Real Estate Development is a highly conservative industry, driven mostly by relationships, handshakes, politics, and money. The scene is dominated by alpha males oozing charisma, and the most successful developers have mastered the art of outmaneuvering their competition in the quest to erect the biggest and best phallus in the skyline.
As an introverted engineer who likes to tinker with tech, I’ve learned to adapt so I don’t feel like a fish out of water, but sometimes I feel like I’m swimming in the wrong sea. But through these fishy engineering eyes, I’ve seen that Real Estate Development is an industry ripe for disruption. (Not sure what a real estate developer does? Read my article explaining our job). To date, there have been a number of tech startups aimed at supporting development and property management, but nothing truly game-changing has flipped over the development world… yet.
The Rule of Thirds
Before we dive into what can spur this disruption, let’s examine the financials of a real estate project in simple terms. In real estate development, there’s something called the Rule of Thirds: for any given project, a third of the costs should go towards acquisition, a third for construction, and a third for profits. As you can see below, it’s hard to make this formula work with soaring land prices in NYC. And construction costs tend to rise with land prices when there’s a lot of construction going on:
Tweaking the Formula
Out of the land, construction, and profit, developers have the most direct control over the construction cost. The market mostly dictates the other two. So what if we tweaked the formula to lower the construction and development costs by mass-manufacturing modular parts? If the entire development industry could adopt more cost efficient construction methods, competition between developers will eventually make housing more affordable without violating the rule of thirds. (See my article on why we need affordable housing).
Let’s Build PC’s
Now before you start shouting, “Modular housing didn’t work!” and “Mass manufactured homes are ugly!” consider why they didn’t work out. Forest City Ratner’s modular factory reduced costs, but it lacked scale (they produced 930 units for their tower). And the mass manufactured homes of the 1950’s had scale, but looked identical, and therefore ugly.
Now consider what happens if we combine the two. If you scale up to millions of units, the design and R&D costs become such a small part of the per-unit price that the overall cost of construction will come down even further than what Ratner achieved. And if we manufacture parts (rather than entire modules) and assemble them like desktop PC’s, you’ll get cheaper, higher quality, and highly customizable products.
Desktop PC’s evolved sets of standards that made it fairly straightforward to build your own machine. As long as you had all the basic parts (Motherboard, CPU, RAM, Video Card, Power Supply, Hard Drive and an OS), you could plug them into a case and be up and running within a couple hours. Let’s consider how we could apply the same model to developing single family homes:
- Design an ecosystem of parts that could plug-n-play with each other. Form an industry-wide alliance to establish and evolve connection standards. When you consider that there are 915,103,765 ways to combine six, eight-stud LEGO bricks, this addresses the problem of mass-manufactured housing all looking the same.
- Create companion software that allows users to virtually design their home using modular parts all within local code requirements. It could be on a grid, sort of like the Sims game. Users could even walk through it using VR before it’s built. This would drive design and soft costs down. Architects would not be happy about this.
- Apply the set of connection standards to framing structures so all the other parts can plug onto it. If you 3D print your concrete structure, you’ll save even more on labor.
- Design and manufacture wall segments of various sizes that incorporate MEP (Mechanical, Electrical, & Plumbing) and home automation sensors so you could quickly snap them together onto the frame have an almost fully functioning white box. While each segment would cost more than drywall and MEP parts, ease of installation would drastically reduce labor costs associated with design and construction. Walls could come in different materials, colors, and textures for unlimited customization combinations.
- Design and manufacture snap-on windows, doors, flooring and roofing. Of course it’d have to be designed in a way where snapping off would require passing some sort of security feature. Construction time and cost would be drastically reduced if everything can be snapped together by following LEGO-like instructions produced by the companion software.
- Work with existing IoT standardizations for plug-n-play home automation functionality. Sensors are already built into the wall segments, so make it easy to connect them to control devices. (Read my history of home automation article for an explanation of how this works).
- All utility-related equipment (furnaces, water heaters, HVAC, home batteries, etc) would plug in to the MEP system much like a power supply and cooling system on a desktop PC.
All this is easier said than done, but let’s get this conversation started. Call me idealistic, but I imagine a utopian future where all living space is modular and constructed by machines.