This is an economic analysis of the modular dome building industry, that I wrote in 2007. It also has some insight on the potential sustainability benefits of modular-built housing.

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MkLotus House by Michelle Kaufman Designs, 2007
INDUSTRY ANALYSIS: PREFABRICATED MODULAR HOUSING
Steve Puma, Final Project, SUS6200
Macroeconomics and Ecological Economics, Fall, 2007
November 14, 2007

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TABLE OF CONTENTS
Overview .........................................................................................................................................................3
Background .................................................................................................................................................3
Industry Analysis .............................................................................................................................................4
Market Trends ............................................................................................................................................5
Opportunities and Threats .........................................................................................................................6
Products ......................................................................................................................................................8
Industry Concentration and Analysis .......................................................................................................10
Pricing and Competition...........................................................................................................................10
Barriers to Entry .......................................................................................................................................12
Cost of Production ....................................................................................................................................13
Market Analysis.............................................................................................................................................14
Market Size ...............................................................................................................................................14
Market Demand .......................................................................................................................................15
Sustainability issues ......................................................................................................................................16
Conclusion: Industry Outlook........................................................................................................................18
Works Cited...................................................................................................................................................19
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OVERVIEW
BACKGROUND
Most Americans dream of owning their own home. However, the cost of buying
a home has increased significantly dimming the hope for some people. More
importantly, the cost of building a new home has become truly a dream for most
people. In the early 1990’s, to combat the rising cost of owning a home, pre‐fabricated
homes increased in popularity. A pre‐fabricated home, or most commonly known as a
‘modular’ home, is built in a factory and shipped in pieces to the owner’s home site.
The time and cost involved in building and erecting a modular home is considerably less
than conventional construction. This paper will look at why there has been such an
increase in popularity of the modular home, and what the future entails for this
business.
In the early 1900s, Sears, Roebuck & Co. began marketing modular homes
entitled ‘House by Mail’. These homes were prefabricated dwellings that gave hope to
Americans who dreamed of owning their own home. Currently, there are approximately
120 manufacturers in the United States. Some of these companies are fully integrated,
meaning, they have their own sales/marketing staff, wood lots, sawmills, plywood, and
construction plants. With the improvements in construction technology, today’s
modular homes are significantly different than the Sears modular homes. The
difference is due to today’s sophisticated engineering tools and machinery used to build
the homes.
The modular home industry is heavily concentrated in the East Coast of North
America, where the ability to construct homes indoors, where workers and materials
are not affected by severe weather. This has the advantages of cost savings and
extending the manufacturing window to the entire year (in addition to the sustainability
advantage of better working conditions). There is a major opportunity for growth in the
Western region, since only 8 of the major manufacturers are currently located West of
the Mississippi.
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The Prefabricated Modular Home industry is currently experiencing a large
amount of growth due to cost factors and renewed interest in the environment and
global climate change. This “environmental factor” is poised to become the new
industry standard, as many facets of modular building lend themselves easily to efficient
building practices and green technologies.
INDUSTRY ANALYSIS
Prefabricated or modular homes are constructed using three‐dimensional boxes
or "modules" that are 90 percent to 95 percent complete when they come off the
assembly line. This includes interior walls and finish work, and exterior siding. Also
utility work and conduit lines as well as and interior walls and stairs are complete. A pre
fabricated or modular home is usually shipped in two or three sections. It arrives on a
building site just needing to be set and attached to the foundation. Several modules can
be connected side‐by‐side or stacked to create a finished home. When completed, most
modular homes are composed of groups of two, three, or four modules (boxes)
fastened together. Most modular manufacturers design their homes with integral roofs
that are hinged so they will lie flat during shipment. For steeply pitched roofs, an extra
roof unit is sometimes required. For roofs with multiple configurations, some
manufacturers provide individual roof trusses that must be installed and sheathed at
the site to finish the structure. This increases erection time and project cost but
provides increased design flexibility. Modular homes are constructed to minimize the
cracking of gypsum board sheathing during shipment. Most modular manufacturers
construct each box with floor and ceiling joists, even when boxes will be stacked
vertically. (MSU P1875 factory built housing, 2007)
There are approximately 120 different modular home manufacturers across
North America, with a larger concentration of them located along the east coast. With
the rising costs of building stick‐built homes, the momentum for prefabricated homes is
gaining. However, with the rising costs of materials and need for education on the part
of the financial industry and the public, the industry may not be as good a deal for
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people dreaming of owning a home. Regardless, the modular home industry is growing
larger and meets the needs of different populations, from first homes to vacation
homes.
