As the construction industry faces rising costs and labor shortages, offsite construction presents a compelling solution. But challenges like regulations and scalability still hinder its full potential.
Offsite construction has seen significant advancements and notable setbacks, with countries like Sweden leading the global push toward modular building. While Europe and Asia embrace panelized and modular construction, the U.S. lags, accounting for only 5% of its housing market. Despite these challenges, companies like Clayton Homes and Laing O’Rourke have achieved sustainable growth through gradual scaling and experience-driven strategies. However, barriers such as fragmented building codes and inconsistent market demand continue to hinder broader adoption. In this final post, we explore the key challenges and potential strategies for overcoming them, aiming to unlock the full potential of offsite construction to address labor shortages, rising costs, and environmental concerns.
Global Leaders (and Failures) in Offsite Construction
In Europe, the adoption of offsite construction has grown significantly, particularly in countries like Sweden, which leads the global push toward modular homes, with 85 percent of its annual residential buildings constructed offsite. The Netherlands follows closely behind at 47 percent, with Belgium at 46 percent. Other countries, like Poland and Spain (34 percent each), France (24 percent), and Japan (20 percent), also show firm commitments to offsite construction. Even Germany (23 percent), China (20 percent), Italy (19 percent), and the UK (16 percent) have embraced this method more extensively than the United States, where offsite construction accounts for just 5 percent of the market.
Modular Construction: A Global Perspective
These insights come from USP Marketing Consultancy, a market research firm specializing in construction trends. While the U.S. lags in percentages, the global embrace of panelized and modular construction points to a future where building processes continue to evolve toward efficiency and innovation, particularly in Europe and Asia. A recent New York Times article, “How an American Dream of Housing Became a Reality in Sweden,” laments that while offsite construction was invented in the United States, it has been more fully developed and exploited abroad.
Despite this, U.S.-based Clayton Homes of Tennessee is the second largest offsite homebuilder in the world, trailing only Japan’s Daiwa House. Given the vast size of the U.S. housing market—second only to China—the number of offsite-built homes remains significant despite the lower percentage.
When discussing offsite construction, many point to the industry’s high-profile failures, including Katerra in the U.S., Veev in Israel, and E-Loft in France. Many of these collapses were driven by tech-sector-inspired rapid scaling and aggressive fundraising. Prefabrication requires significant factory investment, and failure is inevitable without a market to provide consistent demand. Successful companies like Clayton Homes and Laing O’Rourke have followed a gradual, experience-driven approach, proving that slow, steady growth is more sustainable.
The Future of Prefabricated Housing: Overcoming Barriers
While rapid scaling has led to notable failures, companies prioritizing steady, experience-driven growth have found more lasting success. Their methodical approach has driven innovations that reshape offsite construction. These advancements, from MEP pods and bathroom modules to panelized construction and kitchen systems, reflect offsite construction’s growing influence in Europe and North America. While the U.S. is still catching up in certain areas, the global trend points toward greater adoption of prefabrication as a solution to labor shortages, costs, and environmental concerns.
During Batimat, I discussed the state of offsite construction with Pierric Martin, associate director of the Hors Site Consell in France. Like the U.S., Europe faces challenges from fragmented regulations. While Eurocodes provide regional standards, each country can implement its own National Annex, similar to local U.S. code amendments, resulting in a lack of consistency.
Labor shortages, high costs, and extended onsite construction timelines are pushing European governments to adopt a manufacturing approach to construction. Another driving factor is the European Union’s ambitious climate goals, with offsite construction, especially dry-wood and steel buildings, seen as a way to reduce construction carbon footprints in Europe compared to cast-in-place concrete.
Batimat, one of the most prominent construction fairs in the world, showcased these trends. The 2024 show featured over 3,000 m² dedicated to prefabrication, emphasizing the growing importance of modular homes, prefabricated plumbing, and HVAC systems. These innovations reduce construction time, improve quality, and enhance sustainability.
A significant barrier to scaling offsite construction in the U.S. is the fragmented nature of building codes. As Tedd Benson observed, “America would be much more advanced with offsite building if we had the building code consistency and regulatory standards that benefit the Swedish homebuilding industry. Our hands are tied by changing codes and regulations in every state and city. In six prototype projects, we showed how to do about 80% of the building offsite and finish onsite assembly in less than 30 days. But in practice, we can’t fully deploy those systems due to the varying codes and regulations that stymie innovation and production efficiency.”
Benson’s prototype projects demonstrate that his strategy is not solely about mechanical modules or cores but rationalizing systems for optimal integration. “One of the outcomes of our research and prototyping,” Benson explains, “is critical standardization that enables a significant amount of pre-production value-added potential. Common part-and-piece commodities can become logical system components. That’s far more useful than attempting to create a one-size-fits-all mechanically intensive module.”
The U.S. could explore a performance-based approach to building codes, similar to Sweden, which allows greater flexibility for builders while maintaining safety and efficiency standards. Aligning codes more closely with performance outcomes, rather than prescriptive requirements, would help modular and panelized construction scale up. This could significantly reduce regulatory barriers that currently hinder offsite construction.
As seasoned construction operators embrace these changes, the sector could grow steadily, integrating more advanced prefabrication techniques into mainstream building practices. Offsite construction holds immense potential to revolutionize the industry by addressing labor shortages, reducing costs, and improving sustainability. Leaders like Tedd Benson have shown that the future of construction will likely be a hybrid approach, blending offsite innovation with the adaptability required for diverse building codes and regulations.
Lessons from Past Failures in Prefabrication
While offsite construction holds great promise, the industry has witnessed several high-profile failures, such as Katerra in the U.S., Veev in Israel, and E-Loft in France. Companies like Legal & General, Urban Splash, and Kike Homes invested hundreds of millions in factories, only to disappear within a few years. A common thread among these failures was a rush to scale up aggressively, often fueled by venture capital and led by tech-sector disruptors applying startup models to construction.
Substantial factory investments and overhead in offsite construction require consistent market demand to be sustainable. Without it, failure becomes inevitable. Interestingly, prefabrication startups fail at rates similar to conventional construction companies; about 50% of construction startups don’t survive beyond five years. The difference lies in the visibility and scale of investment failures in prefabrication, which often involves eye-popping sums.
Successful companies like Clayton Homes and Skyline Homes in the U.S., Daiwa House Industry, and Sekisui House in Japan have taken a gradual approach rooted in deep industry experience. Jim Clayton founded Clayton Homes in 1956, refurbishing and reselling used mobile homes. Daiwa House Industry began in 1955 when Nobuo Ishibashi was inspired by the resilience of bamboo and rice plants to build prefabricated houses using steel pipes.
The UK’s Laing O’Rourke exemplifies steady growth. Founded in 1978 by Ray and Des O’Rourke as a concrete subcontractor, the company now generates annual revenues of over £2 billion, employs more than 15,000 people, and operates under the “70:60:30” model—producing 70% of components in the factory, improving productivity by 60%, and reducing timelines by 30%.
The sector is poised for steady advancement as seasoned construction operators continue to embrace offsite construction with measured growth strategies. In contrast, tech entrepreneurs aiming for rapid disruption may continue to face significant challenges.
