The construction sector in transition

Co-authors: Jacobiene Ritsema, Alexander van den Buuse, Maarten Coppens, Paul van Doom, Martijn Mooij and Hedwig Thorborg

Introduction

How we live, work and travel

Take a look around you. What do you see? As you are reading this book, most likely you are sitting at home, in your office, a hotel, or perhaps you are on the train. Do you see the buildings, homes, roads, offices? We all live in houses, most of us work in offices and we easily move from one city to another. Living in cities has become the natural habitat for most of us. For example, the average US and UK citizen spends nearly 90% of their days indoors (in homes and office buildings)²²⁶. That is nearly 21 hours a day! And these figures are probably not much different for most people reading this book. Going outside into nature is something you do on the weekend or on holiday, if you are lucky.

Living and working indoors for most of us has become so normal that we don’t think about it anymore, and we certainly don’t understand the sustainability effects that the construction and use of these buildings and the infrastructure have on our economy and the world. But we should; the numbers are staggering both in positive terms (improvements in the way we live, employment and economic growth) and in negative terms (the impact on our environment, communities and sustainable development).

This section examines the construction sector, with a focus on the build environment including the design and construction of buildings as well as the urban planning for these buildings. But the construction activities for our infrastructure — like roads and railways — are excluded. Further to this, the input materials for the construction sector are excluded, because they fit in the scope of the mining sector. The following paragraphs describe the importance of the construction sector for our economy, the growth trends that we can expect, the most important environmental and social sustainability challenges that are associated with the construction and use of buildings, and why this sector is unsustainable. We will explore the construction sector from a global perspective with a focus on emerging economies, and we will show that the way we currently design and construct buildings is not sustainable for both the short-term and the long-term, as any building we put in place now will stay there for the next decades.

Economic importance of the construction sector

From an economic point of view, the construction sector is an important player: it currently represents 6% of global GDP²²⁷, and 7% of the global workforce works in the construction industry.²²⁸ In the EU the share of the construction industry in total employment is around 9%²²⁹.

With the world population on the rise and an increasing trend of urbanization, every day more people need to be housed, more people need places to work, more people need to travel and more goods need to be transported. As a result, cities all over the world are growing exponentially. In 2017 there are 47 megacities with a population of more than ten million people. The largest megacities are Tokyo, Shanghai and Jakarta, each having over 30 million inhabitants. One of the fastest growing cities is Kinshasa in the Democratic Republic of Congo. The city is expected to become the largest megacity in Africa by 2030, projected to grow to 20 million by 2030 and “house” 83 million in 2Ю0²³⁰.

As a result of all of this, over the next four decades, 230 billion square meters of floor space in new buildings will need to be built. The volume of construction output is predicted to grow by 85% worldwide by 2030²³¹, to $15.5 trillion annually²³². This massive growth will mostly be driven by China, the US and India, with India’s construction market being expected to grow nearly twice as fast as China to 2030, as an answer to its immense urban population growth²³³. In numbers, China will continue to lead the construction push, with a construction output of $4 trillion by 2030, while other regions are also growing, such as the US ($3 trillion), India ($1.5 trillion) and Sub-Saharan Africa ($0.8 trillion)²³⁴. The use of non-metallic minerals (i.e. for cement, bricks and tiles) and metals is expected to grow in China alone to 20 Gigatons (equivalent to one trillion kilograms) in 2030, 7.5 Gt in India, and 4 Gt in Sub-Saharan Africa.

To just put all of this in perspective, to be able to cope with the massive coming population growth and continuous economic growth and if we were to concentrate all of the building activities in one place for the next 40 years, we would need to add the equivalent of a city the size of Paris to the planet every single week.²³³

Take a moment to reread all this and let these facts sink in. Just imagine the energy and materials it will take, not only for constructing all these buildings, but also what those buildings will need in terms of energy and water during their lifecycle. The choices we make today on how we build them will determine the footprint of the buildings for the next decades.

Production and value chain: the lifecycle of a building

The value chain of construction is relatively simple. There are inputs (in this case building materials) like wood, steel, concrete, stone, copper, etc. These materials are transformed into infrastructure like your house or office, a bridge or a sports arena. Then the building is used for decades. After that building’s useful life is over, it is deconstructed, demolished or left to break down on its own.

However, as simple as the value chain may seem, the organization of the construction process is very complex due to its fragmentation. A client needs to work with an architect and a contractor, who work with subcontractors, who hire specialized craftsmen and buy the goods from suppliers. Furthermore, every building has some link to safety inspections by governmental institutions and must collect the right permits that fit in the overall urban planning of a region. All in all, it easily adds up to ten or more organizations involved in the construction process.

Within this value chain, the organizations focusing on the design of buildings are crucially important for the footprint of the entire construction sector. The design process determines the impact of the use of the buildings, the type and frequency of maintenance, the longevity of the building, and the type of heating or cooling, light systems and plumbing.

