Off-site construction and the housing crisis — ‘Modularise’ or die?

With Michael Mills

A recurring problem for New Zealand’s building industry has been a fall-off in quality and productivity in times of high demand. Michael Mills argues that a strategic shift to off-site construction can potentially address the massive current demand while still maintaining quality standards.

A number of factors contributed to New Zealand’s leaky homes crisis, which I saw up close in the early 2000s leading the policy work for the Government’s initial response. A loosening of building regulations plus widespread enthusiasm for a new flat-roofed, plaster-clad ‘Mediterranean’ style were certainly critical. But it’s also clear that our bespoke approach to residential construction, coupled with skills shortages, played its part.

Today, as the building industry struggles to keep sight of, let alone keep pace with, the current explosive housing demand, thoughts of those historical difficulties in delivering on both volumes and quality should worry our industry and our policymakers. It’s probable that with its current approaches and mind-set our incumbent industry can’t solve this dilemma. To achieve the kind of scale needed, a radical change and new ideas are called for, and well-resourced off-site construction looks like a good candidate.

Why off-site?

‘Prefabrication’, ‘pre-manufacture’, ‘volumetric’, ‘modular’– these terms are all being used to capture some or all of a range of off-site construction techniques that, along with the associated new technologies and supply-chain arrangements, offer major gains in speed, efficiency, safety and quality.

At the less ambitious end of the spectrum, off-site construction can involve prefabrication of some key components, like wall panels and roof trusses — or entire kitset homes can be shipped to and assembled at the site.

But it gets really interesting with ‘modular’ — or ‘volumetric’ — construction, where fully finished units are built on production lines using high-tech precision machinery. These modules are then transported to the site and craned into multi-storey apartment and office blocks — like human-size Lego. Meanwhile, out in the suburbs, homes can be delivered to the site fully prefabricated, and then mounted on foundations and connected to utilities.

The big advantage of modular and full prefabrication approaches is that most or almost all of the building work is done in a controlled and standardised factory setting. This means quality is better and the work is more efficient — because, for a start, there’s less disruption from weather and better use is made of specialist skills. A more controlled environment also means the work is safer for humans, including less time spent working at height. Off-site construction is also better for the environment — it uses less energy, creates less waste, generates less dust and noise pollution, and delivers better performing buildings.

The potential benefit of off-site construction for New Zealand could be immense. PrefabNZ, a membership body that advocates for off-site design and construction, reports a potential 60% saving in construction time and a potential 15% saving in cost. But the kicker here is that embedding off-site construction in New Zealand will depend on attracting investors with the prospect of significant and predictable demand.

Prefabrication in post-war New Zealand

Prefabrication has been a feature of New Zealand’s construction landscape for years. For Kiwi kids growing up post-war, the word ‘prefab’ itself was a part of everyday school vocabulary (like ‘sick bay’ and cloak room’). Prefab homes have been familiar here as well: as well as Lockwood kitsets from the 1950s, in the 1960s the government’s Group Building Scheme promoted mass production of prefab homes, guaranteeing purchase of finished homes for firms like Beazley Homes (Te Ārā, ‘Residential construction companies’).

In the wake of the Canterbury quakes, and with the deepening of Auckland’s housing crisis, there’s been renewed interest in prefabrication. Several companies, including Concision, Stanley Construction and EasyBuild, have made significant investments in off-site construction. In its Matamata plant Stanley built the 468 modular units that were transported to site and bolted together to form University Hall, a 14-storey student accommodation building in Auckland. All the student bedrooms were constructed in Matamata — even the carpet was laid there!

But while examples like Stanley Construction are exciting, they’ve still been relatively niche and small-scale. BRANZ, the Building Research Association, concluded that just 17% of all building work here involves some element of off-site construction — and most of that is components like panels, frames, beams and trusses. Volumes for off-site construction in residential homes are low — perhaps around 2,000 a year.

Modular housing. Source: Wikipedia.

Our incumbent industry

In 2016, the Farmer Review of the UK Labour Construction Model described the building industry in that country as unproductive, dysfunctional and inefficient. Pulling no jabs or punches, the reviewers gave their report the subtitle, ‘Modernise or die’.