MARKET TRENDS
Ranging from approximately $100‐$300 a square foot, modular homes are
becoming increasingly popular. Additionally, the trend is moving towards ‘green built’
homes. Green built homes are homes built with environmentally friendly materials.
David, Newey, director of client services for Southeast region of Empyrean states: “As
housing costs rise and as people become much more focused on materials and quality of
construction and quality of performance of the house . . . the market will demand this
type of construction and demand that houses perform better” (Triangle Business
Journal, 2007). In order for the modular home industry to truly ‘take off’, education of
how the homes are manufactured is necessary to ensure that the public does not
confuse modular homes with mobile homes. There is a certain stigma in the United
States regarding “mobile homes” or “pre‐manufactured” homes. The stigma keeps
people from otherwise considering this very affordable and efficient way to get a home
built.
Another important factor affecting the modular home market is the labor force
in the United States and Canada. In many areas, the skilled labor force necessary to
build custom “stick built” homes isn’t available due to a very tight labor market so
homebuilders charge a premium and establish waiting lists for clients who would like a
home built. Pre built modular homes require little skilled labor and come needing very
little done to be a fully functioning domicile. With an order to move in date of 8 weeks
modular homes are quicker to move into most cases than conventional home. With
modular homes costing less than their stick built counterparts, they offer a very
attractive option for all home buyers, not just the first time buyer.
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If the modular home industry is able to gain momentum in the greater housing
market with the advantages they possess, there is considerable room for them to
increase their market share. According to WIRED Magazine in 2007, “AVI FRIEDMAN,
AN ARCHITECTURE PROFESSOR AT MCGILL UNIVERSITY, ESTIMATES THAT 5 TO 10
PERCENT OF ALL NEW HOMES IN NORTH AMERICA ARE PREFAB (AND ABOUT 10
PERCENT OF THAT MARKET IS UPSCALE). HE PREDICTS THE PREFAB FIGURE WILL JUMP
TO MORE THAN 35 PERCENT IN THE NEXT 10 YEARS. “
OPPORTUNITIES AND THREATS
There are several opportunities with prefabricated homes. First, the production
costs are considerably lower. Not only do companies manufacturing prefabricated
homes gain economies of scale in the production costs, other overhead costs are also
shared allowing the price per square foot to stay down. Additionally, pieces of the
home are produced in an environment where the climate‐control ensures the workforce
is able to complete the work with the highest quality, unlike a traditional builder where
the materials sit in the elements of the weather at the building site. Engineering
tolerances for products are finer, and the construction quality better, due to machinery
within the manufacturing environment using a stable well‐trained workforce versus a
different subcontractor on each job. There is also less waste of materials during
production, as there is time and data for quality improvement efforts, such as a six
sigma initiative, which aids in lowering the cost of production.
Second, prefabricated homes are eligible for traditional mortgage financing. 20
years ago and even as recent as just 10 years ago, a mobile home trailer or
manufactured home had a lower mortgage term and classified differently than a
traditional home. Today, prefabricated homes are built on foundations and are of a
least the same quality of construction as site‐built homes are and therefore qualify for
30‐year mortgage loans making them extremely affordable.
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Third, materials used are usually higher‐grade materials, focusing on green built
technologies. With the ability to machine building materials in manufacturing facilities,
companies are able to build homes of better quality than can be built on‐site.
