Could modular construction help solve New York City’s housing affordability crisis? State officials are banking $50 million on it.
The recently passed state budget is allocating that much in hopes of jump-starting the conversation about modular-style building. The budget stipulates the funding would go toward “services and expenses of the modular and starter homes program to fund the development of starter and modular homes.”
Modular construction largely takes place in factories and brings home construction to an assembly line. Proponents argue it is significantly faster and cheaper than building on site as most homes and buildings are currently constructed.
A spokesperson for New York State Homes and Community Renewal, Shachar Roloson, said the state’s investment would “test cutting-edge innovations in factory-built homes,” which had the potential to create “meaningful affordable homeownership solutions across the state.”
Success would be a boon in New York City where less than 1% of apartments priced under $2,400 a month are vacant and available to rent, according to the city’s most recent housing survey. But Roloson revealed few details about how or where the program would be deployed.
“Governor Hochul is committed to fighting the housing crisis and we’re using every tool in our toolbox to create more housing opportunities for New Yorkers, including starter homes,” Roloson said, adding that more details would be made public in the coming weeks.
Modular home construction has never been widely embraced in the United States. The appeal lies in the efficiency and reduced costs.
A 2023 analysis by McKinsey and Co. found that modular construction cut waste and required less labor than traditional methods, reducing construction timelines by 20% to 50% and costs by 20%. Despite the savings, the report said less than 4% of existing U.S. housing stock relied on modular techniques, compared to 45% in Finland, Norway and Sweden and 15% in Japan.
“The case for modular construction in the U.S. is clear,” read the McKinsey analysis.
In the 2010s, modular construction appeared to be having its moment, with leading lights of New York’s real estate and construction industries praising its virtues.
“New York’s Modular Building Revolution is Here,” read a 2018 headline in the New York Post.
The reality, however, did not match the hype, real estate experts said, and the issue receded from the front pages. Challenges include resistance from trade unions, because modular construction employs far fewer workers than traditional construction.
“It just hasn’t found traction yet in America, although we’ve been trying to do it for decades,” said Jason Van Nest, the executive director of the Center for Offsite Construction, at New York Institute of Technology.
City officials turned to modular construction in 2012, in the wake of Hurricane Sandy.
James Garrison, a Brooklyn-based architect whose modular projects include the Pod Hotel Brooklyn, said he was contacted at the time by the city Department of Design and Construction, asking him to build “roughly 40 buildings” within just five months.
The sleek, modular structures are located on the shorelines of Brooklyn, Queens and Staten Island. They served as lifeguard stations, bathrooms and offices, and were built to withstand extreme weather.
“One of the great benefits of modular construction is that it assembles very rapidly, sometimes in half the time of a conventional building,” Garrison said in an interview. “So that means that that 10%, 12% construction loan that you’re paying now is cut in half.”
But Garrison said the United States has struggled to make modular construction viable despite all its advantages. The Pennsylvania-based company that produced the beach structures after Hurricane Sandy no longer exists, he said.
“ Over the course of my career, nearly every modular manufacturer I worked with has gone out of business,” Garrison said.
A modular high-rise that fell short of expectations
The hype that surrounded modular construction in the 2010s primarily centered around B2, a 32-story residential tower at 461 Dean St., next to the Barclays Center in Brooklyn.
The project, from Forest City Ratner and Skanska, was billed at the time as “the tallest modular residential building in the world.” At the 2013 Municipal Art Society’s annual summit, then Forest City Ratner CEO MaryAnne Gilmartin said the housing, which was premade at a Brooklyn Navy Yards facility, would be “truly revolutionary.”
Upon its construction in 2016, the owners reserved 50% of the apartments for low- and middle-income renters. Those units ranged from studios for people earning as low as $21,000 a month to two-bedroom units for families of four earning up to $145,000.
“The savings generated in this process will significantly help with the development of affordable housing throughout the city,” Gilmartin said.
However, the project encountered major cost overruns and delays, with some units plagued by water leaks and other problems. Forest City Ratner and Skanska both sued each other, and the former company exited the business.
James McIntyre, the outgoing chief strategy officer at Inclusive Prosperity Capital, a firm that helps support funding for more sustainable and resilient housing, was involved in the financing of B2. He said the project’s outcome seriously dampened prospects for more modular construction in New York.
“If it had been a shining moment and they had collapsed the cost of building and they really cracked the knot on modular in New York City, I think building construction techniques would’ve dramatically changed over the last 10 years,” McIntyre said.
Van Nest said the industry faces significant hurdles if it is to grow and make a dent in the city’s real estate and construction worlds. But he said the $50 million in state funding comes at the same time that the Center for Offsite Construction, which he leads, is conducting research that he said will make modular housing more viable.
Currently, he said, the cost of a kitchen is greater per square foot than a “nice sedan,” although an automotive vehicle is far more complicated than a kitchen and, he argued, better made.
Van Nest said in his idealized scenario, homebuyers in New York City would one day “roll in” a pre-built bathroom, laundry room, kitchen and other components of a home, rather than have all those things be assembled expensively on site.
“The way you buy a Ford F-150 today is how you should be able to buy a kitchen,” Van Nest said.