Once seen as the gateway to homeownership for young families and first-time buyers, the concept of the starter home is undergoing a dramatic transformation. Traditionally, a starter home was a smaller, more affordable option that allowed new buyers to enter the real estate market with relative ease. However, the landscape has changed significantly, prompting modular home factories to rethink their strategies and target new market segments, including housing and hospitality projects and custom homes.
photo- Ginosko Modular top photo, right – Finishwerks
According to a recent report by Zillow, the typical starter home is now valued at over $1 million in 237 cities across the United States—the highest number ever recorded. Five years ago, only 84 cities met this criterion. Zillow defines a starter home as being among the lowest third of home values in a given region, indicating a significant shift in what is considered entry-level housing.
This surge in starter home prices raises the question: Why are modular home factories increasingly turning their focus to custom homes and specialized projects? The answer lies in profitability and market dynamics.
Modular home factories have long been champions of efficiency, leveraging controlled environments to produce high-quality homes at lower costs. However, the financial allure of high-cost neighborhoods is becoming too significant to ignore. When a factory sends a four-module home to a builder in an expensive area, the profit margins can be substantially higher for the factory, the developer, and the single-family home builder. The cost (FOB) of building the modules in the factory remains relatively stable, regardless of the destination’s real estate market. Thus, selling to higher-priced markets can greatly enhance profitability without significantly increasing production costs.
photo – Design. Build. Modular-Westchester Modular
For instance, half of all U.S. states now have at least one city where the typical starter home costs at least $1 million. California leads the pack with 117 cities, followed by New York with 31, New Jersey with 21, and Florida and Massachusetts each with 11 cities. These high-cost areas represent a goldmine for modular home factories looking to maximize their return on investment.
Beyond the financial incentives, there are practical reasons for this strategic shift. Custom homes and hospitality projects often demand a level of quality and customization that modular factories are well-equipped to provide. The controlled manufacturing environment ensures precision and consistency, while the ability to tailor designs to specific client needs aligns perfectly with the demands of high-end markets.
Moreover, the trend toward custom homes is not just about capitalizing on high prices. It reflects a broader shift in consumer preferences. Today’s buyers are increasingly looking for unique, personalized living spaces that reflect their individual tastes and lifestyles. Modular home factories, with their advanced technology and flexible production processes, are ideally positioned to meet this demand.
photo – VBC Modular
In the hospitality sector, modular construction offers a rapid and efficient solution for building hotels and resorts. The ability to assemble modules offsite and then quickly install them on location minimizes disruption and accelerates project timelines. This speed and efficiency are particularly valuable in high-demand tourist destinations where downtime can translate into significant revenue losses.
The versatility of modular construction is another factor driving this trend. Modular factories can produce a wide range of building types, from single-family homes to multi-story apartment buildings and luxury hotels. This flexibility allows them to diversify their offerings and tap into multiple market segments simultaneously.
MODCOACH NOTE
As highlighted by Zillow’s report, cost of construction is prompting modular home factories to shift their marketing focus toward more lucrative custom homes and hospitality projects. By capitalizing on stable production costs and targeting high-cost markets, these factories can enhance their profitability while meeting the evolving demands of today’s consumers. As the real estate landscape continues to evolve, modular construction stands out as a dynamic and adaptable solution, ready to build the future, one module at a time.
Credit: Zillow for the report.
CLICK HERE to read the latest edition
Contact Gary Fleisher
