Construction is booming in Los Angeles, with major developments underway across the region. From the Los Angeles Rams’ new Inglewood stadium project to the bevy of high-
rises downtown and creative office and studio developments in Culver City and Hollywood, the building industry is a critical driver of the local economy.
But construction is also one of the market sectors that has been most reticent to innovate. According to a new study released by the Federal Reserve Bank of San Francisco, slow adoption of technology has led to stagnation in the industry’s productivity — the biggest contributing factor to a slowing rate of gross domestic product growth over the last 70 years.
“Construction more than any other sector stands out by a considerable margin for its contribution to the trend decline of GDP growth since 1950, accounting for close to (one third) of this decline,” the Federal Reserve study found.
Authors Andrew Foerster, Andreas Hornstein, Pierre-Daniel Sarte and Mark Watson found that “total factor productivity” in the construction sector, a measurement of worker output, was virtually unchanged during the latter part of the 20th century and into the 2000s.
The sector’s failure to see any substantive gains in productivity over that timeframe stands in stark contrast to most market sectors, which saw broad gains in worker output, the study found.
But that failure to adapt to new technologies has left an opening for modernization — something venture capital firms are beginning to take note of, investing heavily in innovative new construction companies.
A study by funding tracker CrunchBase Inc. found that VC investment in construction technology companies had more than tripled to $582 million in 2017 from less than $183 million in 2013. The total number of venture deals for construction tech firms also jumped during that timespan to 87 from 44.
Some VC firms, such as Beverly Hills-based Navitas Capital and Venice-based Fifth Wall Ventures, are even specializing in construction and real estate technology investment.
One particular slice of the construction sector where productivity could use a serious boost is housing. In the midst of a housing and homelessness crisis, Los Angeles is desperate for innovation.
If builders adopted technologies to improve labor output, it could lend some speed and efficiency to the development of much-needed housing.