Additionally, workers are not exposed to the elements, are afforded good benefits and
working conditions, and given training and access to the latest technological
construction techniques and tools.
Fourth, modular home construction undergoes similar permit and building code
inspections, as does its traditional stick‐built counterpart. With the quality improved
and the majority of the home prebuilt, the onsite inspection required is minimal.
Modular homes must conform to the same state and local building codes as do other
residences. The Building Officials and Code Administrators National Building Code is the
most commonly enforced of the national codes. In most cases, a multi‐step process
happens for each house being manufactured. Plans are submitted to local authorities
for building‐code approval. Then building inspectors must approve the manufacturing
process and the construction of the actual units before certification is granted. This is
sometimes known as a “third‐party plan check” (Cornelius, Puma and Sowers, 2007).
Upon the granting of certification for a model of a home, a state‐approved label is
affixed to each unit.
A threat that exists, is the confusion that these are expensive “mobile homes”.
Education to the public about what modular homes are, and the differences in
construction, must occur. Another threat is that the financial industry may not have
experience in drawing up loans for prefabricated homes, thus making obtaining
financing harder for individuals. Stuart Tyrie, a vice president of Wells Fargo Home
Mortgage, recommends “anyone thinking of buying a nontraditional house should
spend time speaking with prospective lenders to make sure they have experience
making loans on this type of home.” (New York Times, 2006). Another threat is there
may not be a cost savings as initially thought. For instance, not only does the buyer
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have to obtain financing for the modular home, but the buyer will also have to pay for
the land, taxes and permits required.
PRODUCTS
Modular homes must be built strong enough to withstand the transportation to
the construction site. Subsequently, there is a floor and ceiling built even if it is a two‐
story home, along with thicker walls than a standard supporting wall. Stalwart Built
Homes, located in Florida, build LEED‐certified homes that withstand 200‐mile an hour
winds generated from hurricanes.1
Connor Building Company, located in Vermont, builds “panelized” homes, similar
to modular but requiring more assembly at the home site. For instance, portions of the
panelized home are built at the factory, the structural and partition walls, as are the
rafters, yet, unlike modular, are assembled at the home site. (Cornelius, Puma and
Sowers)
One of the benefits of a modular or prefabricated home is that there is less
waste of materials. “Rebecca Woelke, director of media relations for Michelle
Kaufmann Designs (MKD) in Oakland, California, told EBN the company’s modular
homes yield up to 70% less waste than typical site‐built homes.” (ENN, 2007) Also
noteworthy is the fact that the prefabricated housing industry has adopted lean
manufacturing principles in their production, which is designed to eliminate waste or
overstocking of materials, which costs money to sit in storage.
1
LEED certification actually is dependent on the building site itself, as well as the orientation of the house
on that site, so this company may be misrepresenting the facts somewhat.
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Taken from the 2002 US Census Bureau for Prefabricated Wood Building Manufacturing,
below is a table that outlines the industry statistics by primary product class.
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INDUSTRY CONCENTRATION AND ANALYSIS
The table below is taken from the 2002 Economic Census for Prefabricated
Wood Building Manufacturing by the US Census Bureau. The information provided
describes the employees, cost of materials and value of shipments.
Prefabrication homes are generally operated regionally based on transportation
costs.
PRICING AND COMPETITION
Buying or building a modern home is expensive. A modular home is a well‐
designed home, but the costs can still be substantial. While modular homes are
generally less expensive as than other alternatives, there are companies who specialize
in high quality, high cost pre built homes. Most times the pre fabricated home can be
classified as new construction, which buyers may find financing difficult to obtain.
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Generally in a new construction loan the interest is higher until the home is completed
at which time the loan converts to conventional home financing. Given the expanse of
modular manufacturers with a clearly defined market many view this as a perfect
competition. The manufacturers do not control the costs for everyone. Rather, the
fluctuation of costs of materials would eventually dictate the price structures for the
modular homes but manufacturing technique and economies of scale could still help to
keep costs under those of conventional stick built homes.
