By Elizabeth MacBride,
You might have missed it, but there’s a quiet revolution beginning in a corner of business that until now has been relatively untouched by technology: construction. In the past decade or so, new technologies, including better land mapping, prefabricated construction and cheaper solar power, have begun bringing the costs of housing down 20 percent to 30 percent, say experts.
The new technology is enabling feats of architecture and design, like an eight-story wooden apartment building in Finland and more affordable apartments in cities like New York, where the city has financed housing for 160,000 people making less than $40,800 a year.
At the low end of the scale, the changes may be most significant: There is a new market developing to serve 200 million households in slums in emerging markets, based on a 2014 report by McKinsey & Co.
For instance, in Pune, India, where the population density is seven times higher than in Manhattan, at 194,000 people per square kilometer, developers are building apartments between 396 and 794 square feet that sell for RS 10-25 Lakh, or $10,000–$25,000. Spurred by the government’s push to make affordable housing a priority, a growing number of developers and private equity firms are entering the market, including Janaadhar Infrastructure and Poddar Developers. India has a shortage of 18 million urban housing units.
“Technology is a game changer for this,” said Jonathan Woetzel, senior partner at McKinsey Global Institute. “Technology creates a set of solutions that we didn’t have before. It will make housing cheaper and land use better.
The construction industry is ripe for disruption. While productivity has surged in other industries, including manufacturing, it’s been flat in construction for more than a decade, at $65,000 a year per worker, according to McKinsey.
Whether the market and the industry develop fast enough to meet the needs is another question: Some 65 million people a year are moving into cities, Woetzel pointed out. Here are some of the new technologies driving the changes.
You wouldn’t think land could get lost. But in every city, there are significant parcels of land, sometimes owned by the government or a quasi-government agency, that aren’t available for development. Because so much of the price of housing is driven by the land, big-data mapping that combines geography with databases on land ownership and zoning to identify more land for development indirectly has been bringing down the price of housing.
For instance, an analysis of a sample of parcels in Riyadh, Saudi Arabia, found that 40 square kilometers zoned residential and have access to suitable infrastructure have remained idle for two decades, according to McKinsey.
Making more land available for development is key also in cities in the developed world, as in Monterrey, California, where the latest redevelopment of the former Fort Ord military base has been ongoing since 2012, with an emphasis on housing that’s affordable for workers. Most people don’t think of seaside Monterrey as the home of slums, but a shortage of land and the income disparities between agriculture workers and the highly educated high-tech workers mean it has had a notorious affordable housing problem.
“Technology is a game changer. … It will make housing cheaper and land use better.”
In the least developed cities in the world, many in Africa, where much of the land isn’t mapped at all and ownership isn’t clear, mapping technology is laying the groundwork for change. If property is mapped, developers often pay slum dwellers for land they occupy, then borrow against the land to finance housing construction and sell or rent housing to the former slum dwellers.
“Some really fantastic technologies are being used in mapping by organizations, like Slum Dwellers International,” said Julian Baskin, head of program at the Brussels-based Cities Alliance, a global partnership that includes the UN Habitat and World Bank, among others. “One of the first things they do is map settlements. By giving people an address, you give them a sense of identity within the city.”
New construction techniques
With land in greater demand in cities around the world, more developers and architects are designing tighter spaces with prefabricated materials that ultimately cost less and are the same or higher quality.
Computer modeling can more precisely estimate the strength and durability of different materials, like laminated timber and reinforced concrete, said London architect Simon Goode. That in turn is renewing interest in those materials, which may cost less to ship and takes less time to put together. A key to lowering costs is doing projects at scale: The incremental cost savings are small on an individual house but make a difference in sweeping affordable housing projects.
In the West Bank of Palestine, where land is at a premium, Goode developed plans for a community of houses selling for $40,000–$60,000 instead of the typical $120,000. The houses were smaller, with dual-use spaces like those common in Europe, and the houses made less use of expensive stone and used modular pieces, he said.
Goode, a partner in architecture firm Lyndon Goode Architects, passed on the building and design techniques to young women architecture students working outside Hebron, a city in the West Bank. One was from more secular Ramallah and the other from the more conservative Hebron; they worked together to develop a heavy built-in curtain for families who want separate spaces for women.
“Seeing these two women from two backgrounds working together to solve their differences through design … I feel really proud of our involvement,” he said. “We could pass on our optimism about the future of housing.”
Goode, who was lead director of the 500-million-pound high-profile redevelopment of the King’s Cross Station in London, said he is also working on a low-cost housing project for the YMCA.
In many cities, the government spurs the market by requiring the development of high-quality low-cost housing. For instance, in Barcelona, which is often held up as a place for profitable affordable housing development, the city government required a developer working on a brownfield site called La Marina to provide half of the 12,000 units for one-third of market prices. The business case proved profitable, McKinsey reported.
Solar power and other infrastructure
About a half-million solar panels were installed every day around the world last year, according to the International Energy Agency. Costs for solar photovoltaics are expected to drop by 25 percent by 2020.
The promise of small-scale solar panels to deliver power to slums has always been apparent. Now the decline in costs rippling through the housing market is enabling investments by governments and private companies in energy that weren’t possible before.
In India, for instance, the government announced late last year that it would spend $150 million on lighting in the slums in Kolkata. In Egypt, agriculture company Al Tayebat spent $1.1 million on a solar-powered village for its workers.
What’s different now is that the time to see a return on the investment in solar power has fallen. For instance, Goode said, an embassy building that his firm, Lyndon Goode, designed in Algeria will return the investment in five years, via lower ongoing energy costs, versus 15 years.
Nor is solar power the only infrastructure declining in cost. Digital networks are now reaching a much greater swathe of people, with more to come. Facebook, for instance, last year announced it would use satellites to provide internet to areas of Africa that aren’t connected.
The ultimate question
The question eventually is, if you can build increasingly higher-quality housing in slums, on land that is mapped and in communities that are hooked up to power grids and the internet, will they still be slums at all?
“Slums are places where people make the transition from rural to city,” said McKinsey’s Woetzel. “They’re pretty economically dynamic and productive places. So how do we improve the quality of the experience without losing site of the purpose of them?”
— By Elizabeth MacBride, special to CNBC.com