The housing crisis has left many Aussies scrambling for solutions. With property prices skyrocketing and supply shortages only becoming more rampant, both governments and developers are looking at modular homes as a potential answer.
State governments in New South Wales, Western Australia and Queensland are already investing in prefabricated builds to combat the crisis. Because modular homes are built offsite in factories and then transported and installed at the final location, they promise faster construction, cheaper building costs and a smaller environmental footprint.
But are they actually a decent investment? And most important of all: how easy is it to finance a modular home?
Why are modular homes on the up-and-up?
With home prices still rising – up 5.88 per cent nationally from last year – plenty of industry experts are seeing modular homes are a potential game-changer. While traditional construction can take more than a year to complete, modular homes are usually constructed in a matter of weeks. Such break-neck speeds could help ease the housing shortage, which has been influenced by not just migration but a lack of affordable housing stock.
State governments are embracing modular homes as part of the solution. These builds have already been deployed for social housing and emergency accommodation in places like Victoria for several years now. Because they’re built in a controlled environment, modular homes are also more sustainable – using fewer materials and generating less waste.
Are modular homes a good investment?
It’s a fair question. While they might be popular right now, will that still be the case 10 or 20 years down the track? It’s important to view modular homes as being not just primary residences but also potential investment properties. Many investors will be attracted by the lower build costs and faster project timelines, which means rental income can start flowing in sooner. A growing appetite for sustainable building practices in Australia also makes them more appealing to buyers, tenants and holidaymakers alike.
But they do have their limitations. Resale value is a concern, as the market still heavily favours traditional brick-and-mortar properties. Despite that, attitudes are likely to shift over the coming years, especially as more investment is poured into this space. If you’re looking for a property that’s both cost-effective and eco-friendly, modular homes are certainly worth a good, hard think.
Pros and cons of buying a modular home
Like any investment, you’ll want to weigh up all the advantages of modular homes against the drawbacks, including:
Pros
- Quick to build: Offsite construction means faster assembly and fewer delays.
- Cheap: Typically much less expensive than buying or building a traditional home, both in terms of materials and labour.
- Sustainable: Uses fewer resources and pumps out less waste compared to on-site builds.
- Customisable: Modular builds are inherently flexible in their design options.
Cons
- Financing challenges: Not all lenders are keen to fund non-traditional builds.
- Resale value: The market still favours traditional homes, and this is unlikely to change anytime soon.
- Land requirements: You’ll need to own a suitable block of land before you can even start looking at modular homes to build.
How does financing work for modular homes?
Financing a modular home isn’t something you have to manage all by yourself. While there might be a few extra hoops to jump through with the banks, you’re likely to find at least one lender out there who understands your vision for building a modular home.
Some buyers look to secure construction loans for their modular projects. This type of loan releases funds in ‘stages’ as the home is built. There’s also the option of owner-builder loans, where you fund each stage of the build and your lender reimburses you after the fact. It’s less risk for them, but you’ll need to be relatively flush with cash in the first place.
While it’s true that in the past many lenders were reluctant to approve loans for modular homes – mainly due to their unfamiliarity with the construction process – the amount that state governments are investing in modular housing means banks are starting to come around.
It’s still a good idea to shop around with both traditional banks and non-bank lenders to find the right financial solution. Some lenders will ‘bake in’ additional inspections or specific conditions into your contract before the loan is approved. But if you’re working with an experienced modular home builder and have the right approvals in place, you can expect the process to be fairly hassle-free.
If you’re in the market for a new home or an investment property, modular homes are definitely worth exploring. Given that governments are publicly backing these projects and more lenders are getting on board, now might be the perfect time to take advantage of this innovative way of building.
