The U.S. Department of Housing and Urban Development (HUD) Considers Regulatory Reform For Manufactured Housing

Manufactured housing plays a vital role in meeting the nation’s affordable housing needs, providing nearly 10 percent of the total single-family housing stock. It’s estimated that more than 22 million American households reside in manufactured housing, particularly in rural areas where this form of housing represents an even greater share of occupied homes. The manufactured housing industry is also an important economic engine, accounting for approximately 35,000 jobs nationwide. 

–  The U.S. Department of Housing and Urban Development (HUD) 

The U.S. Department of Housing and Urban Development (HUD) has asked for public comments on the current and planned standards for manufactured housing. This action is taken following an executive directive to reduce the U.S. government’s overall regulatory complexity.

Fluxus LLC has submitted the following comment for the HUD Regulations Division’s consideration.

RE:  Docket No. FR–6075–N–01 Regulatory Review of Manufactured Housing Rules

Dear Secretary Carson and Dear General Counsel Mr. Compton,

We appreciate this opportunity of providing comments to assist in your regulatory review of the current and planned manufactured housing rules.

Fluxus is a New York based small business established in 2013. Our core mission is to design and deploy aesthetic, sustainable, low cost housing to serve low income markets in the United States and globally. We believe that the untapped potential benefits of manufactured housing namely standardization, automation, purchasing leverage and modern quality control systems are essential to solving the increasing global affordable housing crisis that many nations are experiencing.

As part of a larger trend toward the industrialization of construction, the United States is amongst the leading countries that value prefabrication as a powerful strategy for reducing cost and improving quality, and that incorporate this strategy on government and commercial sector agendas.

The HUD in particular, has been playing a key positive role in creating manufactured home industry in the US and allowing it to benefit from the economies of scale by setting up nationally preemptive code, so that standardized designs and products can be deployed across regulatory boundaries at a national scale.

However, the growing demand for affordable housing together with new advancements in technology, design and business model urge a more progressive regulatory framework and more efficient approval process to allow better design flexibility and to achieve higher performance and economic-efficiency at scale quickly.

The Fluxus organization strongly favors intelligent regulation reform. We offer the following comments which we believe would serve to progress regulatory effects on encouraging innovation and improving cost/performance, without jeopardizing the original objectives to provide quality, durable, safe and genuine affordable manufactured homes.

Problem Statement No. 1

The definition of HUD-code Manufactured Homes constrains its potential applications typologically, programmatically and aesthetically. According to the definition below, the HUD-code Manufactured Homes applies only to dwellings with an attached permanent chassis on which they are transported to the site in one or more sections:

“Manufactured home means a structure, transportable in one or more sections, which in the traveling mode is 8 body feet or more in width or 40 body feet or more in length or which when erected on-site is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained in the structure.” (24 CFR Part 3280 > Subpart A > § 3280.2.)

As the HUD code for manufactured homes were initially devel­oped for mostly one-story single-family detached homes, homes built under this code today still suffer from limited flexibility for design and customization.

As a result, more robust prefabricated technologies and high-quality designs can only be implemented as traditional on-site built homes regulated at the state and local levels, thus cannot benefit from a universally binding, nationally preemptive standard that can much more effectively foster the economies of scale and conduct performance comparison for manufactured designs, products and systems at the national level.

Even though the HUD code is intended to provide, to the extent possible, performance-based standards, it is still highly prescriptive about the requirement of designs, choice of materials and technologies.

To adopt innovations that can greatly improve productivity and quality, it may require a burdensome, time-consuming and costly Alternative Construction approval from HUD. Consequently, the developers, architects, manufacturers and other industry players most likely will choose less desirable pre-approved designs to save time and cost.

This issue has also contributed to a negative quality perception and stigmatization about manufactured homes by the general public, customers and developers, and thus caused significant depreciation in value of manufactured homes.

Recommendation

1. Focus on creating outcome and performance based standards to replace overly prescriptive design standards.

Overly prescriptive standards can create an unfair advantage to large companies and can impede innovation and system solutions.

It is recommended that the code accommodates further flexibility in design and customization in order to broaden the scope, enhance quality and aesthetic value of manufactured homes under the HUD standards. This can be achieved by allowing for both product-based and project-based system solutions.

The product-based platform is rooted in a process of designing and formalizing applications of manufactured home products to address various functional needs, with the minimum amount of redesigning and reengineering possible, in order to establish the typologies and layout variations required to develop a standardized product range.

In a project-based platform, a fair deal of redesigning, re-engineering and factory retooling are required for the manufactured home design to meet the projects’ needs, the function of the application, and the site.

For both platform, thoughtful value-engineering approaches will lead to mass customization options with replicable design solutions any place possible. As one example of that, the Fluxus Prefab System uses just nine advanced and standardized components, each performing multiple functions, that greatly simplifies and improves manufactured building production and delivery. Another example is to use pre-manufactured room components that can be easily adapted to various types of home configurations, without altering the overall structural system or adding extra frameworks.

Furthermore, once a national network of supply chains for both product-based and project-based platform is established, the supply chain for providing manufactured homes can also be efficiently and timely diverted to produce other applications including disaster-relief and emergency housing when needed.

2. Focus on code development cost of ownership not cost of construction

Given many affordable housing are government subsidized, relaxation of energy efficiency, quality and safety standards will increase the overall burden on taxpayers. It requires a critical process of establishing a bottom-up economic model to demonstrate that the supply chain can deliver the manufactured housing solution functionally, profitably and compliantly to achieve the target affordability.

