Technology, Trade, and the U.S. ResidentialConstruction Industry

September 1986

NTIS order #PB87-117594

Recommended Citation:U.S. Congress, Office of Technology Assessment, Technology, Trade, and the U.S. ResidentialConstruction industry-Special Report, OTA-TET-315 (Washington, DC: U.S. Government Print-ing Office, September 1986).

Library of Congress Catalog Card Number 86-600575

For sale by the Superintendent of DocumentsU.S. Government Printing Office, Washington, DC 20402

Foreword

New technologies, and the expansion of international trade, have created a new frame-work for the U.S. economy. Within this broad setting, America’s residential constructionindustry is changing as well. Technology has affected both building techniques and the na-ture of the home itself. Specifically, factory-based production allows for greater use of ad-vanced automation, and a wide range of technologies that improve comfort while reducingenergy costs are now available.

Recently, many U.S. home producers have become vulnerable to foreign competition,as factory-based construction techniques have improved rapidly in several other countries.The combination of an antiquated regulatory system and a lack of industry incentives forresearch has impeded America’s ability to upgrade housing quality, and to hold its own againstaggressive and sophisticated overseas builders.

This special report is part of a larger OTA project that analyzes the effects of technologi-cal change on the structure of the domestic economy, on international trade, and on optionsfor public policy. Home construction’s importance to the study stems from the fact that al-though housing accounts for over 27 percent of personal spending, ownership of attractiveresidences remains beyond the reach of many American families. The quality and cost ofthe factory-built home, and the number of jobs generated by the industry, will be stronglyinfluenced by whether the United States takes full advantage of developing technology.

The House Banking Committee requested that OTA expand its analysis to include regu-latory alternatives that might encourage the research and development of new technologies.Pressures to revise currently decentralized and fragmented U.S. housing policies have risenover the last several years. Coordination of State and local building codes, and Federal stand-ards established by the Department of Housing and Urban Development, will change alongwith the changing structure of the industry. We trust that this special report will help Con-gress to recognize how existing statutes may operate in a new environment, and to updatethese guidelines if necessary.

Director

— —

List of Reviewers

H.E. BlomgrenPresidentNational Manufactured Housing FederationWashington, DC

Don O. CarlsonEditor & PublisherAutomation in Housing and Manufactured Home

DealerCarpinteria, CA

David ClaridgeProfessorUniversity of ColoradoBoulder, CO

Henry E. CollinsVice President, Governmental AffairsUnderwriters Laboratories, Inc.Northbrook, IL

Eric DluhoschAssociate ProfessorMassachusetts Institute of TechnologyCambridge, MA

Charles G. FieldStaff Vice President, Construction and

Development—Regulatory CounselNational Association of Home BuildersWashington, DC

Earl FlanaganChairman, Technology Management BoardWashington, DC

Danny D. GhorbaniPresidentAssociation for Regulatory ReformWashington, DC

Robert E. HeggestadCasey, Scott & Cansfield, P.C.Attorneys at LawWashington, DC

Richard HibbertTechnical Advisor, Code 08BNaval Facilities and Engineering CommandAlexandria, VA

Richard P. KuchnickiPresidentCouncil of American Building OfficialsFalls Church, VA

James C. NistlerDeputy Assistant for Single Family HousingU.S. Department of Housing and Urban

DevelopmentWashington, DC

Joseph F. O’NeillExecutive DirectorAmerican Council of Independent Laboratories,

Inc.Washington, DC

Henry B. SchechterDirector, Office of Housing and Monetary PolicyAmerican Federation of Labor and Congress of

Industrial OrganizationsWashington, DC

James W. TuckerPresident and Chief Executive OfficerETL Testing Laboratories, Inc.Cortland, NY

Frank WalterVice President, Technical ActivitiesManufactured Housing InstituteArlington, VA

Robert C. WibleExecutive DirectorNational Conference of States on Building Codes

and Standards, Inc.Herndon, VA

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the reviewers. The reviewers do not, how-ever, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents.

iv

Technology, Trade, and the U.S. Residential Construction IndustryOTA Project Staff

Lionel S. Johns, Assistant Director, OTAEnergy, Materials, and International Securities Division

Henry Kelly, Project Director,Technology and the American Economic Transition

Daniel Chenok, Research Assistant

Robert Gold, Senior Analyst*

Janet Lowenthal, Contractor

Administrative Staff

Linda Long

Phyllis Brumfield

Contributors

Vincent Brannigan

David Dowall

Edward Starostovic

Steven Winter

*No longer at OTA

Workshop on Uniform National System of Building Codes and Inspectionsfor Manufactured Housing and Related Nonresidential Buildings, Apr. 9, 1985

Participants

Henry E. CollinsVice President, Governmental AffairsUnderwriters Laboratories, Inc.Northbrook, IL

William M. ConnollyPresidentNational Conference of StatesTrenton, NJ

Charles G. FieldStaff Vice President, Construction and

Development–Regulatory CounselNational Association of Home BuildersWashington, DC

Ray J. GansChairman, Technical Activities CommitteeMember, Executive CommitteeManufactured Housing InstituteSyracuse, IN

David A. HarrisVice President for TechnologyNational Institute of Building SciencesWashington, DC

Rick A. HowellDirector, Building Codes and Regulatory ServicesState of South CarolinaColumbia, SCGerald H. JonesFormer PresidentCouncil of American Building OfficialsKansas City, MO

Richard P. KuchnickiPresidentCouncil of American Building OfficialsFalls Church, VA

James MitchellPresidentMitchell Brothers ContractorsBirmingham, AL

Frank WalterVice President, Technical ActivitiesManufactured Housing InstituteArlington, VA

Stanley WarshawDirector, Office of Product Standards PolicyNational Bureau of StandardsGaithersburg, MD

Robert C. WibleExecutive DirectorNational Conference of States on Building Codes and

Standards, Inc.Herndon, VA

Observers

T.R. ArnoldPresidentT.R. Arnold & Associates, Inc.Elkhart, IN

H.E. BlomgrenPresidentNational Manufactured Housing FederationWashington, DC

Vincent M. BranniganDepartment of Textiles and Consumer EconomicUniversity of MarylandAdelphi, MD

Howard P. Gates, Jr.ConsultantLake of the WoodsLocust Grove, VA

James McCollomDirectorManufactured Housing and Construction Standards

DivisionWashington, DC

Ed StarostovicPresidentPFS Corp.Madison, WI

Steven WinterPresidentSteven Winter Associates, Inc.New York, NY

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the workshop participants. The workshopparticipants do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report andthe accuracy of its contents.

vi

ContentsPageChapter

1. Technology, Trade,Industry . . . . . . . . .The Impact of Factory

and the Future. . . . . . . . . . . . .Construction. . . .

of the U.S. Housing. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

Construction. . . . . . . . . . . . . . . . .. . . .

Barriers to the Adoption of New Housing Technology in the UnitedInternational Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Policy Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Improving the Fragmented System of Housing Regulation and Itsin the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. .States : : : : : : : : . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .Enforcement. . . . . . . . . . . . . . . .

Revising the Current Process of Inspection for “Manufactured” (Mobile) Homes . . . .Labeling Building Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Increasing Government Support of Research in Building Technology . . . . . . . . . . . . .Reducing Excessive Changes in Housing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. The Development of the U.S. Housing Construction Industry. . . . . . . . . . . . .The Various Kinds of Factory-Produced Homes

“Manufactured” (Mobile) Homes . . . . . . . . . . .Modular Homes . . . . . . . . . . . . . . . . . . . . . . . .Panelized Homes . . . . . . . . . . . . . . . . . . . . . . .Precut Systems . . . . . . . . . . . . . . . . . . . . . . . . .Component Systems. . . . . . . . . . . . . . . . . . . . .

Industry Segments . . . . . . . . . . . . . . . . . . . . . . . .Production Builders . . . . . . . . . . . . . . . . . . . . .Builder/Dealers . . . . . . . . . . . . . . . . . . . . . . . .Small Builders . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. Home: A Case History . . . . . . . . . . . . . . .

Trends in Industrialized Housing . . . . . . . . . . . .The Early Years . . . . . . . . . . . . . . . . . . . . . . . .Operation Breakthrough . . . . . . . . . . . . . . . . .After Operation Breakthrough . . . . . . . . . . . . .The Future . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market Concentration . . . . . . . . . . . . . . . . . . . . .Implications for Small Builders . . . . . . . . . . . .“Manufactured” (Mobile) Homes . . . . . . . . . . .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

4.

Consequences of the Shift to Industrialized Housing . . . . . . . . . . . . . . . . . . . .Employment Impacts . . . . . . . . . . . . . . . . . . . . . .

Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . .Employment Levels . . . . . . . . . . . . . . . . . . . . .Skill Levels and Unionization . . . . . . . . . . . . .Wage Levels . . . . . . . . . . . . . . . . . . . . . . . . . . .Potential To Upgrade Job Quality . . . . . . . . . .

Housing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . ,Housing Quality . . . . . . . . . . . . . . . . . . . . . . . . . .

Industrialized Housing in Japan, WesternJapan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. .

. .

. .

. .

. .

. .

. .

. .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,.

Europe, and Canada. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34456

67788

1113131618181820202121212323242526272727

313131323335353538

434445464747

Contents—continuedChapter Page

Great Britain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48West Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

5. International Competition in Industrialized Buildings, Components,and Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Trade Factors Affecting Exports to the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Currency Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Availability of New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Idle Plant Capacity and the Decline in Existing Markets . . . . . . . . . . . . . . . . . . . . . . . . 52Experience in International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Foreign Government Policies Affecting International Trade in Housing . . . . . . . . . . . . . . 53Overall Strategies and Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Market information and Trade Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Financial Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

impediments to Market Penetration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Changes in the International Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Lack of Understanding of American Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Lack of Knowledge of Optimal Business Relationships . . . . . . . . . . . . . . . . . . . . . . . . . 54Difficulties in Locating Interested U.S. Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Materials Acceptance Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Problems of Materials Testing and Acceptability of Foreign Standards . . . . . . . . . . . . . 55Building Codes and Inspection Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Trade Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Lack of Understanding of Real Estate Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Shipping Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

import Possibilities for Various Building System Types... . . . . . . . . . . . . . . . . . . . . . . . . 56Precut Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Panelized Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Concrete Panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Steel-Framed Panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Wood-Framed Panels... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Spandrel Panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57European Penetration of U.S. Panelized Systems Markets . . . . . . . . . . . . . . . . . . . . . . . 58Wet Core Modules/Control Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58Modular Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59“Manufactured’’( Mobile) Home Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Manufacturing Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Foreign Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Joint Ventures With U.S. Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Foreign Development and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Materials, Components, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Impediments to U.S. Penetration of Overseas Housing Markets . . . . . . . . . . . . . . . . . . . . 63

Increased Competition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Lack of Understanding of Foreign Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

. . .Vlll

Contents—continued

Materials Acceptance Problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Building Codes and Inspection Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Trade Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Lack of Experience in International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65International Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Distance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Lack of U.S. Government Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Incentives and Opportunities for U.S. Penetration of Overseas Markets . . . . . . . . . . . . . 65Exportation of Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Marketing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Possible New Incentives for Trade by the U.S. Government . . . . . . . . . . . . . . . . . . . . . 66

6. Government’s Role in Facilitating New Technology . . . . . . . . . . . . . . . . . . . . 69Factors Impeding Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

The Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Inadequate Study of Total Building Systems and Information Dissemination . . . . . . . 70Fluctuations in the Building Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Housing Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70The Current Regulatory Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70The HUD Code System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Criteria for a New Regulatory System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75Alternative Regulatory Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Fostering Technological Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85Stabilizing the Building Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Appendix. Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

TablesTable No. Page

1.

2.

3.4.5.6.7.8.

9101112

13

Factory Construction as a Percent of All Residential Constructionin the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Comparison of Mobile Home Shipments and Sales of Single-Family Site-BuiltHomes for Under $50,000, 1977-83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Top 25 Homebuilders by Units Produced, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26The Nation’s Top Producers of Mobile Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Percentage of Work Force in Various Skill Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Approximate Cost Breakdown for New Single-Family Homes . . . . . . . . . . . . . . . . . . . . . 36Construction Time Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Cost and Size Comparisons of "Manufactured” (Mobile) Homes andSite-Built Homes Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Percent of ’’Manufactured” (Mobile) and Site-Built Homes With Various Problems . . . . 38Comparison of the Top Five Factory Housing Companies in Japan, 1983 . . . . . . . . . . . 44Factory Home Construction in Japan (as a percent of all home construction) . . . . . . . . 45Factory Construction of Single-Family Homes in Sweden(as a percent of all single-family home construction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Compliance With Acceptable Quality List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Contents—continued

FiguresFigure No. Page

1. Exploded View of a “Manufactured” (Mobile) Home Resting on a Chassis . . . . . . . . . . . 142. Home Ownership by Income Cohort for 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163. Double-Wide Modular Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174. Diversification Trends of Component Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195. Component Framing Assemblies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206. A Model of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227. Residential Building Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338. Total Number of Employees in the Mobile Home industry (SIC 2451) and the

Prefabricated Wood Buildings Industry (SIC 2452). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339. Production Workers as a Percent of Total Employment in the Mobile Home Industry

(SIC 2451) and the Prefabricated Wood Buildings Industry (SIC 2452) . . . . . . . . . . . . . . 3310. Average Hourly Earnings of Employees by Industry Sector . . . . . . . . . . . . . . . . . . . . . . . 35

Technology,and the

Chapter 1

Trade,Future

of the U.S. HousingConstruction Industry

Chapter 1

Technology, Trade, and the Future of theU.S. Housing Construction Industry

While technical change in the U.S. constructionindustry has proceeded more slowly than forecastersonce predicted, the past two decades have witnessedsignificant progress in the technology of the houseitself, and in that of the appliances installed. Theseimprovements have made structures easier and lessexpensive to build, and reduce energy and otheroperating costs. New equipment and housing designscan make interior spaces more comfortable, can per-mit greater control over the quality of indoor air, andcan offer a variety of other amenities. New informa-tion technologies can integrate the network of di-verse firms involved in construction. Such innova-tions can make it easier for prospective homeownersto find housing commensurate with their individualtastes, and may even allow them to participate inthe design of the house to be purchased.

Has the U.S. housing industry taken adequateadvantage of technologies that have improved qual-ity and reduced costs in other industries? Might ashift to modern production technology reshape thedomestic housing industry, change economies ofscale and scope for individual businesses, and af-fect the number and nature of the jobs offered bythe industry? If the industry comes to resemble otherU.S. manufacturing industries, the potential for in-ternational trade in construction increases; how willthe domestic industry fare against competition fromsophisticated foreign producers of housing compo-nents and production equipment?

This report explores these questions in order todetermine whether changes in public policy maybeneeded to keep pace with technical change, particu-larly for smaller residential units. As home build-ing comes to resemble other manufacturing indus-tries, and as it grows from a local enterprise to onewith regional, national, and international concerns,it is necessary to consider whether policies regulat-ing home production should be commensurate withregulations that guide other types of factory produc-tion. Programs to subsidize home purchases, to con-duct technical research, to establish fire and safetyregulations and government procurement, and more,

have a significant effect on the housing that reachesthe American public. At present, however, housingpolicy in the United States is fragmented and lackscentral coordination. It does not respond to thechanging needs of the housing construction industry.

Technical change in the U.S. housing industry hasnot taken the form of a revolutionary shift from craft-based field erection techniques to factory-based pro-duction. Change has instead followed a complex anddiverse course that is virtually impossible to docu-ment with precision. Most new homes built in theUnited States today use prehung windows and doors,and factory-made roof trusses or floor joists Wallpanels and large three-dimensional modules areshipped to construction sites and assembled rapidly.Traditional “manufactured” (mobile) homes are con-structed in factories that operate with improved pro-duction equipment. While statistics are confusing andoften contradictory, it appears 10 to 35 percent ofall new single-family homes built in the United Stateswere constructed in factories—25 to 50 percent, if“manufactured” (mobile) homes are included. Inmany cases, however, the “factory” constructiontechniques used in the United States do not takeadvantage of the mass-production devices employedin the manufacture of products ranging from toastersto automobiles. These housing factories typically em-ploy semiskilled workers in facilities where capitalinvestments per worker fall below the standards ofother production industries.

A number of foreign firms have moved aggres-sively into the business of producing housing com-ponents. Imported homes and joint ventures withforeign housing producers already exist in Texas,Florida, Massachusetts, Maine, New York, Rhode Is-land, Michigan, Minnesota, and Wisconsin. TheScandinavian nations and Japan lead in this area.while most foreign techniques do exist in the UnitedStates, many of these foreign producers have moreexperience in the use of modern production equip-ment for housing. Several foreign firms are large andefficient by U.S. standards. Some are parts of man-ufacturing concerns with access to elaborate research

3

——

4

facilities and huge engineering staffs, and with ex-perience in production engineering. In particular,Japanese and Swedish firms benefit from both highlyautomated factories and substantial government-sponsored research programs. Swedish, Finnish, Brit-ish, Norwegian, and other foreign firms also haveextensive experience in exporting their products tothe Middle East and elsewhere. These firms may

soon penetrate U.S. markets with housing compo-nents, and may license technology to domestic pro-ducers, Foreign firms have already penetrated do-mestic markets for kitchen equipment, especiallyappliances. Japanese air-conditioners and refriger-ators, and components of these appliances, havemoved rapidly into domestic markets, while U.S. ex-ports of appliances have stagnated.

THE IMPACT OF FACTORY CONSTRUCTION

Factory-based home construction technologiescould affect both housing production techniques andthe

●

●

●

●

nature of the homes produced. Specifically:

Improvements could be made in both uniformquality standards and energy efficiency forhomes. Written guarantees of quality can be pro-vided more easily.Computer-assisted design methods could giveprospective purchasers greater control over theproducts they buy, and a greater ability to un-derstand the relationship between added ameni-ties and added costs.Overall construction times could be reduced.Factory-made components place a finishedhouse on a foundation in 1 to 10 days. Amongother things, this savings in construction timemight reduce seasonal variations in construc-tion rates.The role of large firms could be increased.

● The overall labor productivity of constructioncould be increased, thereby reducing net laborrequirements.

● The skill levels of workers could be upgradedin order to operate complex production equip-ment. On the other hand, skill requirementsmight also be reduced if firms opt to design pro-duction around minimum wage workers.

Changes in the construction industry are extremelydifficult to document because of the way that statis-tics are maintained. For example, some data onfactory construction of housing components are com-bined with information on several other manufac-turing industries, under the general area of “fabri-cated wood products.” While anecdotal evidencesupports statements about changes in such areas asskill levels in construction and the quality of differ-ent types of construction methods, reliable statisticsare almost nonexistent.

Smaller firms can serve as independent site-assemblers of manufactured products, or as fran-chised agents of major producers.

BARRIERS TO THE ADOPTION OF NEW HOUSING TECHNOLOGYIN THE UNITED STATES

U.S. firms have been slow to adopt innovationsin the production of housing for a variety of reasons:

●

. Wide swings in the demand for housing, result-ing from the business cycle, changes in mort-gage rates, and seasonal variations in home con-struction rates, make it difficult to justify largecapital investments. It is far easier to maintain

flexibility by laying off workers during slackperiods.The regulation of housing in the United Statesdeveloped in an environment where mostbuilders were small firms operating in local mar-kets. Housing regulation remains a State andlocal prerogative. Thousands of local code var-iations make it difficult for a single firm to oper-

—

5

ate in a market large enough to justify “econ-omy of scale” production facilities. Interestingly,similar fragmentation in the appliance indus-try has led manufacturers to support strict Fed-eral preemptive standards, which would negatethe effects of conflicting State and local codesand would facilitate industry expansion.The industry is so fragmented and diverse thatlittle research is conducted to improve the tech- ●

nology of either the structures produced or themanufacturing process. Government support ofconstruction-related research is virtually non-existent.The economic advantages of factory construc-tion have not been clearly documented in theUnited States, although a number of anecdotes ●

suggest that significant savings in labor and ma-terials may be attained through improving con-

struction techniques. But competition with con-ventional construction techniques has provendifficult in regions where conventional costshave remained low because employees willwork for modest wages, with little job security.Also, the U.S. housing market has not put apremium on the quality that can be offered byfactory construction.Housing markets in the United States have tradi-tionally associated factory production with low-cost, low-quality, “prefab” units. In Sweden andJapan, however, factory construction has beenmarketed successfully because of its associationwith high reliability and high quality, as wellas with advanced production techniques.Most homebuilders in the United States are toosmall to make the capital and engineering in-vestments necessary to automate production.

INTERNATIONAL COMPETITION

Foreign penetration of the U.S. housing and man-ufactured building industries is most likely occur inthe following areas:

● Panelized Building Systems.—Some foreigncompanies, especially the Scandinavians, willfind profitable market niches, particularly in theNortheast and in areas of the country wherehigh-quality material finishes, competitiveprices, high insulation levels, and the “Nordic”mystique will prove salable. Substantial over-all market penetration in the next few years isimprobable. However, foreign technologicaldevelopments—especially in Japan and Sweden—should be monitored closely, as should Amer-ican market attitudes and trends.

● Appliances. —While the United States has en-joyed a favorable trade balance in residentialappliances for many years, the terms of trademay be reversing. In fact, between 1979 and1984, U.S. real dollar exports of household ap-pliances declined by approximately 30 percent,while real dollar imports increased by over 67percent. The Japanese are beginning to sellproducts ranging from room air-conditioners torefrigerators to high-efficiency light bulbs. Com-petition is likely to increase as living standardsin Europe and Japan change in ways that make

●

domestic markets for appliances more similarto those of the United States. At present manyimported appliances have qualitative advan-tages over competing U.S. products, particularlyin the area of energy efficiency.

The impact of these developments is alreadybeing felt. Many appliances produced in theUnited States now contain high-value compo-nents, such as compressors, that are manufac-tured abroad. General Electric, the largest do-mestic producer of room air-conditioners, hasannounced that it will phase out operations atits main Louisville factory, and Carrier hasdrastically curtailed production in New York.Wet Cores.—While foreign wet core modulesthat combine plumbing, wiring, bathroom andkitchen fixtures, appliances, cabinets, electronicspace conditioning, and communications con-trols have not yet made a significant appearancehere, they would be cost-effective products formany foreign manufacturers. Custom cabine-try, bathroom fixtures, and electronic gadgetryare some of the housing components that havealready proven attractive to U.S. homeowners.It may make economic sense for foreign man-ufacturers to combine these elements into“smart” modules with exotic designs andfinishes.

6

● Materials, Components, and Equipment.—For-eign building-related products, including win-dows, kitchen cabinets, mechanical equipment,roof and floor tile finishes, and accessories, willgain an increasing share of the U.S. market. Al-though it is not within the scope of this reportto provide research in this particular area, thepotential impact on U.S. markets of foreign man-ufacturers may be significant. Several U.S. man-ufacturers assert that little organized or indus-trywide research has been conducted in thisarea.

● Investors/Developers. –A significant amount offoreign money has come into the United Statesfor real estate development, most recently forthe purchase of U.S. construction and designfirms by foreign companies. In fact, heavy for-eign investment has contributed significantly tothe growth of the U.S. economy, despite theenormous balance of payments deficit. Thistrend will continue.

In some cases the purchase of a U.S. company hasfacilitated the entry of foreign companies into Amer-ican markets by providing valuable insight into busi-ness trends. This purchase also allows the U.S. firm—and as a result, the foreign owner—to compete forU.S. Government projects nominally set aside forAmerican companies.

Currently, few opportunities exist for U.S. firmsto compete in overseas markets; the overall inter-

national construction industry has decreased in sizeover the past several years. Even within this re-stricted market, the relative share of U.S. firms hasfallen. Factors affecting this trend include:

●

●

●

●

●

●

●

●

increased competition from foreign contractors,lack of knowledge and experience in interna-tional trade,problems concerning building materials andbuilding codes,trade restrictions,volatile political conditions in many foreigncountries,corruption of foreign officials,distance from the United States to potential mar-kets, andlack of U.S. Government support for trade ini-tiatives.

Raw materials, such as wood and lumber, repre-sent the only significant building-related export op-portunity on the horizon for the United States. Theonly possibility for exporting U.S. manufacturedbuildings would be through assembling packagesthat combined buildings with project financing.Given appropriate investment in production andproduct design, U.S. firms could regain export mar-kets for advanced appliances, controls, and otherelectronic equipment.

POLICY ALTERNATIVESThis document examines several possible reme-

dies for the problems of the U.S. housing construc-tion industry.

Improving the Fragmented Systemof Housing Regulation and Its

Enforcement in the United States

At a recent conference hosted by the NationalAssociation of Home Builders, the major U.S.codemaking organizational concluded that:

IThe National Conference of States on Building Codes and Standards,

the Council of American Building Officials, the Building Officials andCode Administrators International and the lnte~national Conference ofBuilding Officials, and the Southern Building Code Congress interna-tional.

while there had been significant improvementover the years in administering and enforcing build-ing codes, there were still disparities from one juris-diction to the next in the way in which model build-ing codes were adopted, interpreted, amended andenforced, which tends to defeat the primary pur-pose of creating uniform model building codes inthe first place . . . the lack of reciprocity among reg-ulatory jurisdictions and even the poor coordina-tion among enforcement authorities within thesame jurisdiction created unnecessary and costlydelays in construction and thwarted the timelyacceptance of new, cost-saving technologies.2

Zcouncil of American Building Officials, News Release, March 1986,Falls Church, VA.

7

Furthermore, some housing producers have com-plained about discrepancies between State transpor-tation codes concerning truck loads, which dis-courage industry expansion.

Regulation can be made more uniform in severalways. First, the Federal Government could play amore active role. This might be done through amodification or expansion of the existing nationalHUD code system for regulating the production of“manufactured” (mobile) homes,3 although this sys-tem should be examined carefully before it is ap-plied to other categories of housing. Second, a newsystem of uniform national standards could be de-vised, which could be either mandatory or con-structed so that States would voluntarily elect to enterthe Federal framework. Third, a series of State com-pacts and reciprocal agreements could be estab-lished, and encouraged by the Federal Government.Fourth, private systems could be implemented.

The meeting of home builders and code officialscited above endorsed a plan that would be admin-istered by the States. A single code would be adoptedby each State, and a uniform program of enforce-ment would be developed. ‘(The code would be man-datory for all factory produced housing and all site-built housing constructed in jurisdictions currentlyusing building codes. "4 A key element would bereciprocity, in which each State would accept the in-spections of housing components conducted by otherStates.

Other options for action by regional groups or bythe Federal Government include: developing systemsin which third-party inspectors, such as UnderwritersLaboratories, could undertake a larger share of theburden of inspection; providing support or guidancein training local inspectors and regulatory officials;providing assistance in the creation of new stand-ards; and developing testing equipment to monitorthese standards.

Any action that reduces the fragmentation of U.S.housing markets is likely to benefit large Americanconstruction firms, and may make domestic markets

3The Housing and Community’ Development Act of 1980 (Public Law96-399) required that the term “mobile home” used in the statute estatj-lishing HUD’s current mobile home inspection s~stem be changed to“manufactured “ This congressional intervention in semantics 15 ad-mittedly confusing See ch. 2 for a discussion of the nomenclature usedto de~cribe factory-built homes

4CAB0, Op c]t , 1986

more comprehensible, and thereby more attractive,to both foreign and domestic companies. However,a “least common denominator” code could result,which may reduce the quality of housing regulation,or may create incentives to “build down” to mini-mum standards.

Revising the Current Process ofInspection for “Manufactured”

(Mobile) Homes

Serious questions have been raised about the ade-quacy of the HUD inspection system even in itspresent form. A recent HUD-sponsored survey of“manufactured” (mobile) homes covered by HUDregulations found:

. . . an average of approximately 6.5 reported and/or observed problems per house which were iden-tified in 78 or 96 percent of the houses inspected. . . Sixty-five (65) or approximately 80 percent ofthe houses had additional problems which were ob-served by the field inspectors and had not been,in most cases, reported in the earlier [telephone]survey . . . The number of problems reported in thesurvey raised questions regarding the integrity andquality of the houses which were produced duringthe 1977-1981 time period covered by this sample.The concern raised is validated by the number ofaffected houses and the number of problems ob-served by the field inspectors.;

The report concluded that “HUD should considerrevising the Federal Standards to address long termrequirements for material performance . . . [Inspec-tors] should increase the attention given to work-manship on the production line, and increase theirobservations of in-plant testing.”6 If a national strat-egy is developed to improve regulation and enforce-ment systems for factory-built housing, it may be nec-essary to integrate regulation of “manufactured”(mobile) homes into the new system.

Labeling Building Quality

Labels that provide specialized information aboutthe housing construction industry to potential buyers,bankers, and insurance firms can lead to technical

‘Resources Applications, Designs & Controls, lnc (RADCO), “FinalReport for Durability’ in Manufactured Homes,” HUD Contract H-1 [)992,Dec. 27, 1985, p. 77

blb]d., p. 4.

8

improvements without mandating proscriptive reg-ulation in areas not essential to health and safety.Labels might indicate that structures or componentsmeet a fixed threshold of performance, much likethe home energy rating systems now in place in anumber of States and cities, or like the Japanese “Bet-ter Living” label that qualifies building componentsfor group insurance. Energy efficiency labels couldhelp purchasers make choices about houses in muchthe same way that miles-per-gallon stickers on auto-mobiles or energy efficiency labels on refrigeratorsassist consumer decisions.

Increasing Government Support ofResearch in Building Technology

Despite the importance of research to the nationaleconomy, and its role as a major employer, neitherthe U.S. housing industry nor the U.S. Governmenthave supported major research efforts to improvehousing products or to upgrade the methods bywhich houses are built. While many componentmanufacturers have conducted significant studies,there is little support for an examination of how thehouse operates as an integrated unit to enhance hu-man comfort. Misawa Homes of Japan spent 1.5 per-cent of its 1984 sales on research. Sweden, with apopulation of 9 million, spends more on housing re-search than the United States.

Several methods may accelerate technical progressin housing. Research alone will not automaticallylead to a more productive, competitive industry, butit is an important ingredient for success. The NationalConference of States on Building Codes and Stand-ards (NCSBCS) notes that:

Progress cannot be made in the use of new safetechnologies in the building field without adequatefunding of generic research, such as that done bythe National Bureau of Standards.7

Reducing Excessive Changesin Housing Demand

Several techniques have been proposed for pro-viding a “countercyclical” stimulus to the industrythrough counter-cyclical incentives and other meth-ods. These include temporary interest reduction forhousing loans and permanent interest reduction forloans to low-income families; tax credits for buyersof new or renovated homes, and for mortgage firmsthat encourage housing development; and buyer sub-sidies via tax-exempt mortgage revenue bonds.

