Transcript
(00:00:00) Marc Minor: Because we're producing all of this digitally and we can essentially swap out any building materials automatically and run a kind of simulation on it. It's a much lower risk way to experiment and try things on and then roll it out physically.
(00:00:23) Daniel Darling: Welcome to the 5 Year Frontier Podcast, a preview of the future through the eyes of the innovators shaping our world. Through short insight packed discussions, I seek to bring you a glimpse of what a key industry could look like five years out. I'm your host, Daniel Darling, a Venture Capitalist at Focal, where I spend my days with founders at the very start of their journey to transform an industry, the best have a distinct vision of what's to come, a guiding North Star they're building towards.
And that's what I'm here to share with you. Today's episode is about the future of home building. In it, we cover putting construction in the cloud. Home buying simulations, AI co pilots for builders, on site computer vision, advances in material science, and the future of new homes. Our guide will be Marc Minor, CEO of Higharc, a software platform helping new home builders get to market with record speed and efficiency.
Hayat's mission is to modernize the hundred trillion dollar U. S. residential real estate market and make home ownership more affordable. It has designed over 4, 000 homes via the platform and raised more than 80 million from top built world investors such as Fifth Wall, Spark Capital, and Lux, as well as a host of strategics including Home Depot.
Marc spent his career in 3D printing and the fabrication space, leading the marketing departments at Carbon and Desktop Metal before founding Higharc in 2018. Marc, so nice to see you. Thanks for coming on to chat with me. Thank you. Appreciate the invite. It'll be great to start with some greater, wider market context on the housing market.
And firstly, it's important to really recognize The sheer scale and size of the U. S. housing market, which stands at 100 trillion in value. So how would you describe the state of the U. S. housing market in 2024 and what key traits should we be taking note of?
(00:02:06) Marc Minor: Look, the first thing is a lot of folks think of housing as a kind of monolith and it's anything but.
Right. And I think from a startup perspective, one of the most critical decisions that you make early on is how you segment and how you focus in. And so for us, I really care about housing as a whole, but we're very focused on homes, very specifically like single family homes, new homes in the U. S. And new homes have had like their time in the sun the last few years because of the.
Supply challenge that we have in the U S in particular, we're kind of perennially undersupplied relative to demand. So like one measure is that we're about five to 6 million homes short right now. The only way to make those up is obviously new construction. And so new housing in particular, new construction has been very much in the limelight and a point of discussion.
How can we build more faster, more affordably? And so that's been a good thing for the market. While we've still been figuring out the new lay of the land post pandemic in terms of return to office and remote work and all of that and how that affects the commercial real estate market. For housing, it's been kind of up and to the right for the last few years.
And the challenge for the folks who are building new housing has been land. Land is in short supply, right? And that's only going to get worse. The affordability reality has become more acute because sort of global supply challenges have, along with inflation, have only made it harder to afford housing, which was already pretty unaffordable.
And so you have these kind of like two realities that are happening at once for housing. It's like, everyone needs houses. Can we build them really fast? On the other hand, they're just getting more expensive, which works against the builders. Cause it's like, um, there's a lot of pressure on margin. So what we do as a company at Higharc is we really try to help home builders find more margin and deliver a better product faster.
And I think software has shown that it can do that kind of thing in other industries a whole lot. And we've been having a good time doing that in housing.
(00:04:05) Daniel Darling: That's great market backdrop. And you kind of position Higharc as the home building cloud. And as you say, It's more efficient and faster. In fact, it says it does 100 percent faster plan design, gets you to market three times faster.
Can you walk us through the platform and how users are benefiting from it?
(00:04:25) Marc Minor: So the first thing to know is that most houses in the U. S. are designed and brought to market kind of like products. It's known as production home building. There are about a million houses built every year in the U S and about 80 percent of those are production houses, right?
So there are communities of houses. Often they look somewhat similar and builders are thinking of those things as products that they, as the kind of, you know, manufacturer and distributor of the products bring to market. And so we serve those customers today, home builders, we think of homes as products.
