Pre-fab saves the day

By Jonathan

Our discussion on BSB’s audacious efforts to revolutionize the high-rise industry initially struck me as odd. The world’s tallest skyscrapers were some of the most glamorous buildings on the planet, housing luxury hotels, high-end housing, and sophisticated businesses. Why would those tenants settle for a drab, boring, low-end pre-fab building? But our case highlighted that there were many advantages to pre-fabricated construction, and I came to the realization that I was deeply and unfairly biased against pre-fab construction methods. Every other industry does some sort of pre-fabrication. My car, my clothes, my electronics – all are prefabricated, reducing the price, increasing the quality, and increasing my satisfaction as a user. Why should the construction industry be any different?

The short answer – it shouldn’t. And in my estimation, these new construction methods could help America solve some of its most pressing challenges. First, pre-fab housing can help America build the housing it desperately needs. It’s estimated that in the post-Great Recession recovery, the country will require three million additional rental units over the next ten years [1]. That’s a lot. By my math, an over 50% bump from what was built in the preceding decade [2]. Given the speed at which pre-fab housing can be deployed, this technology could help the country provide quickly the additional housing it needs.

Second, this building technology could help us reduce the cost of housing. Given the lack of waste in terms of material and time, the cost savings from construction could translate into a meaningful reduction in the expense Americans must pay for the housing. Currently, housing costs are a major burden to the majority of Americans, low-income and otherwise [1]. Reducing the monthly outlay for housing, even marginally, would provide significant relief to many.

Finally, pre-fab technology provides a more environmentally-sustainable alternative to our currently energy-intensive, sprawling approach to land use. Pre-fab housing can more easily incorporate energy-saving technologies and support high-density density development than traditional construction methods [3]. Lowering energy expenditures and reducing the servicing costs for municipalities (fewer sewers, roads, etc) would both be welcome changes for many Americans taxpayers.

To access these advantages, however, I and other Americans must overcome our knee-jerk aversion to pre-fab buildings. For example, we must understand that you do not need to sacrifice style with pre-fab construction. Just look at the work of Dutch architect Hans van Heeswijk and his vision for modular single-family “towers.” The concept is innovative (families select the modules they want and need – one for eating, one for sleeping, etc , and stack them as they’d like) and the outcome is stunning [4]. Indeed, style along with other false compromises, need not be sacrificed to access the benefits of pre-fab.

To be sure, these new construction methods offer many advantages. It’s up to us to get comfortable with them.

1. Emily Badger. The Atlantic Cities. 25 February 2013. http://www.theatlanticcities.com/housing/2013/02/us-simply-doesnt-have-enough-available-rental-housing-whether-youre-rich-or-poor/4791/ accessed March 2013.

2. Quick Facts, Apartment Stock. National Multi Housing Council. http://www.nmhc.org/Content.cfm?ItemNumber=55494 accessed March 2013.

3. Allison Arieff. The Atlantic cities. 21 September 2011. http://www.theatlanticcities.com/design/2011/09/trailer-park-new-model-affordable-housing/160/

4. Meandering Tower House, Hans van Heeswijk. http://www.heeswijk.nl/nl/projecten/woningbouw/14.MtH/14.MtH.html# accessed March 2013.

Advertisements

7 thoughts on “Pre-fab saves the day

  1. Pingback: Most Commented through Friday, March 8th | Sustainable Cities: Urbanization, Infrastructure, and Finance

  2. Just like Jonathan, I too was bit by the Pre-fab bug. The economics and the competitive advantages of pre-fab seemed too good to be true. I had the opportunity to speak with two different field experts on how they perceived Pre-fab. My first instance was with the well-known architecture firm, KPF. I was at their New York office a few weeks back and solicited a seasoned architect’ opinion on BSB’s feats and ongoing plans. Needless to say, the architect dismissed BSB’s achievements as questionable and built under an environment of relaxed safety norms. He claimed China was not known for strict building codes and hence the task of completing a 15 storey building outside of China would require more time and costs and will prove economically unfeasible. The actual desirability of such buildings was also questioned. I took their opinions with a pinch of salt. Architects such as KPF were after all glued to the market’s current hot trends. They specialize in creating eye-catching designs such as the Hudson Yards Project and the MOMA renovation in NYC. They were understandably relatively risk averse to new construction techniques.

    On the other end of the spectrum, I was still intrigued by pre-fab’s appeal to low cost housing. Luxury condominium owners and office space renters might be willing to pay premiums for great designs that pre-fab cannot yet accommodate. But what about the customers who are extremely cost sensitive? Enter the Indian market. One of the biggest markets in the world for housing microfinance and the home of massive slums such as Dharavi. No other place offers a more compelling need for pre-fab low income housing than India. One of my best friends in HBS recently married a budding architect from Chennai, India. When I posed her this question of viability of prefab in India, her reply was simple. Pre-fab requires a separate set of skills that the current Indian labor market simply cannot provide today. The issue here is not with design since low cost housing designs are less demanding. It’s finding the construction company that has the requisite skills and labor to execute these projects that ultimately scare investors and developers away from pre-fab.

    The optimist in me still sees these challenges as opportunities. The Brooklyn pre-fab project (which we briefly discussed in class) is still on and it will not just create an energy efficient building but also create jobs in the neighborhood. The Indian market may not have the welders and skilled laborers today to execute pre-fab projects. But anyone looking to take the plunge and train the workforce can stand to lead a new revolution in the massively competitive Indian real estate market.

