Thursday, September 12, 2013

The Demise of the Small Modular Home Builder

There is change coming in the modular housing industry. It started during the last housing crisis. Fewer independent home builders are available for the modular factory to recruit to keep the factory working.  In fact, the percentage of builders building less than 5 homes a year has never been lower in the history of our industry.

Once upon a time, small home builders were the heart and soul of modular housing. Factories could send their sales staff out every year and find dozens of new builders that would be willing to try modular housing construction. Today the entire modular industry combined would be hard pressed to find a dozen new builders.

What’s causing this change? There are many factors that keep new people from stepping up and becoming new modular home builders. Among them are:
  • The longer lead times between the first contact with a buyer and signing of a contract. Just 20 years ago that time frame could have been a little as one month. Lately I’ve been hearing stories from builders of buyers taking a year just to get mortgage approval.
  • Today’s builder faces delays from government agencies over increasingly restrictive building codes, complicated fee processes, energy requirements and oppressive levels of taxation.
  • Add in things like health insurance, business insurance and all the other insurances that a builder needs and the profit keeps going down.

There are other factors that are hampering new builders from switching from site building to modular building. One of the biggest is the industry itself. Very few, if any, actively recruit and offer training in modular construction to any builder. The factory sales reps are no longer trained on how to approach small site builders or given the proper tools to identify them. That is why most “new to modular” builders only build one or two homes and then go back to site building. Nobody from the factory has the time or monetary investment to help them succeed.

Certainly not the least but one of the biggest is that the factories are increasingly starting to sell direct to the consumer bypassing the builder as the sales agent and using them only as an assigned GC. Many factories are now their own GC’s.

The independent prefab companies like Method Homes and Blu Homes have based their entire business models on selling direct to the consumer and sell to builders only when the builder pushes them. Established modular factories, primarily on the East Coast, have the opposite business model.

Will our industry ever see the glory days of having an overabundance of small home builders feeding the factories? No. Is there time to slow down this change? Yes. It will take planning by the factories united in a common goal but it can be done.

As Pogo said “We have met the enemy and he is us”


S. Stump said...

Coach; All good points. In our experience in trying to find/convince site builders to try modulars we've found two issue constantly come up. Either they expect it all to be so simple they don't have to do anything but mark it up, or when they find out there still is plenty of work for them to do, they decide that if they have to do all the customer interactions, materials selections, permitting, paperwork, site development, utilities, landscaping, that they might as well as do it all (we offer set/trim/finish but many plants don't and that just adds to the above issue). They don't value the risk that is taken away from them in the construction of the home, fixed cost, the shorter time line, less labor or subs they are required to have/run or the better quality that some plants offer over site built.

Some of this is overpromising by a lot of plants and the poor quality that comes from some and the lack of support to the builder. They get a bad taste in their mouth and say it's not worth it.

Harris said...

As long as spot lot or even small developments are built on dirt, the job will be custom and should require a local builder.

As long as the dirt requires site planning by a local surveyor or civil engineer, the job should require a local builder.

As long as local building inspectors are involved, the job will require a local builder.

When Toyota created its Scion division to capture younger markets (Camry's just aren't hip) its website made it easier to shop, customize, and even order online. BUT, this streamlined, "people-free" process still requires the efforts of your local Scion or Toyota dealer.

POINT: unless and until single-container homes erected on pier columns becomes the norm, the involvement of a local building professional will be required.

That said, the modular manufacturers would do well to 1) improve their marketing (drastically in some cases) because small builders do not have the buying power for larger media blasts, 2) sell only to experienced, vetted builders, and 3) offer more product options (fire sprinkler, HVAC) in order to remove the burden from the local builder. This burden includes the risk that Stump referred to.

It continues to boil down to manufacturers membership in a powerful Association. There is strength in numbers - when will the factories get their acts together?

Anonymous said...

I'm a seasoned Sales Rep from the modular home industry. I have experience from both sides of the fence. As a Builder using a modular home system to a Sales Rep for years selling that same system as well as others. I was fortunate to represent two good modular homes. Sales Reps were part of the system and a value added feature. We had a lot of knowledge with the system and site issues we could help builders with. Our function was not only to sign them up but also be there to coach them along the way until they were comfortable. Beyond that we were there to listen to our Builder network and make sure common concerns were addressed by the factory. That piece of the puzzle is very important to get everybody working in the same direction, with the same goal. That goal should be to make the home building process more simple and more enjoyable for the customer. My latest experience has been marketing to Builders along the Gulf coast where , wind codes and building on raised pier foundations both work in the favor of using a modular home system. Modulars are the strongest built wood structures for housing going. No one disputes that. The fact that you can set a modular and have it out of the weather in one day on a pier foundation 12' off the ground saves Builders a tremendous amount of time and cost. Builders can not site build a house off of ladders and scaffolding around a raised pier foundation and compete cost wise. I agree with the article however that factories can not survive with small Builders. Personally I believe part of the solution is smaller plants serving a smaller regional area. So that the "local" Builder is truly local and the transportation cost is reduced. By the way Mississippi is in dire need of a good modular home company! Ralph Stinebaugh