VISION
Construction Leaders of Tomorrow
“Early adopters of modular construction will likely be the construction leaders of tomorrow… As modular players continue to gain credibility and scale, we expect modular construction to revitalize and help to finally push construction productivity to new heights. To get there, government leaders, developers, investors, and others around the world will need to take stock of the factors that determine the path modular construction takes to scale.”
*source: McKinsey; Scaling Modular Construction, September 2019
MODULAR CONSTRUCTION Benefits, Opportunity, Demand
Labor and housing shortages are the biggest predictors of where modular construction can gain traction
Modular construction can speed construction by as much as
50%
In the right environment and trade-offs, it can cut costs by
20% McKinsey; Modular Construction: From Projects to Products, June 2019
ANNUAL PROJECTED SAVINGS Europe and the United States
Modular construction in Europe and the United States could deliver annual savings of up to $22 billion*
*source: McKinsey; Modular Construction: From Projects to Products, June 2019
APPROACHES IN MODULAR CONSTRUCTION Complexity and Scale
*source: McKinsey; Modular Construction: From Projects to Products, June 2019
CHOICE OF MODULAR SYSTEMS 2D Panels vs. 3D Volumetric
2D elements call for more onsite assembly while 3D volumetric units are more fully fitted-out offsite A project’s specific requirements will determine the choice of modular system
McKinsey; Modular Construction: From Projects to Products, June 2019
COST AND TIME SAVINGS Schedule and Construction Costs
Modular construction can cut schedule by
20-50% and construction costs by 20% Accelerating Projects: - Design - Foundations - Offsite Manufacturing - Onsite Construction - Rework
*source: McKinsey; Modular Construction: From Projects to Products, June 2019
COST AND TIME SAVINGS Schedule and Construction Costs
*source: McKinsey; Modular Construction: From Projects to Products, June 2019
DEVELOPER STRATEGY Strategic Trade-Offs
Scale up, move toward product offerings with a clear value proposition, and partner
*source: McKinsey; Modular Construction: From Projects to Products, June 2019
DISRUPTION Shifts in Value Pools
All players need to prepare for shifts in value pools
*source: McKinsey; Modular Construction: From Projects to Products, June 2019
MARKET
Attractiveness of Modulars
*source: McKinsey; Scaling Modular Construction, September 2019
DISRUPTION
Engineering and Construction
Disruption of the E&C industry is exemplified by five movements: • Unprecedented (and ever-growing) flows of capital into engineering and construction technology • Blossoming field of new technologies fueled by start-ups • Corporate, large-scale tech M&A • Public-sector demand for technology adoption • New technology companies showing growing interest in the engineering and construction market
*source: McKinsey; Scaling Modular Construction, September 2019
DISRUPTION
Engineering and Construction
Technological advancement alone is not causing disruption: • Many developed economies are facing skill shortages • Fast-evolving owner and customer needs • Pressure on traditional engineering and construction company business models • Prospect of slowing economic growth
*source: McKinsey; Scaling Modular Construction, September 2019
SCALING MODULAR CONSTRUCTION Pathways to Scale
1.
Increased productivity through automation and technology
2.
Effective partnerships
3.
Capacity to deliver a desirable, cost-
1.
effective, quality product
1.
Shift in widely accepted business norms
2.
Clear demonstration of the business value
3.
Competitive market that spurs adoption and innovation
*source: McKinsey; Scaling Modular Construction, September 2019
Create an empowered, highperforming supply chain
2.
Embrace the latest solutions
3.
Lean on historical data for continuous improvement
AFFORDABILITY GAP
Measuring LA’s Affordability Gap and its Impact
•
About 70% of households in the city of LA fall into the affordability gap
•
More than one million households citywide cannot afford market-rate units in their own neighborhood
•
Most of those facing the affordability gap are low-income renters
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
AFFORDABILITY GAP
Measuring LA’s Affordability Gap and its Impact The affordability gap is most acute in neighborhoods near Downtown
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
AFFORDABILITY GAP
Measuring LA’s Affordability Gap and its Impact
The affordability gap has major repercussions for households and drains $18 billion to $22 billion from LA’s economy each year
Angelenos are paying
$6B
more for housing each year
than their incomes can sustain
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
ROOM TO BUILD Zoning Framework
Across Los Angeles,
40,000
parcels near transit utilize less than 25% of their zoning potential
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
ROOM TO BUILD Zoning Framework
Much of the housing gap can be met with lowand mid-rise redevelopment that capitalizes on the ongoing expansion of public transit
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
ROOM TO BUILD Zoning Framework
The City of LA has the capacity to add at least 1.5 million housing units, not including underutilized commercial land
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
TIME AND COST SAVINGS New Building Techniques
New building techniques like modular and prefab construction can deliver significant cost and time savings when adopted at scale
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
ACCELERATING PROGRESS Six Strategies
1. Turbo-charge the process of creating a fully integrated plan with shared accountability for all of Los Angeles 2. Adopt new construction techniques and technologies at scale to decrease costs and accelerate development 3. Gradually increase set-aside requirements to reflect the savings from new housing types and lower-cost construction methods 4. Reduce the time, uncertainty, and complexity of approval and permitting process 5. Stabilize and consolidate public financing for affordable developments 6. Strengthen the safety net for the most vulnerable tenants (MGI pg. 44)
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
PRE-FAB AND STREAMLINED FINANCING Potential Cost Savings
Pre-fab can lower the cost of multifamily construction by 5%-15% Streamlined financing could cut the preconstruction timeline by up to 45% More than 10,000 affordable units will soon convert to market rates
*source: McKinsey; Affordable Housing in Los Angeles, November 2019
HOUSING PRODUCTION GOAL Building Rates
In November 2019, LA County was given an overall housing production goal of 818,943 units, of which 475,694 units should be affordable to households earning less than 120 percent of the AMI. The county would have to increase its build rate by at least 4.5 times over current levels to achieve its overall housing production goal.
*source: McKinsey; Affordable Housing in Los Angeles, November 2019