Tuesday, June 9, 2020

A Letter to the Modular Industry from Gary Fleisher, The “Modcoach”

For more than a decade I’ve written about what I’ve observed in the single family modular home industry. For the past 10 years I’ve held Builder Breakfasts where groups of modular home builders could come together to share common problems.

Those breakfasts encouraged me to start All Day Modular Boot Camps from New England to the Mid Atlantic area and on to the MidWest. I encouraged hundreds of people in the modular housing industry to speak and attend them.

There have also been several Industry Round Tables, some just for modular factory management and owners and others just for modular home builders.

I’ve also watched as the housing crash of 2008 closed many modular home factories, brought some to bankruptcy and others to merge. It also forced many modular home builders to shut down their businesses or retire. 

The modular single family housing (SFH) industry has endured through all of it including the recent COVID-19 shutdown of American industry. The tenacity of the modular home builder to stay the course has been inspirational.

I promote myself as an “Industry Observer and Information Gatherer” and it’s in that light I would like to comment on a few areas of concern to the single family modular housing industry.

Let’s start with the independent modular home builders in the US. After 2008 many of the veterans in the industry found themselves with no customers wanting or able to build a new home. Some of them went into the remodeling business doing jobs like room additions, bathroom remodeling, window replacement and other projects homeowners could afford. Some even went to work at large box stores like Home Depot and Lowe’s.

As time passed and home building once again started showing signs of life, only a small percentage of those idled home builders actually chose to return to building modular homes for customers.

What our industry didn’t see were “new to modular” builders coming into the business. There was one time after 2008 that did see a huge increase in the number of modular home builders and that was after the devastation of Hurricane Sandy along the East Coast.

Many factories desperate for business after the recession were more than eager to get orders from builders rebuilding homes in NJ, NY, DE and CT. In several cases, they were not selective to whom they sold their homes. Many of those new modular home builders had never sold a modular home before and had very little knowledge of what to do when the modules arrived at the job site. Other builders simply lost their way and went out of business leaving home buyers without houses after paying them tens of thousands in deposits.

Thankfully all that is behind us and our industry is wiser for the experience. However, as an industry, we are still not promoting ourselves to “New to Modular” builders nor are we offering any real training to those that do want to become modular builders. 

Modular factories are reluctant to fund training for builders that approach them to buy houses. They look at this as an investment that could see builders learning the ‘secrets’ of the modular process and then shopping for better pricing at other factories that didn’t offer training. With the cost of training, one can easily see their point.

It was suggested some time ago that any builder that wanted to get into the modular home business should attend an industry funded training program before they sold their first modular home but the only national modular housing association, the Modular Home Builders Association, which serves a lot of modular builders and factories simply isn’t ready to tackle this yet. 

Their focus at the present time is helping prospective new home buyers understand the benefits of going modular and tackling the problems facing the modular industry including new codes and regulations as well as transportation problems which directly affect our industry. And let me say, they are up to the task but they need the support of every modular factory and builder in the US to continue their efforts.

So, the first part of the situation facing the single family modular home industry is the dwindling builder base and the lack of enticing and training “new to modular” builders.

This brings us to the second part of why SFH is not growing fast enough to meet America’s need for housing is the modular home factories themselves. Most of the current single family modular home factories are located in the East Coast and MidWest regions. These two regions account for over 70% of all new single family modular homes in the US.

The other three regions, the West Coast, Southwest and Southeast are the primary areas for HUD manufactured homes, a market currently three times larger than the single family modular industry.

There are new modular factories opening across the US but there’s something different about them. They are almost exclusively designed to build larger housing projects, hotels, dormitories and now, they are entering health care construction. Each of these new factories have excluded custom single family homes from their production simply because they are finding building repetitive modules a much more efficient way to save both the factory and their developer money.

Most of these new “production” modular factories are located West of the Mississippi River where the demand for affordable housing is critical. The investors have read affordable housing’s smoke signals and feel the best type of modular factory to build is one that only does large projects.

Also, the lack of any real modular home builder base in the West means those new factories would have to find builders willing to switch to modular and offer training, something no factory or organizations has done yet. The low hanging fruit and also the most profitable and easiest business model for the new modular factory is the large project where each module produced on the factory’s assembly line is almost the same. 

If the dwindling modular builder base and the lack of factories producing single family modular homes weren’t enough to cause concern, now we have codes and regulations hindering the SFH modular industry.

