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Moving forward with an eye on the past

Moving forward with an eye on the past

The Registered Master Builders Federation is now the Registered Master Builders Association of New Zealand Inc.

This means we are flat out getting our house in order and getting new systems and processes in place so we can focus on delivering outstanding services and benefits going forward.
It will take a wee while for things to settle but, rest assured, we are on our way in that regard.

As mentioned last month, 2013 ended on a high. The Reserve Bank agreed with us and exempted new homes from the LVR policy. I hope those of you who were affected have managed to resurrect at least some of those prospects but, if not, I trust enquiries have returned and you are back doing business.

While things are looking up on the residential front we are certainly not out of the woods yet. We all know that the period post-Christmas is exceptionally difficult on cash flow with all the overheads and tax bills due, while work (and thus cash flow) has been restricted with the holiday period.

It is not uncommon for some to struggle in the first quarter of a New Year and, indeed, we have seen a couple of companies fall over recently.

Looking back on 2013 makes interesting reading. New Zealand ended up issuing 21,300 new residential building consents, including apartments. This is about 5% more than we had predicted but not all regions performed consistently.

The growth was driven out of Canterbury and Auckland — no surprises there (we have been forecasting that for years) — with increases on 2012 of 43% and 38% respectively.

These two regions now make up 56.7% of all building activity, and we expect that to increase in 2014.

So, all good the pundits are saying, but the regions, while better in most areas, are still finding things a bit tough. Four regions actually went backwards over the second half of the year, issuing fewer consents in the last six months of the year than the first six months.

Average building cost analysis is interesting. Now there is no such thing as a typical home. Every property is different, and obtaining a comparison of cost between regions, particularly when apartments are included, is nigh on impossible. So treat these figures with some caution.

But $6.477 billion of new dwellings and apartments consents were issued last year. That’s an average of $304,000 (incl GST) per consent. There is very little difference between most of the regions (16 of them) where prices range 5% for most, and all but two fall within 10% of the $304,000 average.

The variance is explained by the make-up of what is being built in each region — for example, more apartments, architectural homes, house size and so on that influence the final regional price.

This is completely expected, given labour rates and materials costs are relatively consistent around the country. It costs virtually the same to build a house in Remuera or Night Caps.

However, cost and value are two different things. The market value of these properties varies widely, obviously impacted by land prices and the value of existing homes in the area.


Cost of materials investigation

So what’s your point I hear you ask? Well, there is a whole body of work being done by the Government investigating the cost of materials — whether we pay 30% more than in Aussie, whether builder’s rebates should be disclosed, the influence of monopolies etc — all in an effort to make new homes cheaper to build and, thus, provide more affordable housing.

We agree. We want to make sure materials are as competitive as they can be, and remove unnecessary barriers that increase cost. But if we could magically wave a wand and materials are suddenly 30% cheaper, do you think for one minute house prices would come down? Not on your life.

All that would happen is you would make more profit because the price of a new home would sell for its market price. We would see more spec building, less commissioned work and higher land prices as people realise the profit to be made.

In order for the 30% savings to have an influence on general market prices, we would have to build an awful lot more houses and flood the market — an awful lot more. Won’t happen, not under current conditions.

So, we say focus on the areas where real gains and savings can be made, because if we increase supply, remove time and regulatory costs and build a lot more houses then the price of existing homes will stabilise.

And once that happens the cost of new homes, and especially land, will have to fit into that new paradigm.

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