Dr Stefan Hajkowicz is a Senior Principal Scientist at CSIRO, exploring future trends, risks and scenarios to help businesses plan for change. He is part of the team leading The Farsight Project for CSQ, researching the future of Australia’s construction industry.| © Data61
Is prefab simply a niche or is the construction industry about to be reinvented?
My colleague’s husband has worked as a builder in Brisbane for the past 15 years. When he heard we were working on a project about the future of the construction industry he remarked how little has changed in the last 10-20 years.
The biggest change he’s made, is that he replaced his humble hammer with a nail gun. The materials and construction techniques he uses are basically the same - they work, so there’s no pressing need to change. Demand for his building services is constant and he doesn’t need to advertise.
Should the mantra be - if it’s not broken don’t fix it?
Habitat67 in Montreal Canada is an iconic modular building constructed in 1967. It comprises 354 identical prefabricated concrete forms to create 146 residences. It changed the way architects thought about how buildings are made.
In another two decades we could find that we’re making houses in much the same way we are today. But this scenario has a faint whiff of Kodak about it – short-sighted thinking that brought the well-known company to its knees when digital cameras emerged. The same way Swiss watchmakers were rattled when Hong Kong turned up with digital timekeeping. The same thinking that has left the taxi industry on the back foot as Uber disrupts the status quo.
Having spent much of my career advising companies about technology disrupters I’ve learned the past doesn’t always match the future. That’s the nature of disruption. Patterns of change build gradually until they merge and rapidly reshape the business landscape. At that point it’s too late to respond.
The power of scenario planning
Scenario planning is a tool that allows us to explore multiple futures so we can (hopefully) devise a business strategy that survives and prospers in all plausible situations.
Let’s consider our building industry; in one scenario new technologies and global supply chains mean that prefab engulfs the entire building industry as we know it. In another scenario prefab is a non-starter with small take-up and construction costs equal (or worse) than conventional construction. From where we stand today both futures are plausible.
A prefabricated building (which can be entire walls, or rooms like the kitchen or bathroom) is constructed offsite in a factory then transported and assembled through a systemised process. Modular buildings are essentially the same and involve factory assemblage of modules (functional components of a building) which are assembled on site. While materials and manufacturing techniques may be changing, the concept of modular building is nothing new.
Today modular buildings make up only A$4.6 billion (or 3 percent) of Australia’s annual A$150 billion construction industry
. So it’s still a small part of the market. The question is whether (and when) it will get bigger.
Let’s consider two different scenarios…
Scenario 1: Modular buildings revolutionise the construction industry
Modular and prefabrication is (generally) cheaper with savings driven by mass production, reduced construction times and lower labour costs. We’re still waiting for a comprehensive study comparing modular versus traditional building construction in Australia
. Some commentary suggests that modular construction delivers a 5-10% discount compared to bespoke building projects. A study of high rise residential buildings in the UK found modular designs yielded cost savings of 25% compared to conventional construction, though uptake of modular is “lower than it could be
” (less than a 6% share of total construction in the UK market.
Modular construction approaches can reduce labour costs and speed up building times. They need less construction staff with different skills. What happens will have implications for the construction sector workforce.
Manufacturing technologies such as 3D printing create a new playing field for personalised building design and mass production. Advanced manufacturing techniques are leading us towards a “make anything factory
”. Increasingly designs are entered into a computer aided drafting (CAD) system, and the “print
” button creates object(s) to specification almost immediately. Continually improving software and virtual reality goggles, allow customers to personalise and visualise their homes at no extra cost, which is changing the way customers think about prefabricated houses.
Construction activity in Australia’s residential market
The percentage of total construction activity in Australia’s residential market* (measured by the dollar value of work completed) taken up by renovation (as opposed to new buildings) rose during the 1970s and 1980s, held constant during the 1990s and 2000s, and has started declining in the 2010s. This could be an indication that people are finding new houses more attractive and are choosing to demolish and rebuild rather than renovate. It’s plausible that at some point the prefabricated/modular home will be seen as a better option to renovating by a larger part of the market.
*Data from the Australian Bureau of Statistics Building Activity survey shows the ratio of the value of building work done on “alterations, additions, conversions” to new houses in the residential sector (quarterly). Both renovation and new houses are increasing in absolute terms.
Automated construction technology on site is well suited to modular building styles and is bringing costs down. Modular buildings are constructed using a series of structured (pre-planned) tasks that adhere to well definedrules - an environment in which robots flourish. Robots are more widely used and the cost of modular construction has come down. (Perth based engineer Mark Pivac’s fully automated bricklayer is capable of laying 1,000 bricks per hour, enough for 150 homes per year.)
