ShareExecutive Summary
When new residential housing is built we typically imagine that the home, and all its parts, are built primarily at the location where the unit will be inhabited. This construction method is defined as Site-built – but it is not the only construction method used today. In fact, there are three additional methods in particular: Manufactured, Modular, and Panel.
This paper examines:
- Each of these three additional construction methods (Manufactured, Modular, and Panel),
- The historical and current trends of these construction methods,
- How these construction methods can improve housing affordability.
Background and Terminology
Manufactured Housing
Manufactured Housing, sometimes referred to as “mobile homes,” are prefabricated units that are mostly assembled in factories and then transported by wheels to its inhabitant site. The Department of Housing and Urban Development (HUD) defines a manufactured house as:
“A manufactured home means a structure, transportable in one or more sections, which in the traveling mode is 8 body feet or more in width or 40 body feet or more in length or which when erected on-site is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained in the structure.”
The manufactured house must also have a certification label (often referred to as a “red tag” or “HUD label), and this label can only be produced by the manufacturer of the particular unit.
Modular Housing
Modular homes are similar to manufactured homes in that the majority of construction takes place off-site, but aside from that similarly there are a variety of differences. Modular houses are built by first building box-like sections, or modules, and then these separate modules are secured together to form a whole. Modules can be placed side-by-side, end-to-end, or stacked on top of another using a crane. Further, modular homes are typically regulated under state, city, and local codes, while all manufactured homes are regulated under HUD.1
Panel Housing
This construction method involves first laying down the floor and then lowering the walls, some with windows and doors, and lowering each section of wall in to place one at a time. The floors could be bare when they are first laid down or the manufacturer may have already placed objects – toilets, sinks, dishwashers, etc. – as long as the objects are bolted down and safely secured during travel.
Comparison
Manufactured, modular, and panelized houses are typically cheaper than Site-built homes, depending on the size of the home and the local real estate market. All three of these off-site methods are typically cheaper for several reasons. The majority of the construction that actually builds the home, module, or panel occurs inside a manufacturing plant. Homebuilding construction may be delayed by variables including the weather, delays in material delivery, or subcontractor inefficiencies, all of which ultimately increase the price of building the home. For each of the three construction methods, these price-increasing variables can be reduced or even eliminated.
Each of the three types of construction methods may also be more environmentally sustainable than traditional methods. Since the majority of the construction is performed indoors, there is less waste of construction materials and easier cleanup. Both modular and panelized homes are certified under the ICC 700 National Green Building Standard, a residential green building standard that is approved by the American National Standards Institute.2 All three home types are typically more energy efficient in their heating and cooling processes as well, as they are aided by the precision of modern manufacturing processes.
A key difference between the three different types is the design flexibility of the homes. Manufactured housing is less flexible in its design, as manufacturers of the units typically have a portfolio of homes to choose from. Modular and panelized construction, however, are more flexible. Computer-assisted design (CAD) programs allow designers, architects, and engineers to take almost any plan and make it a reality.
Historical Trends and Data: 1) Manufactured Housing 2) Modular/Panelized
Manufactured Housing
The United States Census Bureau (Census Bureau) has been tracking the amount of shipments of manufactured homes since 1959, and the amount of shipments of homes has varied significantly since that year. From the mid-1960s to the mid-1970s, shipments of manufacturing homes increased significantly. Initially, consumers whose lifestyle required mobility were attracted to these, but their popularity began to increase as prospective homeowners sought less expensive housing than traditional site-built homes.
