Thursday, May 3, 2018

A Look at Disruptive Modular Construction

Every single day we are invited to attend seminars, listen to webinars and podcasts, read articles and join discussion groups like my Modcoach Round Tables where the topic is the future of modular construction in the United States.

John McManus’s “WHY DISRUPTIVE INNOVATION, AND WHY NOW?” on BuilderOnLine is a short but very insightful article about what is hype and what is actually needed in residential home construction.

This excerpt from his article is so powerful:

"Some guess that 2018 and 2019 are going to be pivotal years for the emergence of integrated factory fabrication of major portions of houses prior to assembly on home sites. Many counter that it's still too soon, and that all the focus on Katerra, Clayton, Entekra, Blueprint Robotics, Unity Homes, Buddy Raney Construction, Blokable, Kasita, Blu Homes, and other players in the modular, component, panelization, offsite construction models is mostly hype that gets amped up because of current labor capacity anxieties.

At the same time, so many of us can feel almost viscerally that--despite the numbing overuse of those words--it has to happen. And the first, most likely opportunity area for disruptive innovation to happen would involve taking what does not produce value out of the architecture, capital, construction, engineering, and real estate chain of processes that generate new or improved housing."

Modular housing is not at a crossroad but rather a fork in the road. A crossroad by its very nature means there are at least 3 new directions our industry could take. A fork in the road means a choice of continuing doing things the way we always have or taking the road less traveled to Disruptionville.

Completing reinventing the entire modular housing industry will probably never happen. 20 years from now many of the modular factories will be producing homes in exactly the same way they did the previous 20 years. That’s not always a bad thing if the factory is making a profit on what it sells.

Then you have to ask why does the modular housing industry need to take the other fork in the road that could lead to disaster? Simply put, it could also lead to bigger projects, more profit and faster growth for the modular industry.

The next logical question you should ask is what are the disruptive ideas at the end of the forked road? The answer to that question is “who knows!”.

The companies McManus mentioned above are innovators and look for more of them to pop up over the next couple of years but they are not disruptors. The product they are producing are mostly labor saving systems and/or designed to be mass produced modules to meet the need for affordable housing.

Disruptors on the other hand will reinvent the way modular homes are marketed, sold, produced, erected and finished

I understand that a few modular home factories have vertically integrated their business and have been doing so for years. Homes by Keystone, Homeway Homes and several others offer some of these services already but their growth is limited to small geographic areas and to be perfectly honest there are independent site builders in those areas selling and building more homes than they are.

The new disruptors will create large regional and even national markets for their homes using social media to drive eyeballs to their website where detailed information is gathered, sales reps work with potential new home buyers and orders are produced in their own semi-automated factories.

These new disruptors will also provide land and all improvements, home sets and finish as well as providing mortgages. They will be able to produce everything from tiny houses, homes from standardized plans and custom plans through ADA homes and commercial properties.

They will produce product for everyone and open factory after factory to fill new voids.

Clayton Homes is already on this path. They are acquiring large regional tract builders that have tons of lots in reserve. They have bought large HUD and modular home dealers and continue to build factories and experiment with 3d Printed Homes and other ways to produce affordable housing. Their new factories are models of innovation.

But Clayton is not the face of the new disruptor at the fork as they are simply taking the path of least resistance to grow larger. No, the new disruptors will look at what we are currently doing, separate the wheat from the chaff and begin anew. Look for technology-inspired Millennials to play a large role in making this happen.

Once this begins to happen, the Millennials will find ways to bring production workers into our industry, design ways to capture huge amounts of data that can target people just starting to think about buying a home, they will put much of what we are currently doing on the back burner and then we will begin to see the future modular housing.

Don’t kid yourself, there are organizations, investors and builders out there right now listening to the modular songs being sung and working on total disruption.

This is going to be a wild ride and I’m happy to be here to see it happen.

Gotta love modular!

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