What Sweden and Japan Can Teach the U.S. about Construction
Prefabricated construction has the potential to reinvigorate the stagnant construction industry by increasing productivity, attracting a new workforce, and reducing both embodied and operational carbon emissions. In the residential construction sector, which contributes $1.05 trillion to the U.S. GDP, prefabrication can reduce project costs by 20% and accelerate project timelines by 50%. Yet, prefabrication in the United States has barely penetrated the residential market with just 5% market share. In Sweden and Japan, up-front focus on and investment in automation along with an emphasis on both affordability and quality are instructive examples that show prefabricated housing can achieve a sustainable market foothold when investments are driven by long-term visions.
Prefabrication in Sweden Dominates the Residential Construction Market
Sweden is widely regarded as the global leader of off-site modular construction – and for good reason. Prefabrication accounts for 84% of Sweden’s residential construction market share. When compared to the countries with the second and third most prominent market share of prefabricated homes, the Netherlands and Japan – which constitute 20% and 15% respectively – and 5% in the United States, United Kingdom, and Australia, it’s clear that Sweden’s industrialized construction industry is doing something right.
On the surface, Sweden’s success in adopting advanced building technologies is attributed to the uniquely challenging Scandinavian climate and the Swedish sense of stewardship which is focused on forest regeneration and sustainable biologic, social, and economic management. Sweden’s long winters are characterized by short daylight hours, heavy snow and rainfall, and frigid temperatures. These harsh climatic conditions persist beyond one season, which drastically limits construction productivity and profitability when using traditional practices onsite. Offsite construction allows panels and modules to be built year-round and weatherized in a controlled factory setting, while protecting workers and project deadlines from hazardous weather and costly delays. Coupled with vast timber resources (nearly 70% of Sweden’s land cover is forest and growth outpaces harvesting) Swedish construction companies had both the reason and resources to invest in prefabrication.
While the United States doesn’t share the climate and forest cover of Sweden, a deeper analysis of Sweden’s success reveals replicable factors that can serve as a roadmap: automation and vertical integration. Lindbäcks Bygg, Sweden’s leading industrialized construction company, exemplifies the power of investing in automation and cutting-edge technology. By integrating assembly line robotics from Randek, a Swedish construction technology firm, Lindbäcks has increased production to over 25,000 sq. ft of turnkey housing per week, re-trained existing workers, increased workplace diversity, and outcompeted rival companies. Lindbäcks’ early adoption of automated technology streamlined production processes to increase capacity, productivity, and ultimately, profitability.
The second lesson from Sweden’s success ties back into the country’s timber production. Lumber company Derome entered the prefabrication housing business using a ‘forest to finished home’ business model. Derome vertically integrated its business operations through every stage of the construction supply chain through coordinated expansion and unified leadership; which are key components to building a healthier prefabrication industry. Derome’s coordinated supply chain is ideally structured to efficiently produce prefabricated building components, minimize waste, and capitalize on profitability.
Derome Group’s business model incorporates several key steps in the supply chain, from owning forests, sawmills, and timber companies to building retailers and manufacturing facilities.
While Sweden’s natural attributes created strong pull forces for prefabrication to develop roots in the residential market, it was the intentional decisions by prefabrication construction companies to make up-front investments in automation and vertical integration that led prefabrication to dominate the market.
Japan Changes the Connotations of Prefabrication
Post World War II, the transition to prefabricated housing on a large-scale in a factory was a natural transition for Japan’s economy and efficiently solved two issues at once: (1) the stagnation of Japanese manufacturing industries after the U.S. military’s demand for steel declined, and (2) the 4.2 million unit housing deficit. While Japan’s prefabrication industry initially focused on affordability and fast production speeds, the rapid market depreciation of homes created a “scrap-and-build” cycle – in which homes are demolished after 30 years and new homes are rebuilt on the same plot of land. There are a few interrelated causes of the scrap-and-build cycle:
The structural challenges of retrofitting and renovating to building code revisions to address Japan’s seismic activity
Poor maintenance feedback loops resulting from the lack of incentives for upgrades and limited resale market
Japan’s primary selling points for the modular industry have since evolved to meet the changing demographic and now focus on marketing the high-quality improvements and durability of prefabricated housing supported by standardization and building code revisions and industry-specific building inspections. The transition has been effective: as of 2018, 15% of Japan’s newly constructed homes were manufactured off-site and prefabricated homes often re-sell at a greater price than their stick-built counterparts. The high quality of modern industrialized construction and the desire for homes with greater longevity by a new generation of Japanese homeowners has refueled the prefabricated industry to new heights.
Sekisui Helms prefabricated home in Japan. Sekisui Helms.
Sekisui Hiems, one of the largest prefabricated manufacturers in the world, has taken advantage of these market changes. The company operates eight factories across Japan, with the capacity to build 10 homes a day. That translates to 14,000 new homes each year. Sekisui Hiems uses similar assembly-line automation technologies to Lindbäcks Bygg to transform home building into something more closely related to car manufacturing. Sekisui Hiems has branded itself, and their prefabricated homes, to the highest quality of building standards, advertising their building strength by demonstrating an elephant standing on top of one of their steel-frames.
The company is one of the dozens of Japanese prefabricated home manufacturers who have leveraged an economy of scale, low production costs, and high-quality building standards to challenge the status quo of scrap-and-build. And, Sekisui Hiems has done it particularly well; in 2017, the company acquired Woodside Homes – a top 30 U.S.-based homebuilder. Sekisui Helms provides a strong role model for the U.S. prefabricated home market, which also struggles to change the perception of prefabricated homes left by 1940’s projects such as Oak Ridge, Tennessee.
Lessons for the U.S. From Overseas
Sweden’s success in adopting prefabricated housing demonstrates that initial up-front investments in automation and coordinated vertical integration can drastically increase manufacturing capacity while strengthening the labor force and improving productivity. On the other side of the world, Japan’s prefabricated housing industry instructs us on how high-quality and large-scale production coupled with building code revisions can change the connotation of prefabricated housing. The potential for prefabrication to solve the United States’ construction industry issues is proven by the markets overseas; there’s no better time than the present for the U.S. to make similar up-front transitional investments in automation and quality to unlock long-term productivity gains with prefabricated construction.