Monday, May 22, 2017

Modular’s Future Not All That Promising

Every single day in media articles the exciting promise of modular being the future of commercial and housing construction comes blasting at us. Europe is working to build entire towns and rebuild others using modular and prefab methods.

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The Pacific and Asian markets are going crazy with some factories working 24/7, 365 days a year just to meet the demand.


Then we have the United States where modular should be the next best thing in construction. Every publication and online media outlet sings the praises of all things modular but is the modular industry ready to for the spotlight?

Let’s look closer at some of that positive modular news and the reality it brings with it.

Marriott Hotels and other brand names announce they are embracing modular hotels and pushing for their franchises to use it. Predictions of 300 new modular hotels to be built over the next 2 years makes great headlines but in reality there is not enough capacity in existence to build them.

Last week I sat in Modular Summit and listened to State Code officials and third party inspectors telling both the builders and the factories that every plan sent for review is being put under the microscope more than ever before. Many states are requiring that systems plans now have to be project specific for modular construction while our site built siblings can still submit generic systems plans and get approvals faster than modular. Every time an article is published touting our advantages, it seems the noose of regulations gets tighter.

Skilled labor should be an easy hire for modular factories. The production lines are inside, away for the changing seasons, the employment is steady and there is plenty of work. The reality is that modular factories are also feeling the pinch of labor shortages. I’ve talked with several factory owners recently and learned that turnover rates on the production line can run as high as 160% a year.

Drug tests, DIY convictions, competing jobs that don’t require any skills for almost as much pay and workers simply not showing up are major reasons for the high turnover rate.

In addition to a labor shortage, there is a dwindling builder base. 2008’s housing recession forced many builders to retire and/or shutter their businesses. There has been no resurgence of new builders coming into our industry since then. More and more factories are talking of being forced to open their business to retail sales in order to compensate for the loss of new builders. They don’t really want to do it but it may be the only alternative.

As mentioned at the Summit last week, transportation in the Northeast and New England are also hampering the growth of modular housing. Can you imagine how many more modular homes could be sold in New England if CT would just make it easier and less expensive to ship modules through their state?

We also face the age old stigma of people equating modular construction with manufactured housing (mobile homes) which until recently was left up to the builders to overcome. Now the MHBA’s Consumer Awareness Program (CAP) is starting to reverse that stigma and soon all new home buyers will be aware of our benefits.

Although some states have yet to endorse tougher energy codes and sprinkler regulations, the states that have are seeing a drop not only in modular but also in site building. Maryland has seen a 90% drop in modular home construction since energy and sprinkler updates were enacted. It takes too much time and money to meet all the things that are expected of modular that aren’t required from site builders.

In order to be what all the pundits are saying about modular being the future of home and commercial building in the US, we need to expand our capacity which means new factories, a good supply of skilled labor and regulations that don’t single out modular construction. We also need better transportation legislation in several states served by the East Coast modular factories.


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IF the US is to be the model for the future of modular we need huge investments in people, factories, training and marketing. IF we don’t do it and do it quickly, there are players just waiting in the wings to invade our market.

Toyota, one of the largest modular home builders in the Asian market has been eyeing the US for years. Their factories are super efficient and new. Swedish modular factories are also eyeing the US market. IKEA has been rumored for years to be heading our way. Poland is already delivering huge commercial modular projects to our shores and China is drooling to open new factories here and bring with them all the financing.

We are the land of opportunity and that’s very evident when it comes to modular construction but who will reap the rewards of that opportunity, US manufacturers or foreign factories?

Yes, the future looks bright for modular not only in the US but also in the world, however we have to find a way to bring modular’s advantages to the attention of investors and entrepreneurs and do it quickly.

6 comments:

Anonymous said...

AMEN Gary!

Anonymous said...

Coach, it seems you are looking at the wrong end of the future of modular. Of course we have some obstacles to overcome and in time we will.
That said, I do agree with some of your observations. Labor, lack of new builders and the possibility of factories becoming retailers are current situations that need our attention.
I am not worried about foreign countries entering the US.
Keep up the good work but try not to be so negative.

Anonymous said...

Gary,
Your point about the time needed for plan approvals is right on. But knowing a lot of people in the code offices, it is often due to the fact that the third parties do a crappy job and aren't trusted. It almost appears that they stamp everything and expect the state to find the problems.
The third party process isn't very strong.

Coach said...

Having listened to both the code officials and the third party people at last week's Summit I don't agree that the third party is do a 'crappy job and aren't trusted.' I saw just the opposite.

There was a lot of agreement between the two sides about the problems facing modular plan review. Changing codes and regulations can cause a lot of problems all the way from the builder to the factory engineering people and through to the local code enforcers.

As a former new home builder, albeit 20 years ago, I am concerned that a modular home has to meet very stringent reviews from third party and state code reviewers while local site builders only have to get their plans reviewed at the local level by code officials and in less time. Many planning officials still use the 'good old boy' system to sign off on plans.

I am also fascinated by the speed a tract builder gets their homes approved.

My question is why don't site builders have to submit the same amount of paperwork and house specific detailed systems drawings to the same state code officials as modular builders and factories?

Joshua Margulies said...

Gary

Building stick has a very special reason to exist. Jobs can be inspected in the field. The more stick built homes the more inspectors and inspections. The more inspections and inspectors the more administrative people to support them. In Maryland we employ 10s of thousands of people in the Public sector. Why would any responsible bureaucrats do such and thing!? Why would local politicians do such a thing.

Home building is a traditional source of extortion money to the local governments Gaurd that part they siphon jealously.

Harris Woodward said...

The glide path for market growth is really quite simple: Money

When - not IF - but when the publicly traded Marriott's of America commit and decide to dive in, politicians will fold like a house of cards. Regulatory relief for systems building will follow, and code officials the land over will relent.

It may seem far fetched... simply observe that SOB in the Connecticut DOT blocking our progress for no rational reason. But I'd also wager he's invested in the multi-million dollar boat manufacturers on the coast - either personally or politically. His bread is getting buttered elsewhere.

NOW, just imagine Marriott and Hilton swooping into town with bottomless lobby money and legal swagger. If they want modular, shit will get serious in a New York minute.