While this issue will be addressed, a comprehen-sive examination of counter-cyclical alternatives isbeyond the scope of this report.

TComment of the Natjona] Conference of States on Building Codes

and Standards, Inc., May 25, 1986,

..

Chapter

The Development of the U.S.Housing Construction Industry

Chapter 2

The Development of the U.S. HousingConstruction Industry

industrialized building techniques have grown inimportance throughout the postwar period, and fac-tory-built housing has gained a significant marketshare in many industrialized countries. However, in-consistencies in available data make internationalcomparisons difficult to formulate. In the UnitedStates, 10 to 35 percent of all housing is now sup-plied from components produced largely infactories—25 to 50 percent, if “manufactured” (mo-bile) homes are included. Although “manufactured”(mobile) homes are virtually unknown outside theUnited States, several other countries produce a sig-nificant fraction of all housing in factories. Approxi-mately 90 percent of Swedish single-family housingand 15 percent of all Japanese housing is factory-built; in Japan, the factory share is growing rapidly.Foreign developments will be discussed in more de-tail in chapter 4.

It is difficult to document the movement from “con-ventional” to “factory” construction techniques, dueto the enormous variety of construction techniquesnow in use. Virtually all home construction employssome kind of factory-built component, such as pre-hung windows, doors, or roof trusses. On the otherhand, even “modular” homes, which emerge fromfactories with bathroom fixtures in place and wall-paper on the walls, require some onsite work. Theconfusion over definitions has been compounded bythe fact that the term “manufactured housing” is de-fined by statute to mean units more commonly called“mobile homes.’” In this text, the term “factory-built”will be applied to complete units constructed in afactory, to be erected as a package on a construc-tion site. The term will not cover components suchas trusses or wall panels. At the turn of the century,the term “industrialized housing” referred to use offraming lumber produced in a lumber mill, as op-posed to the prevailing hand-crafted site assemblyof logs. We now call that “stick-building,” and referto factory-prepared housing as “industrialized.” The

‘ Put)]lc law 96-399, SW 308

variety of factory construction techniques now be-ing used in the United States are described in box A.

Confusion over terminology translates into a sta-tistical disparity, which raises questions about levelsof industrialization within the industry. This can beseen by examining the two principal sources of in-formation about factory construction in the UnitedStates (displayed in table 1). First, while the two esti-mates of total unit sales and total “manufactured”(mobile) home sales are close, estimates of sales inpanelized housing differ by 350 percent. In modu-lar/sectional housing, estimates differ by a factor of2. Undoubtedly, most of the differences derive fromconflicting definitions. Some of the “productionbuilders” reported in Automation in Housing andthe “industrialized builders” reported in The RedBook construct panels and subunits in their own fa-cilities. Others build temporary “factories” near large-tract construction areas. Some simply use site-builtconstruction techniques in warehouses, and thentransport partially completed wall sections to thebuilding, The two surveys document these activitiesin different ways.

The statistics also differ in that the Automation inHousing report presents a stratified sample ofbuilders based on telephone surveys, while The RedBook data is derived from a mailed questionnaire.Using the Automation in Housing definitions andmethods, nearly half of all U.S. homes are now con-structed with factory-based techniques. Both data setsshow that the share of “manufactured housing” (mo-bile homes) seems to be countercyclical, in that salesincrease when the overall housing market declines.There was a significant drop in “manufactured” (mo-bile) home sales between 1972 and 1976, and salesalso fell during the housing recovery of 1984 to 1985.The drop in sales during the early 1970s was duein part to the passage of statutes regulating “manu-factured” housing at a national level. Use of otherfactory construction techniques, however, increasessteadily in the Automation in Housing statistics,while The Red Book data indicate a decline in pan-elized housing.

11

12

Table 1.— Factory Construction as a Percent of All Residential Construction in the United States

SOURCE: Automat/on in Housing & Manufactured Home Dealer, January 1966, p, 14 & 16,

13

Table 1 .—Factory Construction as a Percent of All Residential Construction in the United States—Continued

1978 1979 1980 1981 1982 1983 1984 1985

Red Book Survey:One to four units:1 Precut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....4....2 Panelized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Modular/sectional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Mobile homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Industrialized home builders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Five or more units:7 Factory made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Factory (1+2+3+4+7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Industrialized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Others (6+9).... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

1 1 1 2 1 1 1 16 6 7 5 4 3 4 42 2 2 3 3 2 3 3

12 14 14 18 18 15 15 1410 10 10 10 13 13 14 1348 45 43 42 36 38 36 37

1 1 1 0 1 1 1 120 20 22 21 24 26 27 2722 24 25 28 27 22 23 2310 10 10 10 13 13 14 1368 66 65 63 61 65 63 63

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,296 2,026 1,526 1,327 1,292 1,992 2,000 1,900NOTES: Precut homes are definedas’’asales packageforwhich the many parts are pre-cut but not preassembled. Although roof trusses may be included preassembled

wall panelsare not,” Modular/sectional homes are ’’three-dimensional housing unit(s) produced in aplant and designed forerectionon apermanent foundationwith aminimumof on-site Iabor’’lndustrialized builders are ’’real estate developers and builders ,, using industrialized building techniques whenever theyare cost effective “

SOURCE” ”The Red Book of Housing Manufacturers,” 1985

THE VARIOUS KINDS OF FACTORY-PRODUCED HOMES

“Manufactured” (Mobile) Homes

The structural box beam serves as the basic de-sign principle of a “manufactured” (mobile) home.This integrated structural unit consists of four ma-jor subassemblies, into which are incorporated sev-eral mechanical service systems: the chassis, and thefloor, wall, and roof systems. Nonstructural assem-blies include such units as cabinets and windows.Figure 1 provides an exploded view of a “manufac-tured” (mobile) home, resting on a chassis.

Single-wide “manufactured” (mobile) homes arecompleted in the factory. However, multisectionhomes generally consist of three walls, a roof, anda floor, all of which are joined at the site. The ar-rangement of sections at the building site allows forgreater flexibility in floor plan designs. Both singleand multisection homes conform to maximum high-way width loads—typically 14 feet. The Manufac-tured Housing Institute’s 1985 publication QuickFacts reported that 29 percent of all “manufactured”(mobile) homes shipped in 1984 were multisectionhomes. Due to their large size, these homes mayoverlap markets for other types of industrializedhousing.

According to a recent study of the “manufactured”(mobile) home industry, construction processes for

these units can be divided into three basic activi-ties: assembly, or the actual construction of prod-uct units; material storage of supplies, components,or product units until they are used in the produc-tion process or are shipped from the plant; and ma-terial handling, or the transportation of materials forstorage, shipping, or use in assembly activities.2 Eachphase must be carefully coordinated and integratedwithin the production system in order to completethe unit successfully.

The typical “manufactured” (mobile) home plantis housed within a single-story “manufactured” metalbuilding with an average floor area of 64,000 squarefeet. Normally, plant layouts and assembly lines fallinto three different types: straight, L-shaped, and U-shaped. Subassembly and storage areas are locatedin designated areas around the periphery of the as-sembly lines. Units move along the assembly lineseither end-to-end or side-by-side. The side-by-sideplacement method has become prevalent, as it per-mits more efficient factory space utilization. Further-more, the side-by-side arrangement is desirable forproducing multiunit “manufactured” (mobile) homes,since two or more units can be mated onsite to be

TAflhUr D, gernhardt, f?u;lding Tomorrow, The Mobile/Manufactured

Housing lndust~ (Cambridge, MA: MIT Press, 1980).

14

Figure 1.- Exploded View of a “Manufactured” (Mobile) Home Resting on a Chassis

SOURCE” Arthur D. Bernhardt, Building Tomorrow’ The &40 bi/ehManufactured HOfJSin9 lndust~ (Cambridge, MA The MIT Press, 1980)

assembled side-by-side, allowing for improved align-ments and closer tolerances.

The Manufactured Housing Institute estimated thatin 1983, approximately 185 firms shipped “manu-factured” (mobile) homes from 410 factory sites. Theaverage number of units shipped per plant was 582.With material costs accounting for 65 to 70 percentof the total cost per unit, more efficient material pur-chases can substantially improve the cost perform-ance of a given production facility. Firms with manyplants can realize even greater economies of scale.

Most “manufactured” (mobile) home plants followa sequence of basic assembly operations. Produc-tion of the “manufactured” (mobile) home unit pro-ceeds from the bottom up and from the inside out,beginning with the chassis frame and moving to thefloor, wall, and roof assemblies. As the unit moves

along the main assembly line, subassemblies are ad-ded at the appropriate points. Some manufacturerspurchase subassemblies and components from othercompanies. The extent to which subassemblies andcomponents are fabricated in the plant depends onsuch factors as the availability of labor and materi-als, local shipping costs, and the proximity of sup-pliers.

Normally, 1 to 3 days are required to assemblea “manufactured” (mobile) home, depending on mar-ket demand, plant facilities, and unit specifications,with an average of 250 man-hours per unit. Mostworkers operate in crews, and are responsible fora specific assembly or fabrication operation on arotating basis.

Once assembly operations are completed in thefactory, the units are transported to the homesite,

15

to a builder/dealer’s display lot, or to a storage fa-cility. The units’ chassis are attached to trucks, andcan be transported within a radius of approximately500 miles. From the manufacturer’s point of view,however, the “feasible” shipping radius depends onmarket demand, transportation costs, and the loca-tion of competitors. The truck is the most economi-cal means for transporting “manufactured” (mobile)homes, although several manufacturers have usedrail and ship transport. The dealer installs approxi-mately two-thirds of the units sold.

Upon reaching the site, the “manufactured” (mo-bile) home is positioned, unlatched from the trans-port vehicle, and stripped of its wheels. For multi-component “manufactured” (mobile) homes, sectionsmust be positioned and joined. Finally, the unit isconnected to utility and sewer systems. Less than15 percent of the units installed between 1970 and1976 had been moved from their original locationby 1983.3 Approximately 7 percent of the owner-occupied units and 4.5 percent of the renter-occupiedunits are installed on permanent foundations, andanother 12 to 15 percent are installed on a concretepad. The remainder rest directly on blocks, withouta concrete pad.4 Multisection units have declined inimportance, after peaking at about 25 percent of allunits sold in 1978. By 1983, they represented lessthan 15 percent of the units shipped.5

“Manufactured” (mobile) homes serve a relativelywell-defined market niche. With an initial price persquare foot of about 60 percent of a site-built house,they are the principal choice of families looking forhousing with an initial cost of under $50,000.6 Ta-ble 2, based on data published by the Manufactured

%’estat, I nc , “,Analysi\ of the Ann IIal Fious]ng Data (AHS) Pert~]n-I ng tt~ f he Durahil itk of Nlanufac t[] red Housing’” (Rock\ Ille, LID 1986).p ~ $)

‘ibid , p. 2.11‘Iblcf., p. 2-1 ().‘)llan[lfactured F{oustng Inst]tutel ~ee table 8 ]n ch. 3.

Housing Institute, indicates that in 1983, “manufac-tured” (mobile) homes captured 82 percent of themarket for single-family homes valued at less than$50,000–an absolute increase of 44 percent fromthe market share of 38 percent in 1977. This signif-icant increase did not result from a surge in “man-ufactured” (mobile) home production; rather, the to-tal number of site-built homes selling for under$50,000 declined from 433,000 units in 1977 to only65,000 units in 1983.

Figure 2 compares the income characteristics offamilies living in “manufactured” (mobile) housingwith that of all families living in purchased or rentedhousing. In 1983, nearly three-quarters of all “man-ufactured” (mobile) homes were inhabited by fam-ilies with incomes of less than $20,000, while three-quarters of all housing was owned by families withincomes of less than $35,000. In fact, a recent studyconducted for the U.S. Department of Energy indi-cates that in 1980, the median income of “manu-factured” (mobile) home residents was $12,000,while that of other single-family detached homeown-ers was $19,800.7 It is interesting to note, however,that “manufactured” (mobile) housing does have asignificant market share in the higher income cate-gories; in 1983, for example, 7,000 families with in-comes over $100,000 per year reported that theirprinciple residence was a “manufactured” (mobile)home.8

The real cost of a housing unit, of course, requiresdeeper analysis than the initial unit cost. Such re-search could consider the quality of the housingproduced, the expected life of the unit, and the costof operating and maintaining the unit. Some of thesetrade-offs will be discussed in chapter 3..—. —

~Pacific Northwest Laboratory, “Impact of Alternatl\re Res]dentiAEnergy Standards, ” November 1985. p. 33

‘U.S. Department of Commerce, Bureal] of the Census “Ann (]A } {()([+ing Survey: 1983, ” p A-1 1

Table 2.—Comparison of Mobile Home Shipments and Sales of Single-Family Site-Built Homesfor Under $50,000, 1977-83 (in thousands)

1977 1978 1979 1980 1981 1982

Percent Percent Percent Percent Percent PercentNumber of total Number of total Number of total Number of total Number of total Number of total

Site-built homes sold 433 62 316 53 184 40 137 38 88 27 67 22Mobile homes shipped 267 38 276 47 277 60 222 62 241 73 239 78

1983

PercentNumber of total

65 18295 82

Total new 700 592 461 359 329 306 360SOURCE Manufactured Hous(ng Inslltbte

16

Figure 2.–Home Ownership by Income Cohort for 1983

100

9 0

80

7 0

60

50

40

30

20

10

00 $20,000 $40,000 $60,000 $80,000 $100,000

Income

— - — All units — M o b i l e h o m e s

SOURCE: Manufacturing Housing Institute.

Most manufactured housing plants are located insmall rural communities, particularly in the sunbeltregion. The rural areas provide both the principalconsumer markets and favorable labor markets, dueto the presence of low-skilled and non-unionizedworkers. Manufactured housing is concentrated inthe South, which held 46.2 percent of the marketin 1983; only 8.1 percent of all units are located inthe Northeast.9 Approximately half of these units aresited individually or in clusters of 5 or fewer, whileabout one-quarter are situated in clusters with 100or more units. 10

9westat, op. cit., P. 2.2

l“lbid., p. 2.6.

Modular Homes

Modular systems resemble “manufactured” (mo-bile) homes. The final building is composed offactory-assembled, three-dimensional “boxes” (seefigure 3). However, modular units are transportedby external carriers, and modular buildings—including small hotels/motels and commercialbuildings—may be constructed from any number ofboxes. These boxes can be stacked seven stories highto form multistory residential and commercial struc-tures. Unlike “manufactured” (mobile) housing,which is regulated by the national HUD code, mod-ular homes must satisfy State and local buildingcodes.

Modulars are among the strongest of all light-frameresidential structures. They are built with completed

17

sheathing for roofs, sidewalls, and marriage wallswith glue-nailed plywood, and employ heavier-than-normal construction techniques in wall and floor sec-tion framings. Modular housing units come in a va-riety of styles and sizes.

According to Automation in Housing magazine,200 plants manufactured modular homes in 1983,with the typical plant building 350 homes per yearand employing 109 persons. Factory layouts, ma-chinery, equipment, and assembly processes for pro-ducing modular units resemble those described for“manufactured” (mobile) homes. However, sincemodular units are not built on a wheeled chassis,they either move through the production line on

roller systems or are placed on a temporary trailerassembly. Electronic airlifts place the finished sec-tions onto shipping vehicles for transportation to thesite.

Generally, trucks transport modular sections to thesite. Site cranes then remove and position the sec-tions on a permanent foundation. Helicopters canbe used for transporting the units when special prob-lems arise, such as bridges or tunnels.

Again, because modular units lack a structuralframe chassis, they rest on permanent foundations.This necessitates significant site preparation workbefore the unit’s arrival. The recently developed “allweather wood foundation” (AWWF) systems, whichcut costs and onsite assembly time when comparedwith traditional concrete foundations, are now usedthroughout the industry. AWWFs are assemblies offrame walls built of low-grade, preservative-treatedlumber and plywood to create basement and crawl-space foundations. In comparison with conventionalcement foundations, the AWWF can be erectedquickly in extreme climates, which normally makeconcrete work difficult. As a result, they can extendconstruction seasons in many areas. This providesgreater continuity in employment, and lowers costsin areas sensitive to “land factors.” Furthermore, thedevelopment of prefabricated foundation systems haseliminated the setup or drying time encountered withcement foundations, and skilled labor is not requiredfor their assembly.

18

When the modular unit is secured on the founda-tion, sectional joint work commences using special-ized connector plates as well as pneumatically drivenfasteners. Joints are then sealed and the utility andsewer systems are connected to the main lines. Thesections are sealed together with moisture-proof bar-riers, to ensure consistent moisture protection andenergy efficiency. The Swedes make sure that thisis done, and take great care to train installers.

The market for modular homes has growth po-tential in the area of infill housing, or that whichis constructed between two existing structures.Stacked modular units can satisfy the need for high-density, smaller sized housing units in urban areasaround the country.

Panelized Homes

Like modular homes, panelized homes come inan array of types, sizes, and interior/exterior finishes.Panels may be produced in lengths of 2 by 8 feetor 4 by 8 feet that are erected by one or two work-men, in lengths of 10 to 16 feet that can be erectedby four workmen, or in sizes of over 16 feet whichrequire a crane for erection.

Automation in Housing reports that approximately600 companies produced panelized homes in 1983.The panels themselves fall into two classifications,open and closed. Open panels refer to factory-assem-bled wall, floor, or roof panels that are open on oneor both sides so that construction and/or enclosedmechanical, electrical, or plumbing equipment canbe inspected onsite. An exterior open panel wall mayhave sheathing, doors, windows, and siding on theoutside and insulation between the studs, but willlack finished materials such as drywall on the in-side surface. In contrast, closed panels are enclosedon both sides, severely limiting access to onsite in-spection. Panel factories typically contain linear pro-duction lines with automated sawing machinery andpneumatic panel nailers and staplers.

Panelized components can be loaded for shippingby truck or rail. Improved shipping techniques al-low panelized home manufacturers to service greatermarket ranges than “manufactured” (mobile) or mod-ular home producers.

A major disadvantage of panelized structures isthe onsite labor required to assemble such systems.Poorly trained installers can increase costs and re-duce quality. Although high-quality and tolerancestandards exist in the factory, the ultimate qualityof the structure depends on the skills and experi-ence of the contractor who assembles the system atthe building site. Currently, few U.S. panelized man-ufacturers provide their own building crews for on-site assembly operations. The Swedish discoveredthat quality assurance required them to have panelserected by either their own employees or teamstrained by the manufacturing firm (see ch. 3). Swed-ish firms guarantee the installed product,

Precut Systems

Precut systems, which include log homes, domehouses, and precut frame houses, are produced inthe factory and shipped to the site as packages. Thebuilder receives a “kit of parts,” such as framingenvelope components, windows and doors. All ele-ments are designed to fit together and are cut to size.These systems use certain individual components,such as roof trusses. Generally, the leading U.S.precut systems manufacturers provide 2- to 3-yearinterim financing for their homes, using the owner/builder’s “sweat equity” as a partial downpayment.Permanent financing is arranged upon completionof the house. There are approximately 250 log-homemanufacturers and 60 dome-house producers in theUnited States today.

Component Systems

Although not strictly a building system, manufac-tured building components play an important rolein conventional construction, The invention of themetal truss connector plate was of enormous bene-fit to component manufacturers. This stamped metalplate that can join truss members, can splice chordsof trusses, can join members of rough openings fordoors and windows, or can fabricate other compo-nents. In 1982, virtually all of the Nation’s 2,000 com-ponent manufacturers produced roof trusses, andnearly 80 percent produced floor trusses. Figure 4provides a diversification trend chart depicting thecomponent manufacturers’ tendency to expand prod-

19

Figure 4.— Diversification Trends ofComponent Manufacturers

100

50

0

75

—Roof

trusses

230/o

[Floor

trusses

1982

Wallpanels

1%

D o o r S u b c o m -u n i t s p o n e n t s

SOURCE Automat(on In Housing 1983

uct lines by including wall panels, door units, andother subcomponents. Recently, however, HUD an-nounced that a significant number of roof trussesused in prefabricated industrialized housing hadfailed.11 Careful regulation in this area could provideconsumers with greater protection.

Over 90 percent of America’s homes and apart-ments are built with roof trusses that have been con-nected by metal plates. Advances in computer tech-nology have led to the widespread application ofprefabricated truss assemblies in homebuilding oper-ations. Roof trusses come in many configurations;computer software programs provide instantaneousdesign information concerning loading and stress fac-tors, and indicate material and cost requirementsassociated with particular designs. Furthermore, rooftruss assembly has become increasingly automated.

I I (’~rn ment [ )f [ ~1(, \ ,~t If}il{il (’( )n ft~rt~r] [ (’ ( )f Stdt(’S 011 B(1 I 1(1 III ~ (’~ J~l~’~~nd St~rldards, lr]~ hl,i~ 25, 1980

To move truss presses, the truss members and plateconnectors sit on a conveyer, which moves the as-sembly under a roller that squeezes several jointsat a time.

Roof trusses typically span a 32-foot wide houseand are spaced up to 24 inches from the center. Theycan be set in place in minutes and, with the appli-cation of conventional 4 by 8 foot sheets of plywoodas sheathing over the top chord, can close a houseto the weather in less than a day.

After roof trusses, the 1970 invention of the floortruss represents the second major breakthrough forthe American home building industry. These sys-tems are made with 2-by-4 top and bottom chordsplaced flatwise with 2-by-4 webs, which are fastenedwith metal connector plates. Another advance camein 1976, with the invention of the metal web con-nected floor truss. This replaces all or portions ofthe 2-by-4 webs with a triangular metal web. Integralconnector teeth protrude from each of the threepoints of the web, which is then attached to the out-side edges of the chords. The floor truss assemblymachinery operates on the same principle as rooftruss assembly machines; the wood framing mem-bers are positioned on a truss machine, whichpresses the plate connectors onto the joints.

Component manufacturers also make prehungdoors and windows; prefabricated stairs; and sub-components like corners, tees, and headers (see fig-ure 5). All segments of the housing industry use thesewood components, largely because the light framewood system that predominates in this country isan “open system. ” These components can be usedby virtually all builders.

Some component manufacturers specialize in theproduction of wet core modules. Although not anactual building system, a wet core module is aprefabricated element that can fit with a number ofbuilding types. In its most developed form, it con-sists of a module containing the bathroom, kitchen,and laundry facilities for a home, with plumbing,stack, fixtures, and interior finishes built in. In a lessdeveloped form, it may incorporate fixtures into aplumbing wall, but not necessarily into the actualshells of the rooms. By industrializing a highly labor-intensive segment of the traditional housing con-struction process, these components can produce sig-nificant cost savings for the builder.

20

Figure 5.—Component Framing Assemblies

1

6

Newer component framing house part assemblies:1. Ladder rake overhang assembly 5. Gable end2. Valley roof trusses 6. Wall panels3. Roof sheathing 7. Garage door header truss4. Engineered roof trusses 8. Pre-assembled stairs

9. Engineered floor trusses10. Wood foundation panels11. Prehung doors12. Prehung windows

SOURCE: Autof7tt!tiOfl in ~OUSh~, 1983

INDUSTRY SEGMENTS

The housing industry includes producers, distrib-utors, sellers of the end product, and other segments.The housing units that these segments produce—“manufactured” (mobile), modular, panelized, precut,and component systems—were presented in thepreceding section.

Categories of housing producers are not entirelydistinct from one another. Some firms manufacturemore than one type of housing; for instance, sev-eral “manufactured” (mobile) housing producersmake modulars as well. These producers try to main-tain stability in an unstable market by retaining flex-ibility in their plants. When demand for one typeof product, like single-family homes, declines, theyemphasize another, such as multifamily units, Thisapproach may become increasingly popular in theU.S. residential construction industry.

Production Builders

This segment consists of large and small volumesite builders, who use factory-made housing com-ponents to construct large numbers of single-familyhouses or low-rise apartment buildings in subdivi-sions, or “tracts,” near major metropolitan centers.Typically, their structures consist of prefabricated fac-tory or onsite components. Often called “volume pro-ducers of housing,” production builders do not usenetworks of builder/dealers, but sell homes directlyto the consumer.

Increases in site-labor and construction loan costshave made production builders the principal con-sumers of prefabricated housing components. Whilesome large production builders now operate theirown component manufacturing systems, most stillsecure components from independent companies.

21

Builder/Dealers

“Manufactured” (mobile), modular, and panelizedhome manufacturers usually sell their productsthrough networks of builder/dealers. These builder/dealers often operate from display lots, located within700 miles of “manufactured” (mobile) and modularhome manufacturing plants due to transportationconstraints. Builder/dealers may sell for one or sev-eral manufacturers, and do most of their businessin well-defined market areas. In addition to actingas salespersons, builder/dealers prepare the land,complete foundation and utility work, and supervisefinishing work on the home after delivery.

Figure 6 illustrates the functional interrelationshipsamong manufacturers, wholesalers, fabricators,builders, dealers, contractors, and consumers asso-ciated with the manufactured housing industry.

Small Builders

Small operators constitute the vast majority ofAmerican homebuilders—far too small, in terms ofunits produced per year, capital resources, and scopeof operations, to handle the large capital expenseof introducing new technologies.

Concerning output, the 1977 Census of Govern-ments reported that 227,830 general building con-tractors, nearly 80 percent of all general contractorestablishments, had receipts of less than $250,000,which translates into 5 to 10 units per year. Simi-larly, the National Association of Home Builders(NAHB) states that the vast majority of its memberfirms produce fewer than 25 houses per year. Andthe 1977 Census of Construction concluded that one-fourth of all homebuilders operate in a single mar-ket area, and that less than 5 percent of all buildersof single-family units worked outside their homeStates.

These small firms do exhibit a strong entrepre-neurial nature. When market conditions change,they move out of homebuilding and into more prom-ising construction endeavors. In the so-called “badyears” of 1967, 1974, and 1975, nearly 20 percentof member firms surveyed by the NAHB in 1977switched to other businesses. Members switched athalf this rate during periods of success.

Small producers often capitalize on short-term in-vestments. They should be able to adjust financesquickly, so as to reinvest in new efforts accordingto market trends. Such producers can operate moreflexibly and more economically with unskilled orsemiskilled workers than with costly new machin-ery. Given these considerations, the large-scale, long-term capital requirements associated with techno-logical innovation conflict with the needs and capa-bilities of most American builders.

U.S. Home: A Case History

U.S. Home Corp., until recently the Nation’s largesthomebuilding firm, serves as an example of a largecompany that has changed its market approach inorder to satisfy housing demand—sometimes againstits will. Started by New Jersey builder Robert Win-nerman, this company produced an estimated 2,400houses in 1968, generating revenues of $58.3 mil-lion. U.S. Home became a national force the follow-ing year, when Arthur and Charles Rutenberg in-corporated their separate Florida firms with that ofWinnerman. 12 During the next 3 years, Winnermanacquired 14 other firms. By 1973, U.S. Home oper-ated in 11 national markets; production had in-creased to 10,700 units, and revenues to $351 mil-lion. Production peaked in 1980, at 15,821 units.

In 1982, US. Home delivered 12,599 units, downfrom its previous high, although it still enjoyed oper-ating revenues of $832 million. Over half of this pro-duction was situated in Texas, where the success ofthe oil industry had created an unusually high de-mand for housing. By 1983, U.S. Home had opened74 divisions and 13 manufacturing plants in 25States. They were building in 175 single-family de-tached communities, 109 condominium projects, and9 retirement communities.

U.S. Home’s 1983 annual report indicates severalactions taken by the company to protect and expandits market. It was the first major homebuilder to de-velop and issue “collateralized mortgage obligations”(CMO) funds. CMOS raise new mortgage credit byselling securities that are “collateralized” by loan pay-ments made on previously sold homes; these fundsare then earmarked to make loans to purchasers of

IZNed Eichler, The Merchant EWder (Cambridge, MA: The MIT press,

1982), p, 187.

22

bt

,1-

23

new homes. In 1983, U.S. Home learned of projec-tions that the bulk of future demand for new hous-ing would be in rural and small metropolitan areas.In order to adapt to the changing nature of the mar-ket, the company acquired Brigadier Industries Corp.,one of the Nation’s largest producers of “manufac-tured” (mobile) housing. This move was intendedto improve U.S. Home’s ability to operate efficientlyin small markets, and to facilitate its pledge to offerhousing at competitive prices.

However, U.S. Home did not anticipate the down-slide of the oil industry and the resulting decreasein housing demand. The firm had entered the “man-ufactured” (mobile) home market to capitalize on theimmediate need for low-cost housing; in much thesame way, it opened the largest industrialized hous-ing plant in Salt Lake City during the overthrustdrilling boom of the late 1970s and early 1980s.

When the oil market collapsed, U.S. Home was facedwith a manufacturing capacity that outstripped de-mand by a large margin. The firm has confrontedthis problem by abandoning production of both“manufactured” (mobile) homes and modular units,and it is currently negotiating to sell off its Briga-dier subsidiary.

Like many other producers of factory-built hous-ing, U.S. Home has met with both success and fail-ure in its attempts to operate within a volatile mar-ket. Because it has continued to profit from certainsegments even during periods of financial duress,it has been able to overcome setbacks in a particu-lar housing category. Its case history demonstratesthe risks involved in adapting to industry develop-ments as they occur, and the manner in which acompany may readjust to the effects of such changes.

TRENDS IN INDUSTRIALIZED HOUSINGThe Early Years

In the United States, prefabricated building tech-nologies received widespread attention as early asthe 1930s. Having witnessed the technological suc-cess of the automobile industry, the American pub-lic believed that mass production of houses wouldalleviate the Nation’s chronic shortage of affordablehousing. In 1932, Fortune referred to GeneralHomes, Inc., which had just unveiled its prefabri-cated steel house, as “the General Motors of the newindustry of shelter, ” commenting on the construc-tion of General Homes’ prefabricated steel house.13

By 1933, prefabricated housing companies were at-tempting to capture a share of the potentially vastmarket for mass-produced homes. Even industrialgiants such as Armco Steel, American Rolling Mills,Wheeling Steel, Great Lakes Steel, and Goodyear–allof whom envisioned that mass-produced housingwould generate profitable markets for their ownbuilding materials and components—began invest-ing in home manufacturing operations.

But early dreams of capitalizing on the prefabri-cated home faded quickly. One housing analyst cites

l~{4Housing: A Striking Answer,” Fortune, August 1932, p. 60.

three reasons: “the price of the prefabricated housewas not competitive, public interest stopped shortof purchase, and promised capital backing provedelusive.”14 Inconsistent local codes and managementerrors also contributed to the problem.

