The prefabricated housing industries in the United States, Sweden and Japan
The Prefabricated Housing Industries in the United States, Sweden and Japan
There is relatively little information on the United States prefabricated housing industry; this article summarizes and analyzes trends in this innovative segment of the home building industry, which has been gaining market share since 1982.
With increasingly global markets, there has been tremendous interest about different aspects of the home building industries in Sweden and Japan, the potential of efficiencies of production applicable to the United States prefabricated building industry, and the possibilities of trade or foreign entry into U.S. markets. The technologies of the two countries are often praised, but there is only scattered information on their companies, on the regulatory and financial environment in which they operate, and on the consumers of their prefabricated homes. This article also summarizes and analyzes industry organization and long-term trends in the industrialized segments of the home building industry in these two countries: the cultural, economic, regulatory, and financial factors that structure industry organization.
The prefabricated home building industry in the United States has been shaped by the economies of automated production, which offers the advantages of greater material and production control. It has garnered an increasing market share because of economies of mass production relative to conventional home building methods. Labor shortages in relatively densely populated, high-demand areas have spurred production of homes in plants. In Sweden, a short summer season and severe winters make indoor construction economically viable because it extends the construction season. A homogeneous population living in fairly dense urban areas, and a severe climate demanding energy-efficient housing creates a market in which economies of scale for mass production of highly energy-efficient housing is possible. In Japan, the extremely high levels of population density, the demanding building standards for earthquake design and fireproof construction, and a moderate climate alleviating the problems that a colder climate creates for the use of steel makes possible a market for dense housing construction with steel frames.
In both Japan and Sweden the existence of centralized policy-making and of national building codes rationalizes the regulatory environment for firms. In addition, in both Japan and Sweden there is extensive government and private sector research on prefabricated housing. The prefabricated home building industry in the United States has never enjoyed the advantage of a national building code, and research on any aspect of construction by industry or government is relatively limited. That the prefabricated building industry is growing steadily in this country in spite of the complexity of the regulatory environment is an indicator of its potential for future growth.
In all three countries, consumers finance housing purchases using amortized mortgages of varying lengths, and there is extensive government involvement in structuring the financial markets to ensure that consumers can purchase housing. In both Sweden and Japan, mortgages can extend over longer periods of time than is typical in the United States. In Japan, the construction firms are very large organizations compared to U.S. or Swedish firms, and there are close linkages between the banking and construction industry, facilitating financing of plant and equipment.
There is some similarity between the structure of the Japanese and U.S. home building industries in that most of the home building firms are small traditional builders. The prefabricated segments are, however, quite different. In Japan, the prefabricated segment has benefitted from extensive private and public sector research and modernization efforts. The Japanese firms are extremely large, are subsidiaries of major corporations, and have strong linkages with the banking industry. Because the majority of prefabricated homes are constructed of steel, automation methods are necessary to manipulate the steel components; the product is quite different from both conventional Japanese homes and U.S. prefabricated homes. The Japanese prefabricated producer is involved in all aspects of housing, including interior design and home repair. Some of the producers offer a 10-year warranty on their product. In the United States, the prefabricated home builders are larger and more automated and capital-intensive than the conventional home building firms, but the difference between the two types of U.S. producers is presently more a difference of scale of operations; the products of the two types of producers are similar. Unlike U.S. or Japanese firms, Swedish prefabricated producers dominate their market, producing over 90 percent of all new housing. Swedish firms are similar in scale to U.S. prefabricated home building firms, producing 100-800 units annually compared with an average U.S. plant production level in 1983 of over 300 units annually. Swedish firms are more automated and have more flexible use of staff, employing highly trained workers at all work stations.
Qualitative comparisons are difficult to make between countries because of differing consumer preferences. It is not surprising that Swedish housing is the most energy efficient.
Over the long term, the U.S. prefabricated industry has been gaining market share, even though it has not enjoyed the advantages of a national building code or large government-sponsored research programs. The growth has been strong during the 6-year recovery that started in 1982. This extended period of strong demand for housing has allowed firms to achieve steadier production levels and cover capital costs. On-site labor shortages in high-demand areas of the country have also helped this housing sector as have the economies of material purchasing and production. Revised building codes will assist firms to increase market size, and new technologies and improved marketing techniques also indicate the potential for further growth of this sector of the housing industry.
Overview–In the period between World War I and II, innovative architects began to apply standardization, automation, and mass production techniques which had achieved cost reductions in other industries to housing design. Innovative architects like Buckminster Fuller, Mees Van De Rohe, Frank Lloyd Wright, Le Courbusier, and Walter Gropius are among the many designers of prototype prefabricated homes.
During World War II, there was great demand for prefabricated housing for troop use. At the end of the war, the United States faced a severe housing shortage. The Government attempted to solve this shortage through the Veteran Emergency Housing Program, established in 1946, with an ambitious production goal of 2.7 million new units by the end of 1947. This ambitious program was not achievable, partially because of the many peacetime priorities.
The next government-sponsored effort to industrialize the housing industry occurred with Operation Breakthrough in 1969-73. Studies indicated that a stable, large-scale housing market was necessary for industrial firms to enter the business with confidence, and to allow them recovery of necessary large-scale investment in plants and technology. Operation Breakthrough advocated industrialization and mass production. The problems of industrialization were to be solved by aggregating markets of the necessary size by inducing states and municipalities to streamline local codes and regulations, and to acquire large tracts of land; and by research into housing systems and technology for industrialized housing. Many of the firms which met the program requirements of design, production, and long-term financing were those which could mass produce housing on a large scale. Although the program never entered its final stage, which was volume production, it did provide a catalyst for change in the industry.
Since the early 1970’s, automation has gradually increased in the residential construction industry. Currently there are at least four types of factory-made homes: modular or sectional, panelized, precut, and mobile or “manufactured’ homes. Their construction is similar to site building: stud wall and joist construction with dimensioned lumber and various exterior sheathing and finishing techniques. The first three products differ in their degree of completion on leaving the factory. These factory-made homes, which are the subject of this article, are built to local, state, or one of the four nationally recognized model building codes, are considered real property, and are typically financed by standard, amortized home mortgages. The fourth mobile or manufactured homes, are homes defined by and designed to meet a preemptive Federal regulatory standard. Producers have adopted a different construction approach, constructing the houses from the floor up and interior out. Typically, the homes are shipped completely finished and usually furnished, and are usually financed with consumer loans. (These homes were discussed in a May/June 1986 Construction Review article).
The home building industry as a whole has had a strong recovery since the 1982 downturn. The recovery started in 1983 when private starts increased by 60 percent over 1982 to 1.7 million units (excluding mobiles, see Table 1). This level of production increased the housing stock of 92 million units by nearly 2 percent. The 1982 Census of Construction, SIC 1521, which gives the most current government data on single family home building firms, showed that in 1982 there were 72,100 firms. Even though the 1983-86 period has been one of strong growth for the home building industry, there has been some consolidation in the number of firms. These firms produce homes on site, and are primarily small firms building a few homes per year. There are also a few large, production builders utilizing components, systems, and high-volume production methods. The Red Book of Housing Manufacturers statistics show that production builders had a steadily growing market share and a decline in the share of smaller traditional builders who use components (Table 1). The Red Book statistics indicate that between 1977 and 1985, 35 to 50 percent of all homes were constructed using factory-manufactured components or systems, and 14 percent were “manufactured’ (mobile) homes built to the Federal code.
The Census of Manufacturers SIC 2452, Prefabricated Wood Buildings, surveys firms which produce wood homes and other buildings in factories; 409 firms responded to its questionnaire in 1982.
The Red Book of Housing Manufacturers also surveys firms which produce houses in factories; the 386 firms which responded to the Red Book questionnaire in 1986 had 458 plants in operation in 1985. The Red Book statistics indicate that about 156,000 units or 8 percent or of all homes were prefabricated (modular, pre-cut or panelized) units constructed in factories in 1985 (see Table 1). Overall, between 1983 and 1985, the industrialized segment of housing producers (excluding mobile) had a 13 percent increase in the number of firms, a 5 percent increase in production facilities and a 12 percent increase in output. During the same period, housing starts rose 2 percent, and mobile producers had a 4 percent decline in output, indicating that the prefabricated producers had a rising share of the market. Table 3 shows the regional distribution of plants and producers in 1983, the last year for which complete data is available.
Types of Factory Made Housing
The three prefabricated housing market segments covered in this article are panelized, modular, and precut, and they show distinct trends between 1983 and 1985 (see Table 1).
A modular housing system is a three-dimensional unit. It typically includes exterior and interior walls, wiring, plumbing, and other utility fittings. The modules are usually 12 to 14 feet wide and up to 60 feet long. Homes are shipped in two or more sections by truck to the site, where they are permanently sited by crane over a standard foundation, with or without a basement. The siting of the home, including connections to plumbing, gas and electric utilities, can be completed in as few as three days.
