Promoting Innovation: 2002 Assessment of the Partnership for Advancing Technology in Housing (2003)

The mission of PATH is to improve the performance of housing and the housing industry by fostering the development and diffusion of innovative technology. PATH’s original goals were to improve the performance and reduce the cost of housing. The NRC committee noted in its 2000 assessment report that the complexity of housing performance issues and the limited role of technology in determining housing cost made housing performance and affordability goals inappropriate measures for PATH (NRC, 2001). PATH has now refocused its goals on intermediate outcomes (removing barriers to innovation, disseminating information, and fostering research) that affect the rate of innovation in the housing industry.

By refocusing its goals, the program has created an opportunity to directly assess its impact on the housing industry. However, PATH planning and evaluation have been hampered by the lack of housing-specific paradigms to describe the development and diffusion of innovation and by the limited amount of baseline data. Other than an estimate of the dollars spent on housing-related R&D, there are no data on innovation in housing construction that measure the rate at which new technologies are developed and adopted. There is general agreement that the housing industry needs to be more innovative, but this is mostly based on anecdotal information (NAHBRC, 1998).

PATH was created on the hypothesis that there is insufficient innovation in housing. It was developed as a program that supports activities to address issues that are perceived by the housing industry to be the primary causes of the problem: barriers to innovation, lack of accessible information, and insufficient R&D (NAHBRC, 1998). Yet a number of technologies broadly adopted in the last quarter century—such as power nailers, engineered wood products, house wraps, energy-conserving glazing, and prefabricated components—have made homes easier to build and more comfortable to live in.

Although the approaches PATH has taken may be appropriate, much more information is needed to fully evaluate the lack of innovation, the appropriateness of activities to address the problem, and how they affect the housing industry. Lacking specific information on the development and diffusion of

technology in housing, the following discussion applies general theories of innovation to the information available on the housing industry to describe what the committee believes is an appropriate course for PATH. This general information illustrates what could be expected of PATH and is a baseline for the committee’s program evaluation in Chapter 4.

The need for PATH described in the committee’s 2000 assessment report (NRC, 2001) arises from economic and social factors inherent in the housing industry in the United States. These include specific market failures relating to public goods, externalities, and information asymmetries.¹ PATH has the potential to effectively address these market failures by identifying, understanding, and removing barriers to innovation, disseminating information to all participants in the housing industry, and undertaking research itself and facilitating privately sponsored research.

The application of technology to housing design, construction, and operation offers opportunities for improved affordability, energy efficiency, comfort, safety, and convenience for consumers. New technologies and production processes could help resolve serious issues facing housing producers, including labor shortages, interruptions due to inclement weather, quality control, and theft and vandalism. However, it is generally believed that realizing these benefits broadly is, to a large extent, hindered by characteristics of the housing industry that inhibit the development and diffusion of innovations. The challenge for PATH is to capitalize on the momentum of ongoing technology development in order to increase the rate of innovation in the industry. To meet this challenge, it needs to plan a program that responds to the properties of the housing industry that determine the development and diffusion of new technologies.

A body of knowledge and research on the nature and dynamics of the development and diffusion of innovation has been built over the last 100 years (CI, 2002). Previous reports on innovation in housing (Blakely and Shepard, 1996; Koebel, 1999) have used the innovation paradigm published by Everett Rogers (1995) and provide some basis for applying this paradigm to the evaluation of PATH.

Innovation can be considered anything that seems new. It can be new to the world, the industry, a company, or a person. For this report, innovation is synonymous with new technology, both hardware (materials, tools and appliances) and software (process and information). For PATH to be successful, it needs to influence the development and diffusion of new technologies so as to increase the probability of their success.² By facilitating technology transfer, PATH-sponsored activities can help define the

opportunities for and potential advantages of innovations. By bringing together creators and adopters of innovation, PATH can help reduce incompatibilities and address potential complexities that might become barriers to innovation. PATH-sponsored field evaluations and demonstration projects have the potential to increase the trialability and observability of products and thus reduce the time needed for the industry to observe the benefits of new technologies. By eliminating barriers and increasing the rate of diffusion, PATH can provide incentives for private investment in R&D.

Sources of innovation are many: innovation may be driven by the basic curiosity of scientists looking for new knowledge, or it may result from the need to solve a particular problem or from the synthesis of different lines of research that generate new ways of looking at old problems (Smith, 1987). The source of innovation can occur at any point in the supply chain from end-users to material suppliers, manufacturers, researchers, and others whose jobs or well-being are affected by new technologies. Eric von Hipple has shown through numerous case studies that innovation will take place where there is greatest economic benefit to the innovator (von Hipple, 1988). Thus, programs intended to stimulate innovation need varied approaches that reach all possible sources of innovation and stimulate communication among all possible stakeholders.

Earlier attempts by the federal government, including the Civilian Industrial Technology Program initiated in 1962 and Operation Breakthrough initiated in 1968, failed to have the desired effect on the housing industry in part because they emphasized the development of technology without addressing the barriers to diffusion.

