Saturday, January 12, 2019

Fragmentation and Regulations Continue to Impede Modular Housing Growth

For more than 50 years there have been numerous studies of the modular housing industry and the conclusions reached by all of them is that our industry is very fragmented and over regulated.

Today we hear about all the wonderful things modular and off-site construction is doing to meet the demand for affordable and custom housing but the underlying problems from 50 years ago are still the same ones we are facing today.

Fragmentation within our industry was first noted in the 1975 study by Field and Rivkin. They simply mentioned it as a problem and it is still a major one.

There are five major fragmented modular housing regions in the US.

The West Coast has a few true custom modular home factories but the demand for their homes is relatively small compared to the modular factories that are producing cookie cutter affordable multistory apartments and housing for the disadvantaged. All the new technology you hear about at the big off-site conferences and seminars is almost exclusively directed to the West Coast type of modular construction.

When the media trumpets the virtues of modular construction it is mostly about the money flowing into the West Coast market to build ‘state of the art’ factories to feed the West Coast housing monster.

The Midwest and the Southeast are where most of the houses, both modular and manufactured (HUD), are produced and shipped. There are a few custom modular home factories located in these regions but the vast majority are producing either HUD and/or Hudular type modular homes.

The Southwest region is dominated by HUD manufacturers. Enough about them.

The MidAtlantic and New England states see the widest variety of modular housing. There are HUD factories in these states along with a couple of ‘plan book’ type modular factories and a good number of true custom modular home factories.

Fragmentation becomes obvious when you look at the top two associations serving the modular housing industry, the Modular Home Builders Association and the NAHB’s Building System Council.

Both would love to serve the entire country with their services but in reality neither has been able to reach very far beyond the East Coast states. The reason is quite simple. Not only are the individual regions of the country different in their approach to modular, they don’t have much common ground to discuss when they actually try.

It’s like trying to teach a pig to sing, nobody knows how to do and nobody really cares to do it. The different regions see no need to try to understand what the others are doing.

Every study done about modular housing since 1975 has cited fragmentation as a big reason for there being no nationwide modular home company with factories in almost every state.

HUD on the other hand has the “FOUR C’s”, Clayton, Champion, Cavco and Commodore and when HUD (manufactured homes) conventions and meetings take place anywhere in the US these four and dozens of other HUD factory brands show up as the problems they face are universal.

There really isn’t much that can be done to improve our industry’s situation. Remember that singing pig?

Over regulation of the modular industry has also been with us long before that 1975 study and it appears to be getting worse.

Looking at a site built home, even if it uses panelized walls, trusses and floor panels, finds that giving the plans for to the local or city code and plan regulators is all that is needed. These code and planning people have been trained to look at a set of site and/or off-site plans, mark them for defects and send them back to the builder or developer, wait for the corrections and then approve them.

Each local jurisdiction must follow their State’s latest code regulations and cannot reduce them on their own but they can add more regulations and make the state’s approved regulations tougher for their locality.

However when it comes to modular housing things take a turn for the worse. Apparently many state governments don’t think the local code and planning people are smart enough to figure out a set of modular home plans and have added layers of bureaucracy to the process.

First the states said that modular houses built in a factory need to have their plans approved before it can go to the production line and since the factory ships to many different states there has to be an independent third party inspection service that can review each individual plan no matter where it will be shipped. These third party inspection services were already doing plan review and approval stamping for HUD so they were the logical choice to review and give approval stamps to modular housing.

Or so it would seem. However the government thinking is that third party inspection services and local code enforcement aren’t quite up to the task of reviewing a six sided volumetric module and installed “Manufactured or Industrial Housing” departments to make sure those less competent third party and local people actually knew how to review a modular home plan.
Today we find many states not only requiring a third party to sign off on the plans prior to it going into production they also require a couple of “good old boy” state regulators to review the plans again and return every one of them to the factory to correct a missed code number or some minuscule item.

Is this being done to help build a better modular home? Probably not but if they don’t find problems with every single plan sent to them the state may wonder why they required an entire department to review them in the first place.

These state reviewers follow the old rule of “Nobody has ever built a perfect house” and will hold up your plans until you do what we say.

This is not Modcoach saying they do this; it’s every factory person I’ve ever met, most third party inspectors, every builder and it has also been mentioned in every study of modular housing since 1975.

Can you imagine what would happen if all of sudden factory engineers and third party inspectors could submit their plans to the trained staff at the local code and planning departments just like their site built siblings?

