Sunday, March 29, 2020

Modular Construction’s Post COVID-19 Reality

There are all sorts of races to be run. Horse, sprint, political and endurance. The COVID-19 is an endurance race that will see many builders, large and small, modular and site stumble and fall before it’s over.

As the coronavirus disease advances across the United States, all aspects of the modular new home builder’s supply chain will be impacted.

Over the decades OSHA has implemented many safety rules to protect construction workers both in the modular home factory and at the job site. Overregulation of modular construction already adds almost 25% to the cost of building a new modular home and post COVID-19 will surely see even more regulations being brought forth including the use of personal protective equipment, gloves, and increased hygiene.

Workplaces will be regulated to enforce social distancing in case another virus comes along. Sales offices may be added to the local health department’s places to inspect for cleanliness. New home buyers may want to see a Health Department certificate of approval before sitting down to speak with a new home builder.

Residential modular factories may fall under social distancing rules where certain stations on the production line will be limited to the number of workers allowed.

Supply chains will be interrupted, especially those from China, as American new home buyers will demand more building materials and fixtures be made in the USA. Tariffs will be raised on many imported products to encourage it.

A recent Associated General Contractors of America survey of over 900 industry people found 28% of respondents being asked by an owner or government agency to stop current work; 11% were asked by an owner or government agency to stop future work; and 22% received a notice from suppliers that deliveries will be late or cancelled.

Coronavirus shelter-in-place orders, travel restrictions and market uncertainty have led to plummeting real estate transactions in the U.S., with industry experts predicting a shutdown in activity by up to 90 percent. Hopefully this will change quickly as shelter-in-place orders are lifted but by that time many small modular new home builders will find they’ve stumbled hard during the endurance race.

Industry experts say it could take up to six months, maybe longer, before real estate transaction volumes return to normal levels. New home buyers could take even longer.

The time to sit back and hope this passes swiftly is over. Employees and customers have been impacted by many small builder’s non-action. That non-action isn’t really their fault as leadership from within the construction industry itself has been slow to respond and not because of anyone’s fault. It’s simply nobody has ever seen a crisis hit the US as fast and as hard as this one. There’s nothing older than yesterday’s predictions.

In just the past 30 days we’ve seen the President, Congress, State Governors and local government officials impose restrictions from closing schools, restaurants to modular home factories. The supply chain feeding small new home builders has been cut.

Many builders work on a draw to draw basis and stopping that flow of cash, even for a short period, probably has them worried if they will survive this crisis. Those who survived the 2008 housing crash didn’t have many houses to build anyway and winding down from that, though very costly, will pale in comparison to what will happen this time.

Instead of having nobody walking into their offices and buying homes like 2008, this crisis caught the modular home builder with contracts signed, homes in production and homes in the factory’s yard waiting to be shipped. State regulations halted almost all of that including the transporting of the modules to the job site.

Once the crisis begins to subside, set crews and crane companies will have builders competing for their services, not only with other small builders but also with the commercial modular factories and developers who will see unprecedented increases in volume.

Working remotely isn’t an option in the construction business. Yes, the modular factory builds the home off-site but the actual home is still built by hand on a production line requiring on-site workers.

The trucks delivering the modules, the set crew, the crane operators and the builder all have to be hands-on in the process. These workers have always expected safe working conditions but now many of them are worried about working with others in close proximity.

Social distancing isn’t just a catchy phrase that will pass as soon as the major part of the crisis ends. It has already been driven into our heads that one of the best ways to stay healthy is to keep your distance from others. Many modular factories employees that are currently able to work from home may find that management likes this arrangement. Using Zoom will increase for interoffice meetings, interactions between builders and factory people and builders and their customers.

Imagine if a question comes up on the production line for someone in the factory’s engineering department after this crisis. Instead of walking to the office and going over the problem which may require the person to leave their office and go to the production floor; the production worker simply Zooms the person while showing him the problem on their company’s tablet.

Another scenario involves the builder’s customers. What happens if your prospective new buyer doesn’t want to come to your office which could become a very legitimate problem? Have you thought about how you will handle that situation?

Have you looked into using Zoom and DocSign in place of face to face in your office?

And let’s not forget your website. Does it need to show your prospective new home buyer that you offer alternative ways to meet? Are you using a CRM program? This world is changing, not only for modular construction, but for every single type of business you can think of.

Let me hear how you are preparing your business for the post COVID-19 world.

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


Anonymous said...

Amen Coach. Another must read article.

Raymond said...

The Coronavirus has upended everything including my business. Gary, I’ve had 2 people cancel their appointments to pick cabinet, shingle and flooring colors this week.

Another couple that signed a contract 2 weeks ago called and said they don’t think they can afford to move forward with the project because they are both laid off and want their deposit back. Not sure what I’m going to do.

Thank goodness I don't have any sets scheduled for a couple of weeks. My PA factory told me they are unsure if they can even get trucks to me because of the house location.

I don’t have an office staff, only a receptionist/bookkeeper but I told her to work from home. My site work people are still finishing two houses but will be done with both this week. Do I lay them off and watch them go to work for one of my competitors or do I pay them to stay at home?

I’m almost old enough to retire. Maybe I’ll just do that and go back into doing home repairs like I did after 2008. Between the work from Lowe’s and my own repair work, I did ok.

Gary, I’ve been reading your blog for years and find it a great source of information. Keep it up and stay safe.