CU Jul-Aug 2020

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INDUSTRYfocus Leveraging change Kenny Ingram at IFS believes that housebuilders should see Covid-19's disruption of the housing market as an opportunity to adapt to a rapidly evolving sector of the construction industry The Covid-19 pandemic has caused house sales to slow dramatically in many countries, forcing housebuilders worldwide to take stock now to ensure their future success. As countries come out of lockdown housing sales volumes will obviously start to pick up again, but how long will it be before they return to pre-Covid-19 levels, and will house prices recover from the slump or fall further? What, if anything, can housebuilders do to manage this disruption and uncertainty? STIMULATING THE MARKET Governments everywhere are doing all they can to stimulate markets by lowering interest rates, reducing taxes or honing stamp duty charges. The impact of these changes is unpredictable. Potential house buyers are also nervous about making big commitments and taking on loans alongside concerns about employment security and the risk that house prices may fall further. There is a global shortage of housing however, so there is a need in most countries to build more houses - and Concrete form work using prefabricated sections build them faster. This housing shortage is heavily skewed towards lower price bands with affordable housing a major issue in many countries. This has driven an acceleration of the 'Build to Rent' market in countries like the UK. Incomes have grown at a much slower rate than house prices in the last past decade, so even before the Covid-19 crisis many countries were seeing pressure on prices, and the market was overdue a correction. There is also a strong likelihood that housebuilder margins will be squeezed in the short/medium term and that future market conditions will not be as favourable as they have been over the last 10 years. The truth is that no one knows what will happen to the market over the next few months and years. As a result, housebuilders need to be agile and able to change direction very quickly. The good news is that many housebuilders have made large profits over the last few years-so they are in a strong position to be able use this cash now to invest in making their businesses future proof. LABOUR SHORTAGE IMPLICATIONS The construction industry has been facing a major skills shortage in many countries. The industry struggles to attract the younger generation and as a result we have an aging workforce issue which continues to grow. Labour shortages result in increased labour rates, leading to companies employing more unskilled and/or inexperienced people who will be much less productive, thereby forcing up construction costs and build quality will go down. It also constrains the capacity of the industry to build more homes. In the short-term, as housing demand has slowed because of the Covid-19 crisis, some homebuilders and subcontractors have chosen to cut their headcount, But that kind of reaction could be a mistake, as they may not be able to rehire these skilled resources when demand returns, leaving them with an even more acute labour shortage. How will we build more homes if the labour capacity is not available? Poor quality, in the form of large numbers of defects, is also damaging many housebuilder's brand reputation. This has a huge impact on costs, as large amounts are being spent on correction work, making the labour shortage even worse. O&M performance consultant Peter Furst says that costs resulting from poor craftsmanship across the construction industry as a whole are as high as 12 percent of a total project cost, and consume 11 percent of its project hours. When we talk about productivity there is a tendency to focus on site-based construction processes, but it is also critical that management tasks and processes are executed in an efficient way. There is usually a productivity and project control issue here as well. Most housebuilders are running their business with outdated and non-integrated business systems, with tools like Excel spreadsheets certainly 14 July/August 2020
INDUSTRY focus An interior shot in a modular landscape New house build using offsite components being overused. This not only results in poor productivity but also adds risks, as the management information used to make decisions is usually inaccurate, slow to produce and open to manipulation. C- level executives do not have robust oversight and governance. This affects everything from house sales, project management, project accounting, quantity surveying, and project cost control and planning, through to site management, risk management and aftercare. OFFSITE AND MODULAR CONSTRUCTION Many believe the solution to low productivity, the skills shortage and poor quality can only be solved by moving to an offsite and modular construction model. This means building homes, modules or components in a manufacturing facility and then shipping them to the construction site to be assembled. This trend is starting to gather pace and we are seeing many new modular and offsite manufacturing plants being built, with a number of organisations investing in the technology, These include government organisations such as local councils and housing associations and even finance companies like Legal & General, which has built a large modular homebuilding plant in the UK. Traditional contractors are also entering the modular housebuilding market, like Skanska which has formed BoKlok, a modular homebuilding business in partnership with IKEA. Amazon are developing Alexa-enabled prefabricated /modular homes, and some companies are experimenting with 3D printed houses. I believe these are key indicators of a revolution in the home building industry, and I expect to see further huge changes in the future, with offsite becoming one of the 'new normals' over the next 10 years. The geographical uptake in offsite and modular homes may still be in its infancy in most countries but a recent McKinsey report, 'Modular construction: from Projects to Products', highlights some international trends. The most advanced region is Scandinavia, where 45% of homes are built using offsite methods. Japan is 2nd with 15%, followed by Germany with 10%. After that comes China with 6%, UK 5%, Australia 5% and USA 3%. Many countries therefore have a great opportunity for expansion in this area. Some traditional homebuilders have already anticipated this change and have invested and built new manufacturing plants. The McKinsey report also showed that 40 percent of homebuilders surveyed were already investing in manufacturing facilities or intended to in the near future. THE NEW TERMS OF REFERENCE Changing the way you build homes is not a simple transition for a traditional homebuilder. The new process starts at the design stage where a new house must be designed from day one to be built in a factory and assembled on site: Design for Manufacture and Assembly (DFMA). Designing is now based on a configuration of standard components with a greater focus on part numbers, bills of materials, kitting, inventory, shipping and logistics - and, of course, BIM integration etc. These are processes that traditional housebuilders don't usually follow, but we still have to execute projects using traditional construction techniques such as subcontract management, variations, retentions, etc. To be successful you need to become a hybrid business: an engineer-to-order manufacturer, a construction company and even a service business that offers an aftercare service to the homeowner. It does provide benefits, though: a lower cost (both build and maintenance costs) making houses more affordable, faster build times, Improved quality and safer construction. Housebuilders can also afford to focus on eco-friendly and energy efficient homes, and the labour shortage issue is largely resolved. The industry is changing. The new entrants already understand manufacturing, standardisation, logistics and assembly, and they are challenging the market to change and traditional housebuilders will have to learn how to work with them. Key to this is the adoption of new technology and modern ways of working such as BIM, robotics, 3D printing, offsite and modular manufacturing, AI and service management. MANAGING THE CHALLENGE Change will increase complexity with new technologies, processes and workflows rendering outdated systems even more inadequate and unsafe. Housebuilders will need to implement repeatable, consistent processes if they want to deliver projects at lower cost, in less time and to a higher quality. IFS offers a construction ERP solution that delivers a solid foundation for agile and flexible housebuilding businesses and can help to improve project delivery performance, productivity and margins with a single source of business truth to make accurate robust decisions. www.ifs.com/uk/ July/August 2020 15
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Page 22 and 23: CASEstudy Merdeka 118 The creative
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CU Jul-Aug 2020

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