Environmental efficiency, customization, and affordability: The trends shaping the housing market could spur an increase in prefab. Industry leaders feel momentum behind factory-built housing, but it will only pick up speed once the industry scales up and bends the cost curve.

“We’re not competitors to other prefab companies, we’re competing against standard home builders,” says Maura McCarthy, cofounder of Blu Homes. Manufacturing out of a former submarine factory in Northern California, the company faces a Model T problem. As Ford did with its symbol of assembly-line affordability, Blu needs to refine the process and expand volume to cut costs. The company expects to double its output this year and move into new markets, but its focus on craftsmanship and its “Mini Cooper” marketing message—sexy and small—won’t change the fact that price is a deciding factor.

“The demand definitely exceeds the supply,” says Robby Kullman of Capsys, which assembles modular structures inside a 75,000-square-foot factory at the Brooklyn Navy Yard. But attention won’t matter without fulfillment and better design. “Competition and capacity make the industry grow,” Kullman says.

The focus on smaller is, in part, a play to expand into the challenging (and potentially lucrative) urban market. New York City waived zoning and density rules to allow a prefab micro-apartment complex, built with Capsys modules and set to finish in summer 2015, to alleviate a housing shortage by adding much-needed units.

Jeffrey Sommers, an architect who works with several manufacturers to bring sustainable modular buildings to Chicago, says prefab construction is ideal for urban dwellers, but thinks that policy creates a layer of complexity. “The city requires that all building inspections must take place at the job site, thus making it difficult to build offsite,” he says. “I would like to see a manufacturing facility located within Chicago—this would eliminate the inspection issues, would create jobs, and would lower the overall cost of transportation.” But amid industry-standard issues, like transportation costs, and banks and building inspectors struggling to understand a new home-construction model, Sommers says expansion and innovation need to go hand in hand: “You need a partnership with the technology industry to make this happen.”

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