Heat Smart to Healthy Homes – The end of an era?

By Jess Brunette April 01, 2014 Insulation

The Heat Smart programme ended last year, changing over to the more targeted Healthy Homes programme. The changeover has had huge effects across the insulation market but could a buoyant construction industry restore some impetus?

To view a PDF of the complete feature as it appeared in NZ Hardware Journal magazine, click the download this story button at the bottom of this page.

Last year, New Zealand’s insulation industry was preparing for the end of the four-year Warm Up: Heat Smart programme with trepidation. Many players were arguing that the Government’s decision to alter the target market for the subsequent Warm Up: Healthy Homes programme was a huge mistake.

While definitive figures on the Heat Smart programme are not yet available, it’s safe to say that well over 230,000 New Zealand Homes received insulation as a result of the scheme that targeted a far wider cross section of the New Zealand population than those low-income or potentially at-risk residents that meet the criteria under the current Healthy Homes programme.

On top of major drop offs in the potential number of NZ homes becoming insulated in the next few years, the end of the original scheme has already seen several major insulation installers go under, leaving those remaining to pick up the pieces and try and forge a new path in a disrupted industry.

I talked to a number of these players to get a feel for the true impact of these changes, what they mean to the market now and what may lie ahead.

 

HEALTHY HOMES NOT ENOUGH?

While many long established insulation players are emerging from the end of the Heat Smart scheme with their businesses intact, there is still some disquiet about the Government’s decision to change to the more targeted Healthy Homes scheme.

Rob Croot from Autex is one of the major providers for the Healthy Homes scheme in Auckland and, through a pilot programme with Counties Manukau, deals regularly with many of the most at-risk households that the scheme is targeted at.

“It was a very risky move by EECA and the Government not to back a wider programme and I feel the Healthy Homes initiative goes back to the original EECA funding of the early 90s which was a failure.”

While Croot admits the programme isn’t failing now, he also explains quite candidly that it isn’t an easy game to be in, particularly when dealing with those clients who may be in the most need.

“While I’m hugely supportive of the programme and think it’s delivering benefits to people that need it most, the cost of selling to give it away is incredibly high and you can’t build your business that way. So the fundamental shift from Heat Smart to Healthy Homes has not been good for our industry.”

 

BUT WE WERE JUST GETTING STARTED!

One of the biggest criticisms of the Government’s decision to end the Heat Smart programme was that the programme ended just as it was beginning to get some momentum going.

Now Chief Executive Officer for InZone Industries (with its Mammoth brand), insulation industry stalwart Tony Te Au, feels that the transition to the Healthy Homes programme has put a handbrake on a programme that was making good progress toward making every New Zealand home a well insulated one.

“The insulation industry advocated very strongly to keep the Heat Smart scheme going because the original estimates were that 900,000 house were either not insulated or poorly insulated,” Te Au explains. “The four-year programme did approximately 250,000 of those so that leaves about 600,000 to be addressed. But, at the current rate, we are only doing about 20,000 a year, which is 40% of what it was.”

Tony Te Au goes on to say that, even if a large portion of these existing uninsulated homes were to be demolished in the near future, it would still take well over 15 years to get them all insulated at the current rate.

The effect this has had on the insulation industry can also be seen in the number of Government service providers, which has reduced from 50 in its heyday to 17 currently, along with some high profile installation businesses going under in the last year. While many of the players I talked to are reluctant to attribute these closures entirely to the switchover, all agree that it has been a major or contributing factor in many cases.

On the flipside, Tasman Insulation’s Derek Heard feels that some businesses just weren’t ready to move into an insulation market that didn’t have the Heat Smart scheme as a back-up: “If you look back through the Global Financial Crisis we had very few consents so overall the pile was really small and the EECA Heat Smart programme really carried the volume for the market.

“And, with that demise of that scheme, a number of businesses just didn’t have the relationships with builders or couldn’t scale up and down effectively well enough to adapt and that has forced a few of them under.”

 

WHAT HAPPENED – WERE THEY FIT ENOUGH?

When digging deeper about the reasons behind many of the recent insulation business failures, I heard some quite harsh assessments on some of the players, especially around their basic business sense and fitness.

“There were a lot of price dynamics in the market and a lot of people undercutting each other to win work which isn’t sustainable in the long term. And I think a lot of them didn’t really prepare for the transition from basically a Government subsidised scheme to actually having to go in and talk to the markets,” says InZone’s Tony Te Au.

He adds nevertheless that before Heat Smart many of these defunct installers were relatively good businesses and that there is a whole combination of factors that contributed to their failure. “A couple of these companies have phoenixed in the last few years which I think gives the whole industry a bad name,” he adds.

A cynic could say that many of the businesses that emerged during the scheme were opportunist players but Tasman’s Derek Heard is reluctant to tar all of these businesses with the same brush.

“As new builds have increased we see a number of players that were in the EECA programme now working in the new builds so they have adapted and scaled and built back relationships,” he explains.

