Going as far back as anyone can remember, Modular Construction was divided into two distinct groups; those factories that primarily built residential housing and those that built commercial and housing projects.
Prior to 2008
It was a much simpler time. The factories that built primarily houses and small multi-unit townhouses didn’t have to contend with building “green and sustainable”. State code reviews and approvals were easy to get with some states actually receiving, checking the plans, and returning them approved in 2-3 days.
Honestly, I am not making this up!
Sales reps were ‘road warriors’ visiting their builders across their territories on a weekly basis, making friends for life. Factories sponsored really great trips for their best builders to the Caribbean and other exotic locations. Promises made were kept.
The commercial modular factories enjoyed the same scenarios. It was the best time to be in the business.
Modular After 2008
That’s when several things happened that changed modular construction forever.
First was the housing crash of 2008. People stopped buying new homes and those that wanted to build new homes began buying foreclosed homes at fantastic prices instead. It was a buyer’s bonanza. Factory sales dropped dramatically with more than 60 modular factories, both residential housing and commercial, shuttering their factories forever. In fact, two of the modular factories I had worked for closed their doors.
Next came revised IRC regulations that tightened up energy requirements and building procedures. MEP regs were tightened. States began adopting the latest IRC regs and within a year, getting plan approvals through most state agencies became a nightmare of redlining and back-and-forth corrections forcing some factories to delay building houses a month or more.
In 2012, Hurricane Sandy hit the Mid-Atlantic and New England coastlines destroying thousands of homes. The remaining modular factories on the East Coast began to take orders for new homes and production lines began filling up. But those new orders got caught in new regulations for all new home builders about how to build in flood and storm areas. More delays in plan approvals and financing were harder to get because of the 2008 housing crash.
On the brighter side, Marriott hotels began switching to modular construction. Without enough capacity to be built by the commercial modular factories, many project developers began looking at the single-family modular factory for supplying hotels. Then other hotel chains jumped into modular construction and the industry was off to the races.
One downside of the rush to build hotels and other projects by the single-family modular factories was putting their devoted builders into the production schedule behind a project that could take a month or more to build. Many modular new home builders threw factory loyalty to the side of the road and began searching for factories that could build their homes in a timely and predictable manner. Builders can’t support their businesses and families without houses to build. Several began site building homes and eventually never returned to modular.
The final straw for modular construction as it was before 2008 came in the form of COVID-19. First, there were factories shutting down for a short while which meant backlogs for modular factories when they reopened. Add into that the fluctuating LBM and labor shortages, the rising costs of just about everything that goes into new home construction, and the demand for new homes.
What we had was the perfect storm, for not only the modular industry but the entire construction industry.
What is the future of Modular Construction?
We are about to see a swing toward specialization in the modular industry. The industry will redefine what each player will become. This is where automation, robotics, BIM and AI will begin taking its place in the modular factory.
There will be 4 parts to this transformation.
The first type of factory will continue to build standard and semi-custom for builders and small developers. Their factories are designed for it and current management has a great understanding of how to make it work efficiently and profitably.
The second type will be the true custom home modular factory. There aren’t many out there today but look for a few more to begin showing up. With the lack of skilled labor available to site builders of custom homes, many will look to modular to help fill that labor void but they will want custom homes like they’ve been building. This will be a very profitable niche for the few modular factories that pick up the custom home gauntlet.
The third type will be the traditional commercial modular factory. There are already quite a few in the market but look for even more to be added with all the hotels, hospitals, affordable housing projects, and build-to-rent housing developments about to hit them.
And lastly, we will see the continued emergence of investors and developers buying and building their own modular factories to supply their own needs. They can build products cheaper in the factory as the profit will be shifted to the finished project rather than having both the factory and the project show a profit. Their factories will run at break-even at worst.
Rumor has it several existing East Coast modular factories have already been sold to developers to feed their need for projects while other formally single-family modular home factories are for sale to give developers a running start at production. Nothing like shaving a year off the building process by buying a currently operating modular factory and converting it to build their cookie-cutter projects.
This reorganization of the modular construction industry has already begun.
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected]
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