You would see a huge increase in the number of modular homes being sold by local builders, factories expanding their production and a much smoother pathway to building a customer’s new home.

These aren’t the only things all those studies found that have been impeding modular housing's growth.

Rising transportation costs, poor information flow within our industry, an adversarial problem between factories and builders, the competitive nature within our industry and market resistance are just a few more areas that are hindering our industry’s growth.

Can these impediments be overcome? They have been a constant for the past 50 years and I see no reason to believe there will be many solutions within the next 50 years.


Red Canfield said...

Coach, do you have copies of the studies done for our industry? It would be fascinating reads.

Bill Hart said...

I find you least East vs West aka California to be right on..again!..but sadly also universal in key ways..whats that old one liner.. people never change they just get older. Or this one.. Bill fill our just remodeled downtown Dayton tower with governmental branches offices and they'll never move out (The owner was ex CIA, by the way)..In CA I rented from a chap who made a hefty healthy living just standing in CA city plan check offices..At least two trips of course with the same prints to be checked and an expert career employee..when I was with, CDM a bid-build vernacular stick home builder, there it was the same one no where is likely in my life time to avoid the.. one more one more one mentality! What you you can do.. in the mid join the NAHB and ..faithfully attend.. the state.. and ..local.. meetings and meet regional and state stick builders..they aint all the enemy..befriend em
Charlie at Simplex some years ago rose to State President of the PBA, Pennsylvania's NAHB! If you work thru NAHB you've at least got a fighting chance..Try that guys BEFORE the economy takes a predicted dive in 2020!

Anonymous said...

Coach, Having been around when the states in the Northeast gradually changed over to allow modular to be factory inspected and not invasively field inspected I would like to offer the following for you and your readers. The states fear at the time was that the industry would build and inferior product and that their inspectors had more real knowledge than any inspector or third party doing sections in a modular plant. Talk to nay Third party agency and ask them what they had to go thru to get certified, accepted or licensed by a state and you will see that the process is not easy. Read thru any Q.A.M. and you will see that the documentation is not just few copies placed In a book someplace and ignored. But the process was established to give credibility to the Third Parties and the process being used for inspections. This was the best most states could come up with to prove to their locals that the state as protecting their constituents. Initially it was a rocky start with locals demanding the right to know more than what the states were saying needed to be provided. Most states helped the industry fight back against the locals with phone calls, letters and copies of the way the legislation was passed. It did help,but it still was not easy.
IN my opinion the system took a turn for the worse when the codes consolidated and the code became more and more restrictive and prescriptive. Building officials or the agencies they hired required more and more information to satisfy this higher degree of structural design and compliance. What was simple header built into a wall became a structural element that required at least a page of calculations that had to be sealed by a licensed professional, while all along our stick built cousins go submit and plan with structural elements extracted from the Wood Frame Construction Manual.

Now to your point of fragmentation. Consider that there is such a thing as an "On Frame Modular" available in the southeast and not a product widely recognized in the Northeast and that is the start of the industry going off the rails. Next consider that in some regions the Modular industry is still confused with the "HUD" industry and it gets even worse. How many articles do you have to read about a manufactured home (HUD) being thrown out of a sub division, but was labeled as a modular home, before you begin to see why the industry does not get traction.
Another point to consider is that as an industry it is hard for us to work together and agree on a cohesive marketing plan that will benefit the entire industry and just those special few.
What do we do to foster or nurture the future of our industry? Do we actively train or offer training to potential builders of our product? What will the future hold for us is we are not bringing up the next generation of builders to promote our building system and grow the industry?
Look this industry is not anywhere near whet it was many years ago. Our ability to build more complex products to expand our market place has improved immensely. We handle the complexities of the building code requirement that are thrown at us to survive and we make it a standard operation procedure in our factories. I jokingly think to myself that if the coal mining industry thinks that over regulation makes doing business almost impossible they should spend a day in our shoes in our factories.
Inclosing I am more concerned about the overall future of the single family detached home building industry as we know it.Does anyone have clue as to what the millennials want for housing? And how will those needs fit into our business plan?

Coach said...

To Anonymous 7:53 AM,
What a great way to add meat to the subject of the article. I've read it twice already and am going to publish it as it's own article.

Every point you made is on target and things will get better if the industry begins a real effort to improve both our marketing and our training.

Thank you whoever you are for a great response. Keep sending in your comments as it sounds like you've been in the industry long enough to know how we got here and what questions we need to ask next.