Has the construction industry broken its promise?

Petteri Lautso, Customer Value Director, Ruukki
Jun 19, 2017

Lately, when following the developments of the construction industry, it has been difficult to avoid hearing bad news. Serious deficiencies in quality have come up, some of the worst examples being mold problems and the durability of concrete. There are economic problems as well: Many major, traditionally executed projects exceed their budgets, apartments are chronically expensive in the Helsinki metropolitan area, and repair debts exceed property values in peripheral areas. And these headlines are being written when the industry has been doing well otherwise.

The industry has not been able to highlight its successes, such as the fact that construction has been able to adapt production according to the economic situation, and handle technically consistent basic production that complies with the legislation at the time of construction, sometimes even on a tight schedule and under challenging conditions. The energy efficiency and technical quality level of properties driven by legislation, and the quality of work performances and the products used, has been increasing steadily in the long term, while safety on construction sites has also improved.

However, the development of productivity is one step behind many other areas. In addition, users fail to appreciate the advantages of technical development; in fact, quite the opposite: Many consider them disadvantages. The construction industry is too crucial to society to fall behind. The production value of building construction in 2016 was 25.3 billion euros in Finland alone. If the industry does not instigate internal reform, its volume guarantees that it will be reformed from the outside. The same seems to apply to many other industries, such as taxis and television. Even though it’s a complex, regulated and localized industry, there is no shortage of newcomers. Apple and Google offer user interfaces for lighting and thermal management, among other things. Tesla offers renewable energy production and storage solutions for buildings of different sizes. In addition, there are countless major and minor newcomers that are happy with a limited role offering new models to the industry. There has been no sign yet of a similar challenge that taxi companies faced from Uber or terrestrial TV channels experienced from online streaming services. But this might be just a matter of time.

New technology brings the brains to the building promoter and the user from the drawing board

The industry is also going through changes on the inside. Operators who are willing and able to develop themselves have developed new tools that are often based on sophisticated technology for financial control and modeling. Ruukki offers features that affect the energy efficiency of large building exteriors, directly optimized to the client’s production requirements—also with a warranty. Construction company Fira ensures that plumbing repairs can be quick and pleasant. Designers are able to simulate functional and aesthetic user experiences with astounding accuracy. This means that, besides construction costs, a skilled building promoter can now also control long-term total costs from planning to demolition as necessary. Or they can ensure by measuring and using sensors that the building functions as it should.

Developers are not always users. And few building users are simply residents or workers. Developers are not always users. And few building users are simply residents or workers—take, for example, stores or logistics centers. In construction projects, customers are often represented by parties with conflicting interests. This is unknown territory for traditional builders, so the value experienced by the end user will remain an unfamiliar, poorly defined factor.

Why settle for less?

Many customers don’t even check that they have got what they wanted, only that the outcome is at the current acceptable quality level. This industry uses complicated subcontracting chains, and the products and services needed are redefined between each link so that they enable effective competition. This means that the features are defined to exclude deviant quality factors. The common aim has been to show that the project has been carried out with as low costs as possible and that there have been no actual mistakes at any point. The building is as good or as bad as others. When operating in this traditional way, each operator can point out that they were not the ones behind the mistakes. Not even if the building fails to fulfill its purpose or is not functional.

For experienced operators who are taking advantage of new opportunities, this situation sets a new challenge. It’s not enough that you just respond to quotes with the same old definitions; you also have to be able to sell. And this does not refer to a fictional outside view, location or area information, and a price tag without any reference to the level of quality or operating costs, as seems to be the case at the moment.

The most interesting turn of events will probably be that, at least according to Ruukki’s experience, we are now able to build technically and functionally superior buildings for our customers compared to basic production, and even more affordably than when done in the traditional way.

What will happen if the evolution of the construction industry escalates?

Buildings have other value besides their usefulness. They are used as collateral and investments. They are usually assumed to hold their value well. What does the intense technical inequality that the rapid evolution of the construction industry brings mean for the valuation of properties? And what does it mean for the owners of buildings that are lacking in their usefulness?

We have seen how urbanization has affected property values in outward-migration areas and how this in turn has hampered workforce mobility. In many cases, this phenomenon will certainly lead to difficult situations, as a significant share of assets may be tied to poorly realizable properties that have lost their value. Similar developments have not yet been seen in technical factors. Apartment prices don’t seem to be affected by the quality of ventilation or sound isolation, even though the standards are completely different between apartments built in the 1950s and those built in the 21st century. Then why should a developer assume that users will pay more if the roofs are acoustically superior? Or if any other features surpass the required quality level?

The solution to the challenges of the industry can be found in the user. We at Ruukki can already see how well the aforementioned acoustically superior roofs have been received by their customers, many of whom are owners of private houses. Enlightened consumers investigate the benefits of the solutions available and then invest in the best one when they have the chance. This is not far from a situation where a better user experience that results from an above-average technical level in a building can be taken into account in rents and prices.

Property values might indeed be a subjective, volatile factor that evolves according to users’ needs in the future, and not just dependent on location, the economic situation, and repair debts.

Has this entire industry forgotten what it’s capable of?

The construction industry might not have broken its promise, but because of the slow development of productivity and technology and insufficient communication, neither can we say that it has fulfilled its potential. This means that, at the moment, the industry offers lots of potential for operators who are able to not only produce added value but also sell it to building promoters and users. The ones who are able to describe and analyze how each customer’s priorities are affected are also able to stand out of the crowd.

Luckily, the industry already has a few pioneers. Whether they are new operators or old veterans, they have already been able to take this challenge on, so many others will most probably be involved as well.

As users, we will hopefully be charged with one pleasant task: Please remember to demand a little more.

Petteri Lautso
Customer Value Director, Ruukki

Contact Petteri on Twitter: @PLautso
Email: firstname.lastname@ruukki.com

Recent blog posts