Regular readers of Construction Physics know that I formerly worked for the construction startup Katerra, which raised several billion dollars in venture capital in the hopes of revolutionizing the construction industry, and then went bankrupt. In fact, it was my experiences at Katerra that inspired me to start this newsletter in the first place. Katerra’s collapse became a cautionary tale about overenthusiastic investment, too-rapid scaling, and the hubris of outsiders assuming they could improve industries they didn’t really understand.
If they're not immediately cost-competitive, they're going to have to do one of two things:
1. Get the end consumer to buy into (both metaphorically and literally) the benefits they (supposedly) offer on lifecycle costs.
2. Target the luxury market.
To realize point 1, they are going to *have* to find some way of financializing those cost savings into a form of NPV that can be offered to consumers up front. Running their own insurer and bundling 30 years of (lower-cost) insurance into the sale price so it can be amortized across the mortgage would be extremely risky if their assessments of repair costs and resilience don't pan out, but it's the only thing I can think of off the top of my head.
A similar mechanism could be used to bundle "home warranty" maintenance plans into the sale price at below their market cost. There are ways to financialize basically any long-term cost advantage into net present value, after all.
Point 2 seems quixotic to me, personally, but that's because I'm a cynic. Fashions change faster in the luxury market than down-market and people expect to undertake more frequent renovations for stylistic reasons. I can already envision exactly how much of a copper-plated b**** a "bathroom pod will be to renovate.
Luckily, the presentism the average buyer displays will work in their favor here; if it's fashionable enough today, few buyers will think "what happens when I want to gut the bathroom?" That can be further enhanced if they look to historic, high-value materials which have basically always been in style, like traditional waterproof plaster finishes for bathrooms or marble flooring in the kitchen.
Overall, I doubt they and their investors have sufficient faith in their long-term lifecycle cost savings to embrace the first strategy, and the second is psychologically more feasible. But looking at the floorplans they've built I'm skeptical that's what they're doing.
Precast is, as you noted, a largely mature field; the automation tools embraced in central Europe cost out at rough parity against more labor-intensive models used by US precasters, there's no huge learning curve/scale benefit remaining to find and recover, scale is seriously limited by geography due to shipping costs and challenges... a cynic might suspect Katerra's team understands this but the VC-funded salary is shouting louder than their business sense.
Perhaps. Maybe "luxury" is a misnomer and what I'm thinking of is upscale mass-market, the sort of folks who would buy a million-dollar house in The Woodlands or something similar.
Or people who care about quality, energy efficiency, and life cycle costs. But I’m not sure how big or mature this market is.
I had a small vacation house designed by Maine-based architects GO Logic; I absolutely loved the design but finding people with the skills and understanding to build and commission it right was basically impossible (unfortunately my site was too far away to use their building or fabrication services). My BIL was interested in this kind of construction, got his builder’s license, and started a business along those lines. People didn’t want to pay for quality, though, and he couldn’t find enough skilled help, so he went back to his desk jockey job (after fixing our place when the contractor ghosted us without finishing the project).
The whole episode was unfortunate for these and other reasons. We were lucky to sell it for a decent price when the local market was still hot, just before interest rates jumped, but sadly I don’t think too many people cared about its insulation, excellent windows, or healthy air circulation systems (even in 2022). It looked cool and that’s what they responded to.
But I am pretty much in the demographic you describe, and I’d seriously consider this kind of construction if I were buying a SFH and it was available.
Unfortunately I agree; the market catering to folks who understand the andvantages and care isn’t large.
Even I, who understand the advantages, would find it difficult to stomach paying 25% more today in a down payment for a set of benefits with a very long payoff period.
I accepted the premium when I embarked on that project, but it was frustrating that, even having accepted it, I didn't really get what I was paying for. In the right circumstances I might choose to do it again, but as they say, once burned...
Yea, I’ve made investments in quality of life in this house that have reasonable pay-offs but a precast home is just overkill.
