TRADE FOCUS – WHEN YOU’RE HOT YOU’RE HOT!

By Terry Herbert September 09, 2016 Industry news

12 months ago, when our beady eye focused on the trades, business was booming in Auckland but outer regions weren’t feeling the love. Since then, times have changed. Terry Herbert reports.

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

Grant Florence, CEO of NZ Certified Builders, tells us: “Activity has stayed up over the last 12 months. What is significant is that activity has stayed up right across the country. I have members in regions whose activity has been flat for 3 or 4 years and now they’ve got six or nine months’ work ahead of them.

“Apart from the west coast of the south island all my regional members are telling me they’re busy right across the country.” When we ask him what’s behind that pan-regional lift he tells us, “There’s obviously a rise in consumer confidence which is driving a lot of this.

“There’s been some impact off the frantic activity in Auckland too. It’s well documented that Hamilton and Tauranga have seen that impact but now it’s spread to Napier, Gisborne and Nelson. It’s quite wide now that drift out of Auckland to the regions.

“We just had our national conference in Wellington (the last week in May) and all bar one of my members was telling me that was the case. We had our biggest turnout, just over 600 delegates showed up this year. It’s getting so big we rotate around the country.”

Unlike the Registered Master Builders Association, which declined to divulge its membership, except for the fact it’s growing, Grant Florence was more forthcoming: “We’re sitting around 3,000 members.” Sounding like a Wellington City promotion he adds: “And our membership feedback is absolutely positive! At our conference we had 80 trade stands and they were reporting confidence too.”

Looking for comment from the Registered Master Builders Federation, Brian Rosenberg, Head of Business Services & Membership, reports: “There is work right across the country. It’s generally busy overall.”

Like all the group home builders we spoke with, the two associations tell us consumer confidence is up, house builds are up and they’re all experiencing a “significant lift across the regions”.

Looking to the group home builders, Aiden Jury, COO at Jennian Holdings, for one is equally buoyant: “Jennian is going through a growth phase. Absolutely! In most of the regions we couldn’t build another house if we tried. Resource constraints and physical capacity are the only setbacks. All our regions are at capacity at the moment.

“In most regions our house numbers have practically doubled. They’re all doing well. Our business is strong nationally.”

 

TO SERVE AND PROTECT

Recalling how risk-averse the industry is becoming, I asked both builders’ associations what measures are in place to protect the home owner? Master Builders’ Tracey Bree says: “We have our Master Build Guarantee which is a wholly owned subsidiary. All of our members offer a 10-year guarantee. It covers loss of deposit, non-completion, remedial work, defects and workmanship, structural defects, rot and fungal decay. Our cover is up to a million dollars.”

Grant Florence and Certified Builders also has backup plans in case of a member falling over: “We’ve just launched a new world-leading Home Owner Warranty scheme exclusive to Certified Builders. We have a policy that’s underwritten by Lloyds of London and it’s mandatory for all our members to take it out.

“From the homeowner’s perspective it covers risk associated with project completion and it also covers protection for the home owner for structural and non- structural defects for up to 10 years including water tightness. It’s very leading edge and it’s exciting for us.”

What these two competitive associations will agree on is a dire shortage of qualified LBPs across all the regions. Grant Florence: “There’s still a massive shortage of skilled trades people. That’s frustrating. We forecast that years ago. We know that BCITO apprentice numbers are high but it’s not enough.”

 

BUILD IT AND THEY WILL COME?

“We’re probably 30% short of what we need, particularly up north,” agrees Warwick Quinn, CEO of BCITO (and former Master Builders boss): “We’re just about to hit 10,000 apprentices in training across the 15 areas that we cover. We’re currently at the highest numbers in our history.”

Looking out there, Quinn expects demand for skills to remain “very high”. “We saw apprentice numbers almost halve between 2008 and 2010 (the GFC crisis). We tend to lurch between boom and bust. We undertrain significantly in those lean times and it’s effectively a four-year training window so you’re always behind the eight ball.”

Is there a way to cut back this projected shortage? “We could do with more funding through the Tertiary Education Commission. Something has to be thought through but we’re all positive at the moment,” he says.