Few U.S. firms mass produced prefabricated hous-ing prior to World War II. As one study suggests:

Up until the Second World War, prefabricatedhousing accounted for only one half of one percentof total housing construction. The War radicallychanged that figure. The need for large scale pro-duction at minimum cost and maximum speed gaveestablished prefabricators and would be prefabri-cators a golden opportunity. The Federal PublicHousing Authority alone built some 116,000 pre-fab houses and about 80,000 more were built byother government agencies and by private opera-tors. 15

This rapid expansion of prefabricated housing pro-duction during the war also stimulated new businessventures within the field.

14W.D, Keating, Emerging Patterns of Corporate Entry Into l-lousing

(Berkeley, CA: IURD Press, 1972).I Slbid.

.—.—-

24

Following World War 11, the United States experi-enced a housing crisis of unprecedented proportions.In response to a critical shortage of homes, Presi-dent Truman appointed Wilson Wyatt as HousingExpediter. Wyatt had full privileges to use the WarPowers Act and the War Mobilization and Recon-version Act, and had direct control of the FederalHousing Authority and the Federal Home Loan BankBoard. He presented the Veteran’s Emergency Hous-ing Program on February 7, 1946, This program:

. . . set a production target of 2.7 million units forthe years 1946 and 1947. To reach this unprec-edented goal, Wyatt intended to rely heavily uponprefabricated housing, 250,000 units in 1946 and600,000 in 1947. Achievement of this goal wouldhave increased the value of prefab production from$100 million to $2.5 billion.16

As it turned out, only 37,200 prefabricated unitswere constructed in 1946, and 37,400 in 1947. TheWyatt program died out by 1948, and cost the Fed-eral Government approximately $200 million, Manyhousing producers, including those with technicallysound products, went bankrupt upon the withdrawalof Federal funding. Among these were the futuristicDymaxion House of Buckminster Fuller, and CarlStrandlund’s porcelain enamel and steel LustronHome. Other companies managed to profit from thevery weakness of this Federal initiative; Fortune con-cluded,

. . . the 1946 Wyatt program was almost entirely aprivate enterprise program, and a lot of private en-terprises made a lot of money under its shelter. 17

Operation Breakthrough

The next attempt by government and industry toinfuse modern technology into the homebuilding sec-tor came on May 9, 1969, when George Romney,Secretary of the U.S. Department of Housing and Ur-ban Development, presented Operation Break-through. This proposal grew out of Section 108 ofthe Housing and Urban Development Act of 1968:“New Technologies in the Development of Housingfor Low Income Families.” The Section “authorizedthe (HUD) Secretary to select plans for the develop-ment of housing using new technologies, to constructat least 5,000 dwellings a year for five years using

‘blbid.‘T’’The Industry Capitalism Forgot,” Fortune, 1947, vol. 36, No 2, p. 67.

five different technologies, to evaluate the technol-ogies, and to report the findings to Congress.”18 Ulti-mately, Operation Breakthrough exposed buildersto the benefits of modern technology, and en-couraged more uniformity within and between Statebuilding code systems; however, it failed to createwidespread support for its programs in the Amer-ican marketplace, where local factors tended to de-lay implementation.

Romney proposed a three-phase implementationof Operation Breakthrough: Phase 1, Design and De-velopment; Phase II, Prototype Completion; andPhase 111, Volume Production. In June 1969, HUDrequested proposals for the project. The departmentstated that:

Operation Breakthrough has as its primary ob-jective the establishment of a self-sustaining mech-anism for rapid, volume production of market hous-ing at progressively lower costs for people of allincome levels. 19

HUD received proposals from 236 firms. Com-menting on the unexpectedly high response rate, onestudy observed:

On the heels of the urban riots, many of the Na-tion’s big corporations wanted to devote some oftheir money and skills to solving social problems—especially if money could be made at it. The listis long: American Cyanamid, General Electric, In-land Steel, CNA Insurance, Phillip Morris, BoiseCascade, Warner Communications . . . From everyspecialty, these wise kings came with their gifts tohelp the infant housing industry in its muddy man-ger.20

In February 1970, HUD selected 22 OperationBreakthrough finalists. Of the proposed housing sys-tems, 10 were made of modular design, 9 were ofpanel design, and the remaining 3 used componentassemblies. Initially, HUD selected 11 demonstra-tion sites. Budgetary constraints later reduced thenumber to nine.

Operation Breakthrough lost its early momentumwhen the participants encountered costly delays insecuring financing during Phases II and III. These

lsJohn M, Quig]ey, ‘(Res.i&nti~l Construction and Public policy: A

F’regress Report, ” IBER Working Paper, Berkeley, CA, 1983.‘(]lbid,‘OMartin Mayer, The Builders (New York: W.W. Norton & Co., Inc.,

1980).

25

delays, which arose from having to satisfy a multi-tude of local codes before a given design could beimplemented, caused many financiers to lose inter-est in the program. In an effort to remedy the prob-lem, HUD allowed Phase II and Phase 111 operationsto proceed simultaneously, and “federal rent subsi-dies and section 236 subsidies were offered for Phase111 units to speed production of Phase II prototypes.”21

The final blow to Operation Breakthrough cameon January 16, 1973, when President Nixon an-nounced an indefinite moratorium on new alloca-tions of Section 236 subsidy funds. In the end, only14 of the original 22 Operation Breakthrough par-ticipants built Phase III projects. Some housing pro-ducers did not participate due to the problem of codecompliance. Others cited “cost and other productionproblems, corporate marketing policies, and bank-ruptcy” as reasons for avoiding the project.22 Sum-ming up the results of Operation Breakthrough,“about 25,000 Phase III units were completed in 150different developments using Section 236 set asides.Only 1,500 units were completed for unsubsidizedoccupancy at market interest rates . . . No factorycame close to completing a single volume run . . .The cost to the federal government was $72 million,or $12 million more than had initially been bud-geted.” 23

While Operation Breakthrough is now looked onas a mismanaged Federal housing program, the ef-fort did expose builders to new housing construc-tion technologies. Furthermore, it led many Statesto reevaluate their building code systems, en-couraged uniformity between State standards,fostered new methods for evaluating housing con-struction, tested new labor arrangements for struc-ture assembly operations, and introduced Americanbuilders to innovative European practices. However,few HUD-sponsored building systems actually re-duced the cost of housing as a result of the technol-ogy that came out of Operation Breakthrough.

After Operation Breakthrough

Since 1973, significant large-scale public, private,or joint venture projects encouraging the use of new

homebuilding technologies have failed to material-ize. While the “Joint Venture on Affordable Hous-ing” initiated by HUD in several cities in 1982, hashad limited success, most Federal efforts have re-lated new technologies to energy consumption, notconstruction, The 1982 U.S. Comptroller General’sreport to Congress, “Greater Use of Innovative Build-ing Materials and Construction Techniques CouldReduce Housing Costs,” cited a number of factorsin government and industry that “impede the useof available technological innovation and the devel-opment and introduction of new ones.”24 These in-cluded:

●

●

●

●

a low level of effort by the Department of Hous-ing and Urban Development and the NationalInstitute of Building Sciences to encourage thedevelopment and use of innovative technology,except for that related to reducing energy costs;builders’ reluctance to accept risks associatedwith the use of technology whose long-term per-formance is not proven;restrictive and inconsistently administered lo-cal building codes; andbuilders’ lack of technical information on theresults of using innovative technology.25

The National Institute of Building Sciences hadbeen created by Congress in 1974 under Public Law93-383, and was intended:

. . . to encourage all sectors of the building indus-try to develop a more efficient way of introducingtechnology into housing by encouraging a more ra-tional building regulatory system through simplifi-cation and harmonization of building criteria, stand-ards, and other technical provisions, and evaluatingexisting and new technology to facilitate its intro-duction and acceptance at the Federal, State, andlocal levels.26

Due to internal organizational problems, the NationalInstitute of Building Sciences did not become fullyoperational until 1979. It has still not assumed theactive role called for by the statute, primarily dueto a shortage of financial resources.

2’Quigley, op. cit.ZZU,S. General Accounting Office, Comptroller General, “operation

Breakthrough—Lessons Learned About Demonstrating New Technol-ogy,” Washington, DC, 1976.

23 Quigley, op. cit.

24u.s. Genera] Accounting Office, Comptroller General, ‘<Greater Use

of Innovative Building Materials and Construction Techniques CouldReduce Housing Costs,” Washington, DC, 1982.

251bid.‘Glbid,

——

26

Summing up the scenario since Operation Break-through, the Comptroller General’s 1982 reportstated that “the statutory authority given to HUD andthe National Institute of Building Sciences to en-courage the development and use of innovative tech-nology in homebuilding has been receiving onlylimited attention by HUD and the Institute.”27 Giventhe past performance records of both HUD and theInstitute, it appears unlikely that either party willvigorously promote the research, development, oruse of innovative technologies or materials to reducehousing costs, unless funds are earmarked specifi-cally for this purpose.

The Future

Industry analysts generally agree that the postwarmovement toward factory-built housing will con-tinue, and may even expand. However, despite sub-stantial interest on the part of leading industrial firms,as well as government backing for prefabricatedhousing under Presidents Truman and Nixon, large-scale mass production of homes in American facto-ries has not materialized. Why should today’s fore-casts be more reliable than previous ones?

First, virtually all segments of the residential hous-ing industry now depend on factory-based technol-ogies to a certain degree. Until the Second WorldWar, few firms were involved in mass producinghouses, and a mere 0.5 percent of total housing con-struction was factory-built. Clearly, factory construc-tion plays a more important role today.

Second, computer technologies are extending theinherent efficiency of factory-based production. Com-puters facilitate many individual operations involvedin industrialized housing, from the initial designstage, to the building’s final assembly. This improvesquality control, saves time and money, encouragesuniformity of parts, and enhances design flexibility.As new computer applications emerge and softwareis developed to meet the specific needs of the resi-dential construction industry, factory-based technol-ogies should become more attractive to home-builders as well as homebuyers.

Third, the big builders are growing. The emer-gence of “superbuilders,” and particularly the ex-

Z71bid.

pansion of the largest firms among them (see table3), has brought about the combination of capital andconcentrated land markets necessary to justify long-term investments in plant and equipment. It is dif-ficult to distinguish between cause and effect, be-cause factory-based mass production, especially ofthe more profitable product lines, may also give firmsa competitive edge to expand, In any case, some pro-duction builders have already indicated their inten-tion to expand their production of housing, throughcontinued acquisition of construction facilities.

Fourth, Japanese and European technological in-novations, coupled with the growing threat of com-petition from foreign concerns acting in joint ven-tures with large domestic firms, has already inspireda combination of interest, emulation, and even fearwithin the industry.

Table 3.—Top 25 Homebuilders by Units Produced,1983

1234567

10111213141516171819202122232425

Fleetwood Enterprises, Inc. (Ill) . . . . . . . . . . . . . 37,746U.S. Home Corp. (I, II, IV) . . . . . . . . . . . . . . . . . . . 22,855Champion Home Builders Co. (Ill). . . . . . . . . . . 21,715The Commodore Corp. (II, III, IV) . . . . . . . . . . . . . 16,274Skyline Corp. (Ill) . . . . . . . . . . . . . . . . . . . . . . . . . 16,118City Investing Co. (1,111) . . . . . . . . . . . . . . . . . . . . 15,590Redman Homes, Inc. (Ill). . . . . . . . . . . . . . . . . . . 15,403Lincoln Property Co. (1) . . . . . . . . . . . . . . . . . . . . 12,734Pulte Home Corp. (1) . . . . . . . . . . . . . . . . . . . . . . 12,008The National Housing Partnership (1) . . . . . . . . 11,701Tidwell Industries, Inc. (Ill) . . . . . . . . . . . . . . . . . 11,010Liberty Homes, Inc. (Ill) . . . . . . . . . . . . . . . . . . . . 10,565Fairmont Homes, Inc. (Ill) . . . . . . . . . . . . . . . . . . 9,779Kaufman & Broad Home Systems, Inc. (1,111) ., 9,570Jim Walter Homes, Inc. (1) . . . . . . . . . . . . . . . . . 8,706Ryan Homes, Inc. (1) ... , . . . . . . . . . . ... , . . . . 8,503Horton Homes, Inc. (Ill). . . . . . . . . . . . . . . . . . . . 7,018National Homes Corp. (II) . . . . . . . . . . . . . . . . . . 6,842Cardinal Industries (IV) . . . . . . . . . . . . . . . . . . . . 6,754Zimmer Corp. (Ill) . . . . . . . ... , . . . . . . . . . . . . . . 6,321Canter Corp. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,299Ocilla Industries, Inc. (Ill) . . . . . . . . . . . . . . . . . . 6,000The Ryland Group, Inc. (I, II, IV) . . . . . . . . . . . . . . 5,491Weyerhaeuser Real Estate Co. (1) ., . . . . . . . . . 5,000Conner Homes Corp. (Ill) . . . . . . . . . . . . . . . . . . 4,964

Top 25 total . . . . . . . . . . ~ . .’. .’. . . . . . . . . . . . . . . . . . . 295,686Top 100 total . . . . . , . . . . . . . . . . . . . . . . . . . . . .....,377,983Top 25 as percent top 100 . . . . . . . . . . . . . . . . . . . . . 78Legend:(1) = production builder; (11) = panelized home manufacturer, (Ill) = mobile homemanufacturer; (IV) = modular home manufacturer.

SOURCE: “Automation in Housing, ” 1984

27

MARKET CONCENTRATIONThe 1978-83 market share percentages, numbers

of units produced, and sales volumes of the top 100U.S. builders indicate the extent of market concen-tration within the residential construction industry.These 100 home producers captured 24 percent ofthe industrialized housing market in 1983, a declineof 2.7 percent from the 26.7 percent figure of 1982;28

this can be attributed to the increasing presence ofsmall builders in the revitalized housing market. Still,production levels and sales volumes for the top 100builders increased between 1982 and 1983. Auto-mation in Housing magazine’s 1984 annual reportindicated that “the largest U.S. firms accounted for377,983 units in 1983. Their sales volume soared35.7 percent to 12.019 billion compared with the8.859 billion they put on the books in recession-battered 1982.”29

Table 3 presents the top 25 homebuilders, rankedby number of units produced. The table also de-scribes the product-types manufactured by each com-pany. These 25 companies produced 78 percent ofall units built by the top 100 homebuilders, andalmost 20 percent of all housing produced in 1983.Ranking these companies according to their dollarvolume of sales, the top five—U.S. Home Corp., PulteHome Corp., Ryan Homes, Inc., City Investing Co.,and Centex Corp. —all boasted 1983 sales in excessof $500 million; U.S. Home posted a sales volumeof $932.7 million. Of these superbuilders, 29 hadsales in excess of $100 million.

Implications for Small Builders

As the industry becomes more concentrated, therole of the small builder may change. New technol-

~fi,~utornat;on In llousjrf~, Larious issues,2’]Automatlon in Housing, 1984

ogy has the potential to drive out small builders, orat least to give them a different role. Use of factory-produced structural elements has already made thesmall builder more of an assembler than a crafts-man. But it has also created many new opportuni-ties for specialized firms, in areas like site prepara-tion and crane operations. Will the small builder’sfuture role be limited to pouring a foundation andassembling a set of modules or panels? Will the smallbuilder become a captive of major productionhouses? Or will the small builder become an en-trepreneurial specialist supplier to larger home-builders?

“Manufactured” (Mobile) Homes

The “manufactured” (mobile) home industry is themost concentrated area of factory-based housing. Ofthe 169 firms engaged in the production of “manu-factured” (mobile) home units in 1983, the top 25—asshown in table 4—accounted for 74 percent of thetotal production volume of 295,000 units. The top10 companies produced 54 percent of all "manufac-tured” (mobile) homes, and the five leading manu-facturers reported sales volumes greater than $250million.

This oligopolistic industry structure has resultedfrom a series of mergers and acquisitions followingthe enactment of the Manufactured Home Construc-tion and Safety Standards Acts. Many firms that couldnot comply with HUD’s standards were acquired bylarger “manufactured” (mobile) home producers. Ta-ble 4 also indicates that only 4 of the top 25 are pri-vate firms, the remainder being publicly traded cor-porations. Many of the public homebuilders haveestablished mortgage banking subsidiaries to origi-nate, underwrite, sell, and service home mortgages.

28

Table 4.—The Nation’s Top Producers of Mobile Homes

Headquarters 1984Company name address housing units

Champion Home Builders Co.a. . . . . . . . . . . . . . . . . . . . . . Dryden, Ml 22,795*Fleetwood Enterprises, Inc.b. . . . . . . . . . . . . . . . . . . . . . . . Riverside, CA 21,613*The Commodore Corp.c . . . . . . . . . . . . . . . . . . . . . . . . . . . . Syracuse, IN 20,580”Skyline Corp.d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elkhart, IN 16,892*Redman Homes, Inc.e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dallas, TX 15,732Guerdon Industries, Inc.f . . . . . . . . . . . . . . . . . . . . . . . . . . . Denver, CO 13,000Liberty Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Goshen, IN 12,075Fairmont Homes, Inc.g. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nappanee, IN 11 ,815*U.S. Home Manufactured Housing Corp.h . . . . . . . . . . . . Houston, TX 10,179*Tidwell Industries, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haleyville, AL 9,636*Zimmer Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Boca Raton, FL 8,500Kaufman & Broad Home Systems, Inc. j . . . . . . . . . . . . . . Los Angeles, CA 8,1 64*Schulte Homes Corp.

““o “““ “““ “““ “““ “““ “““ “““ “““ “““Midd’ebuv’ ‘N

Horton Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eadonton, GARiver Oaks Homes, Inc.’ . . . . . . . . . . . . . . . . . . . . . . . . . . . Boaz, ALPalm Habor Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Dallas, TXConner Homes Corp.m . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newport, NCOakwood Homes Corp.n . . . . . . . . . . . . . . . . . . . . . . . . . . .Greensboro, NCClayton Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knoxville, TNDeRose Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indianapolis, INWick Building Systems, Inco . . . . . . . . . . . . . . . . . . . . . . . Madison, WIWinston Homes, Inc.p . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Double Springs,Golden West Homesq . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Santa Ana, CAFuqua Homes, Inc.r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Arlington, TXDestiny Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moultrie, GAVintage Homess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Atlanta, GAHome of Merit, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bartow. FL,—● Figure estimated by RED BOOK editor.

7,2006,6236,0005,5545,4604,800 ●

4,4894,0003,433

AL 3,3503,250”3,0183,0002,880 ●

2,702

aFirm also produces motor homes.bFirm also produces travel trailers and mOtOr homes.cF1’m is a publicly held corporation (Am@. Firm also manufactures modular/sectional and panelized units as well as commer-

cial mobile units.dFi rm also manufacturers travel trailers and mini-motor recreational vehicles.eF/rm is a subsldiq of Redman Industries, Inc.fFi rm is a subsldiaV of city Investing Co,, New York, Nyj as is Wood Brothers, Denver, CO, and General Development cOrp,

of Miami, FL.gFirm also produces rnOdUlar/seCtional units.hTwo major subsidiaries are B’ig~le’ Homes (mobile homes) and Interstate Homes (modular/sectional homes). centu’~on

Homes is a subsidiary of Brigadier Homes.i Firm also produces modular/sectional homes, Shelter Resources.Winston Industries was purchased by Tidwell Industries,]Firm is a whoily owned subsidiary of Kaufman & Broad, Inc., Los Angeles, CA,k F ir m also produces modularlsectional unit%lFirm is a subsldia~ of River Oaks Industries, Inc.IllrJonner Homes Corp, acquired BreCk Homes IrlC, and l+ave’lock Homes cOrp.“Manufacturing conducted through Homes by Oakwood, Inc., a wholly owned subsidia~.o F irm also manufactures panelized homes.pFirm is a subsidiary of Tidwell Industries, Inc.qFirm also produces rnOdUlar/SeCIiO”al homes,‘Firm is a subsidia~ of Fuqua Industries l Inc., Atlanta, GA.sFirm }S a subsidia~ of Vintage Enterprises.

SOURCE: Office of Technology Assessment.

Chapter 3

Consequences of the Shift toIndustrialized Housing

—.

Chapter 3

Consequences of the Shift toIndustrialized Housing

How will increased factory construction affect the tion signifies quality housing using skilled craft work-quality or cost of products for consumers, the struc- ers in highly automated factories, while in the Unitedture of the construction industry, and industry em- States it often relates to low-quality units made byployment? No fixed answers exist for these questions, workers with few skills. The outcome hinges on thesince factory-based construction takes on a variety manufacturer’s perception of market demand, andof forms. In Sweden, for example, factory produc- on the effects of public regulation.

EMPLOYMENT IMPACTS

Productivity

Above specific trends in the residential construc-tion industry lies the question of overall productivity:is it going up or down, and how do we know?

Quantitative efforts to assess construction efficiencyand productivity in the homebuilding industry re-semble the guidelines used to analyze more conven-tional industries. This approach may be misleading,because conventional indices of economic perform-ance, such as levels of “capitalization” and “valueadded by manufacture, ” do not always apply to theresidential construction industry. As one economistexplains, “the industry is diverse, dispersed, de-tached, and discontinuous—all characteristics whichare viewed with dismay by analysts of more stable,highly-capitalized, conventionally-deployed in-dustries.”1

The diversity of the construction industry stemsfrom the specialized nature of subcontracting units,which constitute over 70 percent of all constructionestablishments in the United States. This qualitativeand geographic “unit spread” has resulted from anuneven distribution of consumer demand, labor mar-kets, and availability of materials. Similarly, detach-ment of construction enterprises arises from diversework movement patterns, the predominance ofshort-term subcontracting arrangements amongdifferent specialty firms, and the builders’ continuedreliance on a shifting array of building material and

‘Francis T Ventre, “lnno~’ation in Residential Construct ion,” Tech-nolo~ Re;fiew. vol. 11, 1979, pp. 51-59.

component suppliers. Finally, seasonal and annualfluctuations in consumer demand, material availabil-ity, and environmental conditions also account fordiscontinuity.

These characteristics reflect the housing industry’sadaptation to the unpredictable social and economicforces that affect demand. However, the fact remainsthat the measured productivity of the constructionindustry has fallen in recent years. The ProductivityIndex, which measures changes in output per man-hour, rose from 70 in 1947 to 110 in the mid-1960s,but it now stands at about 80. While no single con-sensus explains why new technologies have not in-creased productivity, several theories have beenoffered:

●

●

●

The deflators used to adjust the value of build-ings may not properly adjust for improvedquality.Repair and maintenance may be underreported.Since the productivity of renovation work doesnot equal that of new construction, the overallproductivity of the industry should fall as theratio of renovation work to new constructionincreases. However, it is difficult to obtain ac-curate data on renovation. Because of the un-clear ratio between these two activities, changesin their combined productivity are not easily in-terpreted,Increased uncertainty resulting from fluctuationsin the demand for buildings has forced the in-dustry to reduce the capital/labor ratio. Capi-tal/labor ratios increased 4.2 percent per year

31

32

●

●

●

●

from 1950 to 1968, but declined by 0.8 percentper year from 1968 to 1974.2

Large numbers of young, inexperienced work-ers entered the work force as the baby-boomgeneration came of age. Between 1968 and1978, the number of 16- to 24-year-old work-ers increased from 15.3 percent of the construc-tion work force to 24.2 percent. There has alsobeen a significant rise in the number of newfirms. The fraction of homebuilding firms lessthan 5 years old increased by a factor of 3 be-tween 1960 and 1976.Levels of union participation and apprenticeshipare falling.Offsite construction work, such as factory com-ponent construction, is not counted properly.The ratio of value added by the constructionindustry-the value of industry sales minus pur-chases from other industries—to gross outputfell from 51.1 percent in 1958 to 44.6 percentin 1979.3 In other words, a growing fraction ofthe value of homes sold was produced by sup-pliers to the industry, rather than by the indus-try itself. Also, between 1967 and 1973, 34 ofthe 41 industries that produced materials for theconstruction industry grew faster than the in-dustry itself, and 23 grew twice as fast. Thefastest growers made prefabricated wood com-ponents and structural wood members for resi-dences, or items like wooden kitchen cabinets.Some of these firms outstripped the construc-tion industry by a factor of 8. This suggests thatfactory productivity is higher than site produc-tivity for many activities.There may be scale effects. Productivity was un-doubtedly higher during the boom period oftract home construction.

While the U.S. housing industry may appear un-productive as a whole, it does employ a smaller frac-tion of the total work force than any other OECDnation, despite high U.S. construction rates. About5.4 percent of American workers served the construc-tion industry in 1980, compared with 11 percent inJapan, Italy, and The Netherlands, and 7 percent inFrance and the United Kingdom.4

ZH, Kernble stokes, Jr-., “An Examination of Pductivity Decline in

the Construction Industry, ” The Review of Economics and Statistics,vol. 63, No. 4, November 1981, pp. 495-502.

SJE, Cremeans, ‘{pr~uctivi~ in the Construction Industry, ” The corr-

struction Review, May/June 1981, pp. 4-6.qstatistical yearbook, United Nations, 1981 and 1983.

This set of considerations does not explain recentpatterns in construction productivity. Answers willarrive with better data.

Employment Levels

Given the annual fluctuation in housing demandand residential construction activity, accurate em-ployment trends are difficult to project. Neverthe-less, recent data on employment may help to ex-amine labor requirements.

The U.S. Department of Labor estimated that483,100 persons worked as general building contrac-tors for residential buildings in 1983. Of this total,346,100, or 72 percent, were classified as construc-tion workers. The “manufactured” (mobile) homeindustry, according to the most recent Annual Sur-vey of Manufacturers report, employed 42,000 per-sons in 1982, of which 34,600 were classified as pro-duction workers.

Detailed labor statistics on the panelized home,the modular home, and component manufacturersdo not exist. However, the Annual Survey of Manu-facturers does compile labor statistics for the pre-fabricated wood building industry,5 which includespanelized homes, modular homes, and buildingcomponents. While this industry classification alsoencompasses prefabricated structures, panels, andcomponents for nonresidential uses, products forresidential use comprise approximately 75 percentof all industry shipments, [n 1982, employees in theprefabricated wood building industry numbered16,800; 11,424 of these were classified as produc-tion workers.

Figure 7 illustrates employment trends for the gen-eral building contractor sector, and figure 8 providestime series employment data for the “manufactured”(mobile) home and prefabricated wood building in-dustries. Both figures reveal that the last peak in em-ployment levels for these employment classificationsoccurred in the late 1970s. Referring to figure 8, thedecline in total employment in both the “manufac-tured” (mobile) home and the prefabricated woodbuildings industries corresponds with an overall de-crease in “manufactured” (mobile), modular, andpanelized housing units produced between 1978 and1982.

‘SIC 2452.

—

33

c“=

Figure 7.— Residential Building Contractors

700 r

400t

350t

3001 1 1 1 1 I i 1 11974 1976 1978 1980 1982

YearSOURCE: U.S. Department of Labor, Bureau of Labor Statistics

Figure 8.—Total Number of Employees in theMobile Home Industry (SIC 2451) and the Prefabricated

Wood Buildings Industry (SIC 2452)

90

80 r

1972 1974 1976 1978 1980 1982

YearSOURCE: U.S. Depatiment of Labor, Bureau of Labor Statistics

The proportion of production workers to all em-ployees in the prefabricated wood building indus-try declined from 75 percent in 1967 to 68 percentin 1982. Production workers in the “manufactured”(mobile) home industry fell from 84 to 81 percentof the total work force between 1972 and 1982 (seefigure 9). While some analysts attribute the increasesin managerial positions to more government regu-lation, this development remains difficult to explain.

As for regional variation, when demand for newhousing expands, firms compete for each othersworkers. This causes problems in the Northeast,where the number of potential employees is low. In

Figure 9.— Production Workers as a Percent ofTotal Employment in the Mobile Home Industry

(SIC 2451) and the Prefabricated WoodBuildings Industry (SIC 2452)

100

90

YearSOURCE: U.S. Bureau of the Census, Census of Manufacturers

contrast, an ample labor supply exists in the alongthe Mexican border, where many manufacturers em-ploy alien workers; little skill is required, and theability to read or write English is not of great im-portance. However, this creates problems of qual-ity control, which, in turn, requires more super-visors.

Skill Levels and Unionization

Dependence on unskilled and semiskilled laborhas been a motivating force in the shift to industri-alized housing. One of the principal causes of in-dustrialization is to reduce the ratio of labor coststo total product costs. Systematic, factory-controlledproduction processes allow manufacturers to trainthe labor force:

. . . to repeat only certain tasks, and to repeat themunder factory-supervised conditions. This task sim-plification means that any given worker need notbe skilled in a trade, per se. Rather, the worker needonly acquire skills necessary for the assigned task.When changes in unit design require a new set oftasks, workers are trained for the new tasks; no nec-essary, a priori generic and transferable skills arepresumed. 6

In other words, workers have neither need nor op-portunity to acquire new skills.

6ThOmaS E, Nutt-powll, Manufactured Homes: Making sense Oi aHousing Opportuni~r (Boston, MA. Auburn House Publishing Co , 1982).

34

Little data exist on skill levels, both because therehas been no serious effort to collect the statistics,and as a result of the nature of labor requirementsand the work force. To remedy the problem, in pre-paring this study, OTA project staff contacted 50 com-panies active in the industrialized housing and com-ponent industry. The resulting survey reveals thewidespread use of unskilled or semiskilled workersin the component and “manufactured” (mobile)categories—approximately 80 percent of the workforce (table 5).7 Reliance on low-skilled workers stemsfrom the fact that these products involve a great dealof simple assembly of cut-to-size parts.

The greater number of skilled workers in the mod-ular sector—32 percent as opposed to 21 percent—stems from the more specialized tasks associatedwith modular units, such as plumbing, electricalwork, and cabinet work. The higher percentage ofcollege graduates in component and modular man-ufacturing may be design engineers. Typically,skilled workers in a “manufactured” (mobile) homeplant perform tasks associated with chassis welding,plumbing, and electrical wiring. An average plantmaintains a skilled worker in each trade area, whosupervises the performance of unskilled, factory-trained workers. When skilled or semiskilled laboris required, some “manufactured” (mobile) and mod-ular home producers hire on a fixed-fee, subcontract-ing basis. Using a subcontracted labor force, manu-facturers do not pay overtime or provide workerbenefit plans.

While the carpenter’s union has contracts with anumber of “manufactured” (mobile) housing firms,the industry as a whole lacks substantial union in-—- —_ -—-—

7Tw0 points about the data are worth noting. First, these numberscan shift as the market changes. Second, the firms that provided thisdata are a small fraction of the number of companies in the industry,but their average years in the business, 23 for component producers,22 for “mobile” producers, and 19 for modular producers, would indi-cate their success, and confirms the credibility of the survey results,

volvement. Production workers in the industrializedhousing industry have relatively low skill levels. Inaddition to factory employees, the majority of work-ers who assemble panelized homes or work for largeproduction builders do not belong to unions. Unionaffiliation in the residential construction industry hasfallen steadily since World War 11.