And what's really hard for them is that those products have to change constantly. Right. Imagine a manufacturer whose whole business is reliant on economies of scale and mass production, except the thing they're making has to change constantly. And so they can never accurately represent that product to the market.
And when they do sell something to a buyer, guess what? What they sold might be a little different when the buyer gets it. So it creates a lot of challenges for the builder to do a great job for their buyer and to keep their, their costs under control. Our software platform helps them to control their costs and deliver a better buyer experience.
We do that by replacing 40 year old design software like AutoCAD. That, it kind of gums up the works of a home building business, right? It effectively puts them in a position where they're trying to manage these, this sort of complex apparatus of home building with stacks of paper. Right. Homebuilding is one of those industries that's still kind of paper and pen based.
And even if it's digital paper, right, which AutoCAD creates these kind of drawings, which exist on paper, it's not data. And what that means is every time you need to, let's say, make a 3D model of a house to show a buyer or get a list of materials for your subcontractors to go and purchase, you have to kind of take the paper, the drawings, and you have to kind of measure it and you have to kind of go to some third party visualization company.
So it's kind of just very friction filled and kind of wasteful. What we do is we replace AutoCAD with a web based design system. It uses generative design to automate the flow of changes. So when you design a house, we automatically produce all the things about that house that includes like, think of it as kind of a car style configurator for home buyers.
So they can configure a home in 3d on the web, just like a car. But we also produce the list of materials for that house. So the subs and the purchasing folks can more quickly figure out what do they need to buy. And we also produce actually the construction documents, the blueprints that go into the field.
And the reason why we produce all of those things is so you can have a kind of digital thread, one single source of data that automatically flows through every group and all the way downstream to the buyer. When you do that, you kind of eliminate all these points of friction along the way, and you kind of tighten the whole thing up.
And when you go faster, that means you spend less. So it actually protects margin for the builder.
(00:07:15) Daniel Darling: That's really well outlined, and it's a classic central source of truth play that gets everyone on the same page, especially different types of people, as well as kind of unifying the entire home life cycle process.
And one of the things that stood out was You're really equipping the sales rep who is chatting to the customer with the ability to design and develop takeoff sheets right from that design. And that's really collapsing this process. And so how does enabling that sales rep really power your customers and power your industry forward?
(00:07:49) Marc Minor: It's been the hope for a long time in our industry to take advantage of the same kind of approaches to leveraging the internet that other industries, even the car industry has taken advantage of. You give buyers greater transparency into what they're going to get before they get it, greater control over choices and the ability to explore.
And they generally end up purchasing more and faster. Right? Giving control to buyers usually works out well if it's constrained. Homebuilders haven't been able to do that. And so it's been really fun to watch, like, what we typically see is there are sales agents who are inside of, let's say, like a model home or a sales office with a buyer, and maybe the buyer has already Configured a house in 3D on their website using higher or several houses and now they've got an iPad or a large touch screen and they're kind of trying different choices together and they're talking about the trade offs and the costs, whereas before they used to have basically paper and they would draw on paper using a Marcer and they would rely on the imagination of their buyer.
And if you're a buyer, that's a very hard thing to do. So a lot of the times buyers will just basically walk away because they can't get enough confidence in what they think their house is going to be. And they'll go instead and find either an existing home, like inventory on the market, or they won't even move.
So it's actually unlocking the confidence for people to make big purchase decisions when before they couldn't do it simply because we're putting that kind of control in their hands, visualizing it in 3d and making this kind of tight relationship between the salesperson and the home buyer.
(00:09:20) Daniel Darling: How did you pull off the linkage between the home design that's configured on the fly by the sales rep and the types of materials that you need to order and start to equip the builders with?
(00:09:33) Marc Minor: Well, this is what's a little bit sneaky about the shape of our company. On the one hand, if you look at us, You might think of us as kind of like a 3d configurator company, like a visualizing company, um, if you're not looking at the whole platform. And so in that regard, we might kind of look like, like a company that's focused on art and sales.
