Introduction: The Offsite Construction Revolution

7 min read

Building goes digital, costs are more controlled 

It has been more than a century since Henry Ford figured out that the best way to produce automobiles was on assembly lines in huge factories, and now the industry is investing billions of dollars in developing technologies for autonomous vehicles. Digital streaming services, like Netflix, are getting more and more into producing their own content on a grand scale. And Jeff Bezos became the richest human being on the planet by letting us order just about anything we wanted from one source and having it delivered quickly and efficiently right to where we want it. What concepts do these three business models share? Efficient production, control of an entire process through vertical integration and, perhaps most importantly, a motivation and willingness to disrupt an entire industry.

Yet one of the largest and most important industries in the world, construction, is still largely carried out the same way it has been for hundreds, and even thousands, of years. The machines have evolved, innovations in materials have allowed for greater heights, and electricity has meant that more floors could be stacked on top of each other. But the basic concept of engineers and construction personnel assembling buildings right where they sit has hardly transformed at all. That all may be about to change as the concept alternately referred to as prefabrication, modular construction and offsite construction is finally beginning to disrupt the building business.

Why Now?
There have been numerous fits and starts at modular and offsite construction over the decades, including attempts during and after World War II in the United States and Britain to quickly meet war production necessities and then house the millions of new families being started when the soldiers returned. However, there had never been attempts to mechanize the construction industry on a factory-wide level as Ford accomplished in the early part of the 20th century or, for that matter, cotton gin investor Eli Whitney’s advocacy of interchangeable parts and components in the manufacture of muskets dating all the way back to the 1790s.

But as a construction industry standard, housing components originating in factories has never caught on. So, why now?

The answer may lie in the historic examples that lead this story: Coinciding with the dawn of the digital age, the concept of disruption is now embraced rather than feared. As a recent report from the worldwide management consulting firm McKinsey & Company states, “Consumer perceptions of prefab housing are beginning to change, particularly as new, more varied material choices improve the visual appeal of prefab buildings.

“Perhaps most important, we see a change in mind-set among construction-sector CEOs, as many leaders see technology-based disruptors entering the scene – and realizing it may be time to reposition themselves.”

Katerra, headquartered in Menlo Park, CA, is one of the vertically integrated corporations that is leading the disruption in the building industry and refers to itself as a technology company. As its head of sales, Steve Weilbach commented in these pages almost two years ago, “Construction to us equals manufacturing. It’s a simple idea, but we’ve applied it to a sector that is far, far behind other industries in terms of innovation. We’ve done time and motion studies on construction job sites. You’d be appalled by the inefficiency – how many people are standing around waiting for something to be completed or installed. How often does a plumber have to go back to his truck to find a tool or supply? We would talk to owners who’d tell us that the job took longer and cost more than they had expected, and it was hell the whole time. We know we can improve on that model.”

Weilbach’s observations touch on many of the issues fueling the offsite trend. McKinsey’s analyses show that 3D volumetric modules—in which an entire room, or even larger building elements, are manufactured offsite, trucked in and lifted into place by cranes—can compress overall construction schedules by 20 to 50 percent. The report goes on to suggest, “Under moderate assumptions of penetration, the market value for modular construction in new real estate construction alone could reach $130 billion in Europe and the United States by 2030.”

Another issue impacting construction cycle efficiency is unpredictable weather as a result of climate change, especially in areas with severe winters or rainy seasons.Douglas Koch, a principal of Advisory Affiliates LLC and director of Workforce Housing Development Corporation, points out that factory prefabrication brings increases in security and materials control.

Addressing the Labor Shortage
There are several critical aspects to offsite modular manufacturing. For one, as has been often noted, for several years now, the construction industry has experienced a pronounced skilled and semi-skilled labor shortage, as individual workers age out and fewer young ones come into the trades. This has produced attendant slowdowns and rising costs, especially in already dense and high-cost housing and business areas like coastal cities. Estimates of vacant trade positions nationwide range as high as 250,000. Factories are much easier to staff on a regular and predictable basis with full-time and long-term employees.

In fact, states the McKinsey report, “Unmet housing demand and relatively scarce construction labor are the biggest predictors of where modular construction can gain traction.”

A second factor is that advances in component material manufacture and decades of experience with computer-aided design have made modular construction much more attractive and inviting to the end-users of the building. With bright colors, large windows and interesting shapes, no more do we think of grim, gray, Soviet-era housing blocks. Consumer perception of prefab construction is evolving as a result.

The system works best for projects that are both repeatable and scalable, such as affordable housing and schools, where similar modules can be arranged in a variety of ways, depending on the site, size and preferences of the client.

For the foreseeable future, offsite construction will involve a combination of 3D manufacturing and 2D factory-built panelized components, like walls, flooring and ceiling trusses. The idea is to make each part of the process as efficient and cost-effective as possible.

Of course, the industry disruption goes in both directions. Manufacturing and vertical integration present a high financial threshold to entry, which means many of the smaller firms and contractors could be left behind. Differences in materials used—lighter, stronger and often easier to produce—will also have an increasing effect. For example, in many instances, cement and concrete can be supplanted by cross-laminated timber and modules with light steel frames that can simply be bolted into place on-site. And though factory jobs will increase, onsite positions will likely decrease, which could be a disadvantage to local people wanting to start out in the construction trades. It is anticipated that there will be a push toward directing such individuals into the newly emerging manufacturing sector.

The McKinsey report breaks the challenges and opportunities of offsite construction into six priorities: Achieving economies of scale; Integrating along the value chain; Optimizing design; Digitizing and harnessing data; Automation; and Improving capabilities. If and when those six priorities are achieved, the disruption to the building industry will be well underway, and while the “traditional” method of onsite construction will remain for small, specialized and one-off projects, offsite prefabrication will have proved itself a force that can no longer be ignored.