Saturday, October 25, 2014

Is Modular Housing Circling the Drain?

The second quarter of 2014 should be the best time period for factories to build and ship modular homes. Winter has ended, spring has sprung and both homeowners and modular home builders are chomping at the bit to get started.

But something happened this year in the modular housing industry that should send chills up the spine of every factory owner and modular home builder especially on the East Coast. Hurricane Sandy hit New York and New Jersey destroying thousands of homes that is about the only thing that is keeping many east coast factories alive this year.

Over the past few years I have been reporting that the modular industry has had a 3% share of the single and multi-family new home market. Starts have hovered in the mid to upper six digits for a couple of years now and I was using 24,000 as the number of new modular homes (SFH and MFamily) produced. The modular home industry can survive on that but it needs to find ways to get to 4% which would mean opening the equivalent of 32 new factories.

If the second quarter of 2014 is any indication of what is ahead for modular housing, we really need to begin gearing up for either a battle to reclaim our place in the housing industry or a way to at least stop circling the drain.

The second quarter shows that only the Middle Atlantic region of the US saw positive growth over the same quarter in 2013 and it was entirely attributable to the modular houses being shipping into NJ. 128 homes were shipped there in 2013 and 286 shipped in the second quarter of 2014; a 158 home (123.4%) increase. Wow! But every other state in the Middle Atlantic region dropped with PA losing 48.6% and MD seeing an almost 50% drop in modular home shipments.

EVERY other region of the US is down in modular home shipments.

Now here comes the bad news. The modular housing industry is no longer hovering around a 3% market share. It has dropped to 1.3%. Let me say that again for the people that think I made a mistake…..1.3% Market Share.

Why is this happening? I believe there are several major reasons for this:

  • Lack of identity. Each factory and builder tries to explain to their customer why a modular home is a better way to build but we, as an industry, have yet to come together and market ourselves to the new home buyer.
  • Huge tract builders. When the housing recession hit in 2008, the huge tract builders hunkered down, sold off thousands and thousands of building lots, stockpiling cash and then rebuying those lots a few years later for pennies on the dollar. Then the giants awoke from their sleep and started building again with added gusto. Modular home factories have never been able to break into supplying the huge tract builders.
  • Codes and Regulations. If you are in the modular home business, you are acutely aware of what both state and local code regulators and inspectors think of modular housing. Even though modular housing has proven itself to be greener and better built than site built homes, they continue to kill is with the death of a thousand cuts. Most states equate us with HUD manufactured homes and some state regulatory administrations have modular housing lumped in with amusement parks. Huh!
  • Engineering delays. A site builder is at a real advantage here. Everyone has to have their plans approved and/or stamped by the appropriate state and local offices but modular housing has an even harder battle to fight because of additional engineering delays brought about because in most instances the factory is building the home in one state and shipping to another. Enter third party inspectors, a necessary process that ensures that the house will meet a particular state and local building codes, unlike the local site builder that lives with a more relaxed code enforcement and can usually get the house permit quicker and with a lot less paperwork. This one thing has slowed down one of modular housing’s big advantages….TIME.
  • A lack of a national voice. Only recently has someone started putting together a coordinated effort to be the voice of Modular Housing. That is the MHBA. They are trying to get every factory and modular home builder in the US to join with them to help be that voice. Only two years out of the gate and already they are making a difference for the modular housing industry. If you haven’t joined the MHBA, you are missing one of the best things going for modular housing.
  • No organized training. For years this blog has been working to get the factories and the builders to begin putting together marketing plans, business plans and training programs for builders and factory sales reps. That has to start and it has to start now!

Let’s begin to find ways to plug the drain and begin to fill the sink with modular homes until we become a housing force to be reckoned with.


Anonymous said...

Did ever see a National TV ad about modular homes???? I haven't

Alex Berlin, Rochester Homes, Inc. said...

ModCoach- You have a lot of nice insight here, but I have one major complaint. We, as the modular home builders and factories, complain about being lumped in with HUD product, right? Then why does the MHBA, who is supposed to be the voice of today's modular, serve large HUD manufacturers? You cannot serve two masters ModCoach. There must be some line drawn between quality modular housing and modular homes that are built on HUD lines with HUD components. I understand you want the dues for the MHBA, but we are shooting ourselves in the foot...again. At the very least the MHBA should create some kind of accreditation for being called a modular home, Much like KCMA did with cabinets. When I see active moves by the MHBA to help initiate training programs as you have suggested, differentiate what good quality modular homes are, and have a voice outside the east coast, I will push our company to join.

ModularGuru said...

Alex, MHBA is Modular Home Builders Associaion. It is only for the advancement of Modular Home Construction. There are manufacturers that build HUD code and Modular homes as members but it only promotes Residential Modular Construction. MHI and the NAHB Building Systems council serve masters other the modular home construction. MHBA is the organization that doesn't have another maser and whose sole purpose is to promote and advance our industry. Contact Tom Hardiman or Dave Sikora at MHBA to learn more.