4.5.2 Sustainability issues

Sustainability issues

Globally, the construction sector is faced with several social challenges, the most urgent one being the rapid growth of megacities and influx of migrants who often settle down in informal settlements, or slums. Over half of the world population currently resides in major urban areas and the United Nations estimates this will increase to 70% by 2050. In 2018, the number of cities with at least one million inhabitants had grown to 548 and in 2030, a projected 706 cities will have at least one million residents²³⁶. Cities are often attractive and offer opportunities for vulnerable groups like migrants and minorities without formal rights to land. An estimated 25% of the world’s urban population live in informal settlements, with 213 million informal settlement residents added to the global population since 1990.

By 2030 an estimated two billion people will live in slums²³⁷. These people end up in slums because they move from rural to urban areas, or they are displaced by conflict, natural disasters and climate change. The lack of affordable housing in cities urge these vulnerable groups to build homes wherever they can. Informal neighborhoods often lack basic services like drinking water and sanitation and city infrastructure like transportation and markets. Other problems are poor quality housing, lack of (formal) job security and sexual violence. Inequality in cities is on the rise: urban areas continue to provide opportunities for employment and business, but the gap between wealthy, highly—skill knowledge workers and low-paid service workers and unemployed migrants is growing. Such a concentration of people and economic activity means that natural hazards, environmental degradation and climate change can cost more lives and money if they affect cities.

A specific example is Kinshasa in the Democratic Republic of Congo. Due to failure to implement urban planning, an estimated 75% of the

Kinshasa population lives in slums.²³⁸ Poor people have settled in erosion-sensitive areas, where they are extra vulnerable to climate change related disasters. In 2015, 31 people lost their lives and about 20,000 people became homeless in the N’Djili neighborhood due to heavy rains. Inhabitants of informal settlements have little to no opportunity to participate in decision making. Increased density in urban areas and lack of basic services have led to high levels of unemployment, consumption of drugs and sexual assault²³⁹.

Environmental issues

The construction of buildings also results in enormous environmental emissions. The sector consumes large amounts of energy and materials: approximately 36% of all energy and 40% to 50% of all raw materials used worldwide are related to the construction and use of buildings. Two of the most essential materials used for construction processes of buildings are cement and steel. The production of these two materials are among the most polluting industries in terms of carbon emissions²⁴⁰²⁴¹, rendering the construction sector one of the largest contributors to greenhouse gas emissions (more than 50%). Building activities were responsible for 40% of drinking water pollution and the waste coming from deconstruction represents 50% of all landfill waste²⁴².

The environmental effects of construction are only part of the story. During their lifetimes, buildings contribute significantly to energy and water usage, and to waste. In the USA and EU, buildings (commercial and residential) account for over 40% of total primary energy consumption. Most of this energy use is from the heating and cooling of buildings, followed by other factors. Moreover, with climate change causing extreme variations in temperature, this figure is set to increase unless designs begin to reflect the need for energy savings and waste reduction²⁴³.

The rules of the construction game

Taking the massive numbers and growth trends into account, the question again is how such an important global sector in economic terms, with such an optimistic growth outlook for the next decades, has become so illegal, unsafe, polluting and resource intensive. Clearly, this sector is on a path to disaster if we are unable to change it, a path that will be inevitable if we remain unable to use more recycled materials, build more energy-efficient buildings and plan more inclusive cities. So how come don’t we make these changes? What are the drivers in this sector that are causing such unsustainability? Let’s look at the four loops that we introduced in Part I of this book. The four loops are shown in Figure 4.12 and are described in the subsections below.

Loop I: market dynamics

The construction sector is largely an example of a “classical” economic price game. Overall, contracts to construction companies are awarded if the builders are able to realize cheap m² of housing, roads or office buildings as quickly as possible. This means that the main distinguishing features of the construction sector are offering volume quickly and cheaply. Moreover, any risks and penalties for going beyond budget or running behind on planning usually fall to the contractor. This is how the game is played and you better be good at this as a company if you want to win. It is to be expected that contractors will do anything they can to keep costs and risks as low as possible by using standardized building methods and materials and outsource as much of the work as possible to second, third and fourth tier (smaller) contractors. Using recycled construction materials, or using innovative techniques is not preferred simply because it is not cheaper, and its reliability is not clear. This in turn leads to a reinforcing loop. In addition, designing and developing energy efficient buildings that are more efficient during their life stage will result in positive returns later but increases costs and investments in the building phase. So why do it, unless you are paid for it? In the way the market is currently operating it is not an attractive business case.

Furthermore, many cities lack planning mechanisms and practices and have a huge shortage of affordable houses and associated basic services. The market, however, is not favoring complex and risky investments projects in affordable housing and associated infrastructure if there is no additional international or governmental financing and institutional support. It seems they would rather invest in food and beverages, agriculture, healthcare and financial services sectors are top priorities for investors²⁴⁴. In the meantime, given the international attention for sustainable cities, society does understand that the proper housing contributes to both economic growth and poverty reduction, and that poor housing does precisely the opposite: undermine economic growth and increase poverty.²⁴⁵

Loop II: enabling environment

Governments are, in many cases, the biggest client and market driver as they are in control of city planning and expansion and infrastructure. However, in most countries the respective Ministries of Infrastructure, city planners and inspection departments are under immense pressure due to rapid urbanization. The focus for these planners is expansion; more buildings are necessary now, maintenance needs to occur now, the city needs to grow now and budgets are tight.