Even less unionization occurs in the “manufac-tured” (mobile) home industry. Possible explanationsinclude: the small size of an average plant; the ru-ral setting of most plants; the industry’s slow begin-nings; and the fact that the industry developed af-ter the era of large-scale union organizing. Whenunionization does occur, it follows industry linesaccording to task-specific skill requirements and as-sembly line production methods.

Contrastingly, workers in site-built housing con-struction and onsite assembly of factory-built homesdo tend to be affiliated with trade unions. One ana-lyst asserts, “the managements of some firms withmore than one manufacturing facility have made de-liberate efforts to ensure that their plants, if un-ionized, are unionized by different unions.”8 Thisunion fragmentation strategy reflects managementefforts to control their bargaining position with theunions, The same writer believes that the classifi-cation of union members in the “manufactured” (mo-bile) home industry as assemblers, rather than ona job or craft basis, has allowed the “mobile homeplant management to rearrange tasks and manpoweras necessary to increase productivity, a major rea-son that labor in the mobile home industry showshigher productivity than conventional home build-ing labor.”9

sAflhur f), Bernhardt, Building Tomorrow. The Mobile/ManufacturedHousing Industry (Cambridge, MA: The MIT Press, 1980),

9] bid

Table 5.—Percentage of Work Force in Various Skill Categories

Skilled

Unskilled Semiskilled Not l icensed/ Licensed/ CollegeGroup (less than 1 month) (1-12 months) certified certified graduateComponent. . . . . 38 41 12 1 8“Mobile” . . . . . . . 41 38 15 1 5Modular. . . . . . . . 33 35 22 3 7

SOURCE Office of Technology Assessment, 1986,

Wage Levels

The housing construction industry’s use of un-skilled, non-unionized laborers has enabled the aver-age “manufactured” (mobile), modular, and pane-lized home manufacturer to pay wage rates that fallbelow national construction industry averages. Fig-ure 10 presents average hourly earnings for therespective housing construction and manufacturingestablishments. Production workers in the “manu-factured” (mobile) home and prefabricated woodbuilding sectors have earned significantly less perhour than construction industry employees, and lessthan employees in the housing sector as a whole.Although general contractors have offered higherwage levels than the manufacturing sector, these

Figure 10. —Average Hourly Earnings of Employees—by Industry Sector

12 r

Key:— C o n s t r u c t i o n t o t a l-“–- Residential building contractors- - - - - M a n u f a c t u r i n g t o t a l

‘-+----- Mobile home industry

~ Wood buildings industrySOURCE” US Department of Labor, Bureau of Labor Statistics

35

wage levels do not equal those of the constructionindustry. Past trends suggest that wage level gapsbetween the various sectors will not close signifi-cantly in the near future.

Potential To Upgrade Job Quality

To date, the U.S. industrialized housing industryhas promoted “a clear shift from traditional ‘craft’skills to industrial-type ‘assembly’ skills, even on-site. Some predict that craft skills will become partof a lucrative, but limited market for retrofit, con-version, rehabilitation, and historical preservation.”10

However, factory-based construction may not inevi-tably lead to the unskilled, routinized assembly-line.New technologies can create attractive, stable jobsfor production workers. Employees in such facilitiescould be treated more like workers in automobilefactories than day laborers, enjoying continuity ofemployment, skill acquisition, and identification withthe employer or firm.

The Swedes employ factory-based construction topromote continuity in employment and to facilitatethe development of an industry that provides greaterreturns to wages, Swedish factories resemble craft-based shops, where automated equipment amplifiesindividual skills. Rather than following an assem-bly line, Swedish factory workers craft individualstructures using specially designed jigs and numer-ically controlled positioning, cutting, and milling sys-tems. Whether U.S. industrialized housing produc-ers will depart from current practice and opt for aSwedish-style approach will depend on economicand other factors that do not involve the technol-ogy itself, such as the status and potential for suc-cess of worker retraining programs.

IOEric D]uhosch, “EXpert Panel on Technology Changes and [mPacts

on the Building Construction Industries,’” paper submitted to the Of-fice of Technology Assessment, 1984.

HOUSING COSTSHave new building technologies improved the in- new technology has not entered U.S. markets more

dustry’s ability to lower housing costs? Unfortunately, rapidly.examination of the existing data leads to ambigu-ous and contradictory results. With the exception of Homebuilding technologies most directly affect la-component fabrication, it is difficult to document the bor and material costs, which account for approxi-net economic advantages of factory-based construc- mately 50 percent of total housing costs and whichtion in the United States, which is one reason that have risen at less than half the rate of land costs and

36

financing 11 (see table 6). The extent to which costsavings in home construction will aid the home-buyer, and whether this will appear as increasedprofit for builders, will depend on the nature of lo-cal housing markets.

While precise cost comparisons are virtually im-possible to construct, factory-built housing may lowercosts by:

●

●

●

●

●

●

increasing the labor productivity of constructionwith advanced assembly equipment,increasing the role of less-skilled employees will-ing to work for lower wages,decreasing construction time and constructionloan costs,improving quality control with precision ma-chinery and jigs,decreasing defects and site visits needed to re-pair such problems,reducing the seasonal nature of homebuilding,andfacilitating the purchase of large volumes of ma-terials.

New technologies also affect the 17 percent of to-tal costs taken up by construction finance. Sharp re-ductions in the amount of time required to build agiven unit—more so in the case of a multiunit projectlike a stacked modular—can save the factory-basedbuilder substantial construction loan interest costs.

Construction time requirements for the varioushousing types depend on the building technologiesemployed, the skills of the workers involved, andmanagement effectiveness. Table 7 presents con-struction time differentials for four types of housing.

I}’’ The Report of the President’s Commission on Housing,” 1982.

Table 6.—Approximate Cost Breakdown forNew Single-Family Homes

1970 1980 Percentcost (0/0) cost ( 0/0) i n c r e a s e

Land. . . . . . . . . . . $4,450 19% $15,500 2 4 % 2 4 8 %Onsite labor . . . . 4,500 19 10,350 16 130Materials . . . . . . . 8,650 37 22,000 34 154Financing . . . . . . 1,600 7 7,700 12 381Overhead/profit . 4,200 18 9,050 14 115

Total . . . . . . . . $23,400 100% $64,600 100% 176%SOURCE The Report of the President’s Commission on Housing, 1982.

Table 7.—Construction Time Comparison

Structure type Total assembly time

Double section mobile/modular home . . . . . . . . . . . . . . . . . 1 to 2 weeks

Panelized or precut home . . . . . . . . . 6 to 8 weeksComponentized home. . . . . . . . . . . . . 4 to 12 weeksStick-built home. ., . . . . . . . . . . . . . . . 12 to 24 weeksSOURCE: Automation in Housing.

As expected, an inverse relationship exists betweenthe use of industrialized building techniques andcomponents and the time required for construction.

To measure the extent that existing homebuild-ing technologies may reduce initial costs for thehomebuyer, the National Association of HomeBuilders (NAHB) conducted a housing technologyresearch project in 1979. The NAHB reported thatits “cost buster” house achieved a 25-percent sav-ings in construction material and labor, comparedto other homes of similar size and location, Possi-ble savings in construction finance costs were notconsidered. These cost savings will vary, depend-ing on region; production levels; and the type, size,and quality of the housing.

To translate this 25 percent labor and material sav-ings into an “overall” scheme, a 1982 report fromthe U.S. Comptroller General based a cost savingsanalysis on the National Association of HomeBuilders’ data. Since labor and material costs con-stituted approximately half of the initial cost, a 25-percent reduction in labor and construction mate-rial expenditures decreases the sales price of a homeby 11.75 percent, assuming that the cost savings arenot retained as builder profits. Given the medianprice of a house in April 1981 at $69,300, the initialsavings would total $8,143, assuming a conventional30-year mortgage at 15 percent interest and a 20 per-cent downpayment. This would create monthly sav-ings in financing costs of $82.41, or $29,668 overthe 30-year mortgage period. Because land andfinancing constitute a growing share of constructionand consumer housing cost, this is a high estimateof the cost reductions that may be brought about byexisting technologies. Furthermore, the timelag be-tween the introduction and use of new homebuild-ing technologies suggests that new technologies willnot reduce housing costs in the immediate future.

Of the various forms and types of industrializedhousing, “panelized and modular homes,” the Comp-

37

troller General’s report indicates, “are not a meansof significant cost savings of new single-family de-tached housing. The industry markets the houseson the basis of their high quality, stemming fromquality-controlled factory methods, and their advan-tages to small builders. "12 Although the base pricesof panelized and modular homes do compare favora-bly with conventional construction, additional costsincurred in site acquisition, site development, andutility installation may reduce their affordability.

However, panelized and modular homes canprove economical when site-building is simply notfeasible-on scattered sites, or in outlying rural areasthat lack skilled tradespersons. In addition, pane-lized and modular homes can yield savings in “softcosts” for builders. Since less site work is neededfor these houses than for conventional site-buildingmethods, builders can sell more houses with thesame amount of finance money. Reduced work timeat the site also negates losses from theft and van-dalism.

The one type of factory-built house that does of-fer real savings in initial cost is the “manufactured”(mobile) home. Table 8 states that the average salesprice of a “manufactured” (mobile) home in 1983was less than 25 percent of that for site-built homes;

however, sales figures for “manufactured” (mobile)homes do not include land costs and “setup” charges,which increase costs by at least 15 percent. Salesprices do reflect differences in product characteris-tics; while the average size of site-built homes hasdecreased in recent years, the typical site-built homeremains larger than the “manufactured” (mobile)home.

Also included in the table is a time series cost com-parison between “manufactured” (mobile) homesand site-built homes. Although the cost differentialbetween “manufactured” (mobile) homes and site-built homes has increased over time, a cost calcula-tion that included both the expected lifetime of eachtype of unit and the difference in maintenance costswould raise the effective price of the “manufactured”(mobile) units. As a 1985 report for the Departmentof Energy states: “Manufactured home occupants . . .consume more total energy per heated square footthan do occupants of other single-family detachedhomes’’ 13–48 percent more from April 1980 toMarch 1981, and 31 percent more 2 years later. Fur-thermore, the Technical Advisor for Navy Housingrecently concluded that when quality and upkeepcosts are taken into account, “the mobile cannotcompete economically.”14

IZU.S. Genera] Accounting Office, Comptroller General, “Greater Useof Innovative Building Materials and Construction Techniques CouldReduce Housing Costs, ” Washington, DC, 1982.

Ispacjfjc Northwest Laboratof_y’, “Impact of Alternative ResidentialEnergy Standards,” November 1985, p. 33.

lqRichard Hibbert, LJ.S Nav)’, correspondence dated ~!ar. 6, 1986.

38

HOUSING

Objective measures of quality in housing are dif-ficult to construct. The “satisfaction” rating for bothsite-built and “manufactured” (mobile) housing hasincreased steadily during the past decade. In a 1983Department of Census survey, 60 percent of the re-spondents living in site-built homes constructed in1976 rated their house as “excellent,” and 80 per-cent of respondents living in a house built in 1983gave their homes the same rating. For “manufac-tured” (mobile) homes, “excellent” ratings weregiven by 30 percent in 1976 and 54.6 percent in1983. 15 Table 9 compares site-built and “manufac-tured” (mobile) homes from two different periods.While newer units fared better than older units inmost cases, the site-built units were less likely to suf-fer from any of the defects surveyed. Also, otherdefects, including inoperative doors and windows,leaky pipes, and electrical wiring problems, have in-creased substantially in newer “manufactured” (mo-bile) homes.l6

In an effort to determine whether these reporteddefects did exist, the RADCO company made sev-eral site inspections of units that had been the sub-ject of a previous survey. One or more major prob-lems were discovered in three of every four units.

‘sWestat, Inc., “Analysis of Annual Housing (AHS) Data Pertainingto the Durability of Manufactured Housing,” February 1986, pp. 4-10.

lb]bid,, pp. 3-17, 3-18, 3-23.

Table 9.—Percent of “Manufactured” (Mobile)and Site-Built Homes With Various Problems

Built before 1977 Built after 1977

Manufactured Site Manufactured SiteHoles in floora . . 5.2 1.8 1.8 0.5Peeling paint (currently) . 1,4 3.9 0.8 0.4Broken plaster (current ly) . 1 .5 3.4 0.9 0.5Units with nonworking

o u t l e t s ( c u r r e n t l y ) 2.3 3.6 2.0 1.2Fuses or switches blown

(in last 90 days) .,, 15.8 17.3 16.4 18,1Exposed wires (currently) 1.9 2.8 1.1 1,9H e a t i n g b r e a k d o w n . . . 6.8 4,4 5.1 2.2R o o f I e a ka . . . 21.9 6.8 20,0 3.6Toilet breakdown

(in last 90 days) ,, .,,,,., 4.4 4.1 7.0 5.1Holes or cracks in interior

walls/ceilings (currently). 4.7 5.5 2,3 1.8as@b@t home respondents were asked about “current’ problems manufactured home resi-

dents were asked about problems in the ‘‘past 12 months “

SOURCE Westat Inc ‘Analysls of Annual Housing (AHS) Data Pertalrung to the Durat)tl!ty ofManufactured Housing “ February 1986, p 4-3

QUALITY

Furthermore, field inspectors observed problems thathad not been reported by homeowners in approxi-mately 80 percent of the houses. Of the 520 prob-lems identified in 81 homes, 30 percent were dueto material defects, 30 percent to poor workmanship,14 percent to problems occurring during unit setup,and the rest were the result of use or could not bedetermined .17

The relatively poor performance of the “manufac-tured” (mobile) units just cited does not stem fromfactory production technique. More likely, it reflectsthe U.S. market for low-cost/low-quality housing.There is no direct equivalent to a “manufactured”(mobile) home in Europe or Japan.

Factory-based technologies can enhance the phys-ical and esthetic quality of housing. In the UnitedStates, the term “prefab” still calls to mind inexpen-sive, monotonous, and drab housing. Consumerstend to believe that American factories producedreary, shoddy homes. However, the high-quality,high-status houses constructed in Swedish plantsprove that factory construction can offer significantadvantages at various stages in the homebuildingprocess, from the initial design phase through theproduction, assembly, and erection of the endproduct.

Common stereotypes notwithstanding, the U.S. in-dustrialized housing community has met consumerdemand with the development, through basic engi-neering procedures, of various housing configura-tions. Units mimic the styling array of conventional“stick” builders: one-story, two-story, split-level, ex-posed ranch, contemporary, and traditional. Theyfeature varied foundation systems, roof configura-tions, fenestration, and floor plans.

In certain cases, particular features are limited. Forexample, while 24-inch stud spacing has provensufficient for most homes, the interior sheathing usedin some industrialized housing is too thin to spanthis distance and still remain flat. On the whole, how-ever, many options are available to the consumerof industrialized housing. Component and modularmanufacturers produce up to 1,000 different models

17ResOurCes, App]i@Ons, Designs & Controls, Inc. (fUDCO), “FinalReport for Durability in Manufactured Homes, ” December 1985,

39

to choose from, and provide custom design optionsfor high-income buyers.

Improvements in computer-assisted design (CAD)should enhance design flexibility still further. Pro-spective homebuyers may now design their ownfloor plans, and compare different interior and ex-terior wall coverings in the unit spaces. The Japa-nese connect this process directly to productionequipment, which then deliver pre-assembled unitsto a construction site within 3 weeks.

Concerning the manufacture of component parts,the factory setting offers the efficiencies of mass pro-duction so that structural components—such asfloors, roofs, windows, and doors—can meet uniformtolerances. The high quality of prefabricated build-ing components has contributed to their acceptanceby many State and local building codes. Componentmanufacturers confront markets that can absorb highvolumes of production, which helps to offset the fixedcosts associated with automated manufacturingequipment.

Factory construction means that homes can bebuilt to more precise standards, and can benefit frommore reliable assembly. Onsite construction and as-sembly work is vulnerable to the vagaries of weather,and workers may cut corners—especially when alayer of drywall and paint will cover a multitude ofsins. The incentive and opportunity to do this is re-duced in the factory. In Sweden, the resulting qual-ity is such that most firms offer 10-year guaranteeson their products.

U.S. manufacturers have only begun to implementtechnologies that are already realized in Swedish andJapanese industrialized housing. Still, certain advan-tages of factory construction involve quality improve-ments that would not be readily accepted by con-temporary American markets. Some industryanalysts believe that this problem may be solvedthrough a system of rating or labeling houses accord-ing to graduations of quality (see ch. 6). Finally, re-cent improvements in the design and manufactureof commercial structures should affect residentialconstruction, over time.

Chapter

Industrialized Housing in Japan,Western Europe, and Canada

a

Chapter 4

Industrialized Housing in Japan,Western Europe, and Canadal

Despite the growth of factory-based housing in theUnited States and the American tradition as an in-novator of mass-production technology, other indus-trialized nations top the United States in terms ofhomebuilding technologies. U.S. firms can learnmuch from foreign developments.

The sophisticated manufacturing facilities of for-eign housing industries constitute the major differ-ence between U.S. and foreign firms. Most Amer-ican plants lack modern equipment, relying onunskilled laborers and worker-operated machines.Skilled operators and high-speed assembly linesmake Scandinavian factories more capital-intensive,especially those in Sweden. Some Japanese compa-nies have automated to the point where they em-ploy robotics and computer controls for production.The Japanese are beginning to market homesthrough “showrooms” that provide customers withan enormous range of design options.

] Unless otherwise noted, the material in this chapter is based on re-search conducted by the Stephen Winter Associates, New York, NY.

Photo credit: Don O. Carlson

An American manufacturing facility. Workers gluepanels by hand, rather than with automated

techniques.

Japan, Sweden, and other Western European na-tions now see the United States as a major marketfor manufactured housing. Foreign penetration,which was unthinkable just a few years ago, has nowraised considerable concern and debate within theindustry. At the same time, some members of theU.S. industry believe that the existing domestic ap-proach can satisfy American market demand, andnegate the potential of foreign investment in researchand development. One observer of the U.S. “man-ufactured” (mobile) home industry contends that theJapanese and Europeans are “obsessed” with tech-nology.2 The vice-president of one of the largest firmsin the United States visited a construction researchfacility in Japan and asserted that “he could not be-lieve all these [research] employees just runningwild” and that “if he were head of Taisei he wouldfire every one of the R&D staff and save the com-pany $25 million per year.”3 However, other ob-servers argue that the U.S. industry has grown com-placent with the assumption that construction is a“nontraded” commodity. They fear that the lack ofU.S. research and development robs Americanhomebuyers of both qualitative improvements andcost reductions, and increases the opportunity forforeign producers to penetrate markets.4

In order to assess the potential impact of foreigncompetition, as well as to provide some points ofcomparison with the U.S. housing industry, thischapter examines industrialized housing in nineselected countries. Also, it will address a range ofdomestic and international factors that affect foreignpenetration of the U.S. housing market.

ZAflhur D, Bernharcft, BUj]djng Tomorrow: The Mobile/Manufactured

Housing Industry (Cambridge, MA: The MIT Press, 1980).sA]bus Trip Report, July 7, 1985, cited in Daniel W. Halpin, Final

Report Task 3, “Technology in Architecture, Engineering, and Construc-tion,” contractor report for the Office of Technology Assessment, Mar,17, 1986,

4See for example the article by Don Carlson in Technology and theFuture of the U.S. Construction Industry (AIA Press, 1986).

43

44

JAPAN

Japan’s housing construction industry is based onhigh-volume concentration in a small number offirms, design flexibility, and capital-intensive, high-technology production. Table 10 summarizes thecharacteristics of Japan’s five largest business enter-prises, which as a group produced 56,000 units ofindustrialized housing in 1983. Several of these firms,including Matsushita, Asahi, and Sekisui, own stockin housing companies. Misawa spent 1.5 percent,or $7.5 million, of its 1984 sales on research. Sekisuispent 0.2 percent, or $2.5 million.5

However, the 170,000 factory-built homes that aresold each year represent 15 percent of the Japanesehousing market (see table 11). Most houses are stillproduced by traditional “post-and-beam” frame meth-ods; a small number, about 7 percent, are multi-family structures or are built with American 2 by4 inch wood stud techniques.

Several large corporations control home manufac-turing: Misawa, Daiwa, National Homes, SekisuiHeim, and Sekisui Chemical. These five companiesaccount for 86 percent of Japan’s total production.Their factories are highly automated, using suchmodern equipment as robotic welders and main-frame computers. Each plant can produce thousandsof units per year.

Many of these houses are wood-framed modularswith walls constructed on a wooden lattice, ratherthan with the stud wall construction employed inAmerican modulars. Building elements, such as wallsand floors, are assembled into small modules in thefactory and trucked to the site. These modules oftenlack the factory finish of an American modular.

The one notable exception to the wooden latticesystem is the precastle autoclave lightweight ce-ramic (PALC) system, developed by Misawa Homeswith extensive funding from the Japanese Govern-ment. Modulars of this material, which resemblesEuropean lightweight concrete, contain a homogene-ous envelope that functions as structure, insulation,fireproofing, and interior/exterior finish. Currently,Misawa produces this type of house in only 1 of 23plants, but claims that PALC units require just 170man-hours to construct—as opposed to 3,300 man-hours for standard “post-in-beam” techniques, or1,000 man-hours for pre-stressed wooden panel sys-tems. This represents an extraordinary gain in pro-ductivity. 6

Misawa has developed elaborate equipment forfabricating these insulated wall panels with a vari-ety of interior and exterior finishes, and has engi-neered automated devices to fabricate panels con-

5James MCf@ller, “lndustria]ized Housing: The Japanese Experience, ”Alberta Department of Housing, December 1985, p. 95. ‘fbid.

Table 10.–Comparison of the Top Five Factory Housing Companies in Japan, 1983

Rank by production ., ., 1, Sekisui House 2. Misawa Homes 3. Daiwa House 4. National House 5. Sekisui ChemicalTotal production (83). ., ., ., .40,436 30,650 20,794 20,444 12,237Year founded . . . . ... . . ., 1960 1962 1955 1963 1947Factories producing housing ., ., ., 4 22 12 4 6Total employees. ., ., 8,014 1,105 5,672 2,010 6,038Total assets (million yen) . . . . . 597,497 138,208 289,198 69,346 290,937Equity ratio ... . . . . . . . . 26.7 20.0 34.0 25.2 18,0Major shareholder (percent owned) Sekisui Chem (20.3) Misawa Co. (9,6) – Matsushita (58.6) Asahi Chem. (16.2)Ownership by Japanese banks (%) 13.4 10.4 14,9 6 . 7 8.6Foreign ownership (%) ., ., 12.8 11.3 15.8 6 . 0 10.3Sales breakdown (%)

Building materials ... ., . . . — 69 87 6 3Housing construction : : : : : : 79

—— — 2 7 38

Other construction ., . . – 13 —Housing lots, : : : : ... –

— —— — 10

Real estate ., . . . . ... ., 21—

— 13Other activities . . ., ... –

— —18 — — 68

Sales–March 1984 (mi l l ion yen) . , 443,742 (Jan. 84) 126,216 285,689 9 7 , 9 2 4 324,018SOURCE Japan Company Handbook, First SectIon Firms, First Hall 1984, The Oriental Econom!st, cited n James McKeller, “lndustnahzed Housing The Japanese Experience, ” Alberta Department

of Housing, Oecember 1985, p 81

.

4 5

Table 11 .—Factory Home Construction in Japan(as a percent of all home construction)

1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5

1975 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........10.9

1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........10.81980 . . . . . . . . . . . . . . . . . . . . . . . . ...................12.61981 . . . . . . . . . . . . . . . . . . . . . . . . ...................13.61982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........14.41983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..15.3SOURCE: Building Center ofJapan,1964. Cited in James McKelleL “industrial-

ized Housing: The Japanese Experience:’ Alberta Department ofHous-ing, December 1965, p. 76

structed from l-by 4-inch “studs’’ and thin plywoodsheets.

Most Japanese prefabricated homebuilders main-tain sales offices throughout the country. In 1980,for example, Misawa sold 13,000 units through fran-chise dealers, employing 1,700 sales personnel in163 branch offices. Manufacturers sell through“home show parks," where model homes of manydifferent firms appear in the prime retail locationsof major cities. Accordingly, land costs represent amajor investment. The Sendai Park, located on thesite of Osaka World Fair, shows 48 homes and isthe largest such facility. The Tokyo Housing Fair dis-plays homes in Shinjuku. The Asahi BroadcastingCo. operates both of these home show parks, charg-ing approximately $7,000 per month for each house;the fee covers land, management, and advertising.

After viewing these displays, the prospectivehomebuyer can, with the help of an architect, cus-tom design his house using a simple CAD (computer-assisted design) system. Upon completion of the de-sign, a materials list is generated instantaneously.The buyer then receives a price, and the order goesto the factory.

Widespread export of Japanese industrializedhousing or manufacturing technology has notoccurred. Misawa plans to construct a PALC plantin South Korea, and intends to arrive in the UnitedStates within the next several years. All of the ma-jor manufacturers have expressed an interest in theU.S. market. They would welcome joint ventures,but do not wish to commit to large-scale investments.Daiwa is employing conventional U.S. technologyin Houston and California, perhaps to learn the mar-ket before making a significant capital expenditure.Misawa has entered into an “agreement” with U.S.Home, but the details have not been revealed.

Japan may need to modify its products in orderto penetrate foreign markets. Aside from differencesin taste, Japanese domestic markets emphasize fire-resistance and the ability to withstand earthquaketremors to a greater extent than U.S. markets. Energyefficiency receives little attention, due to the mildJapanese climate; few Japanese residences have cen-tral heating.

SWEDENThe Swedish industrialized housing industry may in factories. By 1983, that figure had risen to nearly

be the most highly developed in the world. In the 90 percent (see table 12). The Swedes maintain ex-mid-1960s, Sweden set a national goal of building ceptionally high standards of quality, and offer1 million new homes in a decade, This goal was multiyear guarantees for parts and workmanship.7

achieved by reorienting the nation’s homebuildingindustry around factory production, and the trend IFOr a r~ent review of developments in Swedish manufactured hous-

continues today. Following the initial 10-year period, ing see L. Schipper, S. Meyer, and H. Kelly, Coming/n From the Cold:Energy-Wise Housing in Sweden (Cabin John, MD: Seven Locks Press,

40 percent of all single-family homes were produced 1985).

Table 12.—Factory Construction of Single-Family Homes in Sweden(as a percent of all single-family home construction)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Factory built (o/o) . . . 60 55 55 43 42 48 44 49 49 58 65 82 89Site built (o/o) . . . . . . 40 45 45 57 58 52 56 51 51 42 35 18 11Total units

(thousands) . . . . . . 35.7 42.8 43.2 53.3 36.1 42.7 40.2 40.6 38.2 32.6 26.8 23.4 19,3NOTE: “Factory built” means produced substantially or entirely from factory elements, “Site built” means produced principally from loose wooden elements on site.

The sharp increase in construction in 1974 resulted from a rush to take advantage of a tax rebate program before it expired.

SOURCE: Central Bureau of Statistics, Construction and Housing Loan Statistics, Stockholm.

46

Of the approximately 55 Swedish industrializedhousing companies, 12 are considered to be “large.”Building systems include small and large wood-framed, highly insulated panels, which may be han-dled by either workmen or a small crane. Factorytechniques represent the state of the art. Typically,computer controls operate factory production lines,allowing for flexibility in the type of the unitsproduced. Swedish houses incorporate many inno-vative technologies not in use in the United States;interestingly, some are produced by subsidiaries ofAmerican firms.

Swedish manufacturers export homes to West Ger-many, Austria, Switzerland, Holland, Norway, Den-mark, Finland, the Middle East, and North Africa.The Swedes have begun shipping to the UnitedStates, on a limited scale. Swedish Wooden Househas erected high-quality, energy-efficient housing inthe United States for several years. Skanska, the ma-jor international construction and engineering firm,has entered the U.S. market in both commercial andresidential construction. Also, as of March 1986, nofewer than 20 American corporations were engaged

in importing Swedish houses, with a combined pro-jected 1986 sales volume of 1,500 units. Nearly allplans to establish manufacturing facilities havegrown out of joint ventures with Swedish factories.

Currently, an overcapacity exists in Swedishhomebuilding factories, and production is at half itspeak level. As a result, the Swedes may attempt toincrease exports. The high-quality house representsthe most likely product for the United States, erectedwith local custom builders in subdivisions of 10 ormore units.

Sweden’s dramatic progress in the housing sec-tor has resulted from a broad national consensus anddirect government policies. The government subsi-dizes mortgages, including costs related to energyand water conservation, and spends three times asmuch money on direct building research than theUnited States.8 Including spending through univer-sities and industry research, Sweden’s total build-ing research budget approaches $200 million peryear.

81bid.

FINLANDIndustrialized housing in Fin and is widespread,

including 60 percent of single-family homes built peryear, although the Swedish industry is still greater.The predominant form employs the small panel, fol-lowed by units with large panels and modulars. Pan-elized systems maybe closed in by the manufacturer,or delivered as kits to the owner/builder. Modularconstruction is also gaining popularity. As a whole,the residential construction industry enjoys an an-nual growth rate of 20 percent.

Finland’s industrialized housing industry and itswood products industry are interrelated. Many firmsproduce the lumber and materials that will be usedfor individual home units.

The Finnish experience in exporting building ma-terials like wood products and granite, the export

orientation of Finland’s economy, and its globalplacement of trade-oriented consular officials all placethe country in a strong export position. Tradition-ally, trade has been with Africa and the Middle East,specializing in camp buildings. More recently, pane-lized homes and precut log houses have been ex-ported to Great Britain, Sweden, South America, theUnited States, and—most of all—the Soviet Union.Finnish houses are found in 90 countries. MakroscanUSA, a subsidiary of Makrotalo Oy, one of the eightlarge house manufacturers in Finland, and MakroEn-gineering, a manufacturer of house-factory equip-ment, are currently finishing a project in Massachu-setts. They now seek builders interested in usingtheir system, as well as other joint manufacturingventures. Also, they sell factory equipment.

.

4 7

DENMARKThe Danish industrialized housing industry aims The small panel system, produced by such com-

for both domestic and export markets. Nearly 80 per- panies as Hosby Huse, Hellebo, and Roslev-Huse,cent of the detached housing produced since the mid- represents the most likely export to the United States.1960s has been factory-built, most of it panelized. Hosby Huse has already constructed a prototype unitAt the same time, international contractors like A. at Brookhaven National Laboratory, the first in a clus-Jespersen & Son and Larsen & Nielsen have con- ter of energy-efficient houses from abroad.structed large projects throughout the world, primar-ily in the Middle East, using a prefabricated concretesystem produced in local factories.

