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5

Program Implementation

FORCES AFFECTING THE ADOPTION OF NEW TECHNOLOGIES

Market Forces

The adoption of new technologies by consumers and the housing industry will be crucial to the success of PATH. Regardless of the success of any one technology, PATH will not achieve its multiple goals unless many reliable technologies are developed and adopted quickly. Therefore, PATH will have to address market imperfections to encourage technology adoption, and will ultimately have to establish a hierarchy of products, materials, and systems based on their value for meeting the PATH goals and their probability of adoption.

Because PATH's goals are market driven, the program must be guided by a clear understanding of its customers and markets. Millions of dollars are being spent on developing technologies and delivery systems, integrating R&D into the existing government and industry structure, and analyzing government's role. However, primary research to define the characteristics of PATH customers, their motivation for adopting housing technologies, the influences of specific technologies, market dynamics, or the technologies most likely to be accepted is not being done.

At first glance, consumers should welcome technologies that perform better and either cost less or reduce the cost of ownership through short-term reductions in operation or maintenance costs. In other words, consumers should respond when the cost/benefit relationship is favorable and easy to see. If one looks more closely, however, home-buying decisions are very complex. Lifestyle, location, financing, and overall affordability are just a few of the factors that may take precedence over the attraction of new technologies.

Because the purchase of a house is a major, and complicated, buying decision, consumers generally gravitate toward known products that present no added risks or obligations. For PATH to achieve its goals, consumers must be made aware of the benefits of new technologies. A 1991 study, Advanced Housing Technology Programs, examined decision-making factors, such as consumer awareness, the formation of attitudes, trials and evaluations, and the adoption of new technology (NAHBRC, 1991). Increasing the general knowledge base is part of the implementation strategy for any new technology. However, reaping the full benefits of an expanding knowledge base greatly depends on the diffusion of that knowledge.

For consumers to have confidence in a new technology, they must be assured that it is reliable, as well as cost effective. Home builders, who are also consumers of new housing technologies, are driven by many of the same concerns as home buyers. Technological innovation in housing can only be successful if consumers somehow perceive it as providing greater value than the best available current practice. However,



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Page 33 5 Program Implementation FORCES AFFECTING THE ADOPTION OF NEW TECHNOLOGIES Market Forces The adoption of new technologies by consumers and the housing industry will be crucial to the success of PATH. Regardless of the success of any one technology, PATH will not achieve its multiple goals unless many reliable technologies are developed and adopted quickly. Therefore, PATH will have to address market imperfections to encourage technology adoption, and will ultimately have to establish a hierarchy of products, materials, and systems based on their value for meeting the PATH goals and their probability of adoption. Because PATH's goals are market driven, the program must be guided by a clear understanding of its customers and markets. Millions of dollars are being spent on developing technologies and delivery systems, integrating R&D into the existing government and industry structure, and analyzing government's role. However, primary research to define the characteristics of PATH customers, their motivation for adopting housing technologies, the influences of specific technologies, market dynamics, or the technologies most likely to be accepted is not being done. At first glance, consumers should welcome technologies that perform better and either cost less or reduce the cost of ownership through short-term reductions in operation or maintenance costs. In other words, consumers should respond when the cost/benefit relationship is favorable and easy to see. If one looks more closely, however, home-buying decisions are very complex. Lifestyle, location, financing, and overall affordability are just a few of the factors that may take precedence over the attraction of new technologies. Because the purchase of a house is a major, and complicated, buying decision, consumers generally gravitate toward known products that present no added risks or obligations. For PATH to achieve its goals, consumers must be made aware of the benefits of new technologies. A 1991 study, Advanced Housing Technology Programs, examined decision-making factors, such as consumer awareness, the formation of attitudes, trials and evaluations, and the adoption of new technology (NAHBRC, 1991). Increasing the general knowledge base is part of the implementation strategy for any new technology. However, reaping the full benefits of an expanding knowledge base greatly depends on the diffusion of that knowledge. For consumers to have confidence in a new technology, they must be assured that it is reliable, as well as cost effective. Home builders, who are also consumers of new housing technologies, are driven by many of the same concerns as home buyers. Technological innovation in housing can only be successful if consumers somehow perceive it as providing greater value than the best available current practice. However,