As a result, the tendering and procurement process for infrastructural projects and contracts are usually awarded to the bids with the lowest price. As a natural consequence, if the bidders want to stay in the game, they need to reduce costs where possible, thus ending up with small profit margins. Since innovative, sustainable solutions require initial investments and are riskier, they are often not implemented. Consequently, most often the construction projects that use fossil energy and non-recy- cled materials win the bid as they are often cheaper when only short-term costs are accounted for. Long-term investment and cooperation throughout the supply chain are often also regarded as additional costs with negligible environmental benefit. Moreover, in most emerging economies, few effective governance mechanisms are in place to avoid negative impacts and enhance the benefits for the natural and human environment. Requirements for environmental permits and impact assessments do exist, but actual enforcement and implementation of these measures is not happening or when they do happen, they can easily be solved with an “voluntary contribution to the college fund of the children of the civil servants in question”. Here in the West, environmental damage can in many cases be mitigated by proposing symbolic mitigation or compensation measures like developing some additional nature somewhere else.

Loop III: mismatched benefits and effects

The third loop that forms the rules of the construction game is that the negative consequences of unsustainable construction practices are not felt by the ones who cause them. Whether it is city planners that design large infrastructural projects or governments that lean towards the cheapest and most efficient construction executioner possible — where most of the risks are put on the construction companies — the environmental effects of these practices are not felt by the decision-makers. The effects of the mining and deforestation to provide for the input materials are also not felt by the construction companies or the government. The effects of inappropriate urban planning are felt by those left out, while others benefit. And what about investing in more energy efficient buildings? While that will cost more money, the benefits would be for the one renting or buying the place. So, why bother? In the construction sector it is common to externalize all the costs, while the ones causing it are benefitting from the profits.

Loop IV: lack of alternatives

The fourth and final loop that further cements the unsustainable outcome in the construction sector is that besides the market dynamics, the enabling environment and the consequences not felt by others, is that most alternative sustainable practices, techniques and materials are not considered to be viable. Think about it: choosing recycled cement or any other recycled material, rather than the virgin material is in most cases more expensive, it is logistically more challenging, it is riskier as the strength or durability of the construction is less understood. Moreover, it is not yet available in large quantities and most, though probably not all, (sub) contractors will know how to use this. This limits the wide application of it and will further increase the costs. Most likely, there is not yet an accepted building norm or standard yet that makes these new practices acceptable to clients. As a construction company, why on earth would you choose to use these innovative alternatives? In addition, securing formal approval for the new material or practices is costly and takes a lot of time. It is much easier, more predictable and more profitable to continue with the old way of working. The exception is, perhaps, for some pilot or nice niche projects where the client wants to go above and beyond today’s practices.

This logic is not just true for using recycled materials but for the introduction of most sustainable alternatives in the construction sector.

Putting the loops together

Combining all four of these loops we can see that the sector is trapped in a dynamic that rewards unsustainable building practices. The current market dynamics reward a focus on efficiency and gaining the lowest price per m². The negative outcome of these market conditions is further strengthened by a failing enabling environment, in which rapid urbanization pressures city planners to give in to detrimental public procurement processes. Little action is taken, as all environmental and social costs that come from these unsustainable practices are externalized by city planners and construction companies or compensated by symbolic projects on the side. Furthermore, individual players in the construction sector see little alternative as building practices are expensive, bear more risk and are a logistical headache or are not even approved yet.

Each of these four loops ensure that the construction sector reinforces the social and environmental problems that persist. Taking a different path and circumventing these loops to transform the sector is therefore difficult. Figure 4.12 summarizes the four loops that together create the dynamics in the construction sector, which in turn cause the sustainability issues described above.

The sector takes action

Despite the reinforcing loops that jointly seem to favor unsustainable construction practices, there are several examples that show how “business as usual” can be changed and slowly shift towards a new mode of construction. Although sustainability is not yet engrained in the market’s DNA, initiatives to transform the sector are rapidly taking off. This section explores the initiatives that are leading the sustainability changes in the construction sector and how they link to the phases of market transformation. We focus mostly on the initiatives that touch on the pressing environmental concerns in the sector, such as waste, energy use and recycling of materials, as well as social issues such as the lack of formal labor contracts, human rights violations and dangerous working conditions. With so many initiatives going on and the limited space we have, only a few of them are addressed in this section and therefore we realize we are far from complete.

Figure 4.12 The systemic loops that lead to unsustainable outcomes in the construction sector.

Phase r. inception - increasing urgency and move towards actionable alternatives through projects and pioneering

Phase 1 is the project and pilot phase. Here we learn and experiment, or simply try to improve our reputation and escape the pressures. In the construction sector, we see many individual pilot projects developing new technologies to address the problems. In this phase, we find mostly initiatives focused on the environmental aspect of construction, such as waste streams and pollution. Let’s look at several examples where pilots or symbolic projects are experimenting with new construction techniques with more sustainable or recycled materials.