Canada’s housing construction industry does notcompare to that of the United States, basically dueto the small Canadian housing market—150,000units per year. However, Canadian manufacturershave experience in exporting precut, panelized, andmodular building systems, especially Viceroy, Britco,and Freure Homes. Viceroy sold 1,200 of its precuthome packages in 1984, and topped that a year later.The firm now plans to expand aggressively in NorthAmerican markets, and expects to establish manu-facturing facilities in Florida and Canada. Viceroycredits its success to both outstanding design andthe high quality of their materials.

Some industry members believe that despiteshrinking demand, the market share for industrial-ized housing will increase as Canadian housing con-

struction shifts from large developments, where thereis an economic advantage to site building, to dis-persed rural housing. Factory-produced homesshould have a cost advantage over site-built houseserected by small rural builders.

Housing exports from Canada to the United Statesmay increase rapidly in the near future. Most Cana-dian housing factories are situated near populationcenters, within range of the United States. One Amer-ican inspection and certification agency has alreadybeen contacted by five Canadian manufacturersabout exporting homes to the Northeastern States.The relative strength of the U.S. dollar has servedas an economic advantage, generating low shippingcosts.

GREAT BRITAINFor over a century, the British have led in design

and construction of industrialized buildings. Theyshipped prefabricated schools and commercial build-ings to the Middle East, Africa, and Asia long be-fore many of today’s large firms entered these mar-kets. Most British building systems rely on metalframing, given the domestic shortage of construc-tion lumber.

British real estate investors have been active inthe major U.S. cities for some time, and British com-

panies have entered the U.S. housing market byusing traditional building techniques. Britain’s Bar-ratt Homes, which last year built approximately 11.5percent of Britain’s private housing, has establishedan American subsidiary, and hopes to complete4,000 to 5,000 homes annually during the next fewyears. Another British firm, John Laing Homes, nowoperates in southern California. Laing plans to com-plete 200 units in 1986, and 1,000 units a yearthereafter.

48

FRANCE

Along with the British, French firms have beenamong the top five international contractor groupsfor many years. Recently, several French companieshave entered U.S. markets as real estate investorsand developers. For example, Les Nouveaux Con-structeurs produces conventionally built housing inLos Angeles, and expects to complete 300 homesper year by 1988 and 500 by 1990. The firm’s man-agement believed that California had a stronger and

more sustainable economic base than other areasof the United States.

In a joint venture with U.S. Home, Maison Phe-nix has built a limited amount of steel and concretehousing in Florida. Also, Filled has attempted to sellFrench-designed metal-framed housing and commer-cial buildings.

NORWAYTraditionally, Norwegian contracting firms have ter, and also has plans for conventionally built con-

been active in the Middle East, Africa, and Malay- dominiums and townhouses in the Orlando area.sia. Sandegruppen A/S, the largest group of contrac-tors in Norway, now operates in the Orlando, Florida, At least one other Norwegian homebuilder, G.

Black Watne A/S, currently operates in the Unitedarea as the Selmar Corp. Selmar will construct theNorwegian Pavilion at Disney World’s EPCOT Cen- States, in the Austin, Texas, area.

WEST GERMANYWest German firms, like Phillip Holzmann AG and Although internationally active in the production

its subsidiary, the J.A. Jones Construction Co., have of factory-built housing, West German producerspenetrated U.S. markets for nonresidential construc- have not yet entered U.S. housing markets.tion and development. The United States accountedfor over $2 billion worth of contracts, or 41.7 per-cent of the foreign volume of West German firmsin 1985, according to Engineering News Record.

OTHERSAt the 1986 NAHB housebuilders show, firms ex- related products from foreign sources—appliances,

hibiting either housing systems or components in- tiles, heating and cooling systems, and decorativeeluded those mentioned above, as well as firms from items—were shown. Foreign exhibits accounted forHolland, Italy, and Belgium. Additionally, housing- approximately 15 percent of the total exhibit space.

Chapter 5

International Competition inIndustrialized Buildings,

Components, and Appliances

Chapter 5

International Competition in IndustrializedBuildings, Components, and Appliances

Penetration of the U.S. housing market by foreignbuilding producers is not widespread, but is greaternow than at any time in the past. A number of for-eign manufacturers have decided that the potentialgains outweigh the risks involved, and have enteredthe American market already; others plan to do soin the immediate future. Conversely, opportunitiesfor U.S. penetration of overseas markets are, at best,limited.

During the last several years, foreign building sys-tem producers have expressed an increasing inter-est in the U.S. market. Evidence of this includes thesubstantial foreign presence at expositions like theNational Association of Home Builders (NAHB) con-vention, the number of foreign housing manufac-turers seeking U.S. building code approvals, and theactual number of foreign building projects under de-velopment in the United States.

Primarily, four factors explain this internationalcompetition:

1. a decreasing world building market, especiallyin the Middle East;

2. aggressive foreign pursuit of technological ad-vances within the housing construction in-dustry;

3. a greater interest in housing quality on the partof U.S. buyers; and

4. a decline of traditional markets to which for-eign housing manufacturers export, and a cor-responding excess in production capacity.

Foreign building products that may be exportedto the United States fall in two distinct categories,systems and components. Building systems, de-

‘Unless otherwise noted, the material in this chapter is based on re-search conducted by the Steven Winter .Associates, Ne~’ York, NY.

scribed in chapter 2, constitute either the whole orthe major elements of a building structure in prefabri-cated form, and include panelized, modular, “man-ufactured” (mobile), and wet core systems. Compo-nents, which do not fall within the scope of thisreport, are minor assemblies, subsystems, or ele-ments like roof trusses, cabinets, appliances, equip-ment, building materials, hardware, fixtures, and ac-cessories. In the long run, however, foreignproducers will influence U.S. housing markets morethrough technology transfer than with sales of en-tire structures. Joint ventures with U.S. firms repre-sent a probable vehicle for this transfer.

Currently, only a small number of foreign build-ing systems exist in the American marketplace. How-ever, component imports have increased substan-tially over the last 5 years, including roofing,hardware, steel and steel products, wood and woodproducts, kitchen and bath fixtures, appliances, heat-ing and ventilating equipment, and a variety ofdecorative finishes and materials.

Market penetration by foreign building manufac-turers could change rapidly in the near future. Anumber of manufacturers plan to export wood-framed panelized systems to the United States, uponcompletion of their market surveys and once build-ing codes are approved. A case study comparing twoSwedish systems with the Council of American Build-ing Officials (CABO) Code for one- and two-familydwellings found that with minor changes, the twosystems could satisfy U.S. statutes. Most of thesechanges stem from the fact that while Swedish codesare performance-based, CABO’s—and most U.S.codes—are prescriptive. The arrival of other tech-nologies, such as the Japanese ceramic house, doesnot seem imminent, but this may change with fur-ther technological development or market fluctu-ations.

51

52

TRADE FACTORS AFFECTING EXPORTS TO THE UNITED STATESForeign building exports to the United States de-

pend on the products’ qualification as an acceptablebuilding type, and also on market conditions, gov-ernment policies and assistance, and related busi-ness strategies and decisions. These various condi-tions will affect the relative success of foreignproducts in the United States. Overseas manufac-turers cite several incentives to risk penetrating U.S.markets.

Currency Exchange Rates

Fluctuations in the value of the dollar in relationto other currencies have, over the past decade, ben-efited foreign housing products. However, becausecomponent costs represent less than a third of theselling price of a house, changes in American tastesand expectations of quality may be just as impor-tant as changes in exchange rates.

Availability of New Markets

When compared to markets in most countries con-sidering exports to the United States, the Americanhousing market is enormous. Only Japan approachesthe U.S. level, producing approximately 1 millionunits per year. As a result, the potential for new busi-ness is greater in the United States than elsewhere.The United States also holds various sectors, withopportunities for exploitation of specialized nicheslike vacation housing and condominiums.

Idle Plant Capacity and the Declinein Existing Markets

Companies that produced housing for the MiddleEast, North Africa, and developing nations have con-

tended with a shrinking market in recent years. Re-ductions in oil prices and oil production, as well asthe increasing Third World debt, have limited large-scale housing programs.

In addition, some foreign exporters project a de-crease in domestic housing markets due to satisfac-tion of post-World War II demand. In the last sev-eral years, Sweden’s domestic output has declinedfrom 100,000 units per year to 40,000. Japan hasalso reduced demand for housing, through various5-year plans. One observer believes that the Japa-nese will turn to renovation instead of construction,largely because of high land values and a shortageof building sites.

Against decreasing demand in many industrial-ized countries, companies that expanded productionfacilities now seek new markets. The United Statesmay absorb much of this excess capacity. ThirdWorld markets are vast, but these nations cannotafford most available products.

Experience in International Trade

Foreign building manufacturers have significantexperience in international trade. The typical Finn-ish housing manufacturer exports 50 to 70 percentof its housing production. Other Scandinavian firmsexport housing to the Middle East, North and Cen-tral Africa, the Soviet Union, South America, the FarEast, and continental Europe.

53

FOREIGN GOVERNMENT POLICIES AFFECTING INTERNATIONALTRADE IN HOUSING

Foreign government actions can have a large im-pact on exports from their countries. Many nationsprovide incentives and aids that are not availableto American housing manufacturers.

Overall Strategies and Planning

In most industrialized countries, government andindustry cooperate more than they do in the UnitedStates. The decision to export housing to the UnitedStates may be more than that of a profit-oriented firmseeking a new market; it may also reflect goals forthe national economy, and for long-range industrialplanning.

The current success of the Japanese housing in-dustry has resulted from successive 5-year plans toachieve national goals in domestic housing. Devel-opment of such high-technology materials as ceramicwall panels was the direct result of the “House 55”research program, in which the Japanese Govern-ment funded advanced materials and systems re-search by leading Japanese companies, Pressure toincrease domestic consumer spending may spur Jap-anese interest in supporting an innovative construc-tion industry. The average size of a Japanese homewas approximately 800 square feet in 1968, and 860square feet in 1978; this is still less than half the sizeof an American home. Clearly, the Japanese can-not yet match Western standards of “adequate”housing.2

Market Information andTrade Representation

Many countries open their consulates and com-mercial attachés to domestic firms that intend to ex-pand business prospects, another example of coop-eration between the public and private sectors. The

ZJarnes McKel]ar, “]ndustrializecf Housing: The Japanese Experience, ”

Alberta Department of Housing, December 1985.

Swedish consulate in Chicago has familiarized Swed-ish firms with opportunities in the American mar-ket, The Danish consulate in New York has coordi-nated the export activities of manufacturers, andarranged for a multifirm booth at the 1985 NAHBexposition. The Finns maintain commercial attachésin New York and Houston; the latter office assistsefforts to sell panelized housing to builders. The con-sulates of France, West Germany, and Canada haveacted as conduits to channel market informationback to manufactured housing exportershome countries. U.S. consulates could besimilar ways.

Financial Assistance

Foreign governments support domesticin a manner unheard of in this country.eludes:

● low-interest loans to clients of domestic contrac-

in theirused in

buildersThis in-

●

●

●

●

tors or materials suppliers,project risk/profitability insurance,low-interest loans or tax benefits to contractorsto erect projects in politically important areas,direct government-to-government loans thathelp to purchase products from the lendercountry,special tax incentives for export initiatives likemarket surveys, andperformance bonding of domestic contractors.

Also, foreign governments channel aid so as tobenefit builders. Following the 1980 Italian earth-quake disaster, the United States sent relief money.European countries sent housing or supplies fromtheir own markets, which both determined how aidwould be spent and gave business to their own com-panies. In contrast, “Buy American” programs in theUnited States often fall short of their goals, as whenthe Army Corps of Engineers allows the use of non-U.S. materials for mechanical, electrical, and infra-structural subsystems.

54

IMPEDIMENTS TO MARKET PENETRATIONObvious risks stand in the way of foreign hous-

ing manufacturers’ attempts to export to the UnitedStates. Some are inherent in international trade, andothers are peculiar to the practices of the U.S. build-ing industry.

Changes in the International Market

Largely due to the currency exchange rate, for-eign firms have had an advantage in the U.S. mar-ket. However, recent international monetary devel-opments may leave these firms overextended. Someforeign manufacturers hope that other factors, suchas product quality, will allow them to remain com-petitive in the U.S. marketplace. Others plan to adaptto changing currency rates by deemphasizing ex-ports, instead establishing operations in the UnitedStates that resemble those of Japanese automobileand construction equipment manufacturers.

Lack of Understanding ofAmerican Markets

Foreign manufacturers of building elements comefrom smaller countries with more homogeneous pop-ulations, tastes, and climates than the Unites States.To understand the nature of a single market is a dif-ficult task. The complexity increases when that mar-ket is composed of varying submarkets.

Producers may attack this problem by targetingspecific market locations in the United States suit-able for their products, based on such factors as cli-mate and physical characteristics. This may meanthe Northeast for Scandinavian insulated woodframed and finished panels, but southern Californiaand Florida for Japanese ceramic panels, since thesesouthern markets accept concrete and stucco-likeproducts similar to the Japanese ceramics. Also, theceramic material differs from traditional materialsused in northern areas, and is unlikely to be acceptedthere.

Regional tastes, building traditions, and demo-graphic trends also enter into consideration. Thisprocess worries foreign producers, who see theAmerican market both as a great opportunity andas a place where they could go astray. A numberof firms, including Norway’s G. Block Watne in

Texas, have built housing by conventional U.S. tech-niques, in order to become familiar with the U.S.housing industry before introducing their own tech-nologies.

Lack of Knowledge of OptimalBusiness Relationships

Foreign producers are unfamiliar with the U.S.business world. Firms risk a great deal by enteringinto joint ventures, acquisitions, and the direct im-port of components. Some companies are forced intocertain practices. For instance, if no U.S. firm agreesto a joint venture, the foreign firm confronts the mar-ket alone. A number of firms leave their optionsopen, postponing major decisions and commitmentsuntil they familiarize themselves with the market.Demonstration “model” houses and small projectstest the waters, displaying the system’s feasibility andencouraging potential U.S. partners. Often, however,these isolated test market attempts have little im-pact, and do not provide adequate marketing infor-mation. Another strategy is the purchase of U.S. com-panies in order to acquire “in-house” marketexpertise, but this leads to difficulties in holding onto key personnel.

Difficulties in Locating InterestedU.S. Firms

As opposed to other industrialized countries, theAmerican building industry is decentralized. Japanhas 5 large house manufacturing concerns, Finlandhas 8, and Sweden has 12. When these companieslook for potential partners in the United States, theychoose from hundreds of firms. The “right” partneris not easily found.

In addition, due to the decentralized building in-dustry and to the small size of most firms, Amer-ican companies often lack the available capital tocontribute to a joint venture, although the limitedjoint venture between Phenix International and U.S.Home to build housing in Florida represents a prom-inent exception. The larger firms are not easily con-vinced that a joint venture is in their best interest;major U.S. manufacturers have not leaped at the op-portunity to join with Danish firms. Generally, Amer-

55

ican companies look for monetary gain, not tech-nological improvement. Also, there is a tendency inthe American building industry to continue in ac-cepted patterns, ignoring innovative procedures untilthey have been proven effective elsewhere.

Materials Acceptance Problems

Foreign housing manufacturers use materials andtechniques that may seem strange to Americans. Ex-posed materials and structures, highly texturedcementitious finishes, steel frames, concrete andmetal roofing tiles, and ceramic panels are not wellknown, and may not be accepted in many parts ofthe United States. This problem stems from the va-riety of American markets. Typically, U.S. buildingmarkets have resisted new materials technology;many top U.S. firms that entered the housing mar-ket with innovative products, such as Boeing, U.S.Steel, and Alcoa, have given up this practice. Thesefirms discovered that marketing houses differed frommarketing other products, However, recent devel-opments point to changing public tastes, primarilyin urban areas where new architectural styles-’ ’post-modernism, ” for example—have led to distinctivezero lot line and multifamily housing projects. Incoming years, products now sought after as “high-tech” should become acceptable to the “trendy” mar-ketplace.

Problems of Materials Testing andAcceptability of Foreign Standards

Building materials from abroad must comply withU.S. standards of fire safety, strength of materials,and durability, which apply to steel and wood fram-ing, interior and exterior finishes, electrical andplumbing system elements, insulation, and other fac-tors. Few foreign standards and test procedures dem-onstrate compliance with U.S. codes. Manufacturerswill be forced to undertake extensive and costly ma-terials testing in order to meet U.S. requirements.This represents an added deterrent, as well as a timedelay, for the producer considering exports to thiscountry.

Building Codes and Inspection Systems

Factory-produced building systems used in theUnited States must be approved by each local build-

ing official who has jurisdiction over a given project.They can also obtain the National Evaluation Serv-ice inspection offered by the model code agenciesand their umbrella organization, CABO. The lattercourse of action works when the system is usedwidely and in different locations, but it requires asignificant time and money commitment, and doesnot guarantee acceptance of the ruling in all juris-dictions. Furthermore, each factory must maintainits own quality control and inspection program.

Although European manufacturers view the mul-tiplicity of U.S. codes as a major impediment, Euro-pean firms have begun to study code procedures inthe United States. Several Scandinavian panelizedproducers are now obtaining code approvals. TheJapanese have also started to gain approvals for theirsystems under the U.S. codes; recently, MisawaHomes of Tokyo obtained approval for a wood lat-tice panel system. However, no large-scale effort isunderway.

Trade Restrictions

Foreign manufacturers recognize that calls for pro-tection from foreign penetration would rise with theirincreased presence in the U.S. market. Eventually,foreign manufacturers may submit to voluntary ex-port limits, as has occurred within the Japanese au-tomobile industry. Of course, foreign manufacturerscould instead establish production facilities in theUnited States, either by buying U.S. firms or by cre-ating a U.S. subsidiary. This would allow them tocircumvent import quotas while maintaining prof-its from the U.S. market.

Lack of Understanding ofReal Estate Markets

The housing market in the United States reflectsnot only the complexities of the house and its asso-ciated features, but also the intricacies of the realestate market. Foreign manufacturers could becomeinvolved in unprofitable projects, where failurestemmed not from the quality and suitability of theirbuilding system but from a lack of understandingof the local real estate market. In this area, manyforeign firms seek American partners or consultants.

56

Liability

Many Europeans fear the problems of confront-ing the complex issue of liability in the United States.The possibility of being saddled with lawsuits con-cerning product liability, an area of U.S. law that ispresently in a state of flux, worries foreign manu-facturers.

Shipping Costs

Shipping costs represent the principle economicimpediment to exporting housing to the United

States. The cost of shipping a modular home fromEurope or Asia to America is approximately $25,000,which precludes large-scale exportation of such prod-ucts to this country. However, shipping costs are notprohibitive for more compact housing forms. OneScandinavian manufacturer estimates shipping costsfor a panelized home at 6 to 12 percent of home ma-terials costs, or 2 to 6 percent of total costs. Evenafter shipping costs, many products can be pricedcompetitively in the United States due to cost ad-vantages in production.

IMPORT POSSIBILITIES FOR VARIOUS BUILDING SYSTEM TYPESOpportunities for exports to the United States of

the generic types of building systems, described inchapter 2, will now be examined in detail.

Precut Systems

Precut housing systems, except for log homes andthose from nearby Canadian manufacturers, are noteasily imported to the United States. Wood-framed“stick” systems cannot compete, due to the high costof imports as compared with available domestic sys-tems. “Stick” systems would require expensive U.S.labor to assemble the building, and would create thelogistical problem of shipping many small pieces.

These systems perhaps best illustrate which ele-ments make a product suitable for import to theUnited States. Normally, the cost of the structuralframe accounts for only 10 percent of the total housecost, and the house shell for only 30 percent. Build-ing systems that supply only the materials for theseelements cannot realize substantial savings, even ifthe cost of the materials falls below correspondingdomestic levels.

In order to penetrate the U.S. market, an importedbuilding system could focus on elements that requireskilled workmanship, emphasize concentration ofcost in the elements shipped, or bring out the visi-bility, styling, or refinement of the product.

Panelized Systems

Panelized systems represent the most likely typeof foreign building systems to enter the United States,now and in the immediate future. Unlike modularunits, panelized systems can be packed compactlyagainst each other. The manufacturer does not payto ship an excessive amount of empty space, becausethis type of cargo is usually shipped at a rate propor-tional to its volume.

Concrete Panels

Shipping of heavy concrete panels would not becost-effective. These units can be produced in theUnited States at a lower price and are not used toany great extent for residential projects.

Lightweight cellular concrete panels may play amore important role in the future, due to their re-duced weight and superior thermal performance.Again, however, domestic production would be lessexpensive.

Although no evidence exists regarding prior im-ports of concrete panels, a number of Scandinavianmanufacturers, including Denmark’s A. Jespersen& Son, have expressed an interest in selling form-ing equipment and technology.

57

Steel-Framed Panels

Currently, steel-framed composite panel systemsare produced in Great Britain, Australia, West Ger-many, Finland, France, Belgium, and the UnitedStates. Intended for export—often for use in the con-struction of camp buildings, where large amountsof worker housing must be built rapidly—this fram-ing system has advanced primarily in nations thatlack either a large supply of lumber or a strong tra-dition of wood framing. A major French producerclaims that steel-framed houses imported to theUnited States could sell for 20 percent below the costof comparably sized, conventional American houses.Attempts are now being made to sell this system inthe United States.

The use of steel framing for single-family hous-ing has met with little success in this country, al-though lightweight steel studs have been used widelyfor interior partitions in multifamily units. Conven-tional single-family housing can be erected in a cost-effective manner with light gauge steel, but woodremains the market preference.

Steel framing or steel panels do satisfy the require-ments of noncombustible construction, generally inbuildings over three stories and in the metal build-ing industry. Steel-clad insulated spandrel and cur-tain wall panels shipped from foreign countries cancompete with equivalent U.S. products. Furthermore,increasing interest exists in steel-framed modularsfor urban housing programs and for low-rise com-mercial office space.

Wood-Framed Panels

Wood-framed panels with integral foam plastic ormineral wool insulation resemble their U.S. coun-terparts, and are imported into the United States al-ready. Given this market acceptance, expansion maysoon occur. A common method for residential con-struction in Scandinavia—up to 60 percent of thesingle-family detached housing and 30 percent of thetownhouses are panelized in Finland, and over 80percent in Sweden—wood-framed panels have beenexported in large numbers to the U. S. S. R., the Mid-dle East, and North Africa.

Japan’s manufactured housing industry containsa large wood-framed segment, but Japanese panelsemploy a lattice of smaller framing members ratherthan 2 by 4s, and are assembled into small mod-ules before transportation to the site.

Wood-framed panels are relatively small, 4 to 16feet by 8 feet, and can be handled and erected with-out equipment. Some manufacturers offer larger,custom-designed panels, which require a small cranefor erection. The framing protects the edges of thepanels, and the voids between the framing containeither foam plastic or fiberglass/mineral wool insu-lation. A continuous vapor barrier maybe installedin the panel. Also, various surface finishes can beapplied, such as plywood, fiber board paneling, andgypsum board.

Panels are used in the high-end residential mar-ket, where quality is a positive selling point, or inthe low-end market of camp housing, since they canbe easily assembled into modules. Imported wood-framed panel technology offers a number of advan-tages over conventional U.S. stick-built construction:

●

●

●

●

●

high material quality and good craftsmanship;high levels of thermal insulation, up to R-37 inwalls and R-47 in ceilings;adaptability to varying floor plans;higher degree of building tightness; andavailability of sophisticated finish materials.

Spandrel Panels

Prefabricated metal spandrel panels, or curtainwall systems, are components, not building systems.As such, they are not part of this study’s direct fo-cus. However, they could become a significant im-port item. They contribute to facades of convention-ally framed commercial buildings, and are currentlyimported to the United States from Italy, France, andSweden. This foreign panel can fit easily into theU.S. market, since it does not involve changes inbasic construction practice, European panels mightreplace American panels, although cost remains aconsideration.

58

European Penetration ofU.S. Panelized Systems Markets

Several European firms have entered or have ex-pressed an interest in the U.S. market:

●

●

●

●

Hosby of Denmark and Makroscan of Finlandboth exhibited panel systems in the UnitedStates, and desire to work with Americanbuilders. Hosby has built a model house to beevaluated for energy efficiency and technical ad-vantages at Brookhaven National Laboratory inNew York; Makroscan has built housing on Mar-tha’s Vineyard. The Hosby house received 4,000visitors, including builders, architects, and po-tential homeowners, in its first weekend, andhas averaged 400 visitors each weekend sincethen. This indicates substantial interest in Dan-ish products.Phenix International and Filled of France areactive in this country already, Phenix has pur-chased 16 percent of U.S. Home, and has jointventured in Florida. Filled has built some steel-framed demonstration units, and markets itsproducts through Modular Building Concepts,a New Jersey manufacturer.Such Swedish firms as Swedish Wooden Houseand Skanska, entered the U.S. market severalyears ago. At least six other Swedish firms haveexpressed an interest in expanding to the UnitedStates, and eight American importers of Swed-ish houses are now in operation, One hundredSwedish houses have been built in the EasternUnited States, with 500 more expected by theend of 1986.Puutalo Oy of Finland and Norgips of Norwayhave also-eyed the U.S. market,-and Norgipshas applied for model code approval, G. BlockWatne of Norway is building in Austin, Texas.

At least 20 other major European firms exportwood-framed panel systems to other countries, andmay pursue the U.S. market. The most likely firststep for any foreign producer would be to work withcustom homebuilders and developers in this coun-try, marketing the appeal of high-tech craftsmanship.Once the system is in limited use, expansion mightthen occur. Without joint ventures or direct sales,foreign producers will have to become developersin order to introduce their products.

Wet Core Modules/Control Centers

While complete modules are too expensive to shipinternationally, the wet core module provides an ex-ception. It can serve as the high-tech, high-cost centerof the house, incorporating plumbing, service con-trols, laundry equipment, bathroom and kitchen fix-tures, cabinets, appliances, and surface finishes. Sucha module would overcome the problem of shippingempty space, due to its higher proportion of expen-sive materials and labor costs to space. To reducecosts further, the module could be shipped in aknocked-down state, with fixtures like bathtubs“nested” together during shipping and attached intheir proper locations at the site.

Presently, nothing points to the exportation oflarge wet core modules, which incorporate wholerooms, in the near future. However, certain advancesin kitchen cabinet design, planning, and packagingfacilitate the export of smaller modules that form partof a room, incorporating a prefabricated plumbingtree and its associated fixtures. Also, cabinets arebeing integrated with kitchen appliances at the lux-ury end of the market. Admiral displayed an im-ported line of appliances, with cabinets produced atits Italian subsidiary, at this year’s NAHB show. OtherEuropean appliance manufacturers that market inthis country, including Maltritius and Gaggenau ofWest Germany, also integrate cabinets and ap-pliances.

Japanese manufacturers are developing the“smart” kitchen, with electronic integration and con-trol of the various kitchen appliances. A central proc-essor controls all appliances, rather than each ap-pliance having its own timer, regulator, and controls.Controls and monitors for other building systems,such as heating, air-conditioning, intercom/con-trol/security, and lighting, may be centralized andincorporated into the wet core module as well.

The development of this centralized, capital-intensive building service and control center mayovercome the prohibitive costs associated with ship-ping modules. If the cost/bulk ratio rises above acertain threshold, wet core/control modules may becost-effective. Such a module would revolutionizestandard building practice, bringing plumbing, fix-tures, electronics, cabinetry, and appliances into oneindivisible import package.

.-

Modular Systems

Modular systems account for only a small shareof world markets. Certain aspects of modular con-struction make it unsuitable for export to the UnitedStates. Generally, prohibitive shipping costs preventexport, although Afford-A-Homes, a Canadian com-pany, does export a modular that “unfolds” into a735-square-foot house, and can be shipped in an 8by 9½ by 20 foot container; several U.S. firms haveexperimented with this concept. From Scandinavia,shipping can cost $80 per cubic meter, or roughly$18,000 for a 1,OOO-square-foot house. The high pricepays primarily to ship empty space.

European modular prototypes may also be unsuita-ble for U.S. markets. However, the experience ofEuropean furniture exports indicates that foreignmanufacturers will design products specifically forAmerica.

Modular systems can be broken down into a num-ber of different types:

1. Concrete Modulars.-Concrete modules are rare

2

3

outside of the U.S.S.R. and Eastern Europe.They best suit highrise, repetitive “boxlike”apartment-type buildings that have proven un-economical and unpopular in the United Statesand Western Europe.Wood and Steel Modulars. —Generally assem-bled from panels, wood- and steel-framed modu-lars are used primarily for camp construction.Certain Scandinavian firms, such as HuureUreeta Oy, have produced panel systems thatcan be assembled into modules in the plant oronsite.Ceramic Modulars.—Recently, much attentionhas focused on “precastable autoclave light-weight ceramics” (PALC). This material has re-sulted from extensive research by MisawaHomes of Japan, and is now incorporated intoapproximately 10 percent of Misawa’s modu-lar units. In essence, ceramics resemble the au-toclaved, lightweight concrete that is manufac-tured in Europe. It differs from normal concreteby substituting air or gas bubbles for the ag-gregate in the mixture.

However, the Japanese have taken the useof this material to a higher level. Whereas theEuropeans fabricate lightweight concrete blocks

and small panels, the Japanese produce large,steel-reinforced, framed panels, which are in-corporated into modular units. This system re-lies on a homogeneous material that requiresno additional finishing or thermal insulation,and provides structure, waterproofing, and fire-proofing. Its competitiveness in the Japanesemarket derives from the supposedly low mate-rial and labor costs, although the role of gov-ernment and corporate subsidy remainsunclear.

PALC is relatively new, and its full potentialhas not been realized. Claims that it is the ma-terial of the future should be examined closely.Less than 10,000 homes have been built withthis technology in one Japanese plant, all in thepast 3 years. This accounts for less than 0.3 per-cent of the Japanese housing market. And be-cause it is an untested technology, no long-termstudies exist on these houses or their perform-ance. The Japanese, who see ceramic modularsas another high-tech item at which they exceland which they can export, give these systemswidespread publicity. But the technology needsto gain greater recognition in Japan before itcan enter the American marketplace.

Except in Florida and California, where stucco-like materials dominate, U.S. market acceptanceof single-family housing is problematic withoutdramatic cost savings. In the case of PALC, thisappears unlikely. Historically, materials that en-ter the conservative U.S. housing market, suchas hardboard, aluminum, and vinyl siding, havesimulated familiar materials like horizontal sid-ing or tongue and groove vertical wood siding.As a rule, other types of panels have not beenaccepted by the domestic housing industry,which believes that prefabricated homes shouldappear otherwise. This technology would suitmultifamily housing or commercial building, butonly if it represented a cost-effective solution.