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Page 34 new technologies substitute the unknown for the known, which increases the perception of risk. Recent introductions of some new home-building technologies have had mixed results. Solar cells, for example, have achieved only limited consumer acceptance because of performance-related concerns, real or perceived. Vinyl siding, on the other hand, achieved broad consumer acceptance because it mimics the familiar look of wood, costs less than wood to buy and maintain, and comes with extended warranties for improved durability. Effective marketing by a builder can do much to mitigate a consumer's reluctance to accept a new technology. However, small and midsized builders, the majority of home builders, do not have large enough marketing budgets to promote innovations. Although small and midsize builders have often been innovators in advancing new technologies, a program directed at the diffusion of technology through large builders may have a more immediate impact on the achievement of PATH goals. Improving communications between consumers and manufacturers would go a long ways toward encouraging acceptance of new technologies. The social and psychological sciences can provide valuable information on factors affecting changes in consumer attitudes and the correlation of various behavioral traits, which may be useful for planning market research. A multivariate analysis of market drivers would help identify the factors that drive the diffusion, market saturation, and implementation of new technologies in U.S. housing. The analysis should be based on many factors, such as the type of home builder; the size of the home and the quality of finishes; and the consumer demographics and geographical region. Market research could be used to establish a hierarchy of targets with the potential for the highest payback and/or the greatest influence on meeting the PATH goals. Market studies could include surveys, focus groups, and other tools of discovery to identify: types of products most likely to be adopted regional biases influence of the professional sector price-point influence regulatory influence method of education preferred by consumers promotion of initiatives incentives for change levels of acceptable risk Technical Forces The home-building industry has four major areas of concern about new technologies: performance issues, economic issues, regulatory issues, and environmental issues. Performance issues include durability, uniformity, safety, ease of installation, structural ability, warranties, availability of technical support, and ease of maintenance. Economic issues include delivered cost, benefits to builders that influence cost, installed cost, and life-cycle cost. Regulatory concerns include fire codes, building codes, historic preservation, health and safety issues, and environmental concerns. Environmental issues

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Page 35 include energy efficiency, resource consumption, waste stream generation, the ability to reuse and recycle, and impacts on natural ecosystems and the indoor environment. Examples of how these issues have historically affected the introduction of new technologies and products can be found in Appendix C. Durability It is difficult to inspire code official, builder, and consumer confidence in new products without adequate testing and evaluation methods to demonstrate product performance and durability. The newly formed National Evaluation Service Building Innovation Center (NES BIC) was established to assist manufacturers in obtaining acceptance by building code officials for innovative new materials and products and recognition for products that exceed the life-safety requirements of the model codes. This service is designed to assess durability claims by manufacturers by means of “expert panels” that draft acceptance criteria and evaluate performance claims for new products. If successful, NES BIC could improve the prospects for technology diffusion in the housing industry. In addition to NES BIC, several laboratories, including the Building and Fire Research Laboratory of NIST and FPL, also have programs for developing durability test protocols for use by manufacturers. Regulatory Barriers Local Agencies Local regulatory agencies play a significant role in technology diffusion by incorporating national model building codes into local laws and regulations that govern residential construction. The acceptance of a new technology depends to a large degree on the cooperation and support of local regulatory officials, who in many jurisdictions have the authority to enact significant amendments to national model codes. These local modifications can create barriers to widespread change and economies of scale by limiting opportunities for uniform approaches to code compliance. The absence of uniform policies and procedures can affect the adoption of new technologies in many ways. For example, although the model codes encourage the use of performance-based design approaches, some local building-code officials prefer traditional prescriptive requirements. New model codes promulgated by the International Code Council (ICC) and other national organizations are increasingly being written from a performance perspective. These new codes provide detailed statements of intent and objectives, and the performance-based provisions go significantly beyond the options for alternative materials, methods of construction, modifications, and tests found in the current, more prescriptive codes. Nevertheless, the benefit of the performance-based approach will not be realized until local building officials feel comfortable approving performance-based approaches. One possible reason for their resistance is that it is more difficult to determine if a performance than a prescriptive standard has been met. The lack of support from local code officials for new technologies, although unwarranted, can

