In 1926, Walter Gropius, one of the pioneers of modernist architecture, predicted a “fundamental shift of the entire construction business toward industrialization.” He went on to insist that “housing will be created no longer at the construction site, but instead at specialized factories with all the ready-to-assemble components,” assuring ample capacity and affordability.
Instead of relying on relatively autonomous tradesworkers moving around a jobsite to carry out complex tasks, industrialized building would be organized around workstations where the components of a finished product would move from worker to worker, whose skills would be more specific and limited but fully coordinated into the larger design. Advanced machinery would churn out standardized identical parts with minute dimensional tolerances and human error would be eliminated in a well-lit, climate-controlled setting. The completed product would be higher quality and more cost-effective, due to scale and non-stop production schedules.
The vision Gropius offered hasn’t materialized, but the allure of building indoors in a controlled environment instead of in the mud, muck, and maelstrom of a conventional site has remained for architects, engineers, and construction futurists. Recently, well-publicized advances have sparked renewed enthusiasm. A combination of sophisticated software and accurate machinery in the context of a controlled environment have promised to usher in a golden era of building technology unimaginable to its early advocates. Moreover, big bets by venture capital on would-be disruptors have introduced well-financed, modular-focused upstarts into the construction industry (with mixed results).
For all the fascination with transformational change, technological innovation in construction has largely followed an evolutionary rather than a disruptive path. The use of prefabricated components — assembled off-site and installed on-site — has reduced skills and tasks that were part of the trades workers’ portfolio. Yet the advent of partially completed buildings generated in a factory and shipped to a project site remains on the margins of the industry and is likely to remain that way for the foreseeable future.
The Foundations of Prefab Building
Attempts to implement industrialized building have a long and uneven history. On the successful end of the spectrum, Sears Roebuck offered pre-cut mail order homebuilding packages as early as 1895. The need to rebuild European and Japanese cities damaged during World War II sparked a renewed interested in mass-produced housing abroad. But the industry never took hold in the United States. Industrialized building faced too many hurdles. Even the most rudimentarily equipped factories are expensive, and few private or public investors were prepared to inject the level of funding required to defray the initial capital costs. They worried about the return on investment in the absence of an assurance of widespread demand for the finished product, knowing that most American consumers perceived manufactured homes to be dull, uninspired, cookie-cutter designs.
There were moments when it seemed that might change. Most notably, in 1969, U.S. Housing and Urban Development (HUD) Secretary George Romney announced Operation Breakthrough, “a partnership of labor, consumers, private enterprise, local, State and Federal government with the use of modern techniques of production, marketing and management.” Breakthrough was intended to standardize and industrialize housing parts and modules, and lead to an era in which “factory-built housing was poised to leapfrog over on-site stick-building techniques as the principal method of home construction.” But like previous large-scale forays into industrialized building, Breakthrough failed. The new systems did not realize projected savings and transportation costs were only viable if the factory was near the ultimate site. A 1976 General Accounting Office look-back report determined that conventional building was cheaper.
More recently, the advent of Building Information Modeling (BIM) — an innovative design coordination program — prompted renewed eruptions of enthusiasm for 21st century factory production. A 2011 McGraw-Hill Construction report declared “This is not your grandpa’s prefab!” and confidently claimed that significant productivity gains were available due to BIM’s contributions and the enhanced quality provided by modern materials and manufacturing facilities. A few years later, architect, technologist, and educator Phil Bernstein wrote an article on the future of construction titled “Your Next Building Won’t Be Built — It Will Be Manufactured.” According to Bernstein, the mass-manufactured building industry had reached maturity and was on the cusp of defining a new paradigm. He advised, “Check the trailer-park stereotype at the door.” The assumption was that using some form of off-site production on college dormitories, hotels, and multi-unit apartments lent themselves to an assembly line orientation because they had repetitive design concepts and offered economies of scale based on consistent software programming and the constant repetition of tasks on the shop floor.
