Why do we drive smart cars but live in dumb homes?

By Jan Dolezal

Cars were very simple thirty years ago, but today an average passenger car contains about 100 microprocessors and 5 miles of wiring. Electronics accounts for about a third of the car cost. Customers are happy to pay that, because they know car intelligence increases safety, comfort and performance while reducing operating costs. But look at your home – it is almost as primitive as homes used to be some three decades ago. Building intelligence could also significantly improve safety, comfort and performance of homes. We spend more time in buildings than in cars so why on Earth do we live in such dumb houses?

We have all the required technology to build smart HVAC systems that reduce temperature when you are not at home and restore it automatically before your arrival, run non-critical appliances in energy off-peaks or automatically control angle of window shades to assist with passive heating and cooling. But a combination of factors has prevented the same smartening revolution that transformed the automotive industry occur in the construction industry.

  • Developing countries are still struggling with sufficient housing quantity and wait for innovation to come from developed countries. However unlike mass-produced cars, majority of houses in developed countries are unique and designing smart systems for individual installations is uneconomical.
  • Building automation is either expensive or unreliable. Bringing together all the smart components into a system is very costly in individual installations due to lots of professional human labor involved. Do-it-yourself wireless systems are cheap, but often fail the same way a DYI car is likely to face problems.
  • The construction cycle for buildings is longer than for cars and therefore innovation slower. Developers don’t possess smart house expertise required to include smart systems cheaply during construction and retrofitting later is expensive.
  • Even though buildings consume more energy and produce more emissions than cars, there is lack of regulations. While there are stringent requirements for car emissions, there are currently no mandatory requirements for energy consumption of residential buildings and very few requirements for commercial buildings.
  • There are split-incentives. For rental properties, the additional fixed investment is borne by owner, but benefits reaped by tenants. Demand response of a house benefits the whole energy sector, but benefits are seldom passed on the owner. Unlike heavily taxed gasoline, electricity, water and gas are often subsidized providing even less incentives for a smart house to conserve them.

Widespread use of smart houses might actually start in China where the government needs to efficiently develop new smart cities for urban migrants and at the same time has to find ways to reduce consumption of energy and other resources, because of current severe environmental situation. The scale of Chinese build-out might produce standardized cheap smart house systems to be widely adopted in other countries. Adoption will be aided by increase of modular prefabricated construction and regulations such as the EU mandate to have all new buildings nearly zero net energy by 2020.

Dolezal Carbon

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7 thoughts on “Why do we drive smart cars but live in dumb homes?

  1. Pingback: Most Commented through Friday, March 8th | Sustainable Cities: Urbanization, Infrastructure, and Finance

  2. By Anonymous

    Unlike a car, a house’s value proposition does not significantly change with added smart features because of the additional variables of their fixed location, long time horizon, and high cost relative to income. Car manufacturers sell largely identical products differentiated only by their safety, comfort, and performance. Therefore, prospective car buyers must often choose between close substitutes on the basis of variations in miles per gallon, emissions, GPS, self-parking, and other smart features. Given the quick turnover of a fleet and average short time horizon of car ownership, car manufacturers have a vested interest in incentivizing consumption and luring new consumers through novel innovations.

    On the other hand, close substitutes of smart and dumb housing stock generally do not exist. While energy-efficient buildings may provide improved indoor air quality, more consistent temperatures, reduced energy bills, and a status statement, what consumers generally prioritize most in their housing are its location and cost. At a given location, the housing stock is largely fixed because of the slow depreciation rate of buildings and the slow growth of new building stock. Even though new buildings are incorporating more smart features, they represent only a small portion of the overall building stock and thus are not available substitutes for most homebuyers or tenants. Furthermore, although cost is also important for car buyers, housing costs represent most people’s largest investment or expenditure, and thus are an even greater factor in housing.

  3. Great post Jan!

    I think that looking at this through Christensen’s Disruption Theory provides some more insight:
    For decades, car manufacturers competed on a sustaining path of increased range, speed, acceleration, comfort and safety. In recent decades, several car manufacturers have been able to successfully pursue low-end disruption strategies, but competition has largely remained on the same performance metrics. These low-end strategies have highlighted that car manufacturers have been over-serving the needs of many customers. Over recent history, consumers have also seen a rise in gasoline prices and have become more environmental-aware. These trends have led to a shift in the performance metrics valued by consumers, with fuel-efficiency increasingly becoming a dominant factor.

    In home construction, however, energy efficiency is just not a key performance factor for most customers, for many reasons highlighted above: split incentives, the low cost of electricity consumption (both in absolute terms when compared to vehicle fuel costs and relative as % of purchase cost) and others. Though to many customers homes might be “good-enough” on key performance metrics (safety, size, design, durability), there seems to be more ground for low-end disruption.