“One of our biggest barriers about attracting young people into trades is changing the hearts and minds of the influencers – the parents, careers advisors – that entering a trade is a real career option.”

The ITOs however have been “battling that prejudice”. Last year they all got together under the banner, “Got a Trade, Got it Made” and will be doing that again soon. “Why default to university when there’s a 98% chance you’ll get a job when you qualify with a trade?” asks Warwick Quinn.

Then there is the industry’s boom & bust characteristic, something that Warwick Quinn has seen in his former role: “In 2010 we built 13,000 homes in NZ, now we’re knocking on the door of 28,000 just a few years later.

“The demand is certainly in Auckland but it could all change on a dime,” he warns. “A change of interest rates and a change of immigration policy and all of a sudden you have a different situation. That’s what keeps me awake at night. To give you an illustration of prolific growth, Auckland is growing at the size of Dunedin every year.”

 

WHAT ABOUT THE GROUPIES?

To see how well the group home builders are doing, the top performers in particular, we’ll start this segment with Jennian Homes’ Aiden Jury and his over-arching comment: “We’ve got great franchisees across all the regions that we’re really proud of. As an example of how much work is in front of us the nett migration into NZ peaked at 68k up to the end of May. Even if that figure halved we are nowhere near supplying 30,000 new homes a year.”

Grant Porteous, CEO of GJ Gardner, is modestly chuffed with his top builder status. He says: “Yes we’ve seen a lift in the regions but only recently. We obviously saw the growth in Auckland but to give you an example, in Hamilton growth was slow last year – from memory only 60 homes.

“This year that figure has more than doubled to 150 homes. We’ve only just seen that pick up in the regions. Take Marlborough and Taranaki: those markets have only just come alive in the last three to six months.

“Despite the wakeup call provided by Stonewood this year, there are very good reasons to predict more growth ahead”

“That Christchurch and Auckland momentum was carrying us on, but now we’re seeing significant enquiry from Whangarei, which is going gangbusters, and now places like Kapiti and the Coromandel. Businesses that might do 25 a year ago are now 50 homes.”

Shane Helms, CEO of Golden Homes, tells us: “Our numbers are up but what’s important to consider is those numbers are up across the regions. There are only seven licensees across the country. We’re small in terms of owners but we deliberately just have a larger area. They’re all the same operators who have been with us for more than 10 years now.

“The largest number of units came from Christchurch. That licencee basically has the whole South Island. Then there’s me on the North Shore of Auckland. Then the BOP/ Rotorua region, Waikato, Wellington/Upper Hutt and then the smallest is Whangarei.

“We prefer licence to franchise. It’s more restrictive than a franchise. Licensees have to do everything by the book. Our model is more a contract sale. Yes we do some house and land packages but definitely not the same volume. Our customers are getting contract builders significantly under the market rate. When you keep your square metre prices pretty much under everyone else on the market, that’s how you end up where we’re at.”

Despite the collapse of the master franchisor, Stonewood Homes’ franchisees are also reporting good sales and sound business practices to back them. See the separate story on page 29 for more details.

 

BUT WAIT THERE’S MORE…

We cross to Paul Bull, CEO at Signature Homes, with 11 franchises spread from Northland to Central Otago, who concurs with the other groupies: “We’re incredibly busy. Yes it’s certainly buoyant. We’re very pleased with our improvement year on year. We’ve had a huge increase in 12 months. Gains have gone from 193 to 338. The numbers aren’t lying. We’re up 74% in numbers and 67% in value when the market is up 13 and 16% respectively.”

We ask about across the board regional gains. “Not entirely true,” he says. “If you take a close look at Taranaki and the Tasman/Nelson area there’s not a significant lift. The Golden Triangle has extended its northern point,” he adds.

Predictably, Paul Bull is another to confirm that “All of Auckland is manic. North Shore is a little quieter purely because of land availability but Rodney, west, east, Botany, Manukau, Franklin … they’re all busy.”

