Home Innovation Insights

Ways the industry calls for innovation, but hinders efforts to innovate

Ed Hudson, MBA
March 24, 2022

Housing Innovation: It’s What We’re All About

In late February, I participated in an interview/discussion during the Building Products Strategy Summit held by John Burns Real Estate Consulting. The subject was innovation in the U.S. housing construction market. When I joined Home Innovation Research Labs nearly 30 years ago, my initial assignment was to support the Advanced Housing Technology Program (AHTP) – a deep exploration of barriers to innovation in home construction, to evaluate and catalog more than a thousand beneficial new home technologies. The AHTP program was initiated to answer concerns that innovation in housing lags other industries. The insights uncovered through that program, along with other diffusion-of-innovation research I’ve been involved in, serves as the foundation for Home Innovation’s current marketing research practice.

Below is a summary of the questions asked, my responses, and some additional thinking on each topic.

Q: Is the home construction industry truly lagging when it comes to innovation?

While I certainly acknowledge that the industry could benefit from innovation in many areas, I also believe that speculations the housing industry is a completely “laggard” industry are unfounded. Innovation happens most rapidly in newer industries, and the housing industry is very old, so we shouldn’t expect to see innovation happening at the pace of newer industries like computing and IT. Some note that homes are largely being site-built like they have been for a century, but this is only a superficial look at innovation in the industry. Advanced technologies are used extensively — such as in factories and mills that produce building materials and components where the latest in information technology, robotics, chemistry, and materials sciences are present. Also, many builders and contractors are using the latest in integrated construction management software platforms to dramatically increase the efficiency of project management and communication with suppliers, subcontractors, build team members, and even homebuyers. Builders and contractors, in particular, are using IT extensively in the sales and design center functions, spanning from advanced software platforms to virtual reality.

As for factory-assembled homes, it is beginning to make economic sense to a growing number of builders. This is driven, in part, by the current industry environment, which seems locked in a labor and materials supply shortage with no short-term solution, making the concept of factory-built homes more appealing. Another tailwind is the current homebuying generation — they are younger and more comfortable with factory-built housing, and do not generally associate it with inexpensive construction like some previous generations did. The big “missing piece” to bring factory-built housing into the mainstream is investment; currently, there isn’t enough production, sales, and customer service capacity to allow this industry segment to be more than a small player.

Q: What are the current impediments to innovation in the home construction industry?

The nature of the home assembly industry, which is dominated by smaller companies and specialization of trades, is a large barrier to innovation. Innovation requires investment, and smaller companies are less able to invest. Innovation also requires a high degree of communication and collaboration between actors in the industry. The networks of general contractors and trade contractors, focused on the success of their individual business, are less likely to bring industry-wide change than large companies who can establish broader strategies to innovate and encourage cooperation across functions. Further, there is a lack of vertical integration in home building — from materials manufacturer to home assembler — which results in indirect and ineffective communication, which further hinders innovation.

Some other barriers to widespread implementation of innovations include:

  • Risk, in terms of failures in the home, which are long-term investments for the buyers, and the resultant damage to a builder’s reputation
  • Limitations of existing infrastructure, roads, and handling equipment from the factory to the jobsite; not typically able to handle house-sized objects
  • Cyclicality and “unsexy” image of the home construction and remodeling industries don’t readily attract investment from outside the industry
  • Uniqueness of jobsite conditions requires a customized approach (to some degree) for all new homes and home remodeling
  • Homeowner desire for home personalization – many want changes even late in the construction cycle of building a new home as they re-evaluate their need for space

Our current construction environment calls for innovation, but simultaneously hinders efforts to innovate. Innovation means change, and change requires time and effort; presently, the industry is operating at near 100% capacity with no “extra” time available. Right now, everyone is focused on working down their backlog.

Q: What advice would you give to building products manufacturers and service providers who are attempting to innovate in this space?

Focus on new technologies and products that enable a measurable improvement in the installation process or outcome, such as improved functionality, performance, or aesthetics. A recent industry-changing innovation, the new Luxury Vinyl (LV) flooring category, serves as an excellent example of how manufacturers can introduce a game-changer if they focus on enabling builders. LV enabled the elimination of flooring underlayment, saving materials and a step in the construction process. It enabled a flooring with highly realistic wood appearance to be in used damp areas like kitchens, bathrooms, and basements, where wood is less suitable. Its durability and scratch-resistance meets or exceeds the material it emulates. It reduced the skill requirement of the installer, particularly compared to stone, tile, and natural hardwood. It can be installed in a single step, often requiring only a single trip to the jobsite for the installer. It is offered in a wide range of price-points to meet a wide spectrum of market segments. As a result, LV tile has catapulted vinyl flooring into the largest selling category of residential flooring material.

Something else to consider — keep an eye on who benefits from the innovation. If the primary beneficiary is not the company or person who purchases the product, that may be an obstacle, or it may require the innovator to generate pull-through demand or provide more marketing support. Be prepared to offer as much technical support as needed; success in some categories requires a big commitment of resources. Most successful products have benefits that are self-explanatory, or can be explained with little effort to non-technical types if they are the primary purchase decision makers. Some new products have a systemic impact on both constructing the home and home performance. If you can offer a “drop-in” replacement that minimizes systemic impact, this enhances your likelihood of success with new products and technologies.

Q: What are the biggest problems in the industry calling for innovation?

While there are many opportunities to innovate across the industry, there are three key issues that are providing a windfall of opportunity. First, there is labor – the rising cost of labor and the lack of a sufficient supply of labor, particularly skilled labor in the trades. Successful innovations can reduce skill level of installers and require fewer trips to jobsite. Second, there is the supply of materials, which results in long delays, price increases, and price volatility. Third, the problem of housing affordability is becoming acute in housing — land, labor, and material prices are rising, and mortgage rates look to be trending upward, as well. It’s a great time to evaluate opportunities provide products and services to alternative forms of housing — like Accessory Dwelling Units (ADUs) and manufactured housing, both of which could see a big boom in the near term.

I was honored to be a part of the Summit. If you’d like to figure out the best path to market for your existing innovation, or the best opportunities for you to provide innovation, contact me. After all, Innovation is our middle name!


Back to Top

Filed Under:

Add your Comment

All fields marked with * are required