The good get planning while the going’s still good

By Terry Herbert August 04, 2015 Trade Focus

Many players in the construction industry are still calling it a boom, but chinks are starting to show. Terry Herbert reports.

Having spoken to many of the top group home builders, the SME builders and other trades who contract to them and the merchants and organisations like pre-fabricators who make up their supply chain, I’m reminded of Aesop’s Fable The Grasshopper and the Ant

“Why are you working so hard little ant when there is food aplenty?” enquired the Grasshopper languorously watching his friend scurrying by. The ant simply replied: “I’m storing food because it won’t always be summer.”

 

HOW’S YOUR ORDER BOOK?

Having built a hefty $1.4+ billion worth of houses in the last year, the top 10 group home builders (by total $ value of homes built) have every right to feel optimistic for the next 12 months. 

I asked GJ Gardner Business Improvement Manager Dan Oliver, once again our largest group home builder, how the next 12 months were trending? “If we look YTD where we were last year by value, we’re $338 million versus $266 million, so we’re pretty significantly ahead”, he explains.

What does he put this down to? “We’ve started to see strength in rural and provincial towns which wasn’t evident last year and we finished on 980 homes. By extrapolation we can expect to see 1,100 by the end of this financial year.”

Taking silver for dolar value and gold for total homes built, Mike Greer Homes CEO Richard McEwan is equally positive: “It’s certainly an achievement for us to get over a thousand. We’re happy.

“The outlook for the next 12 months is that we’ll do a lot more this year than we did last year. We’ve got a big pipeline. We’ve already sold our 2016 quota and we’re now starting to sell into 2017. We’re selling more this year than last year and that’s aggregated.”

In fact all the group home builders I spoke to all forecast growth, though some were more guarded in their optimism than others. “We’ve grown 100% dollar-wise in the last two years,” says Platinum Homes CEO Shaun Riley at the same time admitting: “I don’t think we’ll grow 50% this year.” 

Jennian Homes CEO Stu Munro was the most pragmatic: “We see ourselves growing but everyone’s going to tell you that – the proof of the pudding is when you phone again in 12 months. And why do we see growth? We just have more franchisees in our network and the quality of our franchisee I believe has never been stronger.”

 

IS AFFORDABLE STILL ATTAINABLE?

“A lot of the affordable housing shortage comes back to the property price” says Registered Master Builders’ CEO David Kelly. No surprise to anyone in the building industry or sadly for many first home buyers, particularly in the Auckland region, who are already burdened with the 20% deposit LVR restriction. 

“Unless that can be addressed,” muses Kelly, “we’ll continue to have the problem. If there’s a land shortage you naturally tend to build a bigger house. Yes, absolutely this is the biggest factor to prices but also RMA requirements which add in direct and indirect costs through delays.” 

GJ Gardner’s Dan Oliver agrees: “The general rule-of-thumb with developers seems to be whatever the lands costs are they will occupy 50% of your total build. For example in Auckland the land cost is $600,000, add that again so $1.2 million is the total build.” 

It’s the same pattern elsewhere too. “Land values keep lifting here in the BOP,” reports Trident Homes franchisee, Wayne Minnell. “An affordable house and land package in our market is about $500,000. Gone are the days when it was one third property and two thirds house.”

Most group home builders have adapted their market offering to meet this demand. “We research consumers and find out what they want and are willing to pay”, explains Dan Oliver, “so an example of affordable housing would be our express range where there’s speed in the economy of it. It’s pre-consented, no change to the engineering and no extra detailing to the pre-nail.” 

CEO McEwan shares Mike Greer’s strategy: “Affordable housing is a target. For us it’s about attainable housing. It’s about attacking that mass market. So we’re doing everything we can to reduce costs and to compete more with the second hand market. We’re building multi units– terraced units. Off the back of doing more medium density from the stand alone homes, the overall size of our builds have got a bit smaller.” 

Fletcher Residential CEO Steve Evans says, “The Fletcher Living Brand specialises in master-planned communities.” Within these master plans, Fletcher’s builds a mix of apartments, terraced homes and stand-alone houses. 

