In a context of growing economic, social, and environmental challenges, Chile's construction sector—fundamental to the economy, employment, and investment—faces structural issues that limit its full development. Although significant progress has been made in recent decades, gaps in productivity, innovation, and environmental sustainability persist, which the country seeks to overcome with a strategic and collaborative vision.
How can this situation be reversed? A strategic alternative is timber construction: a renewable material capable of capturing carbon, compatible with processes that allow for faster building, with lower environmental impact and higher quality. However, its large-scale adoption still faces significant gaps.
In this blog post, we explain how the new Sustainable Construction Support Program—driven by the Production Development Corporation (CORFO) and funded by the Inter-American Development Bank (IDB)—aims to incentivize the industry by supporting companies, training human capital, adapting regulations, and promoting the use of timber as an engine for productive transformation.
Gaps Hindering Growth
Construction is a cornerstone of the Chilean economy: it contributes 5.5% of GDP, generates 9% of employment, and accounts for 63% of national investment. However, it faces challenges in sustainability and productivity. It is one of the most energy-intensive sectors: it consumes one-third of the country's total demand and generates 30% of equivalent carbon dioxide (CO2eq) emissions. In residential buildings, about one-third originates from materials, especially concrete, which is responsible for more than half of the total. All this in a context of a high housing deficit affecting 7.9% of households.
In addition to this environmental impact, there is a significant lag in productivity. Between 2009 and 2018, the labor productivity gap of the construction sector compared to the OECD average widened by 20%, while leading economies more than double Chile's productivity level. Total Factor Productivity (TFP) fell by an average of 2.6% annually between 1999 and 2021.
The causes are structural: predominance of small, low-tech and often informal companies, low industrialization, limited adoption of digital technologies such as Building Information Modeling (BIM) and automation, shortage of specialized human capital, outdated regulations, and limited investment in innovation.
The Solution: Modernizing with Timber
Industrialized construction represents a key opportunity to renew the construction sector and address its productivity and sustainability challenges. This approach can reduce material costs by over 50% and labor costs by up to 30%.
On this path, timber stands out for its environmental and technical benefits. It is a renewable material capable of sequestering carbon: each ton stores about 1.6 tons of CO2eq, a marked contrast with the emissions generated by concrete (0.9 tons of CO2eq) and virgin steel (2.5 tons of CO2eq). Additionally, it provides excellent thermal insulation, low energy consumption, structural strength, and ease of dry assembly, making it a natural ally for sustainable industrialized construction.
Enormous Potential
Although timber is the second most used construction material in Chile—and the main one in one- and two-story houses—it only represents 12.5% of building permits. In taller constructions, its share falls below 5%. This contrasts sharply with countries with similar forestry potential such as Norway, Finland, Sweden, Canada, and the United States, where its use exceeds 80%.
In Chile, low-rise timber construction is mostly carried out using traditional methods. While cost-effective for buildings up to two stories, they present technical and economic limitations for scaling to taller constructions. Achieving that standard requires industrialization: more complex structural solutions, more advanced technologies, and more efficient processes to meet the demand for social housing in dense urban environments.
Chile has extensive forest resources, particularly in the south-central zone, but its industrialization remains limited. Structural gaps persist that hinder a sustainable supply of certified raw materials, resulting from market failures and the absence of complementary public goods that would facilitate market formation.
The value chain (VC) of industrial timber construction in Chile includes sawmills; industrialized component plants; construction companies; metallurgical plants; real estate companies; financial institutions; and training and research centers. Although present throughout the country, they are concentrated in eight regions: Maule, Ñuble, Biobío, Araucanía, Los Ríos, Valparaíso, O’Higgins, and Los Lagos. Half of the 5,519 formal companies in the VC are linked to sawmills and the manufacturing of wooden parts and components, becoming critical bottlenecks: only 10% produce structural timber and less than 1% comply with the MAE (Structural Graded Sawn Timber) certification.
Essential technologies to achieve this standard—such as plant drying and impregnation—still have low adoption: 53% and 3.4% of sawmills, respectively. This prevents wood prefabricated component manufacturers from obtaining consistently high-quality raw materials.
Overcoming these bottlenecks requires targeted investment and support in key regions, both to stimulate the development and consolidation of the industry and to distribute its economic and environmental benefits equitably. It will also be crucial for advancing Chile's climate commitments, reflected in the 2025 Nationally Determined Contribution (NDC), which includes the development of a National Timber Construction Strategy. This strategy, in close collaboration with the private sector, will seek to promote the sustainable, safe, and efficient use of timber and other bio-based renewable resources.
Towards a Modern Fiscal Institutional Framework
In this context, CORFO, with technical and financial support from the IDB, is developing the Sustainable Construction Support Program. This program, which directly addresses the systemic problems hindering the growth of sustainable timber construction in Chile, with a strong emphasis on inclusion and promoting the participation of diverse actors, including women, contains the following aspects:
Access to Financing
The most significant barrier to investment in the sector is limited access to financing. Commercial banks perceive timber construction as a high-risk sector, due to a lack of prior experience in direct financing to the sector, volatile demand, and susceptibility to natural disasters. This translates into guarantee requirements that many companies cannot provide. Public guarantees, such as those offered by CORFO, are essential to mitigate information asymmetries and perceived risk, enabling access to financing, particularly for women-led companies and those with a diverse workforce.
Skilled and Inclusive Workforce
The industry faces a shortage of specialized professionals. The current educational offerings do not meet the demand for digitalization, precision, and quality control. The program will promote training in key sectoral competencies such as inspection, timber grading, fire control, thermal and acoustic insulation, with a strong gender focus to increase female participation in technical and leadership roles.
Standards and Regulations for Innovation and Sustainability
It is necessary to update regulations to increase certainty, reduce project evaluation times and costs, and validate solutions without compromising quality or social and environmental standards. Furthermore, the aim is to better recognize the environmental benefits of timber construction and facilitate its use in tall buildings, especially for urban social housing, addressing technical gaps in structural design, fire resistance, and seismic behavior. The program will promote regulations that integrate sustainability and equity.
Productive Integration and Innovation: Fostering Collaboration and Business Diversity
The VC exhibits a lack of productive integration between different links. This is combined with a lack of collaboration and social capital, especially among small companies, hindering their development and competitiveness. The program will promote associativity and productive integration of MSMEs, developing standards and digital "Market Place" or e-commerce platforms, which facilitate information exchange, improve quality, and connect supply and demand. It will also drive specific sectoral knowledge, innovation, entrepreneurship, and technology adoption, with special attention to the insertion of such companies into the VC.
Beyond the Numbers: A Sustainable, Inclusive, and Regional Future for Chile
The Sustainable Construction Support Program is much more than a financial investment; it is a strategic commitment to transform Chile's construction sector into a more productive, sustainable, and equitable industry.
By addressing barriers in financing, human capital, regulatory frameworks, and market integration—with an active focus on gender and regional development—the program seeks to unlock the potential of timber construction. Thus, it contributes to carbon neutrality goals, drives a green and resilient economy, promotes the essential participation of women, and strengthens development in regions with a forestry vocation.
This initiative shows how Chile can leverage its natural resources and international partnerships to build a sustainable and inclusive future.
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