Prefab: Construction’s Gateway Disruption

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Growth in demand for construction services is outpacing growth in our capacity to deliver. The answer is to lift productivity. Offsite construction will be the key to making this happen.

Has prefab’s time finally arrived?

Many great minds have tried and failed to drag construction into the industrial age with prefabricated building methods. Even Thomas Edison himself took a run at the problem but couldn’t make it work at scale.

So it is perhaps natural to harbour a healthy dose of cynicism when it comes to claims that wide-scale prefabrication is just around the corner – it has been for a century. Yet there are some credible signs to suggest its time has come.

One company taking a serious run at the prefab challenge is American startup, Katerra, which launched in 2015. Its founder describes the company as “a fully-integrated turn-key supplier for developers.”

On the surface, Katerra has a familiar model – produce building components in a factory, ship them out and assemble on-site. Throw in a healthy dose of automation and digital tech, and you’ve got an advanced manufacturing recipe for buildings.

This is not new. Plenty of American and European companies are trying to pull off the same trick. Even some Australians. But what’s really eye-catching about Katerra is behind the scenes:

  • Big numbers. In 2018, Katerra secured $865m in capital from the largest tech fund on the planet. This brings Katerra’s total investment to $1.1b with a valuation of $3b. And in just three years the company has built a $1.3b book of work.
  • Big names. Katerra’s founder boasts some serious credentials. Michael Marks revolutionised electronics manufacturing in the ’90s, becoming the tech industry’s go-to manufacturing contractor. He also ran Tesla for awhile. He reckons construction will be easier.

The case for prefab

These prefab innovators have got a lot of macro forces working in their favour.

Firstly, construction has a productivity problem. The growth in demand for construction services is outpacing the growth in the industry’s capacity to meet that demand.

Building Productivity, Aus

When industries face capacity constraints, firms tend to respond by finding ways to get more done with less—ie. they raise productivity, typically with the help of technology.

This is something construction has not been terribly good at over the decades. Consider the enormous productivity gains made in the agriculture, automotive and electronic sectors throughout the Twentieth Century. Next to them, construction looks like it’s been standing still.

Among the plethora of disruptions that construction could face over the coming decades, prefabrication, or ‘offsite construction,’ stands out as a leading trend. The technology-catalysing environment of offsite construction will be key to raising productivity, acting as an accelerator for automation and digital technologies.

This is why we prefab is turning out to be construction’s ‘gateway disruption.’

The key advantage of offsite construction is that it catalyses other technologies. Robotics and 3D printing, for example, are very difficult to implement in the ever-changing and uncertain conditions of a construction site, but become far more feasible in a controlled environment. Similarly, a world of digitisation and the ‘internet of things’ is far easier to achieve offsite.

Another advantage of offsite construction is that it dramatically reduces materials handling. Materials handling represents the single biggest opportunity for productivity gains in the construction process – studies have found that more than a third of construction workers’ time is spent idle or non-productive while waiting for materials and tools. Materials handling is also the activity that causes the most accidents and injuries on construction sites.

Offsite construction promises to slash this source of waste and risk, delivering significant productivity and Work Health and Safety (WHS) benefits. It also means that older workers are able to keep working longer by reducing the manual burden. It is also likely that a shift to an offsite environment will result in an industry less hostile to women, diversifying its talent pool and promoting innovation in a virtuous circle.

The move to offsite construction also involves a productive cultural shift. The manufacturing ethic that takes over once inside a factory means that all of the discipline and rigour of operations management can be applied – standardisation, lean production, process optimisation, continuous improvement, total quality management, and so on. It is also worth noting that global competitive forces are brewing in this space. The Asia Pacific Region, led by China, India and Indonesia, now dominate prefabrication globally, accounting for more than 67% of global revenue.

If these disruptors enjoy any kind of success, the impacts on the workforce will be significant. It will re-code the very DNA of the industry. The trades may be biblical, but they’re unlikely to survive an encounter with the disciplines and rigour of advanced manufacturing. This is going to raise existential questions for the apprenticeship model, building regulators and unions.