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US housing remains underbuilt by ~7mm units, while affordability is as challenged as the mid-1980s when mortgage rates were >10%. Residential construction also faces a labor shortage of 200k-400k workers and is at risk of further pressure from US immigration policy. As such, we believe offsite construction is primed for meaningful share gains, with potential profound implications across the US housing industry. This study focuses on wall panel conversion, which arguably represents the next logical opportunity following roof trusses, but is still merely an incremental piece of the puzzle. Notwithstanding, we estimate wall panels alone generate up to a 30% reduction in framing days with 20% less waste. We collaborated with 5 production builders, multiple offsite experts and 10 global �۶���Ƶ analysts to conduct an extensive assessment of the economics of converting stick-built walls to open wall panels.

Wall panels represent just one step in the evolution towards full offsite construction, but we believe this study highlights the opportunities/challenges of a conversion. In our view, prior third-party studies may have overlooked important considerations including fewer job-site trips, fewer failed inspections and less job-site waste. We estimate that conversion from traditional stick-built walls to open wall panels produces roughly +USD 6,175 in total incremental operating profit/house (Figure 5) and we expect industry penetration to more than double to ~40% over the next 15 years.

Homebuilders have resisted converting to wall panels because in isolation, cost increases USD 783/unit. However, the true opportunity is incremental production capacity from improved cycle times (USD 2,024/unit). Builders will need to work closely with trade partners and all parties must embrace a total cost approach to realize the full potential.