What a strange world we live in today. There are shortages of just about everything needed in offsite construction; factory labor, materials, transportation, and on-site labor. And on top of that is rising inflation and fuel prices.
So why is there such strong demand for new homes?
Modular factories are running at capacity with new ones being built and even more in the planning stages. Other offsite factories such as wall panel and truss manufacturers are having up to 10-month backlogs getting products to their builders and developers.
Home prices were up 18.8% in 2021, and while expected mortgage rate increases might slow down demand, available inventory remains low, keeping it very much a seller’s market.
While home prices are expected to continue rising at a slower pace than 2021, affordability will increasingly challenge 2022 buyers as a decade-long underbuilding trend has left the housing market 5.8 million homes short of household growth.
The record rise in the Home Price Index came on the heels of a 10% hike in 2020, and homes sold for 25-plus percent more than the previous year in the South and Southeast.
I recently talked with owners and managers at some of the largest modular factories, panelized wall companies and vendors serving the East Coast offsite construction industry and found they are facing problems they’ve never encountered before.
Problems that need answers
Long lead times and surcharges have been staples of the offsite industry for decades but today’s lead times are now measured in years, not months and price surcharges are being sent out by factories almost every month instead of once a year.
Every modular factory manager I spoke with said they are not taking on any “new to modular” builders as their success rate with those builders is abysmal. With no training from the factory or its sales reps, the new builder is left without guidance during their first several houses. They usually lose their butts on those first modular houses because nobody has explained how modular is a different animal than stick-building a home.
Another factory has cut back on the number of sales reps and has no intention of bringing them back to work since projects make up a vast majority of their sales today. It used to be 80% single-family home sales and 20% projects. Today, those numbers are reversed.
The labor shortage and material shortages are slowing down production levels to 10 or fewer modules a week, down from 18-20 modules a week prior to COVID. With demand stronger than ever and no materials arriving to build modules, lead times keep getting artificially extended.
Another factory person said that new, younger workers on their production line no longer have the strong work ethic as their older workers. The new hires calculate how many hours it will take to buy beer, smokes, pay alimony and party and don’t show up after they reach that amount of dollars for the week.
He can’t fire them because there’s nobody to take their place. There are some days when 25% of their workforce calls off. They have forced many factories to switch to four 10 hour days hoping the worker needs more than 30 hours to meet his lifestyle.
Vendors and Suppliers have unique problems
The vendors supplying the offsite construction industry are also seeing problems that didn’t exist before the pandemic.
Rising fuel costs and lack of drivers are just two of their problems. Another unforeseen consequence of the materials shortage is the effect it is having on their inventory.
Two different vendors say they no longer buy from single sources but are forced to shop the market for products to sell to their customers. That is not only raising prices but also increasing the amount of inventory on hand. In order to try to adequately supply their customers while not knowing what product will be in short supply in a month or so, they are overstocking on just about everything. One supplier said the amount of product inventory on hand has doubled in just the last 8 months while the cost of that inventory has tripled.
Customers that used to commit to 6 months supply of product from the vendor by prepaying in most cases are now just buying when needed and some factories are competing with the vendor for products on the open market.
As demand for new single-family homes and affordable housing projects increases, the more pressure there is on existing offsite factories. That pressure is coming in all the new offsite factories reported being open soon to meet that demand who will be competing for the same materials and labor as the existing factories.
This combination of rising demand, rising costs, inflation plus the shortages of labor and material can’t continue much longer before one of the wheels on the wagon falls off.
The sad part is nobody knows which wheel will fall off first, how much damage it will do, or how long it will take to get it repaired.
Related Articles:
- So You Want to Open a Modular Factory?
- What Happens When Demand For Modular Construction Outstrips Supply?
- Demand Brings Uniformity In Offsite Construction
Gary Fleisher is the Editor in Chief of Modular Home Source and Offsite Builder. Email at [email protected]
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