To address the high land cost in the Auckland market Fletcher’s is spreading the net and establishing developments such as Anselmi Ridge close to Pukekohe in Franklin District over 50 kilometres south of Auckland’s CBD.

The latest consent stats show apartments, retirement village units, townhouses, flats and units comprising more than a quarter of total building consents. One safe projection is that this overall percentage will continue to rise as land, materials, labour and regulatory costs follow a similar trajectory.

 

PATCHY IN THE PROVINCES

While the group builders continue to fill their order books across the country, over the next 12 months, the subtrades are reporting that it’s “patchy” in the regions. Master Painters’ CEO Brian Miller shares his national forecast: “The regions have been solid for us over the last year but it’s going to be much more challenging in the 12 months ahead. 

“Southland and Waikato are going to be patchy for us. Wellington will just chug along. Taranaki for example relies on dairy and energy and both those have taken a huge hit.” Interestingly both the trades and most group builders single out the Naki as a problem area over the next year. 

Flying in the face of this prediction is Platinum Homes CEO Shaun Riley who remains defiantly upbeat: “We’ve enjoyed growth right across the regions. Taranaki has been good to us. We’re predicting good growth there for the next 12 months, but I’m not sharing the secret to our continued success!” 

Sharing a positive regional outlook is Trident Homes BOP franchisee Wayne Minnell. Looking at his enquiries he expects over the next 12 months he will double the number of homes he built this year.

Stats NZ figures reveal building consents issued in May 2015 compared to consents issued in May 2014 show solid overall growth including Taranaki. However, fewer consents were issued in Manawatu-Wanganui, Tasman, Nelson, West Coast, Hawkes Bay, Southland and just dipping slightly Canterbury – an indication that post-earthquake residential re-builds in Christchurch are largely finished. 

 

"Residential rebuilds in Christchurch are largely finished"

CHRISTCHURCH – TWO TALES OF A CITY

“Residential has been very strong for our builders in Christchurch but that’s starting to slow,” confides Registered Master Builders’ David Kelly. “There’ll still be quite a lot of residential work in the Canterbury area, but no new sales. Work is slowing down quicker and faster than the various authorities forecasted. 

I asked Kelly what measures his Christchurch members were taking in this respect? “The good ones have already planned for the slowdown. They’ve looked at their overheads, trimmed their costs and are looking elsewhere in the country.” Like Auckland for example… 

Certified Builders CEO Grant Florence agrees: “Christchurch builders should be looking 18 months out. A couple of months ago we passed the mark where more new consents have been issued than those homes that were destroyed. That signals that equilibrium is starting to be restored and that EQC and EQR have got through the majority of their repairs. Builders are still busy but work has tailed off.” 

While residential work in Canterbury is declining, commercial builds are barely hitting their straps. Pity Argentina’s Puma rugby team who recently wandered around the ruins and bleak skeletons of Christchurch’s central CBD looking for a welcome distraction to their upcoming AB test match and were forced to retreat to their Clearwater digs with their tails between their legs. 

“There are still masses of commercial projects in Christchurch yet to happen, probably another 10 to 15 years’ worth,” estimates Grant Florence. “My members are in two camps. To the locals who have always been there I’m saying ‘be aware it’s going to slow down – start thinking about trimming your overheads and looking at the commercial build sector’. The other (expat) builders that have gone to Christchurch for the post-earthquake re-build will most likely drift north to Auckland.”

Master Plumbers CEO Greg Wallace is confident work will continue for his members and that  Christchurch “will remain a touchpoint for us”. 

“Commercial activity has now kicked off to balance the drop in residential. A couple of core projects for us are the Justice Precinct and the hospital. These are 3-4 year projects for our members and they require up to 50 staff over that period.”

 

SUPER CITY BOOM CONTINUES

Drive around any well-heeled inner city, North Shore or Eastern Suburb in Auckland and you will find very few streets that don’t feature clusters of tradies’ SUVs, vans and utes cluttering up the otherwise orderly tree-lined avenues. 