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Page 36 undermine a builder's motivation to try new and innovative technologies. However, there are also examples of new products (e.g., polybutylene pipe) being accepted that later proved to be unreliable (or total failures) in service. The indirect impact of regulations can be an even greater barrier to widespread diffusion of innovative technology. For example, zoning regulations often exclude factory-built housing in certain areas. Factory-built housing, including modular homes built to state codes and manufactured homes built to federal standards, generally make greater use than site-built housing of innovative technologies both in construction practices and in the application of materials and equipment. Thus, a regulation with little apparent technology impact can greatly influence the rate at which new technologies find their way into practice. A 1991 study prepared by NAHBRC for the Oak Ridge National Laboratory noted: Procedures for updating and amending land-use/zoning codes are often slow and cumbersome and are dominated by small groups at the local level. As a result, local officials are frequently slow to acknowledge the latest technological advances, and innovations are not reflected in the updating of codes or are not readily accepted as new products. An extension of this line of reasoning claims that codes, by directly impeding innovation and delaying construction, add substantially to housing costs. In particular, one study that focused on the cumbersome regulatory process concluded that variations in codes reduced the size of potential markets, dampened profitability, and, therefore, discouraged investment in research and development. On the other hand, it has been argued that codes do not directly impede technological innovation. Codes seldom prohibit the use of newer materials and processes; and, even if specific restrictions are imposed, codes assume secondary importance. As shown by the case of plastic pipes, most innovations are able to survive regulatory obstacles. Nonetheless, the time and expense necessary to obtain code approvals was one of the factors that hindered commercialization of metal framing systems and corrugated steel tubing for the distribution of gas. Evidence on the importance of increased costs resulting from regulation is conflicting, but the substantial resources of a major firm or institution are often required to sustain the time and expense of obtaining code approvals for innovations. The committee believes this observation is as valid today as it was in 1991. Administrative procedures used by local building departments can also inhibit the introduction of new technologies. Many builders hesitate to use new technologies even if they meet the performance requirements of the codes because they might generate a confrontation with the regulatory environment. Builders using unconventional or unfamiliar technologies are often required to substantiate the performance of these technologies through expensive testing, evaluations, and engineering analysis. The process for securing approval of new technologies varies in extent and format from one jurisdiction to another. Some jurisdictions set the burden of proof so high that using innovative technologies becomes too difficult and not cost effective. The development of more efficient, collaborative administrative procedures could facilitate the diffusion of new technologies. For example, in appropriate situations, innovative quality-assurance approaches could allow the manufacturer or builder to self-certify the construction using a preapproved methodology. Manufacturers or builders

