What We Learned From the Prefabbers

Business lessons from 80 years of offsite construction.

• During the post-WWII housing boom, builders’ inability to keep up with demand spawned roughly 100 suppliers of prefabricated components.
• At first, these suppliers focused exclusively on small, cookie-cutter homes. That model broke when they moved into custom work and land acquisition.
• Today’s companies are more focused, and while some are venturing beyond basic components, many of the same challenges remain.

This magazine has published many articles about business, design and technology. But all of those elements evolved in a specific context. An understanding of that context — specifically what did and didn’t work — can help today’s component manufacturers plan for a successful future.

The components industry grew out of a group of companies known as the Prefabbers. They represented the genesis of what would evolve into a new way of building homes. They took offsite construction further than any group since, and their experience can inform current efforts.

A Simple Start

Although we don’t hear much about the Prefabbers today, they were the Amazon delivery company of their day. They made their mark by fitting all the rough framing for a simple home, as well as other materials, on a single truck. When they reached beyond that model and tried to do more, they faltered.

The seeds for the Prefabbers were sown in the 1940s, during the Second World War, thanks to a Federal government effort to create housing for workers near war factories. Under Executive Order 9070, the Federal Public Housing Agency constructed 700,000 attached and detached units, most of which were framed on-site.

This effort was a boon for the 70 builders (like the Levitts and National Homes) who were awarded the work, as they were able to use this experience to become skilled in mass production. Meanwhile, many thousands of other homebuilders were prevented from practicing their craft during the war by Executive Order 9125.

Then came the tsunami of post-War demand, with housing starts tripling during the years 1944 to 1954, amped up by FHA and VA loan guarantees. The formerly furloughed traditional builders went back to work, but they couldn’t keep up with the demand. Because they were so over-extended, those builders were happy to sub out as much as they could. The Prefabbers waded into this breach, launching what we now know as the structural building components industry.

During the 1950s, sales reps like Bill Hart with Inland Homes in Pennsylvania and Dave Chambers with Scholz Homes in Ohio, called on builders and offered to supply them with prefabricated structural components such as wall panels. According to Lou Davis, then with National Homes in Lafayette, Indiana, it was an easy sale, since these components enabled builders (who became builder-dealers) to double their output. (Years later, Davis became VP of Manufacturing at Builders FirstSource.)

The Challenge of Complexity

By 1956, there were about one hundred Prefabbers across the country, most of whom provided similar packages to their builder-dealers. All provided wall panels; hence they were also known as panelizers. However, many went way beyond what would be considered feasible today, by manufacturing panels with pre-applied siding and gypsum.

This approach worked acceptably well for the many 24-foot x 48-foot box-like homes that were built soon after the War. But when the Prefabbers decided to supply components for larger, more customized models, they met their match. There were, of course, no computer estimating programs, so they had to manually calculate costs. And there was no guarantee that a given model would ever be sold. Yet they were compelled to expand their product lines by a public that was animated by a craving for newfangled TVs, tail-finned cars and option-laden homes.

This expansion reached unmanageable proportions when Scholz supplied thousands of California contemporary homes to the heartland. These homes used framing details and building materials that weren’t widely available in the Eastern States. They included the use of green Douglas Fir, as well as wider and thicker wall plates, rafters and joists. California framing also included shear walls and numerous straps and tie downs for diaphragm design, which began with the 1927 ICBO Code. Likewise, Erdman Homes in Wisconsin built 500 notoriously challenging Frank Lloyd Wright homes with their vaulted spaces, specially cut rafters and unusual batten finishes.

By 1956, the number of models offered by Prefabbers had ballooned to 238. This set the stage for far less repetition and far more costly production. Smaller Prefabbers found it increasingly difficult to compete in this game and the industry came to be dominated by the top 16 companies.

