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Off-Site Takes Off

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Factory-built homes could ease the state’s housing crisis

Many of us have already forgotten, but it used to be pretty easy to find an affordably priced home in Colorado. In 2015, less than 10 years ago, the median home price was $297,626, and the average interest rate on a 30-year mortgage was 3.98%. According to analysis from the Common Sense Institute, for someone making the average hourly wage of $26.41 that year, they’d only need to work 43 hours to cover their monthly mortgage payment of $1,134. The rest of their monthly wages could go to groceries, gas, clothing and other essentials.

Fast forward to the present moment, and the picture looks a lot different. In 2023, the average home price in the Denver metro area was $605,739, with interest rates at a little over 7%. The Common Sense Institute now estimates that someone making today’s average hourly wage has to work 114 hours to make their mortgage payment, leaving little behind each month for anything other than housing. Worth noting: while the average Denver area home price has risen nearly 135% since 2013, wages are up just 44%.

Related: Cities Enroll for Affordable Housing

That’s all assuming buyers can find a house in the first place. According to a report from Zillow, the Denver area is short 70,000 housing units. Statewide, shortage estimates range anywhere from 120,000 to 320,000 housing units. Meanwhile, more people keep coming to the state. Our population sits at 5.8 million right now and is expected to reach 7.5 million by 2050, putting additional pressure on housing needs.

Colorado’s mountain communities are struggling too. In Steamboat Springs, for example, the average price for a single-family home reached $1.73 million in 2023. Many of the housing units that hit the market are bought for use as vacation rentals or second homes. High prices and limited availability are making it difficult for mountain towns to attract and retain much-needed workers, from ski resort employees to teachers to nurses.

To ease this crisis, the state has to increase its housing supply—and fast. But, according to the U.S. Census Bureau, it takes between seven and 12 months to build the average home. In mountain and rural communities, that timeline is usually extended, due to weather and increased difficulty in getting supplies to job sites. The construction industry—in Colorado and nationwide—is also suffering from a labor shortage, which slows things down even more.

Related: Colorado Affordable Housing Concerns

offsite
© Fading West

The state is increasingly turning to off-site, or modular, building solutions for help. Colorado’s Innovative Housing Incentive Program (IHIP) has given performance-based grants of $9.6 million dollars to 10 housing manufacturing businesses, incentivizing the creation of 283 new housing units across the state. In 2024, through IHIP and Proposition 123, the state approved eight businesses for $38 million in factory loans—the largest one-time investment by any state into the modular industry. These factories—including three new startups, two expansions from out of state, and three in-state expansions—are expected to produce more than 4,000 housing units per year once they’re up and running. They’ll also create 1,280 jobs.

City governments, nonprofits, and businesses in need of workforce housing have also been teaming up across the state to fund off-site building projects.

“We’re looking at using every tool in our toolbox to support the ability to build more homes across Colorado,” says Eve Lieberman, executive director of the state’s Office of Economic Development and International Trade, which oversees IHIP. “We’re going to see thousands of new units created by leveraging these funds.”

Why off-site?

Off-site construction primarily takes place in a factory, so construction can keep going at all hours, in any weather. Standardized materials and processes help reduce costs and speed up assembly time, and houses can be put together at the job site year-round as long as a concrete pad has already been poured. Plus, labor is concentrated primarily in one place.

“You have no workforce in these rural or mountain towns because where can subcontractors, general contractors and workforce live?” says Eric Schaefer, chief business development officer at Buena Vista’s Fading West. “Then you have to ship your workforce in to build, so projects take a long time and costs skyrocket.”

Related: Eric Schaefer, Fading West Development

Schaefer says Fading West is able to complete five or six homes per week in its factory. In total, it takes about 11 days to build one home and 30 days to assemble it on site—several months faster than traditional stick building. The factory recently started building multi-family housing as well.

Modular homes are more eco-friendly than stick-built homes. A typical stick-built house has 30% waste, while a factory-built house has just 3% waste. They can also be built to be extremely energy efficient.

The stigma around modular construction has also largely faded in recent years. Today’s modular homes can come in a variety of shapes and sizes. There are even high-end custom versions.

“There is an element of getting people to understand that yes, it is modular, but you’re not buying a trailer,” says Matt Dearth, sales manager at Colorado Building Systems, which has specialized in modular homes for decades. “What we do is built to way different codes, and people are starting to see that.”

Hurdles ahead

Modular homes aren’t a panacea for the housing crisis though—yet anyway. At Fading West, for example, homes built for the mountains are 20% cheaper than stick-built homes, but on the Front Range, they’re comparably priced, since supplies and labor aren’t as expensive. And even though the mountain homes are cheaper, the land they’re built on is still expensive and a factor in the overall cost and price.

Fading West and Colorado Building Systems have both worked on affordable housing projects in mountain communities, but all of the projects have been heavily subsidized by nonprofit grants, government funding, and/or, in the case of workforce housing, funds from the employer, like hospital systems and school districts.

Related: Tread Lightly with Offsite Construction

To build housing that’s truly affordable—without being subsidized—other changes need to be made, Schaefer says. One major problem is the diversity of zoning codes in the state. Modular building realizes many of its cost efficiencies through standardized processes and common materials—but that gets harder when so many areas have different standards in place.

“There are over 300 building codes in just our state,” he says. “We can’t just build a house for Breckenridge and then build the same house for Fort Collins. Every house we build is a little different—that doesn’t sound like a big deal, but it is.”

A uniform code for the state—or at least for different regions in the state—would be an ideal solution, Schaefer says.

“If you just let us build the same house over and over again to the same code, then we can build quicker and cheaper,” he says.

In recent years, Colorado has taken steps to bring some uniformity to the state’s various building codes. In 2022, the legislature passed a bill requiring cities to meet or exceed certain energy standards whenever it updates its building codes or adopts new ones. But those changes will likely phase in slowly, and cities are still able to impose stricter standards if they want to.

Another hurdle is the entitlement process in many municipalities. The process—in which a developer seeks approval for their plans—can take years in some cases, Schaefer says, holding up vital affordable housing projects.

“We started our business to solve a problem, which is how do you build affordable housing in our state?” he says. “Everything we’re doing from our end is about how to help that take place. What we’ve run into, however, is a mountain of red tape.”

What’s next for off-site builders?

If codes and other hang-ups can be addressed, Schaefer sees a bright future for off-site builders. “If we can figure this out, there’s no reason we couldn’t have 10 or 20 modular home factories scattered around the state, all building to specific areas,” he says.

And if we don’t figure it out? “Factories go out of business because it’s too hard,” he says.

IHIP has one more round of grant funding for modular builders, but going forward, more funding will likely come from one-off grants for specific builders or projects. The factory loan program is closed for now, but it may be able to disperse more money as other companies re-pay their loans.

Related: Implementing Lean Construction Principles

“We really want to make sure that these companies are able to be sustainable over the long run,” Lieberman says. “But it’s too early to tell what the future looks like. A lot of these companies are still in the start-up phase of their growth.” 

Best case scenario? If modular builders thrive and help Colorado solve its housing crisis, Schaefer believes it could make our state a model for the rest of the nation, as many other states are grappling with their own housing challenges. Schaefer has already testified before Congress about modular building and its potential.

“It’s a national problem,” he says. “How great would it be if Colorado tackles this and solves this problem for the whole country?”

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Author

  • Corey Dahl

    Corey Dahl is managing editor for Colorado Builder magazine. She has written for a wide variety of news and trade publications, in print and online. Corey has a bachelor's degree in journalism from the University of Colorado and a master's in communications management from Webster University. She lives in Denver with her dog Rosie.

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