Technology, Trade, and the U.S. Residential

Construction Industry

September 1986

NTIS order #PB87-117594
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Technology, Trade, and the U.S. Residential

Construction industry-Special Report, OTA-TET-315 (Washington, DC: U.S. Government Printing Office, September 1986).

Library of Congress Catalog Card Number 86-600575

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

New technologies, and the expansion of international trade, have created a new framework for the U.S. economy. Within this broad setting, America’s residential construction

industry is changing as well. Technology has affected both building techniques and the nature of the home itself. Specifically, factory-based production allows for greater use of advanced automation, and a wide range of technologies that improve comfort while reducing

energy 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 for

research has impeded America’s ability to upgrade housing quality, and to hold its own against

aggressive and sophisticated overseas builders.

This special report is part of a larger OTA project that analyzes the effects of technological change on the structure of the domestic economy, on international trade, and on options

for public policy. Home construction’s importance to the study stems from the fact that although housing accounts for over 27 percent of personal spending, ownership of attractive

residences remains beyond the reach of many American families. The quality and cost of

the factory-built home, and the number of jobs generated by the industry, will be strongly

influenced by whether the United States takes full advantage of developing technology.

The House Banking Committee requested that OTA expand its analysis to include regulatory alternatives that might encourage the research and development of new technologies.

Pressures to revise currently decentralized and fragmented U.S. housing policies have risen

over the last several years. Coordination of State and local building codes, and Federal standards established by the Department of Housing and Urban Development, will change along

with the changing structure of the industry. We trust that this special report will help Congress to recognize how existing statutes may operate in a new environment, and to update

these guidelines if necessary.

Director
List of Reviewers

H.E. Blomgren

President

National Manufactured Housing Federation

Washington, DC

Don O. Carlson

Editor & Publisher

Automation in Housing and Manufactured Home

Dealer

Carpinteria, CA

David Claridge

Professor

University of Colorado

Boulder, CO

Henry E. Collins

Vice President, Governmental Affairs

Underwriters Laboratories, Inc.

Northbrook, IL

Eric Dluhosch

Associate Professor

Massachusetts Institute of Technology

Cambridge, MA

Charles G. Field

Staff Vice President, Construction and

Development—Regulatory Counsel

National Association of Home Builders

Washington, DC

Earl Flanagan

Chairman, Technology Management Board

Washington, DC

Danny D. Ghorbani

President

Association for Regulatory Reform

Washington, DC

Robert E. Heggestad

Casey, Scott & Cansfield, P.C.

Attorneys at Law

Washington, DC

Richard Hibbert

Technical Advisor, Code 08B

Naval Facilities and Engineering Command

Alexandria, VA

Richard P. Kuchnicki

President

Council of American Building Officials

Falls Church, VA

James C. Nistler

Deputy Assistant for Single Family Housing

U.S. Department of Housing and Urban

Development

Washington, DC

Joseph F. O’Neill

Executive Director

American Council of Independent Laboratories,

Inc.

Washington, DC

Henry B. Schechter

Director, Office of Housing and Monetary Policy

American Federation of Labor and Congress of

Industrial Organizations

Washington, DC

James W. Tucker

President and Chief Executive Officer

ETL Testing Laboratories, Inc.

Cortland, NY

Frank Walter

Vice President, Technical Activities

Manufactured Housing Institute

Arlington, VA

Robert C. Wible

Executive Director

National 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, however, 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 Industry

OTA Project Staff

Lionel S. Johns, Assistant Director, OTA

Energy, 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 Inspections

for Manufactured Housing and Related Nonresidential Buildings, Apr. 9, 1985

Participants

Henry E. Collins

Vice President, Governmental Affairs

Underwriters Laboratories, Inc.

Northbrook, IL

William M. Connolly

President

National Conference of States

Trenton, NJ

Charles G. Field

Staff Vice President, Construction and

Development–Regulatory Counsel

National Association of Home Builders

Washington, DC

Ray J. Gans

Chairman, Technical Activities Committee

Member, Executive Committee

Manufactured Housing Institute

Syracuse, IN

David A. Harris

Vice President for Technology

National Institute of Building Sciences

Washington, DC

Rick A. Howell

Director, Building Codes and Regulatory Services

State of South Carolina

Columbia, SC

Gerald H. Jones

Former President

Council of American Building Officials

Kansas City, MO

Richard P. Kuchnicki

President

Council of American Building Officials

Falls Church, VA

James Mitchell

President

Mitchell Brothers Contractors

Birmingham, AL

Frank Walter

Vice President, Technical Activities

Manufactured Housing Institute

Arlington, VA

Stanley Warshaw

Director, Office of Product Standards Policy

National Bureau of Standards

Gaithersburg, MD

Robert C. Wible

Executive Director

National Conference of States on Building Codes and

Standards, Inc.

Herndon, VA

Observers

T.R. Arnold

President

T.R. Arnold & Associates, Inc.

Elkhart, IN

H.E. Blomgren

President

National Manufactured Housing Federation

Washington, DC

Vincent M. Brannigan

Department of Textiles and Consumer Economic

University of Maryland

Adelphi, MD

Howard P. Gates, Jr.

Consultant

Lake of the Woods

Locust Grove, VA

James McCollom

Director

Manufactured Housing and Construction Standards

Division

Washington, DC

Ed Starostovic

President

PFS Corp.

Madison, WI

Steven Winter

President

Steven 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 workshop

participants do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and

the accuracy of its contents.

vi
Contents

Chapter Page

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 United

International Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Policy Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Improving the Fragmented System of Housing Regulation and Its

in 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 . . . . . . . . . . .

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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, Western

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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3

4

4

5

6

6

7

7

8

8

11

13

13

16

18

18

18

20

20

21

21

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23

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24

25

26

27

27

27

31

31

31

32

33

35

35

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38

43

44

45

46

47

47
Contents—continued

Chapter Page

Great Britain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

West Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

5. International Competition in Industrialized Buildings, Components,

and Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Trade Factors Affecting Exports to the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Currency Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Availability of New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Idle Plant Capacity and the Decline in Existing Markets . . . . . . . . . . . . . . . . . . . . . . . . 52

Experience in International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Foreign Government Policies Affecting International Trade in Housing . . . . . . . . . . . . . . 53

Overall Strategies and Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Market information and Trade Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Financial Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

impediments to Market Penetration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Changes in the International Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Lack of Understanding of American Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Lack of Knowledge of Optimal Business Relationships . . . . . . . . . . . . . . . . . . . . . . . . . 54

Difficulties in Locating Interested U.S. Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Materials Acceptance Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Problems of Materials Testing and Acceptability of Foreign Standards . . . . . . . . . . . . . 55

Building Codes and Inspection Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Trade Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Lack of Understanding of Real Estate Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Shipping Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

import Possibilities for Various Building System Types... . . . . . . . . . . . . . . . . . . . . . . . . 56

Precut Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Panelized Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Concrete Panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Steel-Framed Panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Wood-Framed Panels... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Spandrel Panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

European Penetration of U.S. Panelized Systems Markets . . . . . . . . . . . . . . . . . . . . . . . 58

Wet Core Modules/Control Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Modular Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

“Manufactured’’( Mobile) Home Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Manufacturing Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Foreign Investment and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Joint Ventures With U.S. Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Foreign Development and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Materials, Components, and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Impediments to U.S. Penetration of Overseas Housing Markets . . . . . . . . . . . . . . . . . . . . 63

Increased Competition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Lack of Understanding of Foreign Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

. . . Vlll
Contents—continued

Materials Acceptance Problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Building Codes and Inspection Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Trade Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Lack of Experience in International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

International Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Distance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Lack of U.S. Government Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Incentives and Opportunities for U.S. Penetration of Overseas Markets . . . . . . . . . . . . . 65

Exportation of Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Marketing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Possible New Incentives for Trade by the U.S. Government . . . . . . . . . . . . . . . . . . . . . 66

6. Government’s Role in Facilitating New Technology . . . . . . . . . . . . . . . . . . . . 69

Factors Impeding Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

The Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Inadequate Study of Total Building Systems and Information Dissemination . . . . . . . 70

Fluctuations in the Building Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Housing Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

The Current Regulatory Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

The HUD Code System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Criteria for a New Regulatory System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Alternative Regulatory Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Fostering Technological Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Stabilizing the Building Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

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

Tables

Table No. Page

1.

2.

3.

4.

5.

6.

7.

8.

9

10

11

12

13

Factory Construction as a Percent of All Residential Construction

in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Comparison of Mobile Home Shipments and Sales of Single-Family Site-Built

Homes for Under $50,000, 1977-83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Top 25 Homebuilders by Units Produced, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

The Nation’s Top Producers of Mobile Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Percentage of Work Force in Various Skill Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Approximate Cost Breakdown for New Single-Family Homes . . . . . . . . . . . . . . . . . . . . . 36

Construction Time Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Cost and Size Comparisons of "Manufactured” (Mobile) Homes and

Site-Built Homes Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Percent of ’’Manufactured” (Mobile) and Site-Built Homes With Various Problems . . . . 38

Comparison of the Top Five Factory Housing Companies in Japan, 1983 . . . . . . . . . . . 44

Factory Home Construction in Japan (as a percent of all home construction) . . . . . . . . 45

Factory Construction of Single-Family Homes in Sweden

(as a percent of all single-family home construction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Compliance With Acceptable Quality List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Contents—continued

Figures

Figure No. Page

1. Exploded View of a “Manufactured” (Mobile) Home Resting on a Chassis . . . . . . . . . . . 14

2. Home Ownership by Income Cohort for 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3. Double-Wide Modular Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

4. Diversification Trends of Component Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

5. Component Framing Assemblies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

6. A Model of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

7. Residential Building Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

8. Total Number of Employees in the Mobile Home industry (SIC 2451) and the

Prefabricated Wood Buildings Industry (SIC 2452). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

9. Production Workers as a Percent of Total Employment in the Mobile Home Industry

(SIC 2451) and the Prefabricated Wood Buildings Industry (SIC 2452) . . . . . . . . . . . . . . 33

10. Average Hourly Earnings of Employees by Industry Sector . . . . . . . . . . . . . . . . . . . . . . . 35
Technology,

and the

Chapter 1

Trade,

Future

of the U.S. Housing

Construction Industry
Chapter 1

Technology, Trade, and the Future of the

U.S. Housing Construction Industry

While technical change in the U.S. construction

industry has proceeded more slowly than forecasters

once predicted, the past two decades have witnessed

significant progress in the technology of the house

itself, and in that of the appliances installed. These

improvements have made structures easier and less

expensive to build, and reduce energy and other

operating costs. New equipment and housing designs

can make interior spaces more comfortable, can permit greater control over the quality of indoor air, and

can offer a variety of other amenities. New information technologies can integrate the network of diverse firms involved in construction. Such innovations can make it easier for prospective homeowners

to find housing commensurate with their individual

tastes, and may even allow them to participate in

the design of the house to be purchased.

Has the U.S. housing industry taken adequate

advantage of technologies that have improved quality and reduced costs in other industries? Might a

shift to modern production technology reshape the

domestic housing industry, change economies of

scale and scope for individual businesses, and affect the number and nature of the jobs offered by

the industry? If the industry comes to resemble other

U.S. manufacturing industries, the potential for international trade in construction increases; how will

the domestic industry fare against competition from

sophisticated foreign producers of housing components and production equipment?

This report explores these questions in order to

determine whether changes in public policy maybe

needed to keep pace with technical change, particularly for smaller residential units. As home building comes to resemble other manufacturing industries, and as it grows from a local enterprise to one

with regional, national, and international concerns,

it is necessary to consider whether policies regulating home production should be commensurate with

regulations that guide other types of factory production. Programs to subsidize home purchases, to conduct technical research, to establish fire and safety

regulations and government procurement, and more,

have a significant effect on the housing that reaches

the American public. At present, however, housing

policy in the United States is fragmented and lacks

central coordination. It does not respond to the

changing needs of the housing construction industry.

Technical change in the U.S. housing industry has

not taken the form of a revolutionary shift from craftbased field erection techniques to factory-based production. Change has instead followed a complex and

diverse course that is virtually impossible to document with precision. Most new homes built in the

United States today use prehung windows and doors,

and factory-made roof trusses or floor joists Wall

panels and large three-dimensional modules are

shipped to construction sites and assembled rapidly.

Traditional “manufactured” (mobile) homes are constructed in factories that operate with improved production equipment. While statistics are confusing and

often contradictory, it appears 10 to 35 percent of

all new single-family homes built in the United States

were constructed in factories—25 to 50 percent, if

“manufactured” (mobile) homes are included. In

many cases, however, the “factory” construction

techniques used in the United States do not take

advantage of the mass-production devices employed

in the manufacture of products ranging from toasters

to automobiles. These housing factories typically employ semiskilled workers in facilities where capital

investments per worker fall below the standards of

other production industries.

A number of foreign firms have moved aggressively into the business of producing housing components. Imported homes and joint ventures with

foreign housing producers already exist in Texas,

Florida, Massachusetts, Maine, New York, Rhode Island, Michigan, Minnesota, and Wisconsin. The

Scandinavian nations and Japan lead in this area.

while most foreign techniques do exist in the United

States, many of these foreign producers have more

experience in the use of modern production equipment for housing. Several foreign firms are large and

efficient by U.S. standards. Some are parts of manufacturing concerns with access to elaborate research

3
4

facilities and huge engineering staffs, and with experience in production engineering. In particular,

Japanese and Swedish firms benefit from both highly

automated factories and substantial governmentsponsored research programs. Swedish, Finnish, British, Norwegian, and other foreign firms also have

extensive experience in exporting their products to

the Middle East and elsewhere. These firms may

soon penetrate U.S. markets with housing components, and may license technology to domestic producers, Foreign firms have already penetrated domestic markets for kitchen equipment, especially

appliances. Japanese air-conditioners and refrigerators, and components of these appliances, have

moved rapidly into domestic markets, while U.S. exports of appliances have stagnated.

THE IMPACT OF FACTORY CONSTRUCTION

Factory-based home construction technologies

could affect both housing production techniques and

the

●

●

●

●

nature of the homes produced. Specifically:

Improvements could be made in both uniform

quality standards and energy efficiency for

homes. Written guarantees of quality can be provided more easily.

Computer-assisted design methods could give

prospective purchasers greater control over the

products they buy, and a greater ability to understand the relationship between added amenities and added costs.

Overall construction times could be reduced.

Factory-made components place a finished

house on a foundation in 1 to 10 days. Among

other things, this savings in construction time

might reduce seasonal variations in construction rates.

The role of large firms could be increased.

● The overall labor productivity of construction

could be increased, thereby reducing net labor

requirements.

● The skill levels of workers could be upgraded

in order to operate complex production equipment. On the other hand, skill requirements

might also be reduced if firms opt to design production around minimum wage workers.

Changes in the construction industry are extremely

difficult to document because of the way that statistics are maintained. For example, some data on

factory construction of housing components are combined with information on several other manufacturing industries, under the general area of “fabricated wood products.” While anecdotal evidence

supports statements about changes in such areas as

skill levels in construction and the quality of different types of construction methods, reliable statistics

are almost nonexistent.

Smaller firms can serve as independent siteassemblers of manufactured products, or as franchised agents of major producers.

BARRIERS TO THE ADOPTION OF NEW HOUSING TECHNOLOGY

IN THE UNITED STATES

U.S. firms have been slow to adopt innovations

in the production of housing for a variety of reasons:

●

. Wide swings in the demand for housing, resulting from the business cycle, changes in mortgage rates, and seasonal variations in home construction rates, make it difficult to justify large

capital investments. It is far easier to maintain

flexibility by laying off workers during slack

periods.

The regulation of housing in the United States

developed in an environment where most

builders were small firms operating in local markets. Housing regulation remains a State and

local prerogative. Thousands of local code variations make it difficult for a single firm to oper-
5

ate in a market large enough to justify “economy of scale” production facilities. Interestingly,

similar fragmentation in the appliance industry has led manufacturers to support strict Federal preemptive standards, which would negate

the effects of conflicting State and local codes

and would facilitate industry expansion.

The industry is so fragmented and diverse that

little research is conducted to improve the tech- ●

nology of either the structures produced or the

manufacturing process. Government support of

construction-related research is virtually nonexistent.

The economic advantages of factory construction have not been clearly documented in the

United States, although a number of anecdotes ●

suggest that significant savings in labor and materials may be attained through improving construction techniques. But competition with conventional construction techniques has proven

difficult in regions where conventional costs

have remained low because employees will

work for modest wages, with little job security.

Also, the U.S. housing market has not put a

premium on the quality that can be offered by

factory construction.

Housing markets in the United States have traditionally associated factory production with lowcost, low-quality, “prefab” units. In Sweden and

Japan, however, factory construction has been

marketed successfully because of its association

with high reliability and high quality, as well

as with advanced production techniques.

Most homebuilders in the United States are too

small to make the capital and engineering investments necessary to automate production.

INTERNATIONAL COMPETITION

Foreign penetration of the U.S. housing and manufactured building industries is most likely occur in

the following areas:

● Panelized Building Systems.—Some foreign

companies, especially the Scandinavians, will

find profitable market niches, particularly in the

Northeast and in areas of the country where

high-quality material finishes, competitive

prices, high insulation levels, and the “Nordic”

mystique will prove salable. Substantial overall market penetration in the next few years is

improbable. However, foreign technological

developments—especially in Japan and Sweden

—should be monitored closely, as should American market attitudes and trends.

● Appliances. —While the United States has enjoyed a favorable trade balance in residential

appliances for many years, the terms of trade

may be reversing. In fact, between 1979 and

1984, U.S. real dollar exports of household appliances declined by approximately 30 percent,

while real dollar imports increased by over 67

percent. The Japanese are beginning to sell

products ranging from room air-conditioners to

refrigerators to high-efficiency light bulbs. Competition is likely to increase as living standards

in Europe and Japan change in ways that make

●

domestic markets for appliances more similar

to those of the United States. At present many

imported appliances have qualitative advantages over competing U.S. products, particularly

in the area of energy efficiency.

The impact of these developments is already

being felt. Many appliances produced in the

United States now contain high-value components, such as compressors, that are manufactured abroad. General Electric, the largest domestic producer of room air-conditioners, has

announced that it will phase out operations at

its main Louisville factory, and Carrier has

drastically curtailed production in New York.

Wet Cores.—While foreign wet core modules

that combine plumbing, wiring, bathroom and

kitchen fixtures, appliances, cabinets, electronic

space conditioning, and communications controls have not yet made a significant appearance

here, they would be cost-effective products for

many foreign manufacturers. Custom cabinetry, bathroom fixtures, and electronic gadgetry

are some of the housing components that have

already proven attractive to U.S. homeowners.

It may make economic sense for foreign manufacturers to combine these elements into

“smart” modules with exotic designs and

finishes.
6

● Materials, Components, and Equipment.—Foreign building-related products, including windows, kitchen cabinets, mechanical equipment,

roof and floor tile finishes, and accessories, will

gain an increasing share of the U.S. market. Although it is not within the scope of this report

to provide research in this particular area, the

potential impact on U.S. markets of foreign manufacturers may be significant. Several U.S. manufacturers assert that little organized or industrywide research has been conducted in this

area.

● Investors/Developers. –A significant amount of

foreign money has come into the United States

for real estate development, most recently for

the purchase of U.S. construction and design

firms by foreign companies. In fact, heavy foreign investment has contributed significantly to

the growth of the U.S. economy, despite the

enormous balance of payments deficit. This

trend will continue.

In some cases the purchase of a U.S. company has

facilitated the entry of foreign companies into American markets by providing valuable insight into business trends. This purchase also allows the U.S. firm—

and as a result, the foreign owner—to compete for

U.S. Government projects nominally set aside for

American companies.

Currently, few opportunities exist for U.S. firms

to compete in overseas markets; the overall international construction industry has decreased in size

over the past several years. Even within this restricted market, the relative share of U.S. firms has

fallen. Factors affecting this trend include:

●

●

●

●

●

●

●

●

increased competition from foreign contractors,

lack of knowledge and experience in international trade,

problems concerning building materials and

building codes,

trade restrictions,

volatile political conditions in many foreign

countries,

corruption of foreign officials,

distance from the United States to potential markets, and

lack of U.S. Government support for trade initiatives.

Raw materials, such as wood and lumber, represent the only significant building-related export opportunity on the horizon for the United States. The

only possibility for exporting U.S. manufactured

buildings would be through assembling packages

that combined buildings with project financing.

Given appropriate investment in production and

product design, U.S. firms could regain export markets for advanced appliances, controls, and other

electronic equipment.

POLICY ALTERNATIVES

This document examines several possible remedies for the problems of the U.S. housing construction industry.

Improving the Fragmented System

of Housing Regulation and Its

Enforcement in the United States

At a recent conference hosted by the National

Association 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 and

Code Administrators International and the lnte~national Conference of

Building Officials, and the Southern Building Code Congress international.

while there had been significant improvement

over the years in administering and enforcing building codes, there were still disparities from one jurisdiction to the next in the way in which model building codes were adopted, interpreted, amended and

enforced, which tends to defeat the primary purpose of creating uniform model building codes in

the first place . . . the lack of reciprocity among regulatory jurisdictions and even the poor coordination among enforcement authorities within the

same jurisdiction created unnecessary and costly

delays in construction and thwarted the timely

acceptance of new, cost-saving technologies.2

Zcouncil of American Building Officials, News Release, March 1986,

Falls Church, VA.
7

Furthermore, some housing producers have complained about discrepancies between State transportation codes concerning truck loads, which discourage industry expansion.

Regulation can be made more uniform in several

ways. First, the Federal Government could play a

more active role. This might be done through a

modification or expansion of the existing national

HUD code system for regulating the production of

“manufactured” (mobile) homes,3 although this system should be examined carefully before it is applied to other categories of housing. Second, a new

system of uniform national standards could be devised, which could be either mandatory or constructed so that States would voluntarily elect to enter

the Federal framework. Third, a series of State compacts and reciprocal agreements could be established, and encouraged by the Federal Government.

Fourth, private systems could be implemented.

The meeting of home builders and code officials

cited above endorsed a plan that would be administered by the States. A single code would be adopted

by each State, and a uniform program of enforcement would be developed. ‘(The code would be mandatory for all factory produced housing and all sitebuilt housing constructed in jurisdictions currently

using building codes. "

4 A key element would be

reciprocity, in which each State would accept the inspections of housing components conducted by other

States.

Other options for action by regional groups or by

the Federal Government include: developing systems

in which third-party inspectors, such as Underwriters

Laboratories, could undertake a larger share of the

burden of inspection; providing support or guidance

in training local inspectors and regulatory officials;

providing assistance in the creation of new standards; and developing testing equipment to monitor

these standards.

Any action that reduces the fragmentation of U.S.

housing markets is likely to benefit large American

construction firms, and may make domestic markets

3The Housing and Community’ Development Act of 1980 (Public Law

96-399) required that the term “mobile home” used in the statute estatjlishing HUD’s current mobile home inspection s~stem be changed to

“manufactured “ This congressional intervention in semantics 15 admittedly confusing See ch. 2 for a discussion of the nomenclature used

to 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 minimum standards.

Revising the Current Process of

Inspection for “Manufactured”

(Mobile) Homes

Serious questions have been raised about the adequacy of the HUD inspection system even in its

present form. A recent HUD-sponsored survey of

“manufactured” (mobile) homes covered by HUD

regulations found:

... an average of approximately 6.5 reported and/

or observed problems per house which were identified in 78 or 96 percent of the houses inspected

. . . Sixty-five (65) or approximately 80 percent of

the houses had additional problems which were observed by the field inspectors and had not been,

in most cases, reported in the earlier [telephone]

survey . . . The number of problems reported in the

survey raised questions regarding the integrity and

quality of the houses which were produced during

the 1977-1981 time period covered by this sample.

The concern raised is validated by the number of

affected houses and the number of problems observed by the field inspectors.;

The report concluded that “HUD should consider

revising the Federal Standards to address long term

requirements for material performance . . . [Inspectors] should increase the attention given to workmanship on the production line, and increase their

observations of in-plant testing.”6 If a national strategy is developed to improve regulation and enforcement systems for factory-built housing, it may be necessary to integrate regulation of “manufactured”

(mobile) homes into the new system.

Labeling Building Quality

Labels that provide specialized information about

the housing construction industry to potential buyers,

bankers, and insurance firms can lead to technical

‘Resources Applications, Designs & Controls, lnc (RADCO), “Final

Report for Durability’ in Manufactured Homes,” HUD Contract H-1 [)992,

Dec. 27, 1985, p. 77

blb]d., p. 4.
8

improvements without mandating proscriptive regulation in areas not essential to health and safety.

Labels might indicate that structures or components

meet a fixed threshold of performance, much like

the home energy rating systems now in place in a

number of States and cities, or like the Japanese “Better Living” label that qualifies building components

for group insurance. Energy efficiency labels could

help purchasers make choices about houses in much

the same way that miles-per-gallon stickers on automobiles or energy efficiency labels on refrigerators

assist consumer decisions.

Increasing Government Support of

Research in Building Technology

Despite the importance of research to the national

economy, and its role as a major employer, neither

the U.S. housing industry nor the U.S. Government

have supported major research efforts to improve

housing products or to upgrade the methods by

which houses are built. While many component

manufacturers have conducted significant studies,

there is little support for an examination of how the

house operates as an integrated unit to enhance human comfort. Misawa Homes of Japan spent 1.5 percent of its 1984 sales on research. Sweden, with a

population of 9 million, spends more on housing research than the United States.

Several methods may accelerate technical progress

in housing. Research alone will not automatically

lead to a more productive, competitive industry, but

it is an important ingredient for success. The National

Conference of States on Building Codes and Standards (NCSBCS) notes that:

Progress cannot be made in the use of new safe

technologies in the building field without adequate

funding of generic research, such as that done by

the National Bureau of Standards.7

Reducing Excessive Changes

in Housing Demand

Several techniques have been proposed for providing a “countercyclical” stimulus to the industry

through counter-cyclical incentives and other methods. These include temporary interest reduction for

housing loans and permanent interest reduction for

loans to low-income families; tax credits for buyers

of new or renovated homes, and for mortgage firms

that encourage housing development; and buyer subsidies via tax-exempt mortgage revenue bonds.

While this issue will be addressed, a comprehensive examination of counter-cyclical alternatives is

beyond 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. Housing

Construction Industry

industrialized building techniques have grown in

importance throughout the postwar period, and factory-built housing has gained a significant market

share in many industrialized countries. However, inconsistencies in available data make international

comparisons difficult to formulate. In the United

States, 10 to 35 percent of all housing is now supplied from components produced largely in

factories—25 to 50 percent, if “manufactured” (mobile) homes are included. Although “manufactured”

(mobile) homes are virtually unknown outside the

United States, several other countries produce a significant fraction of all housing in factories. Approximately 90 percent of Swedish single-family housing

and 15 percent of all Japanese housing is factorybuilt; in Japan, the factory share is growing rapidly.