Modular homes have several advantages. Designed by architects and engineers, they are built to endure the rigors of transportation. Further, some savings are possible because of the economies of scale of using factory construction. The materials and consumer durables can be ordered in volume and their use can be carefully planned. More consistent quality is cited as a benefit of factory production, and financial and material losses due to weather conditions are greatly reduced. The total building time is also reduced. This saves on construction financing and insurance costs, and may result in a faster return on investment; homes can be constructed in a plant in 1-2 weeks. Homes can be occupied in 1-2 months from the order date, a period shorter than most site-built homes. There is reduced vandalism and theft because homes are sited, closed, and locked within a few days. The sales price is finalized with the factory order. Finally, modular homes are permanently sited, and and considered real property, eligible for conventional, amortized mortgage financing, and subject to real estate taxes. Because they are real property and eligible for property taxes, they are usually more acceptable to communities than mobile homes, a close competitor. Modular home manufacturers have attempted to cut costs while providing moderately priced housing, particularly to the first time home buyer. NAHB Research Center estimates national average modular wholesale prices (without retail market or lot costs) to be $32,000 in 1985.
A marketing problem of modular units is the similarity of quality and purchase price to those of a site-built home. For this reason, modular units are not easily marketed in areas where population density and clement weather afford production builders the opportunity to sell a variety of designs with dependable delivery dates and consistent quality.
The modular segment of the home building industry had a 4 percent increase in the number of firms between 1983 and 1985 to 137 establishments, an 8 percent decline in the number of production facilities, but a 17 percent increase in output (Table 2). Red Book statistics shows that the modular market segment increased its share of 1-4-family housing production from 1.7 percent to 2.8 percent between 1977 and 1985, to about 56,00 units (Table 1).
Panelized housing is shipped from the factory as a series of panel components that are assembled on site. The panels are no more than two stories in height and usually do not exceed 50 feet in length. A complete package typically consists of exterior wall panels, a utility core, interior panels, floor panels and roof trusses. Panel systems differ in the degree of completion on leaving the factory. They may contain exterior walls, insulation, wiring, and interior walls, or may require insulation, wiring and interior walls to be installed on site. A panelized system may include a “wet’ core, which is a mechanical core unit containing the contral plumbing, heating and wiring equipment for a house and is installed at the site.
Panelized homes also offer several advantages compared to other housing types. They can usually be constructed more quickly than site-built units, they offer design flexibility, and usually offer cost savings over site-built homes as more expensive site work time is reduced. Home buyers can save on labor costs by assembling the home themselves. Panelized components are compact, so that shipping is easier and less costly than for modulars or mobiles, and shipping distances and market regions can be larger. Quality control factors in siting the homes can be a disadvantage, because producers may not assume responsibility for assembly and site work, and quality control relies on the assembler. There may also be storage problems on site, especially since a complex unit may take up to 2 weeks to assemble.
Between 1983 and 1985, the panelized segment of the industry had a 7 percent reduction in the number of firms, a 12 percent decrease in the number of production facilities, and a 3 percent increase in output (Table 2). Market share, as reported by the Red Book, has been constant at about 3.5 percent of 1-4-family units since 1977 (Table 1). Statistics on this segment of the industry are not clear, since some home building firms may change product mix producing components or panel systems as the market demands. Firms may also change their classification on a voluntary survey response form from year to year.
A precut house package is the least assembled factory-made house available. A precut package may include only the lumber, precut to exact size, length and quantity. The packaging is such that it is easily identified by coding or serial numbers when positioned in the package, so that pieces are unloaded as needed. A manual is typically provided, and some dealers may construct homes or assist the home buyer to find a suitable construction contractor. A basic package includes floor, wall, roof and insulation materials. It may also include plumbing, wiring and heating elements. Precut homes offer cost advantages, design flexibility, and material choice. They vary greatly in design, from traditional “log homes’ to very contemporary design using luxury materials. Significant customized upgrading is possible.
The precut segment of the home building industry showed a 67 percent increase in the number of firms, a 62 percent increase in productive facilities, and a 45 percent increase in production output from 20,000 to 29,000 units, between 1983 and 1985 (Table 1). In 1985, this segment comprised about 1.6 percent of 1-4 family homes produced in the industry, a share held consistently since 1977.
The use of factory-made building components is pervasive in the residential construction industry. Major components are now provided by a well-developed component industry, which typically supplies its products to production builders, strong competitors of the factory built housing industry. These components consist of two-dimensional structural parts of the buildings such as floor trusses, roof trusses, wall panels, beams, headers, and door and window assemblies. Production builders will assemble a house on-site from as much as 60 percent preassembled factory-built components. The Red Book survey indicates that in 1985 about 28 percent of 1-4 family housing was constructed with components. This market segment has declined from 42 percent of 1-4 family housing in 1977. Production of large volume builders which produce their own components have increased market share from 9 percent in 1977 to 13 percent in 1985. Shortcomings of the statistics available are discussed at the end of this article. These statistics could indicate that large-volume builders are not presently buying components from smaller firms, but are producing their own.
The Census of Manufacturers SIC 2452 surveys firms engaged in the manufacture of prefabricated wood buildings and panels. It corresponds to producers of precut, panelized, and modular/sectional buildings. The survey shows that in 1982 (a year of severe contraction for the home building industry), value of shipments was $1.35 billion. The value added by manufacturer was $553 million. The cost of materials was $794 million. In 1982, there were 16,800 persons employed by firms, with a payroll of $258 million. Seventy percent of those employed were production workers, and payroll per employee was $15,300, while value added per employee was $33,000. Average hourly earnings in 1982 were $6.88. Payroll comprises 47 percent of value added and 17 percent of value of shipments, while materials comprised 67 percent of value of shipments. The Survey of Manufacturers shows these ratios to be relatively stable for the industry for the period 1972 to 1982. Since 1982, production output has risen by 56 percent as the industry recovered from the recession.
Presently, the production of manufactured housing is quite similar to wood frame construction on site; however, the production process occurs in a plant, and the units are moved on an assembly line from worker to worker. There is some use of automated equipment, with benefits accruing from repetition, enabling plants to employ less labor. There has been renewed interest and activity in this segment of the home building industry, as academics, architects and engineering designers, and manufacturers apply new technologies.
In 1983, production was 321 housing units per manufacturing plant nationwide (see Table 3). Plants producing panelized units averaged 397 units and ranged from 184 to 728 annually. Modular plants averaged 305 units annually, and production in modular plants ranged from 139 to 459 units. Precut plants averaged 200 units and production ranged between 155 and 395. In 1983, 60,400 or 43 percent of all manufactured units were produced in the South. The highest production level per plant occurs in the South, where in 1983 plants turned out, on average, 451 units per year.
There is very little forward integration of manufacturers into marketing of their products, primarily because dealership management and home siting requires different expertise than production. A few large producers have begun to integrate vertically, but typically homes are sold from the plant to a dealer/developer who may also be a homebuilder. Builders normally have a well-defined market area, typically a 300-mile radius of their plants. Because there are few producers in each state, a builder/dealer buys units from the producer that supplies his area; the level of competition and consumer choice is thus limited. A builder/dealer will site the homes in a tract development; typically the builder/ dealer will also handle land development, providing infrastructure, including roads, housing sites and hookup for gas, electricity, water, and sewerage.
Problems and Opportunities
Industry analysts have cited several advantages for housing construction utilizing industrialized building processes which should favor future expansion. In addition to those mentioned previously, the PFS Corporation study, Changes in Manufactured Housing and Construction of Non-Residential Modular Buildings in the United States, mentions these factors favoring further industrialization: rising labor costs and increasing scarcity of skilled labor; the high cost of capital, favoring faster production and more skilled inventory control; reduced labor and material management complexity through the use of purchased components; and year-round production and marketing. Offsetting costs are investment in plant and equipment and the costs of shipping to the site.
The prefabricated homebuilding industry is probably the leader in homebuilding in its use of computers in computer-aided design, just in time inventory control and accounting systems. This is due to the larger scale of operations.
A major constraint for the further industrialization in the home building industry is the fragmented nature of markets due, in part, to the existence of state and local building codes. There are several aspects of this problem. The first one is the number of and variation between state industrialized housing construction laws. While 35 states have passed laws establishing state industrial housing acts based on a model code developed by National Conference of States on Building Codes and Standards, each state has modified the code. The NAHB Research Foundation study, Modular Housing Industry: Structure and Regulation, indicates that 75 percent of the states’ enabling statutes allow for reciprocity agreements, but that only 10 states actually have reciprocity agreements. However, 80 percent of modular producers have shipped to at least one other state, the average modular producer shipped to more than 5 states, and 17 percent shipped to 10 states or more. Codes are often conflicting in cases where there is no reciprocity agreement, which reduces standardized production. Unlike the Swedish and Japanese producers, the U.S. prefabricated homebuilding industry has never enjoyed the advantage of a national building code. That the prefabricated building industry is growing steadily in spite of the complexity of the laws is an indicator of its potential for growth.
