How to Achieve Savings and Efficiencies Through Modular: Q&A

The pandemic economy has accelerated the dire need for affordable housing stock. Creative ideas are circulating, but progress is slow. When it comes to implementation, modular construction is a method that already has a track record in both single-family and multifamily applications. Developers are discovering the benefits of the factory-built prefabricated building that’s moved whole to the site and then, upon arrival, is connected to foundations and services.

Multi-Housing News recently caught up with Vaughan Buckley, president of Volumetric Building Cos. based in Philadelphia. The conversation included how to get the most out of modular construction, some pitfalls to avoid and how this building method can help with the affordable housing shortage.

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Tell us about your company and how you decided to specialize in multifamily modular construction.

Buckley: The genesis of our business, over ten years ago, was primarily focused on the construction of residential modular housing in the greater Philadelphia area. Over time, the benefits of volumetric modular construction and the role it could play in redefining multifamily and affordable housing in the US became very clear. We gradually moved into constructing smaller townhomes on purchased land for developers that were looking for a quicker return on their investment. This transition evolved into something even bigger. Others began realizing that volumetric modular construction could help leverage the full use of land in urban environments more creatively. The process expedited the design and submittal process, drastically reducing change orders and significantly cutting material waste.

We have built thousands of units around the U.S. Our company has 250 employees. We’re in five states and, over the last three years, we’ve built about 2,000 modules. Volumetric Building Cos. is made up of three primary divisions: VBC Manufacturing, VBC Construction and VBC Studio. The manufacturing division is a modular manufacturing facility in North Carolina and has a shared network with two dozen other factories around the country which we refer business to as well. We have the construction division, which is a full-service general construction company in Philadelphia and does GC services in the Northeast and nationally. We also have BBC Studio which is an architectural firm in Boston. We can design and manage a project from start to finish. We can work with national and regional architects as well on modular projects where we perform the back-office services and design the modules and make sure that they’re appropriate for manufacturing, or we can be the architect of record and manage everything. The Boston division does all of our shop drawings and manages engineering for the factory. That’s the ecosystem. Those three put together create Volumetric Building Cos., a vertically integrated modular design, manufacturing and construction company.

What are you working on now?

Buckley: At the moment we’re working on a variety of initiatives surrounding how to commoditize and support larger buyers—folks that need more national coverage and are looking to get into modular construction for consistency in labor and cost and time. For example, extended-stay hospitality, student housing and certainly affordable housing and government-subsidized construction. All of those folks are looking to purchase on a larger scale. So a lot of our focus over the last six months has been on how to help create the supply chain and design chain that will allow for more consistent purchasing throughout a larger network of factories.

What’s the difference between traditional multifamily construction and modular?

Buckley: The primary difference between traditional and offsite construction is in the planning phases. Onsite construction is typically moving at a slower pace and is more segmented, so changes are able to be made during construction. In offsite construction this is not possible; the planning process is front-loaded. In traditional construction, you might have needed two architects to work on a project of this size for nine months. But, in the modular offsite construction world, nine architects will be working for two months. It’s a good way to look at the amount of detail and planning and evaluation that have to go into a project upfront in comparison to the on-site world. Most of the things that can go wrong in modular projects are related to things happening at the drawing table. Conversely to that, planning and design is also where you make things go right.

Tell us about the time- and cost-saving benefits?

Buckley: Time-saving benefits in modular are consistent. We are always going to generate savings in time for an equivalent onsite project as long as the planning, design, manufacturing and construction are successfully managed. There will always be substantial time savings to produce with offsite components. There will not always be cost savings, even if the project is managed well. Cost savings are a function of the labor value; so, the cost and availability of labor in the market where the project is being built is the variable factor along with the distance from the site to the factory that will determine whether or not there will be cost savings. The further away the factory is from the project site and the lower the cost of the labor at the project site, the less likely it is that there will be cost savings. Modular is most successful in environments that have high-cost labor and low availability of labor and factories within a reasonable distance.

What pitfalls should be avoided in order to keep costs low when working with an architect or designing the project?

Buckley: The best way to achieve cost savings on the overall project is to ensure that the initial design is centered around manufacturing efficiency. That includes how modules are run through a production facility, how they’re transported on the streets, how they get to the construction site and how they’re lifted onto the foundation. All of those elements introduce opportunities for cost savings and cost increase. So they need to be considered at the time of design.

