Monday, July 1, 2019

Research and Development Missing From Modular Housing Industry

The modular housing industry has always been lacking in conducting any type of research into new procedures and products and even slower in implementing any type of change.

It doesn’t matter where the factory is located in the US they all share these traits. They are followers, not leaders.

Expansion within the residential modular industry is at an all time low point. Even when a new single family modular home factory is built it is modeled after what the old guard consultants, who grew up in the modular industry, tell the investors it should be.

There is no disruption in our industry like we are seeing on the prefab or the commercial modular sides of our industry.

Walk through any single family modular home factory in the country looking for signs of AR (augmented reality), BIM (Building Information Modeling), Robotics and Data Analytics and you will not see many of these applications being used.

Research is also absent from our niche in the construction industry. Instead we “react” to new processes and usually with little or no knowledge of costs and proper procedures needed to implement a change. There is no single person, let alone a department, devoted to doing research into new products and procedures.

Overall, most industries in the US invest between 3 and 8 percent into research and development while the total construction industry is only about 1 percent. It’s hard to believe that any modular home factory in the US is investing even 1 percent.

Here’s an interesting thought. Years ago I was a successful Realtor happily listing and selling homes knowing there was no way a homeowner could do it better than me.

Today there is Zillow using real estate listings to showcase all types of homes, bypassing the real estate agent in a lot of cases and my new favorite, Opendoor!

If you are ready to sell your home, instead of calling a Realtor who will list your home, market it, hold Open Houses, wait for an offer, wait for the buyer’s financing to be approved, force you to make all the repairs the home inspector says is needed and then get a check for probably less than the sales price and with the Realtor’s commission taken out, you can simply contact Opendoor.

Click Here to visit Opendoor and you will see exactly what a disruptor is. This is what can be accomplished with research and development, something the rest of the real estate industry could have done but didn’t.

Zillow and Opendoor are exploding on the real estate side while Katerra is exploding on the prefab side of the housing and commercial industry.

Katerra has gone from zero to 100 MPH in only a few short years simply by studying what was needed (research) and implemented a plan to take over the prefab world (development).

Construction companies traditionally invest less than 1% of revenue in new technologies—lower than every other major industry and as a result, the last several decades have seen U.S. construction productivity fall while costs continue to go up.

Katerra is changing the supply side by optimizing every aspect of building design, materials supply, and construction.

Which brings us back to the single family modular housing industry.

Let’s assume a modular home factory has annual sales of $30,000,000. Most industries in the US spend 3-8% on research and development which could mean the average modular home factory might spend $900,000 to $2,400,000 on R&D but will never ever be the case.

Now let’s look at that average factory investing 1%. That would be $300,000 in R&D. Does anyone honestly think any modular home factory in the US is investing even that amount of money in R&D?

Here is the typical R&D department at a single family modular factory. Someone in management reads an article online or attends a conference and tells the owner, GM and other management staff what they learned. A discussion follows that might last an hour where all agree they can’t afford it right now and besides none of our competitors are doing it, so why should we.

Even if all the single family modular home factories banded together to form a central R&D group that could recommend future directions for our industry, would any factory turn over even ½% of their revenue to this concerted effort?

We all know the answer to that question.

It’s not as if the factories don’t want to plan for the future, it’s simply that they have been competitors for so long each working on their own set of problems that actually starting the process of cooperation is almost foreign to them. Plus the profit margins are certainly not enough for any single factory to go it alone.

It will be interesting to see what President Trump and HUD’s Ben Carson have in mind to solve the affordable housing crisis in the US and hopefully the single family IRC home factory will be part of it.

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


Tom Hardiman said...

Disagree with a LOT of this article. There is a great deal of research currently being conducted. I know of numerous universities that are dedicating resources towards modular and offsite construction including Virginia Tech, Washington State University, Northeastern,University of Alberta just to name the ones we are working with.

MBI is hosting a student design competition with American Institute of Architects Student (AIAS) Chapters and had over 30 entries for modular projects. Clemson teaches a course for college credits on modular construction.

In fact, I'd say there has never been a better time to be in the industry nor has the future ever looked brighter!

At the upcoming annual meeting of the Modular Home Builders Association (MHBA)we plan to highlight some of this research including a speaker from Northeastern Univ.

Now, whether the current manufacturers will take advantage of some of this research may be another story and the point you are making. But the R&D is in fact happening often with the support and assistance of the industry trade associations.

Coach said...

Tom, I didn't mean to imply that no research is being done in the modular industry, just not much research OR implementation in the single family modular industry is happening as you noted. New Innovators and Disruptors will begin showing up soon. It just may not be anybody from within the current single family modular industry. Hope I'm wrong as we have some really great talent.

Bill Hart said...

