The homes shortage – is a factory approach the answer?

By Jess Brunette August 11, 2018 Trade Focus

KiwiBuild: is 100,000 new homes in 10 years realistic? Is prefabrication the answer? And what about that skills gap?

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.

A lot has changed since our last Trade Focus feature a year ago which reported on an industry stretched to capacity with a major housing crisis combined with a chronic skills shortage.

We now have a new Government making big promises to address these concerns in the form of the KiwiBuild programme which promises to create 100,000 new homes in the next 10 years.

Is 100,000 new homes in 10 years realistic?

Is prefabrication the answer?

And what about that skills gap?

What does the trade feel about all this?

First cab off the rank so to speak, I ask New Zealand Certified Builders' (NZCB’s) Chief Executive Grant Florence (right) if he thinks the KiwiBuild goals are realistic.

“KiwiBuild is a good initiative for the industry but to be honest I think it’s a huge challenge to execute,” he says.

“It’s obvious that we’ve got a housing stock shortage and we need to take some action to address it but I guess that it was a political commitment and it’s up to the politicians to say where they set those goals and how they get there.”

A different take on the goals of the KiwiBuild program homes is offered by Nick Hill, Chief Executive of BOINZ (left).

“From my perspective this Government’s work in the building and construction environment has to be aspirational and it has to be challenging and it’s got to make a difference.

“So, from that aspect, if you’re not aiming at quite big targets the likelihood is that you’ll actually miss objectives in overall terms. So you can’t knock this Government for their vision and objectives,” he says.

Nick Hill adds however that in the rush to create these homes the Government needs to ensure there is a commitment to quality builds in its planning process, though he remains quietly confident this will happen.

Warwick Quinn, CEO of BCITO, applauds the “passion and energy” he sees from the new Government to resolve the housing shortage but feels the jury is still out on how they will roll out the programme in a well-managed way.

He also maintains concerns as to whether the plan will displace the existing work that would have been done by the private sector anyway.

“According to Phil Twyford, of course it has to be in addition to the private sector projects otherwise we’re not getting ahead. So I think it will be another 12 to 18 months before we have a sense of how that will work out,” he says.

 

MORE THAN JUST A HOME BUILD

Over at Fletcher Building, Steve Evans, Chief Executive of Residential & Land Development, sees the KiwiBuild project as a great opportunity to work with Government to tackle the housing crisis.

Steve Evans admits that the targets are ambitious, from a speed and cost perspective, but shares the view of players like Nick Hill that the Government had to set its sights high to get significant results.

Looking at Fletcher’s role, he says the company is already making homes that meet the KiwiBuild price brackets within its market-led developments. In fact, Steve Evans feels the most important role that the Government should play is to ensure all the component parts of the programme are working together effectively.

“This includes land release, at-scale developments that create communities, good urban and building design, faster construction through innovation like panelisation, skills development, faster consenting and approvals, infrastructure and funding.”

NZCB’s Grant Florence shares this view that the wider ecosystem around construction needs to be looked at, rather than putting the entire onus on the people who build the homes.

“There’s been a lot of criticism around builders being too slow or not being able to keep up, but actually building the house is the easy part.

“It’s getting the infrastructure, transport, water, power and planning in place that often takes the time,” he says

 

ABOUT THAT SKILLS SHORTAGE…

Of all the hurdles mentioned above in making more affordable homes a reality, the skills shortage is the most obvious and far reaching one, affecting not only building and construction but all areas of the channel.

It has also become of the Government’s main talking points in addressing the housing shortage.

I ask Registered Master Builders Chief Executive, David Kelly, for his thoughts on the Government’s programme to increase the number of immigrant workers to cover the gap (see end of article for more on this).

“Right now we’re competing with others players for the same talent and that’s in the residential and commercial market.

“So yes for the short term we do need to bring some people in from overseas and to keep the immigration settings reasonably open and we’re pretty happy with where the Government are with that at the moment,” he says.

Most of the other players spoken to support this view but stress that there needs to be a short term “safety valve” to avoid the building industry becoming reliant on immigration during peak periods at the expense of training locally.