We had pumped insulation foam installed in our brick-and-block walls, the new third story is going to be spray-foamed with heat pump central air, we’ll replace the existing 1st-end floor furnace with a heat pump when it dies too… but these things have to make a degree of financial sense relative to the up-front investment for me to do them; otherwise I should just invest money elsewhere and continue paying more in ongoing expenses.
Glad to be missed, haha. Once things die down from the addition and the new kid maybe I’ll rejoin, see how y’all are getting on.
If they do that, will they open themselves up to antitrust legislation? I mean this will be a company that's completely vertically integrated: buying and developing land, constructing houses, constructing the factories that make the materials to construct houses, running said factories, marketing and selling to consumers, and finally providing insurance and maintenance on their product.
I dunno, if the idea works and they gain a commanding market share then maybe*, but I can't think of anything in this model which falls afoul of anti-trust regulation in and of itself.
*And by the time it could happen, the insurance market should have repriced its risk models for high-resiliency residential construction anyway and they no longer need an in-house insurer.
Something like this model is a necessity up front purely to deal with the hidebound, laggard nature of insurance risk pricing and underwriting; for customers to realize the benefits, they'd need an insurer who would rapidly recognize their advantages.
Wouldn't fast built manufactured homes be a better business in emerging markets where countries are urbanising at a rapid clip? You can gain greater economies of scale and often build out an entire neighbourhood in one shot. Or does the lower labour costs in developing countries make the strategy completely uneconomical.
My thoughts exactly - I was an executive at a company doing prefab light steel panelization for SFH's and mid-rises, and all our best customers were in China, because they actually valued "being able to build really fast" enough to pay the slight premium.
Isn’t this approach still limited by transportation cost/distance? And presumably the need for cranes on site to assemble the panels.
Brian, I have always wondered why Lean/JIT principles have seemingly not worked out for site-built homes. It certainly appears there is still a lot of operational waste in the typical process for residential construction.
They didn't bet $200 mil of their own money, it's the investor's money. The new idea is the same old idea, promises of rapid scale-up that can't possibly materialize.
Precast has all the problems of transporting heavy loads on large distances and/or requiring bespoke manufacturing facilities close to the place of installation, without really addressing the main pain points of construction, the high complexity of a modern home that requires substantial on site work. Just look at that metal drywall framing, that took longer to install then building the entire concrete shell. Never mind the delicate tango of electric, plumbing, AC, all while perforating concrete walls.
The claim of speedups is thus largely false, because they can only speed up a limited part of the construction, and even if it was true, it wouldn't be a substantial selling point on the residential market, where paying the mortgage an extra month or two is acceptable compared to things like perceived durability, long term investment value etc. This is why the residential market is very conservative and why high productivity methods have seen a much stronger impact in the commercial market, where time is money.
I believe I'm on-record in this very comment section at some point saying that speeding up construction/erection of the structural system of a single-family home is not a significant value-add from a cost standpoint.
The thought which has always come to my mind is to actually introduce utilities and MEP planning at the level ordinarily done only on major projects so that it can be mass-manufactured with conduit preinstalled to fish wiring and water line through on-site with pre-planned junctions, access points, and final fixture locations, as well as all needed penetrations for sewer lines and HVAC duct.
That would also make it possible to install finishes directly to the interior of the concrete panels without fucking about with light-gauge and drywall and whatnot.
I have no great confidence this would work, but it would offer the possibility of doing so.
It will be interesting to watch Katerra 2.0 (ONX Homes) try again. Thanks for the thoughtful, balanced assessment of their odds, Brian. I think they have a reasonable chance at making precast concrete work in the south, I like the bathroom pods concept, and the interior framing using LGS/FRAMECAD seems an appropriate match for the structural concrete panel construction. How competitive (and lucky?) their approaches to land development and B2C sales will be is unclear, and I'd like to better understand how they will insulate and seal the buildings (devil's in the details). But, the technology that seems most problematic to me is their "AI-driven HVAC system (whatever that means)". I don't see anything exciting about their in-house HVAC system claims, which reek of "smoke and mirrors". We'll see which of these unknowns pans out, and how they react to those that don't. I hope you plan to keep us updated, Brian!