A nice example is the modular/prefabricated construction that combines circular thinking with exciting new engineering and design solutions. In this method, sections of a building are constructed away from the building site, to be compounded on-site in the final stage of the construction process. Modular construction is a response to various developments in the sector’s market transformation, including the increased institutional push for circular building and the recognition of competitive advantages in the industry. By combining a clear business case with cross- sectoral collaboration opportunities, it has a high transformation potential as it gains momentum. For example, using a modular pre-fabrication method, the Chinese company Broad Sustainable Building (BSB) erected the 57-story Mini Sky City building in an incredible 19-day span at a rate of three floors a day, while claiming high savings on resource and construction costs. For this project, BSB relied primarily on prefabricated steel-based modules, thus using a material with high recyclability. By avoiding concrete, BSB’s buildings not only avoid the lengthy concrete curing process, but also create buildings with quite literally a lighter footprint: their buildings are up to 20% lighter than standard buildings and have significantly lower carbon emissions.

Another approach can be seen in the UK, where Mace, in conjunction with Arup and B&K Structures, built the UK’s tallest commercial timber structure: The Sky Believe in Better Building, located in London. This structure is built around a natural timber frame constructed offsite and assembled on-site and includes a variety of modern and energysaving solutions that earned it a BREEAM Excellent status (mentioned below). Construction of the office building, which can house up to 400 people, was delivered in less than a year, and is designed for flexible use: spaces can be altered for different functions through adaptable fittings and partitions. This not only makes the office more user-friendly, but also goes beyond the “single-use” attitude that underpins most of today’s traditional buildings, which are simply replaced at the end of their life or original use.

Or take Circl, where a meeting platform in Amsterdam practices what it preaches: Circl, constructed in 2017, was built according to the latest principles of circular and modular building, and now functions as a hub in which all kinds of sustainability initiatives come together and exchange ideas. So, what makes it so circular? The building consists of mostly recycled materials (e.g. wood and aluminum), which can be reused in other constructions, it is isolated by using the fiber from 16,000 collected jeans (yes, the trousers). Circl is home to all kinds of events, presentations and business exchanges in which the latest ideas on sustainability are exchanged. Despite its positive influence, it remains a typical Phase 1 initiative: owned by commercial bank ABN AMRO, it serves as a flagship example that only touches upon the surface of circularity and sustainability, and in itself is not a deep, structural change in the construction or finance sector. In other words, Circl serves as a symbol, an inspiration of what the construction and financial sector could and should look like.

A promising initiative that could significantly enhance the circular use of materials in construction is Madaster. Madaster is a not-for-profit organization that has the objective to increase transparency by bringing together those who have used materials and those who need materials for building planning, thus enhancing circularity. Madaster is founded by the private sector in the Netherlands that increases the transparency of material flows. It is an independent platform accessible to individuals, businesses, government agencies and public bodies, with a mission to eliminate waste by helping users identify and track various materials. The platform is a public online library of materials in the built environment and generates “material passports”, which record information about objects in the built environment. This increased transparency and information access facilitates the high-quality reuse of materials by stakeholders. With this innovative approach, the organization aims to provide a clear path to a circular economy for all stakeholders. Madaster has shown that change to sustainable practices does not need to begin with the largest institutions; instead, (and possibly more effectively) change can start with people in small communities which understand that the current model is not sustainable.

Altogether, these examples are individual pilot projects that introduce more modular and energy-saving construction methods and may form a first step towards a more widely accepted use of modular construction.

For the social issues related to slums, the focus in Phase 1 is on creating a vision for sustainable urban development and initiating construction pilots in line with this vision. Already in 1996 the Shack/Slum Dwellers International (SDI) — a network of community-based organizations of the urban poor in 33 countries in Africa, Asia and Latin America — was launched when federations of the urban poor in countries such as India and South Africa agreed that a global platform could help their local initiatives develop alternatives to evictions while also influencing the global agenda for urban development. In each country where federations operate, they mobilize around core SDI practices and principles to build a voice and collective capacity in urban poor communities.²⁴⁶ Shack/Slum Dwellers International already embark on strategies such as reblocking that sees the physical layout of settlements upgraded a block at a time. After reblocking, some of the homes have been extended to a double story — effectively doubling the accommodation space of a single stand. A relatively simple and cost-effective strategy: build upwards, not outwards.^24,

A more recent development is the adoption by 170 countries of the New Urban Agenda, developed at the United Nations Conference on Housing and Sustainable Urban Development. The New Urban Agenda is a blueprint for achieving sustainable urbanization for the next 20 years. The construction sector is key to achieving the goals of the New Urban Agenda:

One perspective of the New Urban Agenda is that it is a frank admission by stakeholders that current urban and city management plans, policies and processes have not been able to adequately address the many challenges of urbanization. This includes the persistence of poverty, growing inequalities, deprivation and environmental degradation. Despite the admirable goals of many global, regional and national policies, planning has failed to deliver with many developing countries not having national or city urban policies in place.²⁴⁸

