Builders of Mods and HUDs - Can They Get Along?

by L.A. 'Tony' Kovach

Yes or no? Build up the industry or tear it down. Choose your future.

This is a more important issue than is generally realized by members of the manufactured, modular and prefab housing industries. The short answer to the query is "Yes, they can get along… and should!" But all too often, the reality is that they don't, and they do so for motives that are short-sighted and counter-productive to their individual and collective interests.

The growth of each of segment of the factory built housing business can be enhanced; whatever part(s) of these industries you are in or serve, this subject impacts YOUR bottom line! So let's dive into this timely topic.

First, let's set the stage for this discussion in terms of the bottom line.

Conventional construction is on life support in many parts of the U.S. A blizzard of economic and political factors has taken place that drove stick builders, often giant firms, into bankruptcy. The website http://builder-implode.com reports that since 2006, 85 "major" builders have imploded, as have dozens more smaller firms. This tragic economic reality is naturally frightening to conventional builders. This trend also spells a huge opportunity to factory builders of all types.

The inherent cost and quality controls of any type of factory building are attracting increasing attention to our respective industries from conventional builders, contractors and the media. Here in Chicago, I personally know a modular company that is getting numerous inquiries from stick builders. They need an alternative to adapt and survive. They see factory building as that reasonable option.

So there are background reasons why the Cavco's and Clayton's of the world are buying up pieces of manufactured housing. That background is outlined in this article. The old economic model of conventional "on site construction" has been morphing for years, as more and more housing components are pre-built in a factory and then simply assembled on site. Warren Buffett and other savvy investors smelled profits with a capital P, or rather with a capital B for billions!

Why does Berkshire Hathaway keep buying up suppliers and builders of manufactured and other housing?

Because they know that:

1. the housing stock of the U.S. is aging; much of it needs to be replaced
2. the population continues to grow and
3. labor savings, reduced waste and theft, economies of scale, etc., apply only to factory building
4. conventional housing construction is a dinosaur of the past that has been artificially propped up via political and other factors!

We are on the edge of potentially the greatest housing boom America has ever known. A housing boom could reverse our nation's economic malaise. This is why getting and truly understanding The Manufactured Housing Revolution is so critical! You are either going to catch this wave or miss it. There are no other options. You will have to know what you need to do to turn the corner - survive and thrive in this current market - or not. As we posted in a recent Inspiration blog, there is do or do not, there is no try!

So we are on the edge of a tidal shift in housing. How are factory builders and retailers preparing for this sea shift?

In too many cases, poorly.

To keep this to article length, let's outline the issue between, say, modular and HUD Code builders. Similar principles apply to prefab as to modular, for the purposes of the discussion that follows.

Modular builders - and here we are specifically speaking about firms who do ONLY mods, who don't build HUD Code Manufactured Homes - are very much aware of the stigma that exists for Manufactured Housing.

Mod builders know the financing, regulatory and political challenges manufactured housing faces. Mod builders and sellers know that millions of Americans call manufactured housing, "mobile homes" - or worse, they use the "T' word..."tr__ler."

To any Housing pro, the T word should be avoided, as by analogy, it is the theological or biblical equivalent of taking the Lord's name in vain!

How the home gets to the construction site is irrelevant. In fact, ALL housing - even conventional stick building components - arrives on site via a truck! When someone stigmatizes, or aids in the stigma of manufactured housing as "mobile home" or the T word, one has just shot a bullet that hits the truck and carrier that brings the modular units or prefab panels to the job site, too!

Using the T word to describe manufactured housing is as foolish as calling cars trailer cars, because car transporters took the car to the dealer's lot. No factory home industry member should ever do it!

This is evidenced by the confusion among citizens (often intentionally fostered by some) between the terms "modular" and "manufactured housing." Since manufactured housing carries this stigma, is it any wonder that some citizens lump modulars in with them? Of course not, since both obviously arrive at the job site by truck! Building code distinctions may be lost to the average person on the street. Actually, that distinction is lost on too many pros in our own industries. I get calls and messages from Industry newcomers, asking me to explain these differences. This tells us many things, among them that our marketing/PR/educational efforts are sorely lacking!

Due to article length constraints, we have to keep this briefer than this topic demands. But let's make a few more key points before wrapping this up.

George Porter did an article on the comparison between manufactured housing – which, properly understood, means a home built to the federal HUD Code - and modular construction. To drill down Porter's points: there is a dynamic equivalence between conventional/modular construction (since mods are built to a local conventional housing code) and manufactured housing. If there is an edge, Porter revealed how that edge goes to the HUD Code product.

Now this might regrettably rile some modular and prefab fans, but let's get past emotions and look at facts.

Each factory built housing segment has certain advantages; none of them has a monopoly on greatness. Each builds a home product that has to meet basic safety and quality standards. Besides the facts noted above, why do many modular producers and sellers sometimes distance themselves from the HUD Code product?

The answer lies in the entry level HUD Code home.

Essentially HUD Code production has what can be termed an entry level product that may be spotted by the use of VOG (Vinyl on Gypsum) interior walls vs. finished drywall, sometime shorter sidewalls – often, say, 90" – and/or less expensive sinks, cabinetry or interior components. Now the structural, energy and safety features of these "entry level" products are the same as their more "residential" counterparts of the HUD Code! But they look "mobile-homish," meaning they resemble the look of more pre-HUD code construction. Modular builders may thus paint the perceptual image of all HUD Code product as "cheap." They do so to distance themselves from the look and image just described.