    • By John Macomber

      A recent MBA grad and HBS Social Entrepreneurship Fellow, Rakhi Mehra, and her architect husband are working on this design/fabrication problem out of New Delhi:

      In the Development, Design, Construction class we will have a case about Urbi, one of the largest production (low income group) homebuilders in Mexico and look at advantages they realize from standardization:

      I was an investor and board member of one of the leading prefab/manufactured home builders in the US…pre-crash. When sales go down it’s pretty hard to cover the cost of all that factor and equipment and inventory and keep all of those people on payroll. The “outdoor virtual factor” that is stick built housing has no setupu cost and is real easy to spin up. But panelized construction, if not full offsite prefab, is clearly on the way.

  3. I agree with Jonathan’s point that there is no reason pre-fabrication can’t be a more frequently utilized manufacturing technique in the construction industry today. While pre-fabrication is used today (and it has been around for some time – just look at mobile homes), we would all benefit if it was used more often and more completely. Respecting the logistical issues that Chris highlighted, I think the major residential hurdle is design. If the consumer begins to drive pull demand, I think

    Firstly, I think the concepts of mass customization must be applied in order to make pre-fabrication adoptable on a large scale. This is beginning to happen as Jonathan pointed out in his Hans van Heeswijk example. Here are two additional examples of pre-fab home designers that make attractive, partially customizable, yet sustainable pre-fab housing:

    http://methodhomes.net/
    http://stillwaterdwellings.com/

    Once people feel like a pre-fab home can be uniquely theirs, I believe demand will increase.

    Beyond aesthetics, the marketing of pre-fab homes must be improved. It’s not simple the frame and floor plan that is more efficient, the innerworkings of pre-fab homes introduce important design components and need not be customized. Consider the projects developed by ConnectHomes below. Connect introduces more efficient ventilation, insulation, and electrical components alongside sustainable / renewable materials that complement the building process.

    http://www.connect-homes.com/about/features

    By using pre-fab design and construction, consumers can not only have cheaper upfront costs, but also cheaper and greener operating costs. Yet, it is not apparent to me that people understand the many benefits of pre-fab. After all, not everyone takes SCUIF!

    In summary, the entire pre-fab concept really only works at scale, but before the scale is reached, we need the demand. It follows that by addressing the issues of design and marketing, I believe we can take a big step in the direction of making pre-fab construction a more broadly applicable vision.

  4. Thank you for your great post – I agree with your points. But here is a piece of historical-empirical evidence against pre-fab housing that I could not quite sort out.

    Pre-fab housing has been around for more than 100 years now. The only places, however, where it was widely used are authoritarian communist countries with planned economies. In the Soviet Union (http://en.wikipedia.org/wiki/Khrushchyovka), and especially in East Germany (just google “plattenbau berlin”), virtually all new residential and sometimes even commercial building are so-called “Plattenbauten” (panel buildings). They dominate the outskirts of Moscow as much as the Eastern part of Berlin until today. In this context, it is little surprising that China is the place where the next generation of pre-fab buildings emerges.

    So why has pre-fab not gained traction in the West? Only if we understand the reasons, we can avoid past mistakes in the future.

    I see four potential reasons about which I can only speculate.

    First, statics may have been less stable or not fulfilled certain quality or regulatory standards. If that ever was a problem, it should be overcome by now as BSB demonstrated.

    Second, construction companies may have successfully lobbied against such disruptive substitutes. Even if that was the case, it should not hinder us from saying what would be beneficial for urban planning.

    Third, pre-fab housing used to look all the same. Free societies typically reject uniformity. Modular and attractive design, as created by Hans van Heeswijk, will certainly help. But I do not think this was a key barrier because many people live in very monotonous buildings that are not pre-fab.

    Fourth, and most compelling, economic reasons and a cost-benefit imbalance. In class, we simulated fixed costs of the plant (higher) and variable construction costs (lower). And although the assumptions were vague at best, we saw that a lot of demand was needed within proximity of the plant to make the business case work. Unless transportation can be obtained more cheaply, creating sufficient demand might be the key hurdle in a free-market economy. In the Soviet Union, the state created that demand at the expense of individuality to make the economics work. In a free economy, it requires tedious educating the market.

  5. I’m concerned about how to get over the biggest hurdle here in the States: Demand is constantly changing and is very uneven across the country. Many of the bigger home-builders (Beazer, Toll Brothers, Pulte, etc.) have some measure of pre-fabrication of the framing, which allows them to frame a house usually in less than two weeks. The issue isn’t if they can do it, the issue becomes what happens to the business model when it isn’t a market that can sustain so many new houses so quickly? They were humming along from 2002-2007, but the pre-fabrication could have been a big part of the overbuilding that happened in 2007-2008. Companies felt like they needed to continue to keep their people busy, which then led them to build spec. homes and exacerbated their problems even more.

    Many industries have some level of pre-fabrication because shipping is easier for most of those industries. It is financially unfeasible to centrally locate one of these factories and ship them across the country. This is why the Broad group’s factory doesn’t work very well and why it really is very difficult to have a sustainable business model pre-fabricating much of anything in scale in the building industry. Many of the parts and pieces are becoming more pre-fabricated and shipped on site ready to install (AC units, HVAC, piping systems, structural steel, misc. steel, etc.), but the fundamental building blocks are very difficult to pre-fab in scale because of shipping and the uneven demand.

Comments are closed.