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Page 37 with a poor record of quality control could be monitored more closely and charged accordingly for this service. Manufacturers or builders with a history of consistently good quality control could be monitored less frequently, with progressively greater opportunities for self-certification. HUD codes for manufactured, modular, and industrialized buildings 2have encouraged the rapid adoption of new technologies. A one-step approval process based on performance standards and a uniform and streamlined oversight mechanism has contributed to continuing improvements in manufactured housing. The federal government is able to apply a preemptive code to manufactured housing through its authority to regulate interstate commerce. State and local governments regulate conventional housing and generally resist federal intervention. Federal involvement in the local regulatory framework for conventional housing may not be feasible, but PATH could identify the aspects of the HUD Code that would encourage the diffusion of new technologies for conventional site-built construction. The certification of new technologies through a credible testing and evaluation program would also help reduce regulatory barriers. Historically, testing laboratories have certified building products in laboratory settings under carefully controlled conditions, but problems occurred when products were deployed in the field. Approvals and certifications based on limited performance data may have some value to the engineering community but do not necessarily inspire confidence in code officials and consumers. The federal government, through PATH, could play an important role in improving the evaluation of new technologies by developing methods and promulgating standards for tests that simulate actual-use conditions. If resulting performance information and product certifications are easily understood and accepted, they could facilitate the acceptance of innovations. Education and training would encourage the acceptance of performance-based regulations and regulatory procedures that support the diffusion of innovative technologies. The federal government, through PATH, could play an important role in the development of comprehensive educational and technical assistance programs for local officials and other interested parties. Technology-related educational programs could build on the effective training and educational tools currently offered by model code organizations. The committee believes that greater participation by the codes and standards community in PATH will be necessary. Federal and State Agencies Although federal and state governments are generally not perceived as direct barriers to the advancement of new technologies, their actions or inaction in the areas of comprehensive planning, building codes and standards, infrastructure administration, taxation, and impact fees can have a significant impact on the realization of PATH goals. For example, federal and state governments enact broad enabling legislation for land use 2 The federally mandated Manufactured Home Construction and Safety Standards or HUD Code, which is administered by HUD through independent third party inspection agencies, is the federal counterpart to nationally recognized private-sector model building codes. Individual states throughout the country have adopted one or more of the model codes for site-built homes. The HUD Code is the only code mandated to be nationally recognized, with preemptive status for manufactured homes.

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Page 38 and zoning that frequently become barriers to the use of new technologies. The authority to address land-use issues is generally delegated by states to local governmental bodies. Although state governments and, in some instances, the federal government have the authority to intercede in local regulatory issues, this rarely occurs. The committee believes that a viable alternative would be for federal and state governments to approach regulatory issues through a cooperative process by providing educational and technical assistance to local governments. Educational programs could help local governments understand the potential social and economic advantages of changes in their regulatory approach to technological innovation (COSCDA/NCSBCS, 1994). Federal and state governments could create an atmosphere conducive to innovation and provide leadership to ensure that changes were applied consistently across various jurisdictions. PATH has already initiated some demonstration projects at the state level that have the potential of reducing regulatory barriers. Associations representing state and local interests, such as the Council of State Community Development Agencies, the Association of Major City Building Officials, the American Planning Association, and the National Conference of States on Building Codes and Standards, could provide valuable assistance by encouraging PATH-related efforts at the state level. PRELIMINARY EVALUATION OF PATH IMPLEMENTATION ACTIVITIES According to the PATH strategic plan, the program strategy consists of the following initiatives designed to achieve the PATH goals (HUD, 2000): Technology Needs Assessment S1. Identify cost-effective technologies that will further PATH goals but are under-utilized. S2. Identify technologies with demonstrated technical potential for furthering PATH goals but limited market share, and evaluate potential for achieving broader market acceptance. S3. Identify research gaps in advanced housing technology development to set priorities in support of industry and government research and development that will further PATH goals. Technology Development S4. Encourage basic research and testing of new housing technologies through better coordination and documentation of government, university, and industry research.