Architects and designers of manufactured homes or other prefabricated structures have continued to content themselves with an alliance with a manufacturer on a regional and product basis. Under this rather loose structure, costs can still vary widely, production capabilities are limited and not necessarily dedicated to the product, the suitability of the product remains regional, and the financial incentives are not perfectly aligned for competitiveness. The result is a fragmented situation where manufacturers are without products, and architects and product designers are without means of manufacturing.

It is recommended that the code encourages a vertically integrated business infrastructure.

Many industries have long since adapted the vertically integrated model to efficiently control the cost of raw materials and production, align market demand with product supply, and optimize profit margins, distribution and marketing in a sustainable fashion. Furthermore, as demonstrated by the automobile manufacturing industry, vertical integration can service the demand of these growth regions locally. Alternatively, by establishing production facilities in centers of low labor cost, business friendly jurisdictions, or regions where the cost of materials offer significant advantages, vertical integration can provide a fully-finished product or semi-finished components for assembly in the targeted growth regions.

The construction industry has lagged in capitalizing on the streamlining advantages provided by the factory structure. This feature of centralized production, inherent in prefabrication, is the basis for a more competitive operational model, delivering significant savings. Consistent with this operational model, a clear shift must be made towards a vertically integrated business infrastructure that incorporates the functionality of manufacturing, design, and real estate development and even financing under one umbrella.

Owners of a vertically integrated business will have more comprehensive assessment about the cost of ownership taking into account the life-cycle energy, operating, and maintenance cost savings, and they can also build scale and drive down cost by combining repeatable design solutions and standardized products into similar projects in their portfolio.

Problem Statement No. 2

It is well documented that the productivity growth of the construction industry as a whole has significantly lagged behind other industries. While technology advances in sensing, control systems and connectivity are being rapidly deployed in other industries, the construction industry is lagging on the deployment of these and other exciting innovations in part due to complexity in code development and regulatory overreach.

The incumbent advantages enjoyed by the manufactured housing industry has the potential to accelerate deployment and use its purchasing leverage to reduce development and deployment costs. And we believe that some commoditization of the industry is healthy. Large volume manufacturers, by virtue of their purchasing power, standardization and quality systems, are best positioned to drive down costs making housing more affordable to low income families.

We also recognize there is considerable controversy that higher standards in this industry can be detrimental to small businesses by accelerating industry consolidation and creating hurdles that impede innovation. While there is merit in these arguments, we believe that high performance standards are necessary in order to build trust and acceptance of manufactured homes. Manufactured homes presently have a very low market share.

This is not to suggest that there isn’t a place for small businesses in the manufactured home market. Rather than try to compete head to head with much larger competitors, small businesses are in a much stronger position to lead innovation and mass customization. As in other industries, the ability of small businesses to adapt to changing market demands, to tailor solutions for specific markets, and to develop and incorporate new innovations into their products is a formidable advantage. This helps avoid margin squeezes that are currently problematic. A solid Intellectual Property strategy would also enable small businesses to capture additional revenues should demand for their innovations exceed their capacity. If it could be demonstrated that the societal cost of sub-standard, low income housing is greater than innovative approach, the small businesses would attract investments across the value chain.

Recommendation

1. Implement productivity-improving technologies

Technologies, such as Building Information Modeling (BIM), are crucial to the productivity growth and the success of manufactured home industry. It provides greater transparency and efficiencies in the design, manufacturing, construction, and management of buildings. BIM software typically provides three-dimensional, real-time building modeling software in defining not only spaces, dimensions, and materials, quantities and properties of building components (such as manufacturers’ details), and also cost and scheduling. With such technologies, traditional architectural phases and data sharing among the parties (designers, engineers, contractors, sub-contractors, facility managers, and others) is made more efficient as all parties give and take information to and from the same source.

2. Provide funding and a mechanism to accelerate innovation

And innovation precedes code development by its nature. Small businesses, often the source of high-impact innovations, lack the financial means to bring them to market at scale. Government support to mitigate risk could enable integration of new control systems, such as adaptive lighting controls, renewable energy integration, internet of things and other innovations that are proven in other industries. A strong innovation process will help prevent large organizations from being complacent and encourage cooperation with smaller companies.

In summary, if intelligent regulatory reform is adopted, we believe the incumbent advantages enjoyed by the manufactured housing industry has the potential to make overall housing more affordable and higher quality without harming businesses large or small.

We look forward to further opportunity of contributing to and assisting in your regulatory review of the current and planned manufactured housing rules.

Sincerely,
Fluxus Team

Contributing authors: 

Michael Gallagher, Technology & Business Innovation Executive Advisor
Fanyu Lin, Chief Executive Officer
Harry Stendhal, Chief Visionary Officer
Eric Larson, Real Estate Development Partner, CEO of Downtown Detroit Partnership
Andy Redfearn, Housing & Development Advisor
Nasim Uddin Ph.D., Engineering & Advanced Material Scientist

About The U.S. Department of Housing and Urban Development (HUD) 

HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination, and transform the way HUD does business. More information about HUD and its programs is available on www.hud.gov.

About Fluxus LLC

Fluxus LLC was founded in 2013 to develop the Fluxus System, a prefabricated building technology platform that provides an efficient way to build both affordable quality homes and create sustainable communities across the economic spectrum.

 

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02/28/2018