I have always been a fan of manufactured and modular home building. Converting home building from a site-built production system to a manufactured product is supposed to reduce waste and create a higher-quality product. Manufacturing is also supposed to be faster and less expensive.
That’s the promise, but I wonder if manufacturing will ever live up to those expectations.
Throughout home building’s modern history, bursts of momentum have occurred in prefabricated housing. All eventually receded into history. Examples include the pre-war Sears kit homes, the post-war Levitt & Sons and Lustron offerings, and the mobile home boom of the 1970s.
Today we are experiencing yet another wave of momentum fueled by the massive amounts of capital flowing into proptech. The initial poster child for this boom, Katerra, has already flamed out. Are the rest of the companies destined for the same fate?
The landscape of new entrants is the most diverse and well-funded in our history—3-D printing, robotic construction, luxury prefabrication, tiny homes, ADUs, etc.
Yet as I listened to pitch after pitch at the International Builders’ Show in February, traveled the country to manufactured home communities, and toured sparkling new facilities, almost none of them affirmatively answered my most basic question: Does the product cost less than a stick-built equivalent?
However, not all is lost.
Successful Niches
A lot of innovative, energized, and well-funded people are working on our future, and that can only bode well. I have also witnessed success in niche applications.
I saw an oceanfront community in the Florida Keys building all of its single-family product with pre-finished first- and second-floor units. On-site labor was drastically reduced, which is critical in the Keys, where such trades are nearly nonexistent and would need to travel daily from the mainland.
I found similar success in the resort towns of the Rocky Mountain region, where labor and trade availability are also constraints. In urban centers, ADU manufacturers provide units to existing homeowners with substantially less disruption.
So, slowly, beginning in the niches of our industry, manufactured and modular homes will start to take root.
Overcoming Obstacles
The inability of manufactured products to displace stick-built is partly due to the effectiveness of home builders’ ability to control the cost and margins of their trades. A second factor is the power of a low-capital approach to building in a business frequented by significant swings in demand.
Joel Shine had a first-row seat to observe the power of both systems when he was CEO of Woodside Homes, which was bought by Sekisui House in 2017. Sekisui is a leading home builder in Japan, where manufactured housing rules the day. Shine, who is advising Man Group on building net-zero homes, shared his perspective:
“It is common to make fun of how antiquated some conventional residential construction modalities are, especially when compared to off-site construction. Off-site construction does, in fact, usually deliver a higher-quality product. What gets missed is the discussion about fixed versus variable costs. Our industry has always been extremely volatile, and keeping fixed costs lower and letting the variable costs get higher is one of the secrets of long-term survival. Building and manning an off-site production facility (a factory) is a big, fixed cost. You can’t contract by 25% of a building you own and of a large full-time staff on payroll. With on-site building, you simply slow down the pace and let the subs find other work.”
I still believe that where there is waste, there is a way. While stick-built construction continues to dominate our near future, the times are changing. The relentless pursuit of waste elimination and lean production principles will accelerate the adoption of this new wave of innovation and fuel a new generation of innovators.
Tim Costello serves on the boards of several technology companies and consults and speaks on industry trends and digital transformation. For 22 years, Costello led BHI and the home building industry’s digital transformation.
