Why Are Prefabricated Buildings So Hot? A Major Trend Analysis

At the National Two Sessions, Premier Li Keqiang further stressed in the Government Work Report the need to vigorously develop steel structures and prefabricated buildings, accelerate standardization, and raise construction technology and project quality.

Officials from the Ministry of Housing and Urban-Rural Development said that China will focus on the Beijing-Tianjin-Hebei, Yangtze River Delta, and Pearl River Delta city clusters to strongly promote prefabricated buildings, aiming within about 10 years for prefabricated buildings to account for 30% of new construction floor area.

At present, prefabricated buildings make up less than about 5% in China, still trailing developed countries. Industry experts forecast that over the next 10 years China's cumulative prefabricated-building market size will reach about USD $48,222,222,222—enormous room for growth.

Whether driven by policy or by the market, prefabricated buildings will become a major direction for new construction. This time, the sector is truly entering a window of strong policy support.

Looking back at how "prefabricated buildings" moved from quiet niche to hot topic, it is clear that nearly two years have passed since the government made them a national priority.

The country's resolve and actions to advance prefabricated buildings can be traced through successive policies.

National policy interpretation on building industrialization since 2016

In February 2016, the State Council issued Several Opinions on Further Strengthening the Management of Urban Planning and Construction, aiming within about 10 years for prefabricated buildings to reach 30% of new construction.

In March of the same year, Premier Li Keqiang stressed in the Government Work Report the need to vigorously develop steel structures and prefabricated buildings. In September, the State Council issued Guiding Opinions on Vigorously Developing Prefabricated Buildings, elevating the agenda to the national level and naming Beijing-Tianjin-Hebei and the other two major city clusters as key promotion areas.

In January 2017, Xinhua reported that Beijing's housing authority would accelerate prefabricated buildings, targeting 30% of new construction by 2020 and making prefabrication a key construction method.

In March 2017, the Ministry of Housing and Urban-Rural Development issued the more formal 13th Five-Year Prefabricated Building Action Plan and related management measures—three major documents—clearly stating that before 2020 prefabricated buildings should account for more than 15% of new construction nationwide, and 20% in key promotion areas. These remain among the clearest policy targets to date.

Related topics also appeared at the 2017 Two Sessions. That year's national Government Work Report explicitly listed "advancing reform and development of the construction industry."

Furthermore, detailed coverage of local Two Sessions in 2018 showed that more than 30 provinces and municipalities—including Henan, Hunan, Guangdong, Guangxi, and Hainan—highlighted accelerating prefabricated and green buildings.

Why has nationally promoted prefabricated construction become the prevailing trend? Several reasons stand out:

1

Advantages of prefabricated buildings versus traditional methods

Prefabricated buildings offer modularity, customization, efficiency, and greener performance. Compared with traditional finishing crafts, their strengths concentrate in the following areas:

Data source: compiled from public materials

Today, prefabricated construction is already very mature in developed countries including Japan. First- and second-tier cities in China are also advancing it. Under policy and market pressure together, acceptance of prefabricated buildings will keep rising.

2

A large gap with developed countries—building industrialization will rise fast

The idea of prefabricated buildings can be traced to early 20th-century British engineer John Alexander Brodie and his concept of prefabricated apartments, which few accepted at the time. Only after World War II did prefabrication peak as the UK, France, and other heavily damaged regions promoted it vigorously.

Today, building industrialization rates in Japan, the United States, Sweden, and similar countries are around 70%–80%, while China's is only about 5%. Compared with developed countries, China's construction industry remains at a very low industrialization level. China's urbanization rate is still under 60%, versus about 80% in the US and UK and about 90% in Japan—leaving substantial room. Urbanization remains a major trend; construction will stay among the most benefiting industries, and industrialization rates will rise quickly with it.

Building industrialization rates by country

Data source: compiled from public materials

3

Top-level design is in place; local rules are landing

Since 2013, when the National Development and Reform Commission and the Ministry of Housing and Urban-Rural Development released the Green Building Action Plan, China has issued dense policy documents promoting prefabricated buildings—with clear requirements on development plans, standards systems, industry-chain management, and project quality. In February 2016, the State Council's Several Opinions on Further Strengthening the Management of Urban Planning and Construction marked the formal elevation of prefabricated promotion to a national development strategy. The Opinions stressed vigorous promotion of prefabricated buildings and production bases, stronger policy support, and a roughly 10-year goal of 30% of new construction.

In March 2017, the Ministry issued the 13th Five-Year Prefabricated Building Action Plan: by 2020, nationwide share above 15%; key promotion areas above 20%; active promotion areas above 15%; encouraged areas above 10%.

Meanwhile, all 31 provinces rolled out support policies and subsidy standards, designated national and provincial demonstration bases and projects, and in some cases set targets down to the county and city level—safeguarding industry growth.

Planned prefabricated-building share by region by 2020

Data source: compiled from public materials

4

The demographic dividend is fading; labor costs are climbing fast

Traditional cast-in-place concrete is a classic labor-intensive model. For decades it thrived on abundant labor. As the demographic dividend fades and labor costs rise quickly, that model becomes harder to sustain.

Rapid labor-cost growth will sharply shrink the cost disadvantage of prefabrication. Prefabricated construction is an intensive production mode with a highly mechanized chain and far fewer workers. On a production line for laminated floor slabs with annual capacity of 166,667 m², fewer than 10 workers may be needed, versus more than 200 for the same volume by hand. For a 30-story building, prefabricated methods may need only 12 workers for 180 days—at least 30% faster than traditional construction.

5

Prefabricated construction costs will fall sharply

According to the latest Prefabricated Building Engineering Consumption Quotas from the Ministry of Housing and Urban-Rural Development, low-rise prefabricated concrete residential construction costs about USD $299/m², and high-rise about USD $336/m²; high-rise prefabricated steel residential unit cost is about USD $386/m². Estimates from the Ministry's Housing Industrialization Promotion Center put cast-in-place concrete housing at about USD $278/m². On cost alone, prefabrication is already close to traditional cast-in-place.

Cost comparison: prefabricated vs. cast-in-place concrete

Data source: compiled from public materials

Most of the cost premium in prefabrication comes from precast components. Taking prefabricated concrete as an example, estimates for one public-rental housing project put the incremental cost at about USD $96.5/m². Prefabrication has clear advantages in electrical and plumbing works, but the unit-price gap from precast concrete components reaches about USD $199/m². Precast component cost splits into variable costs and costs that scale can reduce. The former—rebar, concrete, and other materials—is about 42%; the latter—molds, labor, management, and similar items that scale efficiently—about 58%.

Scale production plus rising labor costs will accelerate the economics of prefabrication. As the sector expands, precast output grows, standardization rises, plant resources are used more fully, and scale effects appear. Combined with climbing labor costs, prefabricated construction costs will fall quickly and eventually undercut traditional cast-in-place.

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