California Bets on Housing Factories Again

In 1971, HUD Secretary George Romney stood before Congress and made a bold prediction: within ten years, two-thirds of all American housing would be built in factories. Operation Breakthrough, his ambitious federal initiative to industrialize homebuilding, would solve the nation's housing crisis through mass production. Five years later, the program ran out of money. The prediction proved spectacularly wrong.

More than fifty years on, California lawmakers are making another run at the factory-built housing dream. They're calling 2026 "the Year of the Housing Factory," complete with legislative hearings, a research white paper from UC Berkeley's Terner Center, and a package of bills designed to accelerate adoption. This time, proponents say, it's different. The question is whether the economics and technology have finally caught up to the promise.

The Math That Keeps Changing

The core pitch for modular construction remains what it's always been: build housing components in a controlled factory environment, truck them to the site, and assemble them like oversized Lego blocks. The potential savings sound compelling—industry sources cite hard cost reductions of 10 to 25 percent compared to traditional stick-built construction. Homeowners might pocket similar savings, with added benefits from shorter timelines that reduce holding costs and rental overlap.

But that "potential" qualifier does heavy lifting. The savings materialize only under the right conditions, and those conditions prove surprisingly elusive. The U.S. prefabricated construction market hit $176 billion in 2024 and is growing steadily—projected to reach $257 billion by 2029—yet factory-built housing remains a fraction of total residential construction. Investors have poured billions into the sector over the past decade with famously mixed results. Several high-profile startups have stumbled or folded entirely.

The problem isn't the concept. It's the execution at scale. Factory construction eliminates weather delays and allows site preparation to happen simultaneously with building production, potentially shaving months off project timelines. The Acton Housing Development Project in Massachusetts completed twelve living units in less than a year, from September 2012 to July 2013, and earned LEED Gold Certification. When modular works, it really works.

The California Calculation

California's renewed interest stems from desperation as much as optimism. The state's housing shortage has reached crisis proportions, with median home prices in major metros pricing out middle-class families entirely. Traditional construction can't keep pace with demand, hamstrung by labor shortages, rising material costs, and Byzantine permitting processes.

Assemblymember Buffy Wicks has organized two select committee hearings on "housing construction innovation" focused primarily on factory-based building. The timing follows 2025 legislation that exempted most urban apartment buildings from environmental litigation—a move that theoretically clears the path for faster development. Randall Thompson of Nibbi Brothers General Contractors notes that attitudes have "shifted radically just in the last couple of years," with developers becoming more "modular-curious."

That curiosity reflects changing economics on the ground. In the San Francisco Bay Area, cranes assembling factory-built modules into apartment blocks have become a more familiar skyline feature. The LExHab Farm View project delivered two colonial-style buildings with six residential units after pivoting from traditional construction when budget constraints threatened the entire development. These aren't experimental prototypes—they're market-rate and affordable housing units that look indistinguishable from their stick-built neighbors.

What Actually Gets Built Better

One surprise in the modular story: quality often exceeds traditional construction. Factory-built modules must withstand transport and crane lifting, which means they're engineered to higher structural standards than code requires. Each component undergoes inspection at multiple stages, and materials never sit exposed to weather during construction. The result is housing that's built faster and often more durably.

Modular homes meet the same building codes as traditional homes, appreciate in value similarly, and qualify for standard mortgages. They can easily incorporate energy-efficient features—high-performance insulation, efficient windows, smart climate controls—and meet or exceed California's Title 24 energy standards. Some projects upgrade to net-zero performance with solar integration and battery storage.

This quality advantage matters for affordability in ways beyond initial construction costs. Lower energy bills reduce the total cost of homeownership. Better construction quality means lower maintenance expenses over time. These factors compound, making modular housing more affordable across its lifespan, not just at purchase.

Why the Revolution Keeps Stalling

If modular construction offers such clear advantages, why hasn't it already dominated the market? The obstacles are structural, not technical.

Zoning codes and building regulations vary wildly across jurisdictions, making it difficult to achieve the standardization that factory production requires for maximum efficiency. A module designed for one city might not meet another's setback requirements or aesthetic guidelines. Customization eats into the cost savings that mass production promises.

Labor unions in many markets view factory construction skeptically, seeing it as a threat to on-site jobs. Financing remains tricky—banks understand stick-built construction timelines and risks but often struggle to underwrite modular projects. And the construction industry itself is deeply conservative, with established relationships and practices that resist disruption.

Perhaps most importantly, the U.S. housing market doesn't reward efficiency the way other industries do. When housing supply is artificially constrained by zoning and permitting, builders can charge premium prices regardless of their construction method. The incentive to innovate weakens when scarcity guarantees profits.

When Factories Meet Politics

California's 2026 push recognizes that technology alone won't transform the market. The forthcoming legislative package will likely address regulatory barriers, standardization requirements, and possibly financing mechanisms. The state's size gives it leverage—if California creates a unified framework for modular construction, manufacturers can achieve the production scale that makes the economics work.

But political will faces practical limits. Homeowner groups resist density increases regardless of construction method. Municipal governments protect local control over development. Construction trades worry about job displacement. Even if factories can build housing faster and cheaper, that housing still needs somewhere to go, and someone has to want it there.