An increasing percentage of people are deciding to bulldoze and rebuild rather than renovate. Perceptions are changing as prefabricated homes offer lower construction costs and improved value-for-money. In Australia in 1973 around 2% of the value of residential construction work completed was for renovations, with the remaining 98% new constructions. This ratio rose to 18% in 2000 but has been falling and now sits around 13%. Although the construction sector has been growing overall (both in terms of new buildings and renovations) there is shift towards new buildings. In this scenario the modular home delivers improved value for money for the home owner when compared to renovations.
Globalisation means materials can be sourced from anywhere, allowing construction companies to access the best performing, most cost effective options. An expanding market is supplying component parts, boosted by economies of scale. Although the global house and building prefabrication industry is still relatively small compared to the rest of the construction sector, it is growing. As supply chains and factories become larger and operate at scale, the costs of prefab buildings will drop.
Scenario 2: The building industry stays the same
Building is inherently a bespoke business as each project responds to site conditions, building codes, town planning laws and the unique preferences of the home owner. A one size fits all approach can’t work.
Building is (and may increasingly be) a bespoke business. Every relationship between builder, architect and buyer is unique. When combined with town planning requirements, building codes, site restrictions, safety legislation and climate factors, projects often require countless revisions to the original plan. While modular building might have lower construction costs on paper, it does offer lower costs in reality once all these factors are considered. The bespoke nature of building projects - and increasing complex legal, social and environmental regulations - means conventional building styles continue to dominate.
Construction costs have grown more rapidly than general cost growth but may have hit a ceiling after the global financial crisis (2007-09). Prefab can reduce construction costs, but other innovations for conventional (stick-built) houses can deliver savings as well. Improved tools, machinery, information systems and training are reducing the costs of conventional construction. In this scenario conventional construction continues to evolve and stays competitive with, and/or outperforms, the modular techniques.
Much of the construction work being done in the economy involves renovation and developing existing structures (for which no prefab solution exists). In the last financial year around A$8 billion of construction work was done in the residential sector alone in Australia, including building alterations, additions and conversions. Even though there is a swing (in relative share) towards new construction in recent times, a large amount of building activity involves working with existing structures.
Prefabrication has been around for a long time but so far it hasn’t had a big impact, today it only accounts for 3% of Australia’s construction industry.
For this to change there has to be an external shock to the system. In this scenario that shock doesn’t arrive.
The majority of new homes still involve an architect/designer, builder and sub-contractors working in unison.
In this scenario customers don’t want prefabricated houses. Modular buildings still comprise a small (niche) market in Australia so a large number of people need to be won over before prefab gains serious traction in the marketplace. This could happen, but in this scenario it just doesn’t, in this scenario people prefer buildings made the traditional way.
Construction costs for houses in Australia
Construction costs for houses in Australia (adjusted for economy-wide inflation) have risen sharply since the late 1990s. However, they seem to have hit a ceiling in the global financial crisis years(2007-09) and may be on the way down. Given most of this is traditional building, prefab might struggle to be cost competitive, though may have a role in the construction cost slow down.
*Data have been generated from the Australian Bureau of Statistics Building Approvals and Building Activity time series. They take into account the increasing average floor area for Australian houses since the 1980s. The construction cost is calculated by: average floor area per house (sqm) x number of new houses completed x dollar value of new construction work completed in each quarter since 1985. The data are for residential constructions only.
Data includes all residential house construction, including large residential housing estates, across the whole of Australia. Builders working on individual houses or smaller projects may face significantly higher construction costs per sqm as the same economies of scale do not apply. There are also considerable regional variations.
Our best guess for the future
Two contradictory scenarios have been outlined above, so which way will the future of prefab play out?
Large multi-million (or multi-billion) dollar projects warrant upfront investment in design, and modular approaches can deliver significant cost savings, so it’s looking more and more likely that prefab will take a leading role in the construction industry.
Heralding this rise in prefab is the recent report that Lend Lease is opening a factory in Sydney which will be dedicated to manufacturing pre-fabricated building components. As reported by the Australian Financial Review
the plan is to manufacture $1 billion worth of prefabricated material including entire wall sections fit with glazing, plasterboard and high-tech cross-laminated timber (CLT).
There are major implications for Australia’s construction workforce because an industry dominated by prefab and modular buildings needs a whole range of different skill sets. That’s why scenario planning is so vital.
Both futures are plausible, so we need to ensure jobs, businesses and government are well prepared for both outcomes. Banking on only one future could lead the industry down the same path as the film company Kodak or the Swiss Watchmaking industry. Both still exist but they’re nothing like their former selves.
To find out what the future might look like for Australia’s construction industry follow The Farsight Project