Another code-related problem is the lack of uniformity in enforcement procedures, compounded by a disparity in the level of knowledge and training of enforcement officials. A plant shipping housing to two or more states without reciprocity agreements must not only be in compliance with each set of regulations, but also may be subject to different enforcement procedures.
Finally, 15 states do not even have industrialized housing codes, and manufacturers must build to the many local site-built codes.
There is movement by industry, regulating groups, technical experts, and Federal and state government representatives to develop a consensus on a simplified regulatory system. A 21-member Joint National Committee on Modular and Industrialized Building, made up of representatives from the groups mentioned, has been established to consider the development of an interstate reciprocity system for modular housing, and the development of uniform administrative procedures. There is also a provision in H.R. 4 requesting that the Department of Housing and Urban Development study feasible alternative systems for implementing one or more voluntary national preemptive programs for modular housing. This program will include factory-built single and multifamily housing (including closed wall panelized and modular housing).
There is very little data on this growing segment of the homebuilding industry. Additional research on trends in the modular construction industry is possible through analysis of the records of the 33 states which sell labels of compliance to producers of homes and modular buildings.
Export of wood buildings and components have varied in recent years from a high of nearly $21 million in 1982 to a low of nearly $7 million in 1984. Canada and Japan have been regular markets, accounting for 11-37 percent of all exports. In 1986, exports were $15.4 million, with West Germany (27%), China (17%), Japan (17%), Canada (15%), and the Philippines (5%) accounting for most of the exports.
Imports of prefabricated wood buildings have ranged from $6 million to $28 million, between 1982 and 1986. In 1986, the United States imports of wood buildings and components totalled $28 million, and came primarily from Canada (77%), and Sweden (11%).
Because of existing U.S. construction codes, housing markets tend to be local in nature. Access to markets depends on knowledge of local codes which makes it difficult for foreign firms to export to the United States. Foreign-made housing units would not meet reciprocity agreements between states on state factory housing codes, and would have to be inspected in their plants by state-certified inspectors to be accepted by the state-wide codes. Otherwise, they would have to be built to meet the local building codes. Presently, joint ventures with U.S. firms appears to be the best avenue of entry for foreign producers. There is at least one Japanese outlet, and there are at least 10 outlets for Swedish products in the United States, located primarily in the Northeast. Similarly, foreign markets are very culturally specific; U.S. firms which construct for the U.S. markets will have to carefully study housing requirements elsewhere to access those markets. In most instances, they will have to adjust their products greatly to sell in specific overseas markets.
Overview–Sweden is located in the northern temperate zone, and is similar in climate to northern New England, with 6 or more months of winter. The country is about 174,000 square miles, similar in size to the state of California. In 1982, Sweden’s population was 8.3 million, with a .1 percent annual growth rate. The average household size is 2.87 persons in a single-family dwelling and 1.86 persons in a multifamily dwelling. The population density is 48 persons per square mile, but the population is unevenly distributed; 90 percent live in the southern third of the country, so that the density level in urban areas approaches or is higher than that of the United States in urban areas. Sweden is a highly industrialized, wealthy country, and exports have recently represented an increasing portion of gross national product. In 1985, exported goods and services comprised 35 percent of GNP. Living standards are quite high; in 1983, per capita income was $10,744, which exceeded almost all other European countries and was higher than Japan’s, but lower than that of the United States.
The 1980 census showed that there were 3.67 million housing units, of which 41 percent were owner occupied, 14 percent were tenant ownership (similar to condominium ownership in the United States), 22 percent were rented publicly, 21 percent were rented privately, and 2 percent were unknown.
Sweden’s economy is significantly different from the United States’ or Japan’s. The government provides many welfare services, and is involved in all aspects of the economy. Sweden’s total government spending between 1974 and 1984 averaged approximately 60 percent (including regional and local level expenditures) of gross domestic product, compared to 35 percent in the United States and 30 percent in Japan.
Government Involvement in Housing
The provision of adequate housing has been a major government policy for many years. The Swedish government’s first activities in housing occurred during the depression of the 1930’s, when government aid was introduced to improve housing conditions and combat unemployment. During the 1946-48 period, housing policy took a more definite shape; a government program was established with the National Swedish Housing Board (Bostadsstyrelsen) as the central authority; the main features of the program have been retained to the present. The long-term goals were: to eliminate the housing shortage and overcrowding; to improve the existing stock to the level of new construction; and to reduce housing costs to enable a family on a normal income to rent a sufficiently large and well-equipped dwelling.
In the mid-1960’s, the Swedish Parliament passed a resolution, making decent housing for all a citizen right. To achieve this goal, a program was started to construct 1 million new housing units in the next decade to eliminate a housing shortage caused by an upsurge in the population; during that time, as much as one-fifth of total housing construction was government-financed. This was an ambitious program, considering that the existing housing stock was 3.5 million units and that high minimum performance standards were instituted at the same time. The goal was achieved by 1974 through the construction of estates of large apartment blocks. There has been a major change of policy since the mid-1970’s, with less emphasis on building multifamily units for rent, and more on repair and maintenance to the existing stock.
Currently, the Swedish government is involved in several aspects of housing: financing, research, and development of codes and standards. Policies are structured so that long-term ownership is attractive for tax purposes, while speculation in real estate is discouraged through high taxes on short-term gains.
The National Board of Physical Planning and Building produces national building codes and other regulations, provides inspection forces to control both factory and on-site work. Another institution, the Swedish Council on Building Research (SWEBEX), is responsible for technical research and development, in cooperation with the various universities and their research facilities. The Swedish government’s spending on housing-related research and development is close to $200 million per year. Much of the research is prompted by direct request from the industry to address specific problems.
Both the German Marshall Fund study, Coming in from the Cold: Energy-Wise Housing in Sweden and the Bairstow and Associates report Manufactured Housing: The Foreign Experience, United States, Japan, Sweden detail the incentives for energy efficient, high quality construction in Sweden. The existence of demanding minimum standards fostered competition based on quality rather than the initial investment cost. The high productivity of the industry greatly offsets the cost of the higher quality product. The additional cost of purchasing high-quality housing is compensated by government in several ways. The Swedish government sponsors grant or loan programs, offers interest subsidies, and interest tax deductions. It also has sophisticated methods of calculating the assessed value of new homes for tax and resale purposes based on, among other things, family size and square foot requirements. The government programs are designed to provide a stable housing market, and enough financial incentives to private companies to ensure research and development of superior products and systems.
Financing–Homebuyers purchase their homes by obtaining several different types of financing, often obtaining more than one loan at the time of initial purchase. “Primary loans’ are available from private sector credit institutions. These loans comprise as much as 70 percent of the cost of a home. The loans are repayable over 40-50 years, and the interest is at market rates.
The government lends all or part of the funds required by consumers over and above primary loans through “secondary loans,’ if the home being purchased is built to meet government specified standards. Over 90 percent of the new houses meet these standards. The loans can be for amounts up to 25 percent of costs for single family, owner-occupied homes, 30 percent for cooperative housing, and 22 percent for private rental housing. The owner is required to provide an 8 percent down payment.
The higher percentage applies to public housing corporations that operate without a direct profit motive. The sum of the government secondary loan plus the primary loan may amount to as much as 100 percent of the loan amount, if the property being financed is owned by a local authority or public housing corporation. If the owner is a tenant-owner association under public control, the loans may amount to 99 percent of the capital required. In the case of individuals building a single family home, the sum of these loans may amount to 95 percent of the production costs and for privately owned blocks of flats, to 92 percent.
The manufactured housing industry in Sweden has origins dating back to the 18th century when preframed wall sections were produced. In the early 20th century, the annual production of manufactured single family dwellings reached 5,000 homes produced by 25 different firms. Expansion of the manufactured segment of the home building industry was possible because of a national policy and program to upgrade housing standards in Sweden. The program was started in the 1950’s and continued into the early 1970’s. During the late 1960’s, the government actively promoted high-rise and multifamily dwellings to respond to strong housing demand from singles and newlyweds. The manufactured housing industry was not able to build for the multifamily market, and manufactured output declined. The industry rebounded when demand shifted back to detached and semi-detached housing. Manufactured housing began to dominate the housing markets between 1973 and 1983. Total housing starts in Sweden fell by 50 percent from 80,149 to 37,369 at the conclusion of the national program in 1973, but the manufactured housing industry increased its production volume by 14 percent. In 1973, manufactured units comprised 34 percent of the 43,211 single and semi-detached units and 40 percent of the 36,938 multifamily units, while in 1983, it accounted for 89 percent of the 19,325 single and semi-detached units and 92 percent of the 18,044 multifamily units. Some observers predict that site building in Sweden will virtually disappear within 5 years. Even among houses built in groups on speculation, a situation in which the advantages of site framing are the greatest, increasing shares have been captured by prefabricated housing.