Foreign developments will be discussed in more detail in chapter 4.

It is difficult to document the movement from “conventional” to “factory” construction techniques, due

to the enormous variety of construction techniques

now in use. Virtually all home construction employs

some kind of factory-built component, such as prehung windows, doors, or roof trusses. On the other

hand, even “modular” homes, which emerge from

factories with bathroom fixtures in place and wallpaper on the walls, require some onsite work. The

confusion over definitions has been compounded by

the fact that the term “manufactured housing” is defined 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 a

factory, to be erected as a package on a construction site. The term will not cover components such

as trusses or wall panels. At the turn of the century,

the term “industrialized housing” referred to use of

framing lumber produced in a lumber mill, as opposed to the prevailing hand-crafted site assembly

of logs. We now call that “stick-building,” and refer

to factory-prepared housing as “industrialized.” The

‘ Put)]lc law 96-399, SW 308

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

Confusion over terminology translates into a statistical disparity, which raises questions about levels

of industrialization within the industry. This can be

seen by examining the two principal sources of information about factory construction in the United

States (displayed in table 1). First, while the two estimates of total unit sales and total “manufactured”

(mobile) home sales are close, estimates of sales in

panelized housing differ by 350 percent. In modular/sectional housing, estimates differ by a factor of

2. Undoubtedly, most of the differences derive from

conflicting definitions. Some of the “production

builders” reported in Automation in Housing and

the “industrialized builders” reported in The Red

Book construct panels and subunits in their own facilities. Others build temporary “factories” near largetract construction areas. Some simply use site-built

construction techniques in warehouses, and then

transport partially completed wall sections to the

building, The two surveys document these activities

in different ways.

The statistics also differ in that the Automation in

Housing report presents a stratified sample of

builders based on telephone surveys, while The Red

Book data is derived from a mailed questionnaire.

Using the Automation in Housing definitions and

methods, nearly half of all U.S. homes are now constructed with factory-based techniques. Both data sets

show that the share of “manufactured housing” (mobile homes) seems to be countercyclical, in that sales

increase when the overall housing market declines.

There was a significant drop in “manufactured” (mobile) home sales between 1972 and 1976, and sales

also fell during the housing recovery of 1984 to 1985.

The drop in sales during the early 1970s was due

in part to the passage of statutes regulating “manufactured” housing at a national level. Use of other

factory construction techniques, however, increases

steadily in the Automation in Housing statistics,

while The Red Book data indicate a decline in panelized 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 1

6 6 7 5 4 3 4 4

2 2 2 3 3 2 3 3

12 14 14 18 18 15 15 14

10 10 10 10 13 13 14 13

48 45 43 42 36 38 36 37

1 1 1 0 1 1 1 1

20 20 22 21 24 26 27 27

22 24 25 28 27 22 23 23

10 10 10 10 13 13 14 13

68 66 65 63 61 65 63 63

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,296 2,026 1,526 1,327 1,292 1,992 2,000 1,900

NOTES: 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 foundation

with aminimumof on-site Iabor’’lndustrialized builders are ’’real estate developers and builders ,, using industrialized building techniques whenever they

are 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 design principle of a “manufactured” (mobile) home.

This integrated structural unit consists of four major subassemblies, into which are incorporated several mechanical service systems: the chassis, and the

floor, wall, and roof systems. Nonstructural assemblies include such units as cabinets and windows.

Figure 1 provides an exploded view of a “manufactured” (mobile) home, resting on a chassis.

Single-wide “manufactured” (mobile) homes are

completed in the factory. However, multisection

homes generally consist of three walls, a roof, and

a floor, all of which are joined at the site. The arrangement of sections at the building site allows for

greater flexibility in floor plan designs. Both single

and multisection homes conform to maximum highway width loads—typically 14 feet. The Manufactured Housing Institute’s 1985 publication Quick

Facts reported that 29 percent of all “manufactured”

(mobile) homes shipped in 1984 were multisection

homes. Due to their large size, these homes may

overlap markets for other types of industrialized

housing.

According to a recent study of the “manufactured”

(mobile) home industry, construction processes for

these units can be divided into three basic activities: assembly, or the actual construction of product units; material storage of supplies, components,

or product units until they are used in the production process or are shipped from the plant; and material handling, or the transportation of materials for

storage, shipping, or use in assembly activities.2 Each

phase must be carefully coordinated and integrated

within the production system in order to complete

the unit successfully.

The typical “manufactured” (mobile) home plant

is housed within a single-story “manufactured” metal

building with an average floor area of 64,000 square

feet. Normally, plant layouts and assembly lines fall

into three different types: straight, L-shaped, and Ushaped. Subassembly and storage areas are located

in designated areas around the periphery of the assembly lines. Units move along the assembly lines

either end-to-end or side-by-side. The side-by-side

placement method has become prevalent, as it permits more efficient factory space utilization. Furthermore, the side-by-side arrangement is desirable for

producing 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 alignments and closer tolerances.

The Manufactured Housing Institute estimated that

in 1983, approximately 185 firms shipped “manufactured” (mobile) homes from 410 factory sites. The

average number of units shipped per plant was 582.

With material costs accounting for 65 to 70 percent

of the total cost per unit, more efficient material purchases can substantially improve the cost performance of a given production facility. Firms with many

plants can realize even greater economies of scale.

Most “manufactured” (mobile) home plants follow

a sequence of basic assembly operations. Production of the “manufactured” (mobile) home unit proceeds from the bottom up and from the inside out,

beginning with the chassis frame and moving to the

floor, wall, and roof assemblies. As the unit moves

along the main assembly line, subassemblies are added at the appropriate points. Some manufacturers

purchase subassemblies and components from other

companies. The extent to which subassemblies and

components are fabricated in the plant depends on

such factors as the availability of labor and materials, local shipping costs, and the proximity of suppliers.

Normally, 1 to 3 days are required to assemble

a “manufactured” (mobile) home, depending on market demand, plant facilities, and unit specifications,

with an average of 250 man-hours per unit. Most

workers operate in crews, and are responsible for

a specific assembly or fabrication operation on a

rotating basis.

Once assembly operations are completed in the

factory, the units are transported to the homesite,
15

to a builder/dealer’s display lot, or to a storage facility. The units’ chassis are attached to trucks, and

can be transported within a radius of approximately

500 miles. From the manufacturer’s point of view,

however, the “feasible” shipping radius depends on

market demand, transportation costs, and the location of competitors. The truck is the most economical means for transporting “manufactured” (mobile)

homes, although several manufacturers have used

rail and ship transport. The dealer installs approximately two-thirds of the units sold.

Upon reaching the site, the “manufactured” (mobile) home is positioned, unlatched from the transport vehicle, and stripped of its wheels. For multicomponent “manufactured” (mobile) homes, sections

must be positioned and joined. Finally, the unit is

connected to utility and sewer systems. Less than

15 percent of the units installed between 1970 and

1976 had been moved from their original location

by 1983.3 Approximately 7 percent of the owneroccupied units and 4.5 percent of the renter-occupied

units are installed on permanent foundations, and

another 12 to 15 percent are installed on a concrete

pad. The remainder rest directly on blocks, without

a concrete pad.4 Multisection units have declined in

importance, after peaking at about 25 percent of all

units sold in 1978. By 1983, they represented less

than 15 percent of the units shipped.5

“Manufactured” (mobile) homes serve a relatively

well-defined market niche. With an initial price per

square foot of about 60 percent of a site-built house,

they are the principal choice of families looking for

housing with an initial cost of under $50,000.6 Table 2, based on data published by the Manufactured

%’estat, I nc , “,Analysi\ of the Ann IIal Fious]ng Data (AHS) Pert~]nI 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, “manufactured” (mobile) homes captured 82 percent of the

market for single-family homes valued at less than

$50,000–an absolute increase of 44 percent from

the market share of 38 percent in 1977. This significant increase did not result from a surge in “manufactured” (mobile) home production; rather, the total number of site-built homes selling for under

$50,000 declined from 433,000 units in 1977 to only

65,000 units in 1983.

Figure 2 compares the income characteristics of

families living in “manufactured” (mobile) housing

with that of all families living in purchased or rented

housing. In 1983, nearly three-quarters of all “manufactured” (mobile) homes were inhabited by families with incomes of less than $20,000, while threequarters of all housing was owned by families with

incomes of less than $35,000. In fact, a recent study

conducted for the U.S. Department of Energy indicates that in 1980, the median income of “manufactured” (mobile) home residents was $12,000,

while that of other single-family detached homeowners was $19,800.7 It is interesting to note, however,

that “manufactured” (mobile) housing does have a

significant market share in the higher income categories; in 1983, for example, 7,000 families with incomes over $100,000 per year reported that their

principle residence was a “manufactured” (mobile)

home.8

The real cost of a housing unit, of course, requires

deeper analysis than the initial unit cost. Such research could consider the quality of the housing

produced, the expected life of the unit, and the cost

of operating and maintaining the unit. Some of these

trade-offs will be discussed in chapter 3.

.—. —

~Pacific Northwest Laboratory, “Impact of Alternatl\re Res]dentiA

Energy 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 Homes

for Under $50,000, 1977-83 (in thousands)

1977 1978 1979 1980 1981 1982

Percent Percent Percent Percent Percent Percent

Number 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 22

Mobile homes shipped 267 38 276 47 277 60 222 62 241 73 239 78

1983

Percent

Number of total

65 18

295 82

Total new 700 592 461 359 329 306 360

SOURCE 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

0

0 $20,000 $40,000 $60,000 $80,000 $100,000

Income

— - — All units — Mobile home s

SOURCE: Manufacturing Housing Institute.

Most manufactured housing plants are located in

small rural communities, particularly in the sunbelt

region. The rural areas provide both the principal

consumer markets and favorable labor markets, due

to the presence of low-skilled and non-unionized

workers. Manufactured housing is concentrated in

the South, which held 46.2 percent of the market

in 1983; only 8.1 percent of all units are located in

the Northeast.9 Approximately half of these units are

sited individually or in clusters of 5 or fewer, while

about one-quarter are situated in clusters with 100

or more units. 10

9westat, op. cit., P. 2.2

l“lbid., p. 2.6.

Modular Homes

Modular systems resemble “manufactured” (mobile) homes. The final building is composed of

factory-assembled, three-dimensional “boxes” (see

figure 3). However, modular units are transported

by external carriers, and modular buildings—

including small hotels/motels and commercial

buildings—may be constructed from any number of

boxes. These boxes can be stacked seven stories high

to form multistory residential and commercial structures. Unlike “manufactured” (mobile) housing,

which is regulated by the national HUD code, modular homes must satisfy State and local building

codes.

Modulars are among the strongest of all light-frame

residential structures. They are built with completed
17

sheathing for roofs, sidewalls, and marriage walls

with glue-nailed plywood, and employ heavier-thannormal construction techniques in wall and floor section framings. Modular housing units come in a variety 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 year

and employing 109 persons. Factory layouts, machinery, equipment, and assembly processes for producing modular units resemble those described for

“manufactured” (mobile) homes. However, since

modular units are not built on a wheeled chassis,

they either move through the production line on

roller systems or are placed on a temporary trailer

assembly. Electronic airlifts place the finished sections onto shipping vehicles for transportation to the

site.

Generally, trucks transport modular sections to the

site. Site cranes then remove and position the sections on a permanent foundation. Helicopters can

be used for transporting the units when special problems arise, such as bridges or tunnels.

Again, because modular units lack a structural

frame chassis, they rest on permanent foundations.

This necessitates significant site preparation work

before the unit’s arrival. The recently developed “all

weather wood foundation” (AWWF) systems, which

cut costs and onsite assembly time when compared

with traditional concrete foundations, are now used

throughout the industry. AWWFs are assemblies of

frame walls built of low-grade, preservative-treated

lumber and plywood to create basement and crawlspace foundations. In comparison with conventional

cement foundations, the AWWF can be erected

quickly in extreme climates, which normally make

concrete work difficult. As a result, they can extend

construction seasons in many areas. This provides

greater continuity in employment, and lowers costs

in areas sensitive to “land factors.” Furthermore, the

development of prefabricated foundation systems has

eliminated the setup or drying time encountered with

cement foundations, and skilled labor is not required

for their assembly.
18

When the modular unit is secured on the foundation, sectional joint work commences using specialized connector plates as well as pneumatically driven

fasteners. Joints are then sealed and the utility and

sewer systems are connected to the main lines. The

sections are sealed together with moisture-proof barriers, to ensure consistent moisture protection and

energy efficiency. The Swedes make sure that this

is done, and take great care to train installers.

The market for modular homes has growth potential in the area of infill housing, or that which

is constructed between two existing structures.

Stacked modular units can satisfy the need for highdensity, smaller sized housing units in urban areas

around the country.

Panelized Homes

Like modular homes, panelized homes come in

an array of types, sizes, and interior/exterior finishes.

Panels may be produced in lengths of 2 by 8 feet

or 4 by 8 feet that are erected by one or two workmen, in lengths of 10 to 16 feet that can be erected

by four workmen, or in sizes of over 16 feet which

require a crane for erection.

Automation in Housing reports that approximately

600 companies produced panelized homes in 1983.

The panels themselves fall into two classifications,

open and closed. Open panels refer to factory-assembled wall, floor, or roof panels that are open on one

or both sides so that construction and/or enclosed

mechanical, electrical, or plumbing equipment can

be inspected onsite. An exterior open panel wall may

have sheathing, doors, windows, and siding on the

outside and insulation between the studs, but will

lack finished materials such as drywall on the inside surface. In contrast, closed panels are enclosed

on both sides, severely limiting access to onsite inspection. Panel factories typically contain linear production lines with automated sawing machinery and

pneumatic panel nailers and staplers.

Panelized components can be loaded for shipping

by truck or rail. Improved shipping techniques allow panelized home manufacturers to service greater

market ranges than “manufactured” (mobile) or modular home producers.

A major disadvantage of panelized structures is

the onsite labor required to assemble such systems.

Poorly trained installers can increase costs and reduce quality. Although high-quality and tolerance

standards exist in the factory, the ultimate quality

of the structure depends on the skills and experience of the contractor who assembles the system at

the building site. Currently, few U.S. panelized manufacturers provide their own building crews for onsite assembly operations. The Swedish discovered

that quality assurance required them to have panels

erected by either their own employees or teams

trained by the manufacturing firm (see ch. 3). Swedish firms guarantee the installed product,

Precut Systems

Precut systems, which include log homes, dome

houses, and precut frame houses, are produced in

the factory and shipped to the site as packages. The

builder receives a “kit of parts,” such as framing

envelope components, windows and doors. All elements 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-year

interim financing for their homes, using the owner/

builder’s “sweat equity” as a partial downpayment.

Permanent financing is arranged upon completion

of the house. There are approximately 250 log-home

manufacturers and 60 dome-house producers in the

United States today.

Component Systems

Although not strictly a building system, manufactured building components play an important role

in conventional construction, The invention of the

metal truss connector plate was of enormous benefit to component manufacturers. This stamped metal

plate that can join truss members, can splice chords

of trusses, can join members of rough openings for

doors and windows, or can fabricate other components. In 1982, virtually all of the Nation’s 2,000 component manufacturers produced roof trusses, and

nearly 80 percent produced floor trusses. Figure 4

provides a diversification trend chart depicting the

component manufacturers’ tendency to expand prod-
19

Figure 4.— Diversification Trends of

Component Manufacturers

100

50

0

75

—

Roof

trusses

230/o

[

Floor

trusses

1982

Wall

panels

1%

Door Subcomunits ponent s

SOURCE Automat(on In Housing 1983

uct lines by including wall panels, door units, and

other subcomponents. Recently, however, HUD announced that a significant number of roof trusses

used in prefabricated industrialized housing had

failed.11 Careful regulation in this area could provide

consumers with greater protection.

Over 90 percent of America’s homes and apartments are built with roof trusses that have been connected by metal plates. Advances in computer technology have led to the widespread application of

prefabricated truss assemblies in homebuilding operations. Roof trusses come in many configurations;

computer software programs provide instantaneous

design information concerning loading and stress factors, and indicate material and cost requirements

associated with particular designs. Furthermore, roof

truss 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 plate

connectors sit on a conveyer, which moves the assembly under a roller that squeezes several joints

at a time.

Roof trusses typically span a 32-foot wide house

and are spaced up to 24 inches from the center. They

can be set in place in minutes and, with the application of conventional 4 by 8 foot sheets of plywood

as sheathing over the top chord, can close a house

to the weather in less than a day.

After roof trusses, the 1970 invention of the floor

truss represents the second major breakthrough for

the American home building industry. These systems are made with 2-by-4 top and bottom chords

placed flatwise with 2-by-4 webs, which are fastened

with metal connector plates. Another advance came

in 1976, with the invention of the metal web connected floor truss. This replaces all or portions of

the 2-by-4 webs with a triangular metal web. Integral

connector teeth protrude from each of the three

points of the web, which is then attached to the outside edges of the chords. The floor truss assembly

machinery operates on the same principle as roof

truss assembly machines; the wood framing members are positioned on a truss machine, which

presses the plate connectors onto the joints.

Component manufacturers also make prehung

doors and windows; prefabricated stairs; and subcomponents like corners, tees, and headers (see figure 5). All segments of the housing industry use these

wood components, largely because the light frame

wood system that predominates in this country is

an “open system. ” These components can be used

by virtually all builders.

Some component manufacturers specialize in the

production of wet core modules. Although not an

actual building system, a wet core module is a

prefabricated element that can fit with a number of

building types. In its most developed form, it consists of a module containing the bathroom, kitchen,

and laundry facilities for a home, with plumbing,

stack, fixtures, and interior finishes built in. In a less

developed form, it may incorporate fixtures into a

plumbing wall, but not necessarily into the actual

shells of the rooms. By industrializing a highly laborintensive segment of the traditional housing construction process, these components can produce significant 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 end

2. Valley roof trusses 6. Wall panels

3. Roof sheathing 7. Garage door header truss

4. Engineered roof trusses 8. Pre-assembled stairs

9. Engineered floor trusses

10. Wood foundation panels

11. Prehung doors

12. Prehung windows

SOURCE: Autof7tt!tiOfl in ~OUSh~, 1983

INDUSTRY SEGMENTS

The housing industry includes producers, distributors, 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 the

preceding section.

Categories of housing producers are not entirely

distinct from one another. Some firms manufacture

more than one type of housing; for instance, several “manufactured” (mobile) housing producers

make modulars as well. These producers try to maintain stability in an unstable market by retaining flexibility in their plants. When demand for one type

of product, like single-family homes, declines, they

emphasize another, such as multifamily units, This

approach may become increasingly popular in the

U.S. residential construction industry.

Production Builders

This segment consists of large and small volume

site builders, who use factory-made housing components to construct large numbers of single-family

houses or low-rise apartment buildings in subdivisions, or “tracts,” near major metropolitan centers.

Typically, their structures consist of prefabricated factory or onsite components. Often called “volume producers of housing,” production builders do not use

networks of builder/dealers, but sell homes directly

to the consumer.

Increases in site-labor and construction loan costs

have made production builders the principal consumers of prefabricated housing components. While

some large production builders now operate their

own component manufacturing systems, most still

secure components from independent companies.
21

Builder/Dealers

“Manufactured” (mobile), modular, and panelized

home manufacturers usually sell their products

through networks of builder/dealers. These builder/

dealers often operate from display lots, located within

700 miles of “manufactured” (mobile) and modular

home manufacturing plants due to transportation

constraints. Builder/dealers may sell for one or several manufacturers, and do most of their business

in well-defined market areas. In addition to acting

as salespersons, builder/dealers prepare the land,

complete foundation and utility work, and supervise

finishing work on the home after delivery.

Figure 6 illustrates the functional interrelationships

among manufacturers, wholesalers, fabricators,

builders, dealers, contractors, and consumers associated with the manufactured housing industry.

Small Builders

Small operators constitute the vast majority of

American homebuilders—far too small, in terms of

units produced per year, capital resources, and scope

of operations, to handle the large capital expense

of introducing new technologies.

Concerning output, the 1977 Census of Governments reported that 227,830 general building contractors, nearly 80 percent of all general contractor

establishments, had receipts of less than $250,000,

which translates into 5 to 10 units per year. Similarly, the National Association of Home Builders

(NAHB) states that the vast majority of its member

firms produce fewer than 25 houses per year. And

the 1977 Census of Construction concluded that onefourth of all homebuilders operate in a single market area, and that less than 5 percent of all builders

of single-family units worked outside their home

States.

These small firms do exhibit a strong entrepreneurial nature. When market conditions change,

they move out of homebuilding and into more promising construction endeavors. In the so-called “bad

years” of 1967, 1974, and 1975, nearly 20 percent

of member firms surveyed by the NAHB in 1977

switched to other businesses. Members switched at

half this rate during periods of success.

Small producers often capitalize on short-term investments. They should be able to adjust finances

quickly, so as to reinvest in new efforts according

to market trends. Such producers can operate more

flexibly and more economically with unskilled or

semiskilled workers than with costly new machinery. Given these considerations, the large-scale, longterm capital requirements associated with technological innovation conflict with the needs and capabilities of most American builders.

U.S. Home: A Case History

U.S. Home Corp., until recently the Nation’s largest

homebuilding firm, serves as an example of a large

company that has changed its market approach in

order to satisfy housing demand—sometimes against

its will. Started by New Jersey builder Robert Winnerman, this company produced an estimated 2,400

houses in 1968, generating revenues of $58.3 million. U.S. Home became a national force the following year, when Arthur and Charles Rutenberg incorporated their separate Florida firms with that of

Winnerman. 12 During the next 3 years, Winnerman

acquired 14 other firms. By 1973, U.S. Home operated in 11 national markets; production had increased to 10,700 units, and revenues to $351 million. Production peaked in 1980, at 15,821 units.

In 1982, US. Home delivered 12,599 units, down

from its previous high, although it still enjoyed operating revenues of $832 million. Over half of this production was situated in Texas, where the success of

the oil industry had created an unusually high demand for housing. By 1983, U.S. Home had opened

74 divisions and 13 manufacturing plants in 25

States. They were building in 175 single-family detached communities, 109 condominium projects, and

9 retirement communities.

U.S. Home’s 1983 annual report indicates several

actions taken by the company to protect and expand

its market. It was the first major homebuilder to develop and issue “collateralized mortgage obligations”

(CMO) funds. CMOS raise new mortgage credit by

selling securities that are “collateralized” by loan payments made on previously sold homes; these funds

are then earmarked to make loans to purchasers of

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

1982), p, 187.
22

b

t

,1-
23

new homes. In 1983, U.S. Home learned of projections that the bulk of future demand for new housing would be in rural and small metropolitan areas.

In order to adapt to the changing nature of the market, the company acquired Brigadier Industries Corp.,

one of the Nation’s largest producers of “manufactured” (mobile) housing. This move was intended

to improve U.S. Home’s ability to operate efficiently

in small markets, and to facilitate its pledge to offer

housing at competitive prices.

However, U.S. Home did not anticipate the downslide of the oil industry and the resulting decrease

in housing demand. The firm had entered the “manufactured” (mobile) home market to capitalize on the

immediate need for low-cost housing; in much the

same way, it opened the largest industrialized housing plant in Salt Lake City during the overthrust

drilling boom of the late 1970s and early 1980s.

When the oil market collapsed, U.S. Home was faced

with a manufacturing capacity that outstripped demand by a large margin. The firm has confronted

this problem by abandoning production of both

“manufactured” (mobile) homes and modular units,

and it is currently negotiating to sell off its Brigadier subsidiary.

Like many other producers of factory-built housing, U.S. Home has met with both success and failure in its attempts to operate within a volatile market. Because it has continued to profit from certain

segments even during periods of financial duress,

it has been able to overcome setbacks in a particular housing category. Its case history demonstrates

the risks involved in adapting to industry developments as they occur, and the manner in which a

company may readjust to the effects of such changes.

TRENDS IN INDUSTRIALIZED HOUSING

The Early Years

In the United States, prefabricated building technologies received widespread attention as early as

the 1930s. Having witnessed the technological success of the automobile industry, the American public believed that mass production of houses would

alleviate the Nation’s chronic shortage of affordable

housing. In 1932, Fortune referred to General

Homes, Inc., which had just unveiled its prefabricated steel house, as “the General Motors of the new

industry of shelter, ” commenting on the construction of General Homes’ prefabricated steel house.13

By 1933, prefabricated housing companies were attempting to capture a share of the potentially vast

market for mass-produced homes. Even industrial

giants such as Armco Steel, American Rolling Mills,

Wheeling Steel, Great Lakes Steel, and Goodyear–all

of whom envisioned that mass-produced housing

would generate profitable markets for their own

building materials and components—began investing in home manufacturing operations.

But early dreams of capitalizing on the prefabricated home faded quickly. One housing analyst cites

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

three reasons: “the price of the prefabricated house

was not competitive, public interest stopped short

of purchase, and promised capital backing proved

elusive.”14 Inconsistent local codes and management

errors also contributed to the problem.

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

Up until the Second World War, prefabricated

housing accounted for only one half of one percent

of total housing construction. The War radically

changed that figure. The need for large scale production at minimum cost and maximum speed gave

established prefabricators and would be prefabricators a golden opportunity. The Federal Public

Housing Authority alone built some 116,000 prefab houses and about 80,000 more were built by

other government agencies and by private operators. 15

This rapid expansion of prefabricated housing production during the war also stimulated new business

ventures 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 experienced a housing crisis of unprecedented proportions.

In response to a critical shortage of homes, President Truman appointed Wilson Wyatt as Housing

Expediter. Wyatt had full privileges to use the War

Powers Act and the War Mobilization and Reconversion Act, and had direct control of the Federal

Housing Authority and the Federal Home Loan Bank

Board. He presented the Veteran’s Emergency Housing Program on February 7, 1946, This program:

. . . set a production target of 2.7 million units for

the years 1946 and 1947. To reach this unprecedented goal, Wyatt intended to rely heavily upon

prefabricated housing, 250,000 units in 1946 and

600,000 in 1947. Achievement of this goal would

have increased the value of prefab production from

$100 million to $2.5 billion.16 

As it turned out, only 37,200 prefabricated units

were constructed in 1946, and 37,400 in 1947. The

Wyatt program died out by 1948, and cost the Federal Government approximately $200 million, Many

housing producers, including those with technically

sound products, went bankrupt upon the withdrawal

of Federal funding. Among these were the futuristic

Dymaxion House of Buckminster Fuller, and Carl

Strandlund’s porcelain enamel and steel Lustron

Home. Other companies managed to profit from the

very weakness of this Federal initiative; Fortune concluded,

. . . the 1946 Wyatt program was almost entirely a

private enterprise program, and a lot of private enterprises made a lot of money under its shelter. 17

Operation Breakthrough

The next attempt by government and industry to

infuse modern technology into the homebuilding sector came on May 9, 1969, when George Romney,

Secretary of the U.S. Department of Housing and Urban Development, presented Operation Breakthrough. This proposal grew out of Section 108 of

the Housing and Urban Development Act of 1968:

“New Technologies in the Development of Housing

for Low Income Families.” The Section “authorized

the (HUD) Secretary to select plans for the development of housing using new technologies, to construct

at 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 technologies, and to report the findings to Congress.”18 Ultimately, Operation Breakthrough exposed builders

to the benefits of modern technology, and encouraged more uniformity within and between State

building code systems; however, it failed to create

widespread support for its programs in the American marketplace, where local factors tended to delay implementation.