 

ONE DOOR CLOSES, ANOTHER OPENS

A few players may have left the market but those that remain are in a challenging and competitive transitory period. I asked Autex’s Rob Croot whether he felt the company’s business had changed significantly in the past year.

“I don’t think our market share has shifted much as we predicted this change when the programme was reduced. I think the increase of the building market in Christchurch and Auckland predominantly has affected how bad the slide could have been. But, if that hadn’t started to lift by the time the EECA programme tailed off, we could have lost about $50 million dollars a year turnover at trade out of our industry,” Croot explains.

An upturn in new builds has certainly softened the blow of the Heat Smart scheme’s demise for the established players who already had channels in place to take advantage of new insulation work.

Tasman’s Derek Heard for one remains positive about the current state of the market: “If we look at where the EECA volumes have come off quite markedly, that has presented some volume challenges for a number of parties. But, with the increased activity in the new build segment, it’s pleasing to see that activity is providing plenty of opportunities too.”

Heard also makes the point that new build work can be far more straightforward than retrofit: “Installing in a retrofit environment brings its challenges – certainly interacting and timing around the jobs with homeowners and access to spaces and things – and new builds are a lot easier to do,” he says.

Despite these new opportunities, many players, installers particularly, have been finding it difficult to find their feet in the current environment, especially if they had more of their business vested in the retrofit market.

“I think there have been some late players in the market that have been aggressive in trying to take their market share and others that have been fighting hard not to lose ground so it’s been a very competitive time for the industry,” says Autex’s Rob Croot.

“And as the official Heat Smart programme finished in the middle of winter we then had to wade our way through the summer season, and in the retrofit market that’s a very hard time to convince somebody to part with $3,500 to have a warm home.”

 

BUT IS IT BUSINESS AS USUAL?

On the other side of the coin there are some in the industry who report a fairly smooth last year of business with the change from Heat Smart to Healthy Homes having little or no effect on their business.

Knauf’s Murray Durbin explains that the past year’s business has been fairly strong for the company that set up offices in New Zealand for the first time in the middle of 2013. Involvement in new builds and the establishment of a distribution deal with New Zealand Bunnings stores in September 2013 has also put the company in good stead.

“Business has been going very well and we are here to stay,” adds Durbin. “There has been a lot of speculation on the industry that we are only here for the rebuild but we have started building a plant that will be servicing Australia and NZ and that will be operational around mid-next year.”

Expol’s Mark Mischefsksi reports that while the firm’s underfloor insulation business has remained steadily “ticking over” it has become less of a focus for their business as recent construction has seen other areas such as concrete floors pay off well for the company.

“Basically the Heat Smart programme left it up to the installers to pick and choose products and unfortunately polystyrene wasn’t the easiest to install so it got left out. That meant we didn’t get a lift from it and there’s been no increase or decrease at all with the changes so for us it’s been relatively steady on the insulation side.”

Murray Durbin also feels that new products like blow-in insulation could create a much needed boost to the retrofit market now that the Heat Smart scheme has gone: “There have been various blow-in products on the market before. Some of them have had issues where they might shrink or they go in wet and don’t dry and maybe the installers aren’t trained properly.

“This is the first time that a full system with certified installers and a product that’s been designed for purpose has been available here. And if you look at Europe and America more new builds would be using blow-in than segments so we see a great demand going forward.”

 

ALL THINGS MUST PASS

While the end of the Heat Smart scheme has certainly caused some turmoil out there in the insulation market, new builds may be returning the industry back to a more sustainable business model that works better for everyone involved.

Rob Croot is one who looks forward to the insulation market readjusting itself in the coming years: “If you look at the residential market at the moment, tradies like plumbers and electricians are all putting their prices up whereas in insulation everyone’s buggering everybody with a race to the bottom that is ruining our industry and all of our people. So the quicker that we see that rebalance of supply and demand and margins being held at a reasonable level that provides value for everybody the better.”

Let’s hope that’s the case.

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MORE WAYS TO GET WARM

EECA has been working with banks and local councils to make getting insulated easier for those in need. The Warm Up New Zealand: Healthy Homes programme means people with high health needs and low incomes may now be able to benefit from significantly reduced installation costs and now there are also options for adding it to your rates or mortgage.

Customers who hold a mortgage with ANZ, ASB, BNZ, Kiwibank, TSB or Westpac may now be able to have the cost of insulating their home added to your mortgage and all of these banks have agreed to waive associated fees. Customers can contact their local Healthy Homes Service Provider, get a quote and take this to the bank to discuss options for adding it to an existing mortgage.

Selected local councils are also allowing ratepayers to pay insulation and heating costs over a period of time as part of their rates bill. The councils offering this financial assistance (at a fixed interest rate) include Auckland, Dunedin, Greater Wellington, Hawkes Bay, Marlborough, New Plymouth, South Taranaki, South Waikato District and Tasman District Council. Contact these councils directly for more information.

www.eeca.govt.nz

 

 

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