As boomers look to cash up and move to the provinces, or lower bank loan rates make it attractive to add or extend existing homes, some Auckland-based builders are actually closing their books and are turning work away. 

This boom filters down to all the associated trades. Master Painters Brian Miller is utterly ebullient: “Auckland’s forecast is STRATOSPHERIC for the next 10-15 years. It’s solid, solid, continuous growth.” 

Certified Builders’ Grant Florence reinforces what individual builders are telling me: “Yes, there’s plenty of work in Auckland. Their order books are full and they’ve got at least 12 months’ work ahead of them. The large alteration & addition market has lifted substantially. That’s definitely a trend we see up there.”

The Top 10 group builders are equally positive about the Auckland market. “It’s been really good for us and it keeps growing,” says Platinum Homes’ Shaun Riley. “We’ve had a couple of initiatives that have come off for us. One in particular is Hobsonville Point. We’re building mostly two- and three-storey terraced homes and that’s a departure from what we’ve done in the past. And that’s not the only development we’re working with.” 

Jennian Homes’ Stu Munro is pursuing different initiatives: “As I’m talking to you I’m standing in the middle of a studio apartment development in Auckland. These are single bedroom with a shower and kitchenette for the rental market. Our client is the developer. When we can acquire land, we spec it ourselves and sell it on. Spec building is definitely growing as demand outstrips supply.”

 

REGULATING COSTS 

The Registered Master Builders and the Construction Strategy Group (CSG) have recently commissioned a report that highlights the impact of regulation on housing affordability. In Auckland, this report highlights, “recurring regulatory challenges can create additional costs of $35,000-77,400 on a $567,000 new house in Auckland.” 

To a greater or lesser degree, the group builders all acknowledge this extra cost. “We’ve worked it out that health & safety costs us on average $20,000 per house.” says Mike Greer’s Richard McEwan. “And that’s only been in the last 18 months, mostly around scaffolding and staffing. Around the country we’ve got 6 or 7 full time staff just checking on health & safety, so that adds a big admin component.”

Cost apart, a frustration shared by all the group builders and tradies alike is the lack of consistency around the new safety regulations. “While we’re doing everything we can to make our sites safe to protect our workers,” complains Platinum’s Shaun Riley, “we still see a lot of sites that are not up to standard. Some builders out there are taking risks. For example a roof can go up in 2 days so they can plan this around any WorkSafe visits. Safety and scaffolding is probably about 3% of a total build price.”

Painters and roofers in particular are very susceptible to this inequality and Master Painters’ Brian Miller for one is not happy: “The lack of enforcement means good contractors who follow the rules lose business to those who don’t.

“You’ll quite often see roof painting being advertised for $1,800 to $2,500. That’s sometimes less than the cost of the paint and (regulatory) scaffolding. The only way they can do those sorts of jobs is by cutting corners.” 

 

CONCERN, CONSENTS & CONSISTENCY

Consistency around consenting is also an industry-wide concern. Master Builders’ David Kelly is keen to work with Government and local authorities to achieve consistency. With those local councils or Territorial Authorities numbering 67 – made up of Auckland council, 12 city councils, 53 district councils and the Chatham Islands Council, this would appear to be a distant target. 

“It’s the expertise that they do or don’t have within council, particularly residential building,” explains Kelly. “For example can they can differentiate between your bulk standard house and a much more sophisticated architecturally-designed split-level house where the risk is higher?”

Group home builders like Mike Greer’s Richard McEwan shares a typical scenario.

“Consents have added to our cash flow costs because it’s added a lot of time to the build. It slows everything down. Once you’ve had a final inspection on a house you could wait a month to get a Code of Compliance. No-one can move in and we don’t get paid for it. Just recently we had 50 houses that had passed their finals but were waiting for Codes of Compliance. That’s a significant cost for us.”