Romney proposed a three-phase implementation

of Operation Breakthrough: Phase 1, Design and Development; Phase II, Prototype Completion; and

Phase 111, Volume Production. In June 1969, HUD

requested proposals for the project. The department

stated that:

Operation Breakthrough has as its primary objective the establishment of a self-sustaining mechanism for rapid, volume production of market housing at progressively lower costs for people of all

income levels. 19

HUD received proposals from 236 firms. Commenting on the unexpectedly high response rate, one

study observed:

On the heels of the urban riots, many of the Nation’s big corporations wanted to devote some of

their money and skills to solving social problems—

especially if money could be made at it. The list

is long: American Cyanamid, General Electric, Inland Steel, CNA Insurance, Phillip Morris, Boise

Cascade, Warner Communications . . . From every

specialty, these wise kings came with their gifts to

help the infant housing industry in its muddy manger.

20

In February 1970, HUD selected 22 Operation

Breakthrough finalists. Of the proposed housing systems, 10 were made of modular design, 9 were of

panel design, and the remaining 3 used component

assemblies. Initially, HUD selected 11 demonstration sites. Budgetary constraints later reduced the

number to nine.

Operation Breakthrough lost its early momentum

when the participants encountered costly delays in

securing 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 multitude of local codes before a given design could be

implemented, caused many financiers to lose interest in the program. In an effort to remedy the problem, HUD allowed Phase II and Phase 111 operations

to proceed simultaneously, and “federal rent subsidies and section 236 subsidies were offered for Phase

111 units to speed production of Phase II prototypes.”21

The final blow to Operation Breakthrough came

on January 16, 1973, when President Nixon announced an indefinite moratorium on new allocations of Section 236 subsidy funds. In the end, only

14 of the original 22 Operation Breakthrough participants built Phase III projects. Some housing producers did not participate due to the problem of code

compliance. Others cited “cost and other production

problems, corporate marketing policies, and bankruptcy” as reasons for avoiding the project.22 Summing up the results of Operation Breakthrough,

“about 25,000 Phase III units were completed in 150

different developments using Section 236 set asides.

Only 1,500 units were completed for unsubsidized

occupancy at market interest rates . . . No factory

came close to completing a single volume run . . .

The cost to the federal government was $72 million,

or $12 million more than had initially been budgeted.” 23

While Operation Breakthrough is now looked on

as a mismanaged Federal housing program, the effort did expose builders to new housing construction technologies. Furthermore, it led many States

to reevaluate their building code systems, encouraged uniformity between State standards,

fostered new methods for evaluating housing construction, tested new labor arrangements for structure assembly operations, and introduced American

builders to innovative European practices. However,

few HUD-sponsored building systems actually reduced the cost of housing as a result of the technology 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 materialize. While the “Joint Venture on Affordable Housing” initiated by HUD in several cities in 1982, has

had limited success, most Federal efforts have related new technologies to energy consumption, not

construction, The 1982 U.S. Comptroller General’s

report to Congress, “Greater Use of Innovative Building Materials and Construction Techniques Could

Reduce Housing Costs,” cited a number of factors

in government and industry that “impede the use

of available technological innovation and the development and introduction of new ones.”24 These included:

●

●

●

●

a low level of effort by the Department of Housing and Urban Development and the National

Institute of Building Sciences to encourage the

development and use of innovative technology,

except for that related to reducing energy costs;

builders’ reluctance to accept risks associated

with the use of technology whose long-term performance is not proven;

restrictive and inconsistently administered local building codes; and

builders’ lack of technical information on the

results of using innovative technology.25

The National Institute of Building Sciences had

been created by Congress in 1974 under Public Law

93-383, and was intended:

. . . to encourage all sectors of the building industry to develop a more efficient way of introducing

technology into housing by encouraging a more rational building regulatory system through simplification and harmonization of building criteria, standards, and other technical provisions, and evaluating

existing and new technology to facilitate its introduction and acceptance at the Federal, State, and

local levels.26

Due to internal organizational problems, the National

Institute of Building Sciences did not become fully

operational until 1979. It has still not assumed the

active role called for by the statute, primarily due

to a shortage of financial resources.

2’Quigley, op. cit.

ZZU,S. General Accounting Office, Comptroller General, “operation

Breakthrough—Lessons Learned About Demonstrating New Technology,” Washington, DC, 1976.

23 Quigley, op. cit.

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

of Innovative Building Materials and Construction Techniques Could

Reduce Housing Costs,” Washington, DC, 1982.

251bid.

‘Glbid,
26

Summing up the scenario since Operation Breakthrough, the Comptroller General’s 1982 report

stated that “the statutory authority given to HUD and

the National Institute of Building Sciences to encourage the development and use of innovative technology in homebuilding has been receiving only

limited attention by HUD and the Institute.”27 Given

the past performance records of both HUD and the

Institute, it appears unlikely that either party will

vigorously promote the research, development, or

use of innovative technologies or materials to reduce

housing costs, unless funds are earmarked specifically for this purpose.

The Future

Industry analysts generally agree that the postwar

movement toward factory-built housing will continue, and may even expand. However, despite substantial interest on the part of leading industrial firms,

as well as government backing for prefabricated

housing under Presidents Truman and Nixon, largescale mass production of homes in American factories has not materialized. Why should today’s forecasts be more reliable than previous ones?

First, virtually all segments of the residential housing industry now depend on factory-based technologies to a certain degree. Until the Second World

War, few firms were involved in mass producing

houses, and a mere 0.5 percent of total housing construction was factory-built. Clearly, factory construction plays a more important role today.

Second, computer technologies are extending the

inherent efficiency of factory-based production. Computers facilitate many individual operations involved

in industrialized housing, from the initial design

stage, to the building’s final assembly. This improves

quality control, saves time and money, encourages

uniformity of parts, and enhances design flexibility.

As new computer applications emerge and software

is developed to meet the specific needs of the residential construction industry, factory-based technologies should become more attractive to homebuilders as well as homebuyers.

Third, the big builders are growing. The emergence of “superbuilders,” and particularly the exZ71bid.

pansion of the largest firms among them (see table

3), has brought about the combination of capital and

concentrated land markets necessary to justify longterm investments in plant and equipment. It is difficult to distinguish between cause and effect, because factory-based mass production, especially of

the more profitable product lines, may also give firms

a competitive edge to expand, In any case, some production builders have already indicated their intention to expand their production of housing, through

continued acquisition of construction facilities.

Fourth, Japanese and European technological innovations, coupled with the growing threat of competition from foreign concerns acting in joint ventures with large domestic firms, has already inspired

a combination of interest, emulation, and even fear

within the industry.

Table 3.—Top 25 Homebuilders by Units Produced,

1983

1

2

3

4

5

6

7

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Fleetwood Enterprises, Inc. (Ill) . . . . . . . . . . . . . 37,746

U.S. Home Corp. (I, II, IV) . . . . . . . . . . . . . . . . . . . 22,855

Champion Home Builders Co. (Ill). . . . . . . . . . . 21,715

The Commodore Corp. (II, III, IV) . . . . . . . . . . . . . 16,274

Skyline Corp. (Ill) . . . . . . . . . . . . . . . . . . . . . . . . . 16,118

City Investing Co. (1,111) . . . . . . . . . . . . . . . . . . . . 15,590

Redman Homes, Inc. (Ill). . . . . . . . . . . . . . . . . . . 15,403

Lincoln Property Co. (1) . . . . . . . . . . . . . . . . . . . . 12,734

Pulte Home Corp. (1) . . . . . . . . . . . . . . . . . . . . . . 12,008

The National Housing Partnership (1) . . . . . . . . 11,701

Tidwell Industries, Inc. (Ill) . . . . . . . . . . . . . . . . . 11,010

Liberty Homes, Inc. (Ill) . . . . . . . . . . . . . . . . . . . . 10,565

Fairmont Homes, Inc. (Ill) . . . . . . . . . . . . . . . . . . 9,779

Kaufman & Broad Home Systems, Inc. (1,111) ., 9,570

Jim Walter Homes, Inc. (1) . . . . . . . . . . . . . . . . . 8,706

Ryan Homes, Inc. (1) ... , . . . . . . . . . . ... , . . . . 8,503

Horton Homes, Inc. (Ill). . . . . . . . . . . . . . . . . . . . 7,018

National Homes Corp. (II) . . . . . . . . . . . . . . . . . . 6,842

Cardinal Industries (IV) . . . . . . . . . . . . . . . . . . . . 6,754

Zimmer Corp. (Ill) . . . . . . . ... , . . . . . . . . . . . . . . 6,321

Canter Corp. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,299

Ocilla Industries, Inc. (Ill) . . . . . . . . . . . . . . . . . . 6,000

The Ryland Group, Inc. (I, II, IV) . . . . . . . . . . . . . . 5,491

Weyerhaeuser Real Estate Co. (1) ., . . . . . . . . . 5,000

Conner Homes Corp. (Ill) . . . . . . . . . . . . . . . . . . 4,964

Top 25 total . . . . . . . . . . ~ . .’. .’. . . . . . . . . . . . . . . . . . . 295,686

Top 100 total . . . . . , . . . . . . . . . . . . . . . . . . . . . .....,377,983

Top 25 as percent top 100 . . . . . . . . . . . . . . . . . . . . . 78

Legend:

(1) = production builder; (11) = panelized home manufacturer, (Ill) = mobile home

manufacturer; (IV) = modular home manufacturer.

SOURCE: “Automation in Housing, ” 1984
27

MARKET CONCENTRATION

The 1978-83 market share percentages, numbers

of units produced, and sales volumes of the top 100

U.S. builders indicate the extent of market concentration within the residential construction industry.

These 100 home producers captured 24 percent of

the industrialized housing market in 1983, a decline

of 2.7 percent from the 26.7 percent figure of 1982;28

this can be attributed to the increasing presence of

small builders in the revitalized housing market. Still,

production levels and sales volumes for the top 100

builders increased between 1982 and 1983. Automation in Housing magazine’s 1984 annual report

indicated that “the largest U.S. firms accounted for

377,983 units in 1983. Their sales volume soared

35.7 percent to 12.019 billion compared with the

8.859 billion they put on the books in recessionbattered 1982.”29

Table 3 presents the top 25 homebuilders, ranked

by number of units produced. The table also describes the product-types manufactured by each company. These 25 companies produced 78 percent of

all units built by the top 100 homebuilders, and

almost 20 percent of all housing produced in 1983.

Ranking these companies according to their dollar

volume of sales, the top five—U.S. Home Corp., Pulte

Home Corp., Ryan Homes, Inc., City Investing Co.,

and Centex Corp.—all boasted 1983 sales in excess

of $500 million; U.S. Home posted a sales volume

of $932.7 million. Of these superbuilders, 29 had

sales in excess of $100 million.

Implications for Small Builders

As the industry becomes more concentrated, the

role 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, or

at least to give them a different role. Use of factoryproduced structural elements has already made the

small builder more of an assembler than a craftsman. But it has also created many new opportunities for specialized firms, in areas like site preparation and crane operations. Will the small builder’s

future role be limited to pouring a foundation and

assembling a set of modules or panels? Will the small

builder become a captive of major production

houses? Or will the small builder become an entrepreneurial specialist supplier to larger homebuilders?

“Manufactured” (Mobile) Homes

The “manufactured” (mobile) home industry is the

most concentrated area of factory-based housing. Of

the 169 firms engaged in the production of “manufactured” (mobile) home units in 1983, the top 25—as

shown in table 4—accounted for 74 percent of the

total production volume of 295,000 units. The top

10 companies produced 54 percent of all "manufactured” (mobile) homes, and the five leading manufacturers reported sales volumes greater than $250

million.

This oligopolistic industry structure has resulted

from a series of mergers and acquisitions following

the enactment of the Manufactured Home Construction and Safety Standards Acts. Many firms that could

not comply with HUD’s standards were acquired by

larger “manufactured” (mobile) home producers. Table 4 also indicates that only 4 of the top 25 are private firms, the remainder being publicly traded corporations. Many of the public homebuilders have

established mortgage banking subsidiaries to originate, underwrite, sell, and service home mortgages.
28

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

Headquarters 1984

Company 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 15,732

Guerdon Industries, Inc.f . . . . . . . . . . . . . . . . . . . . . . . . . . . Denver, CO 13,000

Liberty Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Goshen, IN 12,075

Fairmont 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 8,500

Kaufman & Broad Home Systems, Inc.j . . . . . . . . . . . . . . Los Angeles, CA 8,1 64*

Schulte Homes Corp.

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

Horton Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eadonton, GA

River Oaks Homes, Inc.’ . . . . . . . . . . . . . . . . . . . . . . . . . . . Boaz, AL

Palm Habor Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Dallas, TX

Conner Homes Corp.m . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newport, NC

Oakwood Homes Corp.n . . . . . . . . . . . . . . . . . . . . . . . . . . .Greensboro, NC

Clayton Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Knoxville, TN

DeRose Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indianapolis, IN

Wick Building Systems, Inco . . . . . . . . . . . . . . . . . . . . . . . Madison, WI

Winston Homes, Inc.p . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Double Springs,

Golden West Homesq . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Santa Ana, CA

Fuqua Homes, Inc.r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Arlington, TX

Destiny Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Moultrie, GA

Vintage Homess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Atlanta, GA

Home of Merit, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bartow. FL ,—

● Figure estimated by RED BOOK editor.

7,200

6,623

6,000

5,554

5,460

4,800 ●

4,489

4,000

3,433

AL 3,350

3,250”

3,018

3,000

2,880 ●

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 commercial mobile units.

dFi rm also manufacturers travel trailers and mini-motor recreational vehicles.

eF/rm is a subsldiq of Redman Industries, Inc.

fFirm 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 i

rm 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 i

rm 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 Industriesl Inc., Atlanta, GA.

sFirm }S a subsidia~ of Vintage Enterprises.

SOURCE: Office of Technology Assessment.
Chapter 3

Consequences of the Shift to

Industrialized Housing
Chapter 3

Consequences of the Shift to

Industrialized Housing

How will increased factory construction affect the tion signifies quality housing using skilled craft workquality or cost of products for consumers, the struc- ers in highly automated factories, while in the United

ture of the construction industry, and industry em- States it often relates to low-quality units made by

ployment? No fixed answers exist for these questions, workers with few skills. The outcome hinges on the

since factory-based construction takes on a variety manufacturer’s perception of market demand, and

of forms. In Sweden, for example, factory produc- on the effects of public regulation.

EMPLOYMENT IMPACTS

Productivity

Above specific trends in the residential construction industry lies the question of overall productivity:

is it going up or down, and how do we know?

Quantitative efforts to assess construction efficiency

and productivity in the homebuilding industry resemble the guidelines used to analyze more conventional industries. This approach may be misleading,

because conventional indices of economic performance, such as levels of “capitalization” and “value

added by manufacture, ” do not always apply to the

residential construction industry. As one economist

explains, “the industry is diverse, dispersed, detached, and discontinuous—all characteristics which

are viewed with dismay by analysts of more stable,

highly-capitalized, conventionally-deployed industries.”1

The diversity of the construction industry stems

from the specialized nature of subcontracting units,

which constitute over 70 percent of all construction

establishments in the United States. This qualitative

and geographic “unit spread” has resulted from an

uneven distribution of consumer demand, labor markets, and availability of materials. Similarly, detachment of construction enterprises arises from diverse

work movement patterns, the predominance of

short-term subcontracting arrangements among

different specialty firms, and the builders’ continued

reliance on a shifting array of building material and

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

component suppliers. Finally, seasonal and annual

fluctuations in consumer demand, material availability, and environmental conditions also account for

discontinuity.

These characteristics reflect the housing industry’s

adaptation to the unpredictable social and economic

forces that affect demand. However, the fact remains

that the measured productivity of the construction

industry has fallen in recent years. The Productivity

Index, which measures changes in output per manhour, rose from 70 in 1947 to 110 in the mid-1960s,

but it now stands at about 80. While no single consensus explains why new technologies have not increased productivity, several theories have been

offered:

●

●

●

The deflators used to adjust the value of buildings may not properly adjust for improved

quality.

Repair and maintenance may be underreported.

Since the productivity of renovation work does

not equal that of new construction, the overall

productivity of the industry should fall as the

ratio of renovation work to new construction

increases. However, it is difficult to obtain accurate data on renovation. Because of the unclear ratio between these two activities, changes

in their combined productivity are not easily interpreted,

Increased uncertainty resulting from fluctuations

in the demand for buildings has forced the industry to reduce the capital/labor ratio. Capital/labor ratios increased 4.2 percent per year

31
32

●

●

●

●

from 1950 to 1968, but declined by 0.8 percent

per year from 1968 to 1974.2

Large numbers of young, inexperienced workers entered the work force as the baby-boom

generation came of age. Between 1968 and

1978, the number of 16- to 24-year-old workers increased from 15.3 percent of the construction work force to 24.2 percent. There has also

been a significant rise in the number of new

firms. The fraction of homebuilding firms less

than 5 years old increased by a factor of 3 between 1960 and 1976.

Levels of union participation and apprenticeship

are falling.

Offsite construction work, such as factory component construction, is not counted properly.

The ratio of value added by the construction

industry-the value of industry sales minus purchases from other industries—to gross output

fell from 51.1 percent in 1958 to 44.6 percent

in 1979.3 In other words, a growing fraction of

the value of homes sold was produced by suppliers to the industry, rather than by the industry itself. Also, between 1967 and 1973, 34 of

the 41 industries that produced materials for the

construction industry grew faster than the industry itself, and 23 grew twice as fast. The

fastest growers made prefabricated wood components and structural wood members for residences, or items like wooden kitchen cabinets.

Some of these firms outstripped the construction industry by a factor of 8. This suggests that

factory productivity is higher than site productivity for many activities.

There may be scale effects. Productivity was undoubtedly higher during the boom period of

tract home construction.

While the U.S. housing industry may appear unproductive as a whole, it does employ a smaller fraction of the total work force than any other OECD

nation, despite high U.S. construction rates. About

5.4 percent of American workers served the construction industry in 1980, compared with 11 percent in

Japan, Italy, and The Netherlands, and 7 percent in

France 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 corrstruction Review, May/June 1981, pp. 4-6.

qstatistical yearbook, United Nations, 1981 and 1983.

This set of considerations does not explain recent

patterns in construction productivity. Answers will

arrive with better data.

Employment Levels

Given the annual fluctuation in housing demand

and residential construction activity, accurate employment trends are difficult to project. Nevertheless, recent data on employment may help to examine labor requirements.

The U.S. Department of Labor estimated that

483,100 persons worked as general building contractors for residential buildings in 1983. Of this total,

346,100, or 72 percent, were classified as construction workers. The “manufactured” (mobile) home

industry, according to the most recent Annual Survey of Manufacturers report, employed 42,000 persons in 1982, of which 34,600 were classified as production workers.

Detailed labor statistics on the panelized home,

the modular home, and component manufacturers

do not exist. However, the Annual Survey of Manufacturers does compile labor statistics for the prefabricated wood building industry,5 which includes

panelized homes, modular homes, and building

components. While this industry classification also

encompasses prefabricated structures, panels, and

components for nonresidential uses, products for

residential use comprise approximately 75 percent

of all industry shipments, [n 1982, employees in the

prefabricated wood building industry numbered

16,800; 11,424 of these were classified as production workers.

Figure 7 illustrates employment trends for the general building contractor sector, and figure 8 provides

time series employment data for the “manufactured”

(mobile) home and prefabricated wood building industries. Both figures reveal that the last peak in employment levels for these employment classifications

occurred in the late 1970s. Referring to figure 8, the

decline in total employment in both the “manufactured” (mobile) home and the prefabricated wood

buildings industries corresponds with an overall decrease in “manufactured” (mobile), modular, and

panelized housing units produced between 1978 and

1982.

‘SIC 2452.
33

c

“=

Figure 7.— Residential Building Contractors

700 r

400

t

350

t

3001 1 1 1 1 I i 1 1

1974 1976 1978 1980 1982

Year

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

Figure 8.—Total Number of Employees in the

Mobile Home Industry (SIC 2451) and the Prefabricated

Wood Buildings Industry (SIC 2452)

90

80 r

1972 1974 1976 1978 1980 1982

Year

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

The proportion of production workers to all employees in the prefabricated wood building industry declined from 75 percent in 1967 to 68 percent

in 1982. Production workers in the “manufactured”

(mobile) home industry fell from 84 to 81 percent

of the total work force between 1972 and 1982 (see

figure 9). While some analysts attribute the increases

in managerial positions to more government regulation, this development remains difficult to explain.

As for regional variation, when demand for new

housing expands, firms compete for each others

workers. This causes problems in the Northeast,

where the number of potential employees is low. In

Figure 9.— Production Workers as a Percent of

Total Employment in the Mobile Home Industry

(SIC 2451) and the Prefabricated Wood

Buildings Industry (SIC 2452)

100

90

Year

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

contrast, an ample labor supply exists in the along

the Mexican border, where many manufacturers employ alien workers; little skill is required, and the

ability to read or write English is not of great importance. However, this creates problems of quality control, which, in turn, requires more super-visors.

Skill Levels and Unionization

Dependence on unskilled and semiskilled labor

has been a motivating force in the shift to industrialized housing. One of the principal causes of industrialization is to reduce the ratio of labor costs

to total product costs. Systematic, factory-controlled

production processes allow manufacturers to train

the labor force:

. . . to repeat only certain tasks, and to repeat them

under factory-supervised conditions. This task simplification means that any given worker need not

be skilled in a trade, per se. Rather, the worker need

only acquire skills necessary for the assigned task.

When changes in unit design require a new set of

tasks, workers are trained for the new tasks; no necessary, a priori generic and transferable skills are

presumed. 6

In other words, workers have neither need nor opportunity to acquire new skills.

6ThOmaS E, Nutt-powll, Manufactured Homes: Making sense Oi a

Housing Opportuni~r (Boston, MA. Auburn House Publishing Co , 1982).
34

Little data exist on skill levels, both because there

has been no serious effort to collect the statistics,

and as a result of the nature of labor requirements

and the work force. To remedy the problem, in preparing this study, OTA project staff contacted 50 companies active in the industrialized housing and component industry. The resulting survey reveals the

widespread use of unskilled or semiskilled workers

in the component and “manufactured” (mobile)

categories—approximately 80 percent of the work

force (table 5).7 Reliance on low-skilled workers stems

from the fact that these products involve a great deal

of simple assembly of cut-to-size parts.

The greater number of skilled workers in the modular sector—32 percent as opposed to 21 percent—

stems from the more specialized tasks associated

with modular units, such as plumbing, electrical

work, and cabinet work. The higher percentage of

college graduates in component and modular manufacturing may be design engineers. Typically,

skilled workers in a “manufactured” (mobile) home

plant perform tasks associated with chassis welding,

plumbing, and electrical wiring. An average plant

maintains a skilled worker in each trade area, who

supervises the performance of unskilled, factorytrained workers. When skilled or semiskilled labor

is required, some “manufactured” (mobile) and modular home producers hire on a fixed-fee, subcontracting basis. Using a subcontracted labor force, manufacturers do not pay overtime or provide worker

benefit plans.

While the carpenter’s union has contracts with a

number of “manufactured” (mobile) housing firms,

the industry as a whole lacks substantial union in-

—- —_ -—-— 7

Tw0 points about the data are worth noting. First, these numbers

can shift as the market changes. Second, the firms that provided this

data 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 indicate their success, and confirms the credibility of the survey results,

volvement. Production workers in the industrialized

housing industry have relatively low skill levels. In

addition to factory employees, the majority of workers who assemble panelized homes or work for large

production builders do not belong to unions. Union

affiliation in the residential construction industry has

fallen steadily since World War 11.

Even less unionization occurs in the “manufactured” (mobile) home industry. Possible explanations

include: the small size of an average plant; the rural setting of most plants; the industry’s slow beginnings; and the fact that the industry developed after the era of large-scale union organizing. When

unionization does occur, it follows industry lines

according to task-specific skill requirements and assembly line production methods.

Contrastingly, workers in site-built housing construction and onsite assembly of factory-built homes

do tend to be affiliated with trade unions. One analyst asserts, “the managements of some firms with

more than one manufacturing facility have made deliberate efforts to ensure that their plants, if unionized, are unionized by different unions.”8 This

union fragmentation strategy reflects management

efforts to control their bargaining position with the

unions, The same writer believes that the classification of union members in the “manufactured” (mobile) home industry as assemblers, rather than on

a job or craft basis, has allowed the “mobile home

plant management to rearrange tasks and manpower

as necessary to increase productivity, a major reason that labor in the mobile home industry shows

higher productivity than conventional home building labor.”9

sAflhur f), Bernhardt, Building Tomorrow. The Mobile/Manufactured

Housing Industry (Cambridge, MA: The MIT Press, 1980),

9] bid

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

Skilled

Unskilled Semiskilled Not licensed/ Licensed/ College

Group (less than 1 month) (1-12 months) certified certified graduate

Component. . . . . 38 41 12 1 8

“Mobile” . . . . . . . 41 38 15 1 5

Modular. . . . . . . . 33 35 22 3 7

SOURCE Office of Technology Assessment, 1986,
Wage Levels

The housing construction industry’s use of unskilled, non-unionized laborers has enabled the average “manufactured” (mobile), modular, and panelized home manufacturer to pay wage rates that fall

below national construction industry averages. Figure 10 presents average hourly earnings for the

respective housing construction and manufacturing

establishments. Production workers in the “manufactured” (mobile) home and prefabricated wood

building sectors have earned significantly less per

hour than construction industry employees, and less

than employees in the housing sector as a whole.

Although general contractors have offered higher

wage levels than the manufacturing sector, these

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

12 r

Key:

— Construction tota l

-“–- Residential building contractors

----- Manufacturing total

‘-+----- Mobile home industry

~ Wood buildings industry

SOURCE” US Department of Labor, Bureau of Labor Statistics

35

wage levels do not equal those of the construction

industry. Past trends suggest that wage level gaps

between the various sectors will not close significantly in the near future.

Potential To Upgrade Job Quality

To date, the U.S. industrialized housing industry

has promoted “a clear shift from traditional ‘craft’

skills to industrial-type ‘assembly’ skills, even onsite. Some predict that craft skills will become part

of a lucrative, but limited market for retrofit, conversion, rehabilitation, and historical preservation.”10

However, factory-based construction may not inevitably lead to the unskilled, routinized assembly-line.

