|Housing industry analyst John McManus predicts that, within a few years, at least three of the top 10 home-building companies will have a business model aimed at the affordability crisis and at least two will have a top-five market share of new construction.
Of the four firms McManus believes are most likely to lead a residential construction disruption, one is a tech company (Amazon), one is a tech-based prefab builder (Katerra), and one is a global real estate company that widely uses new technologies (Osaka-based Sekisui House).
The fourth is the country’s largest manufactured home builder, Clayton Homes, which raises an overlooked point: For all the excitement about cutting-edge prefab and modular approaches, it’s the much more common manufactured home that has actually achieved scale as a much-lower-cost option.
Manufactured homes represent roughly 10 percent of the housing stock and account for 9 to 10 percent of annual new single-family starts, according to the Manufactured Housing Institute. The institute says manufactured units cost less than half as much as site-built homes to produce and sell for an average price of less than $71,000.
The inventory is still associated with the generally poor condition of the 25 percent of it built before federal quality controls were imposed in the ’70s and strengthened in the ’90s, according to the Lincoln Institute of Land Policy. Poor perceptions fuel unfavorable zoning treatment. “Cheaper materials and processes are still common in the industry” as well, reports Prosperity Now. And research by the Urban Institute has shown that manufactured housing financing options generally come with worse terms and fewer protections for borrowers than conventional mortgage loans.
In proposing last week to reduce its support for manufactured housing lending starting next year, Fannie Mae (see below) pointed to additional obstacles: “delayed communication timelines from manufacturers; limited consumer visibility of manufactured home options; fragmentation in distribution model and lack of meaningful support from industry trade groups.”
Nevertheless, the prospects for manufactured housing may be brightening. More lenders seem to express sentiments like those of David Battany of Guild Mortgage, who said, “It’s totally different today. I used to work in construction. I could not tell the difference between a manufactured home and a stick-built home.” Preliminary data from the Federal Housing Finance Administration suggests newer units may appreciate at around the same rate as stick-built housing.
HFAs are giving manufactured housing a second (or third) look because it represents the most compelling, if imperfect, proof of concept for delivering a much lower-cost, but still good-quality, home. Eleven state HFAs have created or expanded manufactured home programs in the last few years.
HFAs are also driving innovation in prefab and modular production. This week in Pierre, I got a tour of South Dakota HDA’s DakotaPlex prototype, a custom two- to four-unit rental modeled on the agency’s award-winning Governor’s House single-family program. The cost to deliver a three-bedroom unit is less than $67,000.
Why settle for bending the cost curve when you can break it?
Stockton Williams | Executive Director