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Three years ago, Star Development Corp. decided to try modular housing rather than continue with stick building for its infill projects. Since then, the Ann Arbor, Mich.–based company has purchased more than 200 homes from modular housing manufacturer Genesis Homes.

“We made the switch because of quality, speed of delivery, and cost savings,” says Samuel Thomas, Star's president. “Modular housing is a really excellent product.”

Thomas is just one of thousands of home builders who have turned to modular housing to avoid the on-going challenges associated with stick building, such as labor shortages, inconsistent construction quality, and lengthy delivery periods.

“Builders and developers are starting to realize the value of modular,” says Kevin Flaherty, vice president of sales and marketing for Genesis, a division of Auburn Hill, Mich.–based Champion Enterprises. “The growth we're experiencing now is because of developer demand, and the growth ahead of us will come from that same channel.”

Flaherty notes that 40 percent of Champion's $1.4 billion revenues in 2006 were derived from the modular business compared to just 5 percent in 2002.

GROWING DEMAND

Today, the modular housing industry is one of the fastest-growing segments of the residential construction industry. In 2006, modular housing continued to gain market share, accounting for 3.6 percent of the 1.06 million new-home sales in 2006, up slightly from 2005, according to the National Modular Housing Council (NMHC).

Although total modular housing shipments decreased 11.1 percent to 38,300 last year compared to 2005's 42,900 volume, the decline in modular units was far below the 16.4 percent decrease recorded for all new homes, according to NMHC.

In 2006, modular housing grew its market share in several states including Colorado, Indiana, and New Hampshire. The greatest strides were in Florida and Virginia where total building permits fell by more than 20 percent while modular housing shipments grew 14 percent in Florida and about 3 percent in Virginia.

“We've been most effective in areas of the country where land costs and availability of labor is low,” says Steve Reyenga, vice president of sales for Palm Harbor Homes, a Dallas-based company selling manufactured and modular homes in 27 states.

JUST ANOTHER SUBCONTRACTOR

Although modular housing has been around for decades, many builders either saw modular as inferior to stick built or considered it to be a competitor. “In the past, builders didn't see it as a solution to their problems,” recalls John Colucci, vice president of sales and marketing for Westchester Modular Homes. “Now they realize that modular business could really help them.” Based in Westchester, N.Y., the company focuses on the high-end modular market, and in 2006, it built 305 single-family homes and 20 multifamily homes to achieve revenues of $30 million.

Indeed, awareness of modular housing and its benefits is growing among the builder community. “We've converted a lot of builders as they've been challenged by the lack of labor and higher construction costs and looked for alternatives,” says Paul John, president of Ritz-Craft Homes. “Stick built is a hard tradition for them to break, but when they see the benefits of modular, it makes sense to them.”

Perhaps the most important benefit is that modular housing can reduce the construction period by as much as six months. Modular housing components are delivered to the site 80 percent complete after just three to six weeks of manufacturing.

Once the modules are delivered, the house can be completed in another three to six weeks. “Speed to market is definitely a benefit because the cost of interim construction financing can be significantly reduced or eliminated,” Thomas says.

“With this housing correction, cost structure is more important than ever, and we're quoting more jobs to builders who had not considered modular housing, as they try to control their costs,” says John Gueguierre, president of Indiana Building Systems, a Middlebury, Ind.–based company that introduced its first modular product four years ago. Today, 80 percent of its business is modular.

“I believe that the modular business will continue to grow and will capture more and more of the housing starts over the next 15 years,” Colucci predicts.

Jennifer Popovec is a freelance writer based in Fort Worth, Texas.

Learn more about markets featured in this article: Dallas, TX.