New technologies can create attractive, stable jobs

for production workers. Employees in such facilities

could be treated more like workers in automobile

factories than day laborers, enjoying continuity of

employment, skill acquisition, and identification with

the employer or firm.

The Swedes employ factory-based construction to

promote continuity in employment and to facilitate

the development of an industry that provides greater

returns to wages, Swedish factories resemble craftbased shops, where automated equipment amplifies

individual skills. Rather than following an assembly line, Swedish factory workers craft individual

structures using specially designed jigs and numerically controlled positioning, cutting, and milling systems. Whether U.S. industrialized housing producers will depart from current practice and opt for a

Swedish-style approach will depend on economic

and other factors that do not involve the technology itself, such as the status and potential for success of worker retraining programs.

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

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

HOUSING COSTS

Have 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 ambiguous and contradictory results. With the exception of Homebuilding technologies most directly affect lacomponent fabrication, it is difficult to document the bor and material costs, which account for approxinet economic advantages of factory-based construc- mately 50 percent of total housing costs and which

tion 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 cost

savings in home construction will aid the homebuyer, and whether this will appear as increased

profit for builders, will depend on the nature of local housing markets.

While precise cost comparisons are virtually impossible to construct, factory-built housing may lower

costs by:

●

●

●

●

●

●

increasing the labor productivity of construction

with advanced assembly equipment,

increasing the role of less-skilled employees willing to work for lower wages,

decreasing construction time and construction

loan costs,

improving quality control with precision machinery and jigs,

decreasing defects and site visits needed to repair such problems,

reducing the seasonal nature of homebuilding,

and

facilitating the purchase of large volumes of materials.

New technologies also affect the 17 percent of total costs taken up by construction finance. Sharp reductions in the amount of time required to build a

given unit—more so in the case of a multiunit project

like a stacked modular—can save the factory-based

builder substantial construction loan interest costs.

Construction time requirements for the various

housing types depend on the building technologies

employed, the skills of the workers involved, and

management effectiveness. Table 7 presents construction time differentials for four types of housing.

I

}

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

Table 6.—Approximate Cost Breakdown for

New Single-Family Homes

1970 1980 Percent

cost (

0

/0) cost (

0

/0) increas e

Land. . . . . . . . . . . $4,450 19% $15,500 24% 248%

Onsite labor . . . . 4,500 19 10,350 16 130

Materials . . . . . . . 8,650 37 22,000 34 154

Financing . . . . . . 1,600 7 7,700 12 381

Overhead/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 weeks

Componentized home. . . . . . . . . . . . . 4 to 12 weeks

Stick-built home. ., . . . . . . . . . . . . . . . 12 to 24 weeks

SOURCE: Automation in Housing.

As expected, an inverse relationship exists between

the use of industrialized building techniques and

components and the time required for construction.

To measure the extent that existing homebuilding technologies may reduce initial costs for the

homebuyer, the National Association of Home

Builders (NAHB) conducted a housing technology

research project in 1979. The NAHB reported that

its “cost buster” house achieved a 25-percent savings in construction material and labor, compared

to other homes of similar size and location, Possible savings in construction finance costs were not

considered. These cost savings will vary, depending on region; production levels; and the type, size,

and quality of the housing.

To translate this 25 percent labor and material savings into an “overall” scheme, a 1982 report from

the U.S. Comptroller General based a cost savings

analysis on the National Association of Home

Builders’ data. Since labor and material costs constituted approximately half of the initial cost, a 25-

percent reduction in labor and construction material expenditures decreases the sales price of a home

by 11.75 percent, assuming that the cost savings are

not retained as builder profits. Given the median

price of a house in April 1981 at $69,300, the initial

savings would total $8,143, assuming a conventional

30-year mortgage at 15 percent interest and a 20 percent downpayment. This would create monthly savings in financing costs of $82.41, or $29,668 over

the 30-year mortgage period. Because land and

financing constitute a growing share of construction

and consumer housing cost, this is a high estimate

of the cost reductions that may be brought about by

existing technologies. Furthermore, the timelag between the introduction and use of new homebuilding technologies suggests that new technologies will

not reduce housing costs in the immediate future.

Of the various forms and types of industrialized

housing, “panelized and modular homes,” the Comp-
37

troller General’s report indicates, “are not a means

of significant cost savings of new single-family detached housing. The industry markets the houses

on the basis of their high quality, stemming from

quality-controlled factory methods, and their advantages to small builders. "

12 Although the base prices

of panelized and modular homes do compare favorably with conventional construction, additional costs

incurred in site acquisition, site development, and

utility installation may reduce their affordability.

However, panelized and modular homes can

prove economical when site-building is simply not

feasible-on scattered sites, or in outlying rural areas

that lack skilled tradespersons. In addition, panelized and modular homes can yield savings in “soft

costs” for builders. Since less site work is needed

for these houses than for conventional site-building

methods, builders can sell more houses with the

same amount of finance money. Reduced work time

at the site also negates losses from theft and vandalism.

The one type of factory-built house that does offer real savings in initial cost is the “manufactured”

(mobile) home. Table 8 states that the average sales

price of a “manufactured” (mobile) home in 1983

was 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. Sales

prices do reflect differences in product characteristics; while the average size of site-built homes has

decreased in recent years, the typical site-built home

remains larger than the “manufactured” (mobile)

home.

Also included in the table is a time series cost comparison between “manufactured” (mobile) homes

and site-built homes. Although the cost differential

between “manufactured” (mobile) homes and sitebuilt homes has increased over time, a cost calculation that included both the expected lifetime of each

type of unit and the difference in maintenance costs

would raise the effective price of the “manufactured”

(mobile) units. As a 1985 report for the Department

of Energy states: “Manufactured home occupants . . .

consume more total energy per heated square foot

than do occupants of other single-family detached

homes’’ 13–48 percent more from April 1980 to

March 1981, and 31 percent more 2 years later. Furthermore, the Technical Advisor for Navy Housing

recently concluded that when quality and upkeep

costs are taken into account, “the mobile cannot

compete economically.”14

IZU.S. Genera] Accounting Office, Comptroller General, “Greater Use

of Innovative Building Materials and Construction Techniques Could

Reduce Housing Costs, ” Washington, DC, 1982.

Ispacjfjc Northwest Laboratof_y’, “Impact of Alternative Residential

Energy Standards,” November 1985, p. 33.

lqRichard Hibbert, LJ.S Nav)’, correspondence dated ~!ar. 6, 1986.
38

HOUSING

Objective measures of quality in housing are difficult to construct. The “satisfaction” rating for both

site-built and “manufactured” (mobile) housing has

increased steadily during the past decade. In a 1983

Department of Census survey, 60 percent of the respondents living in site-built homes constructed in

1976 rated their house as “excellent,” and 80 percent of respondents living in a house built in 1983

gave their homes the same rating. For “manufactured” (mobile) homes, “excellent” ratings were

given by 30 percent in 1976 and 54.6 percent in

1983. 15 Table 9 compares site-built and “manufactured” (mobile) homes from two different periods.

While newer units fared better than older units in

most cases, the site-built units were less likely to suffer from any of the defects surveyed. Also, other

defects, including inoperative doors and windows,

leaky pipes, and electrical wiring problems, have increased substantially in newer “manufactured” (mobile) homes.l6

In an effort to determine whether these reported

defects did exist, the RADCO company made several site inspections of units that had been the subject of a previous survey. One or more major problems were discovered in three of every four units.

‘sWestat, Inc., “Analysis of Annual Housing (AHS) Data Pertaining

to 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 Site

Holes in floora . . 5.2 1.8 1.8 0.5

Peeling paint (currently) . 1,4 3.9 0.8 0.4

Broken plaster (currently). 1.5 3.4 0.9 0.5

Units with nonworking

outlets (currently ) 2.3 3.6 2.0 1.2

Fuses or switches blown

(in last 90 days) .,, 15.8 17.3 16.4 18,1

Exposed wires (currently) 1.9 2.8 1.1 1,9

Heating breakdown ... 6.8 4,4 5.1 2.2

Roof Iea k

a 

. . . 21.9 6.8 20,0 3.6

Toilet breakdown

(in last 90 days) ,, .,,,,., 4.4 4.1 7.0 5.1

Holes or cracks in interior

walls/ceilings (currently). 4.7 5.5 2,3 1.8

as@b@t home respondents were asked about “current’ problems manufactured home residents were asked about problems in the ‘‘past 12 months “

SOURCE Westat Inc ‘Analysls of Annual Housing (AHS) Data Pertalrung to the Durat)tl!ty of

Manufactured Housing “ February 1986, p 4-3

QUALITY

Furthermore, field inspectors observed problems that

had not been reported by homeowners in approximately 80 percent of the houses. Of the 520 problems identified in 81 homes, 30 percent were due

to 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 be

determined .17

The relatively poor performance of the “manufactured” (mobile) units just cited does not stem from

factory production technique. More likely, it reflects

the 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 physical and esthetic quality of housing. In the United

States, the term “prefab” still calls to mind inexpensive, monotonous, and drab housing. Consumers

tend to believe that American factories produce

dreary, shoddy homes. However, the high-quality,

high-status houses constructed in Swedish plants

prove that factory construction can offer significant

advantages at various stages in the homebuilding

process, from the initial design phase through the

production, assembly, and erection of the end

product.

Common stereotypes notwithstanding, the U.S. industrialized housing community has met consumer

demand with the development, through basic engineering procedures, of various housing configurations. Units mimic the styling array of conventional

“stick” builders: one-story, two-story, split-level, exposed ranch, contemporary, and traditional. They

feature varied foundation systems, roof configurations, fenestration, and floor plans.

In certain cases, particular features are limited. For

example, while 24-inch stud spacing has proven

sufficient for most homes, the interior sheathing used

in some industrialized housing is too thin to span

this distance and still remain flat. On the whole, however, many options are available to the consumer

of industrialized housing. Component and modular

manufacturers produce up to 1,000 different models

17ResOurCes, App]i@Ons, Designs & Controls, Inc. (fUDCO), “Final

Report for Durability in Manufactured Homes, ” December 1985,
39

to choose from, and provide custom design options

for high-income buyers.

Improvements in computer-assisted design (CAD)

should enhance design flexibility still further. Prospective homebuyers may now design their own

floor plans, and compare different interior and exterior wall coverings in the unit spaces. The Japanese connect this process directly to production

equipment, which then deliver pre-assembled units

to a construction site within 3 weeks.

Concerning the manufacture of component parts,

the factory setting offers the efficiencies of mass production so that structural components—such as

floors, roofs, windows, and doors—can meet uniform

tolerances. The high quality of prefabricated building components has contributed to their acceptance

by many State and local building codes. Component

manufacturers confront markets that can absorb high

volumes of production, which helps to offset the fixed

costs associated with automated manufacturing

equipment.

Factory construction means that homes can be

built to more precise standards, and can benefit from

more reliable assembly. Onsite construction and assembly work is vulnerable to the vagaries of weather,

and workers may cut corners—especially when a

layer of drywall and paint will cover a multitude of

sins. The incentive and opportunity to do this is reduced in the factory. In Sweden, the resulting quality is such that most firms offer 10-year guarantees

on their products.

U.S. manufacturers have only begun to implement

technologies that are already realized in Swedish and

Japanese industrialized housing. Still, certain advantages of factory construction involve quality improvements that would not be readily accepted by contemporary American markets. Some industry

analysts believe that this problem may be solved

through a system of rating or labeling houses according to graduations of quality (see ch. 6). Finally, recent improvements in the design and manufacture

of commercial structures should affect residential

construction, 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 the

United States and the American tradition as an innovator of mass-production technology, other industrialized nations top the United States in terms of

homebuilding technologies. U.S. firms can learn

much from foreign developments.

The sophisticated manufacturing facilities of foreign housing industries constitute the major difference between U.S. and foreign firms. Most American plants lack modern equipment, relying on

unskilled laborers and worker-operated machines.

Skilled operators and high-speed assembly lines

make Scandinavian factories more capital-intensive,

especially those in Sweden. Some Japanese companies have automated to the point where they employ robotics and computer controls for production.

The Japanese are beginning to market homes

through “showrooms” that provide customers with

an enormous range of design options.

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

Photo credit: Don O. Carlson

An American manufacturing facility. Workers glue

panels by hand, rather than with automated

techniques.

Japan, Sweden, and other Western European nations now see the United States as a major market

for manufactured housing. Foreign penetration,

which was unthinkable just a few years ago, has now

raised considerable concern and debate within the

industry. At the same time, some members of the

U.S. industry believe that the existing domestic approach can satisfy American market demand, and

negate the potential of foreign investment in research

and development. One observer of the U.S. “manufactured” (mobile) home industry contends that the

Japanese and Europeans are “obsessed” with technology.2 The vice-president of one of the largest firms

in the United States visited a construction research

facility in Japan and asserted that “he could not believe all these [research] employees just running

wild” and that “if he were head of Taisei he would

fire every one of the R&D staff and save the company $25 million per year.”3 However, other observers argue that the U.S. industry has grown complacent with the assumption that construction is a

“nontraded” commodity. They fear that the lack of

U.S. research and development robs American

homebuyers of both qualitative improvements and

cost reductions, and increases the opportunity for

foreign producers to penetrate markets.4

In order to assess the potential impact of foreign

competition, as well as to provide some points of

comparison with the U.S. housing industry, this

chapter examines industrialized housing in nine

selected countries. Also, it will address a range of

domestic and international factors that affect foreign

penetration 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 Construction,” contractor report for the Office of Technology Assessment, Mar,

17, 1986,

4See for example the article by Don Carlson in Technology and the

Future of the U.S. Construction Industry (AIA Press, 1986).

43
44

JAPAN

Japan’s housing construction industry is based on

high-volume concentration in a small number of

firms, design flexibility, and capital-intensive, hightechnology production. Table 10 summarizes the

characteristics of Japan’s five largest business enterprises, which as a group produced 56,000 units of

industrialized housing in 1983. Several of these firms,

including Matsushita, Asahi, and Sekisui, own stock

in housing companies. Misawa spent 1.5 percent,

or $7.5 million, of its 1984 sales on research. Sekisui

spent 0.2 percent, or $2.5 million.5

However, the 170,000 factory-built homes that are

sold each year represent 15 percent of the Japanese

housing market (see table 11). Most houses are still

produced by traditional “post-and-beam” frame methods; a small number, about 7 percent, are multifamily structures or are built with American 2 by

4 inch wood stud techniques.

Several large corporations control home manufacturing: Misawa, Daiwa, National Homes, Sekisui

Heim, and Sekisui Chemical. These five companies

account for 86 percent of Japan’s total production.

Their factories are highly automated, using such

modern equipment as robotic welders and mainframe computers. Each plant can produce thousands

of units per year.

Many of these houses are wood-framed modulars

with walls constructed on a wooden lattice, rather

than with the stud wall construction employed in

American modulars. Building elements, such as walls

and floors, are assembled into small modules in the

factory and trucked to the site. These modules often

lack the factory finish of an American modular.

The one notable exception to the wooden lattice

system is the precastle autoclave lightweight ceramic (PALC) system, developed by Misawa Homes

with extensive funding from the Japanese Government. Modulars of this material, which resembles

European lightweight concrete, contain a homogeneous envelope that functions as structure, insulation,

fireproofing, and interior/exterior finish. Currently,

Misawa produces this type of house in only 1 of 23

plants, but claims that PALC units require just 170

man-hours to construct—as opposed to 3,300 manhours for standard “post-in-beam” techniques, or

1,000 man-hours for pre-stressed wooden panel systems. This represents an extraordinary gain in productivity. 6

Misawa has developed elaborate equipment for

fabricating these insulated wall panels with a variety of interior and exterior finishes, and has engineered automated devices to fabricate panels con5JamesMCf@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 Chemical

Total production (83). ., ., ., .40,436 30,650 20,794 20,444 12,237

Year founded . . . . ... . . ., 1960 1962 1955 1963 1947

Factories producing housing ., ., ., 4 22 12 4 6

Total employees. ., ., 8,014 1,105 5,672 2,010 6,038

Total assets (million yen) . . . . . 597,497 138,208 289,198 69,346 290,937

Equity ratio ... . . . . . . . . 26.7 20.0 34.0 25.2 18,0

Major 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 8.6

Foreign ownership (%) ., ., 12.8 11.3 15.8 6 . 0 10.3

Sales breakdown (%)

Building materials ... ., . . . — 69 87 6 3

Housing construction : : : : : : 79

—

— — 2 7 38

Other construction ., . . – 13 —

Housing lots, : : : : ... –

— —

— — 10

Real estate ., . . . . ... ., 21

—

— 13

Other activities . . ., ... –

— —

18 — — 68

Sales–March 1984 (million yen) ., 443,742 (Jan. 84) 126,216 285,689 97,92 4 324,018

SOURCE 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........10.8

1980 . . . . . . . . . . . . . . . . . . . . . . . . ...................12.6

1981 . . . . . . . . . . . . . . . . . . . . . . . . ...................13.6

1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........14.4

1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..15.3

SOURCE: Building Center ofJapan,1964. Cited in James McKelleL “industrialized Housing: The Japanese Experience:’ Alberta Department ofHousing, December 1965, p. 76

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

sheets.

Most Japanese prefabricated homebuilders maintain sales offices throughout the country. In 1980,

for example, Misawa sold 13,000 units through franchise dealers, employing 1,700 sales personnel in

163 branch offices. Manufacturers sell through

“home show parks," where model homes of many

different firms appear in the prime retail locations

of major cities. Accordingly, land costs represent a

major investment. The Sendai Park, located on the

site of Osaka World Fair, shows 48 homes and is

the largest such facility. The Tokyo Housing Fair displays homes in Shinjuku. The Asahi Broadcasting

Co. operates both of these home show parks, charging approximately $7,000 per month for each house;

the fee covers land, management, and advertising.

After viewing these displays, the prospective

homebuyer can, with the help of an architect, custom design his house using a simple CAD (computerassisted design) system. Upon completion of the design, a materials list is generated instantaneously.

The buyer then receives a price, and the order goes

to the factory.

Widespread export of Japanese industrialized

housing or manufacturing technology has not

occurred. Misawa plans to construct a PALC plant

in South Korea, and intends to arrive in the United

States within the next several years. All of the major manufacturers have expressed an interest in the

U.S. market. They would welcome joint ventures,

but do not wish to commit to large-scale investments.

Daiwa is employing conventional U.S. technology

in Houston and California, perhaps to learn the market 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 order

to penetrate foreign markets. Aside from differences

in taste, Japanese domestic markets emphasize fireresistance and the ability to withstand earthquake

tremors to a greater extent than U.S. markets. Energy

efficiency receives little attention, due to the mild

Japanese climate; few Japanese residences have central heating.

SWEDEN

The 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 exmid-1960s, Sweden set a national goal of building ceptionally high standards of quality, and offer

1 million new homes in a decade, This goal was multiyear guarantees for parts and workmanship.7

achieved by reorienting the nation’s homebuilding

industry around factory production, and the trend IFOr a r~ent review of developments in Swedish manufactured houscontinues 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 89

Site built (o/o) . . . . . . 40 45 45 57 58 52 56 51 51 42 35 18 11

Total 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 19,3

NOTE: “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 industrialized

housing companies, 12 are considered to be “large.”

Building systems include small and large woodframed, highly insulated panels, which may be handled by either workmen or a small crane. Factory

techniques represent the state of the art. Typically,

computer controls operate factory production lines,

allowing for flexibility in the type of the units

produced. Swedish houses incorporate many innovative technologies not in use in the United States;

interestingly, some are produced by subsidiaries of

American firms.

Swedish manufacturers export homes to West Germany, Austria, Switzerland, Holland, Norway, Denmark, Finland, the Middle East, and North Africa.

The Swedes have begun shipping to the United

States, on a limited scale. Swedish Wooden House

has erected high-quality, energy-efficient housing in

the United States for several years. Skanska, the major international construction and engineering firm,

has entered the U.S. market in both commercial and

residential construction. Also, as of March 1986, no

fewer than 20 American corporations were engaged

in importing Swedish houses, with a combined projected 1986 sales volume of 1,500 units. Nearly all

plans to establish manufacturing facilities have

grown out of joint ventures with Swedish factories.

Currently, an overcapacity exists in Swedish

homebuilding factories, and production is at half its

peak level. As a result, the Swedes may attempt to

increase exports. The high-quality house represents

the most likely product for the United States, erected

with local custom builders in subdivisions of 10 or

more units.

Sweden’s dramatic progress in the housing sector has resulted from a broad national consensus and

direct government policies. The government subsidizes mortgages, including costs related to energy

and water conservation, and spends three times as

much money on direct building research than the

United States.8 Including spending through universities and industry research, Sweden’s total building research budget approaches $200 million per

year.

81bid.

FINLAND

Industrialized housing in Fin and is widespread,

including 60 percent of single-family homes built per

year, although the Swedish industry is still greater.

The predominant form employs the small panel, followed by units with large panels and modulars. Panelized systems maybe closed in by the manufacturer,

or delivered as kits to the owner/builder. Modular

construction is also gaining popularity. As a whole,

the residential construction industry enjoys an annual growth rate of 20 percent.

Finland’s industrialized housing industry and its

wood products industry are interrelated. Many firms

produce the lumber and materials that will be used

for individual home units.

The Finnish experience in exporting building materials like wood products and granite, the export

orientation of Finland’s economy, and its global

placement of trade-oriented consular officials all place

the country in a strong export position. Traditionally, trade has been with Africa and the Middle East,

specializing in camp buildings. More recently, panelized homes and precut log houses have been exported to Great Britain, Sweden, South America, the

United States, and—most of all—the Soviet Union.

Finnish houses are found in 90 countries. Makroscan

USA, a subsidiary of Makrotalo Oy, one of the eight

large house manufacturers in Finland, and MakroEngineering, a manufacturer of house-factory equipment, are currently finishing a project in Massachusetts. They now seek builders interested in using

their system, as well as other joint manufacturing

ventures. Also, they sell factory equipment.
4 7

DENMARK

The Danish industrialized housing industry aims The small panel system, produced by such comfor 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 unit

At the same time, international contractors like A. at Brookhaven National Laboratory, the first in a clusJespersen & Son and Larsen & Nielsen have con- ter of energy-efficient houses from abroad.

structed large projects throughout the world, primarily in the Middle East, using a prefabricated concrete

system produced in local factories.

Canada’s housing construction industry does not

compare to that of the United States, basically due

to the small Canadian housing market—150,000

units per year. However, Canadian manufacturers

have experience in exporting precut, panelized, and

modular building systems, especially Viceroy, Britco,

and Freure Homes. Viceroy sold 1,200 of its precut

home packages in 1984, and topped that a year later.

The firm now plans to expand aggressively in North

American markets, and expects to establish manufacturing facilities in Florida and Canada. Viceroy

credits its success to both outstanding design and

the high quality of their materials.

Some industry members believe that despite

shrinking demand, the market share for industrialized housing will increase as Canadian housing construction shifts from large developments, where there

is an economic advantage to site building, to dispersed rural housing. Factory-produced homes

should have a cost advantage over site-built houses

erected by small rural builders.

Housing exports from Canada to the United States

may increase rapidly in the near future. Most Canadian housing factories are situated near population

centers, within range of the United States. One American inspection and certification agency has already

been contacted by five Canadian manufacturers

about exporting homes to the Northeastern States.

The relative strength of the U.S. dollar has served

as an economic advantage, generating low shipping

costs.

GREAT BRITAIN

For over a century, the British have led in design

and construction of industrialized buildings. They

shipped prefabricated schools and commercial buildings to the Middle East, Africa, and Asia long before many of today’s large firms entered these markets. Most British building systems rely on metal

framing, given the domestic shortage of construction lumber.

British real estate investors have been active in

the major U.S. cities for some time, and British companies have entered the U.S. housing market by

using traditional building techniques. Britain’s Barratt Homes, which last year built approximately 11.5

percent of Britain’s private housing, has established

an American subsidiary, and hopes to complete

4,000 to 5,000 homes annually during the next few

years. Another British firm, John Laing Homes, now

operates in southern California. Laing plans to complete 200 units in 1986, and 1,000 units a year

thereafter.
48

FRANCE

Along with the British, French firms have been

among the top five international contractor groups

for many years. Recently, several French companies

have entered U.S. markets as real estate investors

and developers. For example, Les Nouveaux Constructeurs produces conventionally built housing in

Los Angeles, and expects to complete 300 homes

per year by 1988 and 500 by 1990. The firm’s management believed that California had a stronger and

more sustainable economic base than other areas

of the United States.

In a joint venture with U.S. Home, Maison Phenix has built a limited amount of steel and concrete

housing in Florida. Also, Filled has attempted to sell

French-designed metal-framed housing and commercial buildings.

NORWAY

Traditionally, Norwegian contracting firms have ter, and also has plans for conventionally built conbeen active in the Middle East, Africa, and Malay- dominiums and townhouses in the Orlando area.

sia. Sandegruppen A/S, the largest group of contractors in Norway, now operates in the Orlando, Florida, At least one other Norwegian homebuilder, G.

Black Watne A/S, currently operates in the United area as the Selmar Corp. Selmar will construct the

Norwegian Pavilion at Disney World’s EPCOT Cen- States, in the Austin, Texas, area.

WEST GERMANY

West 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 producers

penetrated U.S. markets for nonresidential construc- have not yet entered U.S. housing markets.

tion and development. The United States accounted

for over $2 billion worth of contracts, or 41.7 percent of the foreign volume of West German firms

in 1985, according to Engineering News Record.

OTHERS

At 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 decorative

eluded those mentioned above, as well as firms from items—were shown. Foreign exhibits accounted for

Holland, Italy, and Belgium. Additionally, housing- approximately 15 percent of the total exhibit space.
Chapter 5

International Competition in

Industrialized Buildings,

Components, and Appliances
Chapter 5

International Competition in Industrialized

Buildings, Components, and Appliances

Penetration of the U.S. housing market by foreign

building producers is not widespread, but is greater

now than at any time in the past. A number of foreign manufacturers have decided that the potential

gains outweigh the risks involved, and have entered

the American market already; others plan to do so

in the immediate future. Conversely, opportunities

for U.S. penetration of overseas markets are, at best,

limited.

During the last several years, foreign building system producers have expressed an increasing interest in the U.S. market. Evidence of this includes the

substantial foreign presence at expositions like the

National Association of Home Builders (NAHB) convention, the number of foreign housing manufacturers seeking U.S. building code approvals, and the

actual number of foreign building projects under development in the United States.

Primarily, four factors explain this international

competition:

1. a decreasing world building market, especially

in the Middle East;

2. aggressive foreign pursuit of technological advances within the housing construction industry;

3. a greater interest in housing quality on the part

of U.S. buyers; and

4. a decline of traditional markets to which foreign housing manufacturers export, and a corresponding excess in production capacity.

