Tuesday, April 28, 2015

Gearing Up for the Changing Modular Construction Market

25 years ago I remember driving to work as the Sales Manager for a custom stick builder in Central Pa and passing a real modular home ‘dealer’ that had 2 models on display. Both were ranch style homes. One was 48’ long, 24’ wide and the other was 54’ long and 26’ wide.

The sign on the small one read “This house on your lot for $39,900 complete.” I stopped one day and learned that I couldn’t do any changes to the house, could have it any of 3 vinyl siding colors and could have a light stain or dark stain on my cabinets. The price included excavation, set and finish on a full basement. There were hundreds of these homes throughout a 100 mile radius.

Times sure have changed. Very few builders have model homes, now most have designer showrooms and sales offices where you can design any home you want in any color and in whatever kitchen cabinet and stain you choose.

There is a saying in the modular home business. “Nobody buys from the plan book any more.”

Looking forward, new home buyers may soon be asking “Where did all the modular home builders disappear to?”

Small typical modular home builders are becoming scarcer than a winning lottery ticket. A lot of the modular builders that were in business just 15 years ago have given up on homebuilding and very few new builders are stepping up to fill the void.

So where does this leave the modular home factories? The answer is “In the perfect position for the future.”

The void that is left by aging and/or unprofitable modular home builders is being filled by another form of home, the manufactured house. Their numbers are finally on the rebound as more buyers are turning to them for affordable housing. They already reap the benefit of branding their homes “modular”. Clayton dealers feature big “modular” homes at the front of their lots and the single and double wides in the back.

Real modular home factories have been in a state of flux for some time and within the next few years, many will drop the builders that just buy 4 or 5 ranch, capes or 2 story, center-hall colonials opting for the market that modular has always aspired to; commercial projects, multi-family housing and large custom homes.

When you mention a “boutique” factory today you get some mixed answers. Some say that it only wants to build a couple homes a month mostly for Architect designers and their clients. Others say a boutique factory looks like Blu Homes with a unique product of their own design. But the truth is that soon many modular home factories will be faced with deciding what kind of ‘boutique’ factory they want to be.

Some have already chosen their boutique paths like Chip Smith’s Blue Ridge Log Cabins who wouldn’t build a vinyl covered, ‘two by’ home for a lifetime supply of lobster and porterhouse steak. He only builds custom designed log homes in his factory.

Guerdon Modular Buildings in Idaho wouldn’t do a ranch style home unless they could build 100 exactly alike as they work in the commercial field of man-camps, condos and multi-family, multi-story structures. They will build a “one off” for an Architect so that he/she can show the world the future of prefab construction. I can only assume that is not cheap.

Just about every modular factory on the East Coast has had huge commercial projects that have tied up the production line for weeks pushing the small builder’s home further back on the delivery schedule. 100 - 300 floor runs are common with some factories and a couple of the old traditional factories have begun actively going after that business to the exclusion of the small builder.

Quality Crafted Homes of Long Island

Several factories are now turning down “Plan book” homes in lieu of large custom homes. Modular homes of 10,000 to 15,000 sq are becoming expected from some factories. They love building them because of all the upscale options and custom features which allows greater margins.

I recently heard about an Architect that has a client about to pull the trigger on ordering a 40,000 sq ft modular home. This type of home cannot be given to a traditional old line factory still building those 48’ x 24’ ranchers. No, it will go to a factory that is able to gear up for unique features like 10’ - 14’ high ceilings and custom marble baths and flooring.

Soon there will be only four kinds of modular factories:
  • Commercial - Mostly steel construction
  • Commercial / Custom Residential - Custom and Automated wood construction.
  • Standard Single Family Homes - This will become the new niche market for many of today’s factories.
  • Clueless - Trying to be everything for everyone and if that doesn’t work, heavily discount the product to catch the traditional small modular builder.

Because commercial and community developers need projects completed in areas where the available labor is shrinking, modular construction will begin to take its rightful place at the construction table even though their market share for single family homes will remain in the 3-5% range, their share of the bigger commercial/multi-family market will begin to increase.

I was told several years ago that “Capacity is King.” Whoever has the capacity to satisfy this new market will be far ahead of the rest.

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