We will not be able to catch up with the backlog using traditional methods
The growing need for homes is widely distributed. Starters, the elderly, people with care needs, tenants in the middle category (€700 – €1000 per month), students and the growing group of singles have difficulty fulfilling their housing needs.
Furthermore, it turns out (o.m. article in Cobouw van 27 February) that the construction costs of new build homes continue to rise sharply; over 9% in 2018 and no less than 27% since 2015. This development puts the affordability of homes for the lower and middle incomes under even more pressure. Incomes are increasing but not at the same rate.
“Current construction methods are generating insufficient production to meet the current and changing demand.”
Three reactions from the market:
1. High-rise
The realisation of volume by building upwards. Extreme example is a building in India that will house 5,000 people after completion: A city in its own right. High-rise buildings are also becoming increasingly common in the Netherlands. There are already over 200 high buildings and 70 more will soon be added to this figure. Most extreme example in the Netherlands: The Zalmhaven tower in Rotterdam is the first residential building in the Netherlands to exceed the 200-metre limit. There is ongoing discussion about whether high-rise construction can solve the housing problem. Won’t it be too expensive? Is it suitable for all target groups? Read a recent interview on this topic with Fakton (in Dutch).
2. Standardisation
An example of this is the factory or concept home that offers the consumer enough freedom of choice for personalisation, but is standardized to such an extent in terms of design and dimensions that it can be largely produced under controlled conditions.
3. Prefab
In an industrial environment, construction materials are made into complete construction elements that are then assembled on the construction site. Two good examples of companies that build using prefabricated elements are De Groot in Vroomshoop and Veldhoven-based Byldis.
What does that mean for an entrepreneur?
What could be the impact of industrialisation on the construction sector in general and on the strategy of Byldis in particular. We asked the CEO of Byldis, Jacco van Dijk.
Industrial production implies a production location with equipment and other valuable investments. This demands adequate scale and a good team. This seems to be out of line with a flexible cost structure that is necessary in order to operate in a volatile sector, as the construction sector is. How do you see it?
I agree. Which is why we are also looking into long-term agreements (partnerships) in which we try to realise projects together openly and transparently. This in turn requires more effort, particularly in design processes, because we can then become involved in a certain project at an earlier stage. For the customer (usually the developer) this gives security in terms of price, feasibility and planning at an early stage. Construction is moving more towards collaborative partnerships instead of the traditional contractor/subcontractor relationship. In my opinion, this is also necessary because construction is industrialising at an increasing rate and the complexity of buildings is steadily increasing.
A significant challenge for the construction sector seems to be the management of a shortage in staff and materials. This can be a threat to innovation and also industrialisation, whereby future building projects could be compromised. How do you suggest we deal with this dilemma and how is Byldis tackling it?
First and foremost, industrialisation is necessary in order to be able to meet construction demands in the long-term at all. The problems relating the workforce are therefore partially solved because industrialisation reduces dependence on labour. Furthermore, a portion of the traditional craftsmanship in the factory is taken over by a machine, which means that the wider employability of staff is possible. Byldis also choses industrialisation but with the retention of its own staff. This means that the output has to be increased in order to keep the existing workforce. This requires a lot of attention for retraining and education but is thereby also a solution for the rising retirement age, that causes many problems within our industry. Retraining staff increases their work efficiency and productivity while at the same time easing their work burden up to retirement age.
The Netherlands aims to have a circular economy in 2050. It is thought that the construction world will make a significant contribution to this. What do you think is the connection between circular and industrial construction and how does Byldis interpret this?
Industrial construction is largely off-site production and on-site assembly. Whenever a circular economy is mentioned, most people think of the re-use of demolition materials, while it is actually the re-use of construction components that can make a significant impact. Making smart connections in the industrial process means that buildings can easily be disassembled at a later date. In my opinion, industrialisation is therefore almost a condition for a circular economy.
