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At a 10,000-square-foot factory in North Portland, MODS PDX Inc. assembles component parts including predrilled and super-insulated wall systems into modular buildings. The advantage, CEO Nathan Young said, is that construction efficiency is inherent.

“It’s not about the volume of work,” he said. “It’s the process that we use. Efficiency is created through systems. It’s not how many units you’re doing.”

Though many builders prefabricate structures off-site, MODS PDX is one of the few in Oregon constructing modular units in a factory setting. Some firms have established niches, but the cost to launch such a business is inhibiting growth, industry professionals say.

The challenges of modular construction, where nearly all component parts are built off-site, are tied to market demands and capital needed to keep operations going, said Steve Clem, vice president of preconstruction for Skanska USA Building. It built a multifamily high-rise modular project in Brooklyn, N.Y., but has not tried to replicate the project in Oregon.

“A number of things are holding up the industry,” Clem said. “There is a perception of limited applicability. It might be good for multifamily, but what other markets sectors are there where some kind of prefinished stuff could make sense? Right now, that hasn’t been figured out.”

The main hurdle is setting up a factory component and scaling it with several projects, he said. That requires a sizable investment.

“I don’t know if the density and the demand for that type of product exist in Portland,” he said.

But Clem says the conversation is still a hot topic among builders, particularly the idea of doing it on a smaller scale, he said.

“The sweet spot may be low- to mid-rise with half a dozen units to three or four units on a densification or infill project,” he said.

Architect Stuart Emmons, owner of Emmons Modular in Portland, has completed several modular affordable housing projects, including a nine-unit one in the Lents neighborhood. He has perceived resistance.

“Some contractors are trying to kill modular before it even gets onto the radar screen,” he said. “They see it as a threat. If you’ve got a whole project and all of a sudden you’re only doing 50 percent, it impacts your margins.”

A big shift toward modular construction could happen, he said, when small and medium contractors consider it as a way to compete with larger contractors.

“They could get there,” he said. “Ideally, what we have is these factories could produce a really constant flow of housing so we could get to the efficiencies of a factory. The unit costs really have some impact on the second or third project.”

Marv Shetler is owner and president of Aumsville-based Blazer Industries, which built the Emmons-designed homes in Lents. He said survival in the modular business isn’t easy.

“It takes a huge capital investment,” he said. “If you can’t keep the factory full of work, it’s tough to make it. I’ve seen a lot of startups in the last 10 years that didn’t make it.”

Seattle-based IDEAbuilder has a factory in Portland, and has found strong market demand for high-end and extremely green homes, owner Greg Howes said. Most of the company’s clients are in Vancouver, B.C.; California and Australia, where median home prices are higher than in Oregon, he said.

Construction in Oregon gives IDEAbuilder a competitive advantage from a resource and geographical position.

“Oregon has the best wood in North America, a timber ecosystem and (a) location on the West Coast,” he said. “It’s ideally positioned to target the high-end and luxury market.”

MODS PDX takes advantage of a dry, indoor environment to build energy efficient homes.

“We look at buildings the way they test cars,” Young said. “We’re not running buildings into walls, but moisture management is the same as safety aspects of building a car.”

But even though the company produces a high-quality building efficiently, margins remain tight, he said.

“Whenever you’re pushing the envelope to produce an intelligent building, it’s not what the market demands right now, which is the cheapest product,” he said.