Sunday, January 06, 2008

Letters from Sweden - Europe is different, Sweden is not, sort of..

Sorry for the delay in this series. I've been trying to figure out the best way to present these observations. Its time to look at the process in detail, but too much to cover in one entry, so how to break it up. I've decided that first we'll look at what goes on in the factory, and then on the site, and contrast both to prefab and site building practices in the US. But before we look at the studs and nail guns we have to consider their business model, and how it is different.

My correspondent from Sweden, Scott Hedges explained to me early on that there was more similar about the USA and Sweden than there was different. Sweden is bias towards suburban development, much as we do in the US. This is in contrast to other parts of Europe which tend towards more urban and village density for new development. Sweden like the US has the open space needed to develop housing in a suburban pattern, and like the US there is a relatively abundant timber resource for building houses of wood. So Sweden is like the US - they build suburban houses, in suburban neighborhoods. Yet the way they build the houses, the design of the houses they build are so different. Click through below to read the rest of this story.

The first and most primary difference about the way these houses are built is that in Sweden, for the most part, these factories that prefabricate the houses own the whole process. They own the site, do the site work, market and sell the houses, fabricate, transport, install, button up, and hand the keys to the owner. Not so different than here. The biggest home sellers in the US, names like Toll, Pulte, Ryland, Beazer, they also own the whole process, but they largely use site built construction for their homes. Prefabricators here in the US do not. If we look at modular, the most popular prefab technique, they primarily serve small builders and developers, handing off the modules at the site, they walk away with their check before the boxes are set.

In our correspondence we tossed about why this might be. In the end there is no clear answer why the large builders in the US have not taken steps to streamline their construction process - make it more profitable. Isn't this "job one" with big corporations? I believe the reason why our modular factories have not extended to own the entire process is more obvious. Modular grew out of the mobile home/park trailer industry. What they built was not real estate - they were sold by a dealer network much like cars. When shoddiness became a problem the Fed stepped in and created a nationwide code for these trailer homes - the HUD code. Now the industry split. Some factories continued to build trailers under the HUD code. Others jumped to building modular homes under the local building codes. 

But the business model did not change. They still sold the homes to a third party, who installed them and sold them. The factory delivered and walked away. This is because once the house is on the foundation it becomes real estate, and if for some reason they were not paid the effort to get their money or repossess becomes much more complicated at that point. 

So the modular industry is not about the most efficient way to build a house - its about putting the most value into the box before its on site. The more complete the box, the more profitable the box, so even if the entire process would be better with some of the work done in the field, say boxes knocked down, it does not happen that way because the factory's incentive is to have that work be their own. 

The Swedish factory on the other hand has incentive to adopt what ever process stands to make them more efficient and increase their profit. Why not the big builders in the US though? Its a long term outlook. It takes investment in infrastructure and the risk of trying new techniques. But in the long term you find better methods and profit from them. Are the US home builders more focused on short term profit (duh!). Is this a difference between corporate priorities and privately held companies? Maybe Scott will give us some links to the Swedish equivalents of the largest US builders? 

Previously: 
Letters from Sweden - conversations with an expatriate builder 
Letters from Sweden - land of modern, land of prefab

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