Saturday, December 19, 2015

Modular Home Builders Facing Five "Finite" Problems

If you've ever walked through an apple orchard at harvest time, you've seen so many apples that you wonder how could we ever run out of them.

Same thing with chicken eggs. There is almost an inexhaustible supply of them. But look a little deeper and you will begin to realize that apples can't be harvested every day of the year and chicken flu can quickly devastate the egg supply globally. Both of these are finite products but on a large scale.

What, you ask, does this have to do with modular housing? A lot, actually.

Five finite things are converging on our industry that will continue to hurt both the modular home factory and the independent modular home builder.

1. First, you only have to look at the new housing numbers each month to realize that a vast majority of all new housing is produced by medium to large tract home builders. I've heard the percentage as high as 85%. Personally I think that might be a little high but what if it isn't? That doesn't leave much of a share for all the small site builders and modular home builders. There is a finite number of houses that they can build every year.

2. We have the push for affordable, multifamily, multistory housing that is currently keeping the housing starts bolstered. Modular manufacturers, both residential and commercial, are diving into this market with both feet. This is good. It means that modular is becoming a very accepted way to complete these projects and the amount being produced by factories is growing. Unfortunately small modular home builders do not have a lot of paths into this market.

They are ill-prepared to deal with commercial codes and restrictions. They also don't have the financial strength to compete for these projects. The bonding alone would probably put some builders on the ropes. So this is a finite market that very few small modular home builders can even attempt to enter.

3. Where do most small builders, both site and modular, build homes? Scattered lots. Yes, there may still be some scattered lots within city limits but for the most part these lots are in rural areas. This presents another finite opportunity.

A lot of people would love to build on their own piece of land in the country, free to wander in their backyards with their kids and dogs, make snow forts in the winter and plant gardens. Today however, finding a lot to build on is harder than ever. Most developments are closed to outside, independent builders and if a buyer can find a true scattered lot, they may not be able to afford all the impact fees, code restrictions, utility charges and building fees and permits needed before they even put a house on the land. Buyers now face a finite choice of lots and that hurts modular home builders.

4. The fourth thing hurting our industry; Boomers and Millennials. There is a finite number of Boomers wanting to build new homes simply because a lot of them are looking to downsize into active retirement communities. Millennials on the other hand really do want to buy homes but their idea of a home is not the small house in a nice neighborhood with the white picket fence and all the maintenance that goes with it. No, they are looking at living in clusters of like minded Millennials in townhouses and condos. Both of these markets are finite markets for the small modular and site builder.

5. The number of people that want to become new home builders is shrinking rapidly and lots of Boomer aged builders are retiring or dying. I've also heard predictions that in just 10 years there could be less than half the number of builders than today and today is no picnic. Buyers will soon have a finite number of new home builders to choose from.

Nationally the number of new home starts by the modular home industry is between 1.5 and 2.0% with some areas like the Northeast and New England states hitting as high as 20%. But the market we serve is becoming FINITE.

It's time to look for ways to improve our industry's image and growth even in these 'finite' times.

If you are involved in the modular housing industry you need to look at change. Change in attitude, change in your personal involvement, change in becoming more open with others and finally changing your sales and marketing focus.

The recent Factory Round Table and the Upcoming Builder Round Table are two ways change will happen. Becoming active in the MHBA is another. Joining me at Modular Builder Breakfasts in 2016 where you can meet other builders and factory owners and management is yet another.

The only thing you can't do is just sit there and watch your company being squeezed out of business by finite problems.

1 comment:

Anonymous said...

Coach, your article is interesting, revealing and depressing all at the same time. It appears that the problems facing modular homes are the same problems facing the entire housing industry.