Below is an example of estimated costs for a prefabricated home/building site.
These costs vary depending on the area where the final product will be erected.
“Costs ‐ A Basic Budget Outline Costs ‐ Example 1500sq ft home
1. Home / Structure 1. $227,000
i. design fees i. $4,000
ii. materials/structure ii. $210,000 ($140sq ft x 1500)
iii. upgrades/finishes iii. $10,000
iv. transportation iv. $3,000
2. Land / Site 2. $148,000
i. lot i. $120,000
ii. site work/foundation/hookup ii. $18,000
iii. landscaping iii. $10,000
3. Financing / Taxes / Permits 3. $19,000
i. loan costs/closing costs i. $4,000
ii. sales tax/building permits/fees ii. $15,000
Total = $394,000 (example only ‐ cost vary)”
(Prefabs.com, 2006)
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In Canada, Empire Modular Homes is Alberta’s leading manufacturer for modular
homes. “Empire Modular Homes is proud to provide modern, attractive, and high
quality manufactured homes. Our modular homes display excellent craftsmanship and
feature the latest innovations in manufactured home design and construction.”
(Netvention Company Profiles, 2007).
Bensonwood, another manufacturer, provides green built homes, which offer
environmental benefits, such as “better‐insulated structures; less waste from
construction; reduced transportation impacts; and, in some cases, easier disassembly
for reuse. Prefabricated construction also has the potential, given the efficiency of
factory production, to deliver these benefits at a lower cost than site‐built housing.”
(ENN, 2007)
A higher‐end builder of modular homes, located in Stamford, Connecticut, builds
home of 5,000 square feet and larger, catering to customers who desire customized
details. Darrell Hoss, the builder, chose to build modular homes versus stick‐built
homes because the building materials are kept in a climate controlled area and the
overall quality of construction is more durable than stick‐built homes. Additionally, the
employees are long‐term employees versus hired laborers for stick‐built homes.
BARRIERS TO ENTRY
The modular or prefabricated home building industry has several barriers that
make entry into the housing market difficult. Public opinion is the number one issue
that that the industry faces. People continue to view homes that are pre‐built as being
made of lesser quality components and by less skilled labor. Overcoming this challenge
will require the industry to work together as a whole with a comprehensive marketing
and public relations campaign to change the public’s opinion.
Competition remains high with highly competitive large‐scale on‐site home
builders who use economies of scale to reduce the costs of land, materials, and labor.
Some of these mega builders are even New York Stock Exchange traded firms that can
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invest in the infrastructure to meet buyer needs. However, on a positive note, public
opinion shows there are hundreds of thousands of people who do not want to live in a
Planned Community and are looking to build on raw land.
XtremeHomes, which is a 2‐year‐old company located in Oroville, California, has
been able to lessen its barriers to entry by choosing its location wisely. XtremeHomes
intends to take advantage of the previously‐mentioned large market opportunity that
exists on the West coast, as well as the increasing interest in environmentally‐friendly
technologies. XtremeHomes’ CEO, Tim Schmidt, had previously been working in Florida,
and saw a market niche he could take advantage of. (Schmidt)
State and federal regulations also have to be followed carefully and many states
have extremely stringent building standards. If areas become too built up, the
regulating municipality will begin to tighten the amount of permits issued, and there will
be intense competition for the limited amount of permits that are issued.
Time to market is another area that can be difficult for the prefabricated or
modular home issue to handle. Although it is possible for many of the companies to
deliver a home ready to move into within eight weeks this tight turnaround time is not
always possible. If buyers want custom features or adaptations, the manufacturing
process is slowed. Permitting must be redone or amended, and the whole process is
slowed down. Additionally, when demand is high, the homes simply cannot be built fast
enough. If the demand becomes so high that factories consider expansion, the majority
of companies would take more than two years and millions of dollars to build a plant
large enough required to produce modular homes.