Insulated precast is a solved problem; sandwich panels consist of a concrete leaf into which carbon fiber grid is embedded vertically to provide composite action for shear, on top of which foam board insulation is placed, and then another concrete leaf poured on top with the other end of the carbon fiber embedded. The thermal bridging used to be quite serious when they used steel wire grid but is small with C-grid.
I am sure their wall and roof panels will be sandwich panels, with light-gauge furring on the interior to which finish walls will be mounted, thick enough to accommodate water and electrical runs behind the finish wall.
The short glimpse in the video looked like an 8 inch sandwich panel, which would usually be 2.5"-3"-2.5" or so. 3 inches of XPS foam board is roughly R-18-19, comparable to a fiberglass batt in a standard 2X6 wall cavity.
The assembly would perform better than a framed wall, however; C-grid causes much less thermal bridging than 2X6 or 2X8 studs, and the air/vapor seal is vastly better.
These look like a panelized structure but site assembled & finished single family homes. Not sure the cost advantage of these, as most of the labor-intensive work is the site finishing. Maybe they have over-learned the lessons from Katerra and are now being too conservative. And concrete, really? Their web site sure flirts with green-washing.
I watched a YouTube video shot in their Florida factory, and remain underwhelmed. There are no real economies of scale when the production run is less than one house a day. A section of a pre-cast concrete panel shows a smidgin of insulation between a lot of concrete - not sure how "cool" that would be in Florida or Texas. A primary constraint with any factory system (pre-cast, modular, kit, tilt-up, whatever) is that the largest module you can ship on a public road is basically a 40-foot container.
A possible exception could be the brand-new (pending voter approval) "California Forever" project in Solano County, California - they have over 50,000 acres including an industrial area, so they could in theory build a factory to assemble building blocks on, say a 25' wide by 50' long floorprint for row townhouses, and just haul them across their own property and stack them in place.
Until a more carbon-friendly concrete can be developed and brought to market at scale, I don’t see precast concrete or 3D printed homes supplanting wood frame homes in the US or Canada.
Further, unless specialty trade contractor consolidation occurs at some point in the market, the punishing overhead and upfront capital costs of factory construction will likely never compete with the millions of “Chucks in a truck”.
There will likely be industry progress, but not disruption, using engineered wood products, like MPP light frame construction, that doesn’t require factories beyond the manufacturing of the initial raw material. Factories that inevitably shutter during the cyclical downturns of the industry.
Lastly, until zoning and permitting can be streamlined, the housing problem will never be solved by supposed technology enabled construction conglomerates. This is likely why Onx is focused in Florida, where the bureaucratic impediments are likely lower. Developing raw land can take decades in places like California; so good luck with that business model, at least in the short term.
Buyer don't really care about the carbon cost of concrete because it's much lower on a lifecycle cost.
Carbon in materials is a power production issue not a construction material issue. Norway is producing zero carbon concrete and Iceland processes bauxite at zero carbon or very reduced.
As are most precast manufacturing facilities, yes.
They perform at their best building the modern equivalent of a Khrushchevka. Basically any suburban mass-market hotel (especially the various long-stay variants) you've stayed at in North America built in the last 20 years was built this way, along with many mixed-use or commercial mid-rise urban structures in some markets.
This is not the first attempt I've heard of to precast single-family homes, I don't think it's vastly better thought-out than the others with which I'm familiar, and I don't see a substantial advantage relative to ordinary SFH construction methods in NA in terms of cost, though longevity may be a different story.
If they're not immediately cost-competitive, they're going to have to do one of two things:
1. Get the end consumer to buy into (both metaphorically and literally) the benefits they (supposedly) offer on lifecycle costs.
