The offsite construction revolution : The Barriers to adoption
The global penetration of offsite construction is difficult to quantify. Analysts define offsite construction in different ways, according to the proportion of offsite content—50% versus 80%, say—and according to the techniques for measuring that offsite content. The data is most reliable for single-family homes, the segment that historically has been the main beneficiary of offsite construction. In some smaller markets, such as Sweden, more than 80% of new homes are now built offsite. But despite an upward trend, no major market yet exceeds 20% penetration; in the US, offsite barely registers at all.
Despite its long history and its compelling value proposition, offsite is only now gaining traction. The reasons for the slow uptake are complex and vary from market to market. But four particular barriers apply very widely:
- An Image Problem.In continental Europe, people often associate offsite with low-quality, uniform, communist-style housing. In the UK, offsite evokes memories of the cheap “prefab bungalows” built to solve the postwar housing shortage. In the US, many people confuse offsite with low-income mobile homes, which are often termed “manufactured homes.” One notable exception to this tendency is Japan, where offsite-constructed houses are considered premium, high-quality products.
- Inflexibility and Uniform Design.In the past, to keep costs down, offsite-construction companies adhered to a policy of standardization. This cookie-cutter approach tended to conflict with building-site constraints and with the individual owner’s preference for some degree of customization.
- Regulation and Local Building Codes.Traditional construction is widely subject to tight labor rules regulating who can do what onsite, for instance, or specifying the minimum number of workers for a particular task. Such rules contravene the offsite labor model, which is based on small teams of broadly trained workers. Other rules, including health and safety regulations, planning codes, and mortgage or insurance requirements, have similarly hampered the development of offsite construction. To make matters worse, the rules are often local, and thus difficult to change, so no easy scaling of solutions has been possible.
- Risk Aversion.The construction sector is historically risk-averse, for good reasons. Construction is expensive when done right and potentially ruinous when done wrong, as recent high-profile cases such as Berlin’s new airport can attest. On the supply side, construction is a project-based and cyclical business, with constant cost pressures and low margins, and hence an aversion to heavy capital expenditure and to R&D. (Contractors, in particular, are certainly unaccustomed to investing hundreds of millions or even billions of dollars in factories.) Builders and clients alike have therefore been wary of experimenting with new methods and technologies. (See Shaping the Future of Construction: A Breakthrough in Mindset and Technology, a World Economic Forum report, prepared in collaboration with BCG.)
In combination, these barriers had the effect of forcing offsite construction into a vicious cycle. The barriers kept demand for offsite weak; the weak demand discouraged investment into offsite, so the supply remained very limited; and in light of the limited supply, there was little impetus to break down the barriers that kept demand low. Fortunately, this cycle is at last starting to collapse.
BREAKING DOWN THE BARRIERS
Three new factors have come into play that are now bringing offsite construction to an inflection point.
The first factor is the long-running skills shortage. The construction workforce in wealthy countries has been declining rapidly as current workers retire, since traditional construction jobs hold little appeal for younger workers today (see Shaping the Future of Construction: A Breakthrough in Mindset and Technology The old solution—importing workers from abroad—is becoming less viable, as the importing countries are tightening their immigration policies and the exporting countries are generating more attractive jobs for their own workers. Offsite construction is an obvious remedy—appealing to local construction workers while increasing overall productivity in the sector.
Thanks to digital tools, it is becoming easier to integrate offsite components into conventional builds and to create more sophisticated systems of offsite components.
The second factor is the surging use of digital technology. This development is helping to erode the barriers to offsite, in particular the barrier related to inflexibility. Thanks to digital tools, such as building information modeling (BIM), it is becoming easier to integrate offsite components into conventional builds and to create more sophisticated and flexible systems of offsite components. (See “The Transformative Power of Building Information Modeling,”) Moreover, advances in digital production methods, such as robotics and 3D printing, should one day be able to turn the ideal of “mass customization” into a reality. (See “Will 3D Printing Remodel the Construction Industry?,”
The third factor is government support. Governments around the world are now backing offsite construction far more vigorously than before. Faced with serious housing shortages and chronically tight budgets, governments in Australia, Singapore, and the UK are making offsite construction a strategic priority and are favoring offsite in procurement. Others will doubtless follow their lead, and in doing so will create stable demand, help to standardize designs, shape new regulations, and publicize the benefits of offsite. Private companies will then have the incentive to get seriously involved as well.
To be sure, some challenges remain. Offsite construction can ease the labor shortage, but it requires new skill sets and training programs, and these are still under-developed. BIM will help to integrate offsite into the planning and building process, but not while incompatible standards persist and not until adoption rates increase. Robotics and 3D printing need considerably more investment and R&D before they can realize their full potential. And most governments still need to assign offsite a higher status; in the US, for instance, only a few city- and state-level authorities have formulated a comprehensive policy on offsite construction.
Nevertheless, the momentum is unstoppable. Companies that emphasize the opportunities rather than the challenges, and quickly consolidate their base of talent and technology, will enjoy a competitive advantage. That is something that smart investors recognize. Venture capital is pouring in, and two startups, Katerra and Revolution Precrafted, have already attained “unicorn status,” with valuations exceeding $1 billion each. Private equity funds run by Bain Capital, PIMCO, and others have invested hundreds of millions in offsite companies such as Consolis and Polcom Modular. The veteran UK contractor Laing O’Rourke is hurriedly building yet another offsite manufacturing plant. Even Google has invested $300 million in offsite construction to produce homes for its employees. All the signs are that this wave of investment will grow even stronger.