The Urban Land Institute session yesterday afternoon in Detroit's Cobo Center was entitled "Ripe for Disruption: Innovations in Residential Construction."
George Casey, principal at Stockbridge Associates, Gerard McCaughey, founder and ceo of fully-integrated offsite solution platform Entekra, and capital advisor Margaret Whelan, founder and principal of Whelan Advisory LLC, joined me for an hour to focus on this topic, and as you see, the room was standing-room-only.
A quick show of hands to start the session revealed a reason the room was full, and engaged.
Almost, to a person, everybody in the room--full of architects, developers, planners, builders, materials suppliers--believes that residential development and construction is "ripe for disruption," expecting profound change in how people and homes match up in America.
Some guess that 2018 and 2019 are going to be pivotal years for the emergence of integrated factory fabrication of major portions of houses prior to assembly on home sites. Many counter that it's still too soon, and that all the focus on Katerra, Clayton, Entekra, Blueprint Robotics, Unity Homes, Buddy Raney Construction, Blokable, Kasita, Blu Homes, and other players in the modular, compontent, panelization, offsite construction models is mostly hype that gets amped up because of current labor capacity anxieties.
At the same time, so many of us can feel almost viscerally that--despite the numbing overuse of those words--it has to happen. And the first, most likely opportunity area for disruptive innovation to happen would involve taking what does not produce value out of the architecture, capital, construction, engineering, and real estate chain of processes that generate new or improved housing.
Simply, too much time, and too much money, and too much effort get lost, spent, wasted in the way people match up to their homes. The net effect of this is that this inefficiency shrinks the universe of people who either choose to or are able to participate as customers.
Disruptive innovation, in the sense that we've come to talk about it, and even expect it in this world of development, design, construction, and real estate investment, occurs when innovation creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products, and alliances.
In the business community of home and apartment builders, developers, planners, residential architects, investors, product manufacturers, materials suppliers, land sellers, etc., many, many people believe wedding that disruption is at hand,... but not for them.
Ultimately, a disbelief and an inability to imagine that "innovation [could] create a new market and value network" that can disrupt the existing market and value network kicks in. Too many factors are at work, they think, and while automation, robotics, artificial intelligence, etc. may disrupt other industries, residential construction is different, because it varies for every piece of dirt a verticle structure is built on.
When you start peeling back the layers to discover what it would take, from the sourcing of subcomponent level rocks and mineral materials or wood products that go into building supplies, to the 3D digital renderings of mechanicals, to the sixteenth-of-an-inch accuracy of fittings and cuts, and the precision of each penetration in the enclosure, to the deals between architect and engineer and on-site builder and supervisor, it's no wonder that it's hard to imagine disrupting such a complex controlled chaos of players in a system that somehow gets things done.
Thing is, nature abhors a vacuum. So do people. Innovation--technology, business models, data applications, etc.--can create a new market and value network simply because people demand, and will ultimately get, a more simple, straightforward way to match their needs to the homes they live in. They'll get it because they've come to expect that technology and immediate access and connectedness work that way in so many other parts of their lives.
We're in the businesses we're in to produce value. It's people that put us in these businesses, and if we're not producing what's valuable for them, they'll go somewhere else. They haven't had alternatives to speak of when it comes to housing types and locations, but imagining what it will be like just 10 years from now, it would be foolish not to expect that they'll have found such alternatives by then.
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