This material has received much publicity inthe United States, and many U.S. delegationshave been encouraged to visit the Misawa plant.However, these plant visits appear to be moreof a “sales pitch” than a technical exchange.PALC represents an interesting alternative, butfinal judgment should await an analysis of itssuitability for U.S. markets.

60

“Manufactured” (Mobile) HomeSystems

U.S.-type “manufactured” (mobile) homes are rarein other countries, except as temporary or camphousing. However, the more advanced technologi-cal manufacturing systems of the Japanese and Scan-dinavians may produce salable and innovativemodels. Some observers believe that Japanesepenetration of the U.S. market will occur in this un-tested area. The Japanese industrialized housing in-dustry is geared towards high levels of production,which can satisfy the American “manufactured” (mo-

bile) home market. In addition, the U.S. “manufac-tured” (mobile) home is under a preemptive nationalcode, which makes it more attractive to a foreignmanufacturer who intends to build production fa-cilities in this country. A problem exists, however:in order to make up for the cost of new, sophisti-cated equipment, minimum sales would have toreach several thousands of units per year—not aneasy target to achieve. But Japanese firms are will-ing to absorb initial losses in order to capture long-term markets. A joint venture with a U.S. firm wouldreduce risks significantly.

MANUFACTURING EQUIPMENTForeign building technologies may enter the U.S.

market through a modification of standard Amer-ican manufacturing and construction techniques,rather than through direct importation of buildingelements. A producer may begin by shipping build-ing elements to this country. As demand for the prod-ucts increases, it may become more cost-effective toproduce them in the United States. Possible open-ings in this area include:

●

●

Panelization equipment, which foreign manu-facturers will sell to U.S. homebuilders and man-ufacturers.—These machines could vary fromminor refinements of production line equipmentat “manufactured” (mobile) home factories tosophisticated automated plants. A number ofScandinavian manufacturers have begun tomarket their equipment, but without a great dealof success.Onsite forming equipment, produced by foreigncompanies such as Outinord of France, for usein onsite casting techniques.—This equipmenthas been in the United States for 20 years, andwould not require major outflows of capital.

●

●

●

●

Board fabrication equipment, such as cementi-tious fiber or particleboard, used in Europeanconstruction but not commonly available in thiscountry. -Among others, Siempelkamp of WestGermany exports complete fabrication facilitiesfor such products.Particleboard, flakeboard and oriented strand-board, originating in Canada, or made in theUnited States with Canadian equipment.—Thiscould replace American plywood.Admixtures, used by European companies toproduce lightweight cellular concrete.—U.S.firms could manufacture this material domes-tically, through the use of such additives.Heavy equipment, produced by such companiesas Komatsu, the Tokyo-based constructionequipment manufacturer ranked second nextto Caterpillar. Komatsu has announced plansto open its first U.S. assembly plant, which willavoid protectionist legislation. Their goal is toincrease their U.S. market share from 7.5 to 20percent.

FOREIGN INVESTMENT AND DEVELOPMENTForeign firms interested in penetrating the U.S.

construction market may pursue a variety of finan-Joint Ventures With U.S. Firms

cial options, rather than market foreign-produced Some foreign manufacturers have joint venturedbuildings or components. This would provide insight already. In particular, the Japanese prefer thisinto the complexities of the U.S. market, useful con- method, which combines Japanese production tech-tacts and knowledge, and a reduced risk for the for- nology with an in-place American marketing and dis-eign producer. tribution network. Misawa Homes is seeking to co-

61

venture with an east coast homebuilding firm, andSekisui Heim is reported to be working with Cardi-nal Industries, a modular manufacturer. Also, Mai-son Phenix International of France entered into ajoint venture relationship with U.S. Home in Floridaseveral years ago, and Scandinavian firms have ex-pressed an interest in such an undertaking.

Foreign panel manufacturers may begin their mar-ket penetration by exporting panels to this country,which would build market acceptance and create de-mand. Then, these manufacturers can joint ventureor license with previously wary American firms, andproduce their panels in U.S. factories. However, fewof these products are so unique that the added over-head and labor cost of U.S. production would offsettheir current competitive advantage.

Mergers and Acquisitions

Foreign firms have pursued the increasingly popu-lar option of the merger or acquisition, in order togain a foothold in the U.S. market and to pick upuseful experience:

Holtzman AG of West Germany owns J.A. Jonesof Charlotte, North Carolina, a contracting firm,and Lockwood Greene Engineers, a design firm;Skanska, the largest builder in Sweden, boughtthe Koch Steel Erecting Co. of New Jersey;Archirodon of Greece purchased George Fuller

●

●

●

Alganin Industries of Kuwait bought KirbyBuilding Systems in 1975; recently, the Amer-ican branch of the firm returned to U.S. owners;several American elevator companies areowned by foreign firms, including Haughton,by Schindler Holding of Switzerland, and Ar-mor, by Kone of Finland; andthe Clark Equipment Co. of Michigan hasmerged heavy equipment production withVolvo of Sweden, forming the third largestheavy equipment firm in the world.

Companies that acquire these firms may then com-pete for U.S. Army Corps of Engineers projects, un-der the “Buy American” program.

Foreign Development and Construction

Foreign developers, including Cadillac Fairview,Olympian, and York, have been involved in majorurban projects for a number of years. More recently,European builders have developed housing projectsin less urban areas of southern Florida and Califor-nia. The British firms of Barrat Homes, TaylorWoodrow, and John Laing Homes are all active inthis country, as well as the French firm of PremierHomes, a subsidiary of Les Nouveaux Constructeurs.Some of these companies started by acquiring estab-lished U.S. building firms. Several South Koreanfirms have expressed an interest in this area, buttheir asset of low-paid labor cannot be utilized in

of New York, a firm that builds highrises; the United States, reducing their leverage.

APPLIANCESWhile the United States enjoyed a favorable bal- U.S. exports of appliances have never been large;

ance of trade in residential “appliances for manyyears, foreign producers have begun to penetrate do-mestic markets with improved products and produc-tion technologies. Accounting for inflationary in-creases, U.S. exports of household appliances fell byapproximately one-third between 1979 and 1984,while imports increased by over two-thirds. 3 Thistrend will continue, assuming that foreign manufac-turers expand production.

in 1983, U.S. firms exported about $990 million inappliances, or 0.5 percent of total output.4 U.S.citizens stationed abroad purchase a significant frac-tion of these products. Japan, on the other hand, hasexpanded household appliance exports from $1.4billion in 1979 to over $2.25 billion in 1983. Japa-nese appliances are widely available on the U.S. mar-ket, and Japanese companies invest heavily in newtechnologies. Whereas US. appliance manufacturers

~11 S Department of Commerce, BU reau of the Census, EA 275. EA67!5, SIC Code No. 363.

~The Stirling Hoke Corp., Building Equipment Ditrlsion “A Comparati~’e.Analysis of US and Selected Foreign Household Appl]ance industries.”Department of Energy contract, October 1984

62

spend 1 or 2 percent of their sales on research anddevelopment, Japanese firms spend 4 to 7 percent.5

Their efforts are beginning to pay off.

Panasonic marketed a full line of products for1985, some of which will be built in the Orient andsome in Canada. Panasonic, Sanyo, and Daikon havecaptured 5 percent of the U.S. market for room air-conditioners by offering efficient, quiet units withrotary compressors. The units use 13 percent lessenergy than comparable U.S. products. Sanyo nowimports small refrigerators—1 3 to 14 cubic feet—tothe west coast, with an average energy consump-tion of approximately half that of the best U.S.models. They are beginning to offer “full-size”refrigerators in test markets,6 and showed a full lineof appliances at the NAHB exposition. The Japanesehave introduced a number of innovations in refriger-ators, including microprocessor temperature controlsthat maintain three to five compartments at differ-ent temperatures.

Some major U.S. appliance manufacturers havemoved manufacturing operations abroad. GeneralElectric, the largest domestic manufacturer of roomair-conditioners, announced that it will phase outproduction at its main factory in Louisville, Kentucky,next year. Carrier has drastically curtailed produc-tion at its New York plants. The firms plan to pur-chase units assembled abroad, probably in Japan andBrazil.

At the high end of the market, European appli-ances are available in this country-from Maltritiusand Gaggenau of West Germany, for example. Thesesame manufacturers are working to integrate cabi-nets and appliances. Electrolux of Sweden owns Tap-pan in the United States and has acquired an Ital-ian appliance subsidiary, making it one of the world’slargest appliance manufacturers. They may attemptto sell European designs to American builders. Ap-pliances such as range hoods may also come fromSingapore and Korea.

sHOWard @her, “Energy Conservation R&D, Innovation, and indus-trial Competitiveness: The Case of Household Technologies,” ACEEEBackground Paper, January 1986; Sterling Hove Corp., op. cit.

%eller, op. cit.

Lighting and wiring equipment have become vul-nerable to foreign competition as well. Between 1979and 1984, accounting for inflation, U.S. exports inthis sector increased by $50 million, or 3.5 percent,while imports rose by approximately $500 million,or 40 percent.7 Japanese and German firms havetaken the early lead in the development of innova-tive lighting products. Compact fluorescent lamps,compatible with standard “screw in” sockets, useone-third the electricity of a standard lamp, last 10times as long, dump less heat into a room, and pro-vide a light color that most people find more attrac-tive than standard incandescent. Neither GeneralElectric nor Sylvania, the largest U.S. lighting pro-ducers, manufacture these advanced products;rather, they offer foreign products under their ownnames.

As concern about indoor air quality increases,Americans may pay increased attention to home ven-tilation. The Swedes have invested heavily in equip-ment that ensures adequate air flow to each occupiedroom in a residence, while minimizing the heat orcooling lost in the process. Primarily, Americanhouses rely on faulty workmanship to provide ade-quate ventilation, such as cracks around windowsand doors and under sill plates. This guarantees thatair enters the house, but rates of air exchange varywidely from house to house and with local weatherconditions.

Only an active forced air system can ensure ade-quate ventilation. Both the French and the Swedeshave developed inexpensive devices that control theamount of fresh air reaching each room in a home.The Swedes offer a variety of interior ventilation de-signs, including one which ventilates a home overthe coils of a heat-pump water heater that extractsheat from the exhaust air. Their technical lead mayput them in a position to enter U.S. markets rap-idly, if demand for equipment to improve indoor airquality increases.

—7US. Department of Commerce, op. cit.

63

MATERIALS, COMPONENTS, AND EQUIPMENTForeign fixtures, building materials, appliances,

and accessories are now exported to the UnitedStates, and may become more common. These itemsinclude:

●

●

●

●

●

●

●

u.

Metal Roof Systems.—A number of metal roof-ing producers have entered the U.S. market withroofing systems that imitate conventional ma-terials like tile and slate, and suit both the single-and multi-family housing markets. Primarily,these systems come from Finland, France, andSweden.Plywood.--Currently, high-grade Scandinavianplywood incorporates a number of plies andveneers not otherwise available in the UnitedStates.Hardware.--Much building hardware is im-ported from Europe. Two European manufac-turers have built U.S. factories to reduce costs.Door Frames. —A metal door frame producerfrom Holland exhibited at the NAHB show, in-tending to export to the United States.Elevators.—In addition to purchases of Amer-ican elevator companies by foreign firms, theJapanese manufacturer Fujitec has built a fac-tory in Ohio.Heat Pumps and Heat Exchangers.—A numberof Japanese manufacturers, including Mit-subishi, distribute residential heating and airhandling equipment.Cabinets.—European kitchen cabinets havegained widespread use at the high end of theU.S. market. The European kitchen has becomea new standard of elegance in American homes;

●

●

●

domestic producers imitate European styling.Imported cabinets from West Germany, Eng-land, and Scandinavia are used by custombuilders or are sold through kitchen dealerships,advanced through mass marketing or distribu-tion systems. Soon, Korea may import inexpen-sive cabinets as well. These would enter themanufactured housing industry, where directsales to manufacturers eliminate the need foran elaborate marketing and distribution network.Plumbing Fixtures.—Fixtures from Europe havebeen sold in the United States for some time,primarily from Scandinavia, France, Italy, andWest Germany. Again, these custom items aimfor the high end of the market.Finishes.--European plastic laminates are nowdistributed in the United States.Floor Tile.—Floor tiles from Mexico and Eur-ope have been available to custom markets formany years.

Although building materials and fixtures lie be-yond the scope of this report, their presence cannotbe ignored when conducting research on buildingsystems. The use of imported materials and fixturesis significant for several reasons: they can be incor-porated into American buildings without disruptingstandard American construction practices; they aresubject to narrower testing requirements; they indi-cate foreign interest in penetrating the U.S. build-ing market; and they provide an avenue for manu-facturers to establish recognition and acceptance,from which they may advance the exportation ofbuilding systems or components.

IMPEDIMENTS TO U.S. PENETRATION OFOVERSEAS HOUSING MARKETS

S. international contractors, and industrialized these same major contractors service a reduced workhousing manufacturers in particular, have witnessed load and few international housing projects, exceptdiminishing overseas markets since the euphoric for occasional “tag-along” housing components in1960s and early 1970s, when they operated in Iran, a larger infrastructural or industrial project. The lead-Saudi Arabia, and the Persian Gulf States. Today, ing U.S. contractors, including Bechtel, Fluor, and

64

Blount, operate with as little as half the manpowerof several years ago. Few analysts predict that theinternational building activity of the 1970s will resur-face. Several reasons for the drop in internationalbuilding activity are discussed below.

Increased Competition

Many new international contracting companieshave assumed active, worldwide roles, especially inthe Middle East, North Africa, Malaysia, and Indone-sia. These include the aggressive European and Scan-dinavian firms, and also firms from Greece, Turkey,the Philippines, India, Taiwan, and South Korea.

Initially, the Koreans were encouraged by the U.S.Government. They have now become a dominantforce, due to their organizational and technologicalsophistication. They also control the low-cost man-power that permits competitive bidding. However,even the Koreans are having difficulty now, assmaller projects allow for bidding by small local con-tractors with a fraction of the overhead of the majorinternational—especially American—contractors.

Lack of Understanding ofForeign Markets

With the exception of established U.S. interna-tional contractors and a handful of housing manu-facturers, such as ATCO, Port-a-Kamp, and NationalHomes, the obvious difficulties of working overseasappear to have discouraged U.S. firms. A numberof medium-sized panelized and modular manufac-turers have been approached regarding the exportof building systems during the past 10 years, but theyhave declined to participate. Typical reasons giveninclude:

unfamiliarity with market requirements, inter-national business law, and payment conventions;the uncertain political climate within manycountries, and the difficulty in gaining code ap-proval and binding commitments from appro-priate government agencies;concerns over the reliability of payments, thefrequent use of local currencies, and the diffi-culty of bringing money out of individualcountries;the high cost of project development, includ-ing the need for overseas personnel who de-

●

●

termine realistic opportunities, and the high costof large-scale proposals;low profit margins that arise from the currentincrease in competition; andthe belief that other U.S. firms have had trou-ble penetrating overseas markets, or sustainingprofitable operations once the markets wereestablished.

Most American manufacturers have had enoughdifficulty in coping with the changing nature of theU.S. construction market. Generally, they view theuncertainties of offshore markets—with the possi-ble exceptions of Canada and the Caribbean–withstrong misgivings.

Materials Acceptance Problems

Just as foreign materials have to meet U.S. stand-ards, American materials must comply with foreigncodes. This may require extensive testing. Not onlyis this a disincentive for direct export of U.S. prod-ucts; it may put a U.S. firm at a disadvantage rela-tive to a foreign firm when both wish to export toa third country. Many countries, particularly in Eur-ope, test their materials according to internationalstandards. A foreign firm may have conducted thenecessary international testing already.

Building Codes and Inspection Systems

Each country maintains a different code and ap-proval process, which leads to varying approvaltimes. Export success could be facilitated by a bet-ter understanding of the complexities of each code,relative to the size of the potential market.

The countries of the European Economic Commu-nity plan to adapt interchangeable codes, based onWest German building standards. Once this occurs,European firms will not have to understand or com-ply with a foreign code when they wish to exportwithin Europe, placing the United States at a dis-advantage.

Trade Restrictions

The possibility of limitations or quotas on importsto a given country always exists. These restrictionsmay be director indirect; Japanese practices in reg-

65

ulating and testing imports are an example of thelatter. Such practices have eliminated potential profitson many products that would fare successfully in anopen Japanese market.

Lack of Experience inInternational Trade

Even firms experienced in foreign trade meet withunanticipated difficulties, due to the customs or lawsof particular countries; experience in one countrymay not help in another. For example, ‘one builderreported that six American trucks were left on a dockin Trinidad when the government, citing the fact thatthe driver sat on the left side of these vehicles, re-fused entry. Also, documentation requirements andbureaucracy in a certain country may place an ex-treme burden on a builder.

International Volatility

Much of the demand for housing is in politicallyand economically volatile parts of the world. Projectsare at the mercy of economic disruptions, such asoil embargo and its resulting price increases, or po-litical disruptions, where the government instabil-ity endangers the completion of a project. Iran, Iraq,Libya, Lebanon, and certain South American coun-tries are cases in point. In one instance, a drop inoil prices led to problems in the Venezuelan Gov-ernment, which in turn became unable to provide

U.S. builders with enough support to continue witha large-scale housing project. The involved firms losta substantial amount of project development costs.

Corruption

Payoffs and kickbacks are an accepted part of busi-ness in many parts of the world. U.S. companieshave withdrawn from such practices, due to the 1971Foreign Corrupt Trade Act. Although some U.S. firmsmay avoid these strictures by joint venturing, or byusing agents to distance themselves from such trans-actions, much work has been taken by manufac-turers whose governments tolerate or condonebribery.

Distance

Some U.S. firms will operate in North and Cen-tral America, but view the rest of the world as toofar away, Also, the traditional American disregardfor foreign practices, customs, and ways of doingbusiness may make American firms less willing toenter an alien culture.

Lack of U.S. Government Support

The U.S. Government provides less support forhousing manufacturers than do other governments.Few prospects exist for the development of imagina-tive financing programs, performance bonding sup-port, or profitability support.

INCENTIVES AND OPPORTUNITIES FOR U.S. PENETRATIONOF OVERSEAS MARKETS

Incentives for U.S. firms to penetrate foreign mar- for U.S. exporters, Japan is the largest importer ofkets are limited. While large markets do provide wood from the United States and Canada, and ac-American companies with the opportunity to export counts for about 30 percent of American wood ex-industrialized housing, the cost-effectiveness of such ports. Primarily, this wood serves the traditional Jap-actions would be negative within current economic anese wood-framed building, which takes up mostparameters. Given the incentives and disincentives of Japan’s housing construction. Industrialized hous-listed above, some conclusions may be drawn about ing constitutes only 15 percent of the market. It hasincreasing U.S. exports in the building industry. not yet displaced traditional building.

The 2 by 4 frame method of construction, whichExportation of Materials accounts for less than 10 percent of the Japanese

housing market, is a growing alternative to both con-The expanding Japanese market for 2 by 4 con- ventional and factory-built housing. This may in-

struction represents an obvious area of opportunity crease demand for wood products from the United

— —

66— —

States, and for American machines that fabricate 2by 4 panels. Daiwa, one of the five largest Japanesehome manufacturers, has studied U.S. factory pro-duction techniques utilizing 2 by 4 construction. Thismay indicate that 2 by 4 panels will replace the cur-rent Japanese wood panel, which employs a woodenlattice composed of smaller wood members.

Marketing Strategies

Package deals incorporating housing and financ-ing may stimulate exports of building systems. Giventhe current state of the international economy andthe lack of funds available for building, many projectsare assigned based on what company can obtain themost favorable financing arrangements. In this sit-uation, a strong dollar benefits U.S. firms.

Possible New Incentives for Tradeby the U.S. Government

The U.S. Exim (Export-Import) Bank does not fi-nance housing, except as part of larger overall de-

velopment. In contrast, foreign export-import bankssponsor housing projects from their own countrieswith loans that are 2 to 3 percent lower than thoseof the Exim Bank, In light of the recent budget re-ductions for the Exim Bank and of its decreasing role,assistance from this source may not arrive soon. Cur-rently, opportunities exist for projects in Iran, Iraq,and the Soviet Union, but European and Japanesefirms have significant leverage” due to governmentwillingness to provide financing. The French arefinancing housing in Sudan at 4.5 percent, with a5-year moratorium on payment.

The U.S. Agency for International Developmentmay finance American construction overseas,through sending American building systems as aidto Third World nations instead of direct financial aid.This would resemble the European practice of de-livering aid in the form of domestic goods.

Chapter 6

Government’s Role inFacilitating New Technology

Chapter 6

Government’s Role inFacilitating New Technology

FACTORS IMPEDING INNOVATION

U.S. homebuilders have been slow to incorporatestate-of-the-art technologies into their productionlines for a number of reasons, Without a policy aimedat identifying and removing existing barriers to in-novation, they may continue to retard growth in theproductivity of this important industry.

The Regulatory Environment

Inconsistent State and local building codes anddiffering inspection practices are frequently cited ob-stacles to technological innovation in the U.S. hous-ing construction industry. This regulatory morassprevents manufacturers from achieving the econ-omies of scale needed to justify large investment insophisticated production facilities. Due to the absenceof Federal initiatives in the area, the major codemak-ing organizations and the homebuilding industryhave begun to develop a formal plan of action foran effective national inspection system; details of thisconsensus State-based proposal will be addressed.1

The States, of course, argue that control over hous-ing regulation should remain with State and localgovernment.

The General Accounting Office expressed a simi-lar view in its 1982 report, “Greater Use of Innova-tive Building Materials and Construction TechniquesCould Reduce Housing Costs.” The report cited “re-strictive and inconsistent local building codes” asa major factor impeding “the use of available tech-nological innovations and the development and in-troduction of new ones.”2 On the other hand, some

‘Council of American Building Officials, News Release, May 1986;and National Association of Home Builders, International Conferenceof Building Officials, Building Officials and Code Administrators inter-national, Southern Building Code Congress International, Council ofAmerican Building Officials, National Conference of States on BuildingCodes and Standards, “Concept Paper Prepared by the Task Force onHousing,” Mar. 25, 1986.

‘U.S. Congress, General Accounting Office, “Greater Use of innova-tive Building Materials and Construction Techniques Could Reduce Hous-ing Costs” (Washington, DC Comptroller General of the United States,1982).

members of the residential construction industryblame the introduction of the national HUD codesystem for the sharp drop in “manufactured” (mo-bile) home sales.

In addition to the problem of market fragmenta-tion, industry spokespersons cite the time and moneydemands involved in complying with current codes.As one housing producer asserts, in the absence ofa national—or sometimes even a State—code:

. . . the factory is forced to deal with local buildingofficials at a city, township or county level. Themagnitude of effort needed to deal with so manydifferent agencies and people takes company re-sources and engineering skills away from moreproductive activities. And most important, the un-ending local changes to the building codes createunbelievable difficulty on the factory assembly line.3

This lack of uniformity adds to the expense of tech-nological innovation, making developers of newproducts “unable to afford the enormous cost of sell-ing the new technology to numerous regulatory offi-cials.”4 The closest thing to a national approval inthe non-’ ’manufactured” (mobile) home industry isthe “NER” National Research Board approval. AnNER can cost up to $10,000, and has significant limi-tations. This detailed approval procedure itemizesevery aspect of a given technology. Any change re-quires reevaluation, and adds expense as a result.5

A number of States refuse to accept NERs “becausethey do not include follow-up production line inspec-tions or inplant visits of any kind.”6 Eleven Stateshave formed a special task force to certify productapproval agencies.

3Ed Starostovic, “Changes in Manufactured Housing and Construc-tion of Non-Residential Modular Buildings in the United States,” un-published paper prepared for the Office of Technology Assessment, 1985.

41bid.51bid.‘National Conference of States on Building Codes and Standards, Inc.,

May 25, 1986.

69

70

America’s building codes and enforcement systemsmay not impede technological innovation directly.They seldom forbid the use of newer materials, com-ponents, structural forms, designs or processes; whenexplicit prohibitions do exist, they are of secondaryimportance. The real point is that the present sys-tem detects technological innovation indirectly, bycreating market fragmentation.

Inadequate Study of Total BuildingSystems and Information Dissemination

Unlike Japan and Sweden, the United States doesnot sponsor extensive research on new housing ma-terials, technologies, systems, or fundamental con-cepts. Generally, research efforts tend to be shortterm and related to a specific problem, rather thanlarge-scale, well-publicized projects designed to in-crease overall productivity. Industry analysts agreethat this research gap impedes innovation, and thatthe lack of institutional and financial research sup-port aggravates the problem.

Fluctuations in the Building Cycle

Unpredictable demand for housing mitigatesagainst capital investment in new technologies. Fluc-tuations in the building cycle discourage home pro-ducers from investing in capital-intensive, highlyautomated production technologies. In fact, one in-dustry analyst notes that “manufacturers have re-lied on a highly elastic labor supply in lieu of auto-mation. Large fixed investments in automated andmechanized processing equipment would eliminatemuch of the flexibility that is so vital to success ina seasonal industry.”7

On the other hand, other industries have begunto employ systems that manufacture a variety ofproducts; this decreases their dependency on spe-cialized markets. Such flexibility within a sophisti-cated production system would be preferable, fromthe worker’s perspective, to the current cyclical pat-terns of layoff, bankruptcy, and startup.

HOUSING REGULATIONThe Current Regulatory Framework

Four model building codes form the basis for mostU.S. housing regulation, with the exception of HUD-regulated “manufactured” housing (mobile homes).The model codes are developed by the InternationalConference of Building Officials (ICBO), Building Offi-cials and Code Administrators International, Inc.(BOCA), Southern Building Code Congress Interna-tional, Inc. (SBCCI), and the umbrella organization,the Council of American Building Officials (CABO).These organizations enjoy a broad-based member-ship, including both regulatory officials and a vari-ety of private sector building and construction profes-sionals. This membership plays a significant role inmaintaining responsive, consensus-oriented codesthat serve the public interest.

Each model code group publishes a building code,a plumbing code, a mechanical code, a fire preven-tion code, and other such documents. These codescorrespond to the model code package, to avoid con-

flicting requirements for the same condition. Neweditions of the code appear periodically, in 3-yearcycles. The membership conducts annual codechange hearings, voting on amendments to the cur-rent edition of the code. The approved amendmentsenter the next edition of the code.

Each model code tends to be regional. Althoughcertain States have adopted one model code exclu-sively, some overlap exists. The prevailing regionalpatterns are: the Uniform Building Code (UBC), pro-mulgated by ICBO and used west of the Mississippi;the BOCA Basic/National Building Code, promul-gated by BOCA and used throughout the Northeastand Midwest; and the Standard Building Code, pro-mulgated by SBCCI and used in the South. CABOoversees the three. Currently, local governments ap-ply several thousand major and minor variations ofthese basic codes. There are at least as many inspec-tion systems, with differences in building code inter-pretations and varying degrees of enforcement. Thevarious fire safety codes and inspection systems that

71

relate to buildings compound this regulatory com-plexity.

Thirty-four States have adopted preemptive Statecodes for modular housing. Those codes cover com-ponent housing systems, including panelized homesin 28 States, large components such as “wet cores”in 31, and precut houses in 6. While these preemp-tive codes reflect significant efforts by States to con-solidate codes for industrialized housing, they havenot eliminated the problems of diversity and com-plexity. Twenty-five States prescribe mandatory min-imum standards, 7 establish mandatory maximums,and 11 set both mandatory minimums and maxi-mums—"mini-max, ” or single mandatory codes.Two of the preemptive State codes are mandatoryunless specified otherwise. In one State, a local po-litical jurisdiction may amend the mandatory Statecode with State approval.

Enforcement systems also vary, both among andwithin States. Inspections are conducted by State offi-cials in 31 States, by county officials in 8, and bymunicipal officials in 13. Twenty-three States allowinspections by third-party private firms. Omitted fromthese figures are the 16 States that do not have build-ing codes for any type of factory-built housing,

This complex regulatory system poses formidableproblems for large U.S. homebuilders. The producermust satisfy hundreds, if not thousands, of buildingcodes and inspection systems in order to serve thenational market and still abide by the law. Dispari-ties between State transportation codes governinglarge trucks add to the confusion. A spokespersonfrom the National Association of Home Builders esti-mates that a uniform code for modular and pane-lized homes would reduce costs by 3 to 5 percent.8

Producers of modular and panelized homes faceother problems. Because the walls of some of thesebuilding systems are closed at the factory, certainfeatures cannot be inspected at the final building site.Instead, they must be examined at the factory, whichmay be located far from the site. These factory in-spections replace a significant part of the onsite workthat is traditionally done by government building in-spectors.

A number of communities around the Nation cre-ate de facto building regulation through zoning and

‘( ki)eriil A(I ( )11 nt I [ 1(+ f )fflc(!, (Jp ( I t

other local codes. Zoning can be employed in waysthat “exclude people from the community,”<) suchas confining “manufactured” (mobile) homes to“trailer parks” in disadvantaged locations, or requir-ing significant lot or house sizes.

As a result of this situation, U.S. housing producershave been slow to introduce either innovative hous-ing designs or advanced production technologies.

The HUD Code System

The HUD regulatory system for “manufactured”(mobile) homes represents the only uniform nationalbuilding code and enforcement system for factory-produced housing. 10 Consequently, this 10-year-old“HUD code,” which replaced and adopted large sec-tions of an earlier voluntary code system developedby the industry, serves as a model against whichothers may be measured.]]

Due to the establishment of this system, a uniformnational building code for “manufactured” (mobile)homes now exists throughout the United States. Ap-proximately 400 manufacturing plants in 24 Statesare currently inspected by a system that involvesState agencies, third-party private inspection firms,a national monitoring contractor, and HUD, HUDadministers the program with a small staff of Fed-eral employees, at minimal cost to the Federal Gov-ernment. Covering the program’s cost are inspec-tion fees—up to $75 per transportable unit—paid forby the manufacturers, and ultimately by customers.

— ---- ——5tei]hen SeIdel, ‘ Flo(IsIng (’ost~ dnd Regl]ldtion\ (’t)ntr{)l]tir]q ttl(’

Regulator hlaze” (Ne;j Burnswlck. N.] Center for [ lrt)all I)CJIIC \ Rtw’,ir( II1978), p 174.

