Lead Story…. One constant throughout human history has been the increasing reliance on technological innovation in order to drive productivity. From agriculture to manufacturing to software and technology, machines have gradually taken over jobs that people used to do as a means of adding efficiency and scale. This has generally increased quality of living but has also often resulted in job losses – at least initially. As a result, it has led to no small amount of push back starting with the Luddites smashing mills in early 1800s England out of fear that said machines would render human labor obsolete. This concern continues today over such technologies as driverless cars and trucks, automated food service and eCommerce delivery that increasingly utilize robots rather than human beings. However, there is one industry that has proven largely resistant to the robotic revolution: construction. Daniel Gross of Strategy + Business posted an article last week that pondered why (emphasis mine):
Home construction is one of America’s bedrock industries. After being laid low during the housing bust and the Great Recession, America’s homebuilding complex is back on its feet. Housing starts have been rising (pdf). Yet homebuilders complain that a shortage of workers is impairing their ability to keep building. The usual solution for industries facing labor shortages is to apply technology — reengineer business processes so that a home can be built with less human labor. But the reality is that in the U.S., at least, home construction seems to be remarkably resistant to technological improvements. Anybody who has ever conducted a frustratingly slow remodeling project can sense this intuitively. But there is data to support it.
So, why is construction so resistant to advances in technology when other industries adopt it so seamlessly? According to Gross, the highly unique nature of most construction in the US has a lot to do with it (emphasis mine):
Well, there is something unique about housing. Typically, home construction activity is custom work — remodeling, renovation, teardowns replaced by a single home, maybe a few homes built on a cul-de-sac. And it is difficult to gain economies of scale — or to automate processes — when every job, or close to every job, is unique. If every T-shirt were made to order — different sizes, styles, cuts, fabric — it would be very hard to get a $3 T-shirt. Think about the sheer, overwhelming amount of choice people have when building a home: gravel or asphalt in the driveway, 500 different shingle styles to choose from, gas or electric heating, landscaping, appliances, bathrooms, and windows. To be sure, there are plenty of planned developments and apartment buildings built in the U.S. But even here there is a great variation from project to project, and within projects.
In addition, there are important differences between home manufacturing and, say, car or appliance manufacturing. Factories create their own artificial environments that are conducive to the task at hand: The whole structure is designed for the optimal flow of people and materials, and these factories can run around the clock stamping out hundreds, thousands, or millions of units of the exact same product. As a result, operators can systematically experiment with and apply technology, tweaks, and improvements to make the process run more efficiently. Voila! Productivity gains!
But with housing, by definition, the manufacturer often has very little control over the environment in which it operates. And so it has to operate slowly and carefully. Workers may be remodeling a kitchen while the family is living there — which means they have to tread lightly. Builders often put up a new house on a street filled with homes, which means they have to be careful about not disturbing the neighbors, or messing up the infrastructure. In many areas, you can’t do construction work on the weekends, at night, or in the early morning hours. Bad weather also interferes.
Because sites are typically small, construction has to take place in discrete, linear stages. Here, the industry’s historic mode of operating via small, specialized subcontractors also plays a role in limiting productivity gains. You call in one team to excavate the foundation. Then, when they’re finished, the concrete pourers arrive. Next, the framers do their thing. Later come the roofers, the plumbers, and the electricians. Each has to work sequentially to a large degree — so a single delay with a single trade, or poor coordination between trades, can throw the schedule off.
Of course, it’s hard to reap significant gains in productivity if you don’t use modern technology to its fullest. And, here, again, home construction seems rooted in an analog phase. Workers show up to job sites with specs and blueprints printed out on paper. In my experience, the preferred mode of communication on construction sites is yelling or talking on walkie-talkies or the phone. Although some mechanized equipment is used, and although some builders are experimenting with prefabricated efforts, a significant part of the work is done on-site and with human hands.
The irony is that this all seems to work quite well for the construction industry. And that may explain some of the complacency homebuilders seem to demonstrate when it comes to automation and efficiency. When the market is generally expanding, as it is now, and homebuilders are able to make profits by doing business as usual, there isn’t much impetus for change — especially when they can’t be disrupted by cheaper, more efficient foreign competition. Despite the complaints about worker shortages and the lack of productivity growth, the National Association of Home Builders sentiment index is near a record high.
It sure doesn’t look like robots will be taking construction jobs any time soon.
Can’t Stop Won’t Stop: Despite a ton of angst about the economy, there is a very solid case that we won’t see a recession until at least 2020.
Yield Curve Update: It’s still flattening out even as the Fed (likely) continues to increase short term rates.
Put Your Money Where Your Mouth Is: Several prominent mayors and governors have been very vocal in their opposition to President Trump pulling the US out of the Paris Climate Change Agreement. However, there is a very easy way to accomplish their climate goals even without Washington on board: allow for more high density housing in urban cores by allowing more density and streamlining approvals. Of course, it is highly unlikely to happen because, NIMBYs. See Also: San Francisco’s Sierra Club is a bastion of faux environmentalism.
Stuck in the Mud: Why the sales side of the real estate market has been so resistant to cost-saving technology.…and why that’s ripe for a change. See Also: Realtors are losing their minds over Zillow’s new Instant Offers feature claiming that it will hurt home owners. Color me skeptical.
The Guru: This LA Times profile of John Burns is excellent.
Stop Digging: From harassment lawsuits to hemorrhaging cash to several bouts of terrible PR, Uber can’t seem to get out of it’s own way.
Chart of the Day
Refinance origination volume was off 45% from Q4 2016 to Q1 2017
Amazin’: A creepy, dead-eyed mascot with a giant baseball for a head flipped off fans at a baseball game because, the Mets.
This Made My Year: Watch morbidly obese failed football coach twins Rex and Rob Ryan get caught on film fighting random townies in a Nashville Bar. This is a perfect illustration of why these two slobs can’t get a job in the NFL anymore.
Seems Legit: An Australian cosmetics company is now selling a type of snake venom as an alternative to Botox.
Pork Fried Battery: A woman was arrested for assaulting her ex-boyfriend with a plate of pork fried rice because, Florida.
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