But really there's a serious deep tech element to the business. The only reason we can. Produce these 3D configurators on the web and have them automatically flow to a list of materials is because when you're configuring a house in 3D, what you're actually interacting with is the data model of the house.
It's a spatial data model, right? We're just representing it as a 3D model in the web lit with materials, but it's actually a data model, which means every choice you make, it has data behind it. So that we can simply change the way we represent that home when you're the estimator. And they can take the same home, same 3D model even, and they can say, show me all the doors.
Show me the bill of materials for this door, which is really neat. Export the list of all the relevant, you know, materials for all my windows. It's pretty cool.
(00:10:41) Daniel Darling: Yeah, that's a really powerful and flexible way to, to construct it. And then how are you thinking about the ability to. Essentially optimize the cost and the savings component of those builder materials and sort of switch in different types of supplies, potentially or create a more liquid marketplace in and around that for the benefit of more efficiency and driving down costs for that.
(00:11:04) Marc Minor: Today, we. Give builders power to do what they do much better. That's the first way to think about our business. And they spend a lot of time prior to hire, just keeping up, trying to not make too many errors and have too much waste. We free them up to. Start to turn their attention to value engineering, the houses, right?
Costing them down, trying out new approaches to design to reduce the cost and improve the quality. So we're really kind of giving them the tools to do that kind of work. We don't do it for them. We just make it really easy in a future version of the business. You could very easily imagine us having a kind of.
Co pilot style assistant that makes recommendations and integrates our understanding of cost and performance characteristics of building materials into the actual houses that the builders are building. One of the reasons why it's hard for home builders to take advantage of material science advantages or new products, or even new practices is because it's too expensive to take the risk.
Because they have to go out and build the houses and to understand is it going to sell, you know, they have to buy the materials, they have to actually go and do it physically, because we're producing all of this digitally and we essentially swap out any building materials automatically and run a kind of simulation on it.
It's a much lower risk way to experiment and try things on and then roll it out. Physically, so I think that's going to be a really exciting future for the industry, a future possibility when you have a more integrative system, like, like higher today, we give the tools to builders to do that work themselves over time.
We're going to elaborate through the system on kind of assistance to make those kinds of choices, and you could imagine that that kind of assistance might come in partnership with multiple parts of the value chain, which is really neat. That's a really
(00:12:56) Daniel Darling: big unlock and you're seeing that happening in other parts.
Of the economy, but nothing yet in housing, because I can imagine you need to have that unifying source of data to be able to do that. Does that also start to lend itself to more AI led design recommendations and we're starting to see an AI led process?
(00:13:16) Marc Minor: That's totally what I'm getting after. We're not showing it publicly right now.
We've had an ML team working on this stuff for a while now. And it's very exciting when you have a system like Hierarch, which has a generative design engine that has this, produces these huge structured sets of data, and the way that you can leverage the LLMs along with that, in order to do some really neat things.
One of those is, might seem pedestrian, and, but it's quite important for our business. And today, we call it auto translate. It's just taking existing drawings and automatically mapping them over to Hierarch's data model and creating a 3D model from those drawings. It's pretty neat. But where we go from there is a kind of co pilot assistant where you take kind of heuristics and what we know about patterns across all the plans we've trained on.
And you kind of create interventions naturally for home builders and designers while they're in the process of exploring, right? It's all about creating easy iteration. And that's quite hard to do because what we do today is so physical, right? And it's so slow. When you can move the iteration and the design exploration upstream into the digital realm, it becomes much, much easier to experiment and to move the industry forward.
That unlock just hasn't been available because we've been dependent on really great, but old, 2D software.
(00:14:31) Daniel Darling: It's great to hear that you're already building in this space and investing R& D in this space. So fast forward five years, what would a home buyer's journey really look like using Higharc? What is that Northstar efficiency and process you're looking to build?
(00:14:47) Marc Minor: It really depends. There's a few things to think about. The first is the kind of house. Is it a custom house where the buyer has land and they're kind of going blue sky? You can imagine a future where there are inspirational starting points, which today already happens with Pinterest. Buyers might have kind of inspirational starting points.
