By: The Globe and Mail
Linwood Custom Homes is the big dwarf of the North American home-building market, its chief executive likes to say. But even the giants got trampled by the U.S. housing crash seven years ago.
“It was ugly,” said Bill Mascott, head of the Delta, B.C.-based manufacturer of home designs and building kits.
“I think it is reversing, but frankly, it’s been slower for a lot longer than I thought it would be. The Canadian market didn’t drop as much, but it’s been, I’d say, pretty sluggish.”
The Canadian manufacturer, like many in the industry, faces diverse pressures in doing cross-border business and has developed a number of strategies to compete.
The home building sector, particularly in the United States, is dominated by builder-developer giants who create massive subdivisions and communities across acres of land.
Linwood competes on a less capital-intensive level, and this has long been its strategy in the United States. It sells detailed building plans and pre-cut material to customers, who then have independent contractors assemble a home on site.
A bit like IKEA furniture, homes are assembled together from a kit. Baby boomers are the typical customers, Mr. Mascott says. In Canada, they tend to want a second home. In the United States, they are looking to to build a new main family house, often for retirement.
Linwood, which also has an office in Seattle, is one of the larger North American sellers of detailed home plans and building kits. Customers pick which model house they want and Linwood then helps to make sure the model suits the specifications of the land and helps to arrange for local contractors.
The kits are shipped to the site and include all the lumber, windows, roofing and other materials needed to build a weather-proof, well-insulated house. What the kits don’t include are the final interior and exterior fixtures and finishings.
With Linwood, a main selling point is the pre-cut B.C. lumber in the kits, one advantage over the thousands of much smaller, local designer-contractors. The North American free trade agreement allows a certain leniency for Canadian housing kits shipped into the United States, with the pre-cut lumber allowed in with tariffs.
Normally, shipping lumber is more complicated: “If you’re basically just shipping lumber, there’s a duty on it, depending on what the price of the material is,” Linwood’s Mr. Mascott said. “The U.S. put a kind of a threshold on it. So if the price goes below a certain number, then a tariff applies – which is bad for the U.S. consumer. But this is one of those things that was put in to try to protect American lumber producers.”
He added: “We call our package pre-cut, because a lot of our material is sized already. … It’s not exactly like a Lego set. We have lumber at different lengths, all the bits and pieces you need to build the structure of the house.”
Canadian custom-home companies, however, need to have a network of U.S. builders, as Linwood does, because regulations stipulate that U.S. labour must to be used to build U.S. homes, Mr. Mascott said.
On top of that, some industry watchers point to increased competition. The crash of the U.S. housing market in 2008 and 2009 only heightened competition among cross-border custom home companies, with more U.S. companies coming into Canada to try to replace lost U.S. business.
The lower Canadian dollar is a help now to Canadian home-kit exporters, but when it was stronger, the loonie only prompted more U.S. prefab builders to look to Canada for customers, which is still having an effect.
“There are several companies in the U.S. that are doing the same type of business. After the crash in 2008 of the U.S. housing market, those companies started to deliver their homes into Canada,” said Kathleen Maynard, chief executive of the Canadian Manufactured Housing Institute, which represents the industry in Canada.
“So we saw a huge jump in the number of companies certified to the Canadian standard. Within a couple of years, there were 30 additional companies that were certified, with U.S. factories now delivering into Canada,” she said.
In 2009, 15 U.S. manufacturers were selling kits and prefab housing to relatively high Canadian standards. This year, it has risen to 37, according to the CMHI. This compares with a total of 85 Canadian manufacturers in 2009, rising to 102 this year.
“The Canadian codes and Canadian standards are typically higher. So there are several jurisdictions in the States that recognize our [codes],” Ms. Maynard said.
In short, the larger manufacturers of custom-home kits and prefabricated houses face a number of pressures in the United States. The answer? Go global.
Linwood is expanding into many different kinds of buildings overseas, including commercial developments in China. It’s part of a larger global trade in home kits and prefabricated housing, in which half-completed homes and buildings are being shipped across oceans.
“It really depends on the site situation and who the builder is, and how far away,” Mr. Mascott said. Linwood’s overseas business is not a big number, he added. “It’s probably 15 to 20 per cent at most.” But, he adds, “It is still significant. It’s worth having for sure.”
But it is a two-way phenomenon. CMHI’s Ms. Maynard notes new developments in the industry in which a company might send its materials and construction know-how to China, the prefabricated pieces are then manufactured there and shipped back.
“That is something that I could see. We’d want to be watching the effect of that one,” she said.