Tuesday, September 17, 2019

What Keeps Modular Home Builders Up?

There seems to be three types of modular factories serving the typical modular home builder. One is the factory that is dedicated to building single family homes and small multifamily projects. The second is the commercial modular factory that specializes in hotels, dormitories and other projects requiring 100 or more modules.

The third is the hybrid. It produces single family homes and huge projects. Today this type is becoming the rule rather than the exception. They started their journey to becoming hybrids after the last housing recession.

During that time we lost a lot of modular factories, especially on the East Coast. When things finally began rebounding, the surviving factories had found they needed both the single family home builder and the developer.

Also during the time since the housing recession, the number of small home builders, both modular and site builders, saw their ranks diminish drastically.

Today those builders that use modular construction are seeing fewer modular factories to choose from as well as a trades shortage for all things that need finished after the modules are delivered to the customer’s jobsite.

But what really keeps modular home builders up at night can be quite lengthy. Here are some of the major problem areas shared by all builders.

Longer build times:
The market for new single family housing is good right now, but we are long into this current cycle and statistically due for a change.

Usually, a modular home can be built from the ground up in less than 6 months but it can easily take longer. There are a lot of potential surprises in a new construction project. And new construction requires much more contact with the government bureaucracy, which is cumbersome, confusing and often aggravating.

Longer build times means more money out of your pocket. It also means longer periods between draws and how often does the final draw go smoothly?

If you are making 5% or less net after taxes on your jobs, you are flirting with bankruptcy.

Construction costs are going up and quality is going down:
Demand for modular homes is growing. Rising material costs and a shallow labor pool at the factories is now showing up as quality problems. Still not nearly as many as our site built siblings have but more than we’ve seen in a while.

Most modular home builders are not speculators or developers. This is a good thing as rising material prices and carrying costs are passed onto the customer.

But what about those quality problems? Builders have been caught in the middle of who is responsible for quality issues at the house. Is it the factory’s responsibility, the subcontractor’s that was hired by the builder and in some cases, was the damage caused by the customer.

Builders know that in the majority of cases, they are the ones that usually pay for repairs and damage. If problems are not found until after the modules are delivered and set, it could lead to months of trying to figure out who did what and when and if the builder will be compensated or have to pay out of his pocket.

Another sleepless night.

Government bureaucracy:
Dealing with the building departments is never fun. Rarely has a builder had positive experience with one, but it is even worse when the market gets hot.

One major advantage of site building is their homes don’t have to go to a state agency prior to beginning the project to get a papal stamp of approval. In most states, modular factories can’t put a home on the production line without that stamp.

Many local building departments don’t see that many modular homes being built in their jurisdiction and don’t know what to make of the humongous pile of stamped documents hitting their desk when a building permit application comes in for a modular home. In some states, mostly in the Mid-Atlantic region, the modular home builder’s stack of paperwork is twice as much as the site builder and so complicated that many local code and building people just don’t know they are looking at or what they are allowed to inspect once the modular house is set.

I’m not the smartest guy when it comes to building codes, but I’m fairly educated and have good reading comprehension skills, and I couldn’t tell you what many of those ordinances mean. I don’t the county employee that has to enforce them could either.

Gary Fleisher is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant. modcoach@gmail.com


Anthony said...

Gary, it is just short of a miracle each time a permit is issued, home delivered and finished without some type of major hiccup caused by customer, bank/financing, factory construction, set crew, site work, permit, inspections, etc. We take pride finishing our homes from day set on property to CO with average time frame of 90 Days. But with all the hands in the pot and the uneducated and/or push to finish with no much pride in work, makes it very stressful and frustrating delivering to the homeowner, who are much more difficult to please, a finished product. Here at Zarrilli Homes, LLC we do it with every home but it is getting much more difficult to accomplish. Thanks for sharing and look forward to hearing from others in our industry.

Coach said...

Thanks for your comments. You can't be the only one facing increasing frustration. Hope others join in.