A Turnkey Manifesto

Construction has a productivity problem, and building in a factory won't solve it. Suppliers and subs can.

By Greg Brooks. One hundred years ago, lumberyards sold wood and offered two services: delivery and credit. That was it. Except price. Don’t forget price.

In the early 1950s, Wickes flipped the table over by adding building materials and hardlines at rock-bottom prices made possible by eliminating delivery and credit. Both came back, but lumberyards were forced to become full-line LBM dealers. It was a pain in the ass. It complicated everyone’s life and cost a lot of money.

Then came service. Not as we define it today, but by the 60s you had to be sociable and sometimes accommodating. No more fistfights with builders who tore up your units trying to cherry-pick all the Select Structural out of your No. 2 & Better. That was a pain in the ass, too.

The notion that service could be more valuable than quality or price took hold in the 1980s. As big boxes hoovered up everyone’s consumer trade, the challenge was to go contractor-only without getting the profit beat out of you.

Quick delivery, jobsite staging, and project co-management all helped neutralize price. Manufacturing was the game-changer. Builders got faster build times and more consistent quality, but prefab also muddied the waters and made it harder for them to buy on price alone.

We’re due for another turning point and it looks like we’re about to get one. The industry is in an untenable position: We’ve reached capacity at 1.3 million housing starts per year when we need 1.5 to 1.6 million to keep up with population growth.

Everyone knows trade labor is the obstacle and there is no solution in sight. But everyone defines the issue as a shortage of skilled workers, especially in framing. Actually there is no shortage.

Yes, there are fewer framers working today than during the housing bubble before the Great Recession. But there are also fewer starts. The number of framers per square foot built is only slightly below its 30-year average—and well above its ratio during most of the 1990s.

We’ve got enough bodies. If we’re stuck at 1.3 million starts, it’s because the bodies we have aren’t getting enough done.

The McKinsey Global Institute has the numbers to back it up. Productivity in the construction sector overall is no higher today than it was 80 years ago. The dollar output per worker in the specialty trades has actually fallen.

And no trade has lost ground faster than framing. According to McKinsey, framing subs’ output per worker declined at a rate of over 3.0% per year between 2002 and 2012.

To be fair, productivity has been stagnant everywhere on the planet over the past 15 years. Productivity growth naturally plateaus from time to time. But when output declines—and especially when it falls despite huge advances in tools, materials, and equipment—it’s hard to see that as anything but mismanagement.

Obviously some builders are excellent construction managers. Apparently many aren’t.

We could argue all day about why. Maybe the rise of “developer” builders without construction background has led to inadequate planning or supervision. Maybe it’s a recruiting issue—i.e., builders have been so successful at squeezing cost out of their subs that they’ve turned framing into one of those “jobs Americans won’t do anymore,” as CNBC described it.

Whatever the reason, it’s water under the bridge. Nearly everyone agrees on the solution: Build homes in factories to reduce the need for skilled labor on site.

Not that they want to do it themselves. Instead, they want you to invest anywhere from $3 million to upwards of $8 million in automated manufacturing facilities with state-of-the-art design and engineering tech, then carry the ongoing expense of the expertise to run those plants.

And they want you to do it knowing that builders have a long history of embracing components whenever they can’t find labor, then dropping prefab like a hot rock as soon as the situation eases and framers become plentiful.

A NECESSARY EVIL. IN THAT ORDER

The problem with turning points is that it’s never clear what you’re turning toward until you’re already on the new path.

Offsite construction proponents are convinced that building homes (or major parts of them) in factories is the wave of the future. Actually offsite has been the wave of the future for more than a century. After all that time, modular still holds less than 2% market share while panelized construction has less than 10%.

Analysts and academics chalk it up to the housing industry’s storied resistance to change. No one ever asks whether there are any valid reasons for that resistance.

Offsite has its advantages, but also disadvantages. On the plus side, panelization is faster. Total start-to-completion time on the average single-family home was about 204 days at last count. If you stick frame, it’ll typically take 10 to 15 days to put up the dried-in shell. With panels you can get the job done reliably in four days.

Panels reduce shell construction waste from 5% to about 3%. They also consume 25% less wood since the structure is engineered rather than sized with span tables.

On the flip side, panelization doesn’t reduce direct construction costs. The initial unit cost of panels is typically about 10% higher than stick framing. Presumably the time you save will cover that cost, but it’s not an easy sale. Most builders still think a bird in the hand is worth two in the bush.

More important, all prefab systems—panelized or modular—are inherently riskier than framing on site. If the specs are less than perfect or someone along the line fails to follow them to the letter, the need for field modifications can make a project more costly and time-consuming than if it had been stick-framed.

Yes, the real solution is Don’t screw it up. It doesn’t always work like that, at least on this planet.

