Wednesday, February 15, 2017

Modular Home Industry Remains Stagnant

Let’s say that a magic fairy princess came along and granted our wishes of fewer regulations, lower freight costs and removed the misconception home buyers have of equating modular with manufactured homes, what impact would it have on our market share?


The answer is none!

I’ve been sitting in my office this week having this conversation with myself about how one goes about growing modular housing’s market share of new home building. I quickly went past the obvious ones like hire more sales reps, promote the advantages of modular in the media and lowering prices. All those are good things but there is a more fundamental problem here.

We have a finite number of builders and no programs to attract new ones. Many of our factories are older and need upgrades to produce more units. Other factories have closed their doors and been converted into production facilities for other industries.

One way to tell if an industry, any industry, is stagnant is watching big players swallowing up smaller or financially troubled players with no new factories on the drawing boards. That is happening in the residential modular industry right now.

So how do we gain market share without adding builders, more capacity and additional labor? How do we compete with the tract builders that are once again buying huge tracts of land or Clayton that is on a buying spree picking up large regional site builders with land to build tons of modular homes?

How do we attract new site builders to modular? How do we educate local code officials? How do factories educate builders on the latest regulations and procedures?

Feel free to jump in here anytime. There are a lot more things that need attention.

What I believe should happen first is a consensus that there are problems for our industry beyond over-regulation and high transportation costs.

The two organizations that support our industry, the MHBA and NAHB’s BSC, are the logical places to start. The emphasis of both should be to grow stronger by recruiting modular builders, modular factories and those vendors serving our industry. I keep looking at both of their membership lists and quite frankly I am appalled.

Even with all their efforts to recruit new members, most builders and a lot of factories just don’t seem to understand that a few active members can’t carry the ball for all the ones that have been sitting on the sidelines waiting for the fairy princess to show up.


Both of these organizations are ready, willing and very eager to jump into the fray with programs to attract new modular home builders, help factories find the resources to expand and build new factories, produce education programs for builders and factory people and fight for all things modular. The MHBA and the BSC are not two opponents squaring off to see who can be stronger. Instead they are approaching the same goal of a better modular industry with similar platforms and by joining both or even one of them, they will collectively grow stronger.

But none of that can even begin to happen without people joining together and maybe, just maybe, we can say we no longer need you Fairy Princess.


Anonymous said...

No matter how hard you push, prod or threaten, most builders and factory people will not join together for much of anything let alone helping their own industry grow. I belong to one of them and am considering spending a little extra and signing up for the other. Coach, I do not believe in the fairy princess doing our job for us.

Unknown said...

If the modular industry wants to make a dent in the site built world, as I would think that would be your largest target market to gain market share in, you will have to do the work. It won't be the site builders knocking on your door. The economics may eventually fall in your favor as time wears on, but that's not a marketing plan that will bear any fruit. I have been in the procurement end of Site-Building for over 15 years, not once have I ever had a factory reach out. I have reached out to a couple, and I am currently working with a local one as myself and the individual have a mutual interest in each others type of business and we're looking at what opportunities there are, but that's been it.

It's a big sell, but most site builders, especially the bigger ones are price whores. If you can save us money, you have our attention but it's up to you to prove it. I know most of you will want to speak about a lot of things beyond basic hard costs, but that's going to be the only way to make any end roads in the near future. Perhaps a sad reality, but the truth. The site builders are the only ones buying up the land you guys would like to put your homes on, and who have the customers you'd like to sell to coming to their communities and buying their home designs.

There are many other areas where the zeitgeist would need a significant change, but cost is king and if that's something the off-site built industry can truly deliver, especially in our current environment of rapidly rising costs, then that's how the industry will break it current stagnation. At least from my prospective, for what my opinion is worth coming the larger site builder world.

Anonymous said...

I'm in complete agreement with Brad. Show me the money is what the big tract builders and their investors want to see. Not better building methods, not houses built out of the weather, not energy saving modular homes. They just want the money on their bottom line,

Bill Hart said...

Vertically intergrade as the C s are doing..or die…

Shawn Corkrean said...

My experience has been that modular can not compete with tract builders. This is because we can not deliver the style of product that the market demands at a price that can beat high volume production builders. These builders essentially have many of efficiencies on site that a plant does with very little of the plant's fixed costs. Plus, their home design is not limited to box widths that have to travel down the road. I don't think competing with suburban production builders is a plausible strategy. I would guess Clayton's entry into this area is more about asset diversification (land acquisition and continuing to stick build) than it is about selling modular homes.

I have found modular construction methods works best when local labor costs are high and/or labor is scarce. This occurs in scattered site building such as cornfields in the Midwest, infill lots in the Northeast, rural locations in the Southeast. (don't know much about the West coast). Maybe that will change with the uncertain labor market, but these seem to be where modular works today and likely will work for the next decade.

I believe the core challenge to our industry is distribution channels. I didn't say "lack of builders" because I think that implies we just need more of the same stuff we have been doing. Distribution channels imply that we need new methods to reach potential customers. The scattered site, low volume builder is a fairly inefficient business model whether it is stick or modular. Many people have gotten out of that business and very few seem willing to get in.

I think manufacturers working with builders who are interested in growing an efficient regional presence has potential (like a fast food franchisee who operates a clustered group of restaurants in a city). Manufacturers and builders have highly compatible skill sets and neither can easily replicate the other's contribution. Home building/General Contracting has always been a rough and tumble environment where you always have to watch your back. It is an area that does not usually foster joint ventures or cooperation beyond one home deal at a time. It seems to me that the environment is dictating that we all rethink the path forward and start cooperating in order to create the efficiencies of vertical integration.

Josh Margulies said...

Messrs. Willem and Korkrean are correct I think. Modular construction has its best applications in small, single family detached, scattered lot, custom home jobs. This is especially true in areas where labor costs are prohibitive. I am also seeing strong interest in the modular addition.

I am in one of the most competitive markets on the mid Atlantic. In over regulated Maryland, I am getting busy again. The buys knows modular. He knows what it truely is and does. We have been producing custom modulate for many years. They remain the principle users.

The small custom home builder accounts for how much of the aggregate product that comes out of PA?