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California lawmakers shouldn’t subsidize risks and privatize profits for factory-built homebuilders

April 19, 2026

As California continues to try to address housing affordability challenges, state lawmakers are turning their attention to factory-built housing options. These homes could offer an affordable alternative to traditional construction, with faster production timelines enabled by economies of scale and resistance to weather-related delays due to their factory setting.

A proposed state law aims to encourage factory-built housing through a state-funded credit backstop program, but this approach ignores the root of California’s housing challenges and risks losing taxpayers’ money. Instead of putting taxpayers on the hook for failed private-sector projects, lawmakers should continue recent efforts to remove barriers to housing construction.

Assembly Bill 2166, if passed, would allow the California Housing Finance Agency to issue credit backstops to private companies and insurers providing construction bonds for factories producing prefabricated homes. Developers and companies would benefit from expanded bonding and reduced risk, as taxpayers, not the private investors who made those decisions, would be left to cover some of the companies’ financial losses.

Factory-built homes of all types have existed for decades and are well integrated into housing markets, especially in states like Texas and Florida. These types of homes should not be arbitrarily restricted from the state’s residential areas. Still, there is no justification for taxpayer-backed loans or government involvement in their expansion in California.Developers elsewhere across the country have successfully increased the number of factory-built homes without a publicly funded safety net.

Framing developer hesitation as a market failure, as is done in AB 2166, overlooks that such uncertainty is inherent to large-scale development and new technology. Instead of creating another potentially costly housing finance program, California should continue removing the regulatory barriers that constrain housing supply, including those affecting prefabricated homes.

In recent years, California has been a national leader in passing needed housing reforms to increase supply and alleviate pressure on home prices in Southern California and across the state, but there is still a long way to go.

Fewer homes than expected have been built following the state’s wave of regulatory reforms, and a closer look reveals that many of these laws contain elements that undermine their impact. Even seemingly monumental legislation, like Senate Bill 9 of 2022, which aimed to bring an end to single-family exclusive zoning in the state, included a three-year owner-occupancy requirement in the event of a lot-split, making it nearly impossible for builders to participate in the law’s most promising provisions.

Where reform has been truly comprehensive, for example, with accessory dwelling units, the significant increase in units and permits has successfully materialized.

Moving forward, lawmakers should identify aspects of recent reforms that are hindering their intended purpose of increasing housing, while continuing to advance land-use liberalization across the state. Comprehensive reforms removing regulations, such as minimum lot sizes and parking requirements, are areas where California still has either no statewide legislation or has made limited efforts that could be improved to increase supply and drive down prices.

Despite good reforms over the last few years, California still has among the strictest environmental laws in the country for new housing development. While state lawmakers have acknowledged this bottleneck by passing a series of workarounds and exemptions, the California Environmental Quality Act remains fundamentally misaligned with the goals of increasing housing supply and leaves the door open to lawsuits against new projects.

This overhanging threat is a substantial roadblock for housing developers using any construction method. Streamlining and standardizing the environmental review process would help fully implement pro-housing reforms in the state.

California’s housing prices, shortages and challenges are the result of decades of overreach at all levels of state and local government. Housing developers and factory owners must be able to respond to demand signals and bear all associated risks.

Instead of risking taxpayers’ money to insulate builders and suppliers from the consequences of their project choices and investments, California should continue liberalizing its land use laws and allow the market and homebuyers to determine the state’s need and desire for factory-built homes.

Eliza Terziev is a housing and land use policy analyst at Reason Foundation.

Orange County Register

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California lawmakers shouldn’t subsidize risks and privatize profits for factory-built homebuilders

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