It's time to build — and tech is helping
New tech could help bring the construction sector — which has been persistently less productive than others — into the 21st century.
Why it matters: Sluggish productivity in construction raises costs and contributes to America's severe housing crisis.
By the numbers: Labor productivity growth — how much output is produced per unit of labor input — in the global construction sector has averaged only 1% a year over the past two decades, compared to 2.8% for the world economy as a whole and 3.6% in manufacturing, according to a 2017 report by the McKinsey Global Institute.
- Between 2007 and 2019, according to data from the U.S. Bureau of Labor, productivity in the American multifamily residential and single-family residential construction sectors actually declined by 1.3% and 1.2%, respectively.
- At the same time, new housing starts are still well below their 2007 level, and housing overall has gotten increasingly expensive and scarce — a minimum-wage worker can afford a one-bedroom rental in just 7% of U.S. counties.
What they're saying: A visit to San Francisco — home to the nerve center of the U.S. tech industry and some of the country's most expensive housing — puts the importance of productivity growth in perspective, says Maria Rioumine, CEO of the construction procurement platform Agora.
- "In a place that has so much productivity and so much innovation, how is it possible that the cost of building the built environment is contributing to the astronomical increase in the cost to actually live?" she says.
How it works: Agora — which this month closed on a $33 million Series B fundraising round — attempts to juice productivity by bringing digital automation to the often manual work of organizing construction work and procurement, both for back-office employees and for foremen in the field.
- "There's been a very deep underinvestment in tech in construction, especially when it comes to the management of the supply chain," says Rioumine, who notes that companies in the construction sector currently spend 1.5% of their revenue on technology, compared to an economy-wide median of 3.3%.
- Among other features, Agora users get an Amazon-like app that provides a catalog for ordering and managing 4,000 different stock-keeping units — industry-speak for a specific item.
- "They can browse the catalog, look through the specs, and make sure the exact material they need is what they order," says Rioumine.
Another upstart in the construction tech sector is Doxel, which harnesses computer vision to assess the progress of a project in real time in what the company calls "Waze for building."
- Workers equipped with 360-degree cameras record video of a building site, which then gets sent back to Doxel's cloud platform where computer-vision algorithms determine how on track — or off track — a project is.
- "Our platform brings predictability and control to construction, and allows workers to identify and preempt any issues before they snowball into giant concerns," says Saurabh Ladha, Doxel's CEO.
Yes, but: The sector will still be hampered by political and economic factors that can't be solved by AI or drones.
- Zoning and other regulatory restrictions in the U.S. add costs to construction projects and make it more difficult to build denser, multifamily homes that are more affordable. The passage this week of SB 9 in California's legislature would eliminate single-family zoning, providing some hope the politics could be changing.
- But consumer preference plays a role as well — a Pew survey this week found that a rising number of Americans want to live in homes that are larger and farther apart, which can further add to costs and drag down the efficiency of housing construction.
- And like all sectors that involve atoms rather than bytes, construction will never be as productive as pure tech — the sector is simply too variable from project to project.
The bottom line: McKinsey found that if construction productivity could at least catch up to the economy as a whole, the sector's value would increase by an estimated $1.6 trillion — the equivalent to around half of the world's annual infrastructure needs and enough to build a whole lot of badly needed housing.