Innovation is a word you associate with technology, medical science, even finance. It’s not a word you typically associate with the housing industry.
Is that fair?
It is at least a fair question. In an attempt to answer it, consider drywall. Introduced in the early 20th century, drywall really was an innovative product. As a substitute for plaster, it reduced installation time by 60% to 80% and dramatically cut costs as well. Nonetheless, it wasn’t until the post-WWII housing boom that drywall became the industry standard. In other words, it took 50 years, half a century. That seems to suggest that the housing industry, like an immovable object, effectively resists even strong irresistible forces, allowing inertia to take hold.
I recently talked to Stuart Miller, CEO of Lennar, about this at HIVE, a Hanley Wood conference focused on housing innovation in business management, marketing to millennials and aging boomers, building product development, and acquisition of land and labor. Miller delivered a keynote address about innovation and business management and spelled out how he’s pushed everybody who works for Lennar to adjust to and even embrace digital disruption in almost every part of the business from financial management to sales and marketing.
He made a compelling case for change, but when I asked him if he thought most builders would jump on the digital bandwagon, he said no. Why? “Well,” he said, “these are pretty good times and nobody wants to rock the boat. And when times turn bad, most builders turn cautious.”
That sounded like the definition of a bad case of inertia to me, but the more I thought about this seeming aversion to innovation I found myself better able to understand it. In fact, it made sense for two reasons:
One, almost no other business involves as much risk as housing. Even the best ideas can be sabotaged by too much or too little leverage, a poor decision about land and location, a pricing mistake, a dip in consumer confidence, a spike in mortgage rates, neighborhood opposition, overzealous local officials, or unexpected competition. Things can go from very good to very bad very quickly, and almost by necessity that breeds caution when it comes to trying something new. So a reluctance to layer risk around innovation on top of normal business risk begins to seem, well, sensible.
The second reason ties to the structure of the industry. Housing remains, among the nation’s large industries, singularly fragmented and complicated. There are not only 50,000 or so active builders (compare that to the 10 or so major auto manufacturers who produce 70 million cars worldwide), but there are also tens of thousands of dealers, distributors, architects, planners, code officials, brokers, and developers, not to mention hundreds of thousands of tradespeople. And in many cases an innovation has to work its way through this complicated maze before it can really take hold.
That means that even the best new ideas—like drywall—can take a long time to catch on. That’s just the way it is and the way it will continue to be unless the housing industry takes on a shape like most other industries where a relatively small number of big players control the game, can roll with punches, and have the resources to figure out new and better ways to get the job done.