Foreign building products that may be exported

to 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 research conducted by the Steven Winter .Associates, Ne~’ York, NY.

scribed in chapter 2, constitute either the whole or

the major elements of a building structure in prefabricated form, and include panelized, modular, “manufactured” (mobile), and wet core systems. Components, which do not fall within the scope of this

report, are minor assemblies, subsystems, or elements like roof trusses, cabinets, appliances, equipment, building materials, hardware, fixtures, and accessories. In the long run, however, foreign

producers will influence U.S. housing markets more

through technology transfer than with sales of entire structures. Joint ventures with U.S. firms represent a probable vehicle for this transfer.

Currently, only a small number of foreign building systems exist in the American marketplace. However, component imports have increased substantially over the last 5 years, including roofing,

hardware, steel and steel products, wood and wood

products, kitchen and bath fixtures, appliances, heating and ventilating equipment, and a variety of

decorative finishes and materials.

Market penetration by foreign building manufacturers could change rapidly in the near future. A

number of manufacturers plan to export woodframed panelized systems to the United States, upon

completion of their market surveys and once building codes are approved. A case study comparing two

Swedish systems with the Council of American Building Officials (CABO) Code for one- and two-family

dwellings found that with minor changes, the two

systems could satisfy U.S. statutes. Most of these

changes stem from the fact that while Swedish codes

are performance-based, CABO’s—and most U.S.

codes—are prescriptive. The arrival of other technologies, such as the Japanese ceramic house, does

not seem imminent, but this may change with further technological development or market fluctuations.

51
52

TRADE FACTORS AFFECTING EXPORTS TO THE UNITED STATES

Foreign building exports to the United States depend on the products’ qualification as an acceptable

building type, and also on market conditions, government policies and assistance, and related business strategies and decisions. These various conditions will affect the relative success of foreign

products in the United States. Overseas manufacturers cite several incentives to risk penetrating U.S.

markets.

Currency Exchange Rates

Fluctuations in the value of the dollar in relation

to other currencies have, over the past decade, benefited foreign housing products. However, because

component costs represent less than a third of the

selling price of a house, changes in American tastes

and expectations of quality may be just as important as changes in exchange rates.

Availability of New Markets

When compared to markets in most countries considering exports to the United States, the American

housing market is enormous. Only Japan approaches

the U.S. level, producing approximately 1 million

units per year. As a result, the potential for new business is greater in the United States than elsewhere.

The United States also holds various sectors, with

opportunities for exploitation of specialized niches

like vacation housing and condominiums.

Idle Plant Capacity and the Decline

in Existing Markets

Companies that produced housing for the Middle

East, North Africa, and developing nations have contended with a shrinking market in recent years. Reductions in oil prices and oil production, as well as

the increasing Third World debt, have limited largescale housing programs.

In addition, some foreign exporters project a decrease in domestic housing markets due to satisfaction of post-World War II demand. In the last several years, Sweden’s domestic output has declined

from 100,000 units per year to 40,000. Japan has

also reduced demand for housing, through various

5-year plans. One observer believes that the Japanese will turn to renovation instead of construction,

largely because of high land values and a shortage

of building sites.

Against decreasing demand in many industrialized countries, companies that expanded production

facilities now seek new markets. The United States

may absorb much of this excess capacity. Third

World markets are vast, but these nations cannot

afford most available products.

Experience in International Trade

Foreign building manufacturers have significant

experience in international trade. The typical Finnish housing manufacturer exports 50 to 70 percent

of its housing production. Other Scandinavian firms

export housing to the Middle East, North and Central Africa, the Soviet Union, South America, the Far

East, and continental Europe.
53

FOREIGN GOVERNMENT POLICIES AFFECTING INTERNATIONAL

TRADE IN HOUSING

Foreign government actions can have a large impact on exports from their countries. Many nations

provide incentives and aids that are not available

to American housing manufacturers.

Overall Strategies and Planning

In most industrialized countries, government and

industry cooperate more than they do in the United

States. The decision to export housing to the United

States may be more than that of a profit-oriented firm

seeking a new market; it may also reflect goals for

the national economy, and for long-range industrial

planning.

The current success of the Japanese housing industry has resulted from successive 5-year plans to

achieve national goals in domestic housing. Development of such high-technology materials as ceramic

wall panels was the direct result of the “House 55”

research program, in which the Japanese Government funded advanced materials and systems research by leading Japanese companies, Pressure to

increase domestic consumer spending may spur Japanese interest in supporting an innovative construction industry. The average size of a Japanese home

was approximately 800 square feet in 1968, and 860

square feet in 1978; this is still less than half the size

of an American home. Clearly, the Japanese cannot yet match Western standards of “adequate”

housing. 2

Market Information and

Trade Representation

Many countries open their consulates and commercial attachés to domestic firms that intend to expand business prospects, another example of cooperation 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 Swedish firms with opportunities in the American market, The Danish consulate in New York has coordinated the export activities of manufacturers, and

arranged for a multifirm booth at the 1985 NAHB

exposition. The Finns maintain commercial attachés

in New York and Houston; the latter office assists

efforts to sell panelized housing to builders. The consulates of France, West Germany, and Canada have

acted as conduits to channel market information

back to manufactured housing exporters

home countries. U.S. consulates could be

similar ways.

Financial Assistance

Foreign governments support domestic

in a manner unheard of in this country.

eludes:

● low-interest loans to clients of domestic contracin their

used in

builders

This in-

●

●

●

●

tors or materials suppliers,

project risk/profitability insurance,

low-interest loans or tax benefits to contractors

to erect projects in politically important areas,

direct government-to-government loans that

help to purchase products from the lender

country,

special tax incentives for export initiatives like

market surveys, and

performance bonding of domestic contractors.

Also, foreign governments channel aid so as to

benefit builders. Following the 1980 Italian earthquake disaster, the United States sent relief money.

European countries sent housing or supplies from

their own markets, which both determined how aid

would be spent and gave business to their own companies. In contrast, “Buy American” programs in the

United States often fall short of their goals, as when

the Army Corps of Engineers allows the use of nonU.S. materials for mechanical, electrical, and infrastructural subsystems.
54

IMPEDIMENTS TO MARKET PENETRATION

Obvious risks stand in the way of foreign housing manufacturers’ attempts to export to the United

States. Some are inherent in international trade, and

others are peculiar to the practices of the U.S. building industry.

Changes in the International Market

Largely due to the currency exchange rate, foreign firms have had an advantage in the U.S. market. However, recent international monetary developments may leave these firms overextended. Some

foreign manufacturers hope that other factors, such

as product quality, will allow them to remain competitive in the U.S. marketplace. Others plan to adapt

to changing currency rates by deemphasizing exports, instead establishing operations in the United

States that resemble those of Japanese automobile

and construction equipment manufacturers.

Lack of Understanding of

American Markets

Foreign manufacturers of building elements come

from smaller countries with more homogeneous populations, tastes, and climates than the Unites States.

To understand the nature of a single market is a difficult task. The complexity increases when that market is composed of varying submarkets.

Producers may attack this problem by targeting

specific market locations in the United States suitable for their products, based on such factors as climate and physical characteristics. This may mean

the Northeast for Scandinavian insulated wood

framed and finished panels, but southern California

and Florida for Japanese ceramic panels, since these

southern markets accept concrete and stucco-like

products similar to the Japanese ceramics. Also, the

ceramic material differs from traditional materials

used in northern areas, and is unlikely to be accepted

there.

Regional tastes, building traditions, and demographic trends also enter into consideration. This

process worries foreign producers, who see the

American market both as a great opportunity and

as a place where they could go astray. A number

of firms, including Norway’s G. Block Watne in

Texas, have built housing by conventional U.S. techniques, in order to become familiar with the U.S.

housing industry before introducing their own technologies.

Lack of Knowledge of Optimal

Business Relationships

Foreign producers are unfamiliar with the U.S.

business world. Firms risk a great deal by entering

into joint ventures, acquisitions, and the direct import of components. Some companies are forced into

certain practices. For instance, if no U.S. firm agrees

to a joint venture, the foreign firm confronts the market alone. A number of firms leave their options

open, postponing major decisions and commitments

until they familiarize themselves with the market.

Demonstration “model” houses and small projects

test the waters, displaying the system’s feasibility and

encouraging potential U.S. partners. Often, however,

these isolated test market attempts have little impact, and do not provide adequate marketing information. Another strategy is the purchase of U.S. companies in order to acquire “in-house” market

expertise, but this leads to difficulties in holding on

to key personnel.

Difficulties in Locating Interested

U.S. Firms

As opposed to other industrialized countries, the

American building industry is decentralized. Japan

has 5 large house manufacturing concerns, Finland

has 8, and Sweden has 12. When these companies

look for potential partners in the United States, they

choose from hundreds of firms. The “right” partner

is not easily found.

In addition, due to the decentralized building industry and to the small size of most firms, American companies often lack the available capital to

contribute to a joint venture, although the limited

joint venture between Phenix International and U.S.

Home to build housing in Florida represents a prominent exception. The larger firms are not easily convinced that a joint venture is in their best interest;

major U.S. manufacturers have not leaped at the opportunity to join with Danish firms. Generally, Amer-
55

ican companies look for monetary gain, not technological improvement. Also, there is a tendency in

the American building industry to continue in accepted patterns, ignoring innovative procedures until

they have been proven effective elsewhere.

Materials Acceptance Problems

Foreign housing manufacturers use materials and

techniques that may seem strange to Americans. Exposed materials and structures, highly textured

cementitious finishes, steel frames, concrete and

metal roofing tiles, and ceramic panels are not well

known, and may not be accepted in many parts of

the United States. This problem stems from the variety of American markets. Typically, U.S. building

markets have resisted new materials technology;

many top U.S. firms that entered the housing market with innovative products, such as Boeing, U.S.

Steel, and Alcoa, have given up this practice. These

firms discovered that marketing houses differed from

marketing other products, However, recent developments point to changing public tastes, primarily

in urban areas where new architectural styles-’ ’postmodernism, ” for example—have led to distinctive

zero lot line and multifamily housing projects. In

coming years, products now sought after as “hightech” should become acceptable to the “trendy” marketplace.

Problems of Materials Testing and

Acceptability of Foreign Standards

Building materials from abroad must comply with

U.S. standards of fire safety, strength of materials,

and durability, which apply to steel and wood framing, interior and exterior finishes, electrical and

plumbing system elements, insulation, and other factors. Few foreign standards and test procedures demonstrate compliance with U.S. codes. Manufacturers

will be forced to undertake extensive and costly materials testing in order to meet U.S. requirements.

This represents an added deterrent, as well as a time

delay, for the producer considering exports to this

country.

Building Codes and Inspection Systems

Factory-produced building systems used in the

United States must be approved by each local building official who has jurisdiction over a given project.

They can also obtain the National Evaluation Service inspection offered by the model code agencies

and their umbrella organization, CABO. The latter

course of action works when the system is used

widely and in different locations, but it requires a

significant time and money commitment, and does

not guarantee acceptance of the ruling in all jurisdictions. Furthermore, each factory must maintain

its own quality control and inspection program.

Although European manufacturers view the multiplicity of U.S. codes as a major impediment, European firms have begun to study code procedures in

the United States. Several Scandinavian panelized

producers are now obtaining code approvals. The

Japanese have also started to gain approvals for their

systems under the U.S. codes; recently, Misawa

Homes of Tokyo obtained approval for a wood lattice panel system. However, no large-scale effort is

underway.

Trade Restrictions

Foreign manufacturers recognize that calls for protection from foreign penetration would rise with their

increased presence in the U.S. market. Eventually,

foreign manufacturers may submit to voluntary export limits, as has occurred within the Japanese automobile industry. Of course, foreign manufacturers

could instead establish production facilities in the

United States, either by buying U.S. firms or by creating a U.S. subsidiary. This would allow them to

circumvent import quotas while maintaining profits from the U.S. market.

Lack of Understanding of

Real Estate Markets

The housing market in the United States reflects

not only the complexities of the house and its associated features, but also the intricacies of the real

estate market. Foreign manufacturers could become

involved in unprofitable projects, where failure

stemmed not from the quality and suitability of their

building system but from a lack of understanding

of the local real estate market. In this area, many

foreign firms seek American partners or consultants.
56

Liability

Many Europeans fear the problems of confronting the complex issue of liability in the United States.

The possibility of being saddled with lawsuits concerning product liability, an area of U.S. law that is

presently in a state of flux, worries foreign manufacturers.

Shipping Costs

Shipping costs represent the principle economic

impediment to exporting housing to the United

States. The cost of shipping a modular home from

Europe or Asia to America is approximately $25,000,

which precludes large-scale exportation of such products to this country. However, shipping costs are not

prohibitive for more compact housing forms. One

Scandinavian manufacturer estimates shipping costs

for a panelized home at 6 to 12 percent of home materials costs, or 2 to 6 percent of total costs. Even

after shipping costs, many products can be priced

competitively in the United States due to cost advantages in production.

IMPORT POSSIBILITIES FOR VARIOUS BUILDING SYSTEM TYPES

Opportunities for exports to the United States of

the generic types of building systems, described in

chapter 2, will now be examined in detail.

Precut Systems

Precut housing systems, except for log homes and

those from nearby Canadian manufacturers, are not

easily imported to the United States. Wood-framed

“stick” systems cannot compete, due to the high cost

of imports as compared with available domestic systems. “Stick” systems would require expensive U.S.

labor to assemble the building, and would create the

logistical problem of shipping many small pieces.

These systems perhaps best illustrate which elements make a product suitable for import to the

United States. Normally, the cost of the structural

frame accounts for only 10 percent of the total house

cost, and the house shell for only 30 percent. Building systems that supply only the materials for these

elements cannot realize substantial savings, even if

the cost of the materials falls below corresponding

domestic levels.

In order to penetrate the U.S. market, an imported

building system could focus on elements that require

skilled workmanship, emphasize concentration of

cost in the elements shipped, or bring out the visibility, styling, or refinement of the product.

Panelized Systems

Panelized systems represent the most likely type

of foreign building systems to enter the United States,

now and in the immediate future. Unlike modular

units, panelized systems can be packed compactly

against each other. The manufacturer does not pay

to ship an excessive amount of empty space, because

this type of cargo is usually shipped at a rate proportional to its volume.

Concrete Panels

Shipping of heavy concrete panels would not be

cost-effective. These units can be produced in the

United States at a lower price and are not used to

any great extent for residential projects.

Lightweight cellular concrete panels may play a

more important role in the future, due to their reduced weight and superior thermal performance.

Again, however, domestic production would be less

expensive.

Although no evidence exists regarding prior imports of concrete panels, a number of Scandinavian

manufacturers, including Denmark’s A. Jespersen

& Son, have expressed an interest in selling forming equipment and technology.
57

Steel-Framed Panels

Currently, steel-framed composite panel systems

are produced in Great Britain, Australia, West Germany, Finland, France, Belgium, and the United

States. Intended for export—often for use in the construction of camp buildings, where large amounts

of worker housing must be built rapidly—this framing system has advanced primarily in nations that

lack either a large supply of lumber or a strong tradition of wood framing. A major French producer

claims that steel-framed houses imported to the

United States could sell for 20 percent below the cost

of comparably sized, conventional American houses.

Attempts are now being made to sell this system in

the United States.

The use of steel framing for single-family housing has met with little success in this country, although lightweight steel studs have been used widely

for interior partitions in multifamily units. Conventional single-family housing can be erected in a costeffective manner with light gauge steel, but wood

remains the market preference.

Steel framing or steel panels do satisfy the requirements of noncombustible construction, generally in

buildings over three stories and in the metal building industry. Steel-clad insulated spandrel and curtain wall panels shipped from foreign countries can

compete with equivalent U.S. products. Furthermore,

increasing interest exists in steel-framed modulars

for urban housing programs and for low-rise commercial office space.

Wood-Framed Panels

Wood-framed panels with integral foam plastic or

mineral wool insulation resemble their U.S. counterparts, and are imported into the United States already. Given this market acceptance, expansion may

soon occur. A common method for residential construction in Scandinavia—up to 60 percent of the

single-family detached housing and 30 percent of the

townhouses are panelized in Finland, and over 80

percent in Sweden—wood-framed panels have been

exported in large numbers to the U. S. S. R., the Middle East, and North Africa.

Japan’s manufactured housing industry contains

a large wood-framed segment, but Japanese panels

employ a lattice of smaller framing members rather

than 2 by 4s, and are assembled into small modules before transportation to the site.

Wood-framed panels are relatively small, 4 to 16

feet by 8 feet, and can be handled and erected without equipment. Some manufacturers offer larger,

custom-designed panels, which require a small crane

for erection. The framing protects the edges of the

panels, and the voids between the framing contain

either foam plastic or fiberglass/mineral wool insulation. A continuous vapor barrier maybe installed

in the panel. Also, various surface finishes can be

applied, such as plywood, fiber board paneling, and

gypsum board.

Panels are used in the high-end residential market, where quality is a positive selling point, or in

the low-end market of camp housing, since they can

be easily assembled into modules. Imported woodframed panel technology offers a number of advantages over conventional U.S. stick-built construction:

●

●

●

●

●

high material quality and good craftsmanship;

high levels of thermal insulation, up to R-37 in

walls and R-47 in ceilings;

adaptability to varying floor plans;

higher degree of building tightness; and

availability of sophisticated finish materials.

Spandrel Panels

Prefabricated metal spandrel panels, or curtain

wall systems, are components, not building systems.

As such, they are not part of this study’s direct focus. However, they could become a significant import item. They contribute to facades of conventionally framed commercial buildings, and are currently

imported to the United States from Italy, France, and

Sweden. This foreign panel can fit easily into the

U.S. market, since it does not involve changes in

basic construction practice, European panels might

replace American panels, although cost remains a

consideration.
58

European Penetration of

U.S. Panelized Systems Markets

Several European firms have entered or have expressed an interest in the U.S. market:

●

●

●

●

Hosby of Denmark and Makroscan of Finland

both exhibited panel systems in the United

States, and desire to work with American

builders. Hosby has built a model house to be

evaluated for energy efficiency and technical advantages at Brookhaven National Laboratory in

New York; Makroscan has built housing on Martha’s Vineyard. The Hosby house received 4,000

visitors, including builders, architects, and potential homeowners, in its first weekend, and

has averaged 400 visitors each weekend since

then. This indicates substantial interest in Danish products.

Phenix International and Filled of France are

active in this country already, Phenix has purchased 16 percent of U.S. Home, and has joint

ventured in Florida. Filled has built some steelframed demonstration units, and markets its

products through Modular Building Concepts,

a New Jersey manufacturer.

Such Swedish firms as Swedish Wooden House

and Skanska, entered the U.S. market several

years ago. At least six other Swedish firms have

expressed an interest in expanding to the United

States, and eight American importers of Swedish houses are now in operation, One hundred

Swedish houses have been built in the Eastern

United States, with 500 more expected by the

end of 1986.

Puutalo Oy of Finland and Norgips of Norway

have also-eyed the U.S. market,-and Norgips

has applied for model code approval, G. Block

Watne of Norway is building in Austin, Texas.

At least 20 other major European firms export

wood-framed panel systems to other countries, and

may pursue the U.S. market. The most likely first

step for any foreign producer would be to work with

custom homebuilders and developers in this country, marketing the appeal of high-tech craftsmanship.

Once the system is in limited use, expansion might

then occur. Without joint ventures or direct sales,

foreign producers will have to become developers

in order to introduce their products.

Wet Core Modules/Control Centers

While complete modules are too expensive to ship

internationally, the wet core module provides an exception. It can serve as the high-tech, high-cost center

of the house, incorporating plumbing, service controls, laundry equipment, bathroom and kitchen fixtures, cabinets, appliances, and surface finishes. Such

a module would overcome the problem of shipping

empty space, due to its higher proportion of expensive materials and labor costs to space. To reduce

costs further, the module could be shipped in a

knocked-down state, with fixtures like bathtubs

“nested” together during shipping and attached in

their proper locations at the site.

Presently, nothing points to the exportation of

large wet core modules, which incorporate whole

rooms, in the near future. However, certain advances

in kitchen cabinet design, planning, and packaging

facilitate the export of smaller modules that form part

of a room, incorporating a prefabricated plumbing

tree and its associated fixtures. Also, cabinets are

being integrated with kitchen appliances at the luxury end of the market. Admiral displayed an imported line of appliances, with cabinets produced at

its Italian subsidiary, at this year’s NAHB show. Other

European appliance manufacturers that market in

this country, including Maltritius and Gaggenau of

West Germany, also integrate cabinets and appliances.

Japanese manufacturers are developing the

“smart” kitchen, with electronic integration and control of the various kitchen appliances. A central processor controls all appliances, rather than each appliance having its own timer, regulator, and controls.

Controls and monitors for other building systems,

such as heating, air-conditioning, intercom/control/security, and lighting, may be centralized and

incorporated into the wet core module as well.

The development of this centralized, capitalintensive building service and control center may

overcome the prohibitive costs associated with shipping modules. If the cost/bulk ratio rises above a

certain threshold, wet core/control modules may be

cost-effective. Such a module would revolutionize

standard building practice, bringing plumbing, fixtures, electronics, cabinetry, and appliances into one

indivisible import package.
.-

Modular Systems

Modular systems account for only a small share

of world markets. Certain aspects of modular construction make it unsuitable for export to the United

States. Generally, prohibitive shipping costs prevent

export, although Afford-A-Homes, a Canadian company, does export a modular that “unfolds” into a

735-square-foot house, and can be shipped in an 8

by 91⁄2 by 20 foot container; several U.S. firms have

experimented 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 price

pays primarily to ship empty space.

European modular prototypes may also be unsuitable for U.S. markets. However, the experience of

European furniture exports indicates that foreign

manufacturers will design products specifically for

America.

Modular systems can be broken down into a number 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 uneconomical and unpopular in the United States

and Western Europe.

Wood and Steel Modulars.—Generally assembled from panels, wood- and steel-framed modulars are used primarily for camp construction.

Certain Scandinavian firms, such as Huure

Ureeta Oy, have produced panel systems that

can be assembled into modules in the plant or

onsite.

Ceramic Modulars.—Recently, much attention

has focused on “precastable autoclave lightweight ceramics” (PALC). This material has resulted from extensive research by Misawa

Homes of Japan, and is now incorporated into

approximately 10 percent of Misawa’s modular units. In essence, ceramics resemble the autoclaved, lightweight concrete that is manufactured in Europe. It differs from normal concrete

by substituting air or gas bubbles for the aggregate in the mixture.

However, the Japanese have taken the use

of this material to a higher level. Whereas the

Europeans fabricate lightweight concrete blocks

and small panels, the Japanese produce large,

steel-reinforced, framed panels, which are incorporated into modular units. This system relies on a homogeneous material that requires

no additional finishing or thermal insulation,

and provides structure, waterproofing, and fireproofing. Its competitiveness in the Japanese

market derives from the supposedly low material and labor costs, although the role of government and corporate subsidy remains

unclear.

PALC is relatively new, and its full potential

has not been realized. Claims that it is the material of the future should be examined closely.

Less than 10,000 homes have been built with

this technology in one Japanese plant, all in the

past 3 years. This accounts for less than 0.3 percent of the Japanese housing market. And because it is an untested technology, no long-term

studies exist on these houses or their performance. The Japanese, who see ceramic modulars

as another high-tech item at which they excel

and which they can export, give these systems

widespread publicity. But the technology needs

to gain greater recognition in Japan before it

can enter the American marketplace.

Except in Florida and California, where stuccolike materials dominate, U.S. market acceptance

of single-family housing is problematic without

dramatic cost savings. In the case of PALC, this

appears unlikely. Historically, materials that enter the conservative U.S. housing market, such

as hardboard, aluminum, and vinyl siding, have

simulated familiar materials like horizontal siding or tongue and groove vertical wood siding.

As a rule, other types of panels have not been

accepted by the domestic housing industry,

which believes that prefabricated homes should

appear otherwise. This technology would suit

multifamily housing or commercial building, but

only if it represented a cost-effective solution.

This material has received much publicity in

the United States, and many U.S. delegations

have been encouraged to visit the Misawa plant.

However, these plant visits appear to be more

of a “sales pitch” than a technical exchange.

PALC represents an interesting alternative, but

final judgment should await an analysis of its

suitability for U.S. markets.
60

“Manufactured” (Mobile) Home

Systems

U.S.-type “manufactured” (mobile) homes are rare

in other countries, except as temporary or camp

housing. However, the more advanced technological manufacturing systems of the Japanese and Scandinavians may produce salable and innovative

models. Some observers believe that Japanese

penetration of the U.S. market will occur in this untested area. The Japanese industrialized housing industry is geared towards high levels of production,

which can satisfy the American “manufactured” (mobile) home market. In addition, the U.S. “manufactured” (mobile) home is under a preemptive national

code, which makes it more attractive to a foreign

manufacturer who intends to build production facilities in this country. A problem exists, however:

in order to make up for the cost of new, sophisticated equipment, minimum sales would have to

reach several thousands of units per year—not an

easy target to achieve. But Japanese firms are willing to absorb initial losses in order to capture longterm markets. A joint venture with a U.S. firm would

reduce risks significantly.

MANUFACTURING EQUIPMENT

Foreign building technologies may enter the U.S.

market through a modification of standard American manufacturing and construction techniques,

rather than through direct importation of building

elements. A producer may begin by shipping building elements to this country. As demand for the products increases, it may become more cost-effective to

produce them in the United States. Possible openings in this area include:

●

●

Panelization equipment, which foreign manufacturers will sell to U.S. homebuilders and manufacturers.—These machines could vary from

minor refinements of production line equipment

at “manufactured” (mobile) home factories to

sophisticated automated plants. A number of

Scandinavian manufacturers have begun to

market their equipment, but without a great deal

of success.

Onsite forming equipment, produced by foreign

companies such as Outinord of France, for use

in onsite casting techniques.—This equipment

has been in the United States for 20 years, and

would not require major outflows of capital.

●

●

●

●

Board fabrication equipment, such as cementitious fiber or particleboard, used in European

construction but not commonly available in this

country. -Among others, Siempelkamp of West

Germany exports complete fabrication facilities

for such products.

Particleboard, flakeboard and oriented strandboard, originating in Canada, or made in the

United States with Canadian equipment.—This

could replace American plywood.

Admixtures, used by European companies to

produce lightweight cellular concrete.—U.S.

firms could manufacture this material domestically, through the use of such additives.

Heavy equipment, produced by such companies

as Komatsu, the Tokyo-based construction

equipment manufacturer ranked second next

to Caterpillar. Komatsu has announced plans

to open its first U.S. assembly plant, which will

avoid protectionist legislation. Their goal is to

increase their U.S. market share from 7.5 to 20

percent.