2. Target the luxury market.
To realize point 1, they are going to *have* to find some way of financializing those cost savings into a form of NPV that can be offered to consumers up front. Running their own insurer and bundling 30 years of (lower-cost) insurance into the sale price so it can be amortized across the mortgage would be extremely risky if their assessments of repair costs and resilience don't pan out, but it's the only thing I can think of off the top of my head.
A similar mechanism could be used to bundle "home warranty" maintenance plans into the sale price at below their market cost. There are ways to financialize basically any long-term cost advantage into net present value, after all.
Point 2 seems quixotic to me, personally, but that's because I'm a cynic. Fashions change faster in the luxury market than down-market and people expect to undertake more frequent renovations for stylistic reasons. I can already envision exactly how much of a copper-plated b**** a "bathroom pod will be to renovate.
Luckily, the presentism the average buyer displays will work in their favor here; if it's fashionable enough today, few buyers will think "what happens when I want to gut the bathroom?" That can be further enhanced if they look to historic, high-value materials which have basically always been in style, like traditional waterproof plaster finishes for bathrooms or marble flooring in the kitchen.
Overall, I doubt they and their investors have sufficient faith in their long-term lifecycle cost savings to embrace the first strategy, and the second is psychologically more feasible. But looking at the floorplans they've built I'm skeptical that's what they're doing.
Precast is, as you noted, a largely mature field; the automation tools embraced in central Europe cost out at rough parity against more labor-intensive models used by US precasters, there's no huge learning curve/scale benefit remaining to find and recover, scale is seriously limited by geography due to shipping costs and challenges... a cynic might suspect Katerra's team understands this but the VC-funded salary is shouting louder than their business sense.
The luxury market wants variety and customization which are hard to do with a limited number of precast concrete pieces.
Perhaps. Maybe "luxury" is a misnomer and what I'm thinking of is upscale mass-market, the sort of folks who would buy a million-dollar house in The Woodlands or something similar.
Or people who care about quality, energy efficiency, and life cycle costs. But I’m not sure how big or mature this market is.
I had a small vacation house designed by Maine-based architects GO Logic; I absolutely loved the design but finding people with the skills and understanding to build and commission it right was basically impossible (unfortunately my site was too far away to use their building or fabrication services). My BIL was interested in this kind of construction, got his builder’s license, and started a business along those lines. People didn’t want to pay for quality, though, and he couldn’t find enough skilled help, so he went back to his desk jockey job (after fixing our place when the contractor ghosted us without finishing the project).
The whole episode was unfortunate for these and other reasons. We were lucky to sell it for a decent price when the local market was still hot, just before interest rates jumped, but sadly I don’t think too many people cared about its insulation, excellent windows, or healthy air circulation systems (even in 2022). It looked cool and that’s what they responded to.
But I am pretty much in the demographic you describe, and I’d seriously consider this kind of construction if I were buying a SFH and it was available.
Long time no see!
I remember you relating this story at some point.
Unfortunately I agree; the market catering to folks who understand the andvantages and care isn’t large.
Even I, who understand the advantages, would find it difficult to stomach paying 25% more today in a down payment for a set of benefits with a very long payoff period.
I accepted the premium when I embarked on that project, but it was frustrating that, even having accepted it, I didn't really get what I was paying for. In the right circumstances I might choose to do it again, but as they say, once burned...
You are missed over at SB!
Yea, I’ve made investments in quality of life in this house that have reasonable pay-offs but a precast home is just overkill.
We had pumped insulation foam installed in our brick-and-block walls, the new third story is going to be spray-foamed with heat pump central air, we’ll replace the existing 1st-end floor furnace with a heat pump when it dies too… but these things have to make a degree of financial sense relative to the up-front investment for me to do them; otherwise I should just invest money elsewhere and continue paying more in ongoing expenses.
Glad to be missed, haha. Once things die down from the addition and the new kid maybe I’ll rejoin, see how y’all are getting on.
Must comment less, though.
If they do that, will they open themselves up to antitrust legislation? I mean this will be a company that's completely vertically integrated: buying and developing land, constructing houses, constructing the factories that make the materials to construct houses, running said factories, marketing and selling to consumers, and finally providing insurance and maintenance on their product.