So you've got inspirational starting points over here. It could even be homes they love. And then you've got the actual land, the site. With its topography, with setbacks, all of that. With maybe even like critical trees, critical features you want to keep. And you want to pull those two together and then explore the design space.
So Hierarch enables you to kind of take this starting point, you could imagine you say, I like these three houses, and this is my requirements, and this is my site. We recreate it in 3d and give you a range of possibilities to explore along with a designer. Right. Imagine if you could have this kind of integrative design exploration in 3d with your actual land and understand what's possible coupled with building products.
This basically like all we're trying to do is do the basics of e commerce. What is it? I want to know what it is before I buy it and have the confidence that what I actually get is going to be that thing that I saw. I want to be able to compare it to other things. Right. And I want to know what it costs.
Oh, and then it would be great if it got delivered on time. These things are basics of e commerce and they don't exist in housing. And so we're trying to lay the foundation for that kind of reality. And from the builder's
(00:16:15) Daniel Darling: experience, is it something that they can then look at that end result and figure out how to optimize it further with some Co pilot or instructions around how they're building the house or the types of materials that they're using.
Yeah. They have the leeway to choose from.
(00:16:31) Marc Minor: Getting into applications for AI is deep. There's a lot we could talk about. We could talk about decisions in the field. We could talk about redlining and how that, how you might see a problem in the field. Report that problem using natural language or just drawing on an iPad, have that be automatically adjusted in the plan set, and then everything gets pushed back out for permit.
There's lots of really neat applications for this kind of thing. Another one, um, which I'm pretty excited about is this idea of a kind of collaborative designer. Right? Where it's like, you've got a 3D system like Hierarch. You've got a range of building products. Right? You've got your buyer. And the buyer expresses feedback about what they're seeing on screen.
And it changes to incorporate their feedback in front of them. Oh, I'd like, can we try moving that room over to there, for example? How would that change, you know, my view or whatever? That's like, that's near at hand. That kind of behavior. Right? On a more practical level, and this is stuff we've already demonstrated internally, you can basically ask questions of the model of the house.
So for example, if you're a builder, you're exploring a new design, you might ask it, maybe you're going to a new jurisdiction. Do the windows, uh, on the second floor meet egress requirements? Right? So you can interrogate the house based on, on whatever the local building code is. And then you can say, it says, no, you say, okay, can you fix that?
What will it take to fix that? There's these kind of like feedback loops that are, uh, right now, very kind of friction filled that I think the smart application of a tool like Hierarch with some of the more modern ML type approaches will enable a kind of, um, rapid, it will reduce the time it takes to do those things.
(00:18:07) Daniel Darling: A lot of what I'm hearing is around sort of designing and creating in context, whether it's the land context or what you just alluded to just now was the permitting context. And That's a big headache for everyone, uh, from that perspective. Are we getting to a point where we can understand whether that permit will be approved and designed within those constraints so we don't have to go through six to 12 months of that process?
(00:18:32) Marc Minor: There's two sides to that. First of all, do you know the permitting official and their personality? Right? Like sometimes that's what it comes down to. The question is, how can we create, uh, how can we empower those, the actors on a local level with better information, better tools? So here's an example, right?
In many jurisdictions, you require an engineer, an engineer stamp on, on your drawing set. Lots of jurisdictions actually don't, which is really interesting. But many do, for an engineer stamp. And let's say, you know, you get some feedback from permitting office, and I have to go back to the engineer. It's like Very kind of time consuming and a lot of tedious work on both sides, the engineer's side, the home builder's side.
What if there's a world where the engineer can work with the software to express their intent so that a stamp can effectively be applied based on a set of algorithms that the engineer defines. Right. You just cut that step out. It doesn't mean that the engineer's hand is not still at work. It just means we're helping them to automate, you know, rework effectively.
And so I think that's an example of where we can improve processes like permitting without eliminating the personal relationship.