COST OF PRODUCTION
The modular manufacturers have general specifications that have costs
associated with them. If a homebuyer wants to upgrade or vary in any way, the cost
rises. This is much the same as a regular stick‐built home. “If you’re trying to do
sustainability,” Quale said of affordable housing, “you’re going to be using materials that
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are the same as, if not better than, those used in a market‐rate home, so you need
other strategies.” (ENN, 2007) The cost comparison of a stick‐built home versus a
modular is the fact that with a modular home, everything is built on‐site and then
shipped to the home site. With stick‐built homes, contractors and laborers have to
travel to the site and materials are delivered in several small batches. With a modular,
the shipment may take a couple of trucks and a crane with a few laborers to put the
pieces together, reducing costs. ”It remains vital, however, that the general contractor
performing the onsite work be familiar with modular construction and the procedure for
ensuring a good seal between modules.” (ENN, 2007)
MARKET ANALYSIS
The modular home manufacturer market is located across the country, with
most of the concentration of manufacturers on the east coast. The demand for higher‐
quality, lower‐cost homes is increasing. Both the changing attitudes and evolving nature
of home builders and home buyers will have a major impact on the industry’s prospects.
MARKET SIZE
The top 10 manufacturers have each built a minimum of 500 homes in 2006 and
have a combined revenue of 4 billion dollars with the top company approaching 5,000
homes built and shipped in one year. The top 10 Company’s results in homes shipped
and gross revenue for 2006 are listed below.
2006 Gross Revenue
“Company 2006 Homes Shipped (in millions)
1. Champion Enterprises 4,653 $1,365
2. CMH Manufacturing 3,166 $1,328
3. Palm Harbor Homes 1,614 $711
4. Muncy Homes 1,346 $85
5. Excel Homes 1,200 $111
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6. Ritz‐Craft Corporation 849 $91
7. Professional Building Systems 781 $58
8. Royal Concrete Concepts 600 $68
9. Liberty Homes 552 $97
10. Pleasant Street Homes 526 $57”
(Top 31 Modular/Whole‐House Panel Builders, 2006)
As the market continues to grow, which clearly the above‐cited companies are
proving to be true, new homes can be within reach of almost everyone in America
allowing them the opportunity to afford the American dream.
MARKET DEMAND
Modular homes have increased in popularity, particularly in the northeast.
Martha’s Vineyard is a good example of how the market is increasing. ''At least a
quarter of all the new houses on the Vineyard in the last year are modular, no doubt,"
said Tisbury building inspector Kenneth Barwick. ''And that trend will likely go higher as
time goes on." (Boston Globe, 2006)
Currently the trend of all new homes built is approximately 2 percent of the
market being modular homes. According to Fred Hallahan, principal of Hallahan
Associates, which is a firm that compiles industry statistics in the Baltimore area,
believes that the trend will increase to seven to eight percent by the end of the decade.
Below is a graph showing the increase in modular production from 1995‐2005:
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The rise in modular built homes in Martha’s Vineyard, known for sprawling
estates, is “simple arithmetic: the fewer times local tradesmen bang a hammer, the more bucks the
homeowner saves. Charter's rule‐of‐thumb cost for a budget‐conscious modular home of excellent
quality is $115 per square foot, which gets the buyer a place in move‐in condition. A custom home,
meanwhile, starts at around $200 per square foot for the most entry‐level home on the Vineyard.”
(Boston Globe, 2006)
SUSTAINABILITY ISSUES
As previously mentioned, the prefabricated modular home building
industry is a perfect match for sustainability issues. There are many possible advantages
such as the following:
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• Efficient use of raw materials: small pieces of wood and other materials
can be use where possible, unlike the typical building industry practice of
discarding them.
• Ability to standardize components means higher quality, more efficiency
• The possibility exists for co‐location with other sustainable businesses,
such as power co‐generation and recycling facilities.