By the end of the 1980s however, production had declined significantly, as the economy dealt with the oil shocks in the mid-to-late 1970s and the high interest rate environment throughout the 1980s. Furthermore, manufactured housing producers saw increased competition from condominium construction, and HUD regulations implements in 1976 resulted in many mergers and acquisitions by housing suppliers.3
The production of manufactured housing increased throughout most of the 1990s, as interest rates were significantly lower than the previous decade. However, since the late ’90s, production has steadily declined and there has been little recovery, and there are several reasons for this. First, relaxed standards and underwriting practices in the manufactured-housing loan market increased the demand for loans during the 1990s, but the market began to collapse in the early 2000s, as borrowers began to default. Second, the relaxed lending practices also applied to site-built housing loans, so borrowers had a variety of loans to choose from and opted for the larger and more expensive homes. Production levels hit all-time lows in 2009 (49,800), as housing production activity was significantly reduced by the 2008 recession, but production has slightly increased since then (96,600 in 2018).4
The map above shows the amount of manufactured housing shipments that each state has received since 1994. Figure 2 above shows that the state of Texas and the Southeast area of the United States have been the recipients of the majority of the shipments.
The Census Bureau also tracks the average sales price of manufactured homes in the United States through the Manufactured Housing Survey (MHS). As of February 2019, the average sales price for a manufactured home is:
- $84,300 for the United States
- $80,350 for the Northeast
- $82,950 for the South
- $70,250 for the Midwest
- $99,450 for the West
Modular and Panelized Housing: Single-family units
The Census Bureau has formally tracked the production of modular and panelized housing since 1992 through the Survey of Construction (SoC), an annual survey performed by the Census Bureau with assistance from HUD. The Census Bureau tracks these statistics by assessing the particular construction method in which the new housing was built for that particular year, for both Single-family completed units as well as Multifamily completed buildings.
The Census Bureau disaggregates the total amount of new housing units built into three categories: 1) Site-built, 2) Modular, and 3) Other. Within the third category, Other, the Census Bureau groups both panelized and precut homes into this category, as the panelized construction method is often referred to as “pre-cut.”
Figure 4 depicts the fraction of total amount of single-family homes built by the corresponding three construction method by the particular year. Modular and Panelized housing production peaked in 1998 (at roughly 6.7% of all total homes), and since that percentage has steadily declined (about 3.4% in 2018).
Likewise, Figure 5 shows that the vast majority of homes built throughout the past quarter-century or so show that most new homes are built through the traditional site-built method (about 95%), while modular is about 3% and Panelized is about 2%.
Modular and Panelized Housing: Multifamily buildings
In addition to tracking the amount of single-family homes built, the Census Bureau calculates the amount of multifamily buildings built by the three particular construction methods, although the agency has only kept track of these statistics since 1999.
As Figure 6 shows, similar to single-family buildings, a large majority of the multifamily buildings built since 1999 have been considered site-built (about 97%). The amount of home built through modular or panelized techniques, overall, is less than 3%, and many years of construction activity using these particular methods are so low that less than 500 units were built.
As shown in Figure 6, the vast majority of new multifamily buildings that have been built throughout the past two decades have been site-built. From 1999 to 2006 or so, panelized production of multifamily buildings averaged roughly 1,000 units per year, but since 2007 that number has never reached 500 units. Furthermore, modular multifamily construction has been almost non-existent, as there has never been a single year in which 500 units have been built.
Discussion
There are a variety of factors involved that should be taken into account when discussing housing affordability, including the local market that the buyer wishes to buy in, the income of the buyer, interest rate levels, and the general economic environment.
From 2012 to 2018, national home prices have increased by 47% while wages rose only 16%, although these differences are more pronounced in states such as California and much of the Northeast. For example, in San Jose from 2012 to 2018, the average monthly mortgage payment increased by $2,428 while the average monthly wage only increased $549, while in Kansas City the monthly mortgage payment increased by $268 and the monthly wage increased by $523.5 In short, wages are not keeping up with home price growth in hot real estate markets, many of which are in the Northeast and West.
How do they improve affordability?
Manufactured, modular, and panelized housing production would help mitigate the affordability problem, particularly inexpensive metropolitan markets, for several reasons. First, in terms of supply and demand, increasing the supply of affordable housing lowers the demand for houses that are currently for sale, and prices are lowered, all other variables being held equal.