Construction activities comprised 7.8 percent of Sweden’s Gross Domestic Product in 1984, and the sector was expected to have steady growth in coming years. In 1984, about 37,000 new housing units were constructed, representing a gross addition to the housing stock of about 1 percent.
In 1983, there were 105 housing manufacturers in Sweden, with an average annual output of approximately 250 single family homes and 140 multiple units. Of the 44,000 new housing units produced, nearly 90 percent were manufactured. The largest plants have an annual capacity of 600 to 800 units. Many of the larger companies are part of conglomerates which include sawmills and contracting divisions.
Production Process–Swedish manufactured housing is based upon wood frame construction to a performance-based code. There is very little difference in the product quality of various manufacturers, since the national building codes and standards are stringent. Differences center on the intricacies of finishes and basic components, including the structural assembly of studs and joists.
The panel systems, which comprise about 76 percent of the products of Swedish manufacturers, facilitate design flexibility, automation, delivery, and handling, and generally require much less factory production space than modular systems. Many firms employ computer-aided design (CAD) and computer aided manufacturing (CAM) techniques, and several are developing integrated CAD/CAM systems. In this regard, Sweden is probably more advanced than Japan.
Several factors contributed to the ascendancy of factory construction. Manufacturing allows rationalization of the production and transport processes. A number of the home manufacturers are completely vertically integrated, owning and clearing forests, precutting framing members, constructing complete walls and house sections in the factory, and overseeing assembly at the building site. The factory setting permits continuity of construction despite Sweden’s short building season, and it simplifies the job of building a well-sealed house.
The German Marshall Fund report details assembly line organization. For firms that are vertically integrated from the forest to the completed house, the manufacturing process begins at the lumber mill. Logs are loaded onto an automatic feeding mechanism; each log is electronically scanned; electronic scanning is augmented by visual inspection. Data are fed into a computer which calculates the optimum combination of lumber sizes that can be cut from the log in question and then instructs a sorting mechanism to deliver the log into the appropriate holding bin. Logs are fed individually into a machine that removes the bark much like a giant pencil sharpener. Simultaneously, with the aid of lasers, an operator adjusts multiple cutting blades to cut the predetermined combination of lumber sizes. Sensors are employed throughout the cutting and finishing processes, first to adjust cutting sizes, and finally to sort cut lumber into appropriate bins. The wood is then dried and cured; Swedish lumber contains only 10-12 percent moisture, compared to U.S. levels of 18-22 percent. Dry lumber is desirable for tightly sealed Swedish construction because it shrinks, warps and deforms less.
In a typical factory, the building begins in a staging area, where precut framing members, insulation, and components (windows, doors, floors, ceilings, roof trusses, dormers, porches and balconies are all produced in component form in Sweden) are prepared for a production run. Production organization varies from factory to factory, but very close tolerances prevail, whether full wall sections are produced in one run, or construction proceeds in stages. With the use of automated jigs, only one or two persons are needed to assemble a wall section. As the jig moves along the production line, layers of precut insulation and building felt are applied according to plan. Authors Schipper, Meyers and Kelly note the innovative and flexible mounting of jigs on semi-automatic tilt-tables, allowing secure and easy positioning of any segment of wall construction. Use of jigs also allows automated fastening, using banks of screwdrivers controlled by preprogrammed machines.
Homes are designed to fit a number of basic foundation systems which can be adopted to local site conditions. The foundation systems are also prefabricated, and are assembled on site. Completed houses are delivered to the site by truck; the accepted economic radius of operation is approximately 300 miles. (However, some firms ship to Japan via Siberian railroad, as well as to other export markets.) Most units produced are designed to fit into a standard 40 foot container. A factory-supplied crew and crane assembles the house on-site; four men can close a typical panelized house in one day. The joints between sections are sealed with foam gaskets rather than caulking, which would become brittle and crack in the Swedish climate. Interior finishing may be completed by craftsmen or by the owner. Usually electrical wiring is installed after building assembly through conduits installed at the factory.
Module construction comprises about 24 percent of housing construction in Sweden. During construction, both halves of a house are completely assembled and finished at the factory except for roof placement. The halves and roof panels are shipped by truck to the site and erected on a prepared foundation. The two halves are joined and the roof sections installed using a crane. The total elapsed time from buyer’s order to occupancy is usually 2 weeks. The speed of assembly of the volume module house is an attractive marketing feature and compensates to some extent for somewhat limited design possibilities.
Employment–Total employment in the Swedish construction sector was 290,000 in 1983, about 6.8 percent of all employed. Those employed in residential construction totaled 6,800 in 1983; down from 10,110 in 1976. The drop was largely due to automation in the industry. However, many professional workers, including CAD operators, are independent consultants employed under long-term contract. Bairstow found that in the more sophisticated factories, the manufacturing technology is so advanced that recent improvements in the overall system have been of a managerial nature. On the average, the clerical and administrative manpower equals the manpower on the floor. In highly automated factories, the ratio is closer to 2:1.
Production of a 150-square meter single detached house, using the most efficient of the panelized systems, requires approximately 50 labor hours in the factory (excluding management and maintenance staff); 40 labor hours for erection (4 person crew plus a crane operator for one day); and 200-250 labor hours for finishing work at the site.
In Swedish factories, machines are substituted for carpenters for some of the most repetitive parts of the construction process. However, the construction process is more similar to custom building than mass production because of the use of extremely flexible, computer-controlled equipment and the highly skilled work force that operates multipurpose tools. The labor force is employed year-round, has job security, and has training and retraining opportunities sponsored by management and occasionally by the government. While workers operate specialized machinery used to perform repetitive tasks, they generally perform many tasks using multipurpose tools, functioning as artisans or craftsmen. The same equipment can produce a number of different components when operated by a craftsman whose skills augment its flexibility. The reliance on employee ingenuity is most visible among a few small firms producing one-of-a-kind custom houses where groups of skilled production employees work out the construction details themselves from the skeletal plans provided them. The result of this process is a superior product with respect to energy characteristics, structural integrity, and quality of finish.
Training to upgrade the skills of employees focuses on understanding the overall process of production, and employees are trained to know and perform all tasks. This approach makes self-supervised crews possible, both in the factory and on site.
Product–Typically, a Swedish house designed for the domestic market is 20-25 percent smaller than a home built in the United States. The Swedish attitude toward a house purchase–which has been expressed and fostered through public policy–is somewhat different than America’s. The Swedes regard a home purchase as a relatively permanent investment, not as a temporary or speculative purchase. The Swedish consumer is not tolerant of any moderation of quality, such as drafts, cold spots, or window condensation, and expect that indoor comfort will not be at the expense of energy efficiency. The climate makes the Swedish customer keenly interested in energy operating costs. Many firms respond to this interest with detailed analysis to verify the economic value of their energy-saving features. The industry produces highly energy-efficient housing with excellent indoor climate control. Swedish housing manufacturers all exceed the country’s demanding energy efficiency and other codes.
The one criticism which has been leveled against Swedish housing is that construction and interior finishes are understated and simple. However, factories are increasing their design complexity, using a two-stage manufacturing process. Designs may eliminate interior partitions and concentrate services and utilities along a single wall, allowing great flexibility in tailoring the size and placement of rooms to suit occupant needs. Nonload-bearing partitions can be manufactured to specification, allowing the buyer to design his own spaces and locate electrical and plumbing components accordingly. One manufacturer allows customers to develop designs using modular house parts. A few manufacturers can accommodate one-of-a-kind designs.
Special Features–Many elements of Swedish construction are innovative. Not surprisingly, energy efficiency is very important to Swedish consumers, and Swedish homes consume less energy in a colder climate although they are typically heated to higher temperatures than U.S. homes. The German Marshall Fund study notes that the efficiencies are due to irreversible technical innovations–in insulation levels, air tightness, window design and as a result, heating systems–rather than behavioral differences or differences in home size or levels of comfort.
Their housing is energy-efficient by several measures. Their use of heating energy per square meter of housing served is quite low (180 kilo-joules of energy delivered to the house, excluding estimated thermal conversion losses in the boiler, as compared to a range of 215-275 for France, Germany, Denmark, Canada, and the United States) while maintaining the highest average indoor temperature (70 degrees fahrenheit as compared to a range of 57 to 68 degrees in other countries). They have a higher level of central heat penetration (99 percent) as compared to a range of 60 to 93 percent in other countries). They have the lowest average oil consumption for space heating in single-family and apartment dwellings, and have had these levels of consumption consistently since the late 1960’s. Other nations have been attempting to achieve the Swedish standards since the oil price shocks of the 1970’s, but were still significantly less efficient (20-40%) in 1983.
