Buildings of the futureWhen will industrialised construction disrupt how we design and construct buildings?

How do we bring design and construction into the 21st century?

Design and construction in the 21st century is characterised by unique components being brought together on-site, resulting in supply chains, materials and processes requiring precise alignment to avoid cost and time overruns, and ultimately, gross inefficiencies.

The result is that while increasing populations and urbanisation are leading to rising demand for construction, pushing up revenues, both profits and affordability are decreasing. Cost and time are therefore becoming even more of an imperative for return on investment (ROI) and overall growth. In 2016, McKinsey & Co. estimated that 80 per cent of construction projects were over budget, and 20 per cent ran over time.

Characterised by low productivity and high costs, the construction industry of today is lagging behind other sectors.

Global Productivity Growth Trends

Compared to the auto parts manufacturing industry where the average return on equity (ROE) in the US is approximately 12.5 per cent, the engineering and construction industry ROE is 3.4 per cent as at January 2020. 

Productivity in the construction industry is also lagging behind, not just manufacturing, but the total economy, and has stayed relatively static over the past 20 years, as demonstrated in Figure 1.

Figure 1. Labour productivity growth in the construction industry lags behind other sectors, based on a sample of 41 countries that generate 96% of global GDP. Source: OECD; WIOD; GGCD-10, World Bank; BEA; BLS; national statistical agencies of Turkey, Malaysia, and Singapore; Rosstat; McKinsey Global Institute analysis.

House Price To Income Ratio

Affordability and accessibility of residential and commercial buildings is also not improving in most economies. Just like the automobiles of the late 1800s, housing, in particular, is becoming restricted to the wealthy few.

In the latest research from the International Monetary Fund’s (IMF) Global Housing Watch, house prices have grown faster than incomes in over half the countries surveyed, over the five years from 2015 to 2019, as shown in Figure 2.

Yet, if we need to build 10,000+ buildings a day to cater for a 10 billion world population by 2050, how are we going to achieve that without significant change in the way we design and construct buildings?

Figure 2. House prices are rising faster than wages in over half OECD surveyed countries, based on a sample of 41 countries that generate 96% of global GDP. Source: OECD.

The World Economic Forum in collaboration with Boston Consultant Group in their paper 'Shaping the Future of Construction – Future Scenarios and Implications for the industry', identified global megatrends such as climate change, shifting demographics, the cost of labour in some regions, urbanisation, automation and digitisation as creating a burning platform for change.

The report showcases three extreme versions of the future:

1. Building in a virtual world – where virtual reality touches all areas of life and intelligent systems and robots run the construction industry
2. Factories run the world – a corporate-dominated world using modularisation and prefabrication resulting in the convergence of manufacturing and construction
3. A green robot – a world of scarce resources and climate change, in which we rebuild using eco-friendly construction methods and materials

Alternatively, a hybrid of all three may emerge, enabled by blockchain’s self-executing contracts, or smart contracts, which can create trust and transparency between project partners, making the construction process easier, cheaper, safer and faster.

The resulting convergence of construction and manufacturing known as off-site construction or industrialised construction is already occuring.

Prefabrication and the impact on construction

Prefabricated construction and automated technology, such as robotics to install these prefabricated construction materials, and additive printing, are all construction technologies that can be implemented to make not only construction but also building maintenance easier – driving down short- and long-term costs. Starting at the design stage, buildings with standard designs and pre-fabricated components are cheaper and faster to build.

These buildings are highly accurate, with small tolerances. They achieve a high-quality finish throughout any storey level and can be fully planned and documented very quickly. Because they are manufactured, not built, there are reduced weather delays and waste, and carbon generation and site time are reduced. This safer way to build requires only low or semi-skilled labour for fast onsite assembly/installation.

However, this still involves transporting very large components to a construction site, often at high cost.

A tale of two identical buildings

In 2017, Aurecon designed two nearly identical buildings in two different cities in Asia. Building 1 did not utilise any BIM and pre-fabrication in design and delivery, while Building 2 did. The information regarding the impact on construction is provided below:

Taking this one step further, construction companies like Katerra and Mace are exploiting opportunities to create factory-like conditions on-site to construct a building in an assembly line manner, using a building platform. As buildings can’t physically move along an assembly line, the idea is to take the ‘assembly line’ to the building site. Standardised, pre-fabricated components are assembled on-site to create a building or precinct, in a Lego-like fashion, as shown in Figure 3.

This form of design and construction is already occurring in cities like Dubai, Tokyo and Singapore where fast population growth is forcing new ways of working to achieve economies of scale.

Figure 3. Buildings are manufactured on-site using standardised components

Creating a step-change towards industrialised design and construction

So, with all these efficient design and construction methods already in practice, what else needs to occur and why isn’t it more widespread?

