Canada’s housing crisis has renewed interest in modular construction as a way to build homes faster, more affordably, and at scale. In this second article of our three-part series, we turn to the United States to understand what decades of experimentation with modular housing can teach us.
For nearly 80 years, U.S. policymakers and industry leaders have attempted to shift homebuilding from traditional on-site construction to a modern, factory-based manufacturing model. Despite periods of optimism and significant investment, several high-profile efforts failed to deliver on their promise.
By examining three major cases, we surface key lessons from these setbacks — insights that are critical for evaluating Build Canada Homes and its plan to use modular construction to accelerate housing delivery in Canada.
Case 1: Lustron
Canada was not alone in turning to modular construction to house returning Second World War veterans. In the U.S., Chicago industrialist Carl Strandlund introduced the Lustron house — prefabricated homes built entirely from porcelain-enameled steel panels.
As noted by the National Trust for Historic Preservation, “A house contained over 3,300 parts, pieced together over an average of 350 hours. Steel frames were welded into roof trusses. The roof and walls were made of porcelain-finished steel panels, compressed with a plastic seal for air-tight weather resistance.” Strandlund had patented an architectural panel that first had been used in gas stations and restaurants. He applied this approach to building houses.
Lustron received financial backing from the Reconstruction Finance Corporation (RFC) starting in 1947. A former wartime manufacturing plant in Columbus, Ohio — spanning over 1 million square feet — was converted into the Lustron factory. The prefabricated homes were shipped via a specialized trailer, which took more than a year to design, and could be assembled on-site by a crew in about 15 days.
The goal was to build 45,000 homes in the first year. In reality, only 2,489 homes were completed, and 8,000 additional orders went unfilled [1]. Lustron faced a range of challenges, including steel shortages, missing parts at delivery, cost overruns, zoning restrictions prohibiting steel frame buildings, and banks reluctant to offer mortgages for the unconventional homes.
Although Lustron promised to build 100 homes per day, it managed just 27. Monthly losses reached $500,000. Initial price estimates ranged from $4,000 to $5,000 per home, but the first homes sold for around $7,000, rising to $10,000 by 1949. By 1950, RFC filed to foreclose on Lustron, which declared bankruptcy and failed to repay the government loan.
Case 2: Katerra
The most recent high-profile modular attempt in the U.S. was Katerra. Founded in 2015 and backed by entities such as SoftBank, Soros, and the Canada Pension Plan Investment Board (CPPIB), Katerra aimed to revolutionize the construction business.
Katerra’s vision was ambitious: it sought to bring every step of the construction process in-house through a vertically integrated model that was structured more like a technology company than a traditional builder. Buildings were designed using proprietary software, components were manufactured in large automated factories, and one of the largest mass timber factories in Spokane, Washington—a 270,000 square foot factory producing cross-laminated timber — was opened to support production. Its software platform, Apollo, was designed to allow architects to connect directly with the factory.
Ultimately, the company’s scope proved too broad. Katerra struggled to integrate the web of divisions and supply chains it had created. It also faced challenges with building codes, zoning ordinances, union requirements, and the variability of building sites — all of which made standardization extremely challenging. As one review of its downfall noted, “[t]he construction industry is fragmented for a reason. It is shaped by geography, regulation, and culture. Katerra’s software could not code its way around that.”
Katerra was already struggling before the pandemic, which only exacerbated its challenges. The final nail in the coffin came in March 2021, when Greenhill Capital, Katerra’s primary lender, collapsed.
At its peak, the company was valued at nearly U.S.$6 billion; its bankruptcy wiped out nearly U.S.$3 billion in investor funding.
Case 3: Operation Breakthrough
Between the failures of Lustron and Katerra came another major effort: Operation Breakthrough, a federal initiative led by the U.S. Department of Housing and Urban Development (HUD) from 1971 to 1973. In many ways, it mirrors elements of the Build Canada Homes vision.
As policy analyst Brian Potter summarized, the initiative had three core components:
“First, it would fund the development of promising mass producible building systems.
Second, it would work to break down regulatory and organizational barriers preventing those systems from being brought to market.
The most important part of this effort was addressing the patchwork of local building codes and regulations, many of which specified exactly how housing had to be built.”
HUD selected 22 building systems and tested them across nine sites to see whether any could be produced efficiently at scale. Ultimately, none proved superior to traditional construction methods. With so many systems spread across a limited number of sites, the program never reached the production scale needed to achieve significant economies of scale.
Operation Breakthrough, spearheaded by Secretary George Romney, aimed to expand affordable housing options for low-income households. Like today’s proponents of Build Canada Homes, Romney believed factory-built housing could significantly reduce costs. While nearly 3,000 homes were built, the program struggled to gain local support and eventually lost backing from the White House.
Christiana Western, a wood framing and pre-cut panel manufacturer involved in the program, summarized the core challenges of industrializing homebuilding:
“The factors required to assure viability of a housing factory have been analyzed and discussed over and over again, and the conclusions are always the same for any other manufacturing facility; to reap the benefits of a factory operation, a standard product must be produced at a reasonably constant rate. To do this, there must be a constant absorption of the product by the market or sufficient capital and an understanding of the future market must exist to justify an inventory of finished goods. . . . A higher utilization rate of factory methods results when the modules are produced; however, savings are reduced by higher transportation costs. Large capital investments are difficult to recover.”
Initially, Build Canada Homes is focused on developing up to 4,000 homes across six public land parcels in Dartmouth, Longueuil, Ottawa, Toronto, Winnipeg, and Edmonton. Similar to the Operation Breakthrough initiative, these projects are essentially demonstration sites where the government can leverage properties owned by Canada Lands. However, because the sites are geographically dispersed, each development will rely on local factories, limiting the economies of scale that centralized production could achieve. Prefabricated building producers are still working to address these challenges.
Next week, in the third and final part of our series, we’ll look at what Sweden and Japan have accomplished in modular home building, and explore the broader obstacles to treating home building as a manufacturing process, as outlined in Brian Potter’s book, The Origins of Efficiency. Potter, a former structural engineer who led an engineering team at Katerra, brings firsthand insight into both the potential and limitations of factory-built housing.
Missed the first part of the series? Read it here: What We Can Learn From Wartime Housing Limited
[1] Lustron Research. https://lustronresearch.com
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