How Construction Is Changing without Being Impacted by Legislative Red Tape

The construction industry has always been one of the most heavily regulated. But with the latest technologies, innovation, and new ways to build, it's never been more possible for work to continue on time and within budget. In this episode, we discuss how these changes are helping to build smarter, faster, and better than ever before!

Cuby makes better buildings by developing and operating turnkey, transportable factories that output easily assemblable parts and offer the world’s most efficient, precise, repeatable, and sustainable processes for the construction industry. It is building better buildings for the people who live, work, and play in them by reshaping processes for those who deliver them. Cuby offers solutions to vertically-integrated developers and construction companies.

Know more at http://cubytechnologies.com.

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How Construction Is Changing Without Being Impacted By Legislative Red Tape

The sticks and bricks knowledge is very much like healthcare, flesh, and bones. When you're dealing with the human biology or where people live, the Maslow's hierarchy of needs, these are some of the most critical things that affect your sense of experience in the world is where you live and how you live, and the experiences around that. That's going to be heavily regulated because if things go wrong, they can go wrong. You touched on that, too. The red tape, the bureaucracy, and the legislation is perhaps holding back the industry.

Do you mind if I add something to the red tape? My partner will talk about it and our backgrounds. When we were building what we were building, one of the mindsets we've always had was don't reinvent the wheel. We're trying to have our process the skies, this regular construction. We don't want to fight the red tape because that's not a battle you could win.

When you're doing things that are a bit more nuanced, 3D printing is an incredibly interesting alternative material, but you're at the whim of something you can't control, which is the legislative side of construction. When you build buildings and build a 100-unit multifamily building, you're putting 100 people or potentially more, depending on the density at risk. That's why it's so slow to move and adopt new materials, technologies, etc. If things work, don't break them. That's the mentality.

Not just that, and this is exactly where I wanted to go next. You have a lot of great underlying IP and technology, but how you position it is key. To paraphrase what you're saying, dumb it down and make it easy to understand. If you can tie what you're offering to some of the biggest problems in the law and affordability, humans need shelter, and they need safety, you're going to gain adoption.

If you come in with this very high-tech scary AI-driven pitch, you're going to be bound by confusion where regulators, committees, and local council boards are going to be very confused about how to deal with this. They're going to slow you down because they want to protect people. You've got to shift the industry from thinking about protecting people against technology to solving their core need, which is creating more affordable housing and solving some of the problems that exist in the construction industry.

It's interesting that you say that because construction is to blame for some of the prices and where affordability is going. It's probably the biggest crisis we don't talk about in the US enough. I guess we're starting now. If you look at the basis, it's one thing, but part of the basis is the construction piece, and people keep blaming materials. As we saw in 2021, lumber prices skyrocketed. Ironically, materials are only 30% of the construction costs. If you look at a dollar per square foot, 30% is materials-related, and 70% is labor. Going back to the labor, it's because young people aren't replenishing the labor force that's coming out and retiring.

These are a lot of trade skills that take time to replenish. You have to train and certify someone, etc. That's why you see on construction sites electricians and plumbers making $80 an hour, and developers still are in their margin. That's why you're seeing prices go up so high. You see rent and housing are not attainable at this point. Construction solves a lot of things. If you can figure out how to bring that price point down through basis, you're unlocking more opportunities for developers and incentivizing them to build more.

Even if land basis continues to go up and thus, they can pass those cost savings down to the consumer. Part of that is also why you're seeing such a right political word. You're seeing the crappy product being delivered, not just across housing, but everything from the office to hospitals. The product is crappy because developers are fighting a cost game, and they're incentivized to build whatever's cheapest for them to produce the highest margin. When you look at buildings, that's why buildings are not built to the same standard as a beautiful iPhone or a Tesla because there's a cost equation that you're playing with.

Technology can come in and expand margins for everyone involved.

Technology can come in and expand margins for everyone involved. What you're doing is flipping it on its head, changing the entire way. Rather than building on-site, you build offsite. Talk to us a bit about this trend and not as diving into your company, but there's a whole wave of prefab, modular companies out there. I personally invested in Boxville, which is also going to be like the Amazon or Tesla of housing. Talk to us about this trend and a bit about where Cuby fits in that megatrend.