In the World Economic Forum and Boston Consulting paper on the future of construction, six transformation imperatives are identified as being vital for design and construction companies to future-proof their business in this changing environment:

1. Recruit new talent and develop required skills
2. Integrate and collaborate across infrastructure and urban development industry
3. Embrace advanced technologies at a scale that will have significant impact
4. Leverage data and digital models
5. Review product portfolios and identify new opportunities
6. Enable change and adaptation 

This is supported by market research undertaken by Aurecon which identified key themes around the need for flexibility of design and adaptation to be ready for the future. These were:

• Design trumps technology
• Design partnerships
• The changing face of building methodology
• Mass customisation but built to change

In various research reports, including the 2019 McKinsey report 'Modular construction: From projects to products', these advantages are defined as:

• Reduced construction time by 20–50 per cent
• Potential to reduce costs by 20 per cent
• Increased safety on site

Modularisation can vary in complexity from 2D elements that require more assembly on-site to 3D (eg. panels) to 3D units that are fully-fitted off-site (eg. fully fitted-out house, including services and finishes). Wood, concrete and steel are used separately or in hybrid.

The less modularised the more design flexibility and ease of transport to site; the more modularised, the more standardisation, repeatability and cost savings.

For example, RAD Urban modular supplier is looking to move 85–90 per cent of labour off-site into factories where productivity is higher and costs are cheaper. This could lead to 20–30 per cent cost savings on mid to high rise office developments. The move to automation is next with a predicted 10x efficiency gain.

While a move towards a manufacturing-style approach to design and construction of buildings is an imperative for sustainable growth, and is already occurring, there is still room for customisation and optimisation, as not all customers of buildings will want a mass produced, component-driven outcome.

Technology is allowing for the transition from an environment where work is a craft and can only be done by ‘professionals’ to a use of standardisation and prescriptive solutions, to systemisation which is a situation where the ‘craft’ work is actually done by technology, and professionals are the gate keeper between the public and the knowledge. This is described by Richard and Daniel Susskind, in their book, 'The Future of the Professions'.

So, with all these benefits, why isn’t modularisation, off-site and industrialised design and construction occurring more broadly across more markets and regions, and at a faster pace?

There is still room for customisation and optimisation, as not all customers of buildings will want a mass produce, component-driven outcome.

Why isn't change occurring more broadly and faster?

In their full report, 'Modular construction: From projects to products', McKinsey identifies seven factors influencing modular construction, as shown in Figure 4, including: labour shortages; ability to service demand; regulation; access to materials; supply chain and logistics; quality perception and local site constraints.

Without these factors, modularised construction may not meet the economic goals of companies and jurisdictions and the needs of consumers.

Figure 4. Seven factors that influence moduarlised construction. Source: McKinsey

The McKinsey report emphasises that all participants will need to change to create a significant impact. These include:

• Manufacturers – modularisation will need to scale and optimise
• Developers and investors – will need to understand options for productisation and investment opportunities, and choose industry partners
• Materials suppliers – will need to shift products to more repeatable components with an efficient ‘go to market’ strategy
• Public sector – opportunity to bundle projects and may need to look at changing building codes
• Engineering and construction firms – will need to understand what commoditisation will mean for the industry and make decisions about where they will ‘play’

Richard and Daniel Susskind, in their book, 'The Future of the Professions', argue that the final stage of significant change and innovation is externalisation when access to the technology is available to the general public without the gatekeeper being needed, as shown in Figure 5.

A simple example of this is the travel industry where the use of a travel agent is now optional and not used by the majority of the public. To what extent could this happen in design and construction? Could the general public design and 3D print their own homes or offices based on standardised components? 

While commoditisation and standardisation can be valid in many situations, there is little scope for differentiation. We shouldn’t ignore opportunities for customisation and optimisation. Designers can start to create ‘customised’ modular libraries to help decrease time and cost of design and move towards more ‘design for manufacture’ approach, but this won’t be suitable for every situation.

Figure 5. Graph derived from 'The Future of the Professions' by Richard and Daniel Susskind

What needs to be true for change to occur?

There are some concerns that increased modularisation, robotics and automation, as well as a move to niche customisation and optimisation, will lead to job losses for traditionally-skilled construction labour and professionals undertaking work which can now be undertaken more efficiently by robots. This will no doubt be the case, but the accompanying increases in productivity, combined with ongoing increasing demand, could mean that more projects could be designed and built, hence labour will still be required.

As Christensen espoused in his theory of disruptive innovation, change needs to occur at the bottom of the market, typically with a new entrant offering a significantly lower cost alternative to the masses. He continued that the focus should be on ‘the job that needs to be done’, rather than the product or service itself. Applied to design and construction, this means that a house, office, school or hospital, need to fulfil the need of the customer to live, work, be educated or receive healthcare, as opposed to be objects of high design value.

Where these factors converge, innovation will occur. This may mean that the significant step-change required for more efficient and cost-effective design and construction to gain momentum, may occur in situations such as regions where housing is at a crisis point, and inexpensive, and fast construction could make a significant difference, for example in emerging economies or countries devastated by natural or man-made disasters such as tsunamis, earthquakes, war, or as we have seen in China where a hospital was constructed in 10 days, due to the coronavirus outbreak.

It will be necessary to develop clear protocols for when commoditisation and standardisation are appropriate – that is, buildings that have low design value and can benefit from repeatability. This may represent the bulk of the ‘new world’ of design and construction. This will still enable customisation and optimisation to flourish – this is appropriate for buildings with high design values and that require customisation for differentiation. Design and construction firms will gravitate to one of the two extremes as well as some sitting across both, as shown in Figure 6.