Monday, July 11, 2016

Myth Busters: Prefabricated Housing is Going to Take Over Single Family Housing

American politicians, Architects, city planners and developers are becoming advocates of manufactured and prefabricated home construction. So why isn’t the new housing landscape polluted with them?

The answer is simple. COST.

Developers like Ryan Homes, Lennar and others acquire large tracts of raw land and then spend upwards of a couple million dollars to put in the infrastructure needed to satisfy all local, state and federal requirements as well as the requirements dictated by all the utility companies.

Corporate Bean Counter

In order to stay competitive, they have to use the most efficient and least costly methods and materials. They are not in competition with prefabricated housing or local site builders. No, they are in competition with other large and regional developers all building the same type of development and houses.

These developers represent a vast majority of all single and family new housing in the United States.

All you have to do is drive to one of their developments and tour their Open House model and you will come away impressed. Not only with the visible materials they use but also the design and the affordable price.

So why don’t they switch to prefabricated housing? Manufactured housing (HUD standards) will never be acceptable to these developers.

That leaves modular home construction. Why don’t any of them use it? Again the answer is simple….COST!

The material and labor cost of a modular home is higher than on-site tract housing. A recent article showed how easy it is to simply use a box cutter to break into many tract homes. The sheathing they use on their homes is a cardboard product such as Thermoply.

The materials included in every modular home produced is stronger and more plentiful than a tract home as it has to be constructed to travel on highways. That travel expense is another cost the tract builder does not incur.

Labor at a modular factory is almost entirely skilled labor. Men and women doing their jobs, sometimes for decades. Tract housing only pays what the bottom of the market will provide. A lot of college students home for summer break, legal and sometimes illegal immigrants and day workers hired from temp services make up almost all the grunt positions while the long term, skilled labor is mostly found in supervisory positions.

The tract developers use a lot of subcontractors that shave every penny they can off their bids just to get the work. Safety training is minimal and quality suffers.

With modular housing’s higher standards, better materials, tougher inspections and regulations, transportation costs and the need to have a crane set every module, the first tract developer that chooses to do an entire development of modular homes will quickly find themselves priced out of the market.

I’ve seen modular factory sales reps spend years trying to land one of these big tract developers and still walk away with no sales.

Just about every day we see an Architect announce they have the solution to affordable housing or energy efficient housing or even housing for the homeless and just about every day some politician, city planning group or tree hugging, energy centric media outlet touts their benefits.

They get their 15 minutes of fame and then disappear into the void from whence they came. There are no factories willing to mass produce them, no network of builders or developers willing to use and they simply become the latest victim of improbable design and invention.

Back to the question. Will modular housing take over new housing? No. The cost is too high for tract builders.

Is modular housing a viable alternative to on-site stick built homes? Yes.

Will true modular housing’s market share grow. Yes.

It will grow because many more people want what can only be found in modular housing. Strength, inherent green and energy savings, skilled labor and local builders that know their homes and stand behind it all the way.

1 comment:

Unknown said...

The way building is currently structured in the "tract home" world vs. the current modular structure of manufacturer and builder, you are correct, this arrangement will never be competitive. However, I think there can be a competitive advantage in the near future with a manufacturer offering direct sales in a planned community environment. Leaving out the obvious issue of land costs as that effects everyone, labor costs for tract builders are skyrocketing and will continue to do so at a faster rater due to lack of availability of labor, and not even "skilled" labor. No one wants to work hard, or outside, or long hours, or travel to multiple job sites for $12 - $15 an hour anymore. That's what the "Tract" home builders live off of, one quazi-skilled guy wrangling 3-5 green guys for framing and M,E,P crews. This is driving prices up at an alarming rate due to over paying for whomever is available to get the job done that day as they have production demands that need to be met.

The truth is builders don't make money on the home price they advertise, they make it on the upgrades, so focusing on the advertised cost for comparison is a mistake. Materials to materials, there's only a few $1,000's difference that can be more than overcome if sales volume is available to generate more closings annually due to a quicker build cycle. Anymore, with truss' and panels many "tract" builders are using a crane for a day or two, I realize its a smaller crane, but a lot of that cost is already incorporated.

In the end, I think the opportunity is rapidly approaching for modular to be competitive in the volume housing industry, but its going to take a change in business practices and ALOT of capitol....

I am currently a part of the Big Builder business, on the higher end of the scale, and this is a passion of mine right now as I see many answers in the Modular world to the upcoming challenges in the home building business.