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Q1 Benchmark: Initial Insights Builders on Offsite Construction
Over the past several weeks we have been having conversations with a cross-section of the Alliance's homebuilder membership on their use of offsite construction. We're beginning to get a clearer picture of where the industry is at and what's needed.
The people we've spoken with represent senior management at 20 production builders, ranging in size from local operations with one or two communities to large nationals. While they come from every region of the country, more than 3/4 are in the Southern and Western states, with the heaviest concentration in hot markets like Dallas, Phoenix and Denver.
Although everyone claims to see a future homebuilding landscape dominated by offsite, only some have embraced that future, and we suspect that some of the others will have to be dragged into it. Most of the builders we've talked with limit their use of manufactured components to trusses and stairs, which is probably a good reflection of the industry as a whole. They will go further when market conditions demand it but not before.
Of the builders who are embracing offsite, none deploy modular construction at any scale but are instead panelizing to varying degrees. Three have built or are planning to build their own panel plants, while the rest have been buying panels from an outside plant or getting them from their framers
Here are some preliminary insights from these builders.
IT HELPS TO THINK BIG. Those with in-house panel plants say they are realizing cost savings, thanks to a combination of reduced labor needs, material optimization and the ability to buy lumber at wholesale.
Builders who source panels say they pay as much or more for those homes as for stick-framed. The ones who are OK with that pricing tend to emphasize benefits beyond cost-per-house. Some say that because panelization lets them finish more homes per year, overall profits are higher. Others say that the precision offered by a good panel supplier makes it easier to meet other business goals, like improving their energy efficiency scores or reducing warranty calls.
TURNKEY IS BEST. Most (but not all) of the builders we spoke with for whom panelization is proving successful use turnkey framers. This has a couple of important advantages.
It streamlines optimization. If the framer owns the plant or works directly for the plant, then problem solving becomes easier. Take the example of a panel on a one home plan that's too big, and has to be trimmed in the field. If the framer works directly for the plant the problem can be corrected right away, but if the framer has to relay information through the construction manager it could take three or four homes to get things worked out. This direct relationship is especially important for builders who allow a lot of customization.
It simplifies price negotiation. Even though installing panels takes less time than stick framing, getting a lower price is tough in markets where trades are in the driver's seat—or where they're not sophisticated enough to see how the ability to frame more homes in a week could raise profits even if they discounted the cost per frame.
We also heard that the least effective way to get framers to panelize is to try and force it on them. "If you try that it becomes very expensive," one builder told us. "The framer has to see a revenue model, and the best way to help them is to treat them like a full partner so they actually want to panelize."
Of course the builders who have programs that make trades feel like partners rather than vendors get more loyalty from those trades and have more success implementing any type of change. Builders who don't have such a program in place might consider starting there.
We will be sharing further insights in future blogs and at the 2018 Innovation Summit. The more builders we can include in this research the more accurate a picture we will get.