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                            Volume 17                                                                                                                                                     Article 21 
                            April 2019 
                            Modular Construction: Modular Construction: A Solution tA Solution to Afforo Affordable Housing dable Housing 
                            Challenges Challenges 
                            John Thompson 
                            Cornell University 
                            Follow this and additional works at: https://scholarship.sha.cornell.edu/crer 
                                  Part of the Real Estate Commons 
                            Recommended Citation Recommended Citation 
                            Thompson, J. (2019). Modular construction: A solution to affordable housing challenges. Cornell Real 
                            Estate Review, 17, 90-97. Retrieved from: https://scholarship.sha.cornell.edu/crer/vol17/iss1/21/ 
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        Modular Construction: Modular Construction: A Solution tA Solution to Afforo Affordable Housing dable Housing Challenges Challenges 
        AbstrAbstract act 
        The lack of affordable housing is pervasive across the United States. It affects some locations more 
        severely than others, with each having unique challenges. Construction and land acquisition costs are 
        frequently cited as primary drivers of multi-family housing development, and affordability is determined by 
        a geography’s housing costs versus its median income. This paper highlights crucial components in the 
        connection between economic conditions, public policy, and affordable housing development. It focuses 
        on how efficiencies in modular construction present opportunities for addressing specific challenges in 
        Maine and will propose a strategy for public-private cooperation, particularly in the site selection process, 
        in order to streamline the state’s affordable housing agenda. 
        KKeeyworywords ds 
        Modular Construction, Affordable Housing, LIHTC, Low Income Housing, Maine 
             This article is available in Cornell Real Estate Review: https://scholarship.sha.cornell.edu/crer/vol17/iss1/21 
       Modular Construction:  A Solution 
       To Affordable Housing Challenges 
       Author:  John Thompson
       John Thompson is a Master’s candidate 
       in Cornell’s Baker Program in Real 
       Estate, class of 2020.  John received 
       his B.S. in Business Administration from 
       Babson College in 2012, focusing on 
       Technology and Entrepreneurship.  His 
       professional experience involves a variety 
       of commercial construction management 
       projects in the US Northeast. Upon 
       graduation he will pursue residential and 
       multifamily development using state-of-
       the-art prefabrication technology.
    90
         INTRODUCTION
         The lack of affordable housing is pervasive across the United States.  It affects some locations more 
         severely than others, with each having unique challenges.  Construction and land acquisition costs are 
         frequently cited as primary drivers of multi-family housing development, and affordability is determined 
         by a geography’s housing costs versus its median income.  This paper highlights crucial components 
         in the connection between economic conditions, public policy, and affordable housing development.  
         It focuses on how efficiencies in modular construction present opportunities for addressing specific 
         challenges in Maine and will propose a strategy for public-private cooperation, particularly in the site 
         selection process, in order to streamline the state’s affordable housing agenda.
         THE AFFORDABILITY PROBLEM                                           specific needs of their communities, which, as we will see 
         Housing affordability has plummeted in markets across               later, varies widely.  In addition to funds appropriated by 
         the United States.  Developers have shunned affordable              Congress, states and municipalities can generate their 
         housing due to insufficient returns and complex financing           own  housing  assistance  initiatives—often  presenting 
         processes.  The crisis has no apparent solution, so                 themselves today as ad hoc agencies with particular sets of 
         government intervention has been deemed necessary for               values and goals.  This has been an increasingly important 
         housing millions of at-risk Americans.  The most common             source of funding for high-need families, as federal policy 
         form of government housing assistance is the Department             has  tended  towards  disinvestment  in  housing  programs 
         of  Housing  and  Urban  Development’s  (HUD)  Section  8           in recent decades (NLIHC, 2015), and market forces and 
         program.  The program provides housing vouchers to                  philanthropy alone cannot meet the deficiency.
         residents  making  between  30-80  percent  of  the  area           B.  Current Solutions Fall Short of the Mark
         median income (AMI), so that they may select the most               In eight short decades, the political environment for housing 
         suitable housing options.  Other solutions include the U.S.         assistance has changed dramatically, causing the financing 
         Department  of  the  Treasury’s  Low-Income  Housing  Tax           of affordable housing projects to grow frustratingly complex.  
         Credit  (LIHTC),  which  offers  an  income  tax  incentive  to     Such development projects often contain over 20 investment 
         developers who elect to designate a certain portion of their        sources, each essential to the capital structure.  Most of 
         units in multi-family developments as affordable.                   these different sources are independent of one another 
                                                                             and contain different application processes and timelines.  
         A.  A Brief History of Supply and Affordability in the              Developers must be diligent about fulfilling guidelines and 
         U.S.                                                                reporting requirements as well as the requirements of their 
         The 1930’s brought unique challenges to housing affordability       own equity investors (Blumenthal et al., 2016).  Outside of 
         due to displacement caused by the Great Depression.  In             Massachusetts and Michigan, no state entities coordinate 
         1934, Congress created the Federal Housing Administration           the myriad public funding sources.
         (FHA), which helped make home ownership possible for 
         disenfranchised Americans by providing access to long term 
         mortgages with low down payments (NLIHC, 2015).  Public 
         housing appeared in 1937 through the U.S. Housing Act 
         and in 1965 Congress created the cabinet office of Housing 
         and Urban Development.  Along with the U.S. Department 
         of Agriculture’s (USDA) Rural Development program, these 
         are the primary players in today’s government subsidized 
         housing programs (NLIHC, 2015). 
         Beginning in the 1970’s, oversight of public housing and 
         the allocation of federal funds was handed down to state 
         and local regulatory bodies.  This shifting of responsibility 
         allowed  geographic  areas  flexibility  in  addressing  the        Figure 1. Common sources of housing subsidies for Low-Income 
                                                                             Housing projects. Source: JCHS tabulations of HUD, 2015.
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