For example, by implementing best practices like offering mixtures of uses and housing types, creating more opportunities for interaction (from the intimate to the casual), converting slums and squatter houses into community public spaces to celebrate culture and revitalizing riverside slums into livable areas.²⁴⁴

Just like platforms are initiated to learn how to deal with the ecological issues, similar and sometimes related platforms are also initiated to address the social issues in the construction sector. The “Architecture for Refugees” is an open source online platform which collects and shares questions, problems, ideas and solutions dealing with the architectural aspects of the current refugee crisis and other mobility developments that are a main cause of the emergence of slumps around the megacities, at the European and global scale. In our modern society, information and the access to knowledge are key values. Creating an open source pool of information and knowledge could enhance the collaborative work between activists, refugees, professionals and politicians. As a result of the collaborative work, organized and prompt answers could be given to both the shelter and infrastructural problems of the refugee crisis. Architecture for Refugees (AFR) aims to join refugees, architects, urban planners and designers to create a better built environment for, with and by refugees.

Phase 2: competitive advantage - creating new business models through innovation and competition

In sports and business, it is often said that competition drives performance. Competition on sustainability can also be positive: it drives innovation, it brings initiatives to the forefront of the industry and ensures that sustainability becomes a key tenant of businesses. However, it can also lead to market confusion, green washing and it may in fact add to the fragmentation and cost of doing business. In the construction sector this is what is happening. In general, we can make a distinction between two types of standards and certifications:

• • So-called green product certifications apply only on the input materials and energy used in a construction project;
• • while green building certifications and ratings consider the construction project as a whole.²⁵⁰

There are currently around 600 green product certifications²"¹¹ and over 20 green building certifications. These hundreds of green product certifications do not only apply to the construction sector, as some of the products that are certified can also be used in other sectors. Think for example of Forest Stewardship Council (FSC), which applies both to wood that is used in buildings, but also to other wood products, and even wood-based paper. All these standards are allowing the market actors to compete to win contracts. It also unfortunately adds to the growing levels of confusion in the market.

Let’s look at examples of these green product certifications.

Cradle to Cradle Certified was founded in 1995 and assesses the extent to which a product is safe for both humans and the environment and determines if a product is suitable for future life cycles (in the post-use phase). For example, can it be easily disassembled or composted? Cradle to Cradle applies to building materials, but also to interior design products, textiles, paper and homecare products.²’²

Another green product certification is SCS Global Services. The company goes back to 1984, and now certifies a wide range of products on environmental, sustainability and food quality standards. In the construction sector, SCS is used as a certification for textiles and insulation, but also wood products and other materials used.²⁵³

These are just two examples of the more than 600 green product certifications that are around these days. Phase 2 is therefore marked by a great diversity of third-party organizations that certify, audit and test. Some of them complement each other, while others overlap greatly in terms of products certified and countries in which they operate. In order to move towards Phase 3, more alignment on these certifications is therefore greatly needed.

Although the number of green building certifications and ratings is much lower (around 20), we can still identify quite a large number. There are two initiatives that have caught on and are leading the transformation of building design and construction to a more sustainable level: BREEAM and LEED.

The Building Research Establishment Environmental Assessment Method Infrastructure (BREEAM), created in 1990 in the UK, was the first of its kind. This sustainability assessment method has awarded over 500,000 certificates, with many more in process. Research has shown that higher BREEAM ratings, which entail more challenging sustainability levels, typically involve less than 2% additional costs that can be paid back within two to five years through utility cost savings.²³⁴

In 2000, in the USA a similar instrument was developed: Leadership in Energy and Environmental Design (or LEED). This certification shows how sustainability can increase the market value of buildings. The project developed by the Green Building Council (USA) has done some spectacular work in North America. As a certification and rating scheme, LEED focuses on materials, emissions (in construction and beyond), site locations, impact on people using the building and numerous other areas. LEED has created unique metrics and measures for different building types, such as homes, commercial buildings, cities and communities. The lowest standard is “LEED certified” and the highest is “LEED platinum”. This scale enables developers who are unable to achieve the rigorous Platinum standards to improve their sustainability and still acquire LEED endorsement. With nearly 100,000 LEED certified projectsl the certification is widely considered to be a success. LEED faces two major challenges: 1) it is only one of many such certifications; there are numerous other options such as BREEAM and Green Globes. Making a choice is difficult, and the certifications vary in terms of rigor. 2) LEED is intended only for the developed world. It was developed for the United States, making it difficult or impossible to use in practice in the developing world. Therefore, though LEED is doing spectacular work, it shows there is still competition and room for other initiatives to drive this sector into the next phase of development¹.

Such rating systems have gained a significant market share and have driven related mindset shifts for building owners and the public.

A third and similar rating system that extends to broader infrastructure projects is the Envision Rating System for Sustainable Infrastructure. Introduced by the Institute for Sustainable Infrastructure in 2011, Envision provides a comprehensive framework of 60 environmental, social and economic criteria that determine to what extent an infrastructure project has incorporated sustainable practices²³⁵.