Although government standards for thermal integrity (R-values for ceilings and walls) of new homes were sharply increased in 1976, the Swedish industry has been consistently exceeding those standards for several years. Thermal integrity of new homes has been rising steadily in Sweden as demonstrated by a steady rise in R-values. R-values increased from 18 to 23 between 1973 and 1977; for ceilings, they rose from 24 to 35. The norm in today’s new house is R-28 to R-33 walls and R-37 to R-43 ceilings.
Of particular note is the energy-efficient wall construction. Wall R-values in new homes range from a “low’ of R-22 to values of R-40 in “low-energy’ houses. Factory-built walls register R-28 to R-33 values. Swedish builders have developed new framing methods to reduce the volume and weight and increase the thermal integrity which limits traditional construction methods. The methods, clearly detailed in Coming in from the Cold: Energy-Wise Housing in Sweden are the hardboard I-beam and the box beam. The I-beam is used for wall studs, roof trusses, and floor beams. It replaces thick wall studs, and accommodates more insulating elements. Tests run by manufacturers suggest that hardboard I-beams are stronger than comparable beams of homogeneous wood, and walls built using them have 18 to 25 percent higher R-values than walls and ceilings of equivalent thickness built conventionally.
The box beam system encloses mineral wool between rigid supporting materials. They are lighter, and because they use less lumber, are less expensive than standard timbers for wall thicknesses over 6 inches. They are more sensitive to moisture but are straighter, lighter, and no more difficult to install.
Some manufacturers have developed alternative framing techniques to build thick walls of standard lumber without sacrificing thermal integrity. These multilayer walls minimize heat loss by placing heat-conducting wood framing members at right angles to each other, reducing the area where a continuous wood element connects inner and outer wall surfaces.
Roof systems are not as strikingly advanced as wall systems, but they have incorporated many of the same ideas, elimianting thermal bridges and leaks. Ducting and electrical work which penetrates the attic insulation shield is tightly fitted. Attic floor and roofs are thoroughly insulated from each other, since the upper space remains unfinished until needed by the family as a living area.
Swedish design uses a truly continuous air and vapor barrier of .2 mm. polyethylene membrane, which is installed before the innermost layer of framing; windows and door openings are cut out of the film later. Penetration of the membrane for wiring and plumbing is avoided, since all the necessary installations are within the innermost framing. The factory setting allows for careful sealing around windows and doors.
Many features which are asthetic or have a particular function in U.S. construction, like windows and doors, have been incorporated into the structural design of Swedish homes. Walls are built around windows and doors, rather than added at the end of the construction process, so they are thicker than U.S. units. In spite of the climate, windows in Sweden take roughly 15 percent of the floor area, about the same proportion as in the United States. Sealed, triple-glazed wood sash windows and high levels of insulation are standard, and even four pane glazing is available. Some factories offer optically coated glazing, and some seal inert argon gas between panes to provide additional insulation.
Sweden is also a leader in ventilation technology. The Swedish national building code requires that no more than .15-.2 air changes per hour occur because of “natural ventilation.’ This means that during an hour no more than one-fifth of the air is replaced with fresh air infiltrating from outside. The number of air changes per hour occurring naturally in Swedish houses is about half that of typical new U.S. houses and about a quarter that of the U.S. housing stock as a whole. This natural ventilation is supplemented with air drawn from the house under controlled conditions. On completion, new houses in many communities are pressure-tested to verify air-tightness, as part of the routine inspection process. The Swedes carried out extensive research and experimentation in the 1970’s, and initially, houses were too air-tight. Lack of ventilation caused air quality problems and moisture retention, which in turn caused premature deterioration. After extensive research and experimentation, Swedish manufacturers found that the most cost-effective, energy-saving designs were airtight envelopes with mechanical ventilation systems, usually with a heat exchanger. In airtight Swedish houses a large share of the needed heat during cold weather is supplied by solar gains captured through integration of the ventilation system and by careful location of appliances.
The Swedes have also researched air quality issues carefully, and the Swedish Building Council indicates that they have found several effective ways to prevent radon accumulation in living spaces, a problem which is facing the U.S. construction industry.
The German Marshall Fund study makes the point that it is not “that the best Swedish house is better than the best U.S. house, but that the average new Swedish house is so much better than the average U.S. product’ that makes the Swedish technology so impressive.
The current approach to marketing is the use of display villages by groups of manufacturers adjacent to large population centers, complemented by sales agents. Sales forces are well-educated, often architects and engineers. In the present, relatively depressed market, sales literature persuades potential clients by carefully detailing technical superiority of the product and by indicating levels of consumer satisfaction with marketing studies. The sales staff is kept on a retainer basis and earns a commission, and usually take 15 percent of a company’s revenues. Builders also sell by catalogues displayed in building research centers.
A very sophisticated system is one marketed to the Swedish “owner-builder.’ It is a package including everything needed to complete the house, including the required nails and tools. The purchaser can also buy a video cassette showing the step-by-step construction process. As work proceeds, the company delivers parts as needed. Other factories supplying the self-help market sell panels small enough to be handled by a single person. Two people can assemble the panels for a small house within three days. That such owner-buildt houses can pass the rigorous performance inspections required by the Swedish code is a tribute to Swedish systems design.
The Swedish producers have traditionally concentrated on domestic markets, but falling domestic demand has caused many manufacturers to more actively explore export opportunities. Despite stringent regulatory demands, significant inroads have recently been made into northern Japan, and European markets in Germany, Holland, Austria, Switzerland, and Britain. Several Swedish producers are also shipping small quantities of housing units to the United States and Canadian markets.
Overview–The population of Japan was 121.2 million in 1986, slightly more than half of the U.S. population. Like the United States, Japan experienced rapid economic growth and a baby boom after World War II; however, the population is presently increasing by less than 1 percent annually. After 1955, the number of nuclear (parents and children only) families increased, and the average family size dropped to 3.3 persons in 1983. There were 39 million households in 1986, of which 18.4 percent were 1-person households, 61.1 percent were nuclear family households, and 15.2 percent were 3-generation households. The balance was other nontraditional households. About 8 percent of the total households were elderly people; increased health has meant greater longevity in Japan, and, as in the United States, the population aged 65 and older is one of the fastest growing segments.
Japan has a land area of about 147,500 square miles; it is slightly smaller than the state of California. The country consists of four major islands and many smaller ones, and extends through the temperate to subtropical climatic regions. The country has high humidity, typhoons and earthquakes, and buildings must be designed for these rigors. Fully two-thirds of the land area is uninhabited forested mountains, and about half of the remainder is farmland, so that the population is concentrated on the coasts. Only about 15 percent of the total land area is used for housing, commerce, roads, or recreation. Japan is one of the more densely populated nations in the world, having on average 840 persons per square mile. However, when protected forest reserves are excluded from usable land areas, the density in occupied areas triples. Pressure on the available land space has caused extraordinarily high land prices resulting in high housing prices and cramped housing conditions.
Changing social and demographic circumstances and the need to replace 4.2 million housing units lost during World War II demanded the development of an efficient housing production system in Japan. Following the war, there was also rapid migration of rural dwellers to the cities; Japan was 37.5 percent urbanized in 1950; it was 76.2 percent urbanized in 1980. The national shortage in housing was essentially solved by 1968, when the number of housing units exceeded the number of households. Regional disparities disappeared by 1973 when the number of units exceeded the number of households in every prefecture (a Japanese community). However, the quality of housing lags behind that of other major world powers, and the theme of government housing policy in the 1980’s has been to address qualitative issues, such as overcrowding, space per person and lighting.
In 1983, there were 38.6 million homes in Japan, of which 34.7 million were occupied. Of the occupied stock, 21.7 million units or 62 percent were owned, 25 percent were rented, 7 percent were managed by government or public corporations, and 5 percent were issued by government. The occupied housing stock consists of 64 percent detached houses, 27 percent apartment houses, and 8 percent tenement houses. The average number of rooms per residence was five or six for owner occupied homes, while the average for rental homes was 2 to 3. There has been a steady, high level of home building in Japan; two-thirds of the housing stock was built after 1960.
The Japanese economic system involves extensive government planning; government and industry work together closely in all aspects of planning. The process followed involves first preparing a comprehensive national development plan, effective for a 5-7 year period. This plan defines national social goals, and includes population and sector projections for all sectors, and a land use plan. After the comprehensive plan has been prepared and accepted by government, sector plans–for example, the 5-year construction program–is developed. The third aspect of the planning process is the development of annual budgets to fund the planned activities.
Government is involved in prefabricated housing through both the Ministry of Construction (MOC) and the Ministry of International Trade and Industry (MITI). A grasp of Japanese government policy is necessary to understand the development of the residential construction industry, because the government–in collaboration with academia and industry–has taken a strong organizational role over the past four decades in shaping the development of the entire housing industry. MITI’s role is to guide economic and industrial growth, and the input of this “think-tank’ institution has helped to establish the prefabricated housing industry. To meet escalating demand for housing in the 1960’s, MITI decided that some portion of the housing industry should be industrialized along the lines of the automotive and electronics industry. MITI formally established an analytical section on housing in 1969 to coordinate the policy efforts supporting growth of the prefabricated housing industry. MITI has an advocacy role for the industry; it sponsors conferences and technical workshops for industry representatives, and provides access to information and funding for research.
