Soon after Covid upended the world as we then knew it in early 2020, a refrain began to gain traction in a suddenly and almost magically resurgent new residential real estate and construction business.

Instantly almost the entire community adapted to a touch-less, virtual, sight-unseen, elegant, friction-reduced, and profoundly simplified digital shopping and buying experience that suited the pandemic self-induced economic semi-coma state to a tee. It did so because it had to and because it could and because it was time.

The business accomplished in 60 days what it hadn’t been able to do in a decade before that,” went a widely-embraced trope of the moment.

For a fleeting moment, housing of the future’s data and technology powered pathway seemed to know no bounds, spawning proptech, REtech, buildtech, automation and robotics, modernization, industrialization, and modern manufacturing initiatives by the dozens, attracting tens of millions of venture, private equity, and friends and family dollars. Founder and co-founder pedigrees that blended Silicon Valley start-up track records, with Wall Street capital chops, with scaled precision manufacturing, with deep-tech engineering, with real-world architectural, construction, and real estate experience teamed up, prototyped their break-through solution, raised capital, and plunged into the breach with the noblest of intentions given their current state of crisis:

  • Solve for housing affordability, attainability, and access
  • Solve for a chronic and worsening skilled labor imbalance
  • Solve for sustainability and resiliency at the home and community level

Even back then, in the pre-2022 Fed Reserve pivot “easy-money” regime, nothing felt like a sure thing when it came to validation and support. Nonetheless, start-ups that set out to solve the converging housing labor, affordability, environmental, and natural hazard crises proliferated and got big-dollar backers. Now, as economic, financial, and new investment conditions become downright Darwinian, those feel to many founders striving to steer fledgling building technology game-changers on a much leaner, meaner, and faster path to business validation and profitability like the “good old days.”

Meanwhile, since the Fed started winching up its Funds Rate, old-school stick- and site-build-centric homebuilding operators have thanked their lucky stars  for business and operational models loaded up with variable costs that can be cut out right on a dime, leaving a fixed-costs subsistence-level going-concern if that’s what survival required them to do.

Many, like Lennar, for instance, like to refer to their very healthy per-unit gross margin as a “shock absorber” that allows an operator to give back some margin basis points in price reductions and increased sales costs to keep order pace flowing sufficiently to pull through overhead and other expenses. Well, if profit margin is a homebuilding operator’s shock absorber these days, the breaking and acceleration systems come in the form of variable costs, which can be subtracted or re-added relatively quickly depending on the ebb and flow of demand for their new homes.

And here’s a data point that attests to how averse the nation’s higher-volume production homebuilding operators have remained insofar as adding to the fixed cost side of their balance sheets, and forfeiting their ability to slash variable costs if they have to.

Chart courtesy of National Association of Home Builders

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Video courtesy of Cuby

Q. How do you reach efficiencies with inexperienced workers?

Aleh Kandrashou

All of these stages consist of a kit of parts, called PAX. There are a number of kit of parts in one pallet that a worker needs when he or she opens it up to assemble it. It’s like an Ikea process, where they open the pack, and everything is included in these packs ready to install. This is how we change the way to build. We can actually use unskilled laborers without usage of heavy machinery on-site. We have a simple training system. We have a software program to control the assembling and manufacturing process. We have a software based on Unreal Engine software, where we do the virtual duplication of our factory, a digital twin. Workers work in one month in a virtual factory, using VR headset or with a laptop. After one month playing the game they 100% know what to do. And that’s how we decrease the level of skills workers require to succeed in the factory. It’s not construction anymore. It’s manufacturing, more specifically lean manufacturing. This software acts like an Uber for the workers where the worker come to the workplace, pushes the button and the system give him exact task. What he needs to do right now based on the pipeline of the houses is the factory need to produce them based on his personal skills. In manufacturing, there is a conveyor belt and this conveyor belt control the process itself. It means that one operation control previous operation, and so on. When you set up the factory, you begin the Lean Manufacturing approach. It’s called ‘catching a flow.’ It means that when you catch the flow, working nonstop, the production capacity increases 10 times. But in construction, it’s very difficult to catch the flow because it’s full of moving parts, fragmented trades, etc., that you need to control. This is not a miracle. This is why we reduce labor costs more than 10 times without any subcontractors in the factory. This is the most important piece to reduce as it’s the most expensive – 60% to 70% of any $1 that it costs to build is related to skilled labor hours.”