In this, the third chapter in our Capability and Culture series, the TBD Dream Team targets the pain points and offers solutions at every stop along the construction life cycle. While no one solution will solve the capability problem on its own, their combination – especially in light of Building Industry Partners Managing Partner Matt Ogden's concluding call for a cultural shift to collaboration and a step-plan for eliminating the labor shortage – offers a clear path to hope, resolution, efficiency, prosperity and purpose.

Enjoy the ride and embrace a future for building driven by data, leading in technological innovation, responsive to change, engaged in meaningful contact with consumers, and lifting labor to the strategic stature it commands.

There are two major factors at play.  First, building demand will remain high for the next 12-24 months. Second, builders are not being punished for quality and design problems (no public builder even reports customer care scores in a consistent manner).

An industry that invests little in R&D, technology and human resources and seems insensitive to social equality issues and has a black-hat image on environmental issues and product quality isn’t likely to attract visionary leaders.  How many graduates of the top 10 MBA programs look for housing industry jobs?

The squeeze is tightening through the whole chain, including BPMs (who really wants to work in a factory?), to dealers and distributors (who really wants to load or drive trucks?), to the trades (who really wants to work outside in extreme heat and/or cold?) and to the homebuilding firms (who really wants to work in any industry that hasn’t much changed in the last 50 years?).

Ultimately, the biggest impediment to progress may be attitudinal. The construction workforce looks more like the America of the 1960s than the America of today. We can solve some of our worker issues by recruiting more women and minorities to the industry, adjusting our processes a bit to help make the business more attractive. We can improve attitudes about construction jobs as a worthwhile, respectable, potentially lucrative career. And we can continue to bring technology into the workplace.

I typically work in disaster recovery markets where permitting delays cascade into on site delays because the workforce’s window of availability is tight, if you miss the window, the project is delayed and prices skyrocket (both due to labor and material shortages).

Timing of approvals, permits, inspections have all doubled or tripled in the last 10 years, and it is unlikely private industry will shorten the process in the short-term, but we could possibly impact cycle times – both horizontal and vertical.  Construction cycle times have doubled in the last 6 years, in part but not completely due to labor constraints.

Supply and demand shocks that have rippled through our industry highlight both the inefficient multiplicity/overlaps and the innovation gaps, not only in materials but trades, logistics and supply chain, creating enormous inflation pressures of over 22%.

If current rates of skilled and semi-skilled labor deterioration continue, then costs will continue to compound and spiral exponentially in relation to CPI/PCE, employment and wage growth, further pressuring affordability, economic growth and social stability.

I must also list sales/marketing, with the sales function being upended to focus both more on digital tools and the importance of relevant, timely, thoughtful human connection.

We have an antiquated, sometimes rigid and prescriptive sales process that is builder-centric, not intended to actually make the experience better, more relevant or enjoyable for our customers.

I am really focused on the end-to-end need to understand, conceive, finance, approve, and build new home product that responds to changing consumer lifestyles (more single women owners, huge number of renters/first time buyers priced out, healthcare in the home/aging in place solutions, and the more innovative stuff at the edges too like co-living, other models of ownership).

I don’t know intimately every single business vertical, but I would venture that you couldn’t find a single one that has all of its people working to their maximum potential. In my part of the supply chain, the shortages are most acute in three places: 1) Workers who create products, such as people in timber mills; 2) Truck drivers; and 3) Middle management at building material dealers and distributors. The first two represent problems today, while the third will be a problem as the baby boomers (and older!) who run dealers and distributors finally retire.

The No. 1 trend I’m seeing in construction supply is a desire to become more efficient. Lean principles and Six Sigma used to be foreign concepts to dealers and distributors. Now they’re commonly understood (even if not commonly practiced). At the same time, rapid improvements in technology are making great leaps forward affordable, from bricklaying robots to more sophisticated ERP systems.

We will be building our next community, an infill mixed use master plan, over the next 15 years.  In order to keep production high when demand is high, we need to ensure a steady, qualified body of skilled trade labor in our immediate area.  Upon analyzing data, we discovered the area surrounding our community contains a very high proportion of construction and landscaping laborers when compared to the Denver-Boulder metropolitan region.

Many of the area laborers are commuting 2-3 hours per day, often traveling to far-stretched sites across the region, sometimes in the same day. Many cannot find steadier work on major homebuilders’ larger subdivisions, which often last years, because they often lack either external trade accreditation and/or immigration or non-resident worker documentation.

As a result, we created a non-profit; among other directives, it will act as a hyper-local employment agency, working to curate a body of neighboring construction and landscape workers from which our builders and their subcontractors will hire. The non-profit partners with construction science educational/accreditation institutions and immigration law clinics.

Development of a national craft skills database that allows workers to develop and demonstrate their credentials, experience, and work quality, provides employers with visibility of labor capacity and capability, and allows workforce development entities to target initiatives and assess the effectiveness of their activities.