The Ministry of Construction, established in 1949, has a much larger role; it is involved in all aspects of construction. In recent years, the ministry budget has accounted for nearly 70 percent of the total national public works budget; nearly 40 percent of its budget is allocated to housing. It has a wide range of administrative responsibility, including preparing the 5-year housing construction program.
Other institutions which are subordinate to MOC have been established to provide modern housing in Japan, and are briefly described in the order of their establishment. The Housing Loan Corporation was established in 1950, followed by the Japan Housing Corporation in 1955. The former extends low interest long-term loans to home owners to help finance housing costs, while the latter builds housing complexes or multiple dwelling buildings for areas with acute housing shortages. The Japan Housing Corporation was merged with the Housing Land Development Corporation to form the Housing and Urban Development Corporation in 1981.
The Housing Construction Program Law, enacted in June 1966, requires the Minister of Construction to develop 5-year housing programs; the plan must be approved by the Cabinet. The first was developed in fiscal year 1966, and there have been four 5-year plans since. The goals of the first two plans, extending from 1966 to 1974, were to solve the shortage of housing by providing one house per household, and then one room per person. As noted earlier, after the absolute shortage was eliminated, the goals of the second two plans were to upgrade housing quality. These two plans established minimum housing standards, and planned for the demolition of substandard units.
The Building Standard Law, passed in 1950, establishes building regulations which apply to all buildings in Japan; it is essentially a national building code. In 1965, a technical appraisal system was established to develop and apply rigorous technical standards to all building materials and methods. The technical appraisal system is administered by the Building Center of Japan, which was also established by MOC in 1965. The specific applications to prefabricated housing are contained in Article 38 of the Building Standard Law of Japan, passed in 1973, and known as the Industrialized Housing Performance Approval System.
The Building Center of Japan is the focal point where government, private industry, and the academic community interact. The Center’s role is to ensure that all new developments in the building industry conform to existing regulations and standards. Since its establishment, appraisals have been completed on more than 12,000 technologies for all aspects of industry. The Building Center is also involved in research to help formulate and revise standards, and produce technical manuals and independent research. To share the vast array of information, the Center has a catalog service of books, newspapers, magazines, government reports and video tapes available to any interested party. The Center has organized and stored data for easy access for consumers, academics, and professionals. In addition, free advice from consultants on design, finances, or other services is provided. There is also an indoor exhibition center with housing units, building parts, and materials from over 200 manufacturers. The latest prefabricated model homes are on display on outdoor exhibition grounds.
Some of the activities of MOC and the subordinate agencies are briefly described to indicate the extent of government involvement, the range of material technologies, and administrative and engineered systems which have been developed through coordinated government and private sector research. Bon and Minami discuss policy changes in their study Structural and Organizational Changes in the Housebuilding Industry in the United States and Japan. One of MOC’s first notable projects, in 1949, was to stimulate development of precast concrete panels by establishing a certifying system for precast producers and by guaranteeing its demand from public housing projects. In 1962, MOC established a certifying system for building components for public housing.
In 1968, an industry advisory committee to MOC recommended long-term analysis and modernization efforts for the construction industry because of increased demand for housing, labor shortages, and sharp housing price rises. The recommendations were extensive and involved all phases of construction. Some of the recommendations were: increased research and development on industrialization of building production methods; establishment of an evaluation system for building performance; standardization of building materials, components, and construction techniques; creation of demand by using components in public construction, which also effectively promoted them to the public; increased job coordination and improvement of labor conditions for construction workers, including additional education; modernization of management techniques; improvement of the distribution system for construction materials, especially the industrialized building components; and improvement of procurement procedures.
In 1969, the Housing Bureau of MOC established a long term policy for the industrialization of the housing industry based on this report. Home building firms were expected to collaborate to organize the whole process of housing production, from land development and material purchase throughout the production and marketing process in delivering housing to the consumer.
MOC-conducted projects associated with this effort included a competition in 1970 of industrialized housing production technology for detached and semi-detached housing, known as the Pilot House Project; and a second competition in 1972 of industrialized production technology for high-rise, large-scale housing. In 1974, MOC sponsored development of the quality housing components certification system, and also certified the “platform system’ (as the U.S. style of 2 4 construction is known) to give it limited legal standing in the Japanese building code. In 1976, energy price increases caused MOC to sponsor a competition (House 55 Project) to develop low-cost, energy-efficient homes which would cost no more than 5 million yen (in 1976 currency).
In the mid-1970’s, there was a sharp drop in housing demand because the supply of houses had exceeded the number of households, and also because of high energy prices, high land prices, and high housing prices relative to income. Because housing supply exceeded demand, qualitative variables became more important. In 1976, an industry advisory committee recommended that MOC change the postwar housing policy direction. MOC adopted the recommendations and emphasized improved quality of housing to serve an increasingly diverse range of demands. The recommendations were development of a flexible system of building components, which could be used in both large-scale public housing and smaller scale scattered housing; continued improvement of the product delivery process including distribution, transportation and erection; and development of land policy to control increases in land cost.
Since the mid-1970’s, the Japanese have analyzed the difficult trade-off of economies of mass production versus design variety. Since the absolute shortage of housing was solved in the mid-1970’s, consumer preferences for higher housing quality and for diversity has been an important reason for continued change in government direction. According to McKellar in Industrialized Housing: The Japanese Experience, at the end of the 1970’s, the government recognized that the policies that promoted industrial production of large-scale public housing projects were not effective for modernization of production to meet general housing demand, which is individual and location-specific. Eventually, policy recommendations were made to ensure that traditional builders resume their central role in housing production. The recommendations included modernizing management techniques, wood technology development, consumer education, improvement of work conditions and education of skilled laborers, and improvement of distribution systems for building materials.
Since 1985, housing policy emphasizes more effective use of existing housing stock, including rebuilding, remodelling, and establishing the purchasing pattern of buying used (trade-up) housing. The report recommended that future housing policy should encourage small-scale regional builders to meet scattered regional and local construction demand. Both McKellar’s study and the American Plywood Association study, The Markets for Lumber and Plywood in Japan, indicate the current research supports these policy objectives. Ongoing projects, which should be useful to specific segments of the population, include research on expandable houses that could accommodate changing family composition and living styles; chemical treatment of wood to increase durability in response to consumer preference for wood construction; and efforts to establish the Wood House Promotion Model program in ten areas of the country, which would develop a manufacturing and supplying system for wooden houses meeting specific regional requirements. These projects were supplemented by a program in fiscal year 1985 to establish an optimized manufacturing and supply system able to provide a single family house at the cost of $32,000 (1982 price, where $1 = 250) per 100 square meters of floor space.
An important feature in the Japanese economic behavior is their high propensity to save. This creates a large pool of money for capital investment at low interest rates. In National Housing Finance Systems: A Comparative Study, Boleat attributes the high savings ratio to real incomes, which have risen more rapidly than consumption spending; bonuses, which are relatively high in relation to basic salaries, and are more likely to be saved than other salary payments; a relatively undeveloped social security system, which encourages people to save for their old age; and, a fairly low use of debt purchasing, so that people save to purchase consumer durables. In addition, there is considerable social encouragement to save. There are extensive tax concessions on savings, including tax exemptions for interest income from small savings, a special tax exemption for interest on postal savings, and tax exemptions linked to savings for housing.
Finance for the purchase of housing is provided predominantly by the savings deposit system. House purchase loans are funded primarily through short-term savings. There are no major private-sector specialized housing finance institutions. The main lender is the Housing Loan Corporation, a public sector body, which obtains its funds from the postal savings system. Other main lenders are the commercial banks, and housing loan companies which are subsidiaries of commercial banks.
The postal savings system is the largest in the saving system, having nearly one-third of all savings deposits. The reason for this large share of savings deposits is the additional tax exemption given postal savings, up to 3 million per depositor. It is common for people to have accounts in more than one name so as to take advantage of this exemption. In 1983, there were an average of more than three accounts for every person in the country.
