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The inevitable rise of off-site construction

By Carel van Houte​

When talking about off-site construction – especially modular construction – people often make references to the car industry as a lighting example of industrialization. “Soon we will be building houses like cars”. They are right that the automated production lines, spectacular welding robots, the highly developed assembly systems are impressive, but these are also a million miles away from anything related to the construction industry or modular manufacturing.

Cars are mass products, manufactured at a rate of thousands a day. Their factories are the peak of industrialization and require very deep pockets and in-depth knowledge to set up. Only gigantic production volumes will bring the necessary ROI. I am sure Elon Musk must have a story or two about how that kept him awake at night.

Next to that, cars are very complex consumer products that transport people at high speed through a wide variety of environments. Probably, the only similarity between a car and a modular building is that both have windows and keep you dry during a rain storm.

If there is an industrial product that one could make reference to, than it would probably be a gas stove. Of course less exiting than a car, but the similarities to modular building units are overwhelming. Gas stoves are connected to gas and electrical networks. The cooker hood provides ventilation and the oven is well insulated to keep the heat inside. It has a door and a thermal window. Gas stoves are subject to strict product codes, come in a number of variations – all box shaped - and once installed they usually stay in place until the end of their technical life.

Collapse of productivity

During the development of an industrial product, like a gas stove, there is permanent cooperation between the client, designer and manufacturer. Their collective focus is on the profitability, market, manufacturability and risk. Every decision is weighted against these points. This has a two-sided effect. First of all, every design decision is assessed at an early stage for technical, functional and financial feasibility. Secondly, knowledge is being shared between all parties in the production chain. Usually, this is where innovation takes place, to the benefit of all involved.

Rule of thumb in the manufacturing industry is that 80% of the final price is determined by decisions made during the first 20% of the project, which is probably not very different from the building industry. This means that one should have ‘all hands on deck’ during these critical initial stages of a project. However, when designing a new building this is never the case. The client and his architect usually start to visualize their ideas in relative isolation. Especially the lack of involvement of contractors and suppliers often leads to dramatic value engineering later on.

The building industry as a whole is still pre-industrial and highly fragmented. It is even organized in such a way that it is impossible to identify one single party that owns the entire development process from start to finish. Each stage of the development process has its own stakeholders and leaders. As a result, the project goes through a series of handovers; a process that is dominated by risk mitigation instead of collaboration, let alone innovation.

The result is that the labor productivity in the construction industry has stayed flat or dropped over the past 25 years, while the labor productivity in the total economy has increased about 40%. Still, there seems little appetite in the building industry to change their model.

Running versus rowing

The entire development process of a new building can be compared with a relay race. The difference is however that in a building process each participant runs his/her own leg of the race without sharing in the overall victory. As a result, the participants only focus on optimizing the result of their own leg of the race but hardly practice the handovers due to a lack of a common goal.

This “building relay race” forms an important obstacle for innovation in the sector. Within the boundaries of their leg of the project, parties make insufficient return on their investments when they try to improve the overall process. The advantages are usually cross-border and the benefits are not flowing back to the initiator. In short, because everyone runs his/her own race, there is no common interest to improve as a team.

To stay with the sports metaphors, the opposite of the building relay race can be found in the manufacturing industry; the eight with coxswain.

The eight with coxswain stands for a highly synchronized, controlled and integrated process from start to finish under clear leadership. During the race every participant is subject to a strict group discipline because there are no individual gains to be made. They’re all in the same boat. For each team member it makes sense to invest in the performance of the others to improve the collective result.

Industrialization or process innovation

Industrialization implies the replacement of existing structures and processes, as has happened in many industries before. The general opinion in the building sector however is that industrialization is a matter of product innovation.

The consequence of this misconception is that modular buildings are most of the time being developed as if they were traditional buildings, using the same structures and processes during the pre-construction and construction phases. Because of that, the potential of modular construction is often not being fully exploited, which in many cases tips the balance in favor of traditional construction.

The stagnation of productivity in the construction industry may have many reasons, but it is not because there are no alternative construction methods available that could help to get this stranded industry afloat. The main issue is a lack of process innovation and the hesitation to adapt new methods of construction.


The manufacturing industry worldwide invests an average of 6-8% of their turnover in R & D. The majority of contractors or building services providers do not even have a budget line for these kind of strategic activities.


Due to this lack of innovation, price has become the most important selection point for clients. Because of that, contractors focus on costs and squeeze their sub-contractors and suppliers to meet their budgets. Margins are extremely slim and most projects suffer from cost related disputes and delays.

An industry that entirely focuses on costs, but does not invest in Research and Development, is entangled in a race to the bottom. You can ask any contractor what that looks like.

What’s next

Over the past decades, we have seen that disruption has become the norm in any consolidated sector that fails to rethink their business model. Newcomers do not climb the traditional ladder, but replace an existing business with something else. In case of the building industry, you don’t have to expect these newcomers to be small start-ups because there is too much to gain in a multi-billion industry that is 25 years behind and facing a global housing crises.

Industrialization of construction is the only real answer to stop the permanent increase of construction costs, the growing shortage of skilled craftsmen, the excessive delays, cost overruns and all other issues from which most building projects suffer.

A building site provides the worst possible conditions to create a consistent and high quality product on time. Therefore, the future of the construction industry will be off-site in a controlled industrial environment. This could be bathroom pods, volumetric modular units, panel systems or any other type of prefab that could replace the majority of on-site work. Building sites will become assembly sites where specialized installers assemble buildings in a matter of months.

The transition from on-site to off-site construction requires a major change in how we organize the building industry. But given the current circumstances the main question is: will they do it themselves or will an outsider take over?

About the Author

Carel van Houte is a modular building expert with 15 years of experience in Europe and the USA. He worked at both sides of the table; as developer and as manufacturer.

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