The Road to New Construction

The Spanish construction sector has traditionally proven inefficient with many cases of bad practice leading to the overproduction of housing and over-reliance of our economy on this sector. The current economic crisis and the collapse of the construction sector demonstrate the need for a change in our model. This change should further be supported by continuous innovation, a skilled workforce and the principles of economic and ecological sustainability. The end result of this transformation could be the creation of an innovative, advanced, internationally competitive model.

Since late 2007 we have witnessed the development of a global crisis originating in the lack of control of financial activities, which has had an impact on all developed economies. In Spain, the construction sector has been the most affected by the collapse of investment resulting from strong restrictions on credit and as a result of the housing bubble in which we thrived. This has meant a significant imbalance in the national economy for three basic reasons: the importance of the sector, the excess of supply and the lack of competitiveness.

Before the crisis the construction sector contributed 18% to the GDP (well above the EU average) and provided about 20% of Spanish employment. Its fall has had a major drag down effect. As to the excess in supply, with a construction level twice above that of actual demand, the slowdown in the sector has been immediate and awaits the disposal of the large surplus. Until this point, the building industry had relied on residential tourism and upon negative interest rates, in real terms. The situation has become especially complicated in touristic regions.¹

Finally, we must take into account the lack of competitiveness in the sector. Construction sustains the worst rate of productivity within the whole Spanish economy, including agriculture (ISEA, 2007; COTEC, 2009). This situation hinders the international recovery of industry and affects business policy at a time of price adjustment.

The reason for the increasing importance of the real estate sector in our economy was due to the atypical benefits derived from it, while behind this there hid bad practices such as heavy speculation, environmental deterioration and corruption. Investment in real estate was the most profitable for any citizen or company in our country, and led to the so-called «Spanish miracle» being built on thin air which has ended up collapsing (Castells, 2009).

So why continue to support a traditional industry full of bad practices, such as construction, to the detriment of other sectors? Because our dependence on this industry requires us to transform it in such a way as to limit the negative effects that might result from abandoning it. On the one hand, thousands of jobs and families depend on construction, especially in the Valencian Region, and on the other, there is a large base of professionals and entrepreneurs with skills in this activity that could not easily be accommodated in other sectors.

In this situation, we must realize that the crisis has led industry to a point of no return, and that governments should act with this in mind; either we are able to reshape this industry towards a sustainable and cutting edge level, or face future consequences which will be, if anything, more negative in terms of productivity and employment.

© A. Ponce & I. Rovira
The construction sector in Spain has been the most affected by the collapse of investment resulting from the strong restrictions on credit, which has meant a significant imbalance in the national economy for three main reasons: the importance of the sector, excess supply and lack of competitiveness.

■ THE CRISIS AS A DRIVING FORCE

At present, to exit from the crisis constitutes the first goal in all developed economies, but to overcome it can be planned in two ways: through economic reconstruction strategies, or actions directed toward structural reconfiguration. Seeing the reality of Spanish industry’s competitive position internationally (Spain ranks as one of the worst countries in terms of exporting high-technology products according to a report by La Caixa, 2009), it is worth analyzing, in our case, the crisis as a real opportunity to change the Spanish production model, and view this not only as a serious economic problem.

Now, where should we direct our efforts? At present, to posit an economic system based on information economy principles seems the best option, given the certainty of the paradigm shift which we live with. But let’s be realistic. An information economy cannot be improvised within days and the creation of such knowledge requires high financial efforts and provision of human capital, wherefore it is preferable to transform those traditional sectors rather than «destroy them» and start from scratch.

Focusing on the real estate sector, the creation of institutes and research centres applied to construction, such as the Construction Technology Institute of Valencia (AIDICO), the Andalusian Centre for Sustainable Innovation in Construction (CIAC) and the Institute of Construction Technology of Catalonia (ITeC) could be the first step towards an Information economy and the competitive future of the sector. In the same vein, in the Alicante Strategic Plan 2020 drawn up by the Chamber of Commerce, one of the latest proposals for change submitted on the national scene, backs the creation of such centres, aiming to achieve a dominant position globally in issues such as home automation, new building materials and those reducing environmental impact, among others, and where there is joint participation between universities and private industry (especially specialized SMEs) for the training of qualified professionals and the creation of joint projects.

In order to adapt the knowledge created by these research centres, this must be accompanied by a highly competitive business conglomerate with skilled workers qualified to install or use these new techniques and materials. This differentiation generated by research in the sector could mean high yields and thus provide a stimulus for the creation of new businesses, jobs, and increase the amount of funding in R&D and innovation.

Such restructuring of the sector thus emerges as a clear future commitment towards a high degree of competitiveness, but the positive impact on employment and innovation could prove very short term. Therefore, any initiative must be backed by government plans to facilitate access to credit for businesses and further policy guidance towards the consolidation of a new style of competitive building, at the global level.

Finally, it is noteworthy that an isolated sector, in this case that of construction, cannot alone stage a revolution towards an avant-garde lead, but depends on the creation of a competitive environment where there is a commitment to attract and retain talent, investment in knowledge and a high degree of innovation, for which the attitude adopted by governments is essential. If we fail to develop these innovative ecosystems, it will be very difficult to transform the sector.