The Housing Loan Corporation (HLC), established in 1950, is the largest single mortgage lender in the world. It is a special public corporation whose principal objective is to provide long-term, low-interest loans for the construction and purchase of housing which banks and other institutions were reluctant to provide. These loans were to be coordinated with other private sector housing loans to facilitate individual acquisitions of houses and to promote improvement in overall housing quality. It is also the agency through which government public housing programs are implemented; it operates through private sector institutions and through local governments. Its main function is to make loans to those who purchase houses for their own use. It has specific loan programs and loan amounts for houses of varying size and degrees of durability. For example, McKellar indicates that the HLC maximum loan in 1982 was 6.2 million for up to 110 square meters, and 6.5 million for between 110 and 165 square meters. The maximum land loan was
5 million. Loans are normally paid in monthly installments; the repayment term ranges from 25 to 35 years depending on the durability of the construction, with an established interest range; amortization was 25 years for wooden houses, 30 years for semi-durable construction and 35 years for fireproof construction. The interest rates are modest, and are often below market rates, and lower rates are given to smaller homes. The funds are raised on a short-term basis, but are lent long term; this is possible because of the noncommercial way in which the system operates. The government stipulates the rate of interest which HLC pays to obtain funds and at which it will lend. Funds are lent to HLC by the postal savings system through a government-regulated process, and the tax incentives enjoyed by postal savings effectively enable the funds for house purchase to be borrowed cheaply.
About one-third of lending by HLC is to purchasers of existing owner-occupied housing, on terms similar to those for new housing. The remaining funds are allocated to a variety of housing projects including rented housing, rehabilitation of owner occupied housing, and HLC acquisition and development of housing sites. According to McKellar, HLC was involved in about 40 percent of all housing construction in 1985.
Ordinary Banks: City and Regional–City and regional banks are the large financial institutions in Japan; together they are known as ordinary banks. Housing loans account for less than 10 percent of their total assets. These banks make housing loans on terms similar to HLC, and rates of interest are frequently below market rates. This is not because of any subsidy, but because of government policy, and the fact that the banks can afford to charge rates which might not always cover costs because the amount of business is relatively small in relation to total business. During 1982 and 1983 some of the banks introduced variable rate loans and allowed extended loan terms (up to 30 years) with the borrower’s children being a party to the loan.
Housing Loan Companies–Another category of housing finance lenders are the eight housing loan companies, which account for about 10 percent of the market. They are owned by groups of financial institutions. The reason for establishing these companies is that housing loans are fairly small, labor-intensive, and require specialized knowledge. These companies raise their funds entirely by borrowing, generally from their parent institutions. Almost all the money they borrow is lent to home buyers.
Housing starts for Japan totaled 1,365,000 units in 1986, a 10 percent rise over the previous year. On average over the last decade, the Japanese have built about 1.3 million housing units annually. Starts fell from 1977 to 1984, but have been rising since. Housing purchases were slower during the 1977-84 period because the housing supply exceeded the number of households, real income rose more slowly, and usable land continued to be extremely expensive. Bon and Minami found that in 1985 land costs rose 20 percent more than the wholesale price index.
In 1982 (the last year current data was available), there were about 514,000 construction firms–both residential and nonresidential–in Japan, about 8.5 percent of Japanese industrial firms, and they employed 5.4 million workers, about 10 percent of all employed. In 1981, housing construction investment was 31 percent of all construction expenditure. The Japanese home building industry, like the U.S. home building industry, is composed of many small traditional builders and a few large diversified construction firms. In 1983, about 60 percent of the firms had capital assets of less than 2 million, about 99 percent had assets of less than 100 million. MOC reported that total investment in construction in FY 1982 was 51 trillion, accounting for about 19 percent of GNP. Residential construction is comprised of about 50 percent wood frame construction, which are mostly single family traditional units, and 50 percent nonwood based units, which are primarily multifamily structures of concrete and steel. The wood-based house floor area averages 1,048 square feet (approximately 100 square meters), while the nonwood-based house averages 759 square feet (approximately 70 square meters).
The prefabricated housing industry has expanded from about 10 percent to 15 percent of the total market, but the 170,000 small home building firms– constructing on average 8 units per year–hold the majority of the market. McKellar indicates that prefabricated producers increased their share of the shrinking 1972-83 new housing market from 10.3 percent (193,000 of 1,856,000) to 15.3 percent in 1983 (174,000 of 1,134,000). Apartment units accounted for 42 percent of manufactured housing units in 1972 and only 16 percent in 1983. During the same period, the market share for semi-detached units remained at approximately 53 percent of the market. The upswing in market share is attributed to superior research, development, and marketing ability of the prefabricated producers.
In Japan, the top five producers of prefabricated homes produced 80 percent all prefabricated housing and the top 10 firms, 94 percent. The leading 5 firms have held the same rank for several years (Sekisui House, Misawa Homes, Daiwa House, National House, and Sekisui Chemical). They are very large, diversified, and vertically integrated corporations. Three of the top five firms are affiliates of large, diversified industrial organizations; one is an affiliate of a large general construction company, while only one, Misawa, is exclusive to the housing industry.
Of the five companies, Sekisui House, Daiwa House, and National House each produce a metal frame unit with a composite exterior (precast concrete) wall panel. Misawa Homes produces a modular wood panel system, Sekisui Chemical produces a modular steel box system. McKellar indicates that steel frame systems account for 62 percent of all prefabricated units, wood panels systems account for about 22 percent of the market, while precast concrete systems account for about 16 percent of the market.
McKellar attributes the success of the prefabricated home builders to nine major factors. First, the high population density provides large, easily accessible markets, located for the most part within a similar moderate climate. Second, the rigid requirements for earthquake design and fireproof construction make steel an appropriate framing material, and the climate alleviates the problems of use of the metal in colder climates. Japan is also highly efficient in the production of steel. Third, because four of the five largest prefabricated home producers use a steel frame and require 4 to 7 tons of steel per house, much of the automated production process revolves around manipulating steel parts. The process requires large factories, enormous economies of scale, and massive capital investment in manufacturing facilities. It also requires that factory worker wages be the same or lower than site worker wages, so that transfering manpower from the site to the factory does not increase costs. Fourth, the large factories can only be built through access to capital markets, favorable financing and long-term stability of demand, by companies that understand consumer goods markets. It is not surprising that the largest home builders are diversified and well established. Fifth, these firms have substantial borrowing and financing capacity, and also have linkages to the banking community that are significantly different from the business relationships between U.S. firms and banks. Sixth, government policies have provided stability and foresight for industry. Government and industry have studied and stabilized the supply and demand side of the housing equation. Seventh, industry has concentrated on the markets it can reach most easily, the metropolitan markets. Ninety percent of all prefabricated home sales are in urban areas. Eighth, industry has overcome the stigma of mass production and can tailor houses to individual preferences; industrialization and customization are synonymous and prefabrication presently is more flexible than traditional wood-frame construction. Finally, industry has concentrated on housing, and has moved away from land development ventures, which had caused high losses.
Japanese factories are highly automated, and there is extensive use of computers to control production processes. Some firms currently have computer-aided design systems and many have computer-aided manufacturing systems. Many are exploring CAD/CAM systems to integrate the two. Quality control is excellent and houses are manufactured to very fine tolerances.
Production time before occupancy varies considerably. Bairstow indicates that site-built homes can take up to 6 months, prefabricated homes take from 35-50 days, depending on housing type. The cubicle construction method requires only 7-10 manufacturing days and 10 days of site construction time. The panel and frame methods require 45-60 days from order placement to occupancy.
Labor costs are 15 percent of total factory costs for wood frame houses, and somewhat higher for concrete and steel houses. Overall, factory costs were about half the total selling price of a home, largely because land and site costs are very high in Japan. While Japanese firms are efficient in producing the housing shell quickly and inexpensively, assembling and finishing is time consuming and labor intensive. Except for one major firm, most electrical work and plumbing is done on-site rather than in the factory, and it is not uncommon for up to 36 subtrades to be involved in site work.
Sekisui Homes and Sekisui Chemicals, the first- and fifth-ranked producers, are affiliates of the Sekisui group of corporations. Sekisui was founded in 1947, has 4 major company groupings, and produces most materials and components for prefabricated construction. Sekisui Homes was established as an independent company in 1960, and is 20 percent held by Sekisui Chemical. Sekisui Homes, and Sekisui Chemical through its division Sekisui Heim, together accounted for 36 percent of all prefabricated detached and low-rise apartment starts in 1983. Sekisui Homes, the largest prefabricated producer, manufactured 40,436 units of prefabricated housing–both detached and multifamily– in 1983. It had 4 factories, 8,014 employees and total assets of 597,497 million. Sekisui Chemical through Sekisui Heim had 6 factories, 6,038 employees and assets of 290,937 million, produced 12,237 housing units in 1983. One of Sekisui Chemical’s major shareholders, Asahi Chemical, also produces prefabricated housing. Asahi was the eighth-ranked detached prefabricated home producer in 1983.
Sekisui House produces all types of residential building systems, commercial, and institution structures in steel-frame, ferro-concrete, wooden panel, and 2 4 construction. The firm relies on direct control of all operations and produces many of its own components from raw materials whether of wood, steel, or synthetic origin. A Sekisui prefabricated home is constructed on a light-guage steel frame with wall, floor, and roof truss systems, set upon a poured-in-place concrete footing, and is clad with modular composite exterior panels. The entire process is automated.