I{T[lC \Il rllrllull} propertj st~ndard~ for One dIl(l T\\ ( ) FdIIIIl\ [ )U (’11-

ings, uvxf to approt’e federallj’ guaranteed mortgaqes dI~d I n other F’tY-eral housins programs, IS another type of ndtlond] t)uildln~ c{)dt’ dIIdenforcement s}stem, administered b} HLID This s~stem has c~x]itedSI ncc the 193[ )s, much longer than the H ( I [) cwle s} stern for ‘‘111,1 n ~1-facturecf ” (mot)i]e) homes. Howe\er, th]s s!rstt>m relles hed\Il\ 1)11 othercodes and enforcement systems [t f~’as not designed to dddrei~ t I}t’unique pr(hlems of factc)n’-[)ro(i~lcc’d housing, especicdl~ 011 t Ilt’ III\l KKt]oll side, nor did it replace other Ijull(llnq t II(le\ dn(i IIl\lxK 11(111 ~) +

tem~ of the idme build]n$ L’nt]] recent]!’, it tncluded v)rn? fedt[]rc+of bul]dlng codes. but dlso included site and bu]ldlng design~, ~nd [)t herdc’cept cibl I It\’ crlterla n(’t usual 1} co~’ered I n building (’( de$ ,+41s( 1 t IIeF“ederdl dlrI;ensIoII of the Act h& I)eel] w cdk(i]ed t]~ r(~{ crlt l~gl~ldtl( IIIttldt II]]OM’S for th(’ \(l])>tlt Ut 10[1 ( )f f(l 11(’tlolld] Stdt(’ dl](j ]()( cl] (’( Ki(’i f( Jrnd:Ic)nd standards

Ekrnhdr(it. ()!) (It

72

Problems of the HUD Code System

Congress will need to examine the HUD code sys-tem if alternative regulatory schemes for factory-builthousing are to be considered. Various problems thatsurround today’s HUD code homes may become morepronounced if this regulatory scheme is “stretched”to cover other categories of manufactured buildings,or to serve higher income markets where ownersmay be more critical.

The Potential for a Conflict of Interest.—Theexisting HUD code system creates the appearanceof a conflict of interest on the part of design and con-struction inspectors, since fees and services are ne-gotiated directly between manufacturers and HUD-approved private firms. The housing manufacturersthemselves hire both the third-party firms that as-sess home designs against HUD code standards—Design Approval Primary Inspection Agencies (DAPIAs)—and those firms that conduct in-plant inspectionsduring the construction of approved designs—Pro-duction Inspection Primary Inspection Agencies(IPIAs). The manufacturer pays these firms, and alsohas sole discretion over future rehiring decisions.Currently, 8 private firms do over 90 percent of thedesign approval work, and about 35 percent of thein-plant inspections, for the Nation’s “manufactured”(mobile) homes. State government agencies, actingas exclusive inspectors, conduct the remaining de-sign approvals and in-plant inspections, which hasgiven rise to other problems.12

PIAs must meet rigid HUD criteria to avoid con-flicts of interest, but whether HUD can ensure thatthese criteria will continue to be met is uncertain.Some members of the “manufactured” (mobile)home industry would like to modify the existing sys-tem by eliminating the exclusive right of States toact as IPIAs. At the same time, they would like tomaintain Federal preemption of State and local codesthat, in many cases, are more stringent than the Fed-eral standards. If Congress wishes to ensure effectivenational regulation of the industry, HUD’s statutoryauthority in these areas will need to be strengthenedand made more consistent.

— — .IzI-J.s, @partrnenl of Housing and Urban Development, ~jlth Report

to Congress on the Manufactured Housing Program (p. 51) illustratesperformance problems of State agencies and private firms through 1982.Although HUD has not yet published data for subsequent years, otherinformation indicates continuing problems as well as improvements sincethat time.

While there are similarities between the functionsserved by IPIAs and certified public accountants,IPIAs are not subject to many of the certification re-quirements faced by CPAs. Both are charged withserving the public interest; however, CPAs—unlikeIPIAs—are subject to rigorous preliminary examina-tions, as well as to professional and State regulation.The threat of removing a CPA’s certification providesthe public with protection against default.

It is important to note that the concept “potentialfor a conflict of interest” is used to avoid the needto prove impropriety. Certain public individuals mustnot only be above criminal behavior, but shouldavoid situations where the public trust and confi-dence would be shaken by even the possibility ofillicit financial considerations. For example, judgescannot vote on cases when they own stock in a cor-poration that is before the court, even if there is nosuggestion of individual venality. The IPIA/DAPIAsystem, however, does not guarantee that a conflictwill not arise; for example, the system allows a reg-ulated party to discharge an inspection agency.

Various administrative remedies may reduce theincentives for abuse. HUD, rather than the manu-facturer, could set and collect inspection fees. Man-ufacturers and private inspection firms could be re-quired to sign 2- or 3-year contracts for services,giving the firms more independence from their em-ployers. Firms might be permitted to do engineer-ing design and drawings, or design approvals, or in-plant inspections, but not all three. The Federal en-forcement agency could assign Federal inspectors,or select private inspection firms, in cases wheremonitoring indicated frequent violations of minimumstandards. As matters now stand, only IPIA’s havethe authority to pull Federal labels for noncompli-ance with HUD standards; the government can actonly to counter an imminent safety hazard. Techni-cally, HUD can inform the IPIA or the manufacturerthat a unit failed to conform with a code require-ment, but whether steps have been taken to use thisauthority in a meaningful way has not been dem-onstrated.

This is not to suggest that private firms cannot per-form responsible inspections; the advantages of non-governmental inspection systems will be discussedlater in this report. Nevertheless, the potential fora conflict of interest is built into the present system.Existing monitoring and enforcement practices pro-

73

vide insufficient protections against the potential forabuse. The steps described above suggest some waysin which enforcement might be improved.

Responsibility for Compliance With Codes.-–The HUD code system clouds responsibility for com-pliance with national standards. The regulations donot require that the consumer be notified as towhether the “manufactured” (mobile) home com-plies with the standards. The manufacturer must cer-tify to the dealer or distributor that the structuresmeet the code,13 but the approved label for retailunits provides no such assurance. This consumerlabel states:

As evidenced by this label No. ABC 000001, themanufacturer certifies to the best of the manufac-turer’s knowledge and belief that this manufacturedhome has been inspected in accordance with re-quirements of the Department of Housing and Ur-ban Development and is constructed in conformancewith the Federal Manufactured Home Constructionand Safety Standards in effect on the date of manu-facture. 14

The label certifies inspection, but not compliancebeyond a good-faith effort.

Homebuyers have limited recourse without an ex-press guarantee. In fact, certain State laws may beof no help to the consumer, since the manufacturermay avoid State regulations in excess of Federal stat-utory requirements. While consumers may pursueremedies involving repair of minor defects, the le-gal framework seems to prevent States from actingon their behalf, which would constitute an alterna-tive regulatory structure.

HUD does not permit “false” advertising, whichwould imply HUD endorsement of a “manufactured”(mobile) home. Indeed, HUD has issued a categori-cal denial of responsibility:

Any assertion that the Department directly or in-directly approves the construction or sale of any mo-bile home or that the Department inspects mobilehomes is false, except in the rare case where a mo-

IJsection 616 of the Natjonal Manufactured Housing Construction andSafety Standards Act states:

Every manufacturer of manufactured homes shall furnish to the dis-tributor or dealer at the time of delivery of each such manufactured homeproduced by such manufacturer certification that such manufacturedhome conforms to all applicable Federal Construction and SafetyStandards.

143282 .362( c)2(c), p. 253.

bile home has actually been inspected by an em-ployee of the Department. Even in those cases theDepartment has not approved the home. 15

The recent Varig Airline case confirms that underHUD regulations, the Department cannot be heldresponsible for failure to ensure proper inspection.

Failure To Require Full Compliance With AllStandards.--HUD regulations and enforcementmechanisms also fail to assure that every home com-plies with all HUD code standards. The present HUDcode system requires inspections by State agenciesor third-party private firms of a sampling of homesin a manufacturer’s production line. Each home isinspected in at least one stage of production, andthe number of production stages varies; the currentAcceptable Quality Level (AQL) list includes 174 in-spection items. Furthermore, HUD has not pre-scribed uniform test procedures to assure compli-ance with its performance standards.

Complete data have not been compiled on non-compliances with HUD standards. However, HUD’scontractor, the National Conference of States onBuilding Codes and Standards (NCSBCS), conductsmonitoring inspections of each manufacturing plantat least twice a year. These inspections aim at evalu-ating the manufacturers’ internal quality control sys-tems, as well as the performance of State agenciesand third-party private firms that do in-plant in-spections. ,

Although not intended for this purpose, the NCSBCSdata developed from these semiannual inspectionssuggest the frequency of noncompliance of all unitsproduced in HUD-inspected factories. Manufacturersoften learn of NCSBCS visits in advance, and pre-pare accordingly; as a result, nonconformance iden-tified through such inspections may underestimatethe actual figure. Data provided to OTA by HUD forDecember 1984 through May 1985 indicate that mosthomes produced during that period failed to con-form to one or more AQL items, averaging 3.6 non-conformances per inspection (see table 13). Anotherbreakdown of NCSBCS data, for November 1984through March 1985, indicates that 8 percent of allnonconformances related to AQL items in planningand fire safety, 55.5 percent to construction, 16.9 toelectrical items, 11.3 percent to thermal items, and8.1 percent to plumbing items.

IWJ.S, f)epartment of Housing and Urban Development, ~ou~th An-nual Report to the Congress on Mobile Homes.

74

Table 13.—Compliance With Acceptable Quality List(December 1984-May 1985)

Percent of AQL Percent of units in theitems in compliance specified compliance range

95-1oo . . . . . . . . . . . . . . . . . . . . 30.190-95 . . . . . . . . . . . . . . . . . . . . . 30.185-90 . . . . . . . . . . . . . . . . . . . . . 23.680-85 . . . . . . . . . . . . . . . . . . . . . 9.8<60 . . . . . . . . . . . . . . . . . . . . . . 6.5SOURCE: U.S. Department of Housing and Urban Development.

Although this record appears to be poor, thepresent HUD code system does protect the publicfrom “imminent safety hazards” that present “im-minent and unreasonable risk of death or seriousinjury”; it does guard against major defects whichoccur when a series of homes exits the productionline; and it does initiate a consumer complaint proc-ess, operated by HUD and by State administrativeagencies who can respond without Federal enforce-ment authority.

However, the Federal system provides limited pro-tection for the individual purchaser whose home failsto comply with the standards. HUD addresses con-sumer complaints from States that have not estab-lished administrative agencies for the HUD “manu-factured” (mobile) home program. Although thepurchaser may go to the courts, he bears both theexpenses of this action and the burden of proof. Ex-cept for health and safety problems, such as for-maldehyde emissions from plywood and particle-board materials, court action has little use or effectin the present HUD code system. Furthermore, mostHUD code “manufactured” (mobile) homes are soldto lower income purchasers, who tend to avoid thecosts of litigation.

The experience of the HUD code system raisesquestions that may affect the formulation of indus-trywide regulations for all categories of residentialconstruction. Even the existing HUD regulations mayneed review, in light of newly available information;although HUD’s data for estimating nonconformancesin production, and for evaluating regulatory perform-ance, need improvement, Department statistics doindicate a number of important issues. For exam-ple, production defects can now be detected, counted,and reported. What levels of quality, what standards,and what degrees of conformance should be con-sidered acceptable? How should the regulatory sys-tem employ the data for enforcement? Should fac-

tory production involve inspection of productionlines rather than of individual units, as is done forsite-built housing?

Weakness of Remedies and Penalties for Non=compliance.—HUD may lack the legal authority toenforce full compliance with certain code standards.Under HUD regulations: “A manufacturer. . . shallcorrect, at its expense, any imminent safety hazardor serious defect that can be related to an error indesign or assembly of the manufactured home.”16

HUD has interpreted this congressional enabling leg-islation to mean that it cannot require manufacturersto bring defective homes into code compliance, un-less “unreasonable risk of injury or death” exists.According to this interpretation, questions of dura-bility, quality, and amenity remain outside HUD’sjurisdiction. On the other hand, the HUD code’s“Statement of Purpose” calls upon HUD to improvethe quality and durability of manufactured homes. ’7Federal legislation may be needed to resolve thisdouble standard.

Formal rulemaking guidelines dictate attempts toincrease inspections, and steps to disqualify PrimaryInspection Agencies for improper or insufficientinspections—or for improper awarding of Federallabels—are complex and protracted. Moreover, un-der the preemption section of the statute,18 Statesmay not enforce the Federal construction and safetystandards more stringently than the Federal Gov-ernment. Still, some States have used their businesslicensing or registration laws to enforce the HUDcode standards when HUD has failed to require com-pliance.

Inadequate Provisions for After-Factory In=spections.--The present HUD code system empha-sizes in-plant inspections, an important area of codeenforcement for all types of industrialized housing.However, the present HUD code system lacks anefficient framework for after-factory inspections.Through no fault of either the manufacturer or themanufacturing process, many “manufactured” (mo-bile) homes with Federal labels fail to meet HUDstandards on arrival at their final destination. Unitsmay be altered or damaged at dealerships, wherethey are stored and shown to customers; or, the

1e3282.406.ITTitle V], Section 602.183282.11.

75——

rigors of transportation from factories to dealer lotsand from dealer lots to final building sites may de-crease quality, especially when units are transportedalong uneven country roads. The problem of “torque,”or the twisting of the entire unit, can arise if the homedoes not rest on a level foundation at the final site.“Tie-downs” to foundations, connections betweendouble-wides or multiple units, and utility hook-upspose additional problems at the building site.

The after-factory inspection process depends onState and local regulatory systems. Under HUD reg-ulations, dealers may not sell units that have failedto meet HUD code standards. However, many Stateand local agencies do not conduct visual inspectionsof units on dealer or buyer lots; when inspectionsare made, reporting and followup are minimal.NCSBCS has developed a voluntary consensus stand-ard for “siting” of units, but although CABO andNCSBCS have developed code language for thispurpose19 —which may or may not be used—a Fed-eral onsite system of inspections or enforcement doesnot exist.

Lack of Incentives for Improving Durabilityand Quality.--The HUD code program was de-signed to improve durability and quality, along withsafety. While the safety record of “manufactured”(mobile) homes has improved, it is still less than thatof site-built housing; also, it is difficult to show thatdurability and quality have been addressed. Further-more, while some manufacturers satisfy HUD codestandards with ease, the regulatory system for “man-ufactured” (mobile) homes does not recognize differ-ences in quality. As a result, many producers builddown to minimum safety, rather than up to mini-mum quality standards.

The implications of this extend to energy costs,which are higher in HUD code homes than in thosethat satisfy the requirements of Title V of the FarmersHome Administration (FmHA). A recent study con-ducted for the Department of Energy revealed thatif FmHA energy standards were used instead ofHUD’s Title V standards, energy consumption ofmost units would be reduced by 37 to 46 percent.HUD’s own Title II-E standards, which apply onlyto “manufactured” (mobile) homes on a permanent

foundation, would improve energy performance by4 to 23 percent.20

A proposal to establish quality grades within cat-egories of industrialized housing offers a solution tothis problem, and will be addressed in this report.The marketplace, rather than market advantages cre-ated by government regulations, would then deter-mine the levels of quality that home producers couldoffer to informed or affluent customers.

The Role of Federal Oversight. -In general, the“manufactured” (mobile) housing industry supportsthe preemptive Federal standards that currentlyguide all U.S. “manufactured” (mobile) homes, whileHUD would like to grant more control to the mar-ketplace, and to State and local standards. Also, HUDand the industry have differing views on enforce-ment procedures; many industry representativeswould like to see less Federal oversight, as well asthe elimination of the States’ right to act as exclu-sive inspection agencies. Many States, however, haveexpressed concern over proper levels of inspection,and worry that a weakening of the preemptive Fed-eral system could aggravate problems.21 The Stateshave assumed some blame for the present situation;they are now developing recommendations on howto improve the State role in national housing regu-lation reforms.22

Criteria for a New Regulatory System

The following sections of this report suggest pos-sible alternatives to the present system of housingregulation in the United States. First, however, a setof criteria is presented, against which such proposalscould be judged. Throughout the discussion, thephrase “a national system of building codes and in-spections” is used generically to imply a high de-gree of national consolidation and organization. Anational system may be legislated or operated by theFederal Government, by State or local governments,or with the regulatory participation of third-party pri-vate firms. It may be a single consolidated systemfor the entire country, or a national organization

z~~pacific Northwest Laboratory, “Impacts of Alternative ResidentialEnerqy Standards,” November 1985, p. 9.2.

19 NCSBCS, May 1986, op. cit.

~lc~-mbined Meeting of the NCSBCS Regulatory Affairs Committee,

State Manufactured Building Administrators, and State Building Offi-cials Subcommittees, Arlington, VA, Apr. 23, 1986.

ZZNCSBCS, May 1986, op. cit.

76

comprised of subsystems for different types of man-ufactured buildings, for manufactured buildings thatmeet certain criteria, for different code-setting or in-spection functions, or for different multi-State geo-graphic regions,

In order to remove regulatory impediments to resi-dential construction and its related industries, a mod-ified national code and inspection system might beevaluated against the following criteria:

1. Does the system apply to all categories of in-dustrialized housing and modular nonresiden-tial buildings? Those buildings that containclosed components, factory-made to fit and func-tion together, could be emphasized.

2. Does the system facilitate market aggregation?Under a relatively uniform framework, firmsmay anticipate the codes and enforcement sys-tems that factory-built homes must satisfy withina large geographic area. Uniformity would alsoenable manufacturers to achieve economies ofscale from factory production-line systems.Ideally, with appropriate adjustments for cli-matic and other features, such as energy re-quirements, wind and snow loads, and seismicrequirements, a unit produced anywhere in theUnited States could be used nationwide.

3. Does the system include reliable and consist-ent enforcement, to protect manufacturers,dealers, and contractors from subjective or arbi-trary interpretations of codes? This would pro-tect the public from the consequences of codeviolations.

4. Does the system reduce costs and administra-tive burdens associated with regulation?

5. Does the system leave as much control as pos-

6.

sible in the hands of local regulatory author-ities? Regional or national codes need not un-dermine well-designed State or local codes.Instead, the new regulatory mechanism couldbe built on successful State and local expe-riences.Does the system constitute part of a coherenthousing policy that provides Americans with thehighest quality at the lowest cost? This wouldrequire programs that protect consumers whileencouraging industrial innovation and entrepre-neurship.

Alternative Regulatory Systems

Historically, the writing and enforcement of build-ing codes in the United States have been performedby the same unit of government. In contrast, the verynature of industrialized housing invites a separationof these functions. How and by whom codes are writ-ten may differ from where and by whom codes areenforced. Moreover, although the codes themselveshave received the most attention—resulting in fournational model codes—the Nation’s fragmented codeenforcement system poses a larger impediment tothe development of the industry, Consequently, ini-tial alternatives for a national system relate to theenforcement function.

Local factors also enter into play. Until the 20thcentury, most housing construction was a functionof commerce within States. Traditionally, Congresshas deferred to State, county, and municipal desiresin such matters. As a result of technological devel-opments in recent years, housing has entered therealm of interstate commerce. Some industry expertsbelieve that a Federal system would bring the regu-latory function in line with the current residentialconstruction process. On the other hand, this wouldtend to dilute local control, and might provoke op-position from State and local building officials andtheir related constituencies.

The following discussion describes four categoriesof alternatives: systems in which the Federal Gov-ernment has lead role; in which the State Govern-ment has lead role; in which private organizationshave the lead role; or cross-cutting strategies, whichmay combine all or any of the three. These alterna-tives do not represent complete or detailed designsof regulatory systems. Rather, they should be viewedas generic possibilities, which hold the potential todevelop new systems.

Systems Administered bythe Federal Government

An Expanded HUD Code System.—The HUDcode system might be expanded in its present form,making it a federally preemptive, national systemthat would cover other categories of industrializedhousing and related nonresidential modular build-ings. This would require congressional legislation.

77

Under this alternative, the system could growstronger through legislative or administrative modifi-cations. Along these lines, the NCSBCS has devel-oped an improved system of quality control and com-pliance evaluation for HUD, in consultation withindustry representatives; the system is now in re-view. These and other administrative steps may im-prove compliance with the HUD code for durabilityand quality features of “manufactured” (mobile)homes.

Alternatives to HUD Code Regulation.—Thepresent HUD code system could be enlarged to coverother categories of industrialized housing and relatednonresidential modular buildings, but would bealtered in one or all of the following ways:

●

●

Congress might create an independent Federalcommission, board, or administrative agency toregulate manufactured buildings covered by theFederal system, replacing HUD’s responsibili-ties in this area. Or, HUD’s regulatory functionsmight be assigned to another existing agency.In either case, HUD would retain the broaderresponsibilities for affordable housing and wouldparticipate in code setting, but would not su-pervise code enforcement.

It is difficult for any Federal agency to regu-late its own constituency. At present, HUD en-courages construction of minimum purchase-price housing, and regulates construction—which may mean increasing housing costs. Thisalternative would separate the developmentaland regulatory functions in residential construc-tion, making it similar to the areas of nuclearpower, transportation, and environmental pro-tection. 23

A Federal system might preempt State and lo-cal regulations for all industrialized housing andrelated construction, but could be limited in sev-eral ways. The system could cover all factory-built homes and related nonresidential modu-lar units that are shipped across State lines,removing impediments to interstate commerce.

Zsf+sponsibilities for promoting and regulating nUClear pOWer’ are

divided between the Department of Energy, and the independent Nu-clear Regulatory Commission; responsibilities in the field of transpor-tation are divided between the Department of Transportation, and theindependent National Transportation Safety Board; and environmentalresponsibilities are divided between the Departments of Energy andCommerce, and the Environmental Protection Agency.

●

Or, such a system might include only integralmanufactured building systems with closed con-struction, such as HUD code “manufactured”(mobile) homes; certain modular homes, com-mercial modular buildings, or panel systems;or large closed components such as “wet cores”—all of these products must be inspected in thefactory. State or local governments would stillconduct onsite inspection of factory-made build-ings when the site and the factory are in thesame State, for “open” manufactured buildingsystems and for large “open” components.

A recent proposal for Federal regulation ofappliances, supported by both appliance man-ufacturers and environmental groups, illustratesthis principle. The proposal calls for certain Fed-eral standards to preempt several State and lo-cal guidelines, creating a more uniform codesystem that would benefit both producers andconsumers.In order to ensure the successful implementa-tion of any alternative to HUD code regulation,Congress might strengthen the language of thestatute that guides the present system. A feder-ally based system for all categories of industri-alized housing could foster technological researchand development by guaranteeing consistencyin Federal standards.

For example, the statutes could specify HUD’srole concerning energy standards. HUD is nowin the process of amending the code’s thermalenergy requirements. These guidelines were in-troduced by HUD, and may soon undergo HUD-initiated changes, even though the original stat-ute did not give specific regulatory authorityover energy to the Department.

Incentive Systems.—The Federal Governmentmight adopt a “carrot and stick” approach to en-courage States to establish a uniform national code.Such a nonregulatory incentive system for industri-alized housing and related nonresidential construc-tion could rely on Federal financing or mortgageguarantees, direct funding to State or local govern-ments, government purchasing, or tax incentives.The incentives need not be new or special subsidies,but could be based on contingent approvals thatwould allow participation in existing Federal pro-grams. The Federal Government already operatesnumerous programs that benefit homebuilding, espe-

78

cially those that guarantee or supply credit throughthe Federal Housing Administration, Veterans Ad-ministration, Farmers Home Administration, Gov-ernment National Mortgage Association, and othersuch agencies.

The HUD-administered Community DevelopmentBlock Grant program could serve as another non-regulatory incentive. Builders might qualify for grantsonly if their homes satisfied quality standards estab-lished by an organization like NCSBCS. This optionwould also encourage States to adopt standards thatresemble a national code, so that their home indus-tries could qualify for Block Grant funds.

Sweden maintains a particularly effective incen-tive system. Only those homes that meet stringentperformance standards are eligible for the Swedishequivalent of FHA or VA housing subsidies. As a re-sult, the performance characteristics of most newhomes exceed those prescribed by statute, especiallywith respect to energy. This system created such highlevels of thermal performance that energy standardscould be increased without affecting most construc-tion methods.

These incentives, combined with reliable inspec-tion systems, might persuade State and local gov-ernments to bring their codes for manufacturedbuildings in line with a single, national model code,and they might convince State and local govern-ments to accept industrialized housing and relatednonresidential modular buildings produced and in-spected in other governmental jurisdictions. Thiswould tend to encourage capital-intensive research,since companies would not have to satisfy a myriadof local codes in order to introduce new technologiesto several parts of the country.

The underlying principle exists in two current Fed-eral programs. The interstate highway program trans-fers funds to the States, contingent on their compli-ance with federally accepted roadway standards, andconditions like the 55 miles-per-hour speed limit andthe 21-year-old minimum drinking age. And the Min-imum Property Standards (MPS), administered byHUD, constitute a powerful nonregulatory incentivesystem; mortgage approvals depend on conformancewith certain standards. This ties improvements intechnology to the financing process, although otherHUD-approved regulation tends to negate such a

connection.24 Also, many previous Federal programshave transferred funds to State and local govern-ments, subject to specific requirements and con-ditions.

Voluntary Systems.—Under this alternative,manufacturers could select between making theirhousing subject to Federal approval under a Fed-eral preemptive system, to otherwise applicable Stateor local government regulations, or to a combina-tion of the two, depending on the type of housinginvolved.

The Nation’s banking system illustrates the prin-ciple behind this alternative. The Federal ReserveSystem gives banks the choice of being either fed-erally or State-chartered, subject to different require-ments and regulations. Savings and loan associationsmay also take advantage of this option.

The present HUD code system operates in a sim-ilar manner, although the advantages offered by Fed-eral approval make it impractical for manufacturersto have the “manufactured” (mobile) homes in-spected at the State or local level. Producers of bothHUD code “manufactured” (mobile) homes and mod-ular homes better illustrate the idea of choice. Thelatter now fall under State or local regulations. Withthe “choice alternative” in force, a manufacturercould select the code and enforcement system thatbest corresponds to the structure being built.

Currently, the Federal Government confers com-petitive economic advantages to building manufac-turers by preempting State and local governmentregulations—primarily because of benefits stemmingfrom market aggregation. Given these advantages,and the potential advantages of a Federal inspectionlabel for factory-built homes, the Federal Govern-ment might set and enforce high-quality standards.This could encourage industry development undera manufacturers’ choice alternative.

Zqln response to complaints of unfair competition from private sectorcertification groups, HUD has instituted a fee for certification of newtechnology in its “Technical Suitability of Products Program.” AlthoughHUD’s charges remain lower than those of the private sector organiza-tions, their presence has led to a decrease in the number of innovativeconstruction programs available to the American marketplace, sincedevelopers have less incentive to introduce new technologies.

79

State Government-Based Systems

Three State government-based systems, in whichState governments have the leading role, are dis-cussed below. State regulators contacted by NCSBCS“showed fairly equal support for all three systems.”25

Multistate Compacts.--Multi-State compacts, orinterstate compacts, are congressionally approvedagreements among or between States. Congress setsthe rules for any such multi-State arrangement, andState legislatures may vote to enter such compactsonly with congressional consent. Having joined, aState may withdraw only under rules established byCongress. The regulatory or operating authority ofthe compact depends on the nature of the congres-sional mandate. Over 200 multi-State compacts havebeen enacted in the United States, for such diversepurposes as water allocation, transportation and portdevelopment, corrections, education, forest fire pro-tection, health, motor vehicles, radioactive waste dis-posal, pest control, planning and development, pub-lic works, recreational parks, civil defense anddisaster, and welfare.

Historically, compacts have been bilateral, re-gional, and national in scope. Until the 1920s, mostwere agreements between two States. The next gen-eration of compacts dealt with regional problems,such as the Colorado River Compact that embracedseven States. The first national agreement was theInterstate Compact for Supervision of Parolees andProbationers, established during the 1930s. Func-tional compacts, or multilateral agreements that didnot rely on regional identification, developed in the1930s as well; the Interstate Compact to ConserveOil and Gas was open to all oil-producing States.Compacts also began to serve regulatory purposes;New Jersey and New York enacted the Tri-State Sani-tation Compact in 1935 and 1936, respectively,joined by Connecticut in 1941. The Ohio Valley Sani-tation Compact represented an early regulatoryagreement for a river basin region. Since World War11, the proportion of regional and national compactshas increased relative to bi-State agreements.

Multi-State compacts create a legal regulatoryframework between or among States, and employconstitutional powers at both Federal and Statelevels. They offer two direct advantages to the ap-

Z5NCSf3CS, May 1986, Op cit.

plication of Federal regulatory authority. First, ini-tial State participation is voluntary. Second, whilethe States give up individual sovereignty for thelarger purposes or programs, the agencies that ad-minister such compacts are controlled by the mem-ber States. The Federal Government may play a role,but in a subordinate capacity.

Multi-State compacts offer the following advantagesfor the regulation of industrialized housing:

1.

2.

3.

4.

Multi-State compacts would establish reciprocityamong States, so that manufactured buildingsproduced and inspected in one State could beaccepted by another.Multi-State compacts could serve as an inter-mediate preemptive system, superseding the au-thority of individual States but under the aus-pices of a federally based preemptive system.Since State codes tend to follow regional group-ings, compacts might be created for a limitednumber of regions across the country. Contig-uous or nearby States may reach agreementswith one another more easily; most manufac-tured buildings move regionally, not nationally,because of transportation costs. Also, multi-Statecompacts might differ according to regional con-siderations like climatic conditions or marketpreferences.Multi-State code enforcement for industrializedhousing and manufactured commercial build-ings might rely on existing State agencies andsystems, instead of spawning additional bu-reaucracy.

The Federal Government might provide incentivesfor States to join multi-State compacts. Federal financ-ing or mortgage guarantees and other contingent ap-provals have been described for a nonregulatory Fed-eral incentive system in a previous section. Anotherkind of incentive involves the Federal Governmentas an equal partner in the compacts. An enlargedHUD code system, or a modified system of Federaladministrative agencies, could have preemptive reg-ulatory authority over manufactured buildings pro-duced in or shipped to States not belonging to multi-State regulatory compacts, encouraging States to joinsuch agreements. In this way, the Federal Govern-ment’s activities would tend to diminish over time.The Abandoned Mine Reclamation Program illus-trates this principle: once a State develops a feder-

—. —

80

ally approved program for mine reclamation, it as-sumes full control of the program.