Due to rising prices, among other things, and a shortage in capacity, traditional construction methods can no longer be maintained in the short-term. New build is becoming more expensive than existing buildings. What would be the effect on the cost price of a building if standardisation can be maximised and/or industrialised? Can you give an example from your own experience?
To start with, it is important to determine what is meant by cost price. Traditional processes look almost exclusively at the cost price of materials and labour and the time factor is not taken into account. Industrial processes (generated from valuable investments) do not necessarily have to reduce the cost price directly but, through saving considerable time and preventing failure costs, can be very attractive. Of course, standardisation is a factor that can also directly influence the cost price. It is, however, not the case that standardisation means that identical buildings can be built. The industry will therefore have to concentrate on the standardisation of processes within their business operations, which can lead to mass customisation, as has been the case in the automobile industry for years. I find it very difficult to estimate the exact amount of the possible cost price reduction due to the many factors that constitute to it. But I am sure that advancing technology will lead to a guaranteed cost price reduction. Within Byldis, De Zalmhaven is a good example of the effect of industrial processes on construction. The project was kept within budget by shortening the construction lead time from five years to three. It is therefore not always the direct cost price that is decisive in determining the budget.
The traditional interpretation of the construction production chain, with the contractor as director, is going to change under the influence of technological innovations and extensive digitisation. With your insight, which parties do you think will become dominant in the future chain and why and which role will Byldis play in this?
In the traditional interpretation of the production chain, the contractor is not only the director but also the source of knowledge. With extensive digitisation and automation of the chain, this model is no longer feasible. I believe the emphasis will be on the party that has the most significant impact on the realisation of a building (the common theme). This party must be leading and dominant in order to ensure that the project can be realised within the agreed timeframe and to the agreed quality. There will always be the need for a director, however, with specific knowledge of project management and not necessarily knowledge of the intrinsic process of sub-contractors. I also expect that the number of parties working together in a collaborative model to create a building will dramatically reduce in the future, down to the most important constructive components. Byldis has the ambition to be one of these parties through the engineering, production and assembly of the complete structure.
“The construction sector is moving more towards collaborative partnerships instead of the traditional contractor/sub-contractor relationship. In my opinion, this is also necessary because construction is increasingly industrialising and the complexity of buildings is steadily increasing.”
What does the Sector Banker think?
Opportunities…
Opportunities for companies that can produce more - with cost control - and can supply an attractive product. And in my opinion, this is an excellent way of building in an industrial and conceptual way.
…but also challenges!
There is still too little industrial and conceptual construction. This is because of the need for flexibility and the lowest possible fixed cost structure. Low returns mean that there is limited investment in R&D and innovation. But industrialisation also demands scale. The construction landscape in the Netherlands is very fragmented, which means that this scale is difficult for individual parties to realise. The market leader in the Netherlands, far ahead of number two, records around 1000 concept homes.
Conclusion
Achieving scale for industrialised and conceptual construction is only possible through extensive collaboration and/or consolidation. And by using smart technology and digital support in the design and production processes. A company like Byldis is firmly committed to this and calls for this kind of collaboration. This will have an effect on role allocation within the chain, which means that the ‘producers’ can become more dominant than the contractors. But as the distance to the housing consumer remains significant, there is also the chance that a digital platform will connect the consumer to the producer. The builder then fulfils the function of executing assembling party. In an efficient collaborative partnership with parties in the chain and focus on excellent execution, this provides sufficient grounds for a good return. Operating alone, on the other hand, will become increasingly risky.
“Continuing to operate alone, on the other hand, will become increasingly risky.”
The Takeaways
- The current construction sector does not have sufficient capacity to meet future building needs (enough homes, sustainability etc.). Good news for contractors’ order books in the short-term, but in the long-term the sector will become more susceptible to disruption;
- High-rise, Prefab construction and Standardisation are possibilities for scaling-up with cost control, as long as sufficient scale can be achieved;
- As well was using technology, sufficient scale can be achieved through collaboration (horizontal and vertical) and/or consolidation;
- The main supplier (industrial producer) and project management (for example in the form of a digital platform) can replace the role of the traditional contractor.