National House Industrial, the fourth-ranked firm, produced 20,444 units in 1983. The Matsushita group, better known in the United States as Panasonic, holds a 48-percent controlling interest in National. Matsushita is the largest Japanese producer of industrial robots, and many electronic consumer goods, and has the second-highest level of corporate expenditure on research and development in Japan. In 1983, National House had 4 factories, 2,010 employees, and 69,346 million in assets.
Daiwa House Industry Company Limited, started in 1955, is part of a large-scale general construction company. Daiwa has divisions producing multifamily and detached prefabricated housing, general contracting, prefabricated commercial buildings, and real estate development. Housing activities account for over 65 percent of total sales, and the detached housing division accounts for almost 65 percent of employees. In 1983, Daiwa had a production level of 20,794 units, 12 factories, 5,672 employees, and 289,198 million in assets.
Misawa Homes, the second-ranked prefabricated home producer, is the only one of the five large-scale producers which operates exclusively in the home building industry and it is considered a “maverick’ firm, for this reason, because it was started from the lumber milling industry, and is still strongly tied to this industry. It is the largest producer of detached units, and specializes in producing structural wood units. In 1983, total production was 30,650 units in 22 franchised factories employing 5,672 people. The firm had 289,198 million in assets.
Misawa is recognized as an innovator in almost every aspect of its approach to the housing industry. The company emphasizes research and development as a foundation to its growth, and seeks to control, but not own, all facets of the housing supply system from raw materials through after-sales service and renovation work. Misawa employs only 1,100 persons, who have administrative, research and development, and training responsibilities. Franchised organizations perform all other aspects of the work.
There is some interest in Japan in utilizing the U.S. method of house construction, known as the 2 4 or platform construction method. This system, an alternative to the traditional Japanese wooden home building method, was introduced in the 1970’s as a method of modernizing and increasing the productivity of traditional builders, because it offers the advantages of prefabricated construction without the associated capital costs of plant and machinery. However, Mitsubishi and Mitsui, two of the largest corporations in Japan, are now the major producers manufacturing housing units using the 24 method. Together, these firms produce about 20,000 units annually, representing less than 2 percent of all housing starts. Increased market share of the 2 4 construction method is likely to be slow for several reasons. Consumers have not accepted the product; they are more likely to purchase a traditionally styled wooden home. Second, there are limited supplies of lumber and other materials dimensioned for 2 4 construction because Japanese construction materials are dimensioned to traditional measures. Third, traditional builders are not familiar with the materials or method. In addition, a house built by the 2 4 method takes less time to construct and does not require the carpentry skill of the Japanese builder; there is resistance among traditional builders to a method of construction which diminishes the need for their expertise. In addition, government and industry are reluctant to forfeit the centuries of building skills that have honed carpentry to the refined post and beam construction form. Fourth, credit to finance construction is difficult to secure, a particularly difficult obstacle for small builders. Consequently, it is likely that instead of increasing the productivity of small building firms, large firms will continue to be the major producers, increasing their market share at the expense of small builders.
The marketing programs of the prefabricated producers are as carefully developed and highly capitalized as the production effort. Notable features include a national distribution network, highly capable sales personnel, extensive support services for sales, and company policies of establishing long-term relationships with consumers to encourage the purchase of consumer goods and of maintenance and repair services.
The Japanese prefabricated home builders are national companies, offering products throughout the country. They are also aware of regional differences in consumer preferences, and ensure that products meet regional preferences. This task is tempered by the fact that almost 90 percent of all prefabricated sales are within the metropolitan areas. The five large home building firms have each developed their own organization for marketing. At one extreme, Sekisui House owns and operates all facets of its marketing effort, with its own sales staff and facilities, giving the company a high level of quality control. At the other extreme, Mitsawa models its sales organization on automobile dealerships; it franchises every aspect of its operation to independent operators, including factories, sales offices, interior design and other home services. It claims to retain quality control over its network through comprehensive training for franchise operators. National House also uses a franchising system for its dealerships, but not for its production facilities. It maintains control over this network by retaining a 50 percent interest in the dealerships and by using extensive training programs for its sales staff. Daiwa and Sekisui Chemical operate with a combination of direct sales and wholly owned dealerships. Ninety percent of Daiwa sales are through the wholly owned dealerships.
All producers display sample products together in “show home parks,’ located in center city environments. The largest displays are operated by communications companies, and might be compared to U.S. auto, boat, or other consumer goods shows. These displays are easily accessable by mass transit, and are not permanent installations. Typically, the show home displays will include traditional home builders, prefabricated home builders, and 2 4 producers, and will be staffed by a firm’s sales personnel. After consumers view the sample houses, they go to a producer’s showroom or dealership, staffed by salespeople who are available for repeated consultations with consumers, including visits to the customer’s home to assess personal circumstances, or a family plot of land. A salesperson will show available floor plans to home buyers, by accessing them from tens of thousands of options available on a computer database. The designs can be modified by computer to suit individual needs. Often interior designers, supported by laser disc catalogs of appliances are on staff to advise consumers. The complete design is finalized in a few hours. Shipping, erection, and finishing are completed within a month.
Some of the services that typically accompany a home sale are a 10-year warranty, follow-up service visits, consultations with industry representatives, new home owner information newsletters, and customer consultation centers. The prefabricated housing industry in Japan is oriented toward producing total living environments, including appliances, furniture, fixtures, and equipment, and has a continuing involvement with its customers in changing, modifying and adapting the home following the initial sale. The companies have realized that the initial sale is the beginning of a long and profitable relationship.
Bairstow found that only Misawa and Daiwa had foreign market experience. Misawa had dealings with Canada in the 1970’s. Daiwa currently produces housing in Brazil, the United States, China, and Korea.
The factors mentioned earlier will continue to restrain growth of the 2 4 construction industry in Japan. However, the corporations producing 2 4 technology in Japan are large, sophisticated firms which would logically seek to use this technology in the North American market. The current exchange rate and cost of shipping presently pose export hurdles. But materials can be economically sourced for Japanese production processes in North America, joint ventures are a likely avenue of entry into this market.
DATA SOURCES ON THE U.S. INDUSTRY
Statistics on the entire U.S. home building industry– of which the prefabricated home building industry is a subset–are available from many, not necessarily consistent, sources. Government and industry data on segments of the home building industry are frequently conflicting and incomplete.
The Economic Censuses, including those of manufacturing and construction, are taken at 5-year intervals by the Bureau of Census, covering the years ending in “2′ and “7.’ Statistics on the site-built single family housing industry are covered in the Census of Construction, SIC code 1521, Single Family Home Builders and General Contractors. Statistics on mobile homes and wood buildings, SIC codes 2451 and 2452 respectively, are covered by the Census of Manufacturers.
The Census of Manufacturing SIC code 2452 gives a long-term overview of the wood prefabricated industry from 1972 to the present. There is information on number and size of firms, employment, value of assets and receipts, value added cost of materials, and other inputs. There are, however, two classification problems which makes the 1982 information somewhat inaccurate. First, Census report forms are not mailed to small companies with single production sites. Instead, payroll and sales data are obtained from administrative records supplied by other agencies of the Federal Government. In 1982, 39 percent of the firms were surveyed using administrative records. While this is a large portion of the firms surveyed, these firms only account for about 7 percent of the SIC 2452 work force and value added. A second problem is that the last Census was taken during 1982, a recession year marked by industry contraction. The Census information no longer measures the industry accurately because of growth and consolidation during the 1983-86 period.
It should also be noted that prefabricated housing units placed on site are included in the Bureau of Census housing starts, completions, and building permit data. Manufactured (mobile) homes are not included but are added to housing inventory to approximate “additions to the housing stock.’
There are also at least four sources of industry information. LSI Systems, Inc. Red Book of Housing Manufacturers and Automation in Housing and Manufactured Home Dealer Magazine (AIH/MHD) each surveys producers annually, and the firms respond voluntarily. Additional sources of information on the industry are the Directory of Manufactured Housing Producers developed by MH Newsletter in conjunction with AIH/MHD, and an extensive bibliography on manufactured housing produced by the Center for the House, Washington, D.C.
In reviewing the Census Bureau and private sector industry data sources, it is clear that once one departs from the easily distinguished statistics on manufactured (mobile) homes, it becomes difficult to distinguish between producers of modular, pre-cut homes, panelized systems, components, and production builders. There has been rapid change in the structure of the prefabricated housing industry for the past decade. Many large, diversified firms which are involved in many aspects of the industry have changed their product mix. There are some discrepancies in the tables in this article; the information has been reproduced directly from the sources cited. While there are discrepancies between the Census of Manufacturers and the private sector surveys, each provides some useful industry information and all of these sources have been used in this report.
Table: 1-Market Segments of the U.S. Homebuilding Industry, 1977-1986
Table: 2: Output by Subsector of the U.S. Manufactured Housing Industry
Table: 3: Estimated Production of U.S. Factory-Built Housing in 1983 By Area
COPYRIGHT 1987 U.S. Department of Commerce
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