Finally, in addition to the green product certifications and green building certifications mentioned above, a number of calculating instruments have been developed. As the name reveals already, these instruments help the architect, constructor or city planner to quantify the extent to which the construction is sustainable in its entire life cycle (see Figure 4.11). Think of the materials used in its construction phase, the installations and energy production during the time in which the building is actively used, but also the environmental factors that are involved in the demolition phase (its post-use phase).²⁵⁶ For all these phases, the increasing number of calculating instruments make it easier to demonstrate the level of sustainability. The earlier mentioned BREEAM and LEED certifications also offer these instruments in some parts.

In addition to these standards, as a typical Phase 2 action, governments are changing towards more sustainable construction practices too. First, tendering processes that we saw are often only focused on efficiency and low costs, now increasingly embed sustainable criteria. For example, the municipality of Amsterdam has devised a roadmap to focus its tenders more on circular building. Interestingly, governmental involvement also results in more alignment on certification practices, as the municipality of Amsterdam uses existing instruments such as BREEAM in its circular tender roadmap.^Ъ/

Furthermore, there are initiatives to stimulate competition and reward effective approaches in the social issues of the construction sector. For example, many local authorities, confronted by the growing number of people migrating to informal settlements around the world, are responding with innovative housing and service solutions. In Chile, a local city government with limited funds engaged architects in designing social housing that would increase — rather than decrease — in value over time. The architects collaborated with the settlement community, building only half of the house the families would otherwise never be able to afford — the structure, bathroom, kitchen, and roof — leaving residents responsible for the rest.

As mentioned above, there is still work to be done. These standards are helping to solve the environmental and social issues in construction in the developed world, but they have not yet been effective in the developing world. Moreover, since the standards compete, and there are many of them, it becomes hard to identify which standards are credible and are leading the push towards sustainable development, and which standards are essentially greenwashing or are creating only minimal gains.

Phase 3: pre-competitive collaboration - enabling scaling through collaboration between multi stakeholder coalitions and platforms

Competing standards can only take a sector so far, particularly if there are so many, and the construction sector is no different. Phase 3 in market transformation is characterized by the sector coming together and asking the question “what would a sustainable construction look like and how do we get there”. This is the phase of pre-competitive collaboration between industry and governments and of removing barriers to scale.

Currently one driving idea behind the emergence of Phase 3 is the shift from a linear economy, in which resources are produced and consumed without being re-used or re-usable in many cases, to a circular economy. Such an economy is intended to be regenerative by design, aiming to replace the current ‘end-of-life’ mindset with one focused on restoration. This includes shifting production towards the use of renewable energy, eliminating the use of toxic chemicals and integrating superior design of materials, products, systems and business models with the aim of avoiding the creation of waste. This can only be achieved by cooperation between market actors because it requires the formation of pre-competitive platforms and multi-stakeholder coalitions.

One such coalition in the Netherlands is the Circular Building Platform, or Platform CB’23. Established in 2018, this platform is the first in the Netherlands to connect on a national level the wide variety of initiatives around circular design, material-use and construction. It was initiated by the government but has grown to a sector-wide multistakeholder platform that includes all actors in the life cycle of a building. Platform CB’23 aims to exchange knowledge, identify challenges and set sector-wide agreements, so that by 2023, concrete results have been reached. One big challenge that the Platform explicitly addresses is the tendering and procurement process, which are currently restraining circular and sustainable building efforts. This pre-competitive, multistakeholder platform thereby directly aims to change the enabling environment in the construction sector.

Other projects that are in their initial phases include the Union Market on inclusive development, in Washington DC, that began as a partnership between a developer and the community to revitalize the neighborhood using innovative technology and solutions to create jobs (that pay a living wage) and sustainable buildings²"¹⁸. Two additional examples are the Resilient and Inclusive Urban Development (RIUD) program in Bangladesh²³⁹, where new cities are being built in a sustainable way to accommodate a quickly growing population, and the Vietnam Urban Upgrading Project, an investment by the World Bank in better infrastructure. Implemented from 2004 to 2014, it enhanced inclusion for the 7.5 million residents of Ho Chi Ming City (Vietnam)²⁶⁰.

Within Europe, the Netherlands is one of the circular economy pioneers. In 2016, a government-wide program was presented to the Dutch parliament, with the goal of achieving a circular economy in the Netherlands by 2050. The program contains a set of goals, divided into five sectors. The building environment is included in this plan with the Transition Agenda for the Circular Construction Economy²⁶¹. This plan is being implemented, and the first cautious steps are being taken in Phase 3.