 

FRAMING THE YEAR AHEAD

Robert Grimmer has been in the industry for many years and has witnessed its many iterations. He’s just stepped down as Chairman of the FTMA (Frame & Truss Manufacturers Association) but even though he manages PlaceMakers Frame & Truss plants he still keeps a custodial eye across his sector. He observes that the industry is cyclical and it always will be. Booms come and go. 

Over at Carters Frame & Truss, Grimmer’s counterpart is the equally seasoned Peter Wilson. As a pre-cursor in the supply chain to the building sector they’re both projecting good growth for their operations in particular. Both run their plants on a similar DIFOT (Delivery In Full On Time) business model. In fact the model is so alike that there have been accusations that one manufacturer copied the other but neither will admit this on the record. 

Robert Grimmer says: “There are approximately 130 fabricators around the country with the vast majority of these being localised independents. PlaceMakers and Carters are the two major players and yet together that’s only 17 plants. We’ve got eight and Carters has nine. We’re both moving production around the country to meet demand. We’re building in Nelson and Dunedin to meet the demands in Christchurch and we’re doing a similar process in the North Island. 

“We’re gearing for large commercial in Christchurch over the next 12 months and expect residential to stay at the same levels as this year. Nelson/Marlborough is still quite flat, Central Otago is strong and, apart from Government initiatives in Wellington, the lower North Island is flat.”

As mentioned earlier, however, it’s not just single homes that are driving consents along. Says Robert Grimmer: “Retirement homes are getting bigger for us as there are a growing number of companies who are in that space. It’s the baby boomer bubble: they’re looking to downsize and move into retirement villages and apartments.” 

"How many people can the industry actually absorb and train and develop? Do you reach a natural limit?"

 

HAVE HAMMER WILL TRAVEL

Costs, consents, consistency – what else is falling short of expectations? “A severe shortage of skilled labour, primarily residential and in particular here in Auckland,” according to many, including Certified Builders’ Grant Florence. “Commercial is suffering too. It’s just a general shortage across the whole carpentry trade.”

Group home builders however appear largely unaffected by the labour shortage. Even though contracted builders versus on-staff builders make up the vast majority of group home builds, it’s the continuity of work, fair treatment and prompt payments that keep these contractors loyal to the “groupies”.

Perhaps the man who is best informed to make industry predictions is BCITO’s CEO Ruma Karaitiana: “We began 2014 with just over 5,000 apprentices and we’re now sitting around 9,700. It’s been pretty dramatic growth. It has slowed this year. For example we had a record December 2014 like we’ve never experienced before – we signed 900 new apprentices. 

“We’re down to a steady pattern of somewhere between 70 and 80 new apprentices every week so it’s steadily increasing. There’s still a demand in Christchurch but it’s more like business as usual.”

Still, 60% of all apprentices are Hamilton-north. “We forecast Auckland’s growth to go on and on and on, well beyond the period where it’s sensible to do any type of forecasting. So, in response to that, we’ve just opened a whole new office and put an additional new team into Auckland. 

“Last year we had an office in Newmarket and an office in Highbrook. We had somewhere in the region of 25 training advisors on the road in Auckland. With the additional office in Albany we now have something like 40 training advisors on the road in Auckland.

“By the end of 2016 we forecast to be sitting around 10,500 apprentices. One of the mysteries for us and everyone is a full understanding of the industry. How many people can the industry actually absorb and train and develop? Do you reach a natural limit? I don’t think anyone can answer that!”

 

MERCHANTS SUPPLY THE DEMAND

When I asked group home builders, independent builders and associated trades what keeps them loyal to their suppliers they all said relationships were more important than price. When the chips are down your mates will look after you. 

So merchants, if there is one paramount consideration it is look after your mates. They’re doing their best to look after you. And as Certified Builders Grant Florence says prophetically, “In the end good builders will always be busy.”  

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CLASH OF THE CULTURES – WHY ARE THE TOP TWO GROUP BUILDERS SO SUCCESSFUL?