Mark Skender, CEO of Skender, a Chicago-based design and construction firm argued that modularization would become much more common as more people understood the potential for “industry disruption.” At the 2019 opening of its offshoot Skender Manufacturing, the company’s chief technology officer mocked the “Stone Age methods” of on-site construction. With the debut of the new plant, he proclaimed, “we’re completely changing the paradigm for the construction process.” Nick Campisano, CEO of a real estate and venture capital firm, doubled down, declaring that modular construction would “trend towards nearly 100 percent market share of all large commercial projects. It is,” he said, “without a doubt, the way of the future.”
The Promise and Problems of Building Off-Site
There are a variety of off-site factory building products, ranging in complexity from the prefabrication of individual components, such as pre-hung window and door frames, to panelized wall and floor systems, to full-scale modular, or volumetric, rectangular finished boxes. The interiors of these boxes are steel or wood-framed, sheetrocked, wired, plumbed, painted, and can include fixtures and appliances. Once outside the doors of the factory, they are trucked to the site, hoisted in place by a crane, connected to outside utilities and to each other, and, after exterior finishes are applied, are ready for occupancy. The assembly is virtually plug and play.
The appeal of the full modular system is understandable. The architectural design is coordinated with factory engineers and technicians, every individual element in the plans is digitized, pieces are machine pre-cut and fitted to exact dimensions, sub-assemblies are moved from station to station by conveyor or overhead crane, and the entire process takes place in a comfortable setting free from Mother Nature’s whims.
A study conducted for the Modular Building Institute (MBI), the industry’s primary trade association, suggested that the advantages of this approach to building would create a 16% savings in total costs and a 39% schedule compression compared to conventional construction. The projection of a shorter schedule has proven to be accurate. The factory can begin production of the volumetric boxes while on-site subcontractors are excavating and erecting foundation walls. As soon as the foundation and initial mechanical systems are in place, the boxes can be set in place and the connecting crews can close in the building. The simultaneous activities at two separate locations dramatically reduce the project’s expected completion date. From a developer’s perspective, the expedited timeline can be a financial bonanza, saving months of carrying and overhead costs. Furthermore, the finished development can be brought to market faster, allowing hotel rooms to have “heads on beds” and apartments to be leased more quickly, thereby jumpstarting the flow of revenue.
The hopeful projections and rosy scenarios have not always panned out. The expense of producing boxes is still only approximately half of total project costs and transportation can be a budget killer. Even the McKinsey evangelists sound a cautionary note. A 2019 study claimed that modules could deliver 20-50% schedule compression and have the “potential to yield significant costs savings,” but “that is still more the exception than the norm.” In what was otherwise an enthusiastic paean to the virtues of modular, the report noted that there is an opportunity for 20% cost savings but a real risk of the very opposite — that is, up to a 10% increase in costs “if labor savings are outweighed by logistics or material costs.”
Executives from Silicon Valley proposed bringing transformative high-tech business strategies to the building process. Michael Marks and Fritz Wolff unveiled Katerra in 2015, a firm that would handle all aspects of the building process, including financing, property acquisition, architectural design, software engineering, materials procurement, factory-based construction, and even the ultimate management of a building. Katerra’s holistic and seemingly revolutionary vision was welcomed by the tech community, in particular the hallowed Japanese venture investment firm SoftBank. SoftBank’s funds and imprimatur allowed Katerra to reach a $1 billion valuation by April of 2017.
In January of 2018, SoftBank’s Vision Fund led a new $865 million round of financing followed by another $700 million a year later. Having grown to a $4 billion valuation, Katerra had raised money faster than it could deliver product on the street. Architects designed projects dependent on Katerra parts, only to learn the links on the supply chain had not yet been forged. Marks impatiently blamed the difficulties on Covid and the traditional industry’s slow-moving mindset and unwillingness to recognize and accept the value of disruption. Despite the infusion of SoftBank cash, the company was running out of money. Katerra filed in bankruptcy court a year later. One of the plants was sold in August 2021 for a fire sale price of $21.25 million to Volumetric Building Companies, whose CEO termed Katerra’s failure “spectacular.”