(00:19:41) Daniel Darling: You've got such a good lens on the end to end process. What's happening on the actual construction process for new homes? We're hearing about far more prefab housings or, or, you know, parts of the housing being built off site and then shipped in as well as, you know, all the way through to 3D printing.
When are we going to start to see these types of, uh, you know, construction processes going more mainstream? What trajectory on, what are you seeing in the market?
(00:20:06) Marc Minor: Well, as you know, I was in 3d printing prior to entering the home building industry, and I brought a lot of points of view about both how markets move as well as how, um, the role of, of press, you know, and kind of, um, hype.
And when it comes to. off site as a category, which incorporates modular, incorporates things like 3D printing. There, the hype far outweighs the reality. There's a critical missing layer with software to enable the adoption of these kinds of technologies. But there's also some serious market, economic, and technology challenges with their adoption.
(00:20:44) Daniel Darling: One of the big components of housing is, is that affordability challenge that is getting more pronounced. Are you seeing new types of business models on the horizon for homeowners, whether it's, you know, alternatives to purchasing, fractional ownership, et cetera, where do you see potential innovation there?
(00:21:01) Marc Minor: That's where most of the innovation and sort of startup activity has been, certainly has been on the kind of like financial engineering side of housing. I think. And it's very interesting. I think the fractional ownership thing is when it's properly packaged is really appealing to a lot of folks, particularly like I've seen a number of these businesses where, you know, it's a kind of rent to own situation.
It would be neat to see large production homebuilders taking advantage of something like that. The most important Way for us to affect affordability, though, is going to be in affecting the cost of the house, you know? And it's very true that the cost of the house has gone up meaningfully over the last 30 years.
And that's driven by commodities prices at times. It's driven by what the market will bear in terms of finished good prices. It's driven by regulatory burden. The biggest thing that's driving or that's keeping it high is labor costs. I think if we're being like really honest, the best way to drastically change the cost of the house is to drastically change the labor cost.
(00:22:00) Daniel Darling: And is there a pathway to do that? If you had to project out again, we're talking five year plus horizons from there.
(00:22:06) Marc Minor: Yeah, five years is not very long in home building world. I'm not like an oracle on this, but I do have some opinions. One of those would be that I think a really interesting business model that couples Sort of technology innovation with business and market innovation is a kind of vertically integrated trade.
You know, I'm very compelled by the idea of a vertically integrated trade where the economic benefits of shifting labor off a job site accrue to the laborer. Now, what if there was a company that owns the technology for manufacturing the wall panels? And they provide the labor. They also own the labor and the builder comes to them, just like they come to any other trade.
And they say, what's it going to cost me to frame out this house? Well, they can say, well, isn't this great. We have all this efficiency for these wall panels. So we only need to use X number of hours of our framers. So we're going to give you an all in cost that might actually end up being lower than the traditional framer.
And it's going to be a higher quality. And I'm willing to do it because I'm all the benefits of using the wall panels are accruing to me as the framing company.
(00:23:06) Daniel Darling: What other moonshots are on your radar for the industry?
(00:23:09) Marc Minor: I think there's a world where you go to Zillow and you're shopping for land. And you can shop for a house on that land, an unbuilt house.
You can configure it. You can give your own inputs, your own realities of your, of your life. I have this many kids, you know, I want to look out at the garden from my kitchen window. Um, and you're going to be able to. Explore a fully packaged good, the land plus the house, right. As a buyer on your own, and you'll be able to go to that site with your phone, or I'm not going to say with a headset, but maybe with a headset, and even though the site might be wooded or might have an existing house on it, you can walk that site and you can see the various homes you've configured, or you can even modify them.
You can stand where the kitchen's going to be and look out that window and see the big pecan tree that happens to be on that site. Right? And by the way, you can connect with builders and get a price. So this kind of integrative system for imagining through building is, I think, a wild but exciting future for housing.
And you can take that same concept and stretch it to whole communities. Right? Where you've got a large tract of land, for example, or you've got pre existing infrastructure that's aged and needs to be replaced. Right. This kind of integrated design through delivery type experience, leveraging the web and sort of digital.
