Interview - "We are living through a period of profound change in real estate infrastructure".

Interview with Charles-Antoine Schwerer published in Evolutif, Algeco's magazine. Read the interview online.

What is the current state of construction in France? Are we facing a simple downturn or are we at a standstill?

Downturn, standstill, crisis, catastrophe - let's use whatever terms we like, they all cover the same reality: we're building too little! At the end of September 2014, housing starts over the past year stood at 302,000, whereas the government target is 500,000.

Are all sectors (residential, non-residential, public works) affected? Are there regional disparities?

Yes, sadly, all sectors are affected, but for different reasons. Housing is suffering from a lack of demand, linked to stagnating purchasing power, mass unemployment and an uncertain future. The non-residential sector is suffering from weak economic growth and attempts to reduce public spending. Companies are investing little, and public authorities are no longer investing! Building starts have fallen by 5% year-on-year. Finally, Insee surveys are clear: activity in Public Works has been falling sharply since the 2nd quarter of 2013. The major projects launched several years ago are coming to an end, and no new ones are taking over.

Is the crisis the only cause of this downturn? Do structural factors explain the recurring difficulty in sustaining construction?

The notion of "crisis" itself has two aspects. The global economic crisis linked to the financial storm of 2008, where structural and cyclical causes converge. And the European public finance crisis, which has a structural logic. The decline in public investment, a structural factor in the difficulties faced by the construction industry, is therefore directly linked to what we call "the crisis".

There are also numerous legislative and institutional bottlenecks, particularly in the residential market. The accumulation of standards increases costs and lengthens construction times. The management of Local Urban Plans by local authorities severely limits densification, as mayors have no interest in building. To increase density, PLUs would have to be transferred to the regions.

In your opinion, are there other avenues to explore to revive construction?

Of course! In April, a Chinese company, Winsun, built ten villas in Shanghai using a 3D printer and recycled materials. Cost of a villa: 3,500 euros. Construction time: 24 hours.

To fully understand the future of the construction industry, we need to bear in mind one major fact: we are living in a period of profound mutation of the real estate infrastructure. In every phase of innovation, technical breakthroughs are translated into real-estate change and productivity gains. With the advent of electricity, a certain Mr. Otis was able to market his first elevator in 1853, skyscrapers were invented and business districts appeared. This was followed by productivity gains linked to what economists call "agglomeration effects".

The current phase corresponds to one of these periods of profound change. Look at the economic role of the home. It has already become an office with telecommuting (17% of French people telework every week!), a hotel with AirBnB, a supermarket with online sales. Tomorrow, it will become a hospital room with telemedicine, an energy producer with renewable energies, and a producer in its own right with the 3D printer. Our entire real estate infrastructure is changing accordingly: stores, offices, hospitals and factories must adapt to become more productive. All of this is being driven by technological innovations (internet and renewable energies first and foremost). These changes are creating tremendous opportunities for the sector!

What role could modular construction play in this movement? Does it offer viable and credible solutions?

Modularity has a key role to play, for two reasons. Firstly, its speed of action. These phases of change call for swift and far-reaching action. Martin Hirsch, CEO of Paris Hospitals, recently stated that we were moving towards "hospitals without beds", so we'll have to change the entire hospital infrastructure! The only way to rapidly install a new real-estate infrastructure is on a modular basis.

The second key aspect is adaptability. Let's take the example of the home again. Since it's a home, an office and a hospital all in one, we need to be able to change one room for another. When a child leaves home, we should be able to transform his or her former bedroom into a medical room to accommodate a parent! Or when a child is born, redefine the size of each room to add a bedroom. Modular construction is the only way to do this. It's great to be able to imagine homes made up of modules, which can be quickly adapted with just a little work.

Modular construction therefore has major assets to play a driving role in these changes. It also faces a challenge: it needs to move considerably upmarket. To make good modules tomorrow, we'll need to integrate renewable energies or telemedicine equipment. Our modular builders must become innovation pros!