Special Regional State Legislation Allowed byCongress.–The recent Supreme Court decision ofJune 10, 1985, Northeast Bancorp, Inc., et al. v.Board of Governors of the Federal Reserve System,et al., suggests an alternative that resembles themulti-State compact. The court held that since Con-gress had authorized States to determine what bankscould operate within their borders, States were notobliged to accept all banks. The New England Stateslimited approval to regional banks, excluding NewYork.

The ruling in favor of this policy has importantimplications for the housing industry. Citing this asprecedent, Congress could pass a Federal statute al-lowing for regional reciprocal cooperation by Statesin the area of manufactured buildings. This differsfrom the concept of a multi-State compact, since noregulatory authority would be established.26 Rather,States would cooperate with one another based ontheir respective market needs. For example, a Statemight declare that if other States accepted its owninspection and certification standards, it would re-spond in kind. This would enable States to limitagreements to nearby “acceptable” States, whichhold similar views on codes and code enforcement.

Essentially, such an agreement would representa lesser form of the multi-State compact in manner,geographic extent, and strength of commitment.However, while this would improve geographic mar-ket aggregation by regionalizing the manufacturedbuilding industry, it would tend to impede the de-velopment of a national system.

Non-Federal Negotiated Agreements.—Thisalternative involves agreements negotiated betweenState or local governments, or between a State orlocal government agency and a private third-partyinspector or manufacturer. There is no Federal par-ticipation, and agreements need not be accompaniedby specific legislation. Such arrangements may bemade on a case-by-case basis, and do not requireassociation with a statutory system.

26Although A~& 1, section 10.1 of the U.S. Constitution holds that“no state shall enter into any treaty, alliance, or confederation” with-out congressional approval, associations that do not legislate actual reg-ulatory power—as was the case with Northeast llancorp-have beenpermitted.

A broad spectrum of formal and informal agree-ments are covered by this alternative. At one ex-treme, construction that is not covered by HUDcodes—in particular, modular housing and modu-lar nonresidential buildings–could be regulated byad-hoc arrangements made at the discretion of publicofficials. State or local governments could agree toaccept units that have been produced and inspectedin a different jurisdiction. Such negotiated agree-ments may employ third-party private inspectors, orState inspectors situated close to the factories.

At the other extreme, reciprocal legal arrange-ments among States for the acceptance of manufac-tured buildings other than HUD code “manufactured”(mobile) homes can and are now being developedwithout Federal assistance. Eleven States report sometype of agreement with one or more States. Florida,Georgia, and South Carolina will soon conclude areciprocity agreement, and may be joined by Loui-siana, Mississippi, North Carolina, Tennessee, Texas,and Virginia.

Developments within States have facilitated Statereciprocity. Many States have begun to confront theproblems of manufactured buildings other than HUDcode homes, and have consolidated codes and en-forcement systems already. Although differences re-main both between and within States, 34 differentstatewide codes preempt local government standardsfor modular buildings; 28 States have adopted suchcodes for packaged panelized buildings systems; 31preempt local standards for large closed componentslike “wet cores”; and 5 cover precut homes. On theenforcement side, 31 States use State inspectors formanufactured buildings, 21 use county or munici-pal inspectors, and 23 use third-party inspectors.27

In the absence of more complete solutions, nego-tiated agreements have allowed State and local gov-ernments to combat the regulatory problems pre-sented by industrialized housing, especially thoserelating to factory construction. However, this typeof governmental oversight presents problems of con-sistency, and abuses have been reported. Assum-ing that the manufactured building industries willcontinue to enjoy sizable growth, negotiated agree-ments would be the weakest of all State-based alter-natives. Such agreements may be easy to implement,

Z7NCSBCS, unpublished data.

but uniformity over a large multi-State region is dif-ficult to achieve and may not stand the test of time.

Proposals of NAHB and the Building CodeAssociations. -As noted earlier, the National Asso-ciation of Home Builders, NCSBCS, CABO, BOCA,ICBO, and SBCCI have agreed on principles for aState-based regulatory system that would affect codesand inspection systems throughout the country. Theyare now in the process of converting these proposalsinto a formal regulatory system with adequate fund-ing. The system would be based on the followingguidelines:

●

●

●

●

●

●

One of the three major model building codeswould be adopted by the States. Local jurisdic-tions could not make amendments.States would enforce the regulations that appliedto factory-produced housing, and local jurisdic-tions would oversee codes for site-built housing.The selected model code would be mandatoryfor all factory-built housing, and for all site-builthousing constructed in jurisdictions that usebuilding codes.Amendments to the codes would be reviewed“through channels currently used for the modelbuilding codes” and “the States would estab-lish a uniform procedure for evaluating and ap-proving new products, design concepts, andconstruction techniques. ”States would agree to reciprocity agreements forall industrialized buildings.Education and training would be provided forbuilders, building trade workers, and regulatoryofficials .28

Private Responsibility Systems

Private companies and associations play a substan-tial role in governmental processes for regulating theU.S. housing industry. This participation takes vari-ous forms, such as developing consensus standards,establishing model buildings codes, and testing ma-terials.

The American system resembles a gigantic volun-tary regulatory scheme, considering the number ofprivate organizations that participate. An estimated1,800 private American companies manufacturecomponents for homes, and many of these help to

%4B0 News Release, Llav 1986

develop consensus standards for their products thatare later incorporated in building codes. Private firmsand industry representatives do much of this workthrough organizations like the American NationalStandards Institute and the American Society forTesting and Materials. Industrial trade associationsalso implement consensus standards, and, as noted,the three major model building codes come from thenongovernmental organizations and CABO.

In addition, numerous profitmaking and nonprofitlaboratories test materials, products, and buildings.Underwriters Laboratories, Inc., a private nonprofitfirm, occupies a unique position in the industry. Theapproval of electrical items by Underwriters, or bya laboratory of equal stature, stands as a legal andpractical prerequisite for government approval.

Application of Private Regulation. -Private re-sponsibility systems raise questions of accountabil-ity: who is responsible, how, and to what extent?Are there any models or examples of effective pri-vate responsibility systems that can apply to resi-dential construction, especially in matters of en-forcement?

In response to these questions, European systemsof private assurance deserve analysis. Belgium hasa strong private liability law, under which architectsand builders are held responsible for 10 years in mat-ters of building safety and durability. SECO—roughlytranslated as the “Bureau of Control and Proofingof Building Safety and Construction’’—is a nongov-ernmental engineering consulting organization thattests and inspects all types of structures. Governmentapprovals require SECO inspections; insurance com-panies also call for SECO inspections as a prerequi-site for issuing policies to builders and owners. SECOdivides its attention between municipal authoritiesand the private sector—builders, manufacturers, in-surance companies, and building owners. SECO’swork includes laboratory testing, reviews of designsand plans, onsite and factory inspections of build-ings and components, and plans and reviews of qual-ity control systems. The firm handles approximately90 percent of all such activities in Belgium, and Bel-gian courts interpret “good practice” consensusstandards developed by SECO. In turn, SECO is le-gally liable for the advice and approvals that it gives.

Similar systems exist in other countries. In France,several nongovernmental organizations operate like

——. ——-——— .

82

SECO. Local governments or councils in Great Brit-ain and Sweden are legally liable for the inspectionsmade under their auspices. A British law passed in1984 provides for home liability, and enables thegovernment to accept inspections performed byproperly bonded private firms.

More investigation of the effectiveness and prob-lems of European systems is needed. However, thesemodels do suggest possibilities for a “private respon-sibility” approach i n this country, where most gov-ernment entities have not been legally liable forcodes and inspections made under their auspices.Congress might choose to make them liable, in or-der to make codes and inspections more effective.Under this approach, codes would continue to beset through official government processes, but theenforcement system could be made private in casesof liability transfer Several ways to implement thisapproach are described below:

1. Manufacturers’ and dealers’ warranties could berequired on all industrialized housing and non-residential modular buildings. New Jersey main-tains such a mandatory requirement, and sev-eral other States are considering the option.

2. Mandatory inspections could be conducted bythird-party law firms. The government couldlicense the firms, but payment would come fromthe various involved parties, following the Euro-pean model: manufacturers, dealers, contrac-tors, government entities, homeowners, andother building owners. The private inspectionfirms would issue inspection certificates and af-fix approval seals that certified full code com-pliance for manufactured units. Like certifiedpublic accountants, they would be bonded andinsured as a requirement for licensing, andwould be legally liable for their advice on codecompliance during inspection.

3. Because they provide liability coverage andbuilding insurance after construction, private in-surance companies might become more in-volved in setting qualifications and require-ments. In effect, they would perform a privateregulatory function based on risk assessment.Insurance coverage could be required as a mat-ter of law, and companies could set competi-tive premiums. Currently, U.S. insurance com-panies engage in loss prevention activities forcommercial buildings only; in Switzerland, com-

panies that issue any form of fire insurance re-quire annual inspections and maintenance ofheating systems.

4. Private financing institutions, like private insur-ance companies, could take a more active rolein performing a private regulatory function.Compliance with code standards does affect loanrisks and marketability of buildings, of obviousimportance to private financing institutions.Consequently, in addition to requiring insur-ance, financing institutions may set specificguidelines for those seeking credit for mortgagefinancing, or construction loans for manufac-tured buildings. HUD’s Minimum PropertyStandards, used to approve federally guaranteedmortgages, illustrates this principle.

Cross-Cutting StrategiesA single code for all types of industrialized hous-

; 1;> ITI Y may not be tee] [ ~ .~gicail~ realistic orcj(J:;~;” < ,[, “. I lrthe~” studj’ is I I \ ~: d, Alternatives to

! \j : I .: f’ c(]~e C(jl i. ] acc~l, . {l:~ic i he different cat-} ~Jt housi T , and C( ~’ I I ~ S(JI grades of housingb $, ~ at ?gori (-4>.

Labeling.--In the United States, appliances arerated for energy efficiency, meats receive qualitygrad{: r , ~ lgs, i; I f 1,!l]obiles ar-e given gasoline miie-

~ C;C I ‘ <, ai’Ld truck and J !~.)mobi]e tires have~J[~It~~ rati r’qs. Housing colll[: .-~pt a similar system,‘. ): “ 1’ :1:; !L alth a~d wret~, ‘S jr-ability, and quality.

hli’1 sting building re~;l ! lations mandate “ac-cepta~le’i ,minimum health and safety standards.Acceptable minimums indicate the absence of abso-lute levels, even in health and safety of buildings.For e~”ample, differences exist in fire protection—

i.i Ials have distinct interior surface flamewall ,+fi~”spread tij ,ies, and placement and enclosure of fur-naces, number of smoke detectors, number and dis-tance to exits, and exit capacities all differ accord-ing to local conditions.

Housing grades may be based on other factors:durability, quality, amenity, and operating or life-cycle costs. HUD has already demonstrated the fea-sibility of establishing grades through the potentialfor evaluation of quality, livability, and durability in“manufactured” (mobile) homes.29

“’l-l S Dep~rtment of Housing and (Irban Development, Sixth An-J)II;II f<eport ~() (’ongress On kfanulactu~ed Housing Program.

83

There are three approaches to grading homeswithin categories. First, each key attribute of a housemight be rated, with the cumulative result given tothe home purchaser. Second, minimum acceptablelevels of each attribute might be established for eachgrade of house. A “Grade A“ house would have cer-tain features, a “Grade B“ house might be lower, andso on. Third, a house might be graded only for min-imum standards of health and safety. Higher gradesof homes would carry stickers, demonstrating com-pliance with selected standards of durability, qual-ity, amenity, and operating or lifecycle costs.

Such improved information about building qual-ity would allow banks to estimate the market valueof the structure more accurately. Also, it would per-mit banks to project potential operating costs, suchas energy, for use in qualifying individuals for hous-ing loans. Both features would facilitate the opera-tion of housing markets, and would encouragegreater construction quality without prescription.

The establishment of categories of factory-builthomes, together with grades within such a system,would yield two important benefits. This market-based solution would allow market forces, and notstatutory regulation, to govern supply and demand.Also, it would create incentives for producers to“build up” in order to satisfy better-informed con-sumers.

Other Models.—Japan maintains national stand-ards for certifying building components. The Japa-nese Ministry of Construction provides group insur-ance and a “Better Living” label for housingcomponents that meet specified standards. The Min-istry publishes the standards in the Japanese equiva-lent of the Federal Register, and invites firms to ap-ply for certification. Applications must includedetailed design drawings and test results, and arereviewed by a 25-member certification commissioncomposed of consumers, members of “local publicorganizations, ” and technical experts in housingcomponents. Certification must be renewed every3 years.

By June 1985, 541 companies had received cer-tification for 1,417 products in 31 categories. Thesecategories include hot water systems, ventilationunits, gas appliances for kitchens, gas leakage alarmsystems, solar energy systems, bathtubs, “housinginformation systems, ” and even mailboxes, front

door units, door locks, window sashes, handrails,interior doors, kitchen cabinets, “master televisionantennas,” and more. Products that carry the “Bet-ter Living” label receive two types of insurance: prod-uct warranty insurance, which covers costs associ-ated with replacement of a defective component; andproduct liability insurance, which covers claims re-sulting from injury or property damage attributableto a failed component.30

The French “Agreement” system, where a singlenational private corporation makes comprehensivetechnical investigations and certifies building inno-vations, has been adopted with variations in over10 countries. The “Agreement” organization assesseslikely performance of factors not covered by exist-ing building codes. Its recommendations encompassthe design, manufacture, assembly, and installationof products. It also conducts research on testingmethods and quality control for manufacturing andbuilding erection procedures.

Dozens of energy rating systems have been de-veloped in the United States. For example, Califor-nia Utilities began rating new homes in the late1970s, providing builders with discounts on utilityconnection charges if their structures met minimumstandards of electric energy efficiency. The programsucceeded in attracting consumer interest in energyefficiency, but some building officials found the Cali-fornia rating systems “difficult to enforce”31 due totheir relative complexity.

Several other types of systems exist. Austin, Texas,has a “five-star” rating system for new houses. TheWestern Resources Institute has organized builders,bankers, insurance companies, and realtors into acoalition that provides an “Energy Rated Homes”label for units sold in western Washington; thisproject is designed to operate by industry consensus,not government intervention.32 Appraisals leadingto a rating are conducted much like standard ap-praisals.

The State of Florida has combined energy ratingwith a “minimum standards” approach. New homes,residential additions, or significant renovation mustsatisfy a minimum standard for energy efficiency,

~ocovernment of Japan, Ministry of Construction, Housing Produc-

tion Division, Quality Housing Co&onenK CerMication $\rs/ern, 1985,~INCSBCS, May 1986, op. cit.sZJav Luboff, private communication, February 1986.

———

84

which varies between three “climatic zones”; beyondthis threshold, houses receive grades that indicatefuture performance. However, as with the Califor-nia Utilities model, effective enforcement has beendifficult to achieve, especially in rural areas with lowlevels of construction.

Presently, California is considering a statewideenergy rating system. The California State BuildingCode mandates stringent energy-efficiency require-ments for new homes, which made obsolete the Statestandards set by the electric utilities and which ledto the abandonment of utility-based labeling pro-grams. The California code requires builders to sub-mit certification plans prior to approval. A computer-based analysis then determines whether the pro-posed structure meets minimum levels of energy per-formance. Since the computer-based analysis appliesto all structures receiving code approval in Califor-nia, labels with the number of “points” scored canbe supplied at no additional cost to the builder. Intwo demonstration municipalities, the State EnergyCommission has established a rating scale for exist-ing residential structures of 1 to 6, where 1 indicatesthe highest level of energy efficiency. Were thissystem applied on a statewide level, most existinghomes would receive relatively poor scores, illus-trating the benefits of purchasing a new home andaiding builders as a result.

Also, banks have been encouraged to considerenergy costs when reviewing a borrower’s ability topay. Standard rules call for an owner to pay no morethan 28 percent of his or her annual income for prin-cipal, interest, taxes, and insurance (PITI), but manylenders have abandoned this standard in the faceof skyrocketing housing costs. California loan offices,for example, now allow PITI to reach 32 percent ofa buyer’s income. If a label allowed lenders to projectthe energy bills associated with a home purchase,the rules could be extended to include PITI + E, orexpected annual energy bills. This would permitlenders and borrowers to integrate operating costsinto purchasing decisions with greater accuracy.However, few lenders have moved to consider suchquality features as energy efficiency, and the Fed-

eral Government has been slow to use its power asa secondary lender to encourage similar considera-tions. The Federal Home Loan Mortgage Corpora-tion (“Freddie Mac”) does account for energy effi-ciency when a borrower is on the borderline of thePITI equation; the Federal National Mortgage Asso-ciation (“Fannie Mae”) allows for an increase of twopercentage points—28 to 30, for example—in themortgage payment-to-debt ratio, if the home satisfiescertain energy requirements; other agencies havenot yet followed suit. Freddie Mac has indicated thatif projected energy costs could be specified withgreater accuracy, then the agency would considerincluding them as a loan determinant.

Other Measures

Four additional options were identified as poten-tially important, but were not investigated in detail:

1.

2.

3.

4.

Mandatory training and examinations for cer-tification of inspectors might be required for allbuilding inspectors. Enhancing the skills andprofessional qualifications of inspectors willimprove code enforcement. The model codeagencies and NCSBCS already offer training andexamination systems, and 10 States require in-spectors of manufactured buildings to take ex-aminations for certification. In fact, most States“strongly endorsed the need for mandatorytraining and certification examinations for in-spector and third-party personnel.”33

Design approvals for manufactured buildingsmight require reviews and signatures from reg-istered engineers.Improved quality control of factory production-lines for manufactured buildings could beachieved, perhaps borrowing and adapting tech-niques from other industries.Consumer participation in code-setting for man-ufactured buildings could be improved, and con-sumer complaint and appeal processes short oflawsuits could be facilitated.

qJCSBCS, May 1986, op. cit.

85

FOSTERING TECHNOLOGICAL INNOVATIONMany housing experts urge the U.S. Government

to play a more active role in promoting fundamen-tal building research. They claim that without suchstudy, the U.S. residential construction industry willbecome increasingly vulnerable to foreign compe-tition, and American homebuyers will continue toreceive less than their money’s worth. The argumentconcludes that because even the largest housingfirms cannot or will not conduct basic research, theFederal Government must make the kind of long-term commitment that has succeeded elsewhere.Sweden’s Council for Building Research, for exam-ple, spent $39 million on research in 1983, morethan three times as much as HUD, despite the factthat Sweden’s residential construction industry is ap-proximately one-twentieth the size of its Americancounterpart. The U.S. Government does support suchresearch in health and agriculture, both of whichare based on small establishments that lack the re-sources to conduct independent research. However,even the 100 large companies that produced 25 per-cent of all housing units in 1985 did not make sig-nificant investments in research. It may be time toreevaluate the historical “laissez-faire” approach tohousing research.

Research funds from the private sector, includingboth individual firms and trade and professionalassociations, have been inadequate in the past, anda change in this trend seems unlikely. Most largeU.S. homebuilding firms do not maintain a researchbudget, which implies a lack of industry confidencein the cost-effectiveness of technological innovation,at least in the short run. Professional associationsof architects and builders, like the American Insti-tute of Architects, conduct some research, but theirbudgets are minute in relation to the size of the in-dustry as a whole.

Trade associations do sponsor useful research. Forexample, the NAHB Foundation, Inc., has developeda research house to demonstrate advances in con-ventional construction techniques, has instituted cer-tification programs for manufacturers of buildingproducts, and conducts economic and regulatoryanalysis for public and private groups. Nevertheless,compared with the resources available to other U.S.industries of a similar size, this construction researchprogram is, at best, limited.

As for public funding, historically small agencybudgets have decreased even further. Still, severalagencies do sponsor relevant research, including theDepartment of Agriculture through its Forest Prod-ucts Laboratory, the Commerce Department throughthe Centers for Building Technology and Fire Re-search at the National Bureau of Standards, the De-partment of Housing and Urban Development, theDepartment of Energy, the National Science Foun-dation, and the National Institute of Building Sci-ences. However, due to poor coordination of theseactivities, research efforts have remained fragmentedand have fallen short of their potential.

HUD has not promoted aggressive policies forbasic housing research. A 1982 GAO report statesthat since 1974, “HUD has funded only one projectwhich demonstrated (in one geographical area) thecumulative cost saving potential of a wide combi-nation of innovative technologies.’’34 Some indus-try representatives assert that HUD’s research servesto back up or justify a proposed building regulation,and is seldom made public in any case, althoughHUD’s “Joint Venture on Affordable Housing”--initiated in several cities in 1982—has achievedlimited success.

Recognizing the need “to encourage all sectors ofthe building industry to devise voluntarily a moreefficient way of introducing technology into hous-ing and building,”35 Congress established the Na-tional Institute of Building Sciences (NIBS) in 1974.NIBS was designed to spearhead new housing-relatedresearch for the industry, a goal that has not yet beenachieved. This stems from the specific mandates thataccompany NIBS funding, as opposed to funding forthe kind of long-term, basic research that enabledJapan to develop its ceramic building material. In1979, NIBS issued a report that identified “the reg-ulatory environment” as the major constraint on re-search, development, and demonstration projects.The Institute attributed its own sluggishness to en-courage new technologies to a shortage of financialresources.36

~qceneral Accounting office. Op. ~lt‘5 Public Law 93-383‘6”A Study of Existing Processes for the introduction of New Prod-

ucts and Technolog~ into the Bu]lding I ndusto, ” prepared by’ TheEhrenkrantz Group for the National Institute of BuildlI~g Sclen~es, 1979

86

Summarizing its review of HUD and NIBS as of1982, the GAO observed that “the statutory author-ity given to HUD and the National Institute of Build-ing Sciences to encourage the development and useof innovative technology in homebuilding has beenreceiving only limited attention by HUD and the In-stitute. "37 Neither agency appears ready to promoteresearch and development of new homebuildingtechnologies or materials unless funds are earmarkedspecifically for this purpose.

Preparation of a comprehensive list of prioritieswould help to increase Federal support for housing-related research. Previous sections of this report havediscussed the need to integrate such research intoa program that considers the performance of an en-tire residential structure, in the areas of construc-tion, energy efficiency, safety, and comfort. In lightof this situation, a list of research priorities mightinclude the following:38

1. Analytical tools that could facilitate the designof low-cost structures. For example, most ex-isting computer models for evaluating heatingand cooling costs are difficult to use, and arenot tied to advanced building design systems.As a result, few architects or builders employsuch techniques.

2. Advanced manufacturing technologies, includ-ing a variety of numerically controlled produc-tion systems, which have been developed forother manufacturing industries and could beadapted for use in factory and field housingconstruction. New standards and communica-tion protocols have accompanied the introduc-tion of these innovations into other sectors,and the residential construction industry mayneed to repeat this process.

3. Analytical tools for determining the effect ofbuilding design decisions on energy consump-tion; present techniques for this purpose areinadequate. Improved estimates for buildingperformance in all types of warm-weather cli-mates are needed. Most existing methods can-

SIGeneral Accounting Office, Op. cit.jg.$ee National Institute of Building Sciences, “Building Technologies

Research Agenda: A Technical Report,” May 1985; a report entitled“Third Edition of a National Program Plan for the Thermal Perform-ance of Building Envelope Systems and Insulating Materials, ” BuildingThermal Envelope Coordinating Council, is in preparation. See also E.Hirst, et al., Energy Efficiency in Buildings: Progress& Promise (Wash-ington, DC: American Council for an Energy Efficient Economy, 1986),

not project the effect of different design alter-natives on peak electric loads of residences,and energy costs in many southern areas de-pend more on peak electric loads than on to-tal energy consumption. Also, more efficientanalysis of the implications of different win-dow locations, shadings and glazings, patternsof moisture penetration, noise propagation,and heat exchange could be developed.

4. Simplified and accurate methods of energylabeling, and improved techniques for project-ing energy costs. Financial institutions couldemploy this data in order to gain a better de-termination of a borrower’s ability to repay amortgage loan. The present system estimatesthe principal, interest, taxes, and insurance ona home, and measures this against a bor-rower’s expected annual income; adding pro-jected energy costs would provide for a moreaccurate equation.improved data on the actual performance ofdifferent energy efficiency strategies and con-struction techniques. Current information onlifetime operating experiences for different sys-tems, especially for residential construction,is poor; maintenance costs of industrializedhousing cannot be compared with conventionalconstruction techniques. For example, per-formance of insulation, sealants, and othermaterials is not well documented, and thedurability of residential retrofits is poorlyunderstood, Differences between the predictedperformance of structures and the actual fieldexperience need to be clarified.Improved techniques for characterizing theperformance of residential appliances, makingthe estimates of performance for these itemsmatch actual field experience with greater ac-curacy.

7. Techniques for integrating residential electricsystems with utility dispatch systems. Controlson individual appliances could also be im-proved.

8. Technologies of a variety of building compo-nents. Examples include glazing materials,high-efficiency lighting, water heaters with flue-gas condensation, heat-fired–or gas-powered—heat pumps, integrated appliances, and com-ponents like compressors and refrigerants.

9. Controlled interior air quality, which may be-come a critical public health issue, particularly

87

where significant amounts of radon from soilor groundwater have been introduced. Also,more study of interior air pollution is needed—especially of the sources of this factor, andof possible techniques for mitigating its effects.

10. Industry standards and tests, which could per-mit rapid, inexpensive analysis of the perform-ance and safety of new components andsystems.

Some industry analysts advocate the creation ofa quasi-governmental corporation to test and certifynew building technologies for construction. A sin-gle approval source for innovations in building tech-nologies could marshal public and private supportfor innovative development, especially to confrontproblems of technology transfer. Consensus stand-ards and model code organizations represent exist-ing industries, known product-lines, and currenttechnologies, and tend to resist technological change.Also, because new technologies do not assure cer-tainty in performance characteristics, there is justifi-able market resistance to unproven innovations.Homeowners prefer not to gamble with an enormouslifetime investment.

Consequently, one approach calls for existing in-stitutions to continue code setting for older, proventechnologies, while a new, quasi-public corporationwould test, approve, and promote newer buildingtechnologies. Such an institution would serve as aprestigious, unbiased source of information, whoserecommendations would be accepted by other in-stitutions.

The Center for Building Technology at the NationalBureau of Standards performs a similar function, con-ducting research for the development of testingstandards. The Center acted much like the proposed“quasi-public corporation” in its involvement withOperation Breakthrough. Another example is therelationship between the Federal Food and DrugAdministration (FDA) and the National ResearchCouncil (NRC) of the National Academy of Sciences.The NRC’s independent scientific reviews of phar-maceuticals provide the basis for actions by the FDA.

Stabilizing the Building Cycle

Variable housing construction rates in the UnitedStates impede long-term planning and heavy invest-ment in capital equipment and worker training, and

discourage long-term technological research. Twomillion housing units were started in 1978, as op-posed to under a million in 1982.39 Large invest-ments in production equipment can prove financiallyruinous during periods of low housing demand, asin the case of U.S. Home (see ch. 2). A strategy forevening the fluctuations in the housing cycle mayencourage greater capital investment on the part ofthe building industry. This discussion does not in-tend to provide a comprehensive review of this com-plex but important subject, but several options havebeen suggested for stimulating short-term housingdemand (see box B).40

Concerning the potential result of such policies,GAO observed that:

Past housing stimulus proposals have generallybeen thought to be inefficient because of a varietyof leakages arising from: (1) credit diverted to pur-poses other than housing; (2) windfalls to sellers;(3) purchases by buyers who receive the subsidybut who would have bought without it at roughlythe same time; (4) purchases by buyers who wouldhave bought later but move up their purchases.However, the last group, those who move up theirpurchase decision, are really doing what a stimu-lus proposal attempts to do—moving forward con-sumer decisions to buy at a time when housing isin a slump and reducing demand during the nextupswing in the economy. These consumers mayalso buy more expensive housing than they other-wise would have, which would tend to create morejobs and help the homebuilding industry. Whetheror not a stimulus program which would result inmoving consumer decisions is desirable dependsheavily on the economic outlook. If strong recov-ery is anticipated it may prove helpful to shift startsforward. If only a weak recovery is anticipated, shift-ing starts may yield an even weaker recovery. Theextent of these leakages have been heavily de-bated. 41

WU,S, Department of Commerce, Bureau of the Census, Sttitktkd Ab-stract of the L’nited States, 1984, p. 743,

WU, S, Congress, General Accounting Office, “Countercyclical Stlrn U-

Ius Proposals for Single-Family Housing,” Washington, DC, 1982, pp 7-8.~]lbid., P. 6 .

1 ,, “,

88

Appendix

Appendix

Contributions

This OTA special report was prepared from a varietyof sources. Steven Winter of the Steven Winter Associ-ates, Inc., New York, prepared most of the material deal-ing with international trade. David Dowall of the Univer-sity of California, Berkeley, and Edward Starostovic, PSFCorp., Wisconsin, contributed to the sections concerningdomestic housing production. Robert Gold, OTA, and Vin-cent Brannigan of the University of Maryland were pri-marily responsible for the sections addressing policy alter-natives; many of these concepts were proposed in aworkshop held by OTA (see inside front cover for par-ticipants). Janet Lowenthal, OTA contractor, helped tocombine the material into an integrated text. DanielChenok, OTA, conducted final research, revision, andediting.

Because the information collected by the Steven Win-ter Associates, Inc., constitutes the basis of chapters 4 and5 of this special report, it is appropriate to include theirstatement of methodology:

“In order to present an accurate picture of the state ofmanufactured housing internationally, and the most im-portant factors affecting it, Steven Winter Associates, Inc.,has drawn upon its knowledge of the manufactured hous-ing industry, as well as upon its extensive contacts withinthe industry.

“Preliminary analysis of the important questions con-cerning manufactured building internationally determinedthe most important areas for concentration. Informationon these areas was then gathered from a number ofsources:

● Steven Winter Associates, Inc.’s files,. publications-both of the housing industry and more

general publications,● foreign housing manufacturers’ literature,● foreign product manufacturers’ literature,• reports by others, and. foreign Consulates and Trade Associations.“In addition, individuals whose knowledge and opin-

ions of the field would be worthwhile were contacted. Dueto their positions, many of these individuals requestedthat their names be kept confidential. Altogether, over50 persons were contacted, from various fields:

●

●

●

●

●

experts within the manufactured housing industry,domestic builders with experience in internationalmarkets,foreign manufacturers of building systems and theirsales representatives,building products manufacturers, andtrade representatives from other countries.

“The information gathered has been compared and ana-lyzed in order to arrive at an understanding of the cur-rent state of manufactured housing and its trends. It wasbeyond the scope of this study to present an exhaustivereport on each country considered, although such infor-mation will be presented where it is considered impor-tant for a basic understanding on the issues. Rather, wehave tried to focus on the most important facts and toraise the most important issues, especially concerningthose countries that will probably have the greatest rolein the international manufactured building market.”