Little understood, often maligned, modular housing offers many advantages for builders. But can this evolving industry earn your respect? By Matthew Power

Low labor costs. Durable construction. Predictable margins. What's not to like about system-built modular homes? That's how guys like Mick Barker, president of Genesis Homes, pitch their vision.

Until recently, however, politics and the inertia of an entrenched building industry have conspired to suck the wind out of modular's plans to sail in and capture vast segments of market share.

One of the biggest stumbling blocks: the skeptical, battle hardened builder (you).

Even builders who consider going modular sometimes get cold feet. Typically, they cite one of four major differences (perceived or otherwise) between stick-framed and modular homes:

  • Design. Builders think factory-built means ugly. Neither they nor their clients will tolerate elevations that bring to mind mobile homes.
  • Durability. Builders like control over the building process. They assume that site building allows tighter quality control.
  • Cost. Next comes the inevitable square-footage price comparisons. Using that blunt instrument for comparison, modular often loses.
  • Pride. Finally, old-fashioned pride in workmanship kicks in. "There's a fear that their self worth will be compromised because somebody else is doing the work," notes Bret Berneche, CEO of Cardinal Homes, a modular home builder in Wylliesburg, Va.
  • Let's tackle these objections one by one.

    Face lift

    The 3,600-square-foot Tara model from Nationwide Homes aims squarely at well-heeled, move-up buyers. It includes 3 1/2 baths, hardwood floors, ceramic tile, and vaulted ceilings, and retails for about $395,000, not including the lot.
    The 3,600-square-foot Tara model from Nationwide Homes aims squarely at well-heeled, move-up buyers. It includes 3 1/2 baths, hardwood floors, ceramic tile, and vaulted ceilings, and retails for about $395,000, not including the lot.

    First, we have to face reality: Mobile homes don't appeal to everybody. That's not a judgement call. It's a fact. But modular homes are not mobile homes. Sure, they roll down the highway on a truck, but they only move once. The differences only begin there. Over the past five years, the modular industry has done a complete turnaround with regard to design. No longer the Achilles' heel of the industry, companies like Nationwide, Mod-U-Kraf, and Genesis Homes now boast about their design flexibility. In fact, Genesis Homes is the offspring of Champion Homes, a HUD-code housing manufacturer. Champion CEO Walt Young believes in modular enough to have made a major investment. "Walt said, 'Take these 12 plants and convert them 100 percent to modular or they will be shut down,'" recalls Barker.

    "We build a lot of custom homes," explains Frank Hodges, vice president of sales and marketing with Mod-U-Kraf Homes. "We also offer about 70 standard models, with variations available for floor plans and elevations."

    Recent legal changes, along with high-tech products, have worked in the favor of modular manufacturers.

    "Part of the change has been the increase in the allowance of 16-foot-wide loads on many state roads," notes Ron Evans, CEO of Nationwide Homes and chairman of the NAHB's Building Systems Council. "The availability of glulams and other engineered wood products also has allowed us to create large rooms, with ceiling spans up to 28 feet. We now have vaulted or tray ceilings as high as 9 feet 6 inches.

    "The house doesn't feel linear anymore," he continues. "Models used to be long and narrow. The industry has become much more sophisticated."

    That also applies to finishing details. Evans says most modular manufacturers now specify better quality trim, more moldings, and a wider range of surfaces, including ceramic tile.

    In addition, like their stick-built counterparts, modular builders have updated designs to address the needs of aging owners, offering roll-in showers, roll-under vanities, and accessible appliance configurations in the kitchen.

    Glue and screw

    Ceramic tile? In a house that has to bounce along the highway? That says a lot about modular construction techniques. In the factory, modulars typically include more materials and fasteners than a site-built home. Drywall and sheathing are typically nailed and glued to every framing member. Surfaces must remain rigid during transport to prevent drywall cracks and window damage.

    "Most reputable manufacturers are using the same products as stick builders, not products used by HUD-code builders [like smaller dimension framing lumber]," asserts Evans. "And the actual fabrication is done in leveled jigs. This whole thing has to be lifted with a crane, so you're getting a much stronger, stiffer house. We're using up to 13-inch tiles on floors and walls with no cracking problems at all," he adds.

    Another big boost to durability, says Hodges: the factory climate. "Especially in months of bad weather," he says, "site-built quality tends to suffer. That's been a big selling point with us. Buyers don't like to think their house has been rained on."

    Passing the buck

    Wiring, HVAC ducting, and all other "behind the walls" components go in fast and neat. Another labor perk--drywall doesn't have to be lifted to second-floor spaces. One caveat: No matter how sturdy the frame, drywall cracks may appear, especially where walls meet ceilings, following delivery of the modules.
    Wiring, HVAC ducting, and all other "behind the walls" components go in fast and neat. Another labor perk--drywall doesn't have to be lifted to second-floor spaces. One caveat: No matter how sturdy the frame, drywall cracks may appear, especially where walls meet ceilings, following delivery of the modules.

    Of course, all that extra material, glue, and high-cost machinery add a certain amount of overhead. Result: Selling modulars gives the builder about the same margins as a similarly sized site-built home, often with a slightly higher cost to the consumer. "People assume you can enjoy big cost savings with modular," says Steve Hullibarger, a Fair Oaks, Calif. based consultant for both HUD-code and modular industries. "But it depends completely on where you're building, and what the local labor costs are. For example, in Philadelphia, you might save 25 percent; in Texas, 10 percent; other places less."