When a new home site builder wants to build a home for their customer, in most states they must have a set of plans drawn up and presented to the local code office for approval, who reviews them, asks for changes and clarifications based on state and local codes and regulations. Once the local code office reviews and gives their stamped approval, the house construction can begin. This hasn’t changed a whole lot in over 100 years. 

If it were only that simple for the modular home factory and their builder. First, plans have to be drawn by the factory. Then the plans are reviewed by a State authorized third party and if everything is correct, they are approved by the third party. Then the approved are sent to the state where the house will be shipped and built.

And this is where black holes live. State code review offices are understaffed and the backlog of modular plans in the que to be reviewed continues to grow. At one time, some states didn’t think reviewing the small number of modular home plans were important so they included them with inspections and reviews of other things, like amusement park and carnival rides. Think New Jersey! They have since changed that.

I have high regard for the state code review procedures but are they really necessary? If a manufactured home factory (HUD) gets third party approval, they don’t have to send those plans to the state code office for review as HUD is a Federal program.

Now the question becomes two-fold. Why isn’t there a Federal building code for modular homes applicable for all states that can be reviewed and approved by third party inspection services? And why does having to meet ever changing IRC Codes require states to review, reject, review again before finally approving them even warranted if the third party approves the plans?

Currently, after the third party approves the plans, the process of adding the state code office review and other regulations on modular construction can add tens of thousands of dollars to a modular home making them less affordable for the average new home buyer.

Unfortunately, I don’t see any changes in this system for years to come.

One area that does work very well for some modular factories is building true custom homes. Custom modular homes can be as simple as a two module ranch or as complex as dozens of different modules being produced for a single home. 

Modular customization can be found mainly on the East Coast where more than 20 modular factories compete to supply an established, but dwindling, builder base. Yes, there are custom modular home factories in almost every other region of the country ready, willing and able to build true custom modular homes. However, many of those factories don’t have many established modular builders.

The Midwest is probably second in number of modular home factories. They can build custom homes but most of their production goes to dealers that are probably also selling HUD manufactured housing on their lots.

Many Midwest factories sell direct to the consumer and are vertically integrated, something most East Coast modular factories don’t do. 

I remember talking with a modular dealer from the Midwest who told me they sell about 50 modular homes a year, all ranches and capes with unfinished second floors. They do very little customization and sell directly from the factory's standard plan books.

When I asked if they build two story homes, their answer stopped me for a minute. They said they don’t but would if they could as much money on the second floor as they do on the first. It costs them a lot of money to join the second floor to the first, money they can’t get a return on.

If that works for them, it probably means a lot of the other Midwest dealers think the same way.

To recap, I am seeing a lot of new modular factories opening but are mostly doing projects with dozens and even hundreds of very similar modules. Currently, most of them are being built West of the Mississippi providing housing and commercial construction for the West Coast market. They have an unending demand and have built efficiency into their factories. 

True modular home builders, the ones that compete with independent site builders, have seen their ranks dwindle simply because young people aren’t seeing opportunities in building modular homes as a business. With no national push to bring new people into modular construction and no training available to help them, it’s no wonder we aren’t seeing more builders switching to modular.

And finally and probably the hardest to change is the myriad of different national, state and local code hurdles that need to be jumped simply because our industry builds modules. With states each adopting different versions of it and adding additional regulations and local code offices superseding even their own state’s regulations, is it no wonder the modular housing industry is only 3% of the total new homes built in the US every year.

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


  1. Gary

    You nailed it. Perhaps Impresa Franchising will entice younger individuals to modular home building by providing marketing and training to change the dynamic of one and done for many in the past. Perhaps the factories will address and codify a solid service and shortages definition and plan where the builder has a clear line and definition of service. It is interesting that an "on site" builder doesn't expect their local vendor to come fix drywall; floor squeaks; and other annoying minor issues because they didn't price the job to account for these callbacks.

    Perhaps new to modular builders need to understand how to market the product and NOT how to match the on site slab builder who builds to code only.

  2. The folks at MBI/MHBA (Tom Hardiman) are working with the ICC on a national modular standard as I type this. The goal ONE STANDARD, just as site builders enjoy (and local government plan reviewers want).

  3. Thanks for the shout out Harris. We had a working group call today with the ICC. Its actually two standards we are working on with the ICC, as well as one in Canada with the Canada Standards agency and one with the Facility Guidelines Institute for mobile healthcare units.

    I'd be glad to share more details if anyone is interested.