FOREIGN INVESTMENT AND DEVELOPMENT

Foreign 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 ventured

buildings or components. This would provide insight already. In particular, the Japanese prefer this

into the complexities of the U.S. market, useful con- method, which combines Japanese production techtacts and knowledge, and a reduced risk for the for- nology with an in-place American marketing and diseign producer. tribution network. Misawa Homes is seeking to co-
61

venture with an east coast homebuilding firm, and

Sekisui Heim is reported to be working with Cardinal Industries, a modular manufacturer. Also, Maison Phenix International of France entered into a

joint venture relationship with U.S. Home in Florida

several years ago, and Scandinavian firms have expressed an interest in such an undertaking.

Foreign panel manufacturers may begin their market penetration by exporting panels to this country,

which would build market acceptance and create demand. Then, these manufacturers can joint venture

or license with previously wary American firms, and

produce their panels in U.S. factories. However, few

of these products are so unique that the added overhead and labor cost of U.S. production would offset

their current competitive advantage.

Mergers and Acquisitions

Foreign firms have pursued the increasingly popular option of the merger or acquisition, in order to

gain a foothold in the U.S. market and to pick up

useful experience:

Holtzman AG of West Germany owns J.A. Jones

of Charlotte, North Carolina, a contracting firm,

and Lockwood Greene Engineers, a design firm;

Skanska, the largest builder in Sweden, bought

the Koch Steel Erecting Co. of New Jersey;

Archirodon of Greece purchased George Fuller

●

●

●

Alganin Industries of Kuwait bought Kirby

Building Systems in 1975; recently, the American branch of the firm returned to U.S. owners;

several American elevator companies are

owned by foreign firms, including Haughton,

by Schindler Holding of Switzerland, and Armor, by Kone of Finland; and

the Clark Equipment Co. of Michigan has

merged heavy equipment production with

Volvo of Sweden, forming the third largest

heavy equipment firm in the world.

Companies that acquire these firms may then compete for U.S. Army Corps of Engineers projects, under the “Buy American” program.

Foreign Development and Construction

Foreign developers, including Cadillac Fairview,

Olympian, and York, have been involved in major

urban projects for a number of years. More recently,

European builders have developed housing projects

in less urban areas of southern Florida and California. The British firms of Barrat Homes, Taylor

Woodrow, and John Laing Homes are all active in

this country, as well as the French firm of Premier

Homes, a subsidiary of Les Nouveaux Constructeurs.

Some of these companies started by acquiring established U.S. building firms. Several South Korean

firms have expressed an interest in this area, but

their asset of low-paid labor cannot be utilized in

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

APPLIANCES

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

ance of trade in residential “appliances for many

years, foreign producers have begun to penetrate domestic markets with improved products and production technologies. Accounting for inflationary increases, U.S. exports of household appliances fell by

approximately one-third between 1979 and 1984,

while imports increased by over two-thirds. 3 This

trend will continue, assuming that foreign manufacturers expand production.

in 1983, U.S. firms exported about $990 million in

appliances, or 0.5 percent of total output.4 U.S.

citizens stationed abroad purchase a significant fraction of these products. Japan, on the other hand, has

expanded household appliance exports from $1.4

billion in 1979 to over $2.25 billion in 1983. Japanese appliances are widely available on the U.S. market, and Japanese companies invest heavily in new

technologies. Whereas US. appliance manufacturers

~11 S Department of Commerce, BU reau of the Census, EA 275. EA

67!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 and

development, Japanese firms spend 4 to 7 percent.5

Their efforts are beginning to pay off.

Panasonic marketed a full line of products for

1985, some of which will be built in the Orient and

some in Canada. Panasonic, Sanyo, and Daikon have

captured 5 percent of the U.S. market for room airconditioners by offering efficient, quiet units with

rotary compressors. The units use 13 percent less

energy than comparable U.S. products. Sanyo now

imports small refrigerators—1 3 to 14 cubic feet—to

the west coast, with an average energy consumption 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 line

of appliances at the NAHB exposition. The Japanese

have introduced a number of innovations in refrigerators, including microprocessor temperature controls

that maintain three to five compartments at different temperatures.

Some major U.S. appliance manufacturers have

moved manufacturing operations abroad. General

Electric, the largest domestic manufacturer of room

air-conditioners, announced that it will phase out

production at its main factory in Louisville, Kentucky,

next year. Carrier has drastically curtailed production at its New York plants. The firms plan to purchase units assembled abroad, probably in Japan and

Brazil.

At the high end of the market, European appliances are available in this country-from Maltritius

and Gaggenau of West Germany, for example. These

same manufacturers are working to integrate cabinets and appliances. Electrolux of Sweden owns Tappan in the United States and has acquired an Italian appliance subsidiary, making it one of the world’s

largest appliance manufacturers. They may attempt

to sell European designs to American builders. Appliances such as range hoods may also come from

Singapore and Korea.

sHOWard @her, “Energy Conservation R&D, Innovation, and industrial Competitiveness: The Case of Household Technologies,” ACEEE

Background Paper, January 1986; Sterling Hove Corp., op. cit.

%eller, op. cit.

Lighting and wiring equipment have become vulnerable to foreign competition as well. Between 1979

and 1984, accounting for inflation, U.S. exports in

this sector increased by $50 million, or 3.5 percent,

while imports rose by approximately $500 million,

or 40 percent.7 Japanese and German firms have

taken the early lead in the development of innovative lighting products. Compact fluorescent lamps,

compatible with standard “screw in” sockets, use

one-third the electricity of a standard lamp, last 10

times as long, dump less heat into a room, and provide a light color that most people find more attractive than standard incandescent. Neither General

Electric nor Sylvania, the largest U.S. lighting producers, manufacture these advanced products;

rather, they offer foreign products under their own

names.

As concern about indoor air quality increases,

Americans may pay increased attention to home ventilation. The Swedes have invested heavily in equipment that ensures adequate air flow to each occupied

room in a residence, while minimizing the heat or

cooling lost in the process. Primarily, American

houses rely on faulty workmanship to provide adequate ventilation, such as cracks around windows

and doors and under sill plates. This guarantees that

air enters the house, but rates of air exchange vary

widely from house to house and with local weather

conditions.

Only an active forced air system can ensure adequate ventilation. Both the French and the Swedes

have developed inexpensive devices that control the

amount of fresh air reaching each room in a home.

The Swedes offer a variety of interior ventilation designs, including one which ventilates a home over

the coils of a heat-pump water heater that extracts

heat from the exhaust air. Their technical lead may

put them in a position to enter U.S. markets rapidly, if demand for equipment to improve indoor air

quality increases.

—

7US. Department of Commerce, op. cit.
63

MATERIALS, COMPONENTS, AND EQUIPMENT

Foreign fixtures, building materials, appliances,

and accessories are now exported to the United

States, and may become more common. These items

include:

●

●

●

●

●

●

●

u.

Metal Roof Systems.—A number of metal roofing producers have entered the U.S. market with

roofing systems that imitate conventional materials like tile and slate, and suit both the singleand multi-family housing markets. Primarily,

these systems come from Finland, France, and

Sweden.

Plywood.--Currently, high-grade Scandinavian

plywood incorporates a number of plies and

veneers not otherwise available in the United

States.

Hardware.--Much building hardware is imported from Europe. Two European manufacturers have built U.S. factories to reduce costs.

Door Frames.—A metal door frame producer

from Holland exhibited at the NAHB show, intending to export to the United States.

Elevators.—In addition to purchases of American elevator companies by foreign firms, the

Japanese manufacturer Fujitec has built a factory in Ohio.

Heat Pumps and Heat Exchangers.—A number

of Japanese manufacturers, including Mitsubishi, distribute residential heating and air

handling equipment.

Cabinets.—European kitchen cabinets have

gained widespread use at the high end of the

U.S. market. The European kitchen has become

a new standard of elegance in American homes;

●

●

●

domestic producers imitate European styling.

Imported cabinets from West Germany, England, and Scandinavia are used by custom

builders or are sold through kitchen dealerships,

advanced through mass marketing or distribution systems. Soon, Korea may import inexpensive cabinets as well. These would enter the

manufactured housing industry, where direct

sales to manufacturers eliminate the need for

an elaborate marketing and distribution network.

Plumbing Fixtures.—Fixtures from Europe have

been sold in the United States for some time,

primarily from Scandinavia, France, Italy, and

West Germany. Again, these custom items aim

for the high end of the market.

Finishes.--European plastic laminates are now

distributed in the United States.

Floor Tile.—Floor tiles from Mexico and Europe have been available to custom markets for

many years.

Although building materials and fixtures lie beyond the scope of this report, their presence cannot

be ignored when conducting research on building

systems. The use of imported materials and fixtures

is significant for several reasons: they can be incorporated into American buildings without disrupting

standard American construction practices; they are

subject to narrower testing requirements; they indicate foreign interest in penetrating the U.S. building market; and they provide an avenue for manufacturers to establish recognition and acceptance,

from which they may advance the exportation of

building systems or components.

IMPEDIMENTS TO U.S. PENETRATION OF

OVERSEAS HOUSING MARKETS

S. international contractors, and industrialized these same major contractors service a reduced work

housing manufacturers in particular, have witnessed load and few international housing projects, except

diminishing overseas markets since the euphoric for occasional “tag-along” housing components in

1960s and early 1970s, when they operated in Iran, a larger infrastructural or industrial project. The leadSaudi Arabia, and the Persian Gulf States. Today, ing U.S. contractors, including Bechtel, Fluor, and
64

Blount, operate with as little as half the manpower

of several years ago. Few analysts predict that the

international building activity of the 1970s will resurface. Several reasons for the drop in international

building activity are discussed below.

Increased Competition

Many new international contracting companies

have assumed active, worldwide roles, especially in

the Middle East, North Africa, Malaysia, and Indonesia. These include the aggressive European and Scandinavian 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 dominant

force, due to their organizational and technological

sophistication. They also control the low-cost manpower that permits competitive bidding. However,

even the Koreans are having difficulty now, as

smaller projects allow for bidding by small local contractors with a fraction of the overhead of the major

international—especially American—contractors.

Lack of Understanding of

Foreign Markets

With the exception of established U.S. international contractors and a handful of housing manufacturers, such as ATCO, Port-a-Kamp, and National

Homes, the obvious difficulties of working overseas

appear to have discouraged U.S. firms. A number

of medium-sized panelized and modular manufacturers have been approached regarding the export

of building systems during the past 10 years, but they

have declined to participate. Typical reasons given

include:

unfamiliarity with market requirements, international business law, and payment conventions;

the uncertain political climate within many

countries, and the difficulty in gaining code approval and binding commitments from appropriate government agencies;

concerns over the reliability of payments, the

frequent use of local currencies, and the difficulty of bringing money out of individual

countries;

the high cost of project development, including the need for overseas personnel who de-

●

●

termine realistic opportunities, and the high cost

of large-scale proposals;

low profit margins that arise from the current

increase in competition; and

the belief that other U.S. firms have had trouble penetrating overseas markets, or sustaining

profitable operations once the markets were

established.

Most American manufacturers have had enough

difficulty in coping with the changing nature of the

U.S. construction market. Generally, they view the

uncertainties of offshore markets—with the possible exceptions of Canada and the Caribbean–with

strong misgivings.

Materials Acceptance Problems

Just as foreign materials have to meet U.S. standards, American materials must comply with foreign

codes. This may require extensive testing. Not only

is this a disincentive for direct export of U.S. products; it may put a U.S. firm at a disadvantage relative to a foreign firm when both wish to export to

a third country. Many countries, particularly in Europe, test their materials according to international

standards. A foreign firm may have conducted the

necessary international testing already.

Building Codes and Inspection Systems

Each country maintains a different code and approval process, which leads to varying approval

times. Export success could be facilitated by a better understanding of the complexities of each code,

relative to the size of the potential market.

The countries of the European Economic Community plan to adapt interchangeable codes, based on

West German building standards. Once this occurs,

European firms will not have to understand or comply with a foreign code when they wish to export

within Europe, placing the United States at a disadvantage.

Trade Restrictions

The possibility of limitations or quotas on imports

to a given country always exists. These restrictions

may be director indirect; Japanese practices in reg-
65

ulating and testing imports are an example of the

latter. Such practices have eliminated potential profits

on many products that would fare successfully in an

open Japanese market.

Lack of Experience in

International Trade

Even firms experienced in foreign trade meet with

unanticipated difficulties, due to the customs or laws

of particular countries; experience in one country

may not help in another. For example, ‘one builder

reported that six American trucks were left on a dock

in Trinidad when the government, citing the fact that

the driver sat on the left side of these vehicles, refused entry. Also, documentation requirements and

bureaucracy in a certain country may place an extreme burden on a builder.

International Volatility

Much of the demand for housing is in politically

and economically volatile parts of the world. Projects

are at the mercy of economic disruptions, such as

oil embargo and its resulting price increases, or political disruptions, where the government instability endangers the completion of a project. Iran, Iraq,

Libya, Lebanon, and certain South American countries are cases in point. In one instance, a drop in

oil prices led to problems in the Venezuelan Government, which in turn became unable to provide

U.S. builders with enough support to continue with

a large-scale housing project. The involved firms lost

a substantial amount of project development costs.

Corruption

Payoffs and kickbacks are an accepted part of business in many parts of the world. U.S. companies

have withdrawn from such practices, due to the 1971

Foreign Corrupt Trade Act. Although some U.S. firms

may avoid these strictures by joint venturing, or by

using agents to distance themselves from such transactions, much work has been taken by manufacturers whose governments tolerate or condone

bribery.

Distance

Some U.S. firms will operate in North and Central America, but view the rest of the world as too

far away, Also, the traditional American disregard

for foreign practices, customs, and ways of doing

business may make American firms less willing to

enter an alien culture.

Lack of U.S. Government Support

The U.S. Government provides less support for

housing manufacturers than do other governments.

Few prospects exist for the development of imaginative financing programs, performance bonding support, or profitability support.

INCENTIVES AND OPPORTUNITIES FOR U.S. PENETRATION

OF OVERSEAS MARKETS

Incentives for U.S. firms to penetrate foreign mar- for U.S. exporters, Japan is the largest importer of

kets are limited. While large markets do provide wood from the United States and Canada, and acAmerican companies with the opportunity to export counts for about 30 percent of American wood exindustrialized housing, the cost-effectiveness of such ports. Primarily, this wood serves the traditional Japactions would be negative within current economic anese wood-framed building, which takes up most

parameters. Given the incentives and disincentives of Japan’s housing construction. Industrialized houslisted above, some conclusions may be drawn about ing constitutes only 15 percent of the market. It has

increasing U.S. exports in the building industry. not yet displaced traditional building.

The 2 by 4 frame method of construction, which

Exportation of Materials accounts for less than 10 percent of the Japanese

housing market, is a growing alternative to both conThe expanding Japanese market for 2 by 4 con- ventional and factory-built housing. This may instruction represents an obvious area of opportunity crease demand for wood products from the United
66 — —

States, and for American machines that fabricate 2

by 4 panels. Daiwa, one of the five largest Japanese

home manufacturers, has studied U.S. factory production techniques utilizing 2 by 4 construction. This

may indicate that 2 by 4 panels will replace the current Japanese wood panel, which employs a wooden

lattice composed of smaller wood members.

Marketing Strategies

Package deals incorporating housing and financing may stimulate exports of building systems. Given

the current state of the international economy and

the lack of funds available for building, many projects

are assigned based on what company can obtain the

most favorable financing arrangements. In this situation, a strong dollar benefits U.S. firms.

Possible New Incentives for Trade

by the U.S. Government

The U.S. Exim (Export-Import) Bank does not finance housing, except as part of larger overall development. In contrast, foreign export-import banks

sponsor housing projects from their own countries

with loans that are 2 to 3 percent lower than those

of the Exim Bank, In light of the recent budget reductions for the Exim Bank and of its decreasing role,

assistance from this source may not arrive soon. Currently, opportunities exist for projects in Iran, Iraq,

and the Soviet Union, but European and Japanese

firms have significant leverage” due to government

willingness to provide financing. The French are

financing housing in Sudan at 4.5 percent, with a

5-year moratorium on payment.

The U.S. Agency for International Development

may finance American construction overseas,

through sending American building systems as aid

to Third World nations instead of direct financial aid.

This would resemble the European practice of delivering aid in the form of domestic goods.
Chapter 6

Government’s Role in

Facilitating New Technology
Chapter 6

Government’s Role in

Facilitating New Technology

FACTORS IMPEDING INNOVATION

U.S. homebuilders have been slow to incorporate

state-of-the-art technologies into their production

lines for a number of reasons, Without a policy aimed

at identifying and removing existing barriers to innovation, they may continue to retard growth in the

productivity of this important industry.

The Regulatory Environment

Inconsistent State and local building codes and

differing inspection practices are frequently cited obstacles to technological innovation in the U.S. housing construction industry. This regulatory morass

prevents manufacturers from achieving the economies of scale needed to justify large investment in

sophisticated production facilities. Due to the absence

of Federal initiatives in the area, the major codemaking organizations and the homebuilding industry

have begun to develop a formal plan of action for

an effective national inspection system; details of this

consensus State-based proposal will be addressed.1

The States, of course, argue that control over housing regulation should remain with State and local

government.

The General Accounting Office expressed a similar view in its 1982 report, “Greater Use of Innovative Building Materials and Construction Techniques

Could Reduce Housing Costs.” The report cited “restrictive and inconsistent local building codes” as

a major factor impeding “the use of available technological innovations and the development and introduction 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 Conference

of Building Officials, Building Officials and Code Administrators international, Southern Building Code Congress International, Council of

American Building Officials, National Conference of States on Building

Codes and Standards, “Concept Paper Prepared by the Task Force on

Housing,” Mar. 25, 1986.

‘U.S. Congress, General Accounting Office, “Greater Use of innovative Building Materials and Construction Techniques Could Reduce Housing Costs” (Washington, DC Comptroller General of the United States,

1982).

members of the residential construction industry

blame the introduction of the national HUD code

system for the sharp drop in “manufactured” (mobile) home sales.

In addition to the problem of market fragmentation, industry spokespersons cite the time and money

demands involved in complying with current codes.

As one housing producer asserts, in the absence of

a national—or sometimes even a State—code:

. . . the factory is forced to deal with local building

officials at a city, township or county level. The

magnitude of effort needed to deal with so many

different agencies and people takes company resources and engineering skills away from more

productive activities. And most important, the unending local changes to the building codes create

unbelievable difficulty on the factory assembly line.3

This lack of uniformity adds to the expense of technological innovation, making developers of new

products “unable to afford the enormous cost of selling the new technology to numerous regulatory officials.”4 The closest thing to a national approval in

the non-’ ’manufactured” (mobile) home industry is

the “NER” National Research Board approval. An

NER can cost up to $10,000, and has significant limitations. This detailed approval procedure itemizes

every aspect of a given technology. Any change requires reevaluation, and adds expense as a result.5

A number of States refuse to accept NERs “because

they do not include follow-up production line inspections or inplant visits of any kind.”6 Eleven States

have formed a special task force to certify product

approval agencies.

3Ed Starostovic, “Changes in Manufactured Housing and Construction of Non-Residential Modular Buildings in the United States,” unpublished 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 systems

may not impede technological innovation directly.

They seldom forbid the use of newer materials, components, structural forms, designs or processes; when

explicit prohibitions do exist, they are of secondary

importance. The real point is that the present system detects technological innovation indirectly, by

creating market fragmentation.

Inadequate Study of Total Building

Systems and Information Dissemination

Unlike Japan and Sweden, the United States does

not sponsor extensive research on new housing materials, technologies, systems, or fundamental concepts. Generally, research efforts tend to be short

term and related to a specific problem, rather than

large-scale, well-publicized projects designed to increase overall productivity. Industry analysts agree

that this research gap impedes innovation, and that

the lack of institutional and financial research support aggravates the problem.

Fluctuations in the Building Cycle

Unpredictable demand for housing mitigates

against capital investment in new technologies. Fluctuations in the building cycle discourage home producers from investing in capital-intensive, highly

automated production technologies. In fact, one industry analyst notes that “manufacturers have relied on a highly elastic labor supply in lieu of automation. Large fixed investments in automated and

mechanized processing equipment would eliminate

much of the flexibility that is so vital to success in

a seasonal industry.”7

On the other hand, other industries have begun

to employ systems that manufacture a variety of

products; this decreases their dependency on specialized markets. Such flexibility within a sophisticated production system would be preferable, from

the worker’s perspective, to the current cyclical patterns of layoff, bankruptcy, and startup.

HOUSING REGULATION

The Current Regulatory Framework

Four model building codes form the basis for most

U.S. housing regulation, with the exception of HUDregulated “manufactured” housing (mobile homes).

The model codes are developed by the International

Conference of Building Officials (ICBO), Building Officials and Code Administrators International, Inc.

(BOCA), Southern Building Code Congress International, Inc. (SBCCI), and the umbrella organization,

the Council of American Building Officials (CABO).

These organizations enjoy a broad-based membership, including both regulatory officials and a variety of private sector building and construction professionals. This membership plays a significant role in

maintaining responsive, consensus-oriented codes

that serve the public interest.

Each model code group publishes a building code,

a plumbing code, a mechanical code, a fire prevention code, and other such documents. These codes

correspond to the model code package, to avoid conflicting requirements for the same condition. New

editions of the code appear periodically, in 3-year

cycles. The membership conducts annual code

change hearings, voting on amendments to the current edition of the code. The approved amendments

enter the next edition of the code.

Each model code tends to be regional. Although

certain States have adopted one model code exclusively, some overlap exists. The prevailing regional

patterns are: the Uniform Building Code (UBC), promulgated by ICBO and used west of the Mississippi;

the BOCA Basic/National Building Code, promulgated by BOCA and used throughout the Northeast

and Midwest; and the Standard Building Code, promulgated by SBCCI and used in the South. CABO

oversees the three. Currently, local governments apply several thousand major and minor variations of

these basic codes. There are at least as many inspection systems, with differences in building code interpretations and varying degrees of enforcement. The

various fire safety codes and inspection systems that
71

relate to buildings compound this regulatory complexity.

Thirty-four States have adopted preemptive State

codes for modular housing. Those codes cover component housing systems, including panelized homes

in 28 States, large components such as “wet cores”

in 31, and precut houses in 6. While these preemptive codes reflect significant efforts by States to consolidate codes for industrialized housing, they have

not eliminated the problems of diversity and complexity. Twenty-five States prescribe mandatory minimum standards, 7 establish mandatory maximums,

and 11 set both mandatory minimums and maximums—"mini-max, ” or single mandatory codes.

Two of the preemptive State codes are mandatory

unless specified otherwise. In one State, a local political jurisdiction may amend the mandatory State

code with State approval.

Enforcement systems also vary, both among and

within States. Inspections are conducted by State officials in 31 States, by county officials in 8, and by

municipal officials in 13. Twenty-three States allow

inspections by third-party private firms. Omitted from

these figures are the 16 States that do not have building codes for any type of factory-built housing,

This complex regulatory system poses formidable

problems for large U.S. homebuilders. The producer

must satisfy hundreds, if not thousands, of building

codes and inspection systems in order to serve the

national market and still abide by the law. Disparities between State transportation codes governing

large trucks add to the confusion. A spokesperson

from the National Association of Home Builders estimates that a uniform code for modular and panelized homes would reduce costs by 3 to 5 percent.8

Producers of modular and panelized homes face

other problems. Because the walls of some of these

building systems are closed at the factory, certain

features cannot be inspected at the final building site.

Instead, they must be examined at the factory, which

may be located far from the site. These factory inspections replace a significant part of the onsite work

that is traditionally done by government building inspectors.

A number of communities around the Nation create de facto building regulation through zoning and

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

other local codes. Zoning can be employed in ways

that “exclude people from the community,”<) such

as confining “manufactured” (mobile) homes to

“trailer parks” in disadvantaged locations, or requiring significant lot or house sizes.

As a result of this situation, U.S. housing producers

have been slow to introduce either innovative housing designs or advanced production technologies.

The HUD Code System

The HUD regulatory system for “manufactured”

(mobile) homes represents the only uniform national

building code and enforcement system for factoryproduced housing. 10 Consequently, this 10-year-old

“HUD code,” which replaced and adopted large sections of an earlier voluntary code system developed

by the industry, serves as a model against which

others may be measured.]]

Due to the establishment of this system, a uniform

national building code for “manufactured” (mobile)

homes now exists throughout the United States. Approximately 400 manufacturing plants in 24 States

are currently inspected by a system that involves

State agencies, third-party private inspection firms,

a national monitoring contractor, and HUD, HUD

administers the program with a small staff of Federal employees, at minimal cost to the Federal Government. Covering the program’s cost are inspection fees—up to $75 per transportable unit—paid for

by 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( II

1978), 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’tYeral housins programs, IS another type of ndtlond] t)uildln~ c{)dt’ dIId

enforcement s}stem, administered b} HLID This s~stem has c~x]ited

SI 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 other

codes 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 KK

t]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 her

dc’cept cibl I It\’ crlterla n(’t usual 1} co~’ered I n building (’( de$ ,+41s( 1 t IIe

F“ederdl dlrI;ensIoII of the Act h& I)eel] w cdk(i]ed t]~ r(~{ crlt l~gl~ldtl( III

ttldt II]]OM’S for th(’ \(l])>tlt Ut 10[1 ( )f f(l 11(’tlolld] Stdt(’ dl](j ]()( cl] (’( Ki(’i f( Jr

nd:Ic)nd standards

Ekrnhdr(it. ()!) (It
72

Problems of the HUD Code System

Congress will need to examine the HUD code system if alternative regulatory schemes for factory-built

housing are to be considered. Various problems that

surround today’s HUD code homes may become more

pronounced if this regulatory scheme is “stretched”

to cover other categories of manufactured buildings,

or to serve higher income markets where owners

may be more critical.

The Potential for a Conflict of Interest.—The

existing HUD code system creates the appearance

of a conflict of interest on the part of design and construction inspectors, since fees and services are negotiated directly between manufacturers and HUDapproved private firms. The housing manufacturers

themselves hire both the third-party firms that assess home designs against HUD code standards—

Design Approval Primary Inspection Agencies (DAPIAs)

—and those firms that conduct in-plant inspections

during the construction of approved designs—Production Inspection Primary Inspection Agencies

(IPIAs). The manufacturer pays these firms, and also

has sole discretion over future rehiring decisions.

Currently, 8 private firms do over 90 percent of the

design approval work, and about 35 percent of the

in-plant inspections, for the Nation’s “manufactured”

(mobile) homes. State government agencies, acting

as exclusive inspectors, conduct the remaining design approvals and in-plant inspections, which has

given rise to other problems.12

PIAs must meet rigid HUD criteria to avoid conflicts of interest, but whether HUD can ensure that

these criteria will continue to be met is uncertain.