This is not at all to say components are a bad idea or even that a component plant is a bad bet. Roof trusses are a no-brainer; two out of three builders use them and the numbers are climbing steadily. Wall panels (and floor panels) make perfect sense if you build a lot of repeatable assemblies (e.g., starter homes, multifamily, etc.).

But the industry still has a productivity problem and components don’t solve it. Even McKinsey says half of the tasks that go into a construction project can’t be automated because they require judgment.

We need skilled framers, and reducing their role on the jobsite won’t make them more productive. It’ll only make them more scarce, just like growth in the use of trusses has left us with fewer roof cutters.

There’s no getting around the fact that construction management practices need to tighten up. Someone has to take charge of finalizing the plan to make it buildable—not just the structure but systems that affect its integrity, such as the foundation and mechanicals—then see to it that the plan is executed faithfully.

This is why European offsite construction has people excited. American component manufacturers are every bit as good at building panels. Automation and BIM don’t make the final product any cheaper or more serviceable.

The difference is that the Europeans 1) take a “holistic” approach to design and engineering as Entekra’s Gerry McCaughey describes it, and 2) install everything they build.

That makes framing plug-and-play: Just sign on the dotted line and X days later you’ll have a dried-in shell ready and waiting.

Obviously not all builders will be willing to hand off responsibility for managing labor. Those who came up through the trades typically view their experience as a competitive advantage. They’ll continue to manage their own jobs, and some of them are good at it.

Builders without construction background don’t see it that way. All they want is a dried-in shell delivered on time at the lowest possible cost. As long as the product meets their specs, they could care less who manages the work.

That group is growing, and as long as careers in the trades remain unpopular, the number of builders with hands-on construction experience will continue to decline. Throw in the fact that most other assemblies that go into a home are already sold installed and turnkey framing hardly looks like a radical idea.

As far as that goes, it’s not even new. In a few markets, framing subcontractors have been building their own components and supplying their own materials for years. Chances are more of them would do it if they had the resources, but most don’t. Suppliers do.

This not to say getting into turnkey won’t be a pain in the ass. Just like a $3 million truss plant, turnkey will complicate your life. There’s a learning curve, and chances are you’ll pay some tuition along the way.

But you don’t do it for your builders’ sake. You do it for the same reason you’d build a truss plant: to capitalize on an opportunity.

You can make money with turnkey. The projects are sold on a guaranteed bid, and that gives both the supplier and the sub a vested interest in making sure they run smoothly. If productivity really has fallen as far as McKinsey’s numbers suggest, the impact of careful planning and close supervision will be significant and immediate.

Plus, turnkey helps both suppliers and subs weather swings in market conditions. Right now framers are in the driver’s seat. Suppliers benefit from the partnership because the ability to supply your own labor helps close sales.

That won’t be the case forever. Eventually the immigration standoff will end or blue-collar careers will come back into vogue, or maybe offsite construction will grow enough to reduce demand for framers as the technology improves and the cost gap closes.

When labor supply and demand come back into balance, framers will benefit from supplier partners with greater resources to find new work, manage collections and other admin tasks, and invest in new technology to boost productivity.

Obviously not every market will be receptive to turnkey. Production builders seem to be more inclined toward it, although dealers in some markets are framing for custom home builders. The best indicator appears to be whether your client base is mostly developer builders or builders who came up through the trades.

While turnkey isn’t commonplace, it is widespread. In 2018 27 of the ProSales 100 provided framing services. A recent Executive Council on Construction Supply survey found that someone—either a dealer or a framer—provides turnkey framing in at least 45 of the top 50 U.S. housing markets.

Most of the action has been in major metros, but that doesn’t mean rural areas are off the hook. The offsite movement also includes modular builders such as Unity Homes in New Hampshire. If (or maybe when) high-tech modular builders get traction, they’ll inspire copycats who will make life difficult for rural stick builders.

If components eventually come to dominate the wood-frame market, European offsite will be the reason. The European model has its weaknesses and no doubt American component manufacturers will figure out how to exploit them. But the value proposition is compelling, mostly because of turnkey.

Right now the challenge is to convince builders that the time they save has value that outweighs the additional cost of panels. In fact the vast majority of that value comes from selling the homes they built faster, and that’s a crap shoot.

If you provide turnkey, the argument is that it’s better to buy a plug-and-play shell at a predictable price than it is to roll the dice on low bidders who care only about materials or labor, and who might well be inclined to cut corners everywhere they can to claw those dollars back.

It may be that stick framing won’t lose any market share at all if the productivity problem is addressed. There is evidence that journeyman framers performing at the top of their game can match the speed and efficiency of panelized construction, and stick framing still provides a degree of flexibility components can’t match.

Whichever way the market turns, turnkey gives you leverage. If developer builders don’t care who does the work, they also won’t care whether the structure was stick framed, precut, or panelized. However this plays out, we’re going to need skilled framers.

If you're looking to invest, stake your claim in construction productivity. The carpentry trade is about as undervalued as any investment you could make.