But, with Stonewood still casting a long shadow, what about the risk factor in all this? “We have strict criteria around minimum amounts required for capital investment. So it’s the net wealth of individuals that we look at critically. Yes, we operate a fixed price guarantee subject to land conditions.”

When asked about any Signature franchise failures, Paul Bull is quick to say: “None! Take a look at the comprehensive guarantees on our website – we have our own guarantee process and it’s underwritten by Residential Indemnity, which we own. On top of the usual 10-year guarantees, we offer a 100% Home Completion Guarantee that also protects all the sub trades so they get paid as well. We pay most of our trades fortnightly,” he adds.

Looking more locally for a moment, I talked to John Callaghan, Christchurch Sales Manager at Mike Greer Homes, who tells us: “The majority of our sales are ‘affordable housing’. That’s in each of the regions. Trying to find affordable housing in Auckland is a bit of a challenge. Our biggest problem there is still land acquisition.

“Building in Christchurch is going very well – extremely well. Hornwell, Longhurst and now Rolleston is starting to move well. It’s really been the Longhurst/Halswell area that’s going particularly well for us. We’ve also got our own development in Spring Grove near the airport. Right now we’re selling over 50 homes a month in the Christchurch area.

Also in relation to risk, John Callaghan is quick to underline that the Mike Greer business model is simple. There are no franchises, we’re all branch owned by Mike Greer himself with some other shareholders.”

 

LIKE BEES TO A BELL CURVE

When asked about their continued success and their business models, three of the top builders talked specifically about “bell curves”, displaying great knowledge around their strategic goals and how to attract new owners.

“It’s a variety of all small things that add up,” Signature’s Paul Bull tells me. “Our value has dropped slightly from $400,000 to $390,000, because we’ve introduced new products in our range to include lower value homes. We’re dragging our average price down to attract that volume growth.

“Typically if you look at the rest of our competitors’ average values are higher. GJ’s are next. We’re very strategic with our franchisees. We don’t advertise in one socio economic sector, we’re focused around making sure we get a bell curve of clients.”

As a result, he says: “We get a client who has done their research, they have more disposable income and they’re less risk to us.”

Signature Homes does well to be among the top 10 home builders, despite having the least number of franchises. But this is “By design – we have fewer franchises in areas with the biggest potential. They get more bang for their buck.”

Still with risk, Paul Bull explains: “We don’t develop land, we acquire land from developers on terms. Only 20% will be house & land packages. The rest will be owners who have their own land. There’s less risk for our builders too.

“We have a very robust business structure and model in place. We have 100% transparency on all of our franchisees’ cash flow. We over-support them from our head office point of view and we make sure they do their best. Our franchisees are happy and that makes me happy.”

From GJ Gardner down the batting order of the country’s home builders to Horncastle Homes and Stonewood franchisees we have spoken with, business is booming.

And despite the wakeup call provided by Stonewood this year, there are very good reasons to predict more of the same ahead, with the builders spoken to demonstrating clear, robust and transparent business models with a great degree of integrity.

Unless there are events of global proportions, we can look forward to an even better result in 12 months.

So for now we’re marking the group home builders’ score cards pretty highly (famous last words!). They won’t be disappointing their contractors, their staff or their new build owners any time soon.

Keep up the good work!

 


Who are 2016's top group home builders?

With the 2016 Olympic Games in our sights we’ll take this as our cue to explain the changes at the top of the medal table as BCI’s Top New House Builders Report from July 2014-June 2015 to the latest report for July 2015-June 2016.

GJ Gardner remains rock solid at number one taking the coveted gold medal once again. Mike Greer is firmly at number two and takes the silver. Stepping on to the podium to lift the bronze medal is Golden Homes.

Stonewood, formerly a bronze medallist with sights on the gold, stumbled at the last hurdle but recovered sufficiently to take 6th place overall.

That’s a huge effort if you’ve been following the rise and fall and subsequent rise of Stonewood Homes.

Read our Trade Focus feature for details but the top three medal finishers attribute training, teamwork, dedication and discipline to their continued and growing success. These traits are exactly what successful Olympians depend on for theirs.

