Friday, May 29, 2020

Is There a Bright Future for Single Family Modular Home Industry?

Over the past year there’s been a lot of interest and action in the modular housing industry to move into the affordable housing, dormitories, hospitality and medical construction industries.

New modular factories are opening to feed these markets. Several coalitions of modular factories have been formed with the most notable being the Modular Mobilization Coalition (MMC) which has about 30 modular factories across the US.

What is not being discussed nearly enough is the need for single family custom and semi-custom modular homes (SFR). While the ‘commercial’ modular factories can pump out cookie cutter modules all day long to directly feed developers and investors, both private and government, the SFR modular factories have to rely on either a big builder network or direct to the consumer sales. 

Neither the West Coast nor the Southwest have much of a SFR modular presence, minuscule actually, as both of these areas are Manufactured Housing strongholds, especially the Southwest. Standard modular is priced too high in comparison. Tract builders and Manufactured Housing dominates the West. It will be years before any major inroads will be made in either area. Fact of life folks.

Related Article: Who are Modular Construction’s new Disruptors?

It is however becoming a stronghold for new commercial modular factories like factory OS, Autovol and others. Many more of these project driven factories are planned for the West.

Currently SFR modular homes enjoy, at best, a 3% share of the total number of home starts in the US. Pitiful compared to other countries, some of whom have SFR market shares of 50% and more.

Assuming there will be 1,000,000 new single family home starts in the US this year and modular’s share is between 2.5% and 3%, that means that only 25-30,000 will be SFR modular. Since no one actually knows the true number of modular factories in the US, my best guess was 60 true SFR modular plants. If I’m even close to being correct on that number, each factory would have to produce a whopping 500 homes or approximately 1,250 modules a year. WOW!, that’s really not a realistic number for any SFR modular factory. 

100 to 200 SFR homes per modular factory is more realistic which means that a lot of those SFR homes are being built by manufactured home factories as well as some of the commercial modular factories.

Related Article: The Case for Builder Consolidation

Based on my calculations, In order to raise modular’s share to just 5% would require at least an additional 100 factories to be built. If the cost of building a factory, acquiring the equipment, trailers and beginning materials as well as hiring the initial staff and paying them for the 3 months after the factory is completed until the first house rolls off the assembly line is about $10,000,000, that would require an initial investment of $1.0 Billion Dollars!

IMHO, that is an insurmountable amount. 

All it will take to reach a 5% market share is an enormous amount of money and a lot of new factories and new employees. Both of which are currently in short supply. Plus new modular home builders; something else in short supply. 

And let’s not forget that increasing from 2.5% to 5% market share will require a tremendous increase in the number of qualified set crews.

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


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