In the medium term BCITO’s Warwick Quinn suggests tackling some of the hurdles that many employers face around the costs of training during a recession.

“These barriers to training need to be addressed, otherwise we’re likely to be in a bigger problem in the coming years when our already low birth rate gets even lower. So we have a little window to try to fix that otherwise I think the worst is yet to come if the demand continues,” he says.

As reported in last year’s feature, the efforts of organisations like BCITO to get smaller skill sets or “micro-credentials” recognised as qualifications to get more people into work faster have been one tactic around addressing the skills shortage in the medium term.

At time of writing, Warwick Quinn confirmed that a report on the effectiveness of the idea, which had been broadened into other areas beyond just construction, had gone to Government with a response either accepting or refusing the proposal expected in early August.

“If they accept it, firms are likely to train more or get training recognised because it suits their specialty and hopefully it allows more people to come into construction because they might not want to do four years but they may do 12 months to get on the ladder,” says Warwick Quinn, who also hopes that these micro-credentials could be aligned with the LPB scheme.

“There is a lot of work done by sub-trades and if the carpenter signs it off then we can have those people formally qualified as well. And you’re better off getting the work done by the people who are qualified, not necessarily overseen by someone else who’s not there.”

[ Update: Since this article went to print, NZQA approved and the Government launched "micro-credentials" - more details here. ]

 

SEEKING CHANGE FROM WITHIN

Looking at the longer term however major players agree that a broader issue – the basic attractiveness of the industry – needs to be addressed in order to get real numbers coming up into the trades.

“The opportunity to expand the skilled workforce needs to focus on making the industry more attractive to women, Maori and Pacifika, who are currently underrepresented.

“This means the conventional approach to working hours, academic qualifications and bureaucratic processes needs to fundamentally change,” suggests Fletcher Building’s Steve Evans.

There has also been a general feeling that younger generations simply don’t find a career in the trades appealing. Blame for this has been put on anyone from college careers Councillors, parents or “lazy” younger generations.

Increasingly however, players within the industry are suggesting that change needs to come from within to attract new members.

Registered Masters Builders’ David Kelly feels that there are plenty of aspects within the wider industry that are not being taken advantage of when promoting itself as a career path.

“There are a whole range of opportunities from the trade skills and labourers through to project managers, quantity surveyors, engineers and architects in the construction sector.

“So sometimes it is not that helpful to have a poster of a labourer in a hi-vis vest on site. There’s nothing wrong with that but it’s a very narrow view of what the construction industry involves,” he says.

The increasing use of technology in all aspects of construction is another aspect that could be attractive to new members.

From the use of Building Information Modelling (BIM) and 3D printing for planning and model creation through to using drones to inspect hard to access areas, technology is increasingly playing a part in streamlining the construction process.

And, with a younger generation increasingly gadget focused, marketing materials that reflect these aspects of construction can only be a good thing.

 

PREFAB: OPPORTUNITY OR RISK?

Technology also plays a larger role in the controlled environments of offsite manufacturing, (also referred to as prefabrication) which is being touted widely by KiwiBuild’s key drivers as a solution to increasing the speed, cost and efficiency of housing production.

Therefore you could make the leap that an increasingly off site construction model may also be more attractive to new blood in the construction space.

Pamela Bell, founder and CEO of PrefabNZ, certainly thinks so: “Prefab construction is interesting in that it has the ability to attract women and people with technology skills who don’t really want to be out of the muck in the mud and the rain. If you can work in a controlled environment it’s much more appealing.”

But is prefab really the silver bullet the industry needs to increase house numbers? Opinion across the category is divided.

Grant Florence for one remains sceptical: “The hurdles involved are significant, not the least encouraging people to making tens of million dollars investment in a plant here in New Zealand and for it to be at risk from political whim when there’s a Government change in a couple of years.

“The other issue is that everybody is arguing what ‘prefabrication’ even means, whether it’s from the offsite full housing mould, to frames and trusses and everything in between.

“So I think it’s nice that there’s some potential demand with KiwiBuild but I just don’t think our economy is big enough to sustain it.”

David Kelly feels that while prefab will play a part in meeting KiwiBuild’s goals “it won’t be the major saviour’ in his view.

