Will Katerra Disrupt the Construction Industry? Perhaps, but We've Seen This Movie Before

Video screen capture Katerra splash screen video. Katerra splash screen video

They are doing wonderful things about creating supply, but construction demand is notoriously cyclical in North America.

On Citylab, Amanda Kolson Hurley writes a long and thoughtful article about Katerra, the startup that wants to revolutionize the construction industry. I have written a bit about Katerra here on TreeHugger but not much, because, while I have concerns, I really want them to succeed. As I wrote after Michelle Kaufmann closed her prefab operation in 2009, the industry is in dire need of disruption.

Housing is an archaic industry; it is still little more than a collection of guys with pickup trucks with magnetic signs on the side and skilsaws and nailguns in the back. It has never been properly organized, Deminged, Taylorized, or Druckered.

Dymaxion House

Dymaxion House/ Library of Congress/CC BY 2.0

Katerra is moving beyond Deming and Taylor and Drucker and into the new world of digital tools. Kolson Hurley writes how things are different today than when the pioneers tried it:

It’s also true that Walter Gropius and Buckminster Fuller didn’t have today’s technology. Katerra touts its use of SAP HANA (a real-time data processing application) and the Internet of Things to achieve “deep integration and newfound efficiencies.” It designs buildings in Revit, a 3D modeling software, and then converts the files to a different format for the machines in the factory.

Karl Koch Associates

Karl Koch Associates/ Prefab proposal for Hartford/via

This is all wonderful, but after a few decades as an architect, real estate developer, and Director of the Toronto office of Royal Homes, a big Canadian modular builder, and having been through a few real estate cycles in that time, I have a few scars, stories and concerns.

It is those cycles that worry me so much. Royal Homes used to have two big factories, but in the mid-90s there was a big banking and housing crisis in Canada and they had to close one and shrink significantly. The other big modular builder went bankrupt and reopened later under another name; the entire industry almost died. In the boom time before the crash, prefab made sense; carpenters wouldn't get out of bed for less than $70K per year while spending January and February in Florida. But as soon as the economy went south too, there was suddenly terrific availability. Basically, builders with low overheads who contracted out for sub trades survived, and those with factories and high fixed costs went bust.

Capsys factory

Lloyd Alter/ Capsys Factory, Brooklyn Navy Yards, now closed/CC BY 2.0

The same thing happened in 2008 in the USA, where most of the factories closed. One didn't have a lot of trouble finding carpenters in 2009 either. Meanwhile, anyone who doesn't think that we might be heading into another construction downturn isn't looking at the price of lumber, washing machines and structural steel in the face of the US government's tariffs and impending trade war. All of Katerra's input costs are going up right now and nobody knows how this will play out, but it makes it really hard to plan big investments and price things right.

Katerra has avoided many of the pitfalls that have bedevilled previous attempts at large scale prefabrication. It is keeping away from single family housing, and one of its founding partners is the Wolff Co, which is big in the seniors' housing market. According to Senior Housing News,

Going forward, all of Wolff’s senior housing projects—including its upscale Revel-branded independent living communities—are expected to be built using an offsite fabrication method that saves both time and money, Craig Curtis, head of the architecture and interior design group at Katerra, told Senior Housing News. Menlo Park, California-based Katerra was co-founded by Fritz Wolff, the executive chairman of The Wolff Co. Scottsdale, Arizona-based Wolff is currently Katerra’s biggest customer, as it has spent more than $500 million with Katerra.

Unity Homes Factory

Lloyd Alter/ Unity Homes Factory, still going strong/CC BY 2.0

Goodness knows, there are a lot of aging baby boomers and a lot of people who will be needing seniors' housing, if they have any savings and can afford it. Katerra is also not reinventing the wheel, but using panellized systems like they do in Europe (and in a few American factories like Bensonwood/ Unity Homes), and importing European technology.

Lustron Delivery

Lustron Delivery via Wikipedia/CC BY 2.0

“We’re not building pods and shipping then down the road on flatbed trucks, fully assembled,” he [Curtis] explained. Instead, Katerra is assembling wall panels—fully complete with windows, electrical wiring, plumbing and more—and stacking them “very efficiently” onto a truck, which then transports them to the final building site.

But as I noted in an earlier post, things are different in Europe.

Unlike Europe where government-supported social housing keeps the factories running, Americans have Ben Carson running HUD. Unlike Europe where they have high standards of energy efficiency, the U.S. is killing Energy Star and promoting cheap gas. Unlike Europe where multiple family housing is almost universal, in the hot markets like Seattle and San Francisco, it takes years to get approval for anything, thanks to NIMBY protests. Conditions are very different, but we can always hope.

Frey Tower

© SkyeRise Terrace Corporation

Those NIMBY and zoning issues are critical. In North America, it is almost impossible to get anything approved in a reasonable time. Michael Woo, Former Los Angeles politician and now Dean of College of Environmental Design at California State Polytechnic University, writes:

I’d argue that our current housing debacle is both a political problem and an economic problem for the most vulnerable people in the community. Unless we address both the political system that disproportionately represents people with money and the housing market that fails to deliver for people who don’t have money, we’ll miss the big picture.

It is hard to build factories and hire employees when you cannot control when you can actually build something.

H.L. Mencken once said, “For every complex problem, there is an answer that is clear, simple, and wrong.” If anybody comes to you with a menu of solutions for housing that are clear and simple, they’re probably wrong. Let’s face up to the hard choices needed to replace our current political and economic malaise with housing choices that give people hope.

That's why I was surprised to see former Toronto Chief Planner Jennifer Keesmaat's tweet, because the biggest problems in building housing where people need and want it are land and zoning. And while Katerra has a leg up feeding buildings to partner Wolff, even the aging boomer market is vulnerable to recessions and vanishing 401Ks. They are investing all of this money and brains on the supply side of producing housing, but cannot really control the demand side, where and when to put it, which is the real mess in North America.

I will say this again: I really, really want Katerra to succeed. I really want their CLT construction to take over the world. I am a huge fan of Michael Green. But I have seen this movie before. In fact, it gets remade every generation.