The committee previously recommended that, at this early stage of its development, PATH should emphasize activities aimed at increasing the diffusion and adoption of existing technologies (NRC, 2001, 2002). As Rogers noted:

Rogers defines diffusion as the process by which an innovation is communicated among members of a social system through certain channels over time. A federal program like PATH is ideally suited to enhance communication by developing and disseminating information about innovations.

The process that guides a technological concept from creation to ultimate market acceptance is tremendously complex. It is logical to assume that consumers would welcome technologies that perform better and are more affordable and that builders would be standing in line to provide these advances to their clients, but there are often barriers that slow or prevent this process. These barriers need to be identified, understood, and overcome if innovation is to be increased in the homebuilding

industry. A rigorous effort will be required to fully identify and understand the barriers. The following is a summary of barriers to innovation identified by the committee as possible initiatives for further action by PATH:

• Education: Home construction is a trades-based industry with a workforce that has relatively little formal education (EUROPA, 2002); the industry has a pervasive culture of experiential learning (on-the-job training). The level of education attained by a homebuilder has been shown to have greater influence on the adoption of new technologies than the fragmented structure of the industry, which is often cited (Blakely and Shepard, 1996). To reduce this barrier, education for the housing industry should be systemic and embrace all who are involved in the network that connects creation of an innovation to market assimilation. PATH could help the building industry examine the way it trains its workforce. Education in conventional and innovative technologies is important for those in the workplace, markets, and professional service. Collaborations between industry, employee groups and unions, professional societies, and academia can lead to much-needed workforce education programs in both traditional and innovative formats.

  It would be erroneous for PATH to focus its efforts solely on the supply side of the housing economy. A basic economic principle is that any program that attempts to affect the supply of goods or services should also pay attention to the demand for such goods or services to prevent distorting the market. This could be achieved, in part, through partnership with the U.S. Cooperative Extension Service of the Cooperative State Research, Education and Extension Service (CSREES) within the USDA. CSREES is linked to every county in the country through working arrangements with each state’s land grant university. Many of these universities have Extension Housing Specialists on their faculties who are engaged in large-scale consumer education programs.

• Risk: Huge costs are assessed to any company that needs to defend itself in a civil suit—even if it is not at fault. The cost of damage awards can be even larger when companies are actually in the wrong. In addition, the possibility of callbacks and the expense of unanticipated repairs discourage builders from trying new products. Builders are thus pressured to adopt an ultracautious approach to protect both their profit margins and corporate reputations. Also anxious to avoid risk are the officials who are responsible for ensuring the general safety and welfare of the public. Building officials want proof that new technologies work. It is unlikely that they will encourage or even allow use of an unknown technology. Homeowners consider the purchase of a home to be complicated and intimidating. This makes consumers also unlikely to accept the risk associated with new technologies.

  Officials, builders, and consumers need to be informed about the benefits and proven performance of new technologies in order to create a consumer pull for innovation. The sharing of experiences among colleagues and peers is an important step toward removing the barrier of perceived risk due to insufficient knowledge about a process or material. PATH can also facilitate private programs for the evaluation, testing, and certification of housing innovations.

• Fragmentation: Participants in the system may share an interest in promoting innovations that improve the delivery and performance of housing, but a fragmented system restricts peer interaction. Participants are separated by inconsistent terminology, gaps in technical expertise, and reluctance to trust the information conveyed because of conflicting business interests. PATH has the potential to bring all the participants together to convey unbiased information about new technologies.

• Regulations: There are several model codes, with numerous editions and thousands of code interpretations, enforced in this country. Neighboring municipalities, even in states that have a statewide building code, often have different interpretations and requirements for a given construction application. The extent of local discretion and the resultant inconsistency in approval of new technologies increase the difficulty of introducing new technologies. Few if any regulations promote innovation and enhanced performance.

• Cultural values: Consumers gravitate toward traditional, familiar products that present little risk. In general, consumers’ housing choices display a preference for products that resemble the homes they grew up in when making housing decisions (Deane, 2001). Off-the-shelf technologies and effective procedures to improve sustainability, such as the use of engineered framing systems that consume less lumber, reduced environmental impact of alternative materials, or construction recycling practices are not valued or even considered by most homebuyers.

The transfer of information is at the heart of all phases of the development and diffusion of new technology, and the channels of communication for the housing industry are many and varied. No single approach will effectively diffuse all the information needed to advance technology in housing. Successful technology transfer for innovative R&D often requires cross-disciplinary communications that operate outside normal scientific and technical channels. Mass media have proven to be effective in the early stages of adoption, but the rapid spread of information to later adopters depends on peer-to-peer communication, which in turn requires better-defined, more specialized channels for the information adopters to understand and evaluate new technologies. In order for PATH to use information as a tool for eliminating barriers, there needs to be a thorough understanding of the myriad channels of communication and their unique qualities of language and custom.

The source and quality of the information as well as the means of communication all need to be considered when information to advance technology is disseminated. The source conveys to the receiver a sense of the authority and reliability of the information. Usually the sources that most closely resemble the receiver (peers) are the most trusted; yet interdisciplinary communication is also important to the development and diffusion of new technology (Rogers, 1995).

