Tuesday, August 4, 2020

The Future of Modular Construction in Post-COVID-19

Shortly after COVID-19 became the most debilitating thing that has happened to the US economy in recent history, modular construction stepped up to fill the demand for temporary medical facilities.

Many modules were built to meet that need but here we are just 5 months later and that market has all but collapsed as the pandemic is waning.

Because of tough restrictions put in place by Federal and State Governments including travel restrictions, the hospitality industry not only stopped placing orders for new hotels, many of the ones already booked for production were put on hold or cancelled entirely.

That leaves multifamily and single family housing as the two remaining stars of modular construction and both of those are having some unique problems.

You’ve probably poked your head out of your “Shelter in Place” cave by now and have seen new modular factories popping up like dandelions west of the Mississippi River. These new factories are building multifamily projects for developers trying to fill the need for affordable and low income housing.

I talked with several factory owners who say the demand is there but there could be a dark cloud on the horizon. President Trump said Monday that he’s looking at unilaterally taking steps to stop tenant evictions. Without a flow of rental income from existing projects, many developers are contemplating putting new projects on hold. 

The factory owners also said single family modular home production is strong but with lumber prices rising almost daily, they are finding the homes they sold to their builders just 2 months may be in the red before they even go to the production line.

Those rising costs have all but killed off the affordable single family modular home side of the business. The one bright spot here is the growing acceptance of modular ADUs by both consumers and local governments who are quickly adding zoning regulations to allow them in R1 neighborhoods.

Watch for many modular factories to begin to add ADUs and possibly Tiny Houses to their offerings.

In summary, the need for temporary medical modules is drying up, hotels have lots of vacancies and with less travel, they will not need nearly as many new hotels as they had the past 3 years.

Multifamily housing is still strong but until things begin to go back to a more normal cash flow scenario, some of those huge projects modular factories were counting on may be put on hold for a year or more.

Single family custom modular homes continue to be strong despite lumber price increases but the affordable side may see a drop in demand as single family houses are quickly no longer affordable for the average wage owner.

The bottom line is that no matter what happens in construction, modular is finally beginning to be the “go to” way to build multifamily, hotels and single family homes in the US.

Our “site built” siblings are facing the same problems we are but have the added burdens of not being able to find enough labor to build their projects and with site building historically taking longer to build, they are facing even more price increases than the modular industry.

As the economy begins to recover, modular will emerge bigger and stronger than ever and it’s 3-5% market share will begin to ascend to new heights.

Gary Fleisher is a housing veteran, editor/writer of the www.ModcoachNews.com, www.Modular-homecoach.com blogs and the ‘coming soon’ www.ModcoachConnects.com, Construction Consultant’s Directory. 

1 comment:

  1. Gary, a couple of thoughts on this:

    COVID did not reduce or eliminate the underlying and massive need for infrastructure in this country including housing but also educational facilities. If anything COVID highlighted a massive need for more healthcare infrastructure. Yes, government agencies and developers are proceeding cautiously. But at the end of the day, the infrastructure needs still exist and we still have a massive labor shortage to address it with conventional construction. Modular is a better way to build and despite this short term crisis, our industry will emerge stronger than ever.