It requires a lot of partnerships and serious technology, but I think it's going to happen.
(00:24:36) Daniel Darling: Absolutely. Sounds really elegant for everyone as part of that. Do you see other countries as leading ahead of the curve? In the space of the housing innovation, anyone that you look at
(00:24:48) Marc Minor: typically folks don't mean software, right?
When they talk about innovation and housing talking about material science, we're talking about the assembly Europe and particularly like Norway. I've done some really interesting things. There's like pretty interesting applications of offsite, much more widely adopted in Europe than here. We're talking like 30 to 40 percent by one measure.
A lot of that has to do with the influence of government, by the way, and regulatory overhead. There's a lot to learn from the way that housing is delivered in Europe and especially in Japan when it comes to innovative building materials and assemblies, especially when you're looking at kind of more sustainable practices and reduction of waste through the supply chain.
And there's a lot of folks thinking about how we can apply that to the U. S. One of the challenges is the U. S. market. There's so much space. There's so much land. We have an entrenched industry, which is not a bad thing. We build things with sticks. You know, the existing trade base has a collection of practices that are actually ensconced in the code.
Right. Our code is mostly not a performance driven code. So there's kind of like systemic reasons why it's hard, but there's a lot of folks thinking about the problem of applying what's being learned in Europe and, and Japan, which is way ahead and offsite, by the way, way
(00:26:01) Daniel Darling: ahead. If you had to put a spotlight for entrepreneurs wanting to enter into this space of where they could be building in, where are the big needs.
Innovation over the coming years or decade, what would you highlight as parts for them to build in?
(00:26:14) Marc Minor: Oh man, it's across the board. There's so much. It's so deep. I was recently learning about a company that's innovating in OSB, oriented strand board, you know, which is like the sheathing for most houses.
They're using these kind of grass. Right in place of the wood fibers and it's more performant. It's much more renewable. It's faster. It's more cost effective theoretically. So I think fundamental R and D for building materials is still really compelling. It's hard to do as a startup, but I think it's really compelling.
I've talked to a number of folks working on electric heat pumps. So like electrification as a category still has a lot of momentum. Obviously, I'm a big proponent of software driven innovation. I think leveraging the game engines in a novel way is something that a lot of folks are looking at for the customer experience and pre visualization, you know.
There's one more, which is really awesome. And that's really like the application of what is now a very mature computer vision industry to the sort of in process, Field, you know, site walks, this is already happening in commercial, pretty much non existent in home building. So there's so much opportunity for this kind of integrated design and planning and having this kind of using computer vision in the field to match what's going on versus what's in the plan.
I think that's super ripe and computer vision libraries are now so available. Like all the hard work on the R& D side has passed us pretty much for that kind of thing.
(00:27:41) Daniel Darling: Innovation up and down the gamut. Well, look, Marc, you sit at such a fascinating part of the industry and unifying that data platform is, is a really big place.
So we're looking forward to Home builds that are on time and at cost rather than the standard twice as much and twice as long.
(00:28:00) Marc Minor: Sadly, sadly, that is that it's pretty common, especially for custom. So yeah, yeah, it's on you.
(00:28:06) Daniel Darling: All right. Well, thanks so much for coming on to chat to me. This is really great.
Thank you. It was great. I thoroughly enjoyed my conversation with Marc, who offers a unifying perspective on the complex multi stakeholder world of home building. The innovations and progress on the horizon are exciting, especially as the creation of a robust data backbone and software infrastructure accelerates advancements.
Marc envisions a future with digital simulations fully integrated with land settings and permitting regulations seamlessly feeding into the construction supply chain. He forecasts a dynamic approach connecting demand side platforms like Zillow all the way to onsite builders and it is crucial to driving the efficiency and affordability in one of our largest and most wasteful industries.
To follow Marc and Higharc, head over to his Twitter account, @MarcMinor, that's M A R C M I N O R. I hope you enjoyed today's episode, and please subscribe to the podcast to listen to more coming down the pipe. Until next time, thanks for listening, have a great rest of your day.
