Saturday, May 2, 2020

Custom Home Builders Could Face New Difficulties This Year

Before we get into the heart of this subject let’s clear up exactly what a “Custom Home” is. A custom home is built by a new home builder designed for a single distinct customer. 

These custom home builders can be of any type; totally on-site, off-site (modular), log and timber, panelized wall and floor, concrete, 3D printed, straw bales, shipping containers and just about anything else that can be used to create a ‘one-off’ custom home. 

Some custom builders only build a few new homes a year while others build 50 or more. What they all share is the ability to build just about whatever their new home buyer wants. They throw out the plan books and sit down with their customers and design a ‘one of a kind’ home. 

Regulations on both a federal and a state level have become extremely onerous over the past 10 years for those who want to build a custom home. Because of the a myriad of regulatory requirements and costs to comply, the length of time it takes to navigate through the maze of getting a custom home built can cause some home projects to be delayed up to 3-5 years before the house is ever started. 

Additionally, local municipalities, due to aging or inadequate infrastructure, are requiring more offsite mitigations, which add to the financial burden. Are some of these regulations and mitigations justified? 

Yes, but it is being taken to an extreme that has made the cost of building a on a lot excessive. 

Sometimes the result of setbacks for every kind of problem, real and imagined by state and local regulations, makes even a large lot undesirable for the customer’s new home. 

As recently as 20 years ago small custom home builders ruled the roost. They simply worked with local code and planning officials in an informal way with some building permits being issued within a couple of days. It didn’t really matter what type of system the builder was using, permits flowed quickly. 

With the Housing Recession of 2008 the once large pool of small local builders began to drain away quickly with only an estimated 20% of those builders that were in business prior to the crash still in business afterwards.

Now COVID-19 may have a similar affect on more site and off-site builders and the added safety and health regulations that will surely be imposed on builders could make it a less desirable for new builders to enter the market. 

Some states and local governments will soon be implementing an “affordable housing” fee on every new home built to be used to build affordable housing. Tract builders will be able to absorb some of these fees but what about the customer that wants their home built by a local custom home builder and finds out this new fee could add 5 figures to their home price? 

Custom home builders could soon be dealing with another type crisis, the cost of building materials may go up because of COVID-19. Builders may not be able to give a rock solid quote to the custom modular home buyer any longer. A new round of cost increases may once again hit the custom home buyer.

Custom home builders are also struggling to find competent labor to address the rising needs, which is slowing production and raising labor costs. Between the cost of lots, the building requirements, and cost of construction, a detached starter home in some regions is now in the $500,000 range. 

Bottom line, whether it is affordable housing, standard residential, or rental housing, the cost to bring these products to market is increasingly excessive because we are in the over-regulated and over-taxed. Custom home building is at the mercy of many factors, not the least of which is regulations meant to improve our lives but in actuality is putting many custom home builders in a bad situation. This latest crisis caused by a tiny virus that has hurt the modular housing industry in many parts of the US is about to cause home prices to climb once more.

One answer for custom off-site home builders to help combat these myriad of problems is to turn to modular construction. Many of the problems faced by custom home builders can be solved by allowing a modular home factory help design your customer’s home, build it and ship it to your customer’s lot. 

Once set on the foundation, even the most custom home should not take more than 60-90 days to turn over to the customer. 

Yes, the process to build a new home today is not for the weak or faint of heart. It takes more time, effort and money than ever before to remain a custom home builder.

Gary Fleisher is a housing veteran, editor/writer of Modular Home Builder blog and Modular Construction Industry Observer and Information Gatherer

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