in average cost per square foot (excluding land cost) for both types of homes, however, site-built homes are nearly double that of manufactured homes, excluding the shipment cost of the latter.

Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development, Survey of Construction and Manufactured Housing Survey.

Prefabricated Homes Market Outlook

The prefabricated homes market growth is driven by two key factors: the increasing need for affordable and efficient housing solutions and the demand for sustainable construction practices that support the pathway to greenhouse gas emissions reduction and energy efficiency. Consequently, as world population growth continues and countries maintain their efforts to fight climate change, prefabricated home manufacturers maintain a positive outlook in the short and medium term.

The prefabricated homes market was valued at USD 20.4 billion for the calendar year 2022, by the consulting firm Allied Market Research. At projected growth levels the firm expects the market to reach USD 38.9 billion in 2032, a CAGR of 6.7%. Furthermore, North American markets are expected to lead this industry due to the rise in demand and housing supply shortage that are currently facing, mainly in the United States. The Asian market is expected to be driven by China and India, because of an increase in industrialization and urbanization.

Main companies involved in Prefabricated Homes manufacturing.

BITA Proprietary Data Team has identified 11 public companies with products and services revenue in prefabricated homes. Some of the most relevant publicly listed companies involved in the Prefabricated Housing market are:

BITA’s Equality and Inclusion Universe identifies companies - like the ones outlined above - involved in growth areas related to affordable housing, financial inclusion, health solutions, access to education, and poverty reduction.

BITA’s Proprietary Data Team uncovers and analyzes revenue streams of companies in areas of growth throughout all industries. BITA’s full line-up of universes - more than 90 universes - cover emerging industries and sub-industries in areas including but not limited to finance, technology, sustainability and social impact, food and health, leisure, sports and culture, as well as controversial business involvement. BITA’s Proprietary Data Team also covers ESG data such as emissions, waste, and Net Zero commitments.

Sources:

The Housing Crisis: https://www.habitatorlando.org/face-the-housing-crisis/the-housing-crisis/

‘Housing Crisis’ Can Take On Different Meanings: Here Are 5 Examples: https://www.homelight.com/blog/housing-crisis/

Sustainable Development Goals: https://sdgs.un.org/goals

Sustainable Development Goals, Goal 11 targets: https://www.globalgoals.org/goals/11-sustainable-cities-and-communities/

The Impact of Affordable Housing on Sustainable Development: https://utilitiesone.com/the-impact-of-affordable-housing-on-sustainable-development

Sustainable and Affordable Housing Report: https://worldgbc.org/wp-content/uploads/2023/05/C22.9056-WGBC_Affordable-Housing-Report_Master-2.pdf  page 16, 19, 22, 25, 37

Modular Housing vs. Traditional Housing: https://www.visualcapitalist.com/sp/modular-housing-vs-traditional-hous/

The cost of modular homes vs. traditional building: https://www.footanstey.com/our-insights/articles-news/cost-of-modular-homes-vs-traditional-building/

United States Census Bureau: https://www.census.gov/programs-surveys/mhs/data/tables.html

Cleverhomes: Who We Are — ch x tld (cleverhomes.net)

Champion Home Builders, Inc.: About Champion | Champion Homes

Manufactured homes vs. modular homes – the main differences: Manufactured homes vs. modular homes – the main differences | Real Homes

The Top 40 Best Modular and Prefab Homes Overall: The Top 40 Best Modular and Prefab Homes Overall (buildgreennh.com)

About Lindal Cedar Homes: About Lindal Cedar Homes - Custom Home Design

Cavco: https://investor.cavco.com

Skyline Champion Corporation: Skyline Champion Corporation - Our Company

Sekisui Chemical Co., Ltd: Residential | Sekisui Chemical Industry Co., Ltd.

Sun Communities: Form 10-K for SUN Communities INC filed 02/23/2023 (gcs-web.com)

Goal 11 – Cities will play an important role in achieving the Sustainable Development Goals https://www.un.org/es/chronicle/article/objetivo-11-las-ciudades-desempenaran-un-papel-importante-en-la-consecucion-de-los-objetivos-de#:~:text=De%20ahí%20que%20el%20Objetivo,metas%20de%20muchos%20otros%20ODS.

Housing Affordability Remains Stretched Amid Higher Interest Rate Environment: https://www.imf.org/en/Blogs/Articles/2024/01/11/housing-affordability-remains-stretched-amid-higher-interest-rate-environment

Prefabricated Homes Market Size, Share, Competitive Landscape and Trend Analysis Report by Construction Type, by Type, by Material : Global Opportunity Analysis and Industry Forecast, 2023-2032: Prefabricated Homes Market Report: Size, Share & Analysis2032 (alliedmarketresearch.com)

What has caused the global housing crisis - and how can we fix it?: The housing crisis is getting worse – how can we fix it? | World Economic Forum (weforum.org)

Home Vacancy Rate for the United States: Home Vacancy Rate for the United States (USHVAC) | FRED | St. Louis Fed (stlouisfed.org)

Addressing the Housing Affordability Challenge: A Shared Responsibility: Addressing the Housing Affordability Challenge: A Shared Responsibility | UN-Habitat (unhabitat.org)

Global Prefabricated Housing Market Report 2018-2023, 2024-2030: Trends, Opportunities and Competitive Analysis: https://finance.yahoo.com/news/global-prefabricated-housing-market-report-171400081.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAME7qTOy35ldgTVuQZ4cvVcW6fSwLC0_nSwTRKB5SpvOEH6TZqG34NAm2e_YU4TfwaqUHUeZyLV1ZmoEXWazKgx0u9nxODL60IZThTie1Yn-p4jLEE6ABJ9__4XUHYKExNIIhcxrR-LVcuwm0icp2y6ffR75nFVs4seBak1gAU_i

US Housing Supply Gap Grows in 2023; Growth Outpaces Permits in Fast-Growing Sunbelt Metros: https://www.realtor.com/research/us-housing-supply-gap-feb-2024/