How has COVID-19 impacted the modular business? Do you think this might be a time for modular to gain even more market share than before?

Buckley: I think this is absolutely a time that the offsite and modular construction industry can explosively grow its share of the market; however, the COVID-19 pandemic has more than anything exposed everybody’s vulnerabilities both in the onsite construction world and the offsite. In my opinion, the largest vulnerability that currently exists in the offsite construction world is the supply chain. At a traditionally built job site, when refrigerators or other components don’t show up on time, they simply get installed later. In a modular factory, it shuts the production line down. Commodity costs, including lumber and other components, have a major impact on a production line.

One of our current projects, for example, has a $2.6 million impact just on lumber cost alone. If that’s not properly managed within the contracting with the client, it can be a major liability for our manufacturing facility. As a result, we’ve seen instability and volatility in this industry right now. There are good factories that are going out of business because of circumstances that they can’t control. So I think we need to be very wary of the supply chain. We use too many different parts and pieces to construct a house. The building science folks and the manufacturers need to be focused on designing materials that can be used in a more commodity-like fashion within factories for multiple purposes and in multiple sizes versus us having very specific parts and components with which we currently build houses for.

Can any modular housing factory also produce apartments?

Buckley: There are approximately 120 modular factories in the U.S.—about 20 percent of them are comfortable or capable with multifamily, and the rest either specialize in single-family homes exclusively or primarily. In general, the capabilities are within those factories to convert to a multifamily apartment product. But there are several barriers to entry that prevent folks from doing it. It’s a different construction code and a different building type. There are issues that come along with that like “How do I price it?”, and “How do I make money as a factory owner?”.

Also, there’s a completely different supply chain. Modular housing is a business-to-consumer model versus a business-to-business model, and that completely changes the way that these factories are operating as well as the speed in which the line moves and the amount of pipeline that is taken up by a client. You can very quickly alienate people who want to buy single-family homes from you because they can’t get them quick enough. It’s very difficult to mix a production line with those two products. So, while the answer is yes, I think most of those factories have the capabilities to produce apartments, it’s kind of like asking an automobile plant to produce a pickup truck in the middle of its sedan line. When you do it, it doesn’t always work out the way you thought it would.

There is such a need for affordable housing. Is modular the answer?

Buckley: There are many different ways in which modular and off-site construction can help. In inner-city environments, we can get townhouse costs down by building enough of them at scale. First-time homebuyers can buy a product for less than what it’s worth in the market and actually generate equity and wealth and allow people with lower incomes that would typically be stuck in a rent cycle for their entire life to get into homeownership. That’s an opportunity that is not specific to modular and off-site construction, but I think that we’re very well poised to deploy large quantities of housing in a really meaningful and efficient way. That’s one way we can help.

Another way is in regard to apartments: We are cost-effective, we’re quick and, in most cases, we’re a higher-quality product so there are government agencies and cities looking directly at modular construction on a much larger scale. I think that will only continue to pick up. Nobody wants to be the first person doing it. There are all these pilot projects happening right now. Once they’re successful, I think we’ll see a much more mainstream view towards offsite, modular construction as a way to provide affordable housing from a city and government perspective.

Have other countries already embraced modular construction? Are there particular ones to watch?

Buckley: Absolutely. Japan has been producing components for nearly half a century and using automation levels far above and beyond anything (done by) the plants in the U.S. for the past half a century producing modular components. But they also approach things philosophically differently. I think that there’s a lot to learn from Japan in terms of lean factory operations, automation and standardization. The market that’s really closer to what the U.S. is doing and needs to be looking at is in Europe, specifically Scandinavia and Germany. Those folks are producing machinery and factories that are using wood-frame construction to produce buildings that are much taller than we currently produce under the International Building Code. In the U.S. we don’t have as much use of timber products as we could. And I think that the Swedish market has a lot of lessons that we can learn for sure. 

Where do you see modular apartment construction headed?

Buckley: I think that over the next 10 years there is going to be more private equity, more venture capital and more institutional investment in our industry. And, as a result, we’re going to see consolidations. We’re going to see growth and we’re going to see conversion. I think that there’s absolutely going to be more factories on the landscape building multifamily product over the next 10 years. And I don’t necessarily see them as future competitors as much as I see them as being necessary to produce the demands that the market requires us to supply.