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In a market that’s still paying $1 million-plus for homes in Auckland, there’s little incentive to deliver cheaper homes

Is our building industry the best it can be? – By Corrie Cook

As Auckland’s construction boom continues to grow at unprecedented levels, a range of new ideas for improving the industry, especially with regards to the supply of housing, are coming forward.

With home ownership figures the lowest per capita since 1951, “the decrease in owner-occupier figures is a direct result of the rise of property investment as a principal retirement funding mechanism,” believes Professor John Tookey of the Auckland University of Technology. “This has moved the market beyond the reach of middle and lower-income families.”

Professor John Tookey of the Auckland University of Technology: “The Auckland market has moved beyond the reach of middle and lower-income families” – Photo by Daniel Ido

In July, Auckland Council’s Future Urban Land Strategy confirmed a staged release of 15,000 ha of future urban land over 30 years, potentially providing another 137,000 homes and 70,000 jobs, approximately half of which will be released within ten years.
“We can now give developers and future home owners a higher level of certainty over the provision of land for housing and business development with necessary bulk infrastructure and, in turn, they can now starting putting our plans into action,” said planning committee chair, councillor Chris Darby.

Freeing up land

Professor Tookey considers that the overall housing situation is generally poorly understood; he says freeing up land to build on by itself doesn’t incentivise developers to build houses. Land used for horticulture and within reach of Auckland may be valued at approx 
$5000 per ha, but when used for housing once the buried infrastructure is in situ, it can be worth between $10–16 million per ha.
One hectare will deliver approximately 15 x 500 sqm building sites and 2500 sq m of roads, carparks and footpaths. The land value of each lot, at a $10 million cost per ha, would therefore need to be more than $660,000 before construction even starts.
If a developer is going to spend that kind of money, it makes sense that even in Special Housing Areas, lots will only be drip-fed onto the market and developed piecemeal so values will be kept as high as possible for as long as possible.
With a 250 sq m house coming in at around $2000 per sq m built and a 150 sq m apartment, duplex or other ‘affordable’ home option costing approx $3000 per sq m, it’s little wonder that developers prefer to offer stand-alone dwellings.

Shared equity

Economist, author and commentator Shamubeel Eaqub acknowledges we need to build more and affordable homes throughout the country, and believes shared equity has to be one of the pathways to give people access to housing security.
Economist, author and commentator 
Shamubeel Eaqub: “Shared equity has to be one of the pathways to give people access to housing security”

“House prices relative to incomes are higher than they have ever been,” he told a community housing conference in June. “This means mortgage slavery for those that can buy property, and renters increasingly living in poverty with no rights to security of tenure. It’s outrageous that we have a housing shortage, yet we’re about to face a housing bust over the next two years that is going to really hurt.”
He believes banks won’t be the solution for building more houses in the next ten years, as they become more risk-averse and will be unlikely to look at speculative building or large and complex projects. “We no longer have time to take things gradually – it’s time to sort out New Zealand’s housing crisis in a much, much bigger way.”
Mike Fox of Easybuild agrees that without a major overhaul of the current regulatory process, including political ownership of it, affordable housing can never be delivered. “Many administrative processes have been forced into place that add very little material value,” he says. “In the last 15 years the cost of building has increased 110% while the general cost of living has increased only 44%. Much of this extra cost is the result of compounding regulatory change, council fees and unfairly imposed infrastructure cost.”

Profitability before affordability

So what can be done to change things? “We have an industry crying out for increased cost-effectiveness, better quality and faster construction rates,” says Professor Tookey. “The focus on the supposed failings of the building industry, foreign investors, or any other of the many scapegoats is misleading. Developers, builders, house buyers and the public all naturally act in their own best interests. Therefore, New Zealand is continuing the behaviour that created over-priced housing in the first place.”
While Auckland building consents roughly equate to the area’s population increase (10,379 consents issued last year, with a net population increase of approx 40,000) this doesn’t deal with the backlog nor with home buyers’ expectations of lifestyle, space and personal wealth that are driving many of the problems. In a market that’s still paying $1 million-plus for homes in Auckland, there’s little incentive to deliver cheaper homes.
Paula ter Brake, CEO of Development Advisory Services: “A construction market that’s focused on increasing returns on investment means profitability will always come first”

Paula ter Brake, CEO of Development Advisory Services, agrees. “A construction market that’s focused on increasing returns on investment means profitability will always come first, even with quality oversight,” she believes. “New Zealand should look internationally for viable solutions to our affordable housing issue, especially to the Republic of Ireland which has done this so successfully recently.” 

That country has invested heavily in research and development, so developers and investors there are able to construct steel-framed homes from bare ground to occupant-ready dwellings within seven weeks.
Their pre-approval process helps, in which a range of plans for single houses and/or apartments are replicated across a subdivision, requiring a single consent for each type of dwelling rather than a separate consent for each. Economies of scale can then be applied to materials and pricing, and builders and subcontractors know exactly when they are required onsite and for how long.

Working together

Collaboration seems the best way forward to increase information, education and skills, as well as minimising mistakes that lead to loss of time, quality and profits. In New Zealand, this is likely to require formal public-private partnerships with a focus on locally-sourced materials wherever possible.
“New Zealand’s construction industry is typically populated with small companies employing five people or less,” Paula ter Brake points out. “Such companies by themselves are usually unable to operate at a sustainable profit level or have the buying power to purchase materials at the best price. When everything is measured, no one is disadvantaged, and reasonable profit margins can be maintained across the board.”
Looking forward, she’d like to see the construction industry work together more, especially in terms of thorough data disclosure. “Many companies will have excellent data for their company and possibly their own sector,” she explains, “but the industry isn’t yet ready to share the information from multiple sectors to the benefit of the whole.”
Prefabricating components offsite also offers many cost and time benefits. PrefabNZ promotes collaboration between all sectors of the construction industry “to deliver the best priced affordable homes throughout New Zealand”.
In their contribution to Auckland’s Mayoral Housing Taskforce, Pamela Bell, PrefabNZ’s CEO, recommended clarifying the Building Code, unblocking bank mortgage finance for prefabricated component rooms like kitchens and bathrooms, as well as fully transportable prefabricated homes, and ensuring key stakeholders better understand the range of innovative construction products and processes now available.

Quality and affordability

Daiman Otto from Tall Wood points out that quality and affordability are not mutually exclusive. “They can be combined if the right approach is taken,” he believes. “For example, we develop products and typologies that are intended to be duplicated. This is not a copy-and-paste approach to architecture and construction, but a recognition that there is value in certainty – particularly certainty in how a building will be made, its parts and assemblies, and how that goes together in the most predictable and affordable way.”
Rob Marshall from Stanley Group agrees, saying, “Partnering early in the design process allows for certainty of buildability, programme development and enhancement throughout the design process – and accuracy of pricing.”
At PrefabNZ’s CoLab earlier this year, Callaghan Innovation’s chief technology officer, Chris Hartshorn, agreed, commenting that “partnership is more important than technology”.
That’s a big call, but it needs to be heard clearly – and quickly – if Auckland is to minimise economic impacts when the housing bubble bursts.
Corrie Cook has a strong interest in environmental, sustainability and engineering issues and writes for a wide range of business organisations

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