The closer you get to thinking you have the affordable housing market figured, the further it gets just out of reach.
That’s because it doesn’t matter how you approach the affordable housing market, if there isn’t enough modular factory capacity to keep ahead of the need, it simply comes down to the law of Supply and Demand.
If you want housing to be affordable, you need to build more of it. And when housing demand increases because of economic growth, prices surge upward unless supply can keep pace. It isn’t the demand’s fault if supply lags.
Even if every modular factory in the world began building affordable housing for the US, they couldn’t meet our present demand.
An economic secret revealed
Let’s take a closer look at why modular factories can’t compete in certain regions of the US when it comes to affordable housing.
In regions like Denver, CO, Seattle, WA, San Francisco, CA and other areas of the country where the cost of renting is so high that affordable housing projects are their only real hope, the individual cost of each module from the factory is high, giving the factory a fair profit.
But when affordable housing is needed in areas where the cost of living is low already, modular factories will be hesitant to send those same high-priced modules they know can be swallowed up by the more affluent regions.
Denver vs Fargo comes to mind. The affordable market in Fargo will not pay the same price per module that Denver can. Why would a modular factory send modules to Fargo for pennies in profit when they can ship modules to Denver for dollars in profit.
It’s not rocket science.
This is where the heavy foot of Federal, State and local governments enter the picture. Between over-regulating the affordable housing market, especially if it is modular construction, the constraints to building more housing become very restrictive.
Then you have very powerful people within every single community in the US that use their power to stop growth.
State and local governing bodies are also faced with rising infrastructure costs if they want to have affordable housing projects and also the cost of actually building them.
There is also the rising costs associated with meeting tougher building codes that have been proven to add over 25% to the cost of new housing. Tighter air infiltration regulations, more energy-saving devices and even the cost of adding sprinkler systems plus the enormous amount of impact fees for public utilities, additional schools and conservation efforts hurt affordable housing.
If this cycle of needing more affordable housing while at the same time strangling the efforts to accomplish it continues, the only thing that happens is rising costs which push the very people that need affordable housing to look for alternative shelter.
That is one reason many communities are amending zoning laws to allow ADUs and even Tiny Houses on lots that already have a single-family home. ADUs and Tiny House don’t have to meet those tough building codes that IRC-regulated modular homes have to meet.
With US modular factories seeing a resurgence in business amid low-interest rates and middle-class new home buyers once again entering the market in huge numbers pushing modular home factories to increase their production line capacity. Building low-profit affordable housing units for local governments and non-profit organizations aren’t where the money is as long as custom and semi-custom new home sales continue to come in.
There are many commercial modular factories that want to build multi-story affordable housing projects and have done so for years. Their business was built on that type of project but even if they doubled their capacity by going with two shifts, they couldn’t keep up with demand.
They are waiting for the money to once again start to flow a little bit to build those affordable housing projects.
Modular may not be the total answer to affordable housing but it is still a lot better than building on-site as the modular factory has the skilled labor pool to complete up to 80% of the project on the production line.
Related Articles:
Modular Home Factories Like Foothold Modular Could Provide Answer To Affordable Housing
Major Cities Face Gentrification In Rush For Affordable Housing
Rochester Modular Homes Speaks Out On Affordable Housing In Michigan
Gary Fleisher is Editor in Chief of Modular Home Source and the soon-to-be launched Offsite Builder. Email at [email protected]