He points to some historical failures setting up working prefab models as proof that the idea remains problematic and suggests that the true problem lies not in getting access to capital for setup but in getting the work long term.

“The really obvious question is how do you ensure there’s a pipeline of work and who’s going to do that? If you set up a prefabrication or off-site manufacture business and you’ve got to find all of those clients, that’s hard work and that’s where most businesses have struggled with one or two exceptions.

“But we’ll see what the Government comes up with in terms of meaningful action in that respect because I think they’re the only ones that can do that at this stage.”

 

RISKS IN PREFAB ABOUT BUSINESS?

As you’d expect, Pamela Bell takes exception to the idea that the prefab model isn’t one hundred percent appropriate for New Zealand.

Regarding recent prefab failures such as Matrix Homes, she says this was a business failure rather than a prefabrication failure and points to a lack of an early business component around New Zealand’s building and construction.

She says: “You’ve got to think about where are going to get your business capability from. In the Matrix case people are coming from sectors other than construction and unfortunately construction is complicated and you can’t follow simplified economic rules of multiplying.

“That’s why local knowledge is so important and successful facilities are run by people who have got really embedded knowledge in the local sector.”

A major local player who can definitely claim local knowledge is Fletcher Building’s Steve Evans.

Fletcher Building is currently investing in a new panelisation plant in Auckland, following a series of pilots it completed last year to prove the concept (see the last issue).

Asking Steve Evans about the failure of previous off-site manufacturers, he feels that the first concern is to develop a robust design process form the outset which designs homes for manufacture and assembly, followed by a research into the throughput of the plant.

“This was part of what we investigated while proving the concept last year,” he says.

“In its first year we expect the plant to deliver an extra 300 homes a year, which will simply service Fletcher Living’s growing pipeline.

“But in the longer term we would want to see this ramp up, and we would want to be providing panelised homes for home builders beyond our own operations,” he says.

“We’re one of the larger residential builders in New Zealand, but we still only build around 5% of houses.

“So there are opportunities for our investment in panelisation to benefit smaller builders, which in turn supports our ability to achieve scale.”

So will KiwiBuild be providing a level of assurance around pipelines for prefab or other panelisation plants to invest with confidence?

BOINZ’s Nick Hill’s understanding is that KiwiBuild will be ramping up numbers slowly with the first year possibly delivering 1,000 homes followed by 5,000 in year two, 10,000 in year three then 12,000 per annum.

“That means prefabricators or potential pre-fabricators have an opportunity to gear up and enter the market.

“And, while many will exclusively work in this space, some organisations will be working in others as well so they will spread their economic risk.”

As usual it’s a case of risk versus return.

Will the risk outweigh the return? We hope not. 

 


Report on the KiwiBuild Summit – Is confidence building?

Phil Twyford, the Minister for Housing, opened July’s buildnz show in Auckland and took part in the much anticipated KiwiBuild Summit where he elaborated on the Government’s ambitious goals.

“We’re going to roll up our sleeves and build 100,000 affordable homes in 10 years,” he said.

They’ll cost up to $650,000 in Auckland and $500,000 nationwide.

“Are they going to look like crap?” asked Summit host Paddy Gower, expressing widely held fears of “army barracks” style housing littering the country.

“We’re not building state homes or subsidised housing” replied the Minister.

“We’re going to partner up with developers to produce middle-class aspirational homes that will be warm, dry and energy efficient.”

He went on to say that KiwiBuild is essentially a procurement company of a massive volume and scale which will give it the opportunity to reduce construction costs and set new standards for better homes.

Currently, the Government is drafting legislation to speed up the building consent process by shifting the risk from Councils to builders and owners with proportional liability.

Additionally, it will allow the digital lodging of plans and a multi-proof building consent process – one design, many sites.

It also intends to reduce the price of land by opening urban boundaries: “We’re going to build up and out in Auckland,” declared Minister Twyford “and turn the tap on for infrastructure financing.”

 

CONFIDENCE IN KIWIBUILD?

Projected on the screens above the KiwiBuild Summit stage was a live poll asking the audience if they had confidence that the Government will deliver on the KiwiBuild promise of 100,000 affordable homes in 10 years

The running tally at that point? 47% were confident, 48% not confident, 5% neutral.