Some members of the “manufactured” (mobile)

home industry would like to modify the existing system by eliminating the exclusive right of States to

act as IPIAs. At the same time, they would like to

maintain Federal preemption of State and local codes

that, in many cases, are more stringent than the Federal standards. If Congress wishes to ensure effective

national regulation of the industry, HUD’s statutory

authority in these areas will need to be strengthened

and made more consistent.

— — .

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

to Congress on the Manufactured Housing Program (p. 51) illustrates

performance problems of State agencies and private firms through 1982.

Although HUD has not yet published data for subsequent years, other

information indicates continuing problems as well as improvements since

that time.

While there are similarities between the functions

served by IPIAs and certified public accountants,

IPIAs are not subject to many of the certification requirements faced by CPAs. Both are charged with

serving the public interest; however, CPAs—unlike

IPIAs—are subject to rigorous preliminary examinations, as well as to professional and State regulation.

The threat of removing a CPA’s certification provides

the public with protection against default.

It is important to note that the concept “potential

for a conflict of interest” is used to avoid the need

to prove impropriety. Certain public individuals must

not only be above criminal behavior, but should

avoid situations where the public trust and confidence would be shaken by even the possibility of

illicit financial considerations. For example, judges

cannot vote on cases when they own stock in a corporation that is before the court, even if there is no

suggestion of individual venality. The IPIA/DAPIA

system, however, does not guarantee that a conflict

will not arise; for example, the system allows a regulated party to discharge an inspection agency.

Various administrative remedies may reduce the

incentives for abuse. HUD, rather than the manufacturer, could set and collect inspection fees. Manufacturers and private inspection firms could be required to sign 2- or 3-year contracts for services,

giving the firms more independence from their employers. Firms might be permitted to do engineering design and drawings, or design approvals, or inplant inspections, but not all three. The Federal enforcement agency could assign Federal inspectors,

or select private inspection firms, in cases where

monitoring indicated frequent violations of minimum

standards. As matters now stand, only IPIA’s have

the authority to pull Federal labels for noncompliance with HUD standards; the government can act

only to counter an imminent safety hazard. Technically, HUD can inform the IPIA or the manufacturer

that a unit failed to conform with a code requirement, but whether steps have been taken to use this

authority in a meaningful way has not been demonstrated.

This is not to suggest that private firms cannot perform responsible inspections; the advantages of nongovernmental inspection systems will be discussed

later in this report. Nevertheless, the potential for

a conflict of interest is built into the present system.

Existing monitoring and enforcement practices pro-
73

vide insufficient protections against the potential for

abuse. The steps described above suggest some ways

in which enforcement might be improved.

Responsibility for Compliance With Codes.-–

The HUD code system clouds responsibility for compliance with national standards. The regulations do

not require that the consumer be notified as to

whether the “manufactured” (mobile) home complies with the standards. The manufacturer must certify to the dealer or distributor that the structures

meet the code,13 but the approved label for retail

units provides no such assurance. This consumer

label states:

As evidenced by this label No. ABC 000001, the

manufacturer certifies to the best of the manufacturer’s knowledge and belief that this manufactured

home has been inspected in accordance with requirements of the Department of Housing and Urban Development and is constructed in conformance

with the Federal Manufactured Home Construction

and Safety Standards in effect on the date of manufacture. 14

The label certifies inspection, but not compliance

beyond a good-faith effort.

Homebuyers have limited recourse without an express guarantee. In fact, certain State laws may be

of no help to the consumer, since the manufacturer

may avoid State regulations in excess of Federal statutory requirements. While consumers may pursue

remedies involving repair of minor defects, the legal framework seems to prevent States from acting

on their behalf, which would constitute an alternative regulatory structure.

HUD does not permit “false” advertising, which

would imply HUD endorsement of a “manufactured”

(mobile) home. Indeed, HUD has issued a categorical denial of responsibility:

Any assertion that the Department directly or indirectly approves the construction or sale of any mobile home or that the Department inspects mobile

homes is false, except in the rare case where a moIJsection 616 of the Natjonal Manufactured Housing Construction and

Safety Standards Act states:

Every manufacturer of manufactured homes shall furnish to the distributor or dealer at the time of delivery of each such manufactured home

produced by such manufacturer certification that such manufactured

home conforms to all applicable Federal Construction and Safety

Standards.

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

bile home has actually been inspected by an employee of the Department. Even in those cases the

Department has not approved the home. 15

The recent Varig Airline case confirms that under

HUD regulations, the Department cannot be held

responsible for failure to ensure proper inspection.

Failure To Require Full Compliance With All

Standards.--HUD regulations and enforcement

mechanisms also fail to assure that every home complies with all HUD code standards. The present HUD

code system requires inspections by State agencies

or third-party private firms of a sampling of homes

in a manufacturer’s production line. Each home is

inspected in at least one stage of production, and

the number of production stages varies; the current

Acceptable Quality Level (AQL) list includes 174 inspection items. Furthermore, HUD has not prescribed uniform test procedures to assure compliance with its performance standards.

Complete data have not been compiled on noncompliances with HUD standards. However, HUD’s

contractor, the National Conference of States on

Building Codes and Standards (NCSBCS), conducts

monitoring inspections of each manufacturing plant

at least twice a year. These inspections aim at evaluating the manufacturers’ internal quality control systems, as well as the performance of State agencies

and third-party private firms that do in-plant inspections. ,

Although not intended for this purpose, the NCSBCS

data developed from these semiannual inspections

suggest the frequency of noncompliance of all units

produced in HUD-inspected factories. Manufacturers

often learn of NCSBCS visits in advance, and prepare accordingly; as a result, nonconformance identified through such inspections may underestimate

the actual figure. Data provided to OTA by HUD for

December 1984 through May 1985 indicate that most

homes produced during that period failed to conform to one or more AQL items, averaging 3.6 nonconformances per inspection (see table 13). Another

breakdown of NCSBCS data, for November 1984

through March 1985, indicates that 8 percent of all

nonconformances related to AQL items in planning

and fire safety, 55.5 percent to construction, 16.9 to

electrical items, 11.3 percent to thermal items, and

8.1 percent to plumbing items.

IWJ.S,f)epartment of Housing and Urban Development, ~ou~th Annual 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 the

items in compliance specified compliance range

95-1oo . . . . . . . . . . . . . . . . . . . . 30.1

90-95 . . . . . . . . . . . . . . . . . . . . . 30.1

85-90 . . . . . . . . . . . . . . . . . . . . . 23.6

80-85 . . . . . . . . . . . . . . . . . . . . . 9.8

<60 . . . . . . . . . . . . . . . . . . . . . . 6.5

SOURCE: U.S. Department of Housing and Urban Development.

Although this record appears to be poor, the

present HUD code system does protect the public

from “imminent safety hazards” that present “imminent and unreasonable risk of death or serious

injury”; it does guard against major defects which

occur when a series of homes exits the production

line; and it does initiate a consumer complaint process, operated by HUD and by State administrative

agencies who can respond without Federal enforcement authority.

However, the Federal system provides limited protection for the individual purchaser whose home fails

to comply with the standards. HUD addresses consumer complaints from States that have not established administrative agencies for the HUD “manufactured” (mobile) home program. Although the

purchaser may go to the courts, he bears both the

expenses of this action and the burden of proof. Except for health and safety problems, such as formaldehyde emissions from plywood and particleboard materials, court action has little use or effect

in the present HUD code system. Furthermore, most

HUD code “manufactured” (mobile) homes are sold

to lower income purchasers, who tend to avoid the

costs of litigation.

The experience of the HUD code system raises

questions that may affect the formulation of industrywide regulations for all categories of residential

construction. Even the existing HUD regulations may

need review, in light of newly available information;

although HUD’s data for estimating nonconformances

in production, and for evaluating regulatory performance, need improvement, Department statistics do

indicate a number of important issues. For example, production defects can now be detected, counted,

and reported. What levels of quality, what standards,

and what degrees of conformance should be considered acceptable? How should the regulatory system employ the data for enforcement? Should factory production involve inspection of production

lines rather than of individual units, as is done for

site-built housing?

Weakness of Remedies and Penalties for Non=

compliance.—HUD may lack the legal authority to

enforce full compliance with certain code standards.

Under HUD regulations: “A manufacturer. . . shall

correct, at its expense, any imminent safety hazard

or serious defect that can be related to an error in

design or assembly of the manufactured home.”16

HUD has interpreted this congressional enabling legislation to mean that it cannot require manufacturers

to bring defective homes into code compliance, unless “unreasonable risk of injury or death” exists.

According to this interpretation, questions of durability, quality, and amenity remain outside HUD’s

jurisdiction. On the other hand, the HUD code’s

“Statement of Purpose” calls upon HUD to improve

the quality and durability of manufactured homes. ’7

Federal legislation may be needed to resolve this

double standard.

Formal rulemaking guidelines dictate attempts to

increase inspections, and steps to disqualify Primary

Inspection Agencies for improper or insufficient

inspections—or for improper awarding of Federal

labels—are complex and protracted. Moreover, under the preemption section of the statute,18 States

may not enforce the Federal construction and safety

standards more stringently than the Federal Government. Still, some States have used their business

licensing or registration laws to enforce the HUD

code standards when HUD has failed to require compliance.

Inadequate Provisions for After-Factory In=

spections.--The present HUD code system emphasizes in-plant inspections, an important area of code

enforcement for all types of industrialized housing.

However, the present HUD code system lacks an

efficient framework for after-factory inspections.

Through no fault of either the manufacturer or the

manufacturing process, many “manufactured” (mobile) homes with Federal labels fail to meet HUD

standards on arrival at their final destination. Units

may be altered or damaged at dealerships, where

they are stored and shown to customers; or, the

1e3282.406.

ITTitle V], Section 602.

183282.11.
75

——

rigors of transportation from factories to dealer lots

and from dealer lots to final building sites may decrease quality, especially when units are transported

along uneven country roads. The problem of “torque,”

or the twisting of the entire unit, can arise if the home

does not rest on a level foundation at the final site.

“Tie-downs” to foundations, connections between

double-wides or multiple units, and utility hook-ups

pose additional problems at the building site.

The after-factory inspection process depends on

State and local regulatory systems. Under HUD regulations, dealers may not sell units that have failed

to meet HUD code standards. However, many State

and local agencies do not conduct visual inspections

of units on dealer or buyer lots; when inspections

are made, reporting and followup are minimal.

NCSBCS has developed a voluntary consensus standard for “siting” of units, but although CABO and

NCSBCS have developed code language for this

purpose

19 —which may or may not be used—a Federal onsite system of inspections or enforcement does

not exist.

Lack of Incentives for Improving Durability

and Quality.--The HUD code program was designed to improve durability and quality, along with

safety. While the safety record of “manufactured”

(mobile) homes has improved, it is still less than that

of site-built housing; also, it is difficult to show that

durability and quality have been addressed. Furthermore, while some manufacturers satisfy HUD code

standards with ease, the regulatory system for “manufactured” (mobile) homes does not recognize differences in quality. As a result, many producers build

down to minimum safety, rather than up to minimum quality standards.

The implications of this extend to energy costs,

which are higher in HUD code homes than in those

that satisfy the requirements of Title V of the Farmers

Home Administration (FmHA). A recent study conducted for the Department of Energy revealed that

if FmHA energy standards were used instead of

HUD’s Title V standards, energy consumption of

most units would be reduced by 37 to 46 percent.

HUD’s own Title II-E standards, which apply only

to “manufactured” (mobile) homes on a permanent

foundation, would improve energy performance by

4 to 23 percent.20

A proposal to establish quality grades within categories of industrialized housing offers a solution to

this problem, and will be addressed in this report.

The marketplace, rather than market advantages created by government regulations, would then determine the levels of quality that home producers could

offer to informed or affluent customers.

The Role of Federal Oversight. -In general, the

“manufactured” (mobile) housing industry supports

the preemptive Federal standards that currently

guide all U.S. “manufactured” (mobile) homes, while

HUD would like to grant more control to the marketplace, and to State and local standards. Also, HUD

and the industry have differing views on enforcement procedures; many industry representatives

would like to see less Federal oversight, as well as

the elimination of the States’ right to act as exclusive inspection agencies. Many States, however, have

expressed concern over proper levels of inspection,

and worry that a weakening of the preemptive Federal system could aggravate problems.21 The States

have assumed some blame for the present situation;

they are now developing recommendations on how

to improve the State role in national housing regulation reforms.22

Criteria for a New Regulatory System

The following sections of this report suggest possible alternatives to the present system of housing

regulation in the United States. First, however, a set

of criteria is presented, against which such proposals

could be judged. Throughout the discussion, the

phrase “a national system of building codes and inspections” is used generically to imply a high degree of national consolidation and organization. A

national system may be legislated or operated by the

Federal Government, by State or local governments,

or with the regulatory participation of third-party private firms. It may be a single consolidated system

for the entire country, or a national organization

z~~pacific Northwest Laboratory, “Impacts of Alternative Residential

Enerqy 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 Officials Subcommittees, Arlington, VA, Apr. 23, 1986.

ZZNCSBCS, May 1986, op. cit.
76

comprised of subsystems for different types of manufactured buildings, for manufactured buildings that

meet certain criteria, for different code-setting or inspection functions, or for different multi-State geographic regions,

In order to remove regulatory impediments to residential construction and its related industries, a modified national code and inspection system might be

evaluated against the following criteria:

1. Does the system apply to all categories of industrialized housing and modular nonresidential buildings? Those buildings that contain

closed components, factory-made to fit and function together, could be emphasized.

2. Does the system facilitate market aggregation?

Under a relatively uniform framework, firms

may anticipate the codes and enforcement systems that factory-built homes must satisfy within

a large geographic area. Uniformity would also

enable manufacturers to achieve economies of

scale from factory production-line systems.

Ideally, with appropriate adjustments for climatic and other features, such as energy requirements, wind and snow loads, and seismic

requirements, a unit produced anywhere in the

United States could be used nationwide.

3. Does the system include reliable and consistent enforcement, to protect manufacturers,

dealers, and contractors from subjective or arbitrary interpretations of codes? This would protect the public from the consequences of code

violations.

4. Does the system reduce costs and administrative burdens associated with regulation?

5. Does the system leave as much control as pos6.

sible in the hands of local regulatory authorities? Regional or national codes need not undermine well-designed State or local codes.

Instead, the new regulatory mechanism could

be built on successful State and local experiences.

Does the system constitute part of a coherent

housing policy that provides Americans with the

highest quality at the lowest cost? This would

require programs that protect consumers while

encouraging industrial innovation and entrepreneurship.

Alternative Regulatory Systems

Historically, the writing and enforcement of building codes in the United States have been performed

by the same unit of government. In contrast, the very

nature of industrialized housing invites a separation

of these functions. How and by whom codes are written may differ from where and by whom codes are

enforced. Moreover, although the codes themselves

have received the most attention—resulting in four

national model codes—the Nation’s fragmented code

enforcement system poses a larger impediment to

the development of the industry, Consequently, initial alternatives for a national system relate to the

enforcement function.

Local factors also enter into play. Until the 20th

century, most housing construction was a function

of commerce within States. Traditionally, Congress

has deferred to State, county, and municipal desires

in such matters. As a result of technological developments in recent years, housing has entered the

realm of interstate commerce. Some industry experts

believe that a Federal system would bring the regulatory function in line with the current residential

construction process. On the other hand, this would

tend to dilute local control, and might provoke opposition from State and local building officials and

their related constituencies.

The following discussion describes four categories

of alternatives: systems in which the Federal Government has lead role; in which the State Government has lead role; in which private organizations

have the lead role; or cross-cutting strategies, which

may combine all or any of the three. These alternatives do not represent complete or detailed designs

of regulatory systems. Rather, they should be viewed

as generic possibilities, which hold the potential to

develop new systems.

Systems Administered by

the Federal Government

An Expanded HUD Code System.—The HUD

code system might be expanded in its present form,

making it a federally preemptive, national system

that would cover other categories of industrialized

housing and related nonresidential modular buildings. This would require congressional legislation.
77

Under this alternative, the system could grow

stronger through legislative or administrative modifications. Along these lines, the NCSBCS has developed an improved system of quality control and compliance evaluation for HUD, in consultation with

industry representatives; the system is now in review. These and other administrative steps may improve compliance with the HUD code for durability

and quality features of “manufactured” (mobile)

homes.

Alternatives to HUD Code Regulation.—The

present HUD code system could be enlarged to cover

other categories of industrialized housing and related

nonresidential modular buildings, but would be

altered in one or all of the following ways:

●

●

Congress might create an independent Federal

commission, board, or administrative agency to

regulate manufactured buildings covered by the

Federal system, replacing HUD’s responsibilities in this area. Or, HUD’s regulatory functions

might be assigned to another existing agency.

In either case, HUD would retain the broader

responsibilities for affordable housing and would

participate in code setting, but would not supervise code enforcement.

It is difficult for any Federal agency to regulate its own constituency. At present, HUD encourages construction of minimum purchaseprice housing, and regulates construction—

which may mean increasing housing costs. This

alternative would separate the developmental

and regulatory functions in residential construction, making it similar to the areas of nuclear

power, transportation, and environmental protection. 23

A Federal system might preempt State and local regulations for all industrialized housing and

related construction, but could be limited in several ways. The system could cover all factorybuilt homes and related nonresidential modular 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 Nuclear Regulatory Commission; responsibilities in the field of transportation are divided between the Department of Transportation, and the

independent National Transportation Safety Board; and environmental

responsibilities are divided between the Departments of Energy and

Commerce, and the Environmental Protection Agency.

●

Or, such a system might include only integral

manufactured building systems with closed construction, such as HUD code “manufactured”

(mobile) homes; certain modular homes, commercial modular buildings, or panel systems;

or large closed components such as “wet cores”

—all of these products must be inspected in the

factory. State or local governments would still

conduct onsite inspection of factory-made buildings when the site and the factory are in the

same State, for “open” manufactured building

systems and for large “open” components.

A recent proposal for Federal regulation of

appliances, supported by both appliance manufacturers and environmental groups, illustrates

this principle. The proposal calls for certain Federal standards to preempt several State and local guidelines, creating a more uniform code

system that would benefit both producers and

consumers.

In order to ensure the successful implementation of any alternative to HUD code regulation,

Congress might strengthen the language of the

statute that guides the present system. A federally based system for all categories of industrialized housing could foster technological research

and development by guaranteeing consistency

in Federal standards.

For example, the statutes could specify HUD’s

role concerning energy standards. HUD is now

in the process of amending the code’s thermal

energy requirements. These guidelines were introduced by HUD, and may soon undergo HUDinitiated changes, even though the original statute did not give specific regulatory authority

over energy to the Department.

Incentive Systems.—The Federal Government

might adopt a “carrot and stick” approach to encourage States to establish a uniform national code.

Such a nonregulatory incentive system for industrialized housing and related nonresidential construction could rely on Federal financing or mortgage

guarantees, direct funding to State or local governments, government purchasing, or tax incentives.

The incentives need not be new or special subsidies,

but could be based on contingent approvals that

would allow participation in existing Federal programs. The Federal Government already operates

numerous programs that benefit homebuilding, espe-
78

cially those that guarantee or supply credit through

the Federal Housing Administration, Veterans Administration, Farmers Home Administration, Government National Mortgage Association, and other

such agencies.

The HUD-administered Community Development

Block Grant program could serve as another nonregulatory incentive. Builders might qualify for grants

only if their homes satisfied quality standards established by an organization like NCSBCS. This option

would also encourage States to adopt standards that

resemble a national code, so that their home industries could qualify for Block Grant funds.

Sweden maintains a particularly effective incentive system. Only those homes that meet stringent

performance standards are eligible for the Swedish

equivalent of FHA or VA housing subsidies. As a result, the performance characteristics of most new

homes exceed those prescribed by statute, especially

with respect to energy. This system created such high

levels of thermal performance that energy standards

could be increased without affecting most construction methods.

These incentives, combined with reliable inspection systems, might persuade State and local governments to bring their codes for manufactured

buildings in line with a single, national model code,

and they might convince State and local governments to accept industrialized housing and related

nonresidential modular buildings produced and inspected in other governmental jurisdictions. This

would tend to encourage capital-intensive research,

since companies would not have to satisfy a myriad

of local codes in order to introduce new technologies

to several parts of the country.

The underlying principle exists in two current Federal programs. The interstate highway program transfers funds to the States, contingent on their compliance with federally accepted roadway standards, and

conditions like the 55 miles-per-hour speed limit and

the 21-year-old minimum drinking age. And the Minimum Property Standards (MPS), administered by

HUD, constitute a powerful nonregulatory incentive

system; mortgage approvals depend on conformance

with certain standards. This ties improvements in

technology to the financing process, although other

HUD-approved regulation tends to negate such a

connection.24 Also, many previous Federal programs

have transferred funds to State and local governments, subject to specific requirements and conditions.

Voluntary Systems.—Under this alternative,

manufacturers could select between making their

housing subject to Federal approval under a Federal preemptive system, to otherwise applicable State

or local government regulations, or to a combination of the two, depending on the type of housing

involved.

The Nation’s banking system illustrates the principle behind this alternative. The Federal Reserve

System gives banks the choice of being either federally or State-chartered, subject to different requirements and regulations. Savings and loan associations

may also take advantage of this option.

The present HUD code system operates in a similar manner, although the advantages offered by Federal approval make it impractical for manufacturers

to have the “manufactured” (mobile) homes inspected at the State or local level. Producers of both

HUD code “manufactured” (mobile) homes and modular homes better illustrate the idea of choice. The

latter now fall under State or local regulations. With

the “choice alternative” in force, a manufacturer

could select the code and enforcement system that

best corresponds to the structure being built.

Currently, the Federal Government confers competitive economic advantages to building manufacturers by preempting State and local government

regulations—primarily because of benefits stemming

from market aggregation. Given these advantages,

and the potential advantages of a Federal inspection

label for factory-built homes, the Federal Government might set and enforce high-quality standards.

This could encourage industry development under

a manufacturers’ choice alternative.

Zqln responseto complaints of unfair competition from private sector

certification groups, HUD has instituted a fee for certification of new

technology in its “Technical Suitability of Products Program.” Although

HUD’s charges remain lower than those of the private sector organizations, their presence has led to a decrease in the number of innovative

construction programs available to the American marketplace, since

developers have less incentive to introduce new technologies.
79

State Government-Based Systems

Three State government-based systems, in which

State governments have the leading role, are discussed below. State regulators contacted by NCSBCS

“showed fairly equal support for all three systems.”25

Multistate Compacts.--Multi-State compacts, or

interstate compacts, are congressionally approved

agreements among or between States. Congress sets

the rules for any such multi-State arrangement, and

State legislatures may vote to enter such compacts

only with congressional consent. Having joined, a

State may withdraw only under rules established by

Congress. The regulatory or operating authority of

the compact depends on the nature of the congressional mandate. Over 200 multi-State compacts have

been enacted in the United States, for such diverse

purposes as water allocation, transportation and port

development, corrections, education, forest fire protection, health, motor vehicles, radioactive waste disposal, pest control, planning and development, public works, recreational parks, civil defense and

disaster, and welfare.

Historically, compacts have been bilateral, regional, and national in scope. Until the 1920s, most

were agreements between two States. The next generation of compacts dealt with regional problems,

such as the Colorado River Compact that embraced

seven States. The first national agreement was the

Interstate Compact for Supervision of Parolees and

Probationers, established during the 1930s. Functional compacts, or multilateral agreements that did

not rely on regional identification, developed in the

1930s as well; the Interstate Compact to Conserve

Oil 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 Sanitation Compact in 1935 and 1936, respectively,

joined by Connecticut in 1941. The Ohio Valley Sanitation Compact represented an early regulatory

agreement for a river basin region. Since World War

11, the proportion of regional and national compacts

has increased relative to bi-State agreements.

Multi-State compacts create a legal regulatory

framework between or among States, and employ

constitutional powers at both Federal and State

levels. They offer two direct advantages to the apZ5NCSf3CS, May 1986, Op cit.

plication of Federal regulatory authority. First, initial State participation is voluntary. Second, while

the States give up individual sovereignty for the

larger purposes or programs, the agencies that administer such compacts are controlled by the member States. The Federal Government may play a role,

but in a subordinate capacity.

Multi-State compacts offer the following advantages

for the regulation of industrialized housing:

1.

2.

3.

4.

Multi-State compacts would establish reciprocity

among States, so that manufactured buildings

produced and inspected in one State could be

accepted by another.

Multi-State compacts could serve as an intermediate preemptive system, superseding the authority of individual States but under the auspices of a federally based preemptive system.

Since State codes tend to follow regional groupings, compacts might be created for a limited

number of regions across the country. Contiguous or nearby States may reach agreements

with one another more easily; most manufactured buildings move regionally, not nationally,

because of transportation costs. Also, multi-State

compacts might differ according to regional considerations like climatic conditions or market

preferences.

Multi-State code enforcement for industrialized

housing and manufactured commercial buildings might rely on existing State agencies and

systems, instead of spawning additional bureaucracy.

The Federal Government might provide incentives

for States to join multi-State compacts. Federal financing or mortgage guarantees and other contingent approvals have been described for a nonregulatory Federal incentive system in a previous section. Another

kind of incentive involves the Federal Government

as an equal partner in the compacts. An enlarged

HUD code system, or a modified system of Federal

administrative agencies, could have preemptive regulatory authority over manufactured buildings produced in or shipped to States not belonging to multiState regulatory compacts, encouraging States to join

such agreements. In this way, the Federal Government’s activities would tend to diminish over time.

The Abandoned Mine Reclamation Program illustrates this principle: once a State develops a feder-
80

ally approved program for mine reclamation, it assumes full control of the program.

Special Regional State Legislation Allowed by

Congress.–The recent Supreme Court decision of

June 10, 1985, Northeast Bancorp, Inc., et al. v.

Board of Governors of the Federal Reserve System,

et al., suggests an alternative that resembles the

multi-State compact. The court held that since Congress had authorized States to determine what banks

could operate within their borders, States were not

obliged to accept all banks. The New England States

limited approval to regional banks, excluding New

York.

The ruling in favor of this policy has important

implications for the housing industry. Citing this as

precedent, Congress could pass a Federal statute allowing for regional reciprocal cooperation by States

in the area of manufactured buildings. This differs

from the concept of a multi-State compact, since no

regulatory authority would be established.26 Rather,

States would cooperate with one another based on

their respective market needs. For example, a State

might declare that if other States accepted its own

inspection and certification standards, it would respond in kind. This would enable States to limit

agreements to nearby “acceptable” States, which

hold similar views on codes and code enforcement.

Essentially, such an agreement would represent

a lesser form of the multi-State compact in manner,

geographic extent, and strength of commitment.

However, while this would improve geographic market aggregation by regionalizing the manufactured

building industry, it would tend to impede the development of a national system.