• Better working conditions for construction employees:
o Stable year‐round employment means more work
o Longer employment means better trained workers, which leades
to higher quality.
o Better benefits
o Workers do not have to be adversely affected by weather
conditions.
• Houses can be constructed with environmentally‐friendly technologies,
such as:
o “SIPS” panels, which are solid wall panels, constructed by
sandwiching 2 pieces of plywood around an insulated core, and
are very energy efficient.
o Green roofs
o Energy‐star certified appliances
o Specially‐designed passive heating and cooling systems
o Better quality means better seals between panels and sections.
Given the previously mentioned growth, the ability to take advantage of these
green technologies means that prefabricated modular housing can have a huge
impact on the environment and climate change issues, since structures account
for a large percentage of energy usage and greenhouse gas emissions.
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CONCLUSION: INDUSTRY OUTLOOK
Although prefabricated home construction has made great strides in the home
manufacturing market, particularly in design, construction and energy efficiency, there
is still a lot of room for growth, especially on the West Coast of the Unites States. Even
though some of the manufacturers are building a green product, it is not something that
all the manufacturers have yet mastered. Specifically, when it is necessary to change
the specs of a home, such as to add extra insulation to make it more environmentally
friendly, there may be more expensive in the long run. This may possibly be mitigated by
taking advantage of economies of scale, as the auto and other large industries have
done. There may also be site limitations or areas which are not familiar with the building
process. In essence, the prefabricated modular home building industry is not yet the
standard way to build homes, especially green homes, but the industry is currently
positioned so that it will not be long before both of these things are the industry
standard. (McGraw‐Hill Construction)
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WORKS CITED
“Prefabs, not to be confused with trailers, finding a niche.”. 18 November 2007
<http://www.bizjournals.com/triangle/stories/2007/08/20/focus1.html>.
"2006 Modular Top 31." 2006. 1 November 2007.
Automated Builder Consortium. Industry Data. 2006. 1 November 2007
<http://www.altamonthomes.com/industry_data.htm>.
Budris, John. A boom in modular boxes is barging into the Martha’s Vineyard house market. 19 February
2006. 2 December 2007
<http://www.boston.com/realestate/news/articles/2006/02/19/home_delivery/>.
Bureau, U.S. Census. "2002 Economic Census Industry Series Report." January 2005. 11 November 2007.
Cornelius, Adam, Steve Puma and Mark Sowers. XtremeHomes Operations Plan: Custom Design Services.
Operations Plan. San Francisco, CA, 2007.
Durham, Tim. COO, XtremeHomes Inc. Steve Puma. October 2007.
Generate, Inc. Netvention Company Profiles: Empire Modular Homes. LexisNexis, 25 October 2007.
Graham, Frances. Factory‐Built Housing. 2 December 2007
<http://msucares.com/pubs/publications/p1875.htm>.
Kaufman, Michelle. MkLotus House. Michelle Kaufman Designs, Inc. http://www.mkd‐arc.com/. 2007.
McGraw‐Hill Construction. "Residential Green Building SmartMarket Report." Industry Analysis. 2006.
Prefabs.com. Prefab Building Costs ‐ The Basics. 2 December 2007
<http://www.prefabs.com/prefab_financing.htm>.
Schmidt, Tim. CEO, XtremeHomes Inc. Steve Puma. November 2007.
Tedeschi, Bob. Finding Loans for Yurts or Prefabs. 26 November 2006. 2007 18 November
<http://www.nytimes.com/2006/11/26/realestate/26mort.html>.
Vanderbilt, Tom. Some Assembly Required. 4 November 2007
<http://www.wired.com/wired/archive/14.01/prefab_pr.html#_jmp0_>.
Wendt, Allyson. Prefabricated Green: Building Environmentally Friendly Houses Off‐Site. 28 September
2007. BuildingGreen. 18 November 2007 <http://www.enn.com/green_building/article/23480>.
XtremeStructures, LLC. XtremeStructures Company Description. Business Plan. Oroville, CA, 2006.
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