I dunno, if the idea works and they gain a commanding market share then maybe*, but I can't think of anything in this model which falls afoul of anti-trust regulation in and of itself.
*And by the time it could happen, the insurance market should have repriced its risk models for high-resiliency residential construction anyway and they no longer need an in-house insurer.
Something like this model is a necessity up front purely to deal with the hidebound, laggard nature of insurance risk pricing and underwriting; for customers to realize the benefits, they'd need an insurer who would rapidly recognize their advantages.
Wouldn't fast built manufactured homes be a better business in emerging markets where countries are urbanising at a rapid clip? You can gain greater economies of scale and often build out an entire neighbourhood in one shot. Or does the lower labour costs in developing countries make the strategy completely uneconomical.
My thoughts exactly - I was an executive at a company doing prefab light steel panelization for SFH's and mid-rises, and all our best customers were in China, because they actually valued "being able to build really fast" enough to pay the slight premium.
How much a premium are we talking about? 5-10%?
Isn’t this approach still limited by transportation cost/distance? And presumably the need for cranes on site to assemble the panels.
Brian, I have always wondered why Lean/JIT principles have seemingly not worked out for site-built homes. It certainly appears there is still a lot of operational waste in the typical process for residential construction.
They didn't bet $200 mil of their own money, it's the investor's money. The new idea is the same old idea, promises of rapid scale-up that can't possibly materialize.
Precast has all the problems of transporting heavy loads on large distances and/or requiring bespoke manufacturing facilities close to the place of installation, without really addressing the main pain points of construction, the high complexity of a modern home that requires substantial on site work. Just look at that metal drywall framing, that took longer to install then building the entire concrete shell. Never mind the delicate tango of electric, plumbing, AC, all while perforating concrete walls.
The claim of speedups is thus largely false, because they can only speed up a limited part of the construction, and even if it was true, it wouldn't be a substantial selling point on the residential market, where paying the mortgage an extra month or two is acceptable compared to things like perceived durability, long term investment value etc. This is why the residential market is very conservative and why high productivity methods have seen a much stronger impact in the commercial market, where time is money.
I believe I'm on-record in this very comment section at some point saying that speeding up construction/erection of the structural system of a single-family home is not a significant value-add from a cost standpoint.
The thought which has always come to my mind is to actually introduce utilities and MEP planning at the level ordinarily done only on major projects so that it can be mass-manufactured with conduit preinstalled to fish wiring and water line through on-site with pre-planned junctions, access points, and final fixture locations, as well as all needed penetrations for sewer lines and HVAC duct.
That would also make it possible to install finishes directly to the interior of the concrete panels without fucking about with light-gauge and drywall and whatnot.
I have no great confidence this would work, but it would offer the possibility of doing so.
It will be interesting to watch Katerra 2.0 (ONX Homes) try again. Thanks for the thoughtful, balanced assessment of their odds, Brian. I think they have a reasonable chance at making precast concrete work in the south, I like the bathroom pods concept, and the interior framing using LGS/FRAMECAD seems an appropriate match for the structural concrete panel construction. How competitive (and lucky?) their approaches to land development and B2C sales will be is unclear, and I'd like to better understand how they will insulate and seal the buildings (devil's in the details). But, the technology that seems most problematic to me is their "AI-driven HVAC system (whatever that means)". I don't see anything exciting about their in-house HVAC system claims, which reek of "smoke and mirrors". We'll see which of these unknowns pans out, and how they react to those that don't. I hope you plan to keep us updated, Brian!
Insulated precast is a solved problem; sandwich panels consist of a concrete leaf into which carbon fiber grid is embedded vertically to provide composite action for shear, on top of which foam board insulation is placed, and then another concrete leaf poured on top with the other end of the carbon fiber embedded. The thermal bridging used to be quite serious when they used steel wire grid but is small with C-grid.