In its 2019 report on modular construction, McKinsey had named Katerra as one of the leading examples of the exciting embrace of an “integrated technology platform across the construction value chain” that included architectural design, engineering fabrication, materials production, and construction. The authors viewed SoftBank’s ongoing financial commitment as the tech world’s seal of approval and a “promising sign…of staying power.” A year after that report, Skender Manufacturing closed its doors and two years later, Katerra filed for bankruptcy protection.
Unlike Katerra, FactoryOS in Vallejo, California has been a success. Co-founders Larry Pace and Rick Holliday partnered with the Northern California Regional Council of Carpenters to start the new venture as a unionized plant. Jay Bradshaw, head of the union, helped Pace and Holliday identify the Mare Island location and the union recruited and trained much of the workforce. With the housing shortage in the Bay Area, their products — boxes with completely finished interiors — are in high demand. In an interview, Pace insisted the FactoryOS product is 20% cheaper, can be built 40% faster, and can achieve architectural detail and variety on the buildings’ exteriors. The workers operate under an industrial collective bargaining agreement, earning roughly half of an outside union carpenter’s hourly wage along with health coverage, but the work is steady and overtime is plentiful. FactoryOS has earned a reputation as a welcoming second chance employer for workers with no or minimal construction experience.
Amy Marks, the self-styled “Queen of Prefab,” argues that construction employers must shift their mindset from being contractors to becoming manufacturers. But most general contractors today conceive of off-site work as an evolutionary shift that is incorporated into an existing orientation. Jim Grossman, founder of Rise Construction, acknowledges that volumetric finished boxes may have a role but suggests they are inherently limited to projects based on repetitive design elements. He argues that panelized walls, bathrooms, and other components are more widely used. “People are doing [modules],” Grossman said in an interview, “but somebody standing up a panelized product, that’s where I think today’s world is.” John Cannistraro, president of J.C. Cannistraro, has set up a permanent panelization shop in the Seaport district of Boston. For complex hospital rooms, carpenters frame the stud walls, plumbers pipe all the medical gas lines, electricians install the wiring, and the assembled walls are shrink wrapped, shipped to the job, and hoisted to their location. “We’ve doubled the amount of off-site fabrication we do in the last 10 years,” Cannistraro said in an interview, “and it will double again in the next five or 10 years.”
From a worker’s perspective, the reality of off-site production may not be new, but its use is escalating. It is part of a gradual long-term deskilling trend of specialization and the shift from fabricator to installer. Tradesworkers have seen their job assignments become more narrowly defined as the era of the generalist has been replaced by a demand for specialty skills and more and more pre-assembled materials arrive at the site to be simply put in place. Semi-skilled jobs in a factory offer even less opportunity for autonomy and creativity and provide lower compensation — even at unionized plants — than on-site construction work.
For all the clamor about disruption and innovation, transformative business models have experienced as much failure as success and are, in any case, restricted to a small segment of the industry. The barriers to industrial building — the decentralized nature of the industry and the limited number of employers in a position to make long-term investments, the complications of transportation, and the uncertainty about demand for the product — ensure that modular building will remain a stable but relatively small percentage of total construction spending.
Pre-fabricated components will only increase in scale and scope but, for the most part, construction workers will continue to put on their boots and hard hats, stuff tape measures, hammers, pliers, utility knives, and other tried and true hand tools in their tool belts and carry out their daily responsibilities in much the same way their predecessors did. Rise’s Grossman, who prides himself on thinking about the industry’s future, told me, “I cannot come across a scenario where we really pull the workforce out of what’s happening in the field.”
This hardhatOPINION article is adapted by Harvard Business Review from the book, The Way We Build: Restoring Dignity to Construction by Mark Erlich a Wertheim Fellow at Harvard Law School’s Center for Labor and a Just Economy.
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