But this is foolish!

Why? It is like saying a cheaper cell phone isn't worthy of being called a cell phone. It is like saying that a SmartCar, Ford Fiesta or Chevy Volt isn't a car; only a Mercedes Benz is worthy of the name "automobile."

BMW, Lexus, Cadillac, Lincoln, Mercedes, Infiniti or a host of other auto makers don't blast automobiles! They create a marketing distinction between their quality and that of other cars. That is the prudent approach.

Modular and residential style HUD Code builders share far more characteristics in common than they have differences. That is a fact.

It is also a fact that various circumstances may call for a modular vs. a HUD Code home, and vice versa.

The point is that factory building has a variety of legitimate approaches to achieve a goal. HUD Code home building is essential for serving the entry level of the new construction housing market. Nothing else can come close in terms of price, quality, size and safety. This is why from Washington, DC to your local jurisdiction, HUD Code home building can and must be protected and supported! It would be the height of hubris for elected or appointed officials to so harm the industry as to deny millions of Americans the ability to own a home of their own. It would be like saying, you can't have a cell phone unless it is a smart phone, or like saying if you don't have a luxury car, you can't own a car.

The so-called "upper end" or residential style building of the HUD Code market homes looks so much like their modular counterparts that once properly sited, you have to look for the mod or HUD label or HUD data sheet to figure out which one is which. So for modular builders to blast HUD Code building is short-sighted at best. Arguably, it costs both segments of the factory built housing industry every time it occurs.

It is like biting off your nose to spite your face.

Upper-end modulars offer what some call "modular mansions." 10,000 square feet and up in size, with elegant features that rival or exceed any high-end conventional house builder, these high-end mod builders and their sellers don't want to be seen as associated with their VOG Style HUD Code cousins...

...they look down their nose at entry level HUDs. But both come from a factory!

So again, step back and take a look at conventional builders. Upper-end home builders don't blast or denigrate entry level housing. They distinguish themselves through quality, size, elegance, location or a host of other ways from the tract stick builder!

My iPhone is a cell phone. It is a smart phone, supposedly the best according to many who don't work for Apple. But I don't have to cheapen a regular cell; each is what it is, each serves a specific market niche! I have a midline car and a crossover. I don't have to demean a Pinto, Maverick, Chevette or Yugo to appreciate our vehicle's leather seats, good stereo system and all power options for this and that cool feature.

The bottom-line? The bottom line is the need for some common sense and learning lessons from other industries and apply it to factory building.

Factory builders - modular, prefab or manufactured housing - should see themselves as strategic allies, regardless of what segment of the market they seek to serve. As our industries face financing - regulatory, political financing - or other challenges, we should see that what helps or harms one segment is either a drag or a boost to the other home building segments.

Chicago's Mayor Daley is reputed to have once said, "I don't care where or how it was built, it is all new construction." New Construction! Entry, mid or upper-end new construction!

We will no doubt return to this topic in the future here at MHMSM.com. But for now, please use these takeaways:

1. Factory building has a historic opportunity in America today, which is what we deem The Manufactured Housing Revolution! "The factory built housing revolution" just didn't have the same ring to it... ;-)
2. As more members of manufactured, modular and prefab housing understand and apply the principles found in The Manufactured Housing Revolution!, the more you will profit now and in the future.
3. The more factory building's various segments respect and understand each other, the better off each segment is.
4. The more each segment supports the need and value of the other, the better of each segment is.
5. The more the public, regulators and elected officials understand the tremendous value of factory building, the better off we as a nation will be.

In a 12-month period of time, we could be achieving HUD Code home sales levels of over 200,000 to 800,000 homes a year, as outlined on pages 107-108 of the book. Other aspects of factory building would naturally follow suit. We have the opportunity to grow our Industry rapidly. We can hover around the 50-some-odd-thousands of homes level, or we can grow up!

Housing has long been the true back bone of America's economy!

Housing in a very real way is the last great truly American industry! We don't see Chinese, Japanese or other imported housing hitting our shores; not yet, anyway. If that day comes, those homes will arrive in modules and panels, components made for assembly on site. America is said to have invented factory home building, just as we popularized auto manufacturing that was born in Europe.

We can't afford to be seen by the public in dysfunctional ways as attacking, even quietly, another segment of factory home building. We need to be one, great big - and thus prosperous! - Industry. Doing so insures your own future.

Can the Industry segments get along? As was noted at the start, of course...

...HUD Code home builders often build modular as well as manufactured homes. Retailers like Doug Gorman or Greg McClanahan retail both HUD Code and modular homes successfully.

What it takes is an open mind and forward-looking vision!

The marketing, sales and management tips on these pages at MHMSM.com can be applied to any segment of the factory home building industries. Our Factory Built Housing News at Noon with Erin Patla routinely carries news each business day from one or more aspects of factory home building.

Do you want a brighter future? How soon?

Grab hold of the principles and facts found in The Manufactured Housing Revolution! Develop at least a basicunderstanding and support of the various aspects of factory building. The more we make that a reality, the faster we each segment will grow.

That is a bottom line we can all get excited about. # #