■ CONSTRUCTION 2.0

Investment in knowledge is presented as the only way forward in the search for a construction sector based on the fundamentals of the new economy: increasing returns, wealth and, above all, sustainability of both the model and economic growth (Kelly, 1999). However, in concrete terms, what could become of all the investment in knowledge within a traditional sector like construction? Or in other words: what can we expect from this Construction 2.0?²

© Wayne Solar Forest
Investment in new materials, new energy sources or new information technology is the key to progress toward a new model of functional building, both sustainable and competitive. In the picture we can see solar-panel installation.

In the short term, the provision of added value to existing buildings –in terms of installation of home automation and energy facilities– may be a solution for the sale of surplus without this suffering an excessive loss of value,³ while promoting the creation and competitiveness of the construction support industries that are vital to the future of this and other sectors. The direct connection between the seller and any prospective purchasers worldwide is possible through Internet, so that competition and the requirements of demand are at the same time greater, which should result in increased product quality. To have distinguishing features when compared to other homes, such as remote control systems, wireless connection, solar panels or even adaptability to international electronic devices may be as important to the buyer’s decision as the location of the building itself.

In the long run, this added value should go beyond the building itself and reward the cities. Companies should seek competitive ecosystems where they can more efficiently perform their activity, and likewise the urban environment of cities may revalue or devalue a property. For the future of construction, therefore, it is advisable to consider a reconfiguration of public and business environments towards new areas with a higher social, environmental, and functional value, which should break free from those elements which taint the current building model.

Concerning the applicability of the new model, we can say that the strong tradition of urban planning with which Spain is associated, can be an advantage over other countries when this kind of revolution changes the distorted building model for quality and internationally distinguishable material. Is this model viable without too high an increase in price? The answer is yes, thanks to continued innovation in the sector. Nanotechnology applied to construction (nanocons) begins to clarify the future outlook of the sector, in which the use of stronger, non-polluting and lighter materials but, above all, less expensive materials, provides higher quality buildings at lower cost. The application of nanotechnology is beginning to be developed in technology centres, but requires highly qualified personnel to develop it and a strong economic boost from public and private sectors if it is to become a reality.

In short, the new construction model must give up the current aggressive form of the traditional sector. Based on continuous innovation, high professional qualifications, the fundamental principle of environmental sustainability and direct connectivity with demand, new construction should provide higher quality at lower cost while correcting the negative externalities of the current model.

© Endesa
Efficiency and aesthetics are not mutually exclusive in the new building model, and sustainable architecture has been able to conform to its environment and even improve it visually. In the image, an example of sustainable building, the headquarters of the electric firm Endesa in Madrid.

It is appropriate to say that the end result of this new construction will depend heavily on investment and the effectiveness of this. However, broadly speaking, those elements that are beginning to be seen as key to the transformation of the model, such as home automation, environmental construction, new energy sources or applied nanotechnology should be used to transform spaces, not just buildings, thanks to sustainability becoming a clear reference in the new economy.

In conclusion, we must be aware that this transformation will not be feasible if, from this moment onward, we do not back the shift of this sector towards the Information economy model as a differentiating factor in our productivity. To build a new model of construction, which involves the creation of ancillary industries that are competitive and innovative, will require a huge effort, but the benefits could be worthwhile. On the one hand, the new sector would require a highly skilled workforce that could resolve the problems of present-day unemployment; on the other, the new sector could become a benchmark business in Europe and globally, exportable to new emerging powers like China and Brazil and generate wealth for our economy; and finally, the advances and associated industries in the construction sector could have impact on other sectors.

It would not be utopian to believe that Spain could seek a foothold in the international leadership of a sector which, despite being very traditional, could move towards a level of knowledge that would transform it into a future sector of reference.

NOTES
1. According to the most recent data from the INE (National Institute of Statistics), the regions of Canary Islands, Andalucia and Valencia are the areas with the highest rates of unemployment, while the best results are in the Basque Country, Cantabria and Navarre. (Return to text)
2. With respect to Construction 2.0 we refer to a new building model, which not only differs from traditional building but, due to its innovative force for change, employs the new information technologies to connect and interact with real demand. (Return to text)
3. Despite its need for investment, the revaluation of property tends to be greater than the necessary outlay and provides differentiating elements very much prized by the client. (Return to text)

Bibliography
Castells, M., 2009. «El ladrillo y la red». La Vanguardia, supplement «Observatorio Global», 23rd June.
Cotec, 2009. Informe Cotec: Tecnología e Innovación en España 2009. Fundación Cotec para la innovación tecnológica. Madrid.
ISEA, 2007. «La innovación, una prioridad para el sector de la construcción». Revista ISEA (Innovación en Servicios Empresariales Avanzados), 3: 1-2.
Kelly, K., 1999. New Rules for the New Economy: 10 Ways the Network Economy Is Changing Everything. London: Fourth Estate.
La Caixa, 2009. «Industria sin fronteras». Informe Mensual, 323.

Andrés Pedreño Muñoz. Full Professor of Applied Economy, University of Alicante. Past Vice-Chancellor of the University of Alicante.
Ana B. Ramón Rodríguez. Professor of Applied Economy, University of Alicante.
Luis Moreno Izquierdo. School of International Economy. University of Alicante.
© Mètode, Annual Review 2011.

«The provision of added value to existing buildings –in terms of installation of home automation and energy facilities– may be a solution for the sale of surplus»