For the first time, Mike Greer Homes are stepping onto the podium to take the silver medal for total value of homes built in the last year, having overtaken Stonewood Homes. Mike Greer has certainly made stellar gains in the last 12 months growing 56% by dollar value and 48% by total units built. 

Sitting at the top of the podium and BCI New Zealand’s list of group homes by dollar value for the third year running is GJ Gardner.

With nearly $340 million of homes built last year they’ve grown 31% from $257,963,983 in 2014. Together these juggernauts built nearly $600 million worth of homes and they’re both bullishly projecting more growth ahead.

For the record the top 10 group home builders by value YTD June 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

WHAT DO THEY HAVE IN COMMON?

Both franchise groups have invested heavily in their brands. GJ Gardner in particular spends across all major media most obviously on primetime television with happy couples featured raving about their new homes and the build process. 

In keeping with its worthy Scots heritage South Island-based Mike Greer Homes has used a more cost-effective grass roots and PR approach to building brand awareness.

Both founders, Greg Gardner and Mike Greer, started out as carpenters and as more of their homes were erected their reputations for quality, value, integrity and fairness grew with them. Put those values into a franchise business model, add a reliable supply chain and presto – success. It’s not that easy.

 

WHAT TRAITS SET THEM APART?

If there was one word that would philosophically sum up the difference between these group builders it would be “family” for GJ Gardner and “aggressive” for Mike Greer. 

GJ’s Dan Oliver reports the last five months have been consecutive record months for them. He credits the franchise network as a large part of that success. “We’re pretty careful at screening who we let into the franchise network. We want a family culture. In a lot of instances we still have that husband and wife team running the franchise and running them very successfully. 

There are great examples,” expands Oliver. “When Grant [Porteous, GJ’s CEO] travelled to the Far North recently to our Kerikeri franchise they insisted he stay in their own home. Even their children who he had known for many years insisted on arriving to see Uncle Grant. It really is that kind of relationship.” At this point all GJ Gardner franchises are full. 

Well established in the south island where over years they have picked up a swathe of Master Builder awards for mostly higher ticket homes Mike Greer Homes CEO Richard McEwan talks of the company’s “more and smaller” strategy. 

“We’re based in Christchurch but that greater Auckland area is a big focus of ours. We’re building medium density – terraced units. The market likes the brand obviously. We invest heavily into marketing. We invest heavily into maintenance. We invest heavily into quality control throughout the build process. 

“Our attitude is if we’re the number one builder (by total units built) in the country, we have to be ahead in all aspects. We want to be the leader in every area. We’re embracing it. We have no choice.” 

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CONSTRUCTION SITE HAZARDS - THE INVISIBLE RISK

With more emphasis than ever on a safe work site there are hazards, many invisible to the human eye, that are considerably more harmful to workers’ safety than accidents.

BSM’s (Building Skill Maintenance) Facilitator Dion Tapper says: “It’s a scary fact - you are more likely to die as a result of airborne contaminants in the workplace than from an accident. These substances can be in dust, vapour or gas form. 

Common health effects through inhalation include; feeling dizzy, forgetfulness, drowsiness, mood changes and sore eyes and skin. Long term effects are even more concerning including; memory loss, organ damage, fertility problems and terminal cancer. 

“The trusty broom has had its place around worksites,” acknowledges Tapper, “but it’s time for a replacement that actually ensures both visible cleanliness and manages those unseen risks to long term health.”

21st century Health & Safety problems demand 21st century solutions. “Modern portable dust extraction products provide a convenient solution for safely managing worksite dust and airborne contaminants with a minimum of disruption.

"With a range of features such as auto stop-start power tool outlets, semi-automatic and automatic filter cleaners and power tool adaptors the modern portable dust extractor is easy to integrate into the worksite,” assures Tapper. 

“It also provides effective performance where it matters the most - on the tools at the source of the dust. This functionality helps to minimise the risks from airborne contaminants and it keeps the work place and tools cleaner – saving lives and precious time. Make sure you provide the necessary tools, and the disciplines around using them to ensure you and your team can go home safe every day.”

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