PATH is in the position of a switchboard to connect all the channels of communication. It can accomplish its goals by ensuring the clarity and reliability of the information and using all appropriate means to transfer it.

Section 833 of the Housing and Community Development Act of 1992 directed HUD to study the extent of research in the United States housing industry, its success in developing and marketing new technologies for housing, and the extent of U.S. competitiveness in this field. The study, prepared for HUD by NAHBRC, found that housing research in the United States was fragmented, uncoordinated, unresponsive to the needs of builders and consumers, and lagging behind the efforts of our trading partners (HUD, 1994). The result is minimal investment in R&D (0.2 percent of the value of new housing construction in 1992) compared to the construction industry overall (0.5 percent of the value of construction in 1992) and a composite of all industries (3.7 percent of the value of sales in 1992) (NAHBRC, 1998).

PATH-sponsored research needs to address the needs of the total housing system. With its limited

resources the program also needs an agenda that allows it to use its resources where they can be the most effective in achieving the program’s goals. The committee believes that the program should emphasize (1) research that can be broadly applied to the development of new technologies and (2) research to better understand the processes for development and diffusion of technology in housing in order to facilitate innovation. Research is needed to plan a program that can increase the rate of innovation in housing and stimulate additional government and private investment in experimental development of new technologies.

A study published in the June 2002 Forest Products Journal that investigated the adoption and diffusion of building innovations among single-family homebuilders in the Pacific Northwest is an example of the type of research that is needed. The report emphasized the importance of properly targeting market segments to facilitate adoption and diffusion of new technologies. The researchers, Fell, Hansen, and Punches, state, “It is important to identify those builders who will be the first to use a product when it is launched because these customers represent early sales, but more importantly, they start the process of product diffusion.” The authors mention: “A primary motivation for this study was to find out how builders learn about new building products” (Fell et al., 2002). This study suggests that successful diffusion requires a good understanding of how market segments function and that it is critical to study demographic indicators like location, customer class, and material supplier profiles.

Finding: The basis for PATH was the hypothesis that innovative technologies can improve housing performance and reduce costs and that there is a need for intervention to increase the rate of innovation in the housing industry. The committee supports this hypothesis and the need for a program like PATH. However, there are insufficient data to determine the optimum rate of innovation in the housing industry, what is needed to increase the rate of innovation, and how innovation affects housing costs and performance. Research on the development and diffusion of technology in housing is needed to validate the hypothesis, support an effective program plan, and measure its effect.

Recommendation: PATH should continue to base its work on the assumptions that (1) intervention is needed to increase the rate of innovation in the housing industry and (2) this can be accomplished by identifying, understanding, and removing barriers to innovation, increasing dissemination of information, and fostering research. Some PATH funds should be used to improve the program’s understanding of how innovations are developed and diffused in the housing industry, and to measure the value of the PATH program.

Blakely, D.M., and Shepard, E.M. 1996. The Diffusion of Innovation in Home Building. Journal of Housing Economics 5: 303-22.

CI (The Communications Initiative). 2002. Planning Models: Diffusion of Innovation. Available on the Web at http://www.comminit.com/pmodels/sld-5368.html. Accessed September 25, 2002.

Deane, D. 2001. Tried and True, in a High-Tech World, Home-Building Materials Stay Decidedly Low-Tech, with Proven Results. Washington Post, May 19, H1.

EUROPA (European Union On-Line). 2002. Barriers to Innovation. Available on the Web at http://europa.eu.int/comm/enterprise/construction/innov/innobar.htm. Accessed September 5, 2002.

Fell, D., Hansen, E.N., and Punches, J. 2002. Segmenting Single-Family Homebuilders on a Measure of Innovativeness. Forest Products Journal 52 (6): 28-34.

HUD (Department of Housing and Urban Development). 1994. Domestic and International Housing Research, A Report to Congress. Washington, D.C.: Department of Housing and Urban Development.

Koebel, C.T. 1999. Sustaining Sustainability: Innovation in Housing and the Built Environment. Journal of Urban Technology 6 (3): 75-94.

NAHBRC (National Association of Home Builders Research Center). 1998. Building Better Homes at Lower Costs: The Industry Implementation Plan for the Residential National Construction Goals. Upper Marlboro, Md.: NAHB Research Center .

NRC (National Research Council). 2002. The Partnership for Advancing Technology in Housing (PATH) 2001 Assessment, letter report, February 13, 2002. Washington, D.C.: National Research Council.

NRC. 2001. The Partnership for Advancing Technology in Housing: Year 2000 Progress Assessment of the PATH Program. Washington, D.C.: National Academy Press.

Rogers, E.M. 1995. Diffusion of Innovations. New York: Free Press.

Smith, R. 1987. The Roots of Innovation. British Medical Journal 295: 1335-38.

von Hipple, E. 1988. The Sources of Innovation. New York: Oxford University Press.