Globally, large cities are increasingly collaborating to address climate change too. This is done especially if there is an absence of central government management and drive. The C40 network, for example, aligns 94 of the largest cities. Mayors of these cities work together to exchange knowledge on how to drive sustainable action in energy efficiency, construction efforts and city planning.²⁶²

Another such initiative is the Global Platform for Sustainable Cities (GPSC). Launched in 2016, the GPSC is a knowledge platform of cities that aims to translate transnational declarations on sustainability (e.g. the Paris Agreements) into city level actions. It currently comprises 28 cities in 11 countries, from Brasilia to Beijing and from Jaipur to Johannesburg. Its core activities are essentially the same as those of the C40 network or Platform CB’23: to exchange experiences and develop joint solutions. The GPSC especially focuses on how to best design urban planning and financing, in the face of rapid urbanization.²⁶³

These sustainable city platforms, and collaboration platforms more generally, often tend to be looked at as “talking clubs” where a lot of dialogue takes place, but little action is taken. While this indeed remains one of the biggest challenges, these platforms and networks do contribute to an enabling environment that rewards long-term strategies instead of short-term gains, and sustainable practices rather than externalized costs. This not only adds to a more sustainable construction sector but has effects on all other activities, such as tourism, energy production and financial investments, taking place in the cities.

Phase 4: institutionalization - ensuring a level playing field through legislation and coercive self-regulation

When it comes to circular design and building the construction sector is still in its early phases of market transformation. In relation to climate, we see that quite a few sustainable practices have progressed to Phase 3 where different platforms are taking on the issue and try to scale its implementation. There are a few sustainable construction practices that have made it to Phase 4 in most parts of the world.

Recycling is one of these topics. When it comes to recycling, companies and governments have already implemented various recycling strategies and regulations in many parts of the globe, such as levying a surcharge on non-sorted construction waste or specifying which amounts of construction waste need to be recycled. For instance, this recycled material is re-used as aggregate material for new construction in roadwork or for foundations of new infrastructure. Sorting and grading waste in many countries is now a common practice.

Additionally, in Europe it is now legally obligatory to display the energy performance of a house, office or hospital. For example, the Netherlands started to pursue this since 2006 through so-called “energy performance certificates”. These energy certificates give the building owner, purchaser or tenant information on the energy quality of the building (rated from “A” to “G”) and must be delivered by a third-party certifier.²⁶⁴ This is just one step of many: as of 2023, it is mandatory that all office buildings in the Netherlands have energy label C or better.²⁶’ Indeed, as of 2020, all new buildings need to be nearly ‘energy neutral’.²⁶⁶ The interesting aspect of this is that mortgage providers are using this energy efficient standard to ‘green’ their mortgage portfolio. Lenders of more energy efficient homes can receive a discount of their interest rates or can lend more money. While mortgage owners with homes with a lower energy efficient score gets penalized. This will over time lead to energy efficient homes will also be worth more. The overview of initiatives in the construction sector is presented in Figure 4.13.

How to move the sector forward

Governments

As mentioned, particularly in the construction sector, the governments are the main driver in the market as they are, in many cases, the main client

Figure 4.13 Initiatives to drive sustainability in the construction sector.

and they control spatial planning and infrastructure. Some governments have taken initiative to change the sector, both within their borders and on a wider scope, but there has not been enough action. As the megatrend of urbanization continues, these governments must develop policies to promote inclusive development of cities to accommodate their growing populations. They must push for sustainable design, construction and deconstruction of buildings and infrastructure, there must be suitable policies to ensure safe working conditions and there must be strong, effectively enforced environmental policies. The commitments to COP21, compliance with ILO policy and encouraging inclusive development should serve to fulfill these goals.

In summary:

• • Include natural and social value creation in government procurement procedures;
• • Develop policies to prioritize inclusive development;
• • Facilitate and support coalitions that promote inclusive urban development;
• • Incorporate inclusiveness in legislation on infrastructural development;
• • Include circularity in procurement procedures to facilitate cooperation between multiple stakeholders instead of lowest price competition.

Industry

To ensure a future for the vast number of people employed in this industry, there must be a focus on changing the way the industry acts. Adoption of green building standards is becoming a priority, but global standards are still lacking. Moreover, the lack of standards that benefit the developing world is an underlying challenge. However, some companies are acting, there is an indication that circular management will become a greater part of the construction industry and that building design is becoming rooted in sustainability. The time is now to be the first mover and capitalize on the opportunities.

In summary:

• • Compete on different tools for inclusive development;
• • Embed inclusivity in company policy;
• • Design principles and quantitative measures based on SDGs;
• • Develop new circular products.

Civil society

Change at the other levels relies on civil society and the various stakeholders calling for change. Currently, there are winds of change and a push for more sustainability in construction, but the push is not strong enough. Financing continues to go to projects with the greatest potential returns, and consumers continue to purchase the cheapest products, not the most sustainable ones. Although research focuses on change, the resulting recommendations are disregarded. Finance must internalize externalities when investing, consumers must determine how much they are willing to pay for sustainability and research must have practical implications that can be transferred to government or industry. Certifying bodies are doing their part, but they must begin to understand that collaboration is more beneficial than competition. These stakeholders control the future of the construction industry and the onus is on them to act if they want to a see a sustainable future for construction.

In summary:

• • Extend the scope of cost-benefit analysis to include social and environmental factors;
• • Develop tools to monetize or internalize social and environmental factors;
• • Conduct research on the impacts and/or benefits of inclusive development;
• • Provide finance to innovative solutions that can be scaled to generate sector-wide change;
• • Financial institutions need to seek more than strictly financial returns and must invest based on these factors.

