Stretched housing industry must avoid past mistakes

Greenstone Group managing director Phil Eaton says home-building standards are in a poor state.

The government’s challenge is to build another 10,000 houses.

It’s easy to say but is it possible? Especially when you consider the GDP of the property industry has doubled to $30 billion over the past 10 years – and most of that has been in the five years since the global financial crisis.

So, how much more is left in the tank? Are there any easy wins left?

Consider the health of the industry and the symptoms don’t look great.

It cannot be acceptable that councils are declining more than one-third of building consents because they have issues with the quality of both workmanship and the information being provided to them. Yes, these local bodies are risk averse but, given recent history, they are right to be so.

Yet, even with this brake of non-approvals, those projects that do get the green light face significant delays at every stage of the process, including design, consenting, sourcing materials, manufacturing and delivery. It is inarguable that the reliability of skilled tradies on site is now under question as the workload stretches them to breaking point.

In short, our patient is wobbling and in danger of a fall.

The result is increasing inefficiencies and significantly higher construction costs, especially when compared with Australia.

The industry response has been to hire its way out of trouble. If nothing else, that has at least kicked off a boom for recruitment consultants as companies compete for skilled labour within New Zealand and from abroad.

Even without definitive information there is sufficient anecdotal evidence that applicants for key site roles within construction and some specialist services (such as quantity surveying) are receiving offers well above the historical norm or comparable roles elsewhere.

But, with this added cost aside, simply adding people will never be enough.

As businesses scale upward, so does the complexity of their management structures. In turn, this requires greater skill, care and attention to detail if businesses are to be managed and governed effectively.

This is where many have come unstuck. Clarity in management and governance is critical. At all levels.

Where is the capacity in the industry to supply this housing production? There are only so many concrete pre-cast factories, window manufacturers or pre-nailed framing manufacturers and they’re already running at capacity.

The solution has to lie in well-planned, medium- to long-term solutions because the quick and easy wins – like double shifts – have already been taken.

This is a national issue and, unless it is confronted soon and seriously, we could face another version of the leaky building crisis.

The government must be willing to take an outlook that stretches well beyond the three-year election cycle. 

Yes, solutions such as long-term supply contracts that give factories the confidence to expand have introduced efficiencies in design and construction methodologies. But more training is needed to raise all skill levels, not just apprenticeships, while there is also plenty of room for innovations such as much-touted prefabrication.

The reality is the entire property industry needs to be pulling on all its levers to deliver better results.

The problem in the past has been the boom-bust market cycle, which inhibits confidence and long-term planning. The housing industry cannot hire its way out and it must work in concert with the government.

It will take everyone to create the stable platform required to enable growth, change and good outcomes for everyone.

Phil Eaton is managing director of Greenstone Group

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14 Comments & Questions

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You're right. It will require a lot of smart thinking.
The historical issue here is that there traditionally not been a will.
The only will is to keep the old systems and grow the margins as much as you can.
Construction, especially of domestic buildings, needs a total rethink - top to bottom, and not just in NZ either.
Main Issue: We have too many poor people making more too many more poor people. Solution: Easy-to-Build Social Housing.
Suggestion: Use as much concrete and steel as possible. Then they wont be trashed so easily and will last longer. They may even be warm, but unfortunately, the windows and doors are still vulnerable.
Are there any creative concrete makers out there?

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I like your comment, "to many poor people, making more poor people". The answer, A change in our education system, to educate these people out of the cycle of poverty and reliance of benefits.
This will take a bold government to tackle this social problem.

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Actually the biggest problem is that land prices are too expensive. Mainly because of the RMA and silly council planning rules. This means that lots of people spend big money renovating their existing home. Or even buy existing homes just to renovate. When in virtually every other country, they would buy or get built a brand new home.

This means that there is not a steady stream of cheaper, older homes coming onto the market. That in previous times provided good buying for first home buyers, and landlords providing cheaper rentals.

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I agree to a point that Councils Planning department interpretation of the RMA imposes unsustainable cost and delays. But the cost to produce a section in the subdivision is nowhere near the price quoted by the Real Estate agents and valuers. The majority of sections are pre sold to Group home builders, which produces a low supply high demand situation for the developer to take advantage of. The general public are charge 20% more than the group home builders and what could be 50% than the cost of the section. This has had a downstream effect that any future subdivision is compared to the last one and prices increased accordingly.

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It has never been adequately explained to me why rate payers should assume the risk of issuing building consents and ccc’s? Surely a safer option for rate payers would be to establish a national centre of excellent, either government or reinsured, to handle all building issues. This would free up council resources to deliver infrustructure and other services to rate payers. Another benefit, a specialised centre of excellence would logically be as good as council, and probably even more efficient in delivering consents and monitoring for compliance.