We asked Tracy Halpin from BCI New Zealand how statistics and figures were gathered: “To get on this report you need to build at least 3+ houses a year. We look for building consents that have been issued. Group home builders send us a list of their new homes every month that they’ve built, the building consent numbers and the client names so we can clearly attribute that the numbers are lodged by the home owner or the architect. These are house only, no land content.”

To explain the Stonewood Homes dip in figures, Halpin goes on to say: “With the change of ownership they stopped sending their lists to be reconciled. For the changeover months of January to March this year when the Master Franchise changed to the Chow Brothers new ownership those figures resumed again.”

With an additional 604 houses built compared to 2015 and another $256 million to add to the books, the new home build sector has a lot to celebrate but demand is continuing to outstrip supply. Next year will be even more interesting!


 


All in the family

GJ Gardner Homes is once again the top group house builder by units built and dollar value. We spoke at length to Grant Porteous, who believes the company’s success is simply about good old fashioned family values.

When we speak with GJ’s CEO, he’s battling a cold and, after apologising for his croaky voice, he soon settles into our interview.

“Yes,” he tells us obviously warming to his subject, “we’re number one again and we’ve been number one now for 15 years. It’s good of you to recognise this because, without being facetious, there are so many other builders who get on TV, radio or the newspaper and make these claims. It’s frustrating but there it is.

“In this market when everyone can jump in and become a speculator, for us to retain that market share says a lot. The BCI reports grew on average 12% and by comparison we grew 48%! That was off a record from the year before. We’re on target to complete over 1500 homes for our financial year (31 March 2017).

“I’d love to say it’s my clever marketing but it’s the strength of our franchise team that is the real difference. Suppliers often tell me; ‘it’s your people at the coal face, your franchise team stand head and shoulders above the rest.’

“For us at GJ’s it’s all about heart. We don’t pick our franchisees by the size of their cheque books. It’s heart – that’s our first criteria. It’s our model of having that local builder in the community. That husband and wife franchise team that are invested in that community.

“This sounds holistic but my grandfather ran a building company years ago when a hand shake meant something. I only took this role because I said to my wife wouldn’t it be fun if we could make this New Zealand’s biggest building group based on old fashioned values.

“We have supplier agreements, and you can check, that are a one page document and a hand shake. I’ve been here at GJ’s almost 15 years and we still work things out to the benefit of the group with a hand shake.

“One of my proudest moments was being interviewed by an American journalist who wanted to know about this Kiwi company based on old fashioned family values.

“My wife Ellie and I own GJ Gardner’s New Zealand master franchise 100%. Gregory John Gardner is Australian, he owns the world master franchise and we own the NZ master franchise. We came into the business with three silent partners and we slowly bought them out over the years. Like our franchisees, Ellie and I work closely together as a team.

“Fortunately my wife came from a very senior corporate role as a senior accountant and she’s put all those extra checks in place. Ellie has the title of General Manager. She works across every aspect of our business and oversees all of our processes. She’s also involved in coaching and mentoring franchisees.

“We do all our marketing in-house so Ellie’s involved and inspirational in that too. Ellie and I are in no hurry to walk away. A lot of the franchisees are now personal friends.”

If by chance you wandered into the next GJ Gardner conference, when franchisees, builders and suppliers will gather to celebrate their 20th year, you could be forgiven for mistaking the gathering as a large family reunion. There will be genuine hugs, handshakes and laughter all round.

Grant and Ellie Porteous are shining examples of that integrity and family-based culture. They walk the talk. One anecdote we can share is when I phoned David McClelland, GJ’s Far North Franchisee, he told me: “When Grant comes to visit, we insist he stays in our home.

“The kids have grown up having Grant around. When they know he’s coming, they’ll jump in their cars and drive over to have dinner with him. They’re adults now, but they still call him Uncle Grant.”


 

THE FALL AND RISE OF STONEWOOD HOMES

What happened and what next? We spoke to building industry leaders about the Stonewood Homes receivership, the new owners and what lessons and conclusions we can draw from its rather public collapse.

