Does modular cost less?

Does Modular Cost Less?

by John Phillips

First, a note

Although articles I have written have appeared on Off Site Dirt before (I wrote a series of short articles about ADUs in Colorado last summer that also appeared here), I was not a regular contributor. Audree Grubesic reached out to me and asked me to consider doing so; a huge compliment. I hope the things I say have value to those who read them.

I refer to myself as an off site ADU guy. I live in Denver and my company, Verdant Living, specializes in ADUs; all our units are built in a factory. This focus was a happy accident. I have had a long and varied business career, but none of those experiences were  in construction, or even real estate, until I discovered ADUs, several years ago. What a great idea. As I looked for ways to get them built, I decided modular was ideal (at least in many situations). About that time I met Audree.

Today, I want to discuss one of the many advantages of modular construction: cost.

Advantages of modular construction. Is cost one of them?

If you are reading this, you are probably familiar with the advantages of modular construction. Speed, projects can be completed in far less time. Predictable costs. Fewer weather related problems. Labor headaches are limited. Quality control. Less construction waste, particularly on site. And more

But what about cost? I have seen suggestions that costs are reduced 10% to 40% (!). I bet most people in our sector tout that factor (I have). I was curious. What is that based on?

My assessment

I was hoping I could find empirical evidence of cost saving, something like a builder putting together two similar buildings, one stick built, one modular, then comparing the costs. My investigation didn’t turn up that sort of thing. I asked three people with broad industry experience about that (Audree being one). They all were refreshingly honest and admitted they hadn’t seen such a study, but were confident modular can lower construction costs by at least 10%, which still significant, with the caveat that cost savings can’t be assumed and depend on careful planning and execution. My anecdotal experience told me the savings, at least for ADUs, could be substantially more. I thought of a way to test that theory.

The idea was to compare the cost of a one bedroom ADU, one stick built, with one built in a factory. I knew these would be different, but basically the same. I asked the West Denver Renaissance Collaborative (https://www.mywdrc.org ), which works closely with Denver Housing, for help. They have been on the forefront of ADU development in Colorado (they have done great work and have been involved before ADUs were popularized) and have built 28 stick built ADUs in southwest Denver. On the factory side, Champion Homes (https://www.championhomes.com) is a supplier of mine; they have had predesigned ADUs ready to go for years. The cost I wanted to compare is the finished building, so not including site costs, permits, etc.

I was looking for something apples to apples (at least Red Delicious to Honey Crisp). I looked at the cost of the building itself, from the top of the foundation up. That meant, of course, the cost of the modular unit from Champion had to include the cost of transport from the factory and the crane and set cost. By this “apples to apples” comparison, the modular unit was definitely less expensive, by roughly 35%.The modular unit was a bit bigger (600 sqft vs 576 sqft), and included middle of the road options (not the cheap stuff). Considering the feedback I had gotten from those experienced in the industry, that is more of a differential than I had expected, but I tried to make sure the numbers are real. If they are, it may point to the fact on site construction is substantially more expensive than we assume, or the fact the modular industry is leaving money on the table, or both. It is important to understand this cost comparison is for the actual building, not the complete project. In my ADU example, the saving on the total project (which would include site costs, the foundation, permits, etc.) would only be about 8%.

Personal experience

When I get a quote from Champion, I am always pleasantly surprised (followed by aggravation about other costs). Also, I am involved with a non ADU project in the Colorado mountains where construction costs are high; high enough to stall the project. When we looked at modular, it has made the project possible.

A final thought

You would think the cost dynamics alone would push buyers toward modular, but I also think that maybe cost isn’t a primedriver that is often assumed (I have never assumed that). The total value proposition is what matters in the buying decision. I know for ADUs, at least in the Denver area, most have been built by people with money, and things like personalized design (not a forte of modular construction) has been more important than cost. A person I know with ADU finance experience, referred to them as vanity projects.

I wish there was more work done to develop empirical evidence of the cost comparison between traditional and off site building techniques. I have a suggestion. Compare modest residential buildings (about the same square feet), one traditional, one modular. I have got to believe the numbers are available.

I want to thank the following people for their input: ChalaMohr, West Denver Renaissance Collaborative; Madison Elder, Champion Homes; Audree Grubesic, Off Site Dirt Network (https://www.offsitedirtnetwork.com ); Ken Sumler, Impresa Modular (https://impresamodular.com ); Steve Payne, Vantem Homes (https://vantem.com ); Eric Scott, Tinymod (https://tinymodliving.com )

If you think I am being goofy, or can add to my thoughts, send me an email, john@verdantliving.us .