Why Technology is the Last Hope to Solve the US Housing Shortage

The housing problem in the United States is no secret; it is top of mind for almost every American regardless of age, income level, or location. Unable to afford starter homes in many of the nation’s urban centers, young adults are renting longer than ever. Housing prices in cities such as New York and San Francisco continue to rise as local politics and regulations render building new homes nearly impossible. Add on top the adverse effects of COVID on homelessness, and the housing problem in America has hit a tipping point. There is an estimated shortage of 3.8 million homes in this country and at our current new-build rate, we won’t make a significant dent for some time. The bottom line is: we need to build a lot more houses! 

What obstacles lay ahead? Housing policies and local politics are clearly hamstringing the effort, but another major issue is the nationwide labor shortage. The construction labor force is short 2.2 million workers and is only getting worse. COVID accelerated the rate of Baby Boomer retirements while sparking a Great Resignation among younger workers who might’ve otherwise filled the ranks. Builders can’t keep up with demand due to this shortage. With material delays caused by supply chain issues, they are getting desperate. 

This desperation is leading major builders to turn to Silicon Valley to help figure out how to solve these problems. While applying technology to the construction industry has been attempted, productivity in the industry still has not improved. By learning from these early trials and tribulations though, we now have an eye toward next-generation solutions.

Early Trials & Tribulations  

The rise of venture capital interest in this space exploded in 2012, as the economy rebounded from recession and technology companies were dominating headlines. However, many of these early attempts did not pan out, with the most public failure being Katerra. The company raised over $2 billion in venture funding, primarily from SoftBank’s Vision Fund, with the goal of automating every step of the construction process. While they promised a bold vision to reduce time and cost throughout the industry, they fell into two big industry-specific issues as outsiders to the construction industry. First, construction differs greatly between geographies. Each state has different codes and regulations, preventing any one-size fits all solution. Secondly, the industry is highly fragmented and specialized. No two general contractors, subcontractors, or developers operate exactly the same. This limits the speed of adoption for new construction technologies. Thus, technology addressing the space needs to be incredibly simple to implement and able to fit into a myriad of existing construction processes and workflows. As we will discuss later in the post, the new wave of companies have learned from Katerra’s downfall. No longer are they boiling the ocean and attempting to change every part of the construction process. Companies are focusing on improving one process at a time and are making sure their technology can be implemented easily regardless of the working environment.

As we know from the history of technology startups, just because an idea doesn’t work the first time, doesn’t mean it won’t work in the future (e.g. WebVan and Instacart). New technologies and business models allow for companies to learn from the past, improve on those failures, and build industry-changing companies. We believe the new crop of tech-enabled builders have learned from these mistakes and taken advantage of new technologies that will empower them to navigate the industry's complexities and revolutionize construction. 

What Has Changed 

A tremendous change with today’s construction startups is that their technologies are no longer just ideas – they are being adopted on job sites throughout the country. The first 3D printed community was recently completed in Mexico, robots are framing entire homes in factories, and modular projects have been completed in America’s biggest cities. What has enabled these companies to finally bring their technology to market? I believe we can point to three major changes in business models and technology.  

Improvements in computer vision & robotic automation: Over nearly a decade, billions of dollars have been invested in companies looking to bring self-driving cars to the masses. While we are still far from the future many of us imagined, one large benefit has come from this investment: the immense improvement of computer vision and camera technology. These improvements have crept into the construction industry, improving the capabilities and decreasing the cost of robotics. It is now possible to automate much of the most painstaking work that goes into home building, without the need to raise billions of dollars in venture funding. 

Awareness of market uniqueness: Many of the first attempts to change the way we build ignored the local building codes and regulations. This new wave of entrepreneurs have learned from the failures of the past and are incredibly thoughtful around the unique attributes in each market, developing their product offerings to be able to adapt quickly. The new builders aren’t simply trying to force a single, one-size-fits-all, product onto every market. Instead, they are building out design software and automation that allows for adaptability without sacrificing economies of scale. 

Incumbents are finally ready: Finally, while these improvements in technology and business strategy are helping move the industry forward, another major shift is happening before our eyes. The large incumbents, from general contractors to owners, are welcoming change. While some of these companies have been around since the early 1900s, their leaders are actively embracing the opportunities that technology brings. These companies are no longer simply appointing a ‘head of innovation’ to appear innovative to shareholders, but are are also taking active roles in the ecosystem. Builders are investing directly into companies via their balance sheet or corporate venture funds, material suppliers are striking strategic partnerships to improve everything from glass to roofing, and startups are now deployed on site quicker than ever. 

What Else Can We Do?

While innovating on the way we build homes will undoubtedly get us closer to our housing goals, it won't be nearly enough. In order to reach our national housing goals, the construction industry will require further innovation. This will come in a few different forms. 

First, technology companies need to work with local governments to push the boundaries of current policies. We have seen early success with the rise of ADUs (accessory dwelling units) in cities around the United States. As more collaborative partnerships between governments and technology startups demonstrate early success, entrepreneurs can employ a similar playbook in their local market to accelerate change. Secondly, the process of renting and buying homes is still ripe for disruption. The traditional method of applying for a basic mortgage via local bank limits the number of people that can qualify for a home. Adopting creative financial alternatives to the traditional mortgage, i.e. working with renters to improve their credit to buy in the future,  will increase the pool of Americans that can afford a home 

As a nation, if we can adopt new building techniques, challenge local governments to adapt, and think outside of the box financially, we can once again bring back the possibility of the American Dream –owning a home – to the masses.