Observations from a week in Japan
As a follow up to the research report we contributed to last year, Whelan Advisory’s Managing Director Currey Cornelius served on the U.S. delegation to Japan with the U.S. Department of Housing and Urban Development and MOD X.
The delegation visited the largest housing companies in Japan, as well as trade associations and government entities, to assess the U.S. government’s potential role in the future of offsite construction. Gracious hosts helped us understand how Japan has fostered a strong industrialized construction sector, which has advanced the entire housing industry.
Japanese housing companies will continue to invest in the U.S.
Japan’s population is expected to shrink 30% by 2065 (National Institute of Population and Social Security Research – Japan)
Japanese homebuilders are strong, healthy organizations increasingly looking to better demographics abroad to deploy cash reserves
Many of Japan’s largest homebuilders benefit from vertical integration
Creates a seamless feedback loop that includes manufacturing plants, installers, skilled trades, and customers
Allows them to affect change directly within their organization
While offsite construction accounts for only 15% of the Japanese market today (per MOD X), it sets a high standard for the overall housing industry
Low cycle times (can be three months or less)
Highly efficient use of material: near zero waste with the remainder recycled in some cases
Exceptional resilience to earthquakes, fires, storms and flooding
Outstanding build quality with excellent energy performance
Initial government support was key to launching the Japanese offsite industry
National competitions for better quality home designs
An efficient certification system for manufacturers and factory-built homes
Mortgage incentives for homes with certain qualities
Encouraged the formation of relevant trade associations
These initiatives were similar to the U.S. Government’s support of offsite construction in the 1960’s via HUD; efforts which were largely stopped in the recessionary period of the 1970’s
The U.S. offsite industry will likely evolve in a very different fashion
The Japanese offsite industry was led by large, well-capitalized organizations looking to grow their operations into new areas (e.g., Sekisui Chemical), with a focus on improving the quality of the housing stock
The U.S. offsite industry, outside of mobile homes, is being led by smaller entrepreneurial organizations looking to disrupt an industry in dire need of innovation, often (though not always) focusing on affordability
Recent Whelan Advisory Transactions
There is a wide range of attractive offsite companies growing in the U.S. today, from structural component companies and modular homes manufacturers to mobile onsite factories. We look forward to continuing our role in helping these businesses with their capital needs and serving as a trusted M&A advisor, all as part of our mission to advance innovation in the U.S. housing industry. To date, we have represented five U.S.-based clients on their sale to Japanese buyers, including a number of offsite construction companies.