Following the Housing Minster’s presentation, there were various panel discussions with other Government representatives and industry leaders.

They probed the need for innovation in construction with Jenny Salesa, the Minister for Building & Construction, confirming that KiwiBuild is considering proposals from around the world for prefabrication and modular systems that would work in New Zealand.

Industry leaders called on the Government to lead the way in making the construction industry greener and community focused.

“What’s stopping KiwiBuild from making every house Green Star six,” asked Jerome Partington, Sustainability Manager at architects Jasmax.

“We need to focus on creating whole communities in harmony with water ecology, energy and transport infrastructure for a sustainable future - that’s where the real savings come in.”

The head of KiwiBuild, Stephen Barclay, declared that they were currently working on new standards to which all tenders from developers must adhere.

One of the most pressing issues for KiwiBuild is Auckland’s water infrastructure.

After 25 years of underfunding, coping with the huge growth is going to be really tricky.

However, Raveen Jaduram, the CEO of Watercare (the body responsible for Auckland’s fresh and wastewater management), pledged to discount the $14,000 subdivision connection fee by 20% to houses that employ extensive water saving measures.

At the closing of the Summit, the poll referred to earlier declared 54% were confident that KiwiBuild would deliver while 27% were not confident.

The first 30 houses will be ready in October. 

 


Prefab – Good for KiwiBuild, could be good for the prefab factories

As part of the broader picture we also talked to Andrew La Grouw (left), who has just taken over from his father as Managing Director at Kiwi building icon Lockwood.

Prefabrication is being bandied around as one of the solutions to not just KiwiBuild but also the broader housing shortage.

With Lockwood’s track record in this area, what is Andrew La Grouw’s view on this?

“Some 68 years we’ve been doing it, though ‘prefab’ was never an attractive word in Lockwood’s history. We chose to call it ‘pre-manufactured’ but ‘prefab’ is the in-word now so I guess we can embrace it wholeheartedly now.

“It’s nothing new to us and we are building houses as fast as we can out of our factory but thanks to our building system we can build fast on-site too. There is no doubt, the less construction you do on a build site the faster it’s going to happen, the better quality you have.

“Any builder will tell you, we love building but we don’t love building outside in the environment with significant weather events happening every other week – it’s not good for anyone. So [prefab] is definitely a good solution.”

Prefab could also be a positive influence on the “boom & bust” cycle the Kiwi construction industry has perennially faced?

“We’ve seen a number of companies investing to get their prefab business off the ground. They might get away with it for a few years but, as soon as there’s a downturn…

“They’re all set up to do 100 houses a year and suddenly there is only demand for 20 houses a year and they disappear pretty quickly.

“So that’s something the Government could do with the Kiwibuild programme.

“If they came along to people like us and our other friends in the prefabricated world and said ‘we can guarantee a minimum number of houses per year’ it will give confidence to businesses to actually invest in their prefabrication processes.”

But Lockwood’s been doing it for 68 years, so what is the company doing differently?

“We just stick to our knitting. One of our great advantages is when our building system was invented in the 50s it was pretty revolutionary but it was a time in New Zealand and in the world when new technologies new materials were being embraced.

“Now you come up with a new building system in New Zealand and everything is against you. There’s so much regulatory testing required before you even get off the ground.

“You see that with overseas companies trying to bring in very good, proven products but they hit the New Zealand regulatory regime and they hit a very big stumbling block so they just don’t even bother to come to New Zealand.

“It’s one of the reasons why we have such a restricted market and quite an expensive market as far as materials go.”

Any advice for young players?

“If I was to say anything it would be ‘it’s good times right now but be prepared for when the bust comes’. So just try and be aware of how it works in this industry and be prepared.”

And Andrew La Grouw’s oulook?

“Watch the warning signs, they are already there. Immigration is dropping, interest rates are rising, the real estate market is starting to cool. These are all fairly clear signs for us.”

 

[ This is part of a longer interview with the "new blood" at one of NZ"s most iconic construcrtion-related businesses. Look out for the full versions online soon! ]

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