By Phil D'Amico, Director of Business Development
During the recession of 2007 through 2009, the construction industry, always a leading indicator in the health and wealth of our economy, took a huge dip in production. It was estimated that the total drop of construction work was around 37%, and that left nearly 2 million skilled construction workers out of work. Since that time, however, the industry has rebounded very well, bringing about increased consumer confidence, lower unemployment rates, steady work, and more stable incomes. These are all very positive signs for an industry that is clearly at the heart of our nation’s economic well-being. Economists project even greater growth over the next three years, with estimates predicting 37% growth in production by 2022.
While the housing market continues to rebound, it is anticipated that the biggest areas of growth will be in the manufacturing, commercial, health care and education sectors. One market that seems to be flying under the radar is modular construction, also known as pre-fab construction. In 2018, modular construction represented about 3% of the project work for the total construction industry. Today, it is around 6% and, by 2022, modular construction could make up as high as 10% of projects. The amount of project work making use of modular construction tripled from 2010 to 2018, and there are no signs that it will be slowing any time soon. During a survey taken in 2018 of U.S. contractors, nearly 40% of those surveyed indicated that modular construction would play some sort of role in their construction marketing and selling strategies.
So, what is leading to this trend of using modular construction more often? There are many factors that make modular construction appealing, including: shorter project schedules, reduced production costs, improved quality control measures, the application of more green initiatives during the production process, and the ability to utilize and maximize a skilled construction market of employees that continues to shrink.
In the State of Indiana alone, there are 600,000 skilled workers in manufacturing and construction. Of those, nearly 80% are set to retire by the year 2025. Specific to the construction industry, those are your skilled trades people that are hired every day for much of the work that goes into each and every project. When the construction industry picked back up after the recession, we immediately saw a drop off in the available trades. Modular construction requires a strong digital skill utilizing 3-D printers, CNC Machining expertise, as well as new robotic techniques to build. In short, modular construction projects require workers with less “in the field” experience and far more modernized techniques, while utilizing more technology, and less people. This new mechanical way of producing a structure could help alleviate the consistent need that contractors have of finding a good, available and qualified workforce. This technology laden construction process could also potentially speed up the time frame from concept to completion.
The modular home construction process could have a major effect on sub-contractors as well. The number of jobs and processes that used to take place in the field can now be completed before those jobs hit the site. The individual jobs once performed “in the field” can now be done in a warehouse or manufacturing facility, long before they get to the construction site.
The concept is an inside out approach, meaning they are manufactured and assembled inside, with final assembly taking place outside.
There are certainly studies that have proven modular construction is an economic alternative where price sensitive projects have been proposed. Materials have been found to be less costly in modular construction versus on site projects. The cost of labor, as we discussed previously, is also less in many cases, because modular construction utilizes less skilled trades, more production-line oriented work, and, typically, non-union labor, which has kept production costs down. Storage costs and utilization of large capital equipment that is rented or kept/stored outside is less in modular construction as well, again keeping production costs down.
However, while modular work takes place in a manufacturing facility, there is still much on-site work being done to prep for the assembly and installation. The mere fact that much of the structure is built off site does not in and of itself eliminate the need for HVAC, plumbing or other sub-contractors. There are still many skilled labor forces needed to complete the installation. The modular concept has seen the growth it has in large part due to the skilled trades, even though wages are still very high and strong for those with a skilled trade occupation. In fact, electricians are still on average around $44 per hour, plumbers $36, iron workers and pipe fitters $31, and carpenters around $22, to highlight a few. But all of that said, the job vacancies in the above skill sets continue to rise
The national average shows a 64% shortage of workers across all trades for the amount projects that are currently being undertaken. Everyone is fighting for the same workers, and have the same needs. So, while the modular concept is one that seems to be a good and likely alternative, there is a skilled workforce epidemic going on right now in the construction industry. The modular industry and potential growth may be more than a simple trend, this may be something the industry sees as a solution to the much bigger need of worker shortages.
It would seem like we have all the “tools” to solve this skilled workforce challenge.