House for sale. How strategic prefab partnerships are changing the housing market
23 Oktober 2021
As a very traditional industry, construction has never been at the forefront of innovative change in way of working. However, with the increasing pressure on carbon neutral operations, the low availability of craftmanship and the innovations with subcontractors, building new houses are at the eve of massive change.
In the Netherlands, the demand for new housing is estimated at 1 million units for the next ten years. This is a massive increase. Already, it is known that by sticking to traditional building, the production goals are not met. This means innovative building techniques. Also, failure costs in contracting are an important factor that dig into margins and flexibility. Morph estimates that 10% of costs are due to miscommunication with construction partners and having no orchestrated process in the building process.
At subcontracting level, we see that contractors are becoming more savvy in their processes. Building prefab parts in lean factories and delivering it on time at the building site. The main contractor gets more the role of a director. Fitting the prefab parts together on a construction site. We see this ‘plug & play’ building process as a go-forward for the industry to meet the CO2 standards as well as to meet the housing demand efficiently.
The winners of this change will be subcontractors that understand this future trend. In research Morph undertook in the contracting business, we witnessed increased growth in networks that provided prefab elements. We estimate that in 5 years’ time, 50% of the contracting will be done on a prefab basis. Those subcontractors who have an efficient ‘vanilla-line’ process in place, gain significantly in volume and tenders. They will be able to offer at relatively modest cost fail-proof prefab. With a healthy margin and the right flexibility.
Big all-in-one players on the market set up large building factories. But the efficiency of their operation lies in the planning of their large projects. Planning that is influenced by difficult external processes such as building permits. We calculated that margins and success will be bigger with those subcontractors that have an adaptive ecosystem. The large incumbent players are lacking that flexibility due to their corporate structure.
The changing landscape of the construction industry give also room for new entrants: businesses who understand the flow in a factory and the just-in-time logistics behind it. Players with ample experience in other mass markets are stepping in; IKEA is already on this market active in the UK and Sweden. The contracting industry will be revamped in the way automotive and furniture industries have also reinvented themselves.