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I agree with you James. It would also help with establishing better national standards and hopefully prevent another "leaky homes" disaster. The other issue is that these local civil servants are expected to be the gate keepers of quality. In my view it would be virtually impossible for a council building inspector to know what was going on at a high rise building site unless he was camped there everyday - and why should the ratepayers fund that?

The manufacturing industry learnt decades ago that you can't inspect quality into anything but that's what we expect them to do - after the consent is issued of course.

Some sort of national central organisation make sense to me.

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No the biggest problem is local body servants who seem to delight in frustrating plans and slowing development. If you are involved you will know the mindset that utterly frustrates development

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Labour creating a rental shortage by bullying Landlords in opposition for 9 years and now in power.

Developers and builders shut up shop and stop building housing they can not sell in a slow market.

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Trolls belong under a bridge, Ted.

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The problems are many, and answers are few.

James Kellow's suggestion of creating national central organisation to issue permits is an excellent idea. This has so many merits; including:
1. The crown assume the risk, so they cant pass the buck (and cost) to innocent ratepayers.
2. Property markets fluctuate (regionally) at different times, and having a central resource will mean better utilisation of resource.
3. Being able to confront the rouge consultants and builders, to ensure they are put out of business.

The government building at scale, which allows resourcing materials from overseas, to keep the local cartel honest might help also. More trade apprentices, rather than university degrees would help this cause.

The land prices are a little more difficult to solve:
1. You'll find most growth centres are ring fielded by land developers who are capitalised enough to hold prices high.
2. Prices are largely controlled by the banksters, who manipulate the money supply to their liking. There will be a short term ease in prices, as small time developers have overbuilt at prices the locals can no longer afford. Hence, the drop in sales.
Perhaps the simple answer to reducing land prices is to increase Council rates on vacant urban zoned underdeveloped land, so that the holding costs become unsustainable and it forces the hand of these land banksters?

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land is used for other things like farming, agriculture, horticulture etc. Not all vacant land has to be developed into housing. Why should these landholders be penalised by extra rates so Councils can put Art in lakes, skateparks near shopping centres and an addition to their ivory tower?

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But why does it cost $3000+ psqm to build the average house in New Zealand?

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The entire realm of residential housing supply has been corrupted by 2 function. Firstly, the ridiculous application of the RMA powers by self-aggrandized local body planners and mandarins empowerment. Secondly, and by far the biggest hitter, is the insanity of the tax-dodge of rental housing "investment" for wealth creation. The entire cheaper/entry-level market has been sucked dry and escalated beyond belief, by the tax-free nature of the ownership/capital gains. Almost the entire escalation of NZ property values has been fed by this anomaly, capital gain of which in turn, drew the massive buy-in by smart foreigners who know the real value of freehold title.

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The Building Act allows for a Building Consent Authority :which is not a Regional or territorial Authority" to issue building consents, if they are accredited and follow a few simple steps in the process. this would provide definitive competition in consenting and stop the Councils from hiking prices without justification and would lead top Councils being forced to improve their systems and efficiencies.
The fact that the number of Private accredited BCAs are not issuing consents is a National disgrace. Councils are allowed to maintain a monopoly on consenting because of the career Public servants in wellington not having a clue what is best for the industry and interpreting the Building Act how it is not written.
But 1 thing I need to correct from this article is that Councils do not ?decline" large numbers of consent. they may send an Request for Information during the processing part and may fail a number of inspection for a variety of reasons. BUT these reasons do not instantly reflect on the Builder or designer.
The designer has to prepare plans and specifications which if followed will result in a code compliant building. Builders need to construct the project as per the building consent plans. But too many times, the BCA will halt the process to ask for information which is generally available (Branz Appraisals are not required by the builders or other trades and are not a document a Designer needs to include into a Building Consent document, but is regularly asked for in a RFI) or will arrive at a site early, (the builder is not quite ready for them and they leave after failing the inspection) or after looking at the Plans for 5 minutes claim they plans are not right and the builder has to build it differently after lodging an amendment. )
A BCA does not authority under the Building act to cancel or decline a consent, They can refuse to issue if the=re is a sticking point that remains unanswered, but the owner need only lodge amended plans/specifications which clarifies the outstanding issue and the consent can be issued.
The Building Act and code was implemented to solve 74 Councils having 74 different ways to build a house. Now we have 1 set of rules with 74 different interpretations demanding 74 different ways to build the same house. Nothing has changed. and nothing will change whilst Councils take a stop at the border attitude to the national building code.
GoShift is a start but we still have 74 different interpretations to the building code using the same documents.
If 3 or 4 of the private BCAs establish a nationwide presence, with the same interpretations then we will go a long way to improving the regulatory processes which are a source of frustrations in the industry.

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