Non-Federal Negotiated Agreements.—This

alternative involves agreements negotiated between

State or local governments, or between a State or

local government agency and a private third-party

inspector or manufacturer. There is no Federal participation, and agreements need not be accompanied

by specific legislation. Such arrangements may be

made on a case-by-case basis, and do not require

association with a statutory system.

26AlthoughA~&1, section 10.1 of the U.S. Constitution holds that

“no state shall enter into any treaty, alliance, or confederation” without congressional approval, associations that do not legislate actual regulatory power—as was the case with Northeast llancorp-have been

permitted.

A broad spectrum of formal and informal agreements are covered by this alternative. At one extreme, construction that is not covered by HUD

codes—in particular, modular housing and modular nonresidential buildings–could be regulated by

ad-hoc arrangements made at the discretion of public

officials. State or local governments could agree to

accept units that have been produced and inspected

in a different jurisdiction. Such negotiated agreements may employ third-party private inspectors, or

State inspectors situated close to the factories.

At the other extreme, reciprocal legal arrangements among States for the acceptance of manufactured buildings other than HUD code “manufactured”

(mobile) homes can and are now being developed

without Federal assistance. Eleven States report some

type of agreement with one or more States. Florida,

Georgia, and South Carolina will soon conclude a

reciprocity agreement, and may be joined by Louisiana, Mississippi, North Carolina, Tennessee, Texas,

and Virginia.

Developments within States have facilitated State

reciprocity. Many States have begun to confront the

problems of manufactured buildings other than HUD

code homes, and have consolidated codes and enforcement systems already. Although differences remain both between and within States, 34 different

statewide codes preempt local government standards

for modular buildings; 28 States have adopted such

codes for packaged panelized buildings systems; 31

preempt local standards for large closed components

like “wet cores”; and 5 cover precut homes. On the

enforcement side, 31 States use State inspectors for

manufactured buildings, 21 use county or municipal inspectors, and 23 use third-party inspectors.27

In the absence of more complete solutions, negotiated agreements have allowed State and local governments to combat the regulatory problems presented by industrialized housing, especially those

relating to factory construction. However, this type

of governmental oversight presents problems of consistency, and abuses have been reported. Assuming that the manufactured building industries will

continue to enjoy sizable growth, negotiated agreements would be the weakest of all State-based alternatives. Such agreements may be easy to implement,

Z7NCSBCS, unpublished data.
but uniformity over a large multi-State region is difficult to achieve and may not stand the test of time.

Proposals of NAHB and the Building Code

Associations. -As noted earlier, the National Association of Home Builders, NCSBCS, CABO, BOCA,

ICBO, and SBCCI have agreed on principles for a

State-based regulatory system that would affect codes

and inspection systems throughout the country. They

are now in the process of converting these proposals

into a formal regulatory system with adequate funding. The system would be based on the following

guidelines:

●

●

●

●

●

●

One of the three major model building codes

would be adopted by the States. Local jurisdictions could not make amendments.

States would enforce the regulations that applied

to factory-produced housing, and local jurisdictions would oversee codes for site-built housing.

The selected model code would be mandatory

for all factory-built housing, and for all site-built

housing constructed in jurisdictions that use

building codes.

Amendments to the codes would be reviewed

“through channels currently used for the model

building codes” and “the States would establish a uniform procedure for evaluating and approving new products, design concepts, and

construction techniques. ”

States would agree to reciprocity agreements for

all industrialized buildings.

Education and training would be provided for

builders, building trade workers, and regulatory

officials .28

Private Responsibility Systems

Private companies and associations play a substantial role in governmental processes for regulating the

U.S. housing industry. This participation takes various forms, such as developing consensus standards,

establishing model buildings codes, and testing materials.

The American system resembles a gigantic voluntary regulatory scheme, considering the number of

private organizations that participate. An estimated

1,800 private American companies manufacture

components for homes, and many of these help to

%4B0 News Release, Llav 1986

develop consensus standards for their products that

are later incorporated in building codes. Private firms

and industry representatives do much of this work

through organizations like the American National

Standards Institute and the American Society for

Testing and Materials. Industrial trade associations

also implement consensus standards, and, as noted,

the three major model building codes come from the

nongovernmental organizations and CABO.

In addition, numerous profitmaking and nonprofit

laboratories test materials, products, and buildings.

Underwriters Laboratories, Inc., a private nonprofit

firm, occupies a unique position in the industry. The

approval of electrical items by Underwriters, or by

a laboratory of equal stature, stands as a legal and

practical prerequisite for government approval.

Application of Private Regulation. -Private responsibility systems raise questions of accountability: who is responsible, how, and to what extent?

Are there any models or examples of effective private responsibility systems that can apply to residential construction, especially in matters of enforcement?

In response to these questions, European systems

of private assurance deserve analysis. Belgium has

a strong private liability law, under which architects

and builders are held responsible for 10 years in matters of building safety and durability. SECO—roughly

translated as the “Bureau of Control and Proofing

of Building Safety and Construction’’—is a nongovernmental engineering consulting organization that

tests and inspects all types of structures. Government

approvals require SECO inspections; insurance companies also call for SECO inspections as a prerequisite for issuing policies to builders and owners. SECO

divides its attention between municipal authorities

and the private sector—builders, manufacturers, insurance companies, and building owners. SECO’s

work includes laboratory testing, reviews of designs

and plans, onsite and factory inspections of buildings and components, and plans and reviews of quality control systems. The firm handles approximately

90 percent of all such activities in Belgium, and Belgian courts interpret “good practice” consensus

standards developed by SECO. In turn, SECO is legally 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 Britain and Sweden are legally liable for the inspections

made under their auspices. A British law passed in

1984 provides for home liability, and enables the

government to accept inspections performed by

properly bonded private firms.

More investigation of the effectiveness and problems of European systems is needed. However, these

models do suggest possibilities for a “private responsibility” approach i n this country, where most government entities have not been legally liable for

codes and inspections made under their auspices.

Congress might choose to make them liable, in order to make codes and inspections more effective.

Under this approach, codes would continue to be

set through official government processes, but the

enforcement system could be made private in cases

of liability transfer Several ways to implement this

approach are described below:

1. Manufacturers’ and dealers’ warranties could be

required on all industrialized housing and nonresidential modular buildings. New Jersey maintains such a mandatory requirement, and several other States are considering the option.

2. Mandatory inspections could be conducted by

third-party law firms. The government could

license the firms, but payment would come from

the various involved parties, following the European model: manufacturers, dealers, contractors, government entities, homeowners, and

other building owners. The private inspection

firms would issue inspection certificates and affix approval seals that certified full code compliance for manufactured units. Like certified

public accountants, they would be bonded and

insured as a requirement for licensing, and

would be legally liable for their advice on code

compliance during inspection.

3. Because they provide liability coverage and

building insurance after construction, private insurance companies might become more involved in setting qualifications and requirements. In effect, they would perform a private

regulatory function based on risk assessment.

Insurance coverage could be required as a matter of law, and companies could set competitive premiums. Currently, U.S. insurance companies engage in loss prevention activities for

commercial buildings only; in Switzerland, companies that issue any form of fire insurance require annual inspections and maintenance of

heating systems.

4. Private financing institutions, like private insurance companies, could take a more active role

in performing a private regulatory function.

Compliance with code standards does affect loan

risks and marketability of buildings, of obvious

importance to private financing institutions.

Consequently, in addition to requiring insurance, financing institutions may set specific

guidelines for those seeking credit for mortgage

financing, or construction loans for manufactured buildings. HUD’s Minimum Property

Standards, used to approve federally guaranteed

mortgages, illustrates this principle.

Cross-Cutting Strategies

A single code for all types of industrialized hous-

; 1;> ITI Y may not be tee] [ ~ .~gicail~ realistic or

cj(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 housing

b $, ~ at ?gori (-4>.

Labeling.--In the United States, appliances are

rated for energy efficiency, meats receive quality

grad{: r , ~ lgs, i; I

f 1,!l]obilesar-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 “accepta~le’i ,minimum health and safety standards.

Acceptable minimums indicate the absence of absolute levels, even in health and safety of buildings.

For e~”ample, differences exist in fire protection—

wall

i.i Ials have distinct interior surface flame ,+fi~”

spread tij ,ies, and placement and enclosure of furnaces, number of smoke detectors, number and distance to exits, and exit capacities all differ according to local conditions.

Housing grades may be based on other factors:

durability, quality, amenity, and operating or lifecycle costs. HUD has already demonstrated the feasibility of establishing grades through the potential

for evaluation of quality, livability, and durability in

“manufactured” (mobile) homes.29

“’l-l S Dep~rtment of Housing and (Irban Development, Sixth AnJ)II;II f<eport ~() (’ongress On kfanulactu~ed Housing Program.
83

There are three approaches to grading homes

within categories. First, each key attribute of a house

might be rated, with the cumulative result given to

the home purchaser. Second, minimum acceptable

levels of each attribute might be established for each

grade of house. A “Grade A“ house would have certain features, a “Grade B“ house might be lower, and

so on. Third, a house might be graded only for minimum standards of health and safety. Higher grades

of homes would carry stickers, demonstrating compliance with selected standards of durability, quality, amenity, and operating or lifecycle costs.

Such improved information about building quality would allow banks to estimate the market value

of the structure more accurately. Also, it would permit banks to project potential operating costs, such

as energy, for use in qualifying individuals for housing loans. Both features would facilitate the operation of housing markets, and would encourage

greater construction quality without prescription.

The establishment of categories of factory-built

homes, together with grades within such a system,

would yield two important benefits. This marketbased solution would allow market forces, and not

statutory regulation, to govern supply and demand.

Also, it would create incentives for producers to

“build up” in order to satisfy better-informed consumers.

Other Models.—Japan maintains national standards for certifying building components. The Japanese Ministry of Construction provides group insurance and a “Better Living” label for housing

components that meet specified standards. The Ministry publishes the standards in the Japanese equivalent of the Federal Register, and invites firms to apply for certification. Applications must include

detailed design drawings and test results, and are

reviewed by a 25-member certification commission

composed of consumers, members of “local public

organizations, ” and technical experts in housing

components. Certification must be renewed every

3 years.

By June 1985, 541 companies had received certification for 1,417 products in 31 categories. These

categories include hot water systems, ventilation

units, gas appliances for kitchens, gas leakage alarm

systems, solar energy systems, bathtubs, “housing

information systems, ” and even mailboxes, front

door units, door locks, window sashes, handrails,

interior doors, kitchen cabinets, “master television

antennas,” and more. Products that carry the “Better Living” label receive two types of insurance: product warranty insurance, which covers costs associated with replacement of a defective component; and

product liability insurance, which covers claims resulting from injury or property damage attributable

to a failed component.30

The French “Agreement” system, where a single

national private corporation makes comprehensive

technical investigations and certifies building innovations, has been adopted with variations in over

10 countries. The “Agreement” organization assesses

likely performance of factors not covered by existing building codes. Its recommendations encompass

the design, manufacture, assembly, and installation

of products. It also conducts research on testing

methods and quality control for manufacturing and

building erection procedures.

Dozens of energy rating systems have been developed in the United States. For example, California Utilities began rating new homes in the late

1970s, providing builders with discounts on utility

connection charges if their structures met minimum

standards of electric energy efficiency. The program

succeeded in attracting consumer interest in energy

efficiency, but some building officials found the California rating systems “difficult to enforce”31 due to

their relative complexity.

Several other types of systems exist. Austin, Texas,

has a “five-star” rating system for new houses. The

Western Resources Institute has organized builders,

bankers, insurance companies, and realtors into a

coalition that provides an “Energy Rated Homes”

label for units sold in western Washington; this

project is designed to operate by industry consensus,

not government intervention.32 Appraisals leading

to a rating are conducted much like standard appraisals.

The State of Florida has combined energy rating

with a “minimum standards” approach. New homes,

residential additions, or significant renovation must

satisfy a minimum standard for energy efficiency,

~ocovernment of Japan, Ministry of Construction, Housing Production Division, Quality Housing Co&onenKCerMication $\rs/ern, 1985,

~INCSBCS, May 1986, op. cit.

sZJav Luboff, private communication, February 1986.
84

which varies between three “climatic zones”; beyond

this threshold, houses receive grades that indicate

future performance. However, as with the California Utilities model, effective enforcement has been

difficult to achieve, especially in rural areas with low

levels of construction.

Presently, California is considering a statewide

energy rating system. The California State Building

Code mandates stringent energy-efficiency requirements for new homes, which made obsolete the State

standards set by the electric utilities and which led

to the abandonment of utility-based labeling programs. The California code requires builders to submit certification plans prior to approval. A computerbased analysis then determines whether the proposed structure meets minimum levels of energy performance. Since the computer-based analysis applies

to all structures receiving code approval in California, labels with the number of “points” scored can

be supplied at no additional cost to the builder. In

two demonstration municipalities, the State Energy

Commission has established a rating scale for existing residential structures of 1 to 6, where 1 indicates

the highest level of energy efficiency. Were this

system applied on a statewide level, most existing

homes would receive relatively poor scores, illustrating the benefits of purchasing a new home and

aiding builders as a result.

Also, banks have been encouraged to consider

energy costs when reviewing a borrower’s ability to

pay. Standard rules call for an owner to pay no more

than 28 percent of his or her annual income for principal, interest, taxes, and insurance (PITI), but many

lenders have abandoned this standard in the face

of skyrocketing housing costs. California loan offices,

for example, now allow PITI to reach 32 percent of

a buyer’s income. If a label allowed lenders to project

the energy bills associated with a home purchase,

the rules could be extended to include PITI + E, or

expected annual energy bills. This would permit

lenders and borrowers to integrate operating costs

into purchasing decisions with greater accuracy.

However, few lenders have moved to consider such

quality features as energy efficiency, and the Federal Government has been slow to use its power as

a secondary lender to encourage similar considerations. The Federal Home Loan Mortgage Corporation (“Freddie Mac”) does account for energy efficiency when a borrower is on the borderline of the

PITI equation; the Federal National Mortgage Association (“Fannie Mae”) allows for an increase of two

percentage points—28 to 30, for example—in the

mortgage payment-to-debt ratio, if the home satisfies

certain energy requirements; other agencies have

not yet followed suit. Freddie Mac has indicated that

if projected energy costs could be specified with

greater accuracy, then the agency would consider

including them as a loan determinant.

Other Measures

Four additional options were identified as potentially important, but were not investigated in detail:

1.

2.

3.

4.

Mandatory training and examinations for certification of inspectors might be required for all

building inspectors. Enhancing the skills and

professional qualifications of inspectors will

improve code enforcement. The model code

agencies and NCSBCS already offer training and

examination systems, and 10 States require inspectors of manufactured buildings to take examinations for certification. In fact, most States

“strongly endorsed the need for mandatory

training and certification examinations for inspector and third-party personnel.”33

Design approvals for manufactured buildings

might require reviews and signatures from registered engineers.

Improved quality control of factory productionlines for manufactured buildings could be

achieved, perhaps borrowing and adapting techniques from other industries.

Consumer participation in code-setting for manufactured buildings could be improved, and consumer complaint and appeal processes short of

lawsuits could be facilitated.

qJCSBCS, May 1986, op. cit.
85

FOSTERING TECHNOLOGICAL INNOVATION

Many housing experts urge the U.S. Government

to play a more active role in promoting fundamental building research. They claim that without such

study, the U.S. residential construction industry will

become increasingly vulnerable to foreign competition, and American homebuyers will continue to

receive less than their money’s worth. The argument

concludes that because even the largest housing

firms cannot or will not conduct basic research, the

Federal Government must make the kind of longterm commitment that has succeeded elsewhere.

Sweden’s Council for Building Research, for example, spent $39 million on research in 1983, more

than three times as much as HUD, despite the fact

that Sweden’s residential construction industry is approximately one-twentieth the size of its American

counterpart. The U.S. Government does support such

research in health and agriculture, both of which

are based on small establishments that lack the resources to conduct independent research. However,

even the 100 large companies that produced 25 percent of all housing units in 1985 did not make significant investments in research. It may be time to

reevaluate the historical “laissez-faire” approach to

housing research.

Research funds from the private sector, including

both individual firms and trade and professional

associations, have been inadequate in the past, and

a change in this trend seems unlikely. Most large

U.S. homebuilding firms do not maintain a research

budget, which implies a lack of industry confidence

in the cost-effectiveness of technological innovation,

at least in the short run. Professional associations

of architects and builders, like the American Institute of Architects, conduct some research, but their

budgets are minute in relation to the size of the industry as a whole.

Trade associations do sponsor useful research. For

example, the NAHB Foundation, Inc., has developed

a research house to demonstrate advances in conventional construction techniques, has instituted certification programs for manufacturers of building

products, and conducts economic and regulatory

analysis for public and private groups. Nevertheless,

compared with the resources available to other U.S.

industries of a similar size, this construction research

program is, at best, limited.

As for public funding, historically small agency

budgets have decreased even further. Still, several

agencies do sponsor relevant research, including the

Department of Agriculture through its Forest Products Laboratory, the Commerce Department through

the Centers for Building Technology and Fire Research at the National Bureau of Standards, the Department of Housing and Urban Development, the

Department of Energy, the National Science Foundation, and the National Institute of Building Sciences. However, due to poor coordination of these

activities, research efforts have remained fragmented

and have fallen short of their potential.

HUD has not promoted aggressive policies for

basic housing research. A 1982 GAO report states

that since 1974, “HUD has funded only one project

which demonstrated (in one geographical area) the

cumulative cost saving potential of a wide combination of innovative technologies.’’34 Some industry representatives assert that HUD’s research serves

to back up or justify a proposed building regulation,

and is seldom made public in any case, although

HUD’s “Joint Venture on Affordable Housing”--

initiated in several cities in 1982—has achieved

limited success.

Recognizing the need “to encourage all sectors of

the building industry to devise voluntarily a more

efficient way of introducing technology into housing and building,”35 Congress established the National Institute of Building Sciences (NIBS) in 1974.

NIBS was designed to spearhead new housing-related

research for the industry, a goal that has not yet been

achieved. This stems from the specific mandates that

accompany NIBS funding, as opposed to funding for

the kind of long-term, basic research that enabled

Japan to develop its ceramic building material. In

1979, NIBS issued a report that identified “the regulatory environment” as the major constraint on research, development, and demonstration projects.

The Institute attributed its own sluggishness to encourage new technologies to a shortage of financial

resources.

36

~qceneral Accounting office. Op. ~lt

‘

5 Public Law 93-383

‘6”A Study of Existing Processes for the introduction of New Products and Technolog~ into the Bu]lding I ndusto, ” prepared by’ The

Ehrenkrantz Group for the National Institute of BuildlI~g Sclen~es, 1979
86

Summarizing its review of HUD and NIBS as of

1982, the GAO observed that “the statutory authority given to HUD and the National Institute of Building Sciences to encourage the development and use

of innovative technology in homebuilding has been

receiving only limited attention by HUD and the Institute. "37 Neither agency appears ready to promote

research and development of new homebuilding

technologies or materials unless funds are earmarked

specifically for this purpose.

Preparation of a comprehensive list of priorities

would help to increase Federal support for housingrelated research. Previous sections of this report have

discussed the need to integrate such research into

a program that considers the performance of an entire residential structure, in the areas of construction, energy efficiency, safety, and comfort. In light

of this situation, a list of research priorities might

include the following:38

1. Analytical tools that could facilitate the design

of low-cost structures. For example, most existing computer models for evaluating heating

and cooling costs are difficult to use, and are

not tied to advanced building design systems.

As a result, few architects or builders employ

such techniques.

2. Advanced manufacturing technologies, including a variety of numerically controlled production systems, which have been developed for

other manufacturing industries and could be

adapted for use in factory and field housing

construction. New standards and communication protocols have accompanied the introduction of these innovations into other sectors,

and the residential construction industry may

need to repeat this process.

3. Analytical tools for determining the effect of

building design decisions on energy consumption; present techniques for this purpose are

inadequate. Improved estimates for building

performance in all types of warm-weather climates are needed. Most existing methods canSIGeneral 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 Performance of Building Envelope Systems and Insulating Materials, ” Building

Thermal Envelope Coordinating Council, is in preparation. See also E.

Hirst, et al., Energy Efficiency in Buildings: Progress& Promise (Washington, DC: American Council for an Energy Efficient Economy, 1986),

not project the effect of different design alternatives on peak electric loads of residences,

and energy costs in many southern areas depend more on peak electric loads than on total energy consumption. Also, more efficient

analysis of the implications of different window locations, shadings and glazings, patterns

of moisture penetration, noise propagation,

and heat exchange could be developed.

4. Simplified and accurate methods of energy

labeling, and improved techniques for projecting energy costs. Financial institutions could

employ this data in order to gain a better determination of a borrower’s ability to repay a

mortgage loan. The present system estimates

the principal, interest, taxes, and insurance on

a home, and measures this against a borrower’s expected annual income; adding projected energy costs would provide for a more

accurate equation.

improved data on the actual performance of

different energy efficiency strategies and construction techniques. Current information on

lifetime operating experiences for different systems, especially for residential construction,

is poor; maintenance costs of industrialized

housing cannot be compared with conventional

construction techniques. For example, performance of insulation, sealants, and other

materials is not well documented, and the

durability of residential retrofits is poorly

understood, Differences between the predicted

performance of structures and the actual field

experience need to be clarified.

Improved techniques for characterizing the

performance of residential appliances, making

the estimates of performance for these items

match actual field experience with greater accuracy.

7. Techniques for integrating residential electric

systems with utility dispatch systems. Controls

on individual appliances could also be improved.

8. Technologies of a variety of building components. Examples include glazing materials,

high-efficiency lighting, water heaters with fluegas condensation, heat-fired–or gas-powered

—heat pumps, integrated appliances, and components like compressors and refrigerants.

9. Controlled interior air quality, which may become a critical public health issue, particularly
87

where significant amounts of radon from soil

or groundwater have been introduced. Also,

more study of interior air pollution is needed

—especially of the sources of this factor, and

of possible techniques for mitigating its effects.

10. Industry standards and tests, which could permit rapid, inexpensive analysis of the performance and safety of new components and

systems.

Some industry analysts advocate the creation of

a quasi-governmental corporation to test and certify

new building technologies for construction. A single approval source for innovations in building technologies could marshal public and private support

for innovative development, especially to confront

problems of technology transfer. Consensus standards and model code organizations represent existing industries, known product-lines, and current

technologies, and tend to resist technological change.

Also, because new technologies do not assure certainty in performance characteristics, there is justifiable market resistance to unproven innovations.

Homeowners prefer not to gamble with an enormous

lifetime investment.

Consequently, one approach calls for existing institutions to continue code setting for older, proven

technologies, while a new, quasi-public corporation

would test, approve, and promote newer building

technologies. Such an institution would serve as a

prestigious, unbiased source of information, whose

recommendations would be accepted by other institutions.

The Center for Building Technology at the National

Bureau of Standards performs a similar function, conducting research for the development of testing

standards. The Center acted much like the proposed

“quasi-public corporation” in its involvement with

Operation Breakthrough. Another example is the

relationship between the Federal Food and Drug

Administration (FDA) and the National Research

Council (NRC) of the National Academy of Sciences.

The NRC’s independent scientific reviews of pharmaceuticals provide the basis for actions by the FDA.

Stabilizing the Building Cycle

Variable housing construction rates in the United

States impede long-term planning and heavy investment in capital equipment and worker training, and

discourage long-term technological research. Two

million housing units were started in 1978, as opposed to under a million in 1982.39 Large investments in production equipment can prove financially

ruinous during periods of low housing demand, as

in the case of U.S. Home (see ch. 2). A strategy for

evening the fluctuations in the housing cycle may

encourage greater capital investment on the part of

the building industry. This discussion does not intend to provide a comprehensive review of this complex but important subject, but several options have

been suggested for stimulating short-term housing

demand (see box B).40

Concerning the potential result of such policies,

GAO observed that:

Past housing stimulus proposals have generally

been thought to be inefficient because of a variety

of leakages arising from: (1) credit diverted to purposes other than housing; (2) windfalls to sellers;

(3) purchases by buyers who receive the subsidy

but who would have bought without it at roughly

the same time; (4) purchases by buyers who would

have bought later but move up their purchases.

However, the last group, those who move up their

purchase decision, are really doing what a stimulus proposal attempts to do—moving forward consumer decisions to buy at a time when housing is

in a slump and reducing demand during the next

upswing in the economy. These consumers may

also buy more expensive housing than they otherwise would have, which would tend to create more

jobs and help the homebuilding industry. Whether

or not a stimulus program which would result in

moving consumer decisions is desirable depends

heavily on the economic outlook. If strong recovery is anticipated it may prove helpful to shift starts

forward. If only a weak recovery is anticipated, shifting starts may yield an even weaker recovery. The

extent of these leakages have been heavily debated. 41

WU,S, Department of Commerce, Bureau of the Census, Sttitktkd Abstract of the L’nited States, 1984, p. 743,

WU, S, Congress, General Accounting Office, “Countercyclical Stlrn UIus 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 variety

of sources. Steven Winter of the Steven Winter Associates, Inc., New York, prepared most of the material dealing with international trade. David Dowall of the University of California, Berkeley, and Edward Starostovic, PSF

Corp., Wisconsin, contributed to the sections concerning

domestic housing production. Robert Gold, OTA, and Vincent Brannigan of the University of Maryland were primarily responsible for the sections addressing policy alternatives; many of these concepts were proposed in a

workshop held by OTA (see inside front cover for participants). Janet Lowenthal, OTA contractor, helped to

combine the material into an integrated text. Daniel

Chenok, OTA, conducted final research, revision, and

editing.

Because the information collected by the Steven Winter Associates, Inc., constitutes the basis of chapters 4 and

5 of this special report, it is appropriate to include their

statement of methodology:

“In order to present an accurate picture of the state of

manufactured housing internationally, and the most important factors affecting it, Steven Winter Associates, Inc.,

has drawn upon its knowledge of the manufactured housing industry, as well as upon its extensive contacts within

the industry.

“Preliminary analysis of the important questions concerning manufactured building internationally determined

the most important areas for concentration. Information

on these areas was then gathered from a number of

sources:

● 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 opinions of the field would be worthwhile were contacted. Due

to their positions, many of these individuals requested

that their names be kept confidential. Altogether, over

50 persons were contacted, from various fields:

●

●

●

●

●

experts within the manufactured housing industry,

domestic builders with experience in international

markets,

foreign manufacturers of building systems and their

sales representatives,

building products manufacturers, and

trade representatives from other countries.

“The information gathered has been compared and analyzed in order to arrive at an understanding of the current state of manufactured housing and its trends. It was

beyond the scope of this study to present an exhaustive

report on each country considered, although such information will be presented where it is considered important for a basic understanding on the issues. Rather, we

have tried to focus on the most important facts and to

raise the most important issues, especially concerning

those countries that will probably have the greatest role

in the international manufactured building market.”