Saturday, July 14, 2018

What Happens When Modular Construction Becomes Too Popular?

Commercial construction is red hot today. Hotels, dormitories, condos and homeless shelters are in high demand by both onsite and offsite developers. But what happens when demand for modular far outstrips supply?

That’s a good question. Too bad the modular commercial construction industry doesn’t have a good answer. To better understand why the industry is lacking an answer can be found on Facebook and LinkedIn.

Every day there are wonderful photos of major commercial projects being set all over the world. Factories outside the US use social media to promote and market their projects to developers that have never tried modular construction. They use videos, interviews, drone coverage and even press releases to get more business.

Modular factories are sprouting like mushrooms in England, Europe, Asia and even Canada while in the US things are quite different.

Starting with marketing, the US modular industry, both commercial and residential, do a very poor job of marketing. No national campaigns by any factory. The reason I hear from owners and GMs is that modular is regional but marketing today is instantly national thanks to the Internet.

When pictures of a commercial modular set are actually put up on FB and LinkedIn they are usually done by a modular set company like ProSet which uses LinkedIn to market their skills but rarely if ever do they name the factory that built the modules. In all fairness, it’s not their job to advertise for the factory.

Even when newspapers and TV stations cover a big commercial modular project being set they never mention the name of the factory. Is that because the modules are considered pre-assembled components the developer simply orders or is it because the factory can’t handle the demand having their name mentioned would bring them?

That brings us to subject of capacity. There are two types of commercial modular factories in the US, full time commercial factories and single family residential modular factories both capable of building 100-300 module projects. Today there is a huge demand for single family modular homes, especially on the East Coast where custom is the norm. But the same factories that build these time consuming custom homes are also scheduling 150 unit commercial jobs into their factory.

Related Article: Modular Fallen Flags

The average US factory can only build 10-18 modules a week (there are a couple that can build more than that) now have to make tough decisions as to taking on a major commercial project which will tie up their single production line for 6-8 weeks and push back residential modules 2 months or turn down the commercial and hope their single family production will keep the factory running at full steam or do they simply build the commercial work only during the off-peak months of Winter? Oh, to be a fly on the wall of Board Meetings!

Capacity doesn’t seem to be as much of a problem in other parts of the world. Because the British government is actively promoting modular. Hull, England north of London on the North Sea has become a huge hub for modular production and continues growing.

Penticton in British Columbia, Canada, just East of Vancouver, is becoming a mecca for new modular home factories serving both commercial and residential markets on the West coasts of Canada and the US. Thailand’s LifeBox which runs 24 hours a day, 7 days a week and Polcom in Poland are continually cranking up production to meet demand.

Meanwhile in the US we have seen a couple of new modular factories open in the West but not much activity to build a new factory on the East Coast.

And finally let’s look at how codes and regulations impact modular production in the US. Many states in the US have very easy to meet codes for building houses. They follow older IRC models and local and state housing regulations that are well written and enforced fairly. Many other states like the ones on the East and West Coasts and a few of the Northern Central states make getting a modular home through the preproduction review process so hard that many modular home builders have a picture of the head of their state’s Housing Agency on the wall and use it for a dart board.

If a state has vetted a third party inspection service to review and provide the “stamp” for a modular plan prior to production, why then does it need to be completely reviewed again at the state level by understaffed and overworked plan reviewers who have been told that “no plan is good enough to pass our standards the first time” forcing both the factory and the third party inspection service to revise the plan to meet some obscure change simply because the state plan reviewer was having a bad day. This has been known to add months to some plan reviews.

Witnessing this first hand was enough to make me scream “What are you doing? Trying to kill an entire industry?”

Then the plan goes to the local code enforcement department where in a lot of cases the inspector doesn’t know the difference between a modular home and manufactured home and neither do the people in the towns and neighborhoods where the homeowner wants to build their new home.

Screaming matches at local planning and commission meeting followed by petitions and demonstrations in front of the proposed building lot force good people to change their mind to not build at all.

If anyone knows of a new modular factory being built or planned on either the East or West Coasts let me know as I certainly haven’t heard of any.

So what happens when the media promotes modular to the point of acceptance driving demand higher and higher and there are no plans to run more shifts and no factories are in the planning stages?

Me Neither!


Tom Hardiman said...

Gary, I can tell you this is a real issue. MBI recently had research finalized addressing market share (why some other countries seem to be adopting at a higher rate than US). One of the key findings (among four) was that capacity was an issue here.

More specifically, finding enough manufacturers in a given region with the experience and willingness to build for all these new potential customers. Its hard for a manufacturer to turn away fro its existing client base and give its full attention to a large hotel developer for example.

About a year ago I wrote an article called "What if demand wasn't the problem." Today we can definitely say that demand is NOT the real issue. Here's a link to that article:

Derek Huegel said...

I'm new to this blog and was told about it by Signature Homes on the East Coast as that company was gracious enough to show me their production facility. I have opening August 1st, a new modular home factory in Battle Ground, WA.

If you have a direct #, it would be great to chat about best practices etc...