Have you understood Fletcher’s housing construction report? Who can seize this opportunity?
Two recent news stories in property and construction have caught the eye.
Two recent news stories in property and construction have caught the eye.
1. A study commissioned by Fletcher and conducted by Deloitte says that, over the past 10 years, building materials in New Zealand have been cheaper than in Australia for most types of housing, and construction workers’ pay is not a main reason for high house prices in New Zealand.
The report identifies the three largest components of New Zealand housing costs: land and infrastructure account for 35%; building materials for 24%; and GST and government taxes and charges for 21%. Labour costs, which are lower than in Australia, rank fourth.
That conclusion took many people by surprise!
2. A building materials supplier sold more than 50 relocatable prefabricated homes (flat-pack homes) in New Zealand last year. A two-bedroom model measuring 60 square metres cost just NZ$69,000. These prefab homes have air conditioning and bathroom facilities, and take only about 10 weeks from the start of construction to being ready to move into.
However, some construction industry insiders point out that this is only the price of the building. Including water and electricity connections and council approvals brings the cost to around NZ$2000 per square metre, much the same as conventional construction and even higher than the costs of Chinese builders.
A friend of the author has just finished building a house in Melbourne, at a construction cost of just over A$1000 per square metre. So how did Deloitte arrive at its conclusion?
As a new approach, prefab homes have attracted high hopes that they will increase supply and bring down house prices. But do these industrially manufactured products actually offer an advantage over homes built on site?
To explore these two questions, we interviewed Dylan Huang, secretary-general of the New Zealand Chinese Building Industry Association.
Dylan Huang
Construction costs in New Zealand are far higher than in Australia
Huang says there is no doubt that construction costs in New Zealand are far higher than in Australia. But construction costs are more than simply the cost of materials plus workers’ wages.
Starting with materials, some basic products made by local New Zealand companies, such as cement, interior plasterboard and timber, may be cheaper than in Australia. However, bricks and plasterboard used for exterior walls are largely imported and cost at least around 20% more than in Australia.
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“The more specialised a building material is, the more we rely on imports and the more expensive it is compared with overseas. New Zealand has its own distinct building standards and a very small market. Overseas manufacturers producing materials specifically for New Zealand cannot use economies of scale to bring costs down. There are also monopoly issues in the building materials sector. All of this keeps material costs high.”
As for New Zealand construction workers, their hourly rates are indeed not necessarily particularly high. But productivity is an issue. Productivity in New Zealand’s construction sector is relatively low. Residential construction involves many stages, from design and building work to council inspections, and it is difficult to make them all run smoothly in sequence.
“Once the foundations are laid, carpenters cannot start the structure if the council cannot inspect them promptly. Once the structure is finished, the next stage cannot proceed if the bricklayers’ schedules do not line up. When the build drags on, costs rise.”
Australia has clear advantages over New Zealand in building material prices, the extent of modular construction and building efficiency. Overall, construction costs in New Zealand are far higher than in Australia!
Land, infrastructure, sponsorship fees, taxes and charges are all difficult for construction professionals to change.
Prefab homes: a goldmine or a limited prospect?
Discussing prefab homes, Huang says this is undoubtedly a market with considerable potential to help address New Zealand’s housing crisis and hotel shortage. “However, several prerequisites must be met for prefab homes to fulfil their potential.”
A prefab home is an industrial product, and large-scale industrial production is essential to realise its cost advantages. Producing a bespoke standalone house for an individual client offers little cost advantage over traditional construction, although factory production does protect it from the weather.
Higher-density housing has been gaining momentum in New Zealand in recent years, particularly in Auckland. Prefab homes are naturally suited to large-scale, high-density housing developments. “Mass production and assembly can greatly reduce both the time involved and labour costs.”
High-density housing in Hobsonville, Auckland
However, Huang identifies several weaknesses in New Zealand’s prefab housing market:
1. Production capacity and price. New Zealand’s own factories have limited capacity. Without higher volumes, prices cannot come down.
2. An incomplete supply chain, particularly in logistics. For example, cranes are needed to lift prefab homes into place on site. New Zealand does not have enough cranes, making them expensive to hire and creating waiting lists. This increases both the time involved and financial costs.
An opportunity that comes once in decades
Auckland’s housing crisis and hotel shortage involve land prices, building material prices, and costs arising from labour shortages and low productivity. As high-density housing gains momentum across Auckland, prefab homes are undoubtedly a remedy well suited to the problem.
Both European and Chinese builders are looking for ways to overcome the weaknesses in New Zealand’s market.
Here is some good news: Chinese builders in New Zealand have already found a way forward by drawing on the advantages of manufacturing in China.
The 2019 New Zealand International Building Expo & Summit, taking place from 16 August to 18 August, will have “OFF SITE, OFF SHORE” (prefabricated construction and offshore prefabrication) as this year’s theme.
To find out how prefab housing can overcome these obstacles and how to share in this once-in-decades opportunity in high-density housing construction, join us at the New Zealand International Building Expo & Summit.
Dates: 16 August–18 August
Venue: Vodafone Events Centre, Auckland, New Zealand.
For more information, please contact >>>>>>>
Event contact: Pauline Gao 021 363 389
Email: pauline@multimarketing.co.nz
Event website: www.nzibes.com