Saturday, July 27, 2019

Is Custom Modular Housing Being Priced Out of the Market?

When this topic was recently brought up by some custom modular home builders on the East Coast and New England the answer was ‘yes’.

I first thought they were talking about all the restrictions put on modular housing that isn’t on site built homes. Things like added freight, fees, crane service and set crews as well as expensive state code office reviews.

But that is not what they meant. The main issue is the price they have to pay the modular factory for simply being a “custom” modular home builder. When their options are added to the base price of the home it makes the home more expensive than site built, sometimes by as much as 20%. Even the savings of time and using less subcontractors on the jobsite is not enough to offset the higher costs.

Two of these custom builders have already switched over half of their production to site building and expect that to increase next year.

They believe both affordable modular housing and commercial modular such as hotels, dormitories and apartment buildings are the reason modular factories are charging premium prices for a custom modular home.

Those type projects require less work for the modular home factory than a custom home which might have 30-40 unique options. Plus they know their profit will be lower on those projects but they make it up by building the same unit after unit until they’ve completed 40-100 of the same one.

It was brought up that if a factory were to specialize in just building custom homes and not take on commercial work, would that factory be able to once again make it advantageous to go modular? This sounds like a great question.

No matter how open a builder is with their sales rep and their factory, that doesn’t seem to be the case with the factory who has always had a wall of secrecy surrounding them. These builders want transparency.

Gary Fleisher (the Modcoach) is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant.


Anonymous said...

Coach - your third paragraph answers the question and the dilemma faced by factories building custom homes with multiple option requests. There are fixed and variable costs incurred by any plant for their daily operation. These costs are increased per unit if multiple custom options are added to the mix to account for the item costs; the labor involved in installing or completing the item; and the costs for increased production time to off line the unit. Custom builder faces these same calculations for their own operations yet seem to feel that the factory should absorb these costs.

Anonymous said...

To add to the first comment, offering everything under the sun guarantees that the price will be high. Building things in a factory has always been about repetitive production. Doing the same thing over and over again, and getting better and faster at it has always been the goal in manufacturing. Based on the original business model of Henry Ford, here's the car. Do you want it black or black? If every option is available, there is no buying power. You are not able to buy the item in quantities. The lead time is longer. There is no opportunity for negotiation for the price of the custom item. It guarantees that the price will be high. Manufacturers would love to be able to offer a great product with minimal options. But that isn't what buyers want.

JC said...

Hey Team,
I have worked in at least one custom factory that was a regular on This Old House and other high end design/build programs. The company was called Connor Homes but now it's called Connor Mill-Built Homes. They only build early American designs - very traditional - but they are all custom (even though necessarily similar....after all, it's vernacular). Connor has always been a panel shop and the culture will be different than that in a modular facility.
But to the Coach's question - Yes, I think a factory can make a complelling argument for factory delivered custom homes. But they need to be set up for it which means they need to reconsider their relationship to the high volume commercial stuff. Proably can't do both.

Bill Hart said...

Most semi custom "stick" builder of reasonable size at least in the mod valleys of the susquehanna have been... and are... far more competitive when multiple options are required by the proposed homebuyer.... because they do have a ...prepriced ...established extensive but reasonable inclusive yet limited.., list of options... All ...pre committed from their suppliers, thats again, prepriced usually yearly from their subs therefore they.. are.. bottomline turnkey measurably less expensive, what do we learn from this? Coach suggested as much years ago. Just simply learn to say no, now and then!