    Another related explanation lies in the ability to integrate in these industries. Since the construction industry is so heavily fragmented and modularized, it is difficult to achieve the level of integration required to develop new disruptive solutions. Car manufacturers, however, act as system designers and integrators, thus allowing for better product integration (though perhaps still not sufficient, as exemplified by Tesla’s role in the EV market).

  4. By John Macomber

    On the original post, I wonder if some of the answers to the question of homes vs cars has to do with:

    Price point home vs car: $200,000 – $2,000,000 vs $20,000 – $60,000

    Lifetime (which influences fleet turnover): 100 years vs 5 years

    Annual cost of energy/ first cost of asset ( $1000/$500,000 vs $2000/$40,000) or 1/500 vs 1/20

    Annual new unit sales (in US, 800,000 homes and I think 10,000,000 cars) ?

    Who else sees you in your house/car for status? A handful of people ever see you in your house and dozens of people see you every day in your car.

    Setup cost in the factory (covered by other comments)

    Do you think there is a follow up riff with any useful implementation take-aways from these ratios?

    • Thank you for pointing out these very insightful ratios that indeed shed light on the reasons why cars were smartened first. But what do they tell us about the future and how to prepare for it?

      I think the ratios seem to confirm that the smartening revolution might actually come from markets like China, where the ratios are closer to cars than in the developed countries:
      • the ratio of newly constructed houses to existing stock is much higher in China than the 1-2% in developed countries.
      • the total number of newly built housing units is also highest in China and likely to remain highest to accommodate the urban migration
      • price point for these mass produced homes will be way lower than for western dwellings while the cost of cars in China is comparable (imported cars are 50-100% more expensive in China than in USA)
      • China had been historically heavily subsidizing cost of electricity (effectively incentivizing inefficient buildings), but unsustainable demand increases forced the government in recent years to move towards aggressively subsidizing energy efficient technologies rather than electricity itself. That will lower the total investment and improve ratios in favor of smart buildings

  5. Great post Jan and I couldn’t agree more. And what’s even more interesting is that our cars are actually pretty dumb relative to their potential, but that’s a rant of mine I’ll save for another day. I think you’re point around pollution regulation is a very interesting one. A few thoughts on that;

    First, car *emissions* are heavily regulated, mainly around MPG efficiency and certain amounts of toxins coming from your tailpipe – essential the rate of pollution (# of pollutants / unit of time). Total car emissions are not regulated, meaning there is no limitation on the amount of time you let your car run. You can drive as far and long as you want (and pollute as much as you want) as long as you can afford it. In the home / building world, the analogy would be that you are free to use as much electricity and natural gas as you’d like (the time part of the equation), but you’d be regulated on the amount of inefficiencies in your home (e.g., heat loss or inefficient appliances or light bulbs) – the rate of pollution part of the equation. Unfortunately in the building world, how can you measure the rate of pollution from your home? For a car, you stick a tube in the tailpipe to measure. How do you do that with a house? And if you could, would we be willing to let government regulators in our homes to measure the efficiency of our appliances?

    Second, creating energy efficient homes requires more money up front. In some cases energy efficiencies can pay back over time, but that’s not always the case. Are we willing to legally require all people to spend the money to install the latest energy saving technology in our homes? What if we can’t afford it? I’d argue that mandated investment in your home puts an unfair burden on those who have the least amount of money to afford it. If you don’t have money for a car, you probably live in an area where public transportation is available. You have that option. But that same option doesn’t exist if you are priced out of housing. So does that mean we need government subsidies for energy efficient projects in low income areas? Maybe.

    I love the work being done by companies like Nest Labs to address these issues. For $250 you can buy a learning thermostat that can cut your energy costs by 15-25% and pay itself back in less than 2 years. I think its these little gadgets, rather than centralized home energy monitoring systems, that are the easiest to bring into the home space.

    • Thanks Zach for some great insights!

      As of your first point, it is actually possible to measure what you call “rate of pollution” and there are building energy audits designed for that. They are mandatory in some countries and EU is moving aggressively in that direction. (http://www.worldenergy.org/publications/energy_efficiency_policies_around_the_world_review_and_evaluation/3_evaluation_of_energy_efficiency_policies_and_measures/1191.asp).
      Another proxy for energy efficiency can be monthly energy bill divided by surface area of the building.
      But with buildings you can also measure total emissions easier than with cars (e.g., total energy bill per year weighted by energy source, per surface area or per inhabitant)

      You are right that energy-efficient buildings cost generally more to build. There are however many features such as insulation that have payback within several years. You dont need to go all the way to make a building passive (typically around 20 years payback), but can achieve 80% of the savings with 20% of the investment.
      Going back to the car analogy, it also requires additional investment to make more energy efficient engines. Prius has higher fixed cost, but lower variable cost than Corolla. Due to the low usable lifetime of cars, it is difficult to justify 10 years payback by means of reason. But for buildings that are built to last many decades, 10 years payback seems more reasonable.

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