Problems From Over-Extension

Competition also drove Prefabbers to depart from what they knew best. By the 1960s, their 7000 builder-dealers began to be constrained by the availability of buildable lots, prompting larger entities, like National and Scholz, to begin developing real estate for their builder-dealers.

To expand into distant markets, these two Prefabbers also built or acquired new facilities. National added full-service plants in Texas, Georgia, Virginia and New York. Scholz operated plants in California, New York, Florida, North Carolina, Kansas, Texas and Ohio. Both expansions added to their carrying costs and increased their vulnerability to a downturn.

This wasn’t a problem in the 1960s, when prices were rising at a steady 2% annual rate, and Prefabbers could simply add that percentage to their selling prices. But that changed, from 1970 to 1974, when prices began rising so erratically and unpredictably that these companies couldn’t stay ahead of them. Wood products’ price increases averaged 20% per year. During this short stretch, home prices also spiked by 60%, choking off demand and helping to plunge the country into recession.

The carrying cost of ownership of “too much dirt” — meaning too much illiquid real estate — was too much for many of these companies. Most went out of business.

Lessons Learned

These experiences informed the successors, the most notable of whom was Ed Ryan, who had founded Ryan Homes (a traditional homebuilding company) in Pittsburgh, Pa. in 1948. He originally partnered with 84 Lumber Company and located his first component plant across the road from what is now 84 Lumber Headquarters in Eighty-Four, Pa.

Unlike many of his competitors, Ryan provided only very basic wall panels, without blocking or finishing, since he observed that his crews did that work more efficiently in the field. He also minimized the number of plans he built and offered few options. And most importantly, he limited the numbers of houses he built to the number of components he could manufacture, in order to keep a constant volume in his plant.

But the secret to Ryan’s success was avoiding land development and minimizing fixed assets. In 1973, he bragged that he was able to generate $150 million in sales on just $1.5 million in fixed assets. And throughout its 65 years of operation, Ryan Homes (now known as NVR) has steadfastly continued those practices, generating almost $10 billion in sales in 2023.

Specialized Components

The most widespread legacy of the Prefabbers can be found in the independent truss and wall panel plants that began springing up in the wake of those early failures.

The best exemplar of this succession is David Chambers, founder of Imperial Components’ truss and panel plants in Chicago in 1960. By the late 1950s, Chambers had risen to the position of General Sales Manager for Scholz Homes. There he encountered, head-on, the challenges of providing the most diverse array of house packages of any Prefabber, with plans that ranged from 2,000 to 7,000 square feet. And there he learned the high cost of supplying one-off packages.

One particularly costly item was the precutting of roof rafters. Scholz’s competitors took a more efficient approach by fabricating roof trusses, but Chambers was concerned about the difficulty of shipping them at Scholz. So, he left Scholz, and  built a truss plant in the middle of Chicago, the city that had received more packages from Prefabbers than any other. He quickly achieved great success there, and by the time he was elected President of the Wood Truss Council (now Structural Building Components Association) in 1985, Scholz, National, and most of the Prefabbers had given way to an army of component manufacturers.

In summary, Prefabbers pioneered the offsite model, but took it beyond its level of efficiency by adding too many options and trying to build homes whose complexity made them far less cost effective. The lessons they learned are embedded in the practices of today’s component manufacturers and their builder clients.

Builders and manufacturers both recognize that, even with today’s advanced software, predicting the costs of new designs is fraught with risk until those designs have been built, preferably multiple times. And they have learned that applying finish materials to components offsite — as had been attempted by Ryan Homes, Ryland Homes, and more recently, Blueprint Robotics — yields negligible gains in efficiency and minimal decreases in cost. Finally, minimizing the fixed carrying costs of plants and especially real estate, increases survivability during economic turmoil.

Joe Kannapell has been writing about component manufacturing for much of his 50-year career working in that industry both as a supplier of software and machinery, and in operations. After retiring from MiTek in 2021, he now divides his time between writing, visiting component plants and competing in Ironman triathlons.