The NAHB has a formidable full time staff research arm that has effectually for years and years, researched with little fanfare developed local scientifically based solutions for mutual industry problem energy cost effective methologies, engineering framing solutions, etc etc..and real solutions for our building industry (several people some of whom you may know from past annual IBS shows have given of their time to this.full time, established and effective research arm including the likes a tacit personal acquaintance, like Garry Grossman of Forest Homes from right here in Selinsgrove, the true heartland custom mod country; he, I believe also served as board member of the research division of the NAHB that again..represents the entire housing industry, and yes including Eastern custom mods, folks! NAHB research arm...again long standing, and in house and not limited to some one time university grant environ..So..if wed effectually, generously consider at least offering some real bucks and more important..the time allocation to get involved ..time-wise and really back the building systems council of the NAHB, who knows what can be accomplished (Buffett, Clayton-wise as an example of effective clout) in turn again I say..BSC and the NAHB lobbies for.. all of us ..and just.. maybe wed ..get a toehold at least again..before..the market tune south again and get some real nation-wide and Washington clout, and get the might of the entire housing industry including our predominately Eastern Mod mix..frankly over the years the M-HBA type operations seems.. in my life time to come and go and maybe, why we all know why..because represent.. just 3% of the total volume US housing and the equlvilant of a very small voice.. and as grandpa used to say "small potatoes". We have some catchin up to do with Warren and company eh!

PS Folks here is one more one thought for comparison sake....the housing segment of the so called SFRs (ie Single family detached houses built for rental only segment ..alone..has ..already now.. in just a a couple short years..already.. grown to more than 3%+ of the national market.)

Back the BSC of the NAHB! Get the clout of the other 97% in the custom mod corner, for a change!

Builder Bob said...

Tom and Bill, your right about all the research the NAHB and by extension the BSC and the MBI does for the building industry but if you look at the number of established modular factories in those same organizations you will find an almost total absence.

I think the point Coach was making about the lack of R&D in single family modular housing is the dollars spent by the factories themselves. There is a ton of research done by the NAHB and MBI for every single type of construction except the single family custom modular home industry especially those found in the East. I'm sure they use the results of that research that is common to all types of home building companies but that is not what Coach was talking about.

How does the research by either organization into automation, advanced building science, BIM, AR and mass produced modular construction help those factories that are essentially building a custom designed home where almost that wonderful research falls so drastically short.

Coach said "Research is also absent from our niche in the construction industry. Instead we “react” to new processes and usually with little or no knowledge of costs and proper procedures needed to implement a change."

I wonder how many of those researchers and experts have actually walked thruogh a real custom modualr home factory? I would bet they've walked through many Clayton and Champion factories as well as those big commercial cookie cutter mod factories pounding out thousands of LGS units for mass housing using the latest in automation, BIM and all that other stuff but have never stepped foot in a custom modular factory to do meaningful research that might actually be useful to such a tiny part of a small niche of the total construction industry.

Bill and Tom, you need to take a hard look within those organizations and see just what R&D is being done specifically for those SFR custom modular factories. I can't believe either the NAHB or the MBI has done much to help this specific tiny niche that sees no reason to join either of them.

Tom Hardiman said...

Builder Bob, you are right in the sense that MBI does not focus on single family modular segment. That's actually by design - they focus on commercial and multi family modular. But several of the universities I mentioned do focus their research efforts on single family.

On the residential side, MHBA is the only organization dedicated to the modular home industry (unless you count log cabins as modular). But I agree with you that there does need to be more focus aimed at existing East Coast modular manufacturers.

For our part, MHBA has had a duel focus since my team took over the management in 2012: Government affairs and public awareness. We've made some good strides on both fronts and have seen membership grow from a handful of manufacturers to over 130 companies including manufacturers, builders, and suppliers.

For our upcoming annual conference in October, we will have a track dedicated towards research and innovation and improving efficiency in existing factories. Practical, real world conversations about how we can improve.

We know we have more work to do to convince others to join and support the industry's trade association. But I'm not planning on going anywhere for a while so we'll keep working at it!

Pat Donahue said...

Dear Gary – thanks for your article. I appreciate your call to action. In his book titled “The Dream of the Factory Made House: Walter Gropius and Konrad Wachsmann”, Gilbert captured a quote by Gropius; "If your contribution has been vital, there will always be somebody to pick up where you left off, and that will be your claim to immortality. ' ' R & D is fragmented in the sector, that’s all. I have been working in R & D in the sector for 20 years. I got ahead of the curve in 2005 and then the bubble. Yikes! I had friends who survived and friends who did not. Almost all corporate R & D contracted. Here’s to doing something vital! I am certain many will. Pat Donahue

Harris - Finish Werks said...

The chasm separating most PA mod factories and the hi-tech R&D occurring at Universities and Clayton (for example) couldn't be wider. One way to close the gap is to get more conversations going.

The simplest starting solution is for PA SFH factories to get their asses to MHBA and BSC meetings.

My factory is woefully disinterested in talking to anyone outside their walls, it seems. This insular behavior can only last so long before irrelevance sets in and investors gobble them up, dead or alive.