The construction industry accounts for 13 percent of the world’s GDP, and its weak labor-productivity growth rate over the past two decades beckons the need to reinvent industry dynamics and move towards a manufacturing-inspired mass production system. Prefabricated construction, also referred to as offsite construction, is a brilliant solution that is slowly gaining market share, fueled by its cost-effectiveness as well as its ability to reduce project timelines and offset the need of a skilled workforce.
Construction sector labor-productivity growth has been sluggish. The McKinsey Global Institute estimated a growth average of only one percent a year over the past two decades. In comparison to manufacturing sectors and that of the total world economy, which have grown at 3.6 percent and 2.8 percent respectively, it is significantly underperforming.
Long-term forecasts suggest without change that the construction industry will be unable to support future infrastructure and housing requirements. The anticipated lag in construction productivity gains would also cost the global economy as much as $1.6 trillion a year.
Change is beginning to take place, and the California-based construction firm, Factory OS, has a motto that signifies the trend: “We’re not just building homes. We are manufacturing the future.”
Factory OS just landed a lucrative contract with Google parent Alphabet Inc. In an attempt to alleviate pressure on the San Francisco region’s housing stock they are finalizing an order to buy 300 apartment units using Factory OS’s 260,000-square-foot facility in Vallejo, California. The anticipation is that affordable short-term housing will be available for Google employees.
Modular-building technology could reduce the cost of construction in the Bay Area by as much as 50 percent, but those types of gains have yet to be realized. In order to realize cost reductions and expedited project completion times, there needs to be a steady pipeline of work and an understanding from investors that profits may need time before they can be realized.
Factory OS is winning in part because it is different from other modular-home startups. Their facility is two to three times the size of most modular-construction facilities and they are funded mostly by foundations, not venture capitalists. The startup was created and funded to address demands that were being left unfulfilled.
Factory OS isn’t the first and will not be the last startup company to set its sights on the large potential gains that could be earned with modular-building technology. The failure of other startups to deliver the types of cost reductions that are possible stems both from a lack of contracts as well as growing pains within the industry.
To truly expedite project completion times, the industry needs to address regulations and raise transparency. Red tape is a daunting obstruction to the process, and without the standardization of building codes, modular-building startups like Factory OS will have a hard time penetrating larger geographic regions.
Long-term collaborative relationships also need to be fostered. Far too many conventional construction contracts are either over budget or otherwise unable to deliver estimated completion dates. In order for all other trades involved in a project to meet their respective deadlines, contractual framework that includes integrated project delivery (IPD) needs to exist. There needs to be more collaboration and then, as prefabricated construction evolves, its ability to change the world will be realized.