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Page 39

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Page 40 Funding for Research and Development Cooperative Research The strategic and operating plan for the PATH Program notes that the rate of investment in R&D for the housing industry (0.2 percent of total revenue) is low compared to other industries and that the ultimate success of PATH will depend on increasing investment in basic and applied R&D. The major reasons suggested for the lack of investment are unresolved liability issues, restrictive building codes, market fragmentation, and the lack of consumer awareness. The strategic plan suggests that by shortening the time from development to widespread market adoption, PATH could improve the return on investment for industry and thereby encourage increased investment. Several of HUD's Notices of Funding Availability (NOFA) have included requirements that proposals address several PATH goals concurrently. These multiple requirements are confusing and make an effective response to an NOFA difficult. National Science Foundation In FY00, NSF issued a solicitation for research projects to be undertaken by university investigators, with possible private sector collaboration. An additional call for proposals from private entities was also solicited through NIST. NSF announced its first round of PATH grants in September 2000. Grants totaling $1.35 million ($0.9 million form PATH funds) were awarded to 10 of the 82 research proposals submitted for consideration. The proposals were judged on their impact on at least two of the four PATH goals. The topics of the selected projects 3 are shown below: fragility methodology for performance-based engineering of light-frame residential construction (two projects) optimized frp-reinforced osb panels for disaster-resistant construction the interdependency of the fire protection membrane and the structural response of light-frame engineered wood floors and ceilings skill-driven optimization of construction operations prediction of manufactured home durability using field experiments in hazardous winds eave icing of residential buildings precast post-tensioned clay masonry walls for high performance modular housing modeling of manufactured housing production and material utilization experimental assessment of site integrated planning and information technologies in residential construction 3 Abstracts of these projects may be viewed on-line at: https://www.fastlane.nsf.gov/a6/A6AwardSearch.htm and entering “advanced technologies for housing” as the keyword.

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Page 41 NSF-funded projects are generally funded for two years but it will probably take many more years before the new techniques, materials, or applications developed, have an impact on housing. Demonstration Projects PATH partner agencies conduct field evaluations and demonstrations to introduce technology to the home building industry and consumer groups. The primary purpose of field evaluations, which are structured as a controlled field experiment, is to gather data to fill information gaps. Demonstrations projects normally integrate several technologies into actual homes in working subdivisions and typically involve 25 to 100 units. Their purpose is to illustrate and evaluate how technologies perform on a community-wide or production scale. The PATH program office generally serves as the information broker for these projects. The committee believes that field evaluations and demonstrations are critical elements in the PATH strategy for several reasons. First, they can demonstrate that the technologies actually perform as described. Even though this is not equivalent to long-term performance experience, it does provide prompt feedback to the building community on new technology. Second, the demonstrations can introduce the local code and regulatory community to new technologies. This is significant not only for raising the confidence level of this important group but also for developing approaches for addressing regulatory concerns. The committee believes that PATH should be particularly cognizant of the value of “lessons learned” and should document and share them as part of its technology diffusion efforts. Roadmapping In May 2000, the Industry Steering Committee designated three technology areas to be examined in detail by roadmapping task groups made up of builders, housing remodelers, manufacturers, and researchers. The three technologies chosen to start the roadmapping program are: information technology to accelerate and streamline home building; advanced panelization systems; and whole-house and building-process redesign. Roadmapping is currently envisioned as the critical guide to planning future PATH activities. However, the roadmapping program involves a relatively small population that should be expanded to include a wider cross section of stakeholders from industry segments, geographical regions, and consumer income levels. Technology Inventory PATH's Technology Inventory is a database of information on technological innovations in the housing industry. The inventory includes technologies currently considered to be “emerging” (i.e., with a market share of 5 percent or less) in a wide range of categories, including new materials, components, systems, and complete houses.