In New Zealand, our incumbent building industry faces similar existential challenges. Our major construction firms have a significant investment in the current way of doing things — including products, supply chains and business models that are all based on building on site.

That inertia also goes for the industry’s current regulatory agencies, licensing authorities and professional associations, which are all geared to traditional on-site construction and inspection.

Related sectors like finance are also badly in need of disruption. As a pointer to what’s possible here, Westpac recently announced a pilot programme aimed at filling a gap in bridging finance for prefabricated housing. Banks have so far made finance available only once a prefab home is installed on site, whereas with traditional onsite construction they would advance payments throughout the build process. Westpac NZ CEO David McLean described New Zealand’s continuing orientation to traditional onsite construction as ‘out of whack’ with the rest of the world.

It’s unlikely that with its traditional approaches and ideas our incumbent industry will be capable of responding to Auckland’s massive housing demand. At the same time the current industry seems unlikely to be able to embrace a strategic shift to prefabrication and other new approaches and technologies without outside intervention.

The Auckland housing gap: Crisis and opportunity

Auckland and its current housing crisis are central to placing off-site construction on a firm industrial footing in New Zealand. The city needs an estimated 30,000 new residential dwellings to match current demand, and then an additional 12,000 or more a year to match expected growth in demand.

To match that, we’re going to need to build higher and to greater densities. To make homes more affordable, construction is also going to have to be more cost-efficient. At the same time we need to maintain and improve build quality, even as volumes increase and labour shortages bite — something our incumbent industry hasn’t previously been able to sustain.

The bright side here is that levels of demand in Auckland may be high enough to provide a sustainable basis for large-scale investment in modular and other off-site building techniques — including plant and equipment, process design, supply chains, and staff training.

The conditions are right

The conditions and timing are right to accelerate and embed off-site construction here — there’s strong demand for more affordable homes, our existing industry isn’t coping, and we have a government and council willing to become more actively involved in solving Auckland’s housing crisis.

This will likely require attracting new, possibly off-shore, investment and expertise in order to catalyse this major industry transformation. It will be necessary to sell the case and reduce the risk for front-end investment by providing greater certainty of demand pipelines long term. Some research suggests the potential opportunity for investors in volumetric buildings could be a $2 billion industry.

We will need a coordinated, multi-faceted strategy from central and local government to work on the key barriers — including lack of investor confidence, industry and consumer resistance, and regulation that’s primarily geared to traditional construction. For example, MBIE, working in partnership with Auckland Council, has significant regulatory and procurement levers it can pull to support off-site construction and higher productivity. Properly embedding off-site construction will also provide the basis for investments in related digital and manufacturing design and construction technologies.

Pulling the right levers

We can learn some things from overseas. With a focus on productivity, Singapore’s government is stimulating ‘Prefabricated Prefinished Volumetric Construction’ (PPVC) by, for example, stipulating specific off-site technologies as land sale conditions for developments sold under its Government Land Sales programme.

In the UK, the 2016 Farmer Review recommended an ‘initiation’ stimulus package, where the government would promote pre-manufactured solutions through policy measures, as well as assembling and publishing a comprehensive ‘pipeline’ of demand for new-build housing. The review also floated the idea of influencing commissioning behaviour through government placing a charge on business clients of the construction industry unless they show they’re contributing to modernising the building industry and increasing its capacity.

In New Zealand, PrefabNZ provides a key mechanism for modernising the industry. Its ‘Levers for Prefab’ strategy includes detailed action points that address many of the key barriers, with a main focus on growing the New Zealand industry. But the question is whether there’s sufficient incentive for industry change without an external disruptor.

In the Government’s KiwiBuild programme meanwhile, New Zealand has a critical institution that can potentially create strong demand and incentives for greater investment in off-site building through its procurement of residential developments. But it needs to signal density, quality and price point outcomes, and invite manufacturers to partner with landowners and deliver on a predictable, long-term basis.

What we don’t yet see here is an agent of government that has the focus and mandate required to stimulate the kind of shift needed — one that would ensure that all the various procurement, regulatory, competition, labour market and other levers are pulled to encourage a transformation of our existing industry.


Michael Mills. Source: MartinJenkins.

Michael Mills is a public-policy expert and a Director of MartinJenkins.
 Michael adds considerable client value through his invaluable insights into the complex machinery of government.


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