A two-tier construction market — why isn’t New Zealand reaping the benefits?

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Mike Fox

EasyBuild director and Building Today columnist Mike Fox says the motor vehicle industry worked out that mass production and simplification was the way to deliver an affordable quality product to the consumer more than 100 years ago. He asks why the construction industry is so slow to wake up and adapt to the benefits of providing a two-tier market offering?

Why isn’t New Zealand reaping the benefits of a two-tier market? It seems builders only have themselves to blame.

It’s no secret that building a new home in New Zealand is expensive, time consuming and significantly more complicated than it needs to be.

It is a very complex web of inefficient regulation even further plagued by inefficient administration of those regulations, and layer upon layer of levies, fees and other infrastructure charges that get lumped onto the home builder by local authorities and monopolistic utility providers.

Add to this over-inflated material costs that are often held aloft by backroom rebates, unhealthy market protectionism, murky regional pricing disparity and the latest bombshell — selling raw logs to the highest bidding international buyer at the expense of the local market.

Combined, we have painted a sad picture of questionable corporate behaviour and unaffordability.

I could write at length about the injustices builders and consumers face at the hands of these practices. It is high time daylight was shone upon them and change enacted — so watch this space in the next few months!

However, my aim for this column is to focus on what builders and designers can do right now to make housing more affordable in New Zealand, with a different approach.

We need to focus on the low hanging fruit, for want of a better description.

So how can we reduce the cost of building in New Zealand without reducing quality?

We’ve all heard that building in New Zealand, compared to, say, Australia, is far more expensive.

Two-tier market overseas

And on first examination the evidence is compelling. Inflated material costs and regulatory impacts aside, when you look closely at the Australian and United States new home markets it becomes obvious why ours is more expensive.

Those countries both have a two-tier market. The first market is affordable homes where there is little change available to the offering.

Homes are built using standard details, designs, and large components of off-site manufacturing. Stock building materials are used extensively.

These homes are built well, built at scale and meet a price point. The consumer understands the difference, and is happy to get a great value home albeit with a bit less choice.

The second of their markets is custom-built, or what we might call bespoke homes. Accordingly, they are much more expensive because limited standard detailing is used, and almost everything is custom-built onsite.

Default position

As it stands, bespoke home building is the default position of the New Zealand market, and we really have only ourselves to blame for that.

The New Zealand industry is not much more than a cottage industry, with a jumbled mess of bespoke building fuelled by builders’ incessant and naive advertising to “have your home the way you want it”.

Of course, what that does is raise consumers’ expectations that they should expect a bespoke home every time, but that it won’t cost them any more — wrong!

Our industry is poor at understanding the macro cost implications of building bespoke every time, and hasn’t educated consumers that having their home exactly the way they want it actually costs approximately 25% more than if they settled on a pre-designed or modular home using standard window sizes and industry-standard detailing, and offered less product and design choice.

Big price difference

And when you consider most homes are costing in the hundreds of thousands of dollars, 25% additional cost makes a big difference to the price.

In the US, Australia and the UK, consumers order a house-lot of mass produced, standard-sized windows, kitchens and bathroom fittings from their local merchant.

And the mass production doesn’t end there — it goes through to house plans, frames and trusses. Almost everything that can be standardised within the build process, is.

Designers work to these stock dimensions and manufacturers respond with efficiencies and reduced pricing. There is no reinventing the wheel on every build, and making a one-off set of windows or kitchen for every home.

By focusing on more standardised offerings, you also benefit from the economies of scale it creates, increased speed and productivity on site, and the consumer gets a well-built home that’s good quality and good value.

Another real plus with standardisation is that staff don’t need to be as highly skilled.

Increased productivity despite scarce trades and skills

At times like these when trades are scarce and skills even scarcer, we need to be building simply and repetitively if we ever want to house our nation.

Quite simply, we need to build more homes with the same resources, and that won’t happen if we keep building bespoke with every build.

Albert Einstein was on the money when he said “the definition of insanity is doing the same thing over and over again and expecting different results”.

Under its current commercial offering and regulation, our industry will never improve or increase its output if it continues to expect a different outcome from doing more of the same.

If we keep burying our heads in the sand, our industry will face the same fate as the dinosaurs — extinction. 

The motor vehicle industry worked out that mass production and simplification was the way to deliver an affordable quality product to the consumer more than 100 years ago, so why are we so slow to adapt and wake up?

You can still have a specialist hand-built car if you want one, but it is certainly at a different cost structure to your everyday Toyota Corolla.

Consumers are more than happy to drive the same car as their neighbour, so why aren’t they happy to have a similar house?

It’s all about consumer expectations and education, and we are failing ourselves and the consumer pitifully in this area.

Hopelessly confused

The New Zealand consumer is hopelessly confused by our industry’s outdated narrative and inability to organise itself into two different market segments — affordable homes and bespoke homes.

We need to educate the consumer that having a well-built, quality home, albeit with less choice and similar to someone else’s, may well be the difference between having a new home or not.

Currently they have no idea that such a choice might be available to them because we builders keep telling them you can have your home any way you want it.

But we forget to tell them it’s going to cost more.

If I was a consumer I’d be mighty peed off at our industry for not making that choice available.

• This article contains the author’s opinion only, and is not necessarily the opinion of the Registered Master Builders Association, its chief executive or staff.