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Page 42 Each entry in the inventory presents a review of how the technology contributes to PATH's overall goals. Technologies are added to the inventory based on information on a Technology Entry Form submitted to PATH for review. Submissions are chosen if they contribute to one or more of the PATH goals. The committee believes a program focused on existing, underutilized technologies could be very productive. Existing technologies can be cost effective because they have usually passed through the introduction phase, and overcome some major obstacles in the building codes. However, it is important to determine why a technology has been underutilized and if there are market imperfections or other barriers the government could help to remove. Technologies in the PATH inventory should be screened and ranked by a composite index of the effectiveness of their impact on meeting PATH goals and the likelihood of their adoption. ToolBase NAHBRC publishes ToolBase News, an internet-based newsletter that combines two former publications, Building Excellence and HOMEBASE NEWS. A related program, Toolbase Services, provides a database of solutions to construction problems, technical information on building products and systems, and benchmarks for business practice. 4 In the Path FY2000 Strategy and Operating Plan, ToolBase Services is described as PATH's primary information delivery system. The committee believes PATH should evaluate the effectiveness of ToolBase Services and determine the audiences it has reached and how they have responded. ToolBase should be evaluated for its impact on PATH's overall information dissemination objectives. CONCLUSIONS AND RECOMMENDATIONS The committee believes that PATH is playing an appropriate role in advancing technology in housing by striving to bring together the diverse groups involved in the U.S. housing industry and facilitating discussions of PATH-related issues. Despite the dual and difficult requirements of being a program open to all stakeholders and, at the same time, narrowly focused on achieving its program goals, PATH has accomplished several important interim objectives. Perhaps most important are the communication and collaboration links that have been forged between government and the housing industry, which will be key to the ultimate success of the program. Links between U.S. government agencies have also been developed, and the organizational and management infrastructure necessary to carry out coordinated projects and programs has been put in place. However, the committee believes that the program must have a clearer understanding of its multiple audiences and the market dynamics of each in order to target its existing programs and plan future activities. Implementation of the strategic initiatives designed to achieve individual goals has begun, but it is too early to evaluate its effectiveness. Similarly, some baseline 4 ToolBase and Toolbase Services are available on line at http://www.toolbase.org.

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Page 43 development is under way, but as previously noted, developing meaningful baselines for several of the goals will be difficult because of the lack of data. PATH has made extensive use of field demonstrations, which the committee believes are an effective method of showcasing and encouraging the use of new technologies. Although these demonstration projects have successfully shown the economic viability of selected technologies, there is no evidence that they have influenced decisions in other projects or led to any long-term gains toward meeting the PATH goals. The committee believes that technology roadmapping is a good approach to identifying needs and influencing changes in the housing industry, but PATH's roadmapping process should be refined and expanded. Expanding the use of current off-the-shelf technologies is an important component of PATH's strategy. However, the committee believes that the technologies included in the current Technology Inventory should be further evaluated and information on their quality and effectiveness added to the database. The current inventory focuses more on individual products than on processes and does not address technologies for improved materials. The scope of the Technology Inventory and the effectiveness of the ToolBase program, among other strategies for transferring information to home builders and other audiences, should be evaluated. Recommendation 6. PATH should continue to provide seed money for research and development of new technologies, foster PATH name recognition to promote PATH goals and technologies, and educate and transfer information among its diverse stakeholders. Recommendation 7. PATH should expand its use of demonstration projects to help develop market recognition for the PATH Program. Demonstration projects should be planned to measure the performance and value of new technologies and disseminate information to promote and facilitate the use of the demonstrated technologies. Recommendation 8. The roadmapping process should include basic and applied research, technology transfer, and process and planning issues in addition to materials and hardware. Participation in the roadmapping process should be expanded to include representatives of the financial, insurance, real estate, planning, and regulatory communities, as well as trade, labor, and consumer groups. The roadmapping should also identify opportunities for academic/business partnerships. Recommendation 9. PATH should develop standard evaluation procedures, including the benchmarking of technologies that have been successfully integrated into the housing industry, to increase the usefulness of the Technology Inventory. The effectiveness of the ToolBase program in transferring information to home builders and other audiences should be evaluated. REFERENCES COSCDA/NCSBCS (Council of State Community Development Agencies/National Conference of States on Building Codes and Standards). 1994. Making Housing

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Page 44 Affordable: Breaking Down Regulatory Barriers, a Self-Assessment Guide for States. Herndon, Va.: National Conference of States on Building Codes and Standards. HUD (U.S. Department of Housing and Urban Development). 2000. Partnership for Advancing Technology in Housing (PATH): FY 2000 Strategy and Operating Plan. Washington, D.C.: U.S. Department of Housing and Urban Development. NAHBRC (National Association of Home Builders Research Center). 1991. Advanced Housing Technology Program Phase I. Upper Marlboro, Md.: National Association of Home Builders.