So what happened? Keeping it brief, Brent and Sue Mettrick founded Stonewood Homes in 1987. It was New Zealand’s third-largest home builder until February 22, 2016.

That was when Stonewood Homes New Zealand Ltd – the master franchisor of the Stonewood Group – and sister companies Stonewood Homes Ltd and Sterling Homes (Christchurch), went into receivership, owing unsecured creditors $15 million. Its shareholder company, Holmfirth Group Ltd, was also placed in liquidation.

Fast forward to March this year and the rather left field announcement that the controversial Wellington-based Chow brothers had bought Stonewood from the receivers.

In terms of not repeating the form’s original mistake, Michael Chow was quick to tell the media: “When the receivership news hit we had a good look and found that the main problem for the previous owner was cashflow.

“We have solid cashflow from our diverse property holdings and we have funding ability through our Inno Capital business,” he said.

“The deal became too good to say no to, so we said yes. The housing shortage in New Zealand was one of the main reasons we bought Stonewood Homes. We will look for opportunities to strengthen franchisees around New Zealand by funding Stonewood homes subdivisions.

“Who knows, we might even look at home finance packages as well?”

 

WILL THEY STAY OR WILL THEY GO?

With the Chow brothers publically declaring they want to be the biggest group home builder with an aim of managing a $1 billion property empire by 2020, we thought we’d ask the Stonewood franchisees how they were faring.

Stewart Wilson of Stonewood Homes’ North Shore Franchise, was stoically emphatic that it was “business as usual”. He says: “I’m too busy to comment about how the new ownership will affect us. We’ve got 25 homes to complete in the North Shore/Rodney area and we continue to get more enquiries every day. The demand for Stonewood Homes is certainly here and it’s higher than ever.

“Finding all the quality builders I need is my single biggest issue. We have no plans to change our name or the franchise. At the end of the day we’re a separate company, we’re operating responsibly and it’s business as usual.”

Christine Norris, franchise owner of Stonewood Homes Tauranga BOP, is a woman in a hurry, literally. We spoke to her as she was driving from one site to another.

“It’s extremely busy for us and it’s getting busier. Everyone is busy here. We do offer land and house packages. Mainly we work with one major developer. They let us know when they’re releasing new sections and they send us builders terms.

“Then we say ‘yes, we’ll take 20 sections, 100 sections’, whatever. For us we have five homes nearing completion including one I’m driving to now and 13 more under construction and 8 sites available.

“We’ve spoken with the new Master Franchisor and we’re still very happy to remain part of the Stonewood group. Our contractors are being paid, suppliers are being paid and owners are happy. My husband Kevin and I own the franchise and we run a sound business. Our sales teams are getting plenty of enquiries.

To illustrate the amount of interest generated and give an impression of size, the “major developer” Christine Norris was referring to is The Lakes in Tauranga. There are currently 21 show homes from 21 different group house or contract builders vying for sales in this one development.

 

OFF THE RECORD

To reference what you are about to read and not dismiss it as hearsay, this is what the receivers, PricewaterhouseCoopers (PwC ) are on record as saying: “Reasons for Insolvency. A number of warranty issues arose in relation to builds undertaken by the previous owners. The cost of rectifying these issues placed cash flow pressures on the company.” (The full report is available at www.pwc.co.nz/liquidations/stonewood-homes/ )

Almost 400 companies (including Christchurch City Council) and contractors are owed nearly $20 million by the failed Stonewood Homes companies. 

When we took our interviews “off line and off the record”, group home builders and industry leaders had plenty to say about how not to run a franchise.

Talking about the Master Franchise, one pundit told us: “They took on too much work which had considerable delays and in that time construction costs went up, compliance costs went up and in some cases it was two years down the track and it had become too costly to complete the project.”

Another opinion was that Stonewood’s was “an extremely dangerous business model.”

The lesson? One commentator told us: “Growth has to be managed. You have to manage cashflow and understand the difference between cashflow and profit at all times.”

And, related to boom and bust, it isn’t always the times of low demand that are the most difficult: “The toughest time for builders is when we’re at a peak.”

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