The Construction Industry Has a Productivity Problem

©. Randek high-tech wall building machine

The Economist has some suggestions for fixing it. We have more.

For years, everyone has been complaining that we still build our homes and buildings like they did a hundred years ago. Our construction industry is a shambles of poor energy efficiency and low quality. Now the Economist writes that the industry has a serious productivity problem that is getting worse.

productivity gap

© The Economist

Productivity in construction has plunged by half since the late 1960s. This is no trifling matter. The building trade is worth $10trn each year, or 13% of world output. If its productivity growth had matched that of manufacturing in the past 20 years, the world would be $1.6trn better off each year.

The Economist lists many reasons that we have been talking about since the crash of the housing industry in the Great Recession.

It’s fragmented. Most of the companies in it are small and local. Even the big builders subcontract out most of the actual construction. Because so much of real estate development is about politics and who you know, it tends to be local.

It’s cyclical. This makes any significant investment in factories or technology really risky. I noted this in an earlier post: “This is what has killed many prefabricated housing companies before; they have serious overhead and cannot compete with a guy in a pickup truck with a magnetic sign and a nail gun and a bunch of subcontractors getting paid by the square foot.”

It’s conservative. Everybody hates change and surprises, but as the Economist notes,

A few building firms are experimenting with new techniques, from 3D printing and drones to laser-scanning and remote-controlled cranes. But the trade as a whole is reluctant to spend money on the sorts of technologies, from project-management software to mass production, that have revolutionised so many other industries.

The Economist has some very sensible suggestions for fixing the problems. The first is to recognize that the public sector is a huge portion of the industry, between 20 and 30 percent. So it can smooth out the cycles by investing in bad times instead of cutting back. “Greater certainty about future work will give firms confidence to invest more in technology.”

Harmonize the building codes.

The growth of companies making prefabricated houses can be stymied by the cost of adapting their designs for specific jurisdictions. This is true not just across borders but within them. American counties and municipalities employ up to 93,000 different building codes between them. Standardising rules ought to mean bigger production runs and higher returns.

The Economist goes to recommend BIM (Building Information Modelling) but if the industry is going to get really productive, a lot more than that will have to change.

module in fctory

© Lindbäcks Group AB, Sweden

Harmonize on tough building codes that emphasize efficient, healthy housing.

It is much easier to control quality and hit high standards when building in the factory than it is building in the field. If the Building code standards are tough, then it will pay to invest in technologies like prefabrication because it becomes easier to hit the required targets. If a house fails a required blower test, it is expensive to go and find where it is leaking, but if it is built right in the first place under factory controlled conditions and close supervision, the odds are a lot better that it will pass. At that point, the industry will really have no choice but to invest in tech.

Zoning is perhaps the biggest problem. Even more than building codes, it is different everywhere and is primarily there to keep new building out, to preserve the status quo for the NIMBYs, to maintain single family housing where it is in place and build new suburban single family housing because it is the fastest and easiest way to turn a cornfield into money. As I noted about the construction startup Katerra,

I really want them to succeed. But do worry because they say "every building shouldn't be a one-off prototype" when unfortunately, every building pretty much is; that is the nature of the business because every building is on a different piece of land, in a different town or city with its own zoning bylaws. They say they do it faster, but have no control over the approval process, the NIMBYs, the parking requirements that put four floors of concrete construction underneath their efficient and fast buildings.


Michael Green talking to carpentry students/CC BY 2.0

Training and education in construction has to be fixed. Especially as we pivot to more wood frame construction, there are lessons that trades have to relearn, like how to keep a site safe and secure so that it isn’t a firetrap before the sprinklers and drywall get installed.

©. Mike Eliason/ that doesn't look like social housing!

© Mike Eliason/ that doesn't look like social housing!

Government investment in quality housing on a consistent basis. The last real estate crisis happened because of too much investment in crappy single family housing; now we need a thoughtful, long-term strategy for green, efficient, multifamily housing near and in our booming cities, which have become unaffordable. But if you look at Vienna or Berlin, there is consistent investment in housing. As Mike Eliason notes, “The city has effectively leveraged its purse to push the price of construction down, making developers compete on the merits and economics.”

atlanta suburb bans construction

Atlanta suburb bans wood/Screen capture

And finally,promote innovation instead of fighting it. As wood construction takes off, the concrete and masonry industries conspire with governments to fight a rearguard action banning it. As Net Zero and Passive House become more mainstream, governments cut subsidies and kill EnergyStar. As transit oriented development becomes more popular, municipalities kill transit. There is no co-ordinated, long-term planning or promotion or any indication where the Federal or State governments are going with respect to housing and efficiency. Who the hell is going to invest long term in that?