Blog Author: Richard Saxon CBE, JCT Chairman
The construction industry is heading for the buffers. Capacity is draining out as skilled tradesmen retire and few enter as apprentices. The go-to supply of EU migrant tradesmen is likely to be restricted soon and is already less interested as the pound falls. Construction quality is declining in the housebuilding world. Mark Farmer’s message: Modernise or Die, is clear that a major move to offsite construction is needed to keep the industry from decline. The core problem is low productivity growth in construction, globally under 1% per annum when manufacturing achieves 3.6%. There are many causes of this, but the making of buildings on site, in all weathers, is one of them.
The proponents of offsite construction see it as meeting several needs simultaneously. Firstly, industrialised fabrication raises capacity by enabling machines to join the workforce and less-skilled people to work with them. Secondly, the factories provide steady work in fixed locations, with social hours and better health and safety. This will enable employers to attract a wider and more diverse workforce who would not or could not consider sitework. Thirdly, the offsite-fabricated elements are made to a higher quality than the site-fabricated equivalent, given the better working conditions and the contribution of automation in the factory. Productivity, the great weakness of construction, is dramatically improved by all of this. Costs should fall as productivity rises. Fourthly, machine-assisted construction must be done in a digital working environment, providing work of the type attractive to millennials. Design must be done in digital media to remove errors and to drive tools. Tagging components with codes and chips further empowers fault-free assembly and later operation and maintenance.
Already a rising percentage of any building is being fabricated offsite. Even traditionally built homes have a 10-15% offsite content. Construction products (other than raw materials) make up an increasing part of specifications. Non-residential buildings are ‘ecosystems’ of several layers of elements: substructure, super-structure, skin, systems, fit-out and furnishing and equipment. Most of the latter elements are fabricated offsite now. Mechanical and electrical systems are being assembled into large riser and distribution modules offsite. Bathrooms and kitchens come as pods. Envelopes are delivered as unitised panels, sometimes several storeys tall. Steel frames are all factory made and pre-casting is increasing for concrete elements. Fully fitted modules of accommodation such as hotel and student rooms and apartments are routinely ordered now, whilst Cross Laminated Timber (CLT) is becoming the new concrete: able to provide complete structures or modules made accurately and quickly offsite to bespoke designs for many building types.
So, is the Offsite construction future a self-fulfilling prophesy? Will it become the norm without any further effort? The evidence so far suggests not. Specialist firms making offsite elements are proving just as prone to business failure as on-site builders. Costs are usually higher because of the capital required and the sporadic flow of orders, causing traditional methods to undercut offsite. Supply chains remain fragmented. On-site assembly of parts is fraught with risk of damage. Skills are not there. The struggles of pioneer Laing O’Rourke are there for all to see.
Construction has always been a low-capital-intensity business, making entry easy and survival dependent on cash flow. Overcapacity keeps margins low. Small, privately-held firms can prosper in the low-margin environment because the return on their modest capital is good. However, R&D, innovation and training are all costly and are driven out by the low margins. Subcontracting, to give flexibility during the inevitable and exaggerated business cycles which construction suffers, further depresses the capacity to train or to do research and development. Recessions strip the industry of future talent and make the trades poor lifetime investments. Offsite raises the ante, needing more capital, a steady flow of orders and no downturns. A factory to produce housing modules cost tens of millions; not an attraction to housebuilders who build at the rate of sales.
Toyota’s housebuilding operation in Japan is often pointed to as a model. It could not be more different from UK businesses. Toyota specialises in replacing aging homes on existing plots. Homeowners, often with 100-year mortgages passed down the family, replace the actual building at generation intervals;
the site holds most of the mortgaged value. They have a customised design made within Toyota’s options, are moved into a hotel for a week and return to a new home with the latest specification. Toyota manages the sales process to keep the production lines flowing at optimum pace. The supply chain is a long-term one with capacity to keep innovating. A European equivalent is Barcelona Housing Systems, offering four-story blocks of flats.
UK construction is at a tipping point. It will need to become much more integrated, both internally and with its clients, to prosper in an offsite world. Production flow stability must be a high priority, with demand managed to achieve it and planning permission risk reduced. It’s hard to see how this can happen without pro-active local and central government facilitation to support demand for a variety of technologies. The public sector also needs to support Research and Development, training (The CITB has published a daunting shopping list of training needs across the whole process¹.), the use of BIM and
of the BOPAS quality mark for offsite systems. The myriad of competing methods on offer, like in the car industry of 1929, needs to be weeded down to some strong, insurable options. Digitally-enabled design for manufacture and assembly, known as DfMA, must become normal in professional offices, so that the decision to build offsite is made at the start, with contractor involvement, and not after a conventionally designed building has got planning permission. Site assembly approaches also need to be considered at the concept stage and Building Regulations need to be updated for Offsite processes, ideally checked online through BIM technology.
The best hope of progress may lie in the emerging market for institutionally funded ‘Build to Rent’ homes, now finally endorsed by the Housing White Paper. One institution, Legal and General,is investing in its own factories. Its new Yorkshire plant will deliver 1000 homes a year, but cost £55 million to set up. They will be utilising it fully. Other such disrupters are arriving too, from China. Some UK Build-to-Rent clients are considering buying from existing or planned factory capacity. This sector is far less likely to suffer recessions and it values the speed of build and the lifetime quality which can be achieved offsite. Higher density development, which carries the construction costs better, will form the backbone for the sector.
So, offsite remains a good theoretical solution, but a long road lies ahead before it can deliver on its practical promise.
This article is based on a paper delivered at a ‘Lunch with BLP’ event in 2017.
¹ Faster, Smarter, More Efficient; Building Skills for Offsite Construction. CITB, April 2017.