Modular Construction: “Not there yet” - WOLF STREET - WOLF STREET - WOLF STREET

"There is only one way for a modular project to go right, and a million ways to go wrong."

By John E. McNellis, Principal at McNellis Partners, for WOLF STREET:

Watch enough construction and it may occur to you that things have scarcely changed since Ramses II's building spree. Yes, we have cranes, forklifts, and electric saws, but so much of building still comes down to backbreaking labor: guys digging ditches, pushing wheelbarrows or swinging hammers. Wed this commonplace observation with our apparent need to disrupt and revolutionize every industry and your offspring is modular construction.

What is modular construction? It's a method of construction, not a building type.   It's a matter of where rather than what. Instead of erecting a building on-site, most of a modular structure is built off-site. One assembles everything but a project's foundation, exterior siding and roof in a factory a thousand miles away. It's constructing an apartment building in individual modules—imagine freight containers—in, say, Boise, trucking them to your site, easing them onto your foundation and then screwing them in, side-by-side, and then stacking them floor-by-floor like a child's building blocks.

When finished, the Modular Building Institute says that, "Modular buildings are virtually indistinguishable from their site-built counterparts."

Why do this? Why bother fooling with a construction method that has worked for the last five thousand years? Simple. Modular companies claim their approach can save up to 40 percent on construction costs and finish buildings 40 to 50 percent faster. How?

First, like the offshoring of tech work, there is a big savings in wages: one can pay those Boise carpenters $18 an hour instead of $50 in the Bay Area.

Second, there are no rain delays in a factory; its carpenters can pound nails 365 days a year; and third, you can finish your apartments in the factory at the same time your local contractor is doing all of your site work: grading, trenching, utilities, pouring the foundation and so on. When the foundation is done, so are your apartments; this should—theoretically— shave months off your construction time.

Even if these cost savings prove elusive—one owner with whom I spoke said his modular project cost as much as and took as long as traditional construction—there are a couple compelling reasons for modular. By shifting the building process to where the trades can afford to live, it's one small way to address the nation's labor shortage in construction. More importantly, it should prove a great step forward for worker health and safety:  An apartment on an assembly line can be raised and lowered to accommodate the carpenters' aching backs; plumbers don't need to crawl under the floor. And, if you're working on the factory floor, you have no risk of falling off a five-story project.

Modular construction has been around for decades. Why hasn't it taken off? 

"There is only one way for a modular project to go right, and a million ways to go wrong," said Ken Lowney, president and founder of Lowney Arch. Having designed and overseen the construction of modular buildings with over 5,000 units, Lowney has experienced most of the problems one can with the process: modules that fit like a poorly cut jigsaw puzzle, modules that were damaged in transit, modules that weren't properly weather-proofed and thus ruined while awaiting installation, and even the bankruptcy or failure of the modular construction companies themselves.

Lowney thinks that modular isn't the answer for every project, but rather just one of the tools that owners and builders should consider. "It works best for projects over 100 units located on flat, rectangular sites with ample land area. It can really shine with suburban hotels.  If you're building the identical hotel room over and over again, modular's efficiencies can kick into gear. Marriott is a huge proponent."

One major contractor said his team has wasted too much time "pre-conning" a half-dozen modular projects that didn't go forward, presumably because the cost savings weren't there. "Right now, modular is more bleeding edge than leading edge."

He pointed out a constraining factor to the process: Without a "lay-down" yard within a half mile of the project to store the delivered modules awaiting installation, the concept simply doesn't work. This eliminates highly urbanized areas as modular candidates. He also pointed out the elephant in modular's factory: the unions. Wherever unions can effectively veto a project's approval—San Francisco—modular will only proceed with their participation.

Another contractor was far more sanguine about modular's future. "It's not there yet, but it's inevitable," said Paul Cunha, a vice president with S.D. Deacon, a leading west coast contractor. "The country needs it to address both our labor and housing shortage."

He likened the state of modular construction to the auto industry. "Modular is well beyond the Model T stage, but nowhere near Tesla. It's like car manufacturing in the forties, just after the war. But they're going to figure it out, they're going to make it work far more efficiently than site-built construction."

For the sake of our housing shortage, let's hope it arrives soon. By John E. McNellis, author of Making it in Real Estate: Starting Out as a Developer.

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