Let's take a step back for a second, which is a fun history lesson. If you look at prefab, it's literally existed for decades. If you look at the Soviet Union, those big concrete panels that were produced to build Soviet housing, the Soviets have had this for many years. It's nothing new, this concept of prefab. There was this emergence of modular where someone builds a box outfitted with essentially a building that stacks on top of rooms, bathrooms, etc.

The problem with modular, at least the way we look at it, is this concept of producing a product and selling it to a developer. It becomes very binary. There are not a lot of levels of customization. You truly need asset classes in real estate that are repeatable and quality. Think about producing 100 of the same Hiltons or McDonald's. That works, but unfortunately, most real estate is very custom.

Every piece of real estate is meat. Even if developer A and developer B build the building next door to each other same basis and costs, unfortunately, they always come out different. That's the problem with construction altogether. How could that be? If you're buying a Toyota Camry and the guy behind you and the next car in the production line comes out different, that's a big problem because you pay the same price.

On the investor side, it's very frustrating when you're trying to pencil budgets together and you have overrun. You think to yourself, "Why is this happening? This shouldn't happen. Why are there so many surprises?" That sensitivity and the variance of a budget can destroy your returns as an investor. You take a lot of risk on the investment side of things on the principal side. When you start to go into construction, your level of risk and a lot of unknowns are phenomenal.

The issue is modular emergence. Modular is perfect when you're building hotels. This is a repeatable product but still modular, too. You have these giga-factories producing this box. The thing with this box is it's not properly manufactured. There are some components of an assembly line or a conveyor belt, but what these groups have done is they've taken a construction worker, some guy, or a girl with a hard hat who's doing the same construction process under the roof of a warehouse.

Nothing about that mimics the way Toyota builds cars. If you've ever read The Toyota Way, it's an incredible book. My Cofounder lives by that entire principle, which is how you make that conveyor belt better optimized, create a better efficiency of the process behind it, etc. The modular is one element of that, where you're building a binary box, and the developer has to agree whether it fits into their project or not. That's a focus on an end product. Whereas we believe we need to focus on the process.

Prefab is a little better in the sense that prefab allows you to customize a bit more. In prefab, you're producing different kits of parts to a building offsite, flat packing, or shipping them to the construction site. In both of those instances, you're faced with the issue that even if their process works, this process is great, and it is lean manufacturing, you lose all the benefits of productization, labor hour reductions, and efficiencies. You're adding this element of 3,000 to 4,000 miles in between. That's a big impact on CO2 emissions. Even if you're flat packing timber, the fact that you have to go and transport it 3,000 miles is a big thing no one's talking about, and they will be at scale.

You truly need asset classes in real estate that are repeatable and quality. Unfortunately, most real estate is very custom.

You're not simply passionate about a letter like FedEx. Here you need security escorts.

Imagine taking 100 of these 20X20 or 20X40 panels. You need hundreds of those shipped to the construction site and the different parts. It's not like mailing a FedEx envelope. You're talking about convoys going from A to B.

In some cases, you're shutting down streets. You're getting permission and police escorts with the level of complexity with logistics. This is something that is out of the box. You can see and buy these modular prefab homes for $50,000. What you forget is you might spend $20,000 or $30,000 on transport, installation, and setup.

I believe the reason why companies like Amazon are building warehouses all throughout the US is to figure out last-mile delivery. The further you are from the customer, the more complexity there is. It increases non-super linearly. The further away you are, the more complicated it is. We're talking about sticks and bricks here combined together.

That's where prefab is now heading towards. Everyone's trying to have a local factory or work with a local factory to produce their product because they realize a big constraint. Here's the thing. Even if you build a local factory, at some point, that local factory will build everything it needs to build in the serviceable area. You run out of space. You've built everything you needed to build in that geographic region. What do you do then? Does that plant shut down? What happens?

That's why we approached it with these mobile factory approaches, which we can talk about down the line. If you look at the industry as a whole, prefab or a modular is great, but no one's emerged as this deep player. No one has integrated with everyone. It's this still also fragmented approach. Everyone has a different solution. I'm glad that there are all these players focused on it. The next Tesla will come from this industry.

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About Zain Jaffer:

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30," "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.