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I was reading the catalog of Blu Homes, a prefab housing company. They advertise their prices as being "20% lower" than comparable custom house prices. Their homes typically are abound $275 per square foot.

I guess I don't understand this, because you can custom build a pretty nice house for $275 per square foot. I would have expected a factory-built house to be a lot cheaper than having a whole bunch of tradesmen come and build a custom home.

What am I missing here? Why does the prefab cost as much as a custom house?

Tyler Durden
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    Are you comparing like for like - do both costs include finishes, and comparable spec for fittings? – Rowland Shaw Feb 16 '15 at 18:50
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    This reads a little bit like a rant, but there's a good question in here. Maybe reword it to "Why haven't prefab prices gotten competitive with site-built yet?" – DA01 Feb 16 '15 at 19:08
  • Note that if you have a house with a smart design and all you do is put up drywall, lots of carpet, and use base builders grade fixtures, and $1 sq/ft tile you can probably do custom for less than $275 sq/ft in most areas. I can build a house but it is easier/more profitable (because of time spent) to hire a local company that can put up the house with cheap workers. They do the basics and my crew does the finishing touches. Now if buyer doesn't want the cheap finishes you have in essence wasted money, time, and material. – DMoore Feb 16 '15 at 21:52

2 Answers2

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  1. Built in California.

  2. Take a look at that slick website and the design of the houses; does it looks like they're marketing to the moderate income crowd?

iLikeDirt
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The concept of prefab is, indeed, to make housing prices more affordable over time.

The catch is that 'over time' part.

For prefab to become efficient, there has to be an economies of scale where the per-unit price drops significantly as the output increases.

Prefab is nothing new, really. Kit homes have been around forever (you used to be able to order a house from Sears). And, of course, the mobile home industry.

The 'new wave' of prefab over the past decade or so hasn't been a prefab movement meant to create huge economies of sale. The companies that are in the market now (that you see advertised in the likes of Dwell, for instance) are targetting a very particular demographic: Namely upper class professionals with a penchant for mid-century furnishings.

As such, these are higher end homes and hence their comparison to 'custom built' homes. By that they are likely referring to architect designed site-specific structures (vs. the "pick a model out of the catalog and we'll customize the counter top for you).

That's not to say all prefab outfits are targeting only higher-end consumers. For instance there are many 'manufactured homes' companies such as Woodlund that are clearly targeting the middle-class. And then there are niche companies like Escape who are specifically using lower-cost as a selling point even with their more custom designs.

Somewhat ironically, the more prefab options out there, the less likely prefab will drop in price, as each company never really gets to the point where the economies of scale drop the price significantly.

In addition, the price of prefab vs. site built can vary wildly based on labor costs--the on-site location vs. the factory. One can build a house faster in a prefab factory than on-site. And if the labor is cheaper at the factory, this can be where the big savings come in.

Finally, note that cost isn't always the driving factor for going with prefab. Speed of erection is a significant benefit as well. Especially if a house is going up in February in Minnesota, or during the raining season on the Washington coast.

DA01
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