Smart Money Is Betting on Offsite Construction. Will It Work This Time?

maintenance on Luistron

A lot of things have changed, but much hasn't.

Back in the 90s I was working for a real estate developer. A serious recession had killed real estate in Toronto and he had lost a lot of properties. But he was ever the optimist, and said, "When this is over I'll be back and this time, please G-d, don't let me screw up."

Nine years ago, in the depths of the Great Recession, I wrote about the death of modern prefab housing. I had been working in prefab in Ontario, and others had opened factories that were now closing. I noted at the time what I thought went wrong:

1. We really were not changing the industry as much as we thought.

It is not like the Toll Brothers went out with axes and chopped down trees together, they used 2x4s and 4x8s and modularized components. The industry was pretty efficient, and they didn't have to pay for things like factories and pensions and union dues, since most of the people who built the houses were subcontractors who were happy to work outside and the customers were happy to take what they got. This is an immensely flexible system. Putting it under a roof caused as many problems as it solved.

2. We really were not addressing the problem.

We thought we were building a housing type that would be affordable and accessible to all, while ignoring the fact that they all had to go on one-off sites purchased by individuals.

3. We really never had a chance.

Development, historically, was about improving the yield of land, planting houses instead of corn. But the developers were making money doing what they were doing and saw no reason to change. There are only two operating modes in real estate: Greed and Fear. In neither mode do people take a chance on a different way of doing things.

Today, I am reading John McManus of Builder Magazine, who says it may be different this time.

Outsiders, experts from overseas markets, insurgents, Silicon Valley-style tech upstarts, and a few tiny niched endemic players--and a strategically poised, precisely positioned giant, Clayton Homes--are raising a ruckus right now about off-site, modular, automation, robotics, 3D-printing, all amounting to a profound, convulsive, shocking change to the way residential property goes vertical.
Lustron parts

Things organized neatly: The parts of a Lustron/via

But he, like me, notes that we have seen all this before.

Automation and factories and pre-fab and panelization and modularity and componentization and modernization have come and gone, and come again and gone again, and now, to so many wizened, time-tested, understandably skeptical builders, the re-emergence of talk about whiz-bang techniques and practices off the job site sounds like deja-vu all over again.
credit: Waugh Thistleton Architects/ Photo Daniel Shearing

© Waugh Thistleton Architects

But some things have really changed; labor is really tight and getting tighter, and standards are getting higher as building codes raise the base for performance. New materials like Mass Timber and new tools like those from Randek really deliver better quality stuff from the factory than you can get building on site.

Michael Green at Wood at work

Michael Green at Wood at Work/ Photo Lloyd Alter/CC BY 2.0

Speaking at the Wood at Work conference recently, architect Michael Green noted many of the changes coming down the road from companies like Katerra, which now owns his firm. He is bullish and excited about this high-tech revolution. John McManus is bullish and excited.

I look back at my three points from 2009 and I am not sure that much has changed. The best offsite work is still being done by high-end builders like Tedd Benson. The developers are still really in the land business rather than the building business, approvals still take forever, and NIMBYs still gonna NIMBY.

Things are different this time

© Homebuilder Investor Summit

What appears to be different this time is that there really are new technologies and procedures; it is not just building indoors, as so much modular housing was. After I wrote my depressing story about the end of modern prefab, Joe Tanney of Resolution 4: Architecture said I was wrong, that the industry is just getting started. "End of the road for green prefab? In fact, I think this just might be the beginning" and "History has clearly shown us that this is not a simple issue to be 'solved' merely with branding or 'productization.'"

I do hope that Michael Green and John McManus are right this time. And maybe this time, please G-d, we won't screw it up.