Not yet fixed: some good long-form thoughts on fixing New Zealand housing from @nikkimandow in this week’s @nzlistener. Amidst all the talking (and not enough action) on this, there’s a few themes that stand out for me >>Thread
Themes I’ll cover: finance (whose balance sheet?), productivity, resources, and process
Single biggest housing theme for me is balance sheet: there’s really only two balance sheets building houses in New Zealand, and has been since forever - the Govt. and the individual who’s building a house
There appears to be almost no institutional “sophisticated” equity invested in constructing houses or providing housing in NZ
: “Construction industry experts say there isn’t enough money in NZ to fund the development we need & we’ll have to call on overseas funds.” Nonsense - there’s nearly $100Bn in retail managed funds in NZ alone, +hundreds more among other institutions incl. NZ Super
Also, residential housing in NZ is nearly a $1 Trillion asset class now, with NZers holding $242Bn in mortgages. That suggests some opportunities to recapitalise :)
I think the problem isn’t “there isn’t enough money in NZ” but rather “there isn’t an institution/s or path for money to flow to residential construction opportunities.”
What about “developers”? They could build large numbers of housing units - except to do that they’d need to put their own balance sheet to work. But, if they can persuade customer to buy bespoke unit, customer will advance the equity (balance sheet) req'd. Smart!
Result: vast majority of houses are built one at a time by highly skilled labourers, in much the same way we built houses after the war (pick a war, any war)
Housing units, almost anywhere else in the world outside NZ, are a “product”. Bought off the rack. Not in NZ. Even the most modest unit in NZ *has to be* a one-off project. It doesn’t have to be that way - someone should be selling “product’ rather than ¼ acre dreams
So no economies of scale in development or construction
I read somewhere that outside of Housing NZ, 95% of residential rental housing units are owned by individuals (can anyone validate?)
So no economies of scale in ownership, management, maintenance, etc. (net outcome for renters, let’s hope you get lucky and your landlord is nice, and your manager efficient)
To sum up the finance theme: there’s Govt and a huge number of individuals building homes, but no institutional players. Anyone out there want to build the first institution? (where’s the Infratil or the KPG of housing…?)
Maybe the Govt. can, as Minister Hon. @jennysalesa says, “come through with a pipeline of work driven by KiwiBuild” that attracts an institution/s
Productivity: @nikkimandow & @NZprocom say it costs 15-25% more to build in NZ than Aus, and I suspect that the disparity is worse than that if you look at inner Sydney, say, versus Auckland
Part of that Trans-Tasman gap is labour, I guess - NZ is apparently short of 30,000 skilled workers in the building trade right now. Where are those workers coming from??
Part of that Trans-Tasman gap must be productivity-driven too. Perhaps NZ is short 30k skilled if construction methods are same as always, but maybe only short 10k skilled if new construction methods can be used (cc Pamela Bell @prefab_pam @PrefabNZ)
Because “up to 80% of KiwiBuild homes could be put together off site,” says @PrefabNZ. How else to deliver economies of scale in development and construction?
Part of that Trans-Tasman gap might be due to organisation and structure. From the @nzlistener article, most tradespeople are sub-contractors. That’s inefficient
Every entity and sub-contractor along the way adds a little more margin (cost to customer) and noise into the process, until the inefficiency is deafening
Part of that Trans-Tasman gap is cost of materials: @NZprocom says 76% higher in NZ than Aus. I was always impressed that a standard length of 100x50 could cost me $3USD in New York City (long way from a forest) and $17NZD in Rotorua
(Cost of materials is a problem that I think requires Govt./ComCom fix :))
More resources - what about land? Undeveloped land within the urban boundary - should it be taxed at neighbourhood equivalent rates?
“Twyford says we have to go both up and out,” according to @NikkiMandow. Up is good, particularly as it increases rates revenue per unit area for cities
Impressive to see stats for proposed new development at Unitec site in Auckland. 3-4,000 dwellings, at average household size of 3.0 equals about 12,000 people living on a 29ha site. Not a mathematician but that seems to work out at 41,000 per km2...
...or about that same population density as Manila, most dense city on planet
On process: apparently consenting (getting permission to build) a house takes an average of 200 working days. Let’s call it a year. One year! Hon. @jennysalesa would “like to see consenting times reduced to 20 working days.” Let’s call that a month - seems reasonable
200 down to 20 working days sounds like a tough process re-engineering challenge. Fortunately, central and local government have plenty of great brains in NZ to call on to fix
Current state of play (my take): NZ is generally headed in the right direction (KiwiBuild, etc.) but needs swifter action from governments central & local to enable a platform that big balance sheets can play on, fix strategic issues with resources…
...and needs private investors to form institutions and vehicles that can put capital $ to work at scale for positive returns (ROI) <<End