Legislation and procurement practices are still lagging, and governments should urgently catch up with advanced companies in order to set new standards. Research institutes, in cooperation with civil engineering companies, should develop standards that meet the needs of current reality: new, non-stationary and inclusive approaches. Socioeconomic cost-benefit analyses and true price methodologies should be incorporated into the project delivery process to create more value and reach a higher sustainability level. This should be done in the inception phase of planned developments. Finally, seeking consensus through public-private cooperation is essential if we wish to reach the next level of sustainability in the sector.

Small-scale initiatives can play a crucial role in this development. In summary, all stakeholders in the construction sector need to act quickly, before shortages and environmental/social destruction become intolerable and irreversible.

However, due to local conditions and governance frameworks, the role of stakeholders differs hugely between countries. While the Netherlands is seeking consensus and is focusing on creating beneficial conditions and high levels of stakeholder involvement, other countries are taking a much more centralized and directive approach when it comes to creating circular momentum. Countries in Asia, especially China, see material depletion as an imminent crisis. As a result, they do not wait for consensus on measures and are therefore able to make rapid changes. The USA, on the other hand, has a much more opportunity-driven approach and works with the expectation that there will be winners and losers in such a transformation. The role of the government, including local governments, is to include the requirements for integral value creation in their procurement procedures, while the role for business is to conscientiously implement the method, whether it is a statutory requirement or not²⁶⁷.

Executive summary: how do we build our future?

Houses and offices are built to last. Therefore, the choices we make today on how we built them determine the footprint of them for the next decades. This is already a big footprint with the use of about 36% of all energy use and about 40% to 50% of all raw material use. Still, the current functioning of the construction sector is incapable of housing a huge part of our population. By 2030 it is estimated that two billion people will live in slums. Looking towards the future, this footprint in both social and ecological terms will increase enormously. Population growth, urbanization and climate change are quickly and surely leading towards a path where business as usual is simply not an option for the construction industry.

However, there are huge vested interests in the current way of organizing the construction sector. About 6% of global GDP is generated in the construction sector and about 7% of all employees work in this sector. And megacities more and more need to provide the comfort and shelter we are looking for as citizens. Furthermore, the sector is characterized by a high level of fragmentation, easily adding up to ten organizations involved in the construction of every single building. Who can take the lead for transforming a sector when every actor can hide behind many others? And why are so many actors tempted towards hiding behind others in order to maintain the status quo?

Loop I: market dynamics

In most parts of the construction sector, projects are tendered with price and compliance to the preset standards as the main criteria. Any deviation is at the cost of the contractor, resulting in a sector focused on standardization and upper segments of the market. Risky projects for affordable housing are unattractive, especially when there is still so much growth in the upper segments of the market.

Loop II: enabling environment

Many national governments lack the capacity or capabilities for proactive urban planning. Instead city planners focus on projects to solve the immediate needs in the here and now. Assessment of environmental and social consequences is often overlooked or neglected when it comes to enforcing appropriate norms.

Loop III: mismatched benefits and effects

Due to the fragmentation in the value chain, the consequences of bad urban planning and the neglect of environmental issues are for others, while the organizations involved in the construction of buildings already focus on the next project. Additionally, the time dimension allows for externalization of costs. Investing in energy efficient buildings increases the costs for the construction sector, while the benefits are for the one renting or buying a place.

Loop IV: lack of alternatives

For the most part in the construction process, there are more sustainable alternatives. However, they are more complex, less predictable and less profitable compared to the traditional way of working. Within the current rules of the game they are hardly an alternative.

Still, the sector has already changed its practices, to some extent, in order to include at least some of the environmental and social issues. For inclusive city development, the market is still in Phase 1 with a strong emphasis on learning how to make the development of megacities more inclusive and sustainable. For the issue of resource depletion, the construction sector is transforming to a more mature phase in which new innovations are being developed. Some initiatives for non-competitive cooperation are taking place, thereby tackling the issues of resource depletion and non-inclusive development. Therefore, the issue of resource depletion is in Phase 2 of market transformation, in which competition amongst first movers is key, and some first steps are being made towards Phase 3 with the first multi-stakeholder initiatives taking place.

Considering these phases of market transformation, governments need to continue to learn how to develop inclusive city development next to including circular design principles in the procurement procedures. Companies need to start competing on inclusive development methods and integrate sustainable design practices to bring together previously separate fields of expertise into a comprehensive lifecycle-oriented approach. Research institutes and other knowledge parties have a crucial role in developing tools to monetize the social and environmental issues in order to link long term benefits to decisions in the short turn. Financial institutes also have a huge chance to fund inclusive city development, because so much money is needed and linked to this.

If we are unable to create enough momentum to achieve this new level playing Field, the cost for all stakeholders will only increase as they are forced to make rapid adaptive investments when crises unfold. Our built environment should not just reflect our needs today, but also ensure that we can meet the needs of tomorrow by building together.