    That's a mental obstacle to building modular that some builders simply won't cross. But modular advocates note many ways the builder benefits, with streamlined inspections (most take place at the plant), rapid completion, and minimal labor management. And clients get a more durable home.

    Instead of comparing square foot costs, suggests Berneche, builders need to add up all the intangibles, such as saving on construction waste (most is reused in the factory), and of course, pampering and providing insurance for subs and employees.

    "Most traditional builders are trying to be master schedulers," Berneche says. "Their back office is now as important as their front office used to be. They're facing labor and regulatory issues--it just makes sense to look at modular."

    Melissa Ward, president of Southside Homes in Charlotte County, Va., has been working with Cardinal's modular homes for about five years. She has just two full-time office employees and builds about 20 homes a year, averaging $150,000 to $175,000.

    The small staff keeps overhead down, Ward says, and she is able to keep all of her subs busy, although she needs them for a much shorter time per unit. A house is ready for move-in about 100 days after the order is taken.

    Which is not to say Ward kicks back and relaxes while the money pours in. "I still work 60 hours a week," she admits. "I suppose I could employ somebody else, but cutting back on manpower is the key to making my margins."

    "What we can offer a builder is the same number of houses with a lot less overhead," asserts Berneche.

    Hodges notes another often overlooked advantage of modular. It allows small builders to move quickly into light commercial work. His company builds townhouses and condominiums, along with motels and college dormitories.

    "There's a little more of a profit margin on the commercial side," Hodges says. "That's because we don't hit up the builder with higher costs for commercial projects. You end with labor costs consistent with residential--and that boosts profits."

    Grand plans

    Will site builders ultimately come around to an assembly-line approach to home building? Can they swallow their pride in craftsmanship and take pride, instead, in the bigger picture of the finished house?

    According to the modular folks, it's only a matter of time. Rising costs for labor, worker insurance, and materials will force small builders, especially, to get on board.

    This shot from the Genesis Homes' plant, shows the end of the assembly process, where asphalt shingles are "baked" using a gas-fired heater. This prevents shingles from flying off on the highway and ensures a tight roof on homes built in mid-winter.
    This shot from the Genesis Homes' plant, shows the end of the assembly process, where asphalt shingles are "baked" using a gas-fired heater. This prevents shingles from flying off on the highway and ensures a tight roof on homes built in mid-winter.

    "Ultimately, the percentage of site-built homes--entry-level and second homes--will become more industrialized," predicts Hullibarger. "Site built will gravitate toward high end. Factory forms will move in and gradually claim more market share--but it could take 20 years." "Almost all of our product is move-up market or entry level, says Evans. "Our primary effort is to convert stick builders over to our business," he explains. "We won't convert Pulte, because it's a tract builder, and we can't compete with its efficiencies. But for the small builder, we solve a lot of problems. The quality of the labor force is really driving the interest."

    "We are essentially a major subcontractor, supplying labor and a material," says Berneche. "The concept is not that different from what builders already do, but it gets mistaken when they think of it as a whole different animal."

    "Change is going to be very slow," adds Hullibarger. "But it's impossible to overlook the benefits of factory-built housing."

    Code Confusion

    Modular manufacturers argue that HUD-code homes give factory-built housing a bad rap.

    Given that manufactured HUD homes are "mobile," modular acolytes ask why HUD-code homes get all the breaks--they only have to conform to a one-size-fits-all federal code, while modular homes, which will only roll down the highway once, must meet diverse state and local regulations.

    Worse, say critics, HUD-code manufacturers encourage terrible lending practices.

    "As HUD sector manufacturers hustled to build market share and vertical integration in the 1990s, they acquired and set up retailers everywhere," explains Steve Hullibarger, an industry consultant, "but nobody kept an eye on what the market was able to consume."

    Result: Chaos. More than 80,000 homes repossessed in 2000; about 90,000 repossessed in 2001. "And there will be another 90,000 this year," Hullibarger predicts.

    "When mobile homes were 2 percent of the market, we could say they were an aberration," says modular builder Bret Berneche. "But now they're one-third of the market."

    For all their troubles, HUD-code homes do provide housing to people at the low-end of the economic ladder, a niche that both modular and site builders typically ignore.

    "Guys who build modular or stick-built can't accept HUD-code," Hullibarger adds, "because it's a single top plate, for example. But it all works. These homes meet the HUD-code goals and have a very low base price. There's a lot of hatchet throwing on both sides, but my feeling is that barriers to HUD-code homes are unfair."

    Over the Top?

    Manufactured Home Shipments

    Year Total Shipments
    1990 188,172
    1991 170,713
    1992 210,787
    1993 254,276
    1994 303,932
    1995 339,601
    1996 363,411
    1997 353,377
    1998 372,843
    1999 348,671
    2000 250,550

    Note the precipitous decline in shipments for the year 2000 compared to 1999's figures. Some experts attribute the drop to the enormous number of manufactured home repossessions.

    You Trust Them When it Comes to Cars...

    Consumer's Union, publisher of Consumer Reports, is turning its third-party research eye onto the manufactured home industry. Beginning this year, it will release a series of reports on dealer and manufacturer practices, appreciation/ depreciation of manufactured homes, and best practices for developers of manufactured-home neighborhoods. If you are considering including manufactured homes in your housing mix, look online for free copies of the reports as they're released at www.consumersunion.org/mh/.