Champ Suthipongchai is a General Partner at Creative venturesa market-driven Deep Tech venture capital firm based in San Francisco.
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Just over a year ago, the modular construction giant known as Katerra sought to revolutionize the construction industry — and completely failed. Since Katerra’s failure, inflation has skyrocketed. According to NPR, house prices have increased by 17.8%and the US housing market remains 3.8 million homes short.
Among other factors, labor shortage has emerged as the main culprit. There are now more than half a million construction jobs. That is an increase of about 25% year-on-year. And construction robotics have failed to meet the demand for labor.
To solve the housing crisis, I believe the construction industry must be turned upside down with the new and different methods offered by modular construction. Based on in-depth research and dedication, as well as my and my team’s more than 20 years of combined real estate and construction experience, here are three archetypes of modular construction companies racing to solve the housing and labor crisis – and a new fourth option featuring the potential to make a real difference.
1. Component Innovation
Most jobs on construction sites are too tedious to automate. They are also often the most labor-intensive and lucrative opportunities. From a robotics standpoint, it would be extremely difficult to replace human workers with robots that can match the agility of a human hand. These intricate tasks have yet to be automated, so some companies have chosen to redesign components from scratch to reduce the amount of labor.
For example, Hyperframe automates the framing process through its modularized frame kit. This company takes an uploaded CAD or BIM model from the customer, runs it through their own software that ensures the manufacturability of the design, automatically retrieves the parts and then ships them to the customer’s site. It also offers a VR headset that scans the QR code of the frame to project (in 3D) exactly where the frames should go. This greatly reduces the lead time from days to hours.
2. Design Optimization Software
Instead of focusing on downstream hardware, other companies have chosen to go the way of software. They have considered the requirements of the commercial customer and have created a design that they can prefabricate using their parts inventory.
Madelon Group is an example that has gone a step further. The business software, called REDtech, helps property owners with project feasibility. The software takes inputs such as lot number and pricing and spits out the most commercially optimal floor plan, including a finance mode and property guarantee. The company aims to convert more asset owners to modular construction through the lens of ROI.
3. Prefab Turnkey
Some startups are just looking for homes. These companies, which are much more capital intensive, involve designing, permitting, manufacturing and installing a fully prefabricated unit on the customer’s lot.
Unit options range from accessory housing units (ADU) to complete homes. The technology is often based on prefabricated parts that can be clicked together on site, reducing both labor and transportation costs.
4. The new solution
Each type above has its pros and cons: a component-based approach tackles the labor problem directly, but the margins can be compressed if competitors start imitating while bypassing the IPs. A design software approach is often limited in its choices due to limited kits of parts. And a prefab approach remains capital intensive, meaning a company faces potential problems during capital crises.
While these solutions help, I believe the best approach has yet to be developed. I refer to this solution as “the Alibaba of modular construction” – a model completely opposite to Katerra’s solution and biggest flaw, which was trying to own everything.
Instead, I believe the winning solution means owning nothing and instead committing to an asset-light, platform-based approach capable of integrating all steps of the modular build process – without compromising aesthetics and design – before parts are sent to construction sites for assembly.
Whether you call it a fourth archetype or the Alibaba of modular construction, a sufficiently flexible platform optimized for cost and labor could revolutionize the construction industry and the US housing crisis as we understand it today.
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