Why Modular Construction Struggles to Scale and What More Durable Models Do Differently

The Urban Institute originally published this article Oct. 2, 2026.

Authors: Ivory Innovations Vice President of Programs & Strategy Chad Reed, Ivory Innovations Vice President of Policy & Partnerships Amy Tomasso, Urban Institute Housing Finance Policy Center Founder Laurie Goodman, and Ivory Homes CEO Clark Ivory

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Modular construction has long offered the dual promise of increasing the efficiency of housing production and helping to make housing more affordable. But many firms have started with this hopeful promise and have failed. We look at why these firms have struggled to scale and sometimes fail, and what is necessary for success. We also look at how much the 21st Century ROAD to Housing Act (ROAD Act)—passed in July 2026 and intended to reduce the regulatory and financing barriers affecting manufactured, modular, and other types of off-site construction—is likely to help the situation.

Why This Matters

Factory production could help address housing shortages and affordability challenges, but its potential depends on businesses that can deliver consistent value to customers. Understanding those conditions can help builders, investors, and policymakers make better decisions.

Key Takeaways

The brief compares two forms of off-site construction with materially different business models. Manufactured housing is built to a national code using standardized designs and sold through an established network of dealers. It is similar to manufacturing operations in other businesses. Modular housing must comply with state and local building codes and is built for specific developments. The modular manufacturer must translate one-off projects into something that a factory can build efficiently, akin to a project-based service business. Manufactured housing has achieved meaningful, if limited, scale, while modular housing has not.

The largest problem for modular companies is that this project-by-project approach does not lend itself to building a consistent production pipeline. Builders and developers often do not see cost savings or other advantages large enough to justify changing established building practices, limiting their willingness to commit projects to modular manufacturers. Many companies have magnified this problem by expanding quickly to establish economies of scale and relying on venture-type capital, which is not patient. More durable models combine specific, repeatable applications; reliable production pipelines; and expansion tied to demonstrated demand and performance. Relationships with builders, developers, and suppliers can help manufacturers secure orders and coordinate delivery.

The ROAD Act, the most significant piece of housing legislation in the past three decades, is a help, not a panacea. The bill eliminated the requirement that manufactured housing have a permanent chassis. This requires a rewrite of the US Department of Housing and Urban Development Code for chassis-free manufactured housing. If written broadly, some housing now considered modular or volumetric could qualify under the national code—a real help. The ROAD Act also requires a study on the obstacles to modular financing, also a help.

How We Did This

Our analysis draws on published research, examples of off-site construction businesses, and interviews with company founders, operators, and other housing industry professionals. It also reflects the authors’ experiences evaluating housing innovations through the Ivory Prize for Housing Affordability and working with builders and developers on their innovation adoption. We use these sources to identify recurring business challenges and conditions that may support more durable models.