Also, in addition to building systems innovation, the data revolution also needs to find its way to the residential job site in the U.S. Whether its productivity information, schedule information, safety information, or the worker’s ability to develop a living profile of their skills, experience, and evaluations that stays with them through their careers, the data capture, mining, and the innovations that follow will be a critical part of solving the labor crisis.

We’re seeing dramatic shifts in how the algorithmic era is driving stronger returns in real estate investment, starting to drive stronger decisions in land acquisition, and helping clients run circles around their competitors with better marketing targeting. Already, some firms in the real estate investment industry have generated profound gains against their most direct competitors that have not made the transition, and that is now filtering into other pieces of the real estate universe.

Within the next 12-24 months, economic performance outcomes will start to make it clear which firms are building the human capital capabilities for the algorithmic era vs. those that aren’t.

For firms that don’t build the human capital capabilities for executives to manage in the algorithmic era, we know with almost certainty that they will see a decline in profit margins or market share growth compared to their peers navigating this shift.  It’s going to get better for the firms that retool for the algorithmic era. It’s going to get tougher for the firms that don’t.

Construction cycle time, scheduling, start-to-completion rates – we are one of the only industries where these are getting worse instead of better! When I started my career delivery times were quoted in days, now it’s months!!! This is the negative productivity McKinsey refers to.

Entekra, ICG build each house twice; first in 3D, then on the job site. That dramatically increases precision and reduces waste. The house can be weatherproofed faster and this takes days or weeks out of the cycle, which is better for the consumer and for the builder. Housing affordability and attainability constraints would be dramatically improved with real process improvement.

If current rates of skilled and semi-skilled labor deterioration continue, then factory builders like modular companies will gain share.

The holy grail for privates would be effective third-party off-site providers that would allow them to eliminate most of construction/purchasing departments.  Accounting would be greatly simplified and reduced as well.  With lower overhead, it would be easier and more profitable to manage erratic project availability, more akin to being a CRE developer who hires GC’s for projects.  But if big guys get there before privates, it could be the death knell for them.

How do small (sub 500 unit/year) builders get in front of this?  If public builders get there first, it will be the last nail in the coffin for most privates. And consider the likelihood that publics buy up anyone who 'solves' this, therefore taking them off the market.

But the elephant in the room is solving off-site building and creating savings will simply accrue to the land unless we are able to change the entitlement paradigm.  If Lennar solves this, do you think they are more likely to a) lower prices everywhere or b) use the cost advantage to buy even more land?  It’s b.  So, just like with special tax districts and every other “innovation,” the value rapidly accrues to the land.  The only way this will stop is a change in the entitlement process across most metros.  Off-site building can make the business more efficient, houses better, but it will not lower prices by itself.

There was a time when every component of a car was assembled by hand.  However, the automotive industry was eventually forced with the realization that model was not sustainable.  Europe has begun to realize this eventuality in housing, and it may be a matter of time before our nation comes to the same conclusion assuming the goal is to provide homes that align with homebuyer demand.  

You can still buy a hand-crafted car, but it will cost you 10 times one built off an automated assembly line.  And while there will always be a buyer for a custom Bentley sedan, most of us are in the market for Ford or Toyota.

It’s important to include technology and building systems development in the conversation about labor. I don’t believe that these are separate questions. If we accelerate deployment of standardization, componentization, modularization, and mechanization of job sites, the number of workers per home at the job site will go down. Also, the skills that are needed in order to be an “installer” or “assembler” vs. a “construction craft worker” will be different.

Automation/offsite construction is often discussed as a solution to the supply chain’s labor problem.  How can the industry advance in automation and offsite construction with a dearth of sustainable supply of technology, R&D & engineering talent in the supply chain? BIP’s answer is:  it can’t.  Employee value proposition is the root problem. Only by elevating the industry’s value proposition for technology, R&D and innovation talent, can the industry expect to dramatically improve its automation and offsite construction efforts.

Labor supply will adapt to demand as employers raise wages and elevate their employee value proposition.  Employers who do so more rapidly will earn the spoils of growing their businesses and gaining market share, relative to those who don’t. But this will take many years. Sector-wide collaboration focused on how to elevate our industry’s employee value proposition, and collectively market that value proposition to new talent. A coordinated effort by private companies, associations, trade journals, academia, and the public sector would greatly expedite this process.

It is an opportunity for those who are willing to elevate people (via Human Capital Management practices) to a strategic priority.  And it is an opportunity for our industry to collaborate across the supply chain, in furtherance of the industry’s success in delivering collective value to its end users – the American consumer.

How can the industry best collaborate (across the supply chain) to sustainably elevate its employee value proposition? Recognize as an industry that the labor problem isn’t the fault of the labor, it’s the fault of us, the employers. There is plenty of labor in the U.S., just not enough of it wants to work for us – for our industry’s employers. Why? Because the value proposition isn’t great enough, relative to other industries.

Let’s talk about what employees and prospective employees value in their employers. Then let’s talk about how to do more of that as an industry, relative to other industries. It should start with a thought leader summit.

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