I am sure their wall and roof panels will be sandwich panels, with light-gauge furring on the interior to which finish walls will be mounted, thick enough to accommodate water and electrical runs behind the finish wall.
Very helpful, David R. Do you have a guess the thickness and type of board insulation ONX will use in this sandwich panel application?
The short glimpse in the video looked like an 8 inch sandwich panel, which would usually be 2.5"-3"-2.5" or so. 3 inches of XPS foam board is roughly R-18-19, comparable to a fiberglass batt in a standard 2X6 wall cavity.
The assembly would perform better than a framed wall, however; C-grid causes much less thermal bridging than 2X6 or 2X8 studs, and the air/vapor seal is vastly better.
These look like a panelized structure but site assembled & finished single family homes. Not sure the cost advantage of these, as most of the labor-intensive work is the site finishing. Maybe they have over-learned the lessons from Katerra and are now being too conservative. And concrete, really? Their web site sure flirts with green-washing.
I watched a YouTube video shot in their Florida factory, and remain underwhelmed. There are no real economies of scale when the production run is less than one house a day. A section of a pre-cast concrete panel shows a smidgin of insulation between a lot of concrete - not sure how "cool" that would be in Florida or Texas. A primary constraint with any factory system (pre-cast, modular, kit, tilt-up, whatever) is that the largest module you can ship on a public road is basically a 40-foot container.
A possible exception could be the brand-new (pending voter approval) "California Forever" project in Solano County, California - they have over 50,000 acres including an industrial area, so they could in theory build a factory to assemble building blocks on, say a 25' wide by 50' long floorprint for row townhouses, and just haul them across their own property and stack them in place.
Do you self driving electric trucks will make factory built homes more viable since you will have significantly lower transportation costs?
It'd be great to have their custom HVAC system if they go out of business and you want warranty and repairs...
Until a more carbon-friendly concrete can be developed and brought to market at scale, I don’t see precast concrete or 3D printed homes supplanting wood frame homes in the US or Canada.
Further, unless specialty trade contractor consolidation occurs at some point in the market, the punishing overhead and upfront capital costs of factory construction will likely never compete with the millions of “Chucks in a truck”.
There will likely be industry progress, but not disruption, using engineered wood products, like MPP light frame construction, that doesn’t require factories beyond the manufacturing of the initial raw material. Factories that inevitably shutter during the cyclical downturns of the industry.
Lastly, until zoning and permitting can be streamlined, the housing problem will never be solved by supposed technology enabled construction conglomerates. This is likely why Onx is focused in Florida, where the bureaucratic impediments are likely lower. Developing raw land can take decades in places like California; so good luck with that business model, at least in the short term.
Buyer don't really care about the carbon cost of concrete because it's much lower on a lifecycle cost.
Carbon in materials is a power production issue not a construction material issue. Norway is producing zero carbon concrete and Iceland processes bauxite at zero carbon or very reduced.
So, ONX Homes is something like Soviet House-building Plant https://ru-m-wikipedia-org.translate.goog/wiki/%D0%94%D0%BE%D0%BC%D0%BE%D1%81%D1%82%D1%80%D0%BE%D0%B8%D1%82%D0%B5%D0%BB%D1%8C%D0%BD%D1%8B%D0%B9_%D0%BA%D0%BE%D0%BC%D0%B1%D0%B8%D0%BD%D0%B0%D1%82?_x_tr_sl=ru&_x_tr_tl=en&_x_tr_hl=uk&_x_tr_pto=wapp
As are most precast manufacturing facilities, yes.
They perform at their best building the modern equivalent of a Khrushchevka. Basically any suburban mass-market hotel (especially the various long-stay variants) you've stayed at in North America built in the last 20 years was built this way, along with many mixed-use or commercial mid-rise urban structures in some markets.
This is not the first attempt I've heard of to precast single-family homes, I don't think it's vastly better thought-out than the others with which I'm familiar, and I don't see a substantial advantage relative to ordinary SFH construction methods in NA in terms of cost, though longevity may be a different story.