Second, these three particular construction methods can build homes of various prices and sizes. Manufactured homes are less flexible in terms of size and design because a home manufacturer typically has a set portfolio of houses that they are able to produce. Likewise, the manufactured home, or its sections (if it is built by sections and then combined on-site), must be transported on wheels, so the house and its sections must be able to actually fit on the truck transporting them. Modular and panelized housing are more flexible because they are built module-by-module or panel-by-panel. They can be small or large, and if the buyer wants a larger house or an extra room, then the manufacturer can ship individual modules or panels to the site.
Third, these three specific housing production methods provide cheaper alternatives to traditional site-built construction. As mentioned previously, much of the construction of manufactured, modular, and panelized homes are performed inside controlled construction environments, typically in a manufacturing plant. This environment removes problems that may arise during site-built construction, including weather delays, damage to materials, or vandalism, all of which result in higher prices.
Fourth, the construction industry in the U.S. is facing a labor shortage, and obviously home builders need construction workers to build homes. As of May 2019, there were 404,000 job openings in construction while there were 294,000 openings, a shortage of 110,000 workers.6 This labor shortage ultimately spills over into the real estate market, resulting in higher prices for homes. Producers of manufactured, modular, and panelized homes hire factory workers – not construction workers - and these factory workers are trained to build homes using assembly line techniques in a controlled, indoor environment. Outdoor construction work is labor-intensive, and sometimes dangerous, as workers can be exposed to harsh weather conditions, tall heights, and workplace accidents. Factory work removes many of the negative conditions faced by typical construction workers.
Fifth and finally, the increased production of manufactured housing would be particularly beneficial for low-income individuals. According to the Census Bureau’s 2016 American Community Survey (ACS), the median household income among owners of manufactured housing units was $43,900, which is roughly half the median income among all homeowners.7 As of late 2018, the average sales price of a new manufactured home was $78,900 ($50,400 for single sections and 102,100 for double sections)8 while the average sales price of a home sold in December 2018 was $384,0009.
One reason that manufactured homes are cheaper is because of their size. In 2018 the average size of a new manufactured home was 1,438 square feet while the average size of all new single-family houses completed was 2,588 square feet.10 Certainly, manufactured homes tend to be smaller than traditional homes, and this size disparity reflects the lower price. However, in terms of price per square foot, manufactured homes are almost two times more affordable, as the price per square foot of all homes in the United States is about $114.43 while the price per square foot for manufactured homes is roughly $55 (78,900/1,438). Much of this large differential can be attributed to the markets where manufactured homes tended to be located, as a large proportion of manufactured homes are located in the South (e.g. Texas, North Carolina, Georgia, Florida, Louisiana, etc.) real estate prices are generally lower than the Northeast (Massachusetts, Connecticut, etc.) and the West (California, Oregon, Washington).
1 National Home Builders Association. Types of Home Construction. www.nahb.org/consumers/home-buying/types-of-homes-construction.aspx
2 Ibid.
3 Scholastica D. Cororaton, National Association of REALTORS®. The Market for Manufactured Homes. The Journal of the Center for Real Estate Studies, Vol. 6, No.1. May 2018.
4 U.S. Census Bureau. Shipments of New Manufactured Homes, June 2019. https://www.census.gov/data/tables/time-series/econ/mhs/shipments.html
5 Evangelou, Nadia. National Association of REALTORS©. Wage Versus Home Price Growth. March 25, 2019. https://www.nar.realtor/blogs/economists-outlook
6 Scholastica D. Cororaton, National Association of REALTORS©. Nearly 110,000 Fewer Construction Job Seekers than Openings as of May 2019. July 3, 3019. https://www.nar.realtor/blogs/economists-outlook7
7 ---. Manufactured Homes: Affordable, Safe, and Decent Housing for Aspiring Homeowners. August 7, 2018. https://www.nar.realtor/blogs/economists-outlook
8 U.S. Census Bureau. MHS Latest Data. July 2019. www.census.gov/data
9 Federal Reserve Bank of St. Louis. Average Sales Price of Houses Sold for the United States. July 24, 2019. fred.stlouisfed.org
10 U.S. Census Bureau. Highlights of Annual 2018 Characteristics of New Housing.