A wave of federal legislation and state-level building code updates is reshaping the regulatory landscape for factory-built housing, removing long-standing barriers that have slowed modular and prefabricated home delivery across the United States.
Background
Significant variation in building codes across jurisdictions has long challenged the sector: many U.S. codes are outdated or contradictory, creating inefficiencies that complicate efforts to scale factory-based production. At the same time, local zoning and land use barriers frequently restrict the placement of manufactured and modular homes, with many communities excluding manufactured housing entirely despite the broad range of typologies that offsite construction can support, according to Colt Davis of the Clayton Home Building Group, speaking at the 2025 Innovative Housing Showcase in Washington, D.C.
Unlike the federal HUD code that governs manufactured housing compliance nationwide, no national code for modular construction currently exists. Modular homes are instead subject to state and local building codes, the same as site-built homes. Thirty-nine states maintain state-specific modular programs; in the remaining states, factory inspectors work directly with local authorities having jurisdiction at the building site to determine certificate-of-occupancy requirements.
Recent Code and Legislative Developments
Several jurisdictions advanced code updates in 2024 and 2025. Texas adopted new mandatory building codes for all industrialized housing effective July 1, 2024, requiring in-plant certification by a state-approved third-party inspector. New York State adopted amended fire prevention, building, and energy codes in July 2025, with notices of adoption published in the October 1, 2025, edition of the State Register. Michigan's updated residential and energy codes were filed with the Secretary of State on May 1, 2025, and take effect August 29, 2025.
At the federal level, the ROAD to Housing Act of 2025 was reported by the Senate Banking Committee on August 1, 2025, and passed the Senate as an amendment to the National Defense Authorization Act on October 9, 2025. The legislation eliminates the permanent steel chassis requirement for manufactured homes - a structural change long sought by the industry. A separate provision, the Modular Housing Production Act, directs HUD to review FHA construction financing programs for barriers affecting modular housing developers and authorizes funding for a study on the utility of a standardized national code for modular homes.
HUD also advanced administrative changes ahead of legislation. A blanket alternative construction letter published in September 2024 eliminated the requirement for special permission when using common design practices that meet or exceed HUD standards, effective immediately, rather than requiring the typical six-month waiting period following publication in the Federal Register. HUD's building code update also raised the cap for multi-unit manufactured homes from three to four units. Allowing more units per structure expands use cases for factory-built construction and, by distributing land costs across additional units, makes HUD code construction viable in higher-cost markets.
On third-party inspections, industry data confirm that factory certification is central to faster timelines. Fabricating units in controlled factory environments enables developers to minimize onsite disruption and reduce construction waste by more than 70 percent - and regulators can maximize those benefits by adapting inspection processes to permit third-party inspections, accelerating development timelines, according to Brad DeHays of Connect Housing Blocks, speaking at the 2025 Innovative Housing Showcase.
Financing and Persistent Hurdles
Financing clarity has improved for modular projects. Conventional loans conforming to Fannie Mae and Freddie Mac standards treat prefabricated homes attached to a permanent foundation - including modular homes - the same as site-built housing. Fannie Mae and Freddie Mac have also moved to support CrossMod homes, an emerging type combining elements of factory-built and site-built housing, with access to traditional site-built lending.
Construction-phase financing remains a bottleneck, however. Missing middle housing presents a persistent funding gap, as traditional lenders view these projects as too small, too risky, or too unconventional. In Illinois, one apartment building developer cited an additional $10,000 cost per unit when navigating the state's off-site code regulations, which required additional inspections rooted in vestigial mobile home compliance requirements.
Code fragmentation across states continues to constrain factory operators' ability to scale. Off-site construction regulation differs state by state, introducing complex compliance layers for builders, inspection officials, and end users. While 39 states have regulatory offices overseeing off-site construction, program rules vary significantly.
Outlook
HUD's authorized study on a standardized national code for modular homes, if completed, could form the basis for a more uniform regulatory framework - an outcome the industry has sought for years. International examples, such as Canada-based mddl's Municipal Fast-Track program, have demonstrated how pairing standardized designs with streamlined approvals can cut permitting timelines to as few as 10 days. Whether the pace of U.S. legislative and state adoption keeps up with growing demand for factory-built housing will be a key variable for builders, lenders, and policymakers to monitor through 2026.
