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Five ways we can tackle exorbitant construction costs

Michael Worth Michael Worth

Construction is one of our biggest industries – and it’s broken.

The cost to build a house is too high: entry level housing currently costs around $3,800 per square metre – but if we look overseas, it should be closer to $1,200 per square metre, according to submissions to the Commerce Commission.

High prices are tough on consumers, and they aren’t translating into success for those in the industry, either. Our $40bn construction sector is surprisingly inefficient, with serious structural inefficiencies that lead to precarious profits – which are easily wiped out by issues like supply chain problems and labour shortages.

The way we operate now is simply unsustainable – so what can we do? Here are five ways we could improve the construction industry and reduce the cost of building.

1. Embrace standardisation – and get rid of urban villas

When you want to design a new car, you don’t start from scratch. Most modern cars are based on existing chassis, with parts that are used on several models. The different body shapes and badges give you a sense that you’re choosing from a wide array of cars, but when you buy an Audi, a VW or a Skoda, they’re all built on the same adjustable platform.

If we could follow suit and use standardised housing designs, our builders could easily become experts in constructing these models quickly and efficiently. We could streamline the consent process, too. Compared to building a one-off home, this could save hundreds of thousands of dollars on a single home. Kainga Ora does this already, with its one, two, and three-storey walk-up designs in left and right-hand rotations. They look great, and because they’re highly standardised, they can be built economically using a series of massive supplier contracts. Our group home builders do this too, and although they are well-known because they’re great at marketing, compared to similar countries overseas they make up a surprisingly small share of our construction market. It would be good to see that share increase.

Plus, these modern designs are not only faster and cheaper to build, they’re also superior to live in. They’re warmer, more efficient and more practical. We need to take some inspiration from Clarke Gayford and haul all the lovely old villas out of our city centres and relocate them to the countryside where they belong. In their place we need warm, dry homes constructed for this century, instead of draughty hundred-year-old houses tarted up by home stagers.

2. Let’s automate and prefabricate

New Zealand businesses have a habit of throwing cheap labour at problems instead of investing in automation. It’s a key factor that hamstrings our productivity and it’s long been the construction industry’s preferred problem-solving solution. Investing in factories to build pre-fabricated construction products might be costly in the short-term, but in the long-term it would help bring down building costs dramatically.

Prefabrication comes in progressions, from simple frame-and-truss panels to more complex panels which include utilities, all the way up to fully-integrated kitchen and bathroom pods. The upsides of prefabrication are well-known – you can build them indoors in any weather and ship them anywhere around New Zealand to be assembled rapidly on site. We have the technology and the skills to be fantastic at this, but we’re seeing very little headway in making it a widespread practice.

3. A buying group would mean pricing power and more reliable supply

Materials are imported by thousands of businesses around the country, moving from importer to wholesaler to retailer to builder before reaching the customer, with each one taking a tiny margin. It’s death by a thousand cuts by the time a product arrives at the end user, and the small local businesses in that supply chain often struggle to survive on slender margins.

New Zealand desperately needs a buying group for key building materials like structural steel, timber and plasterboard. If we could get the Builders Federation, Master Builders, BRANZ, the Property Council and other industry groups together, they could create a buying group to bulk order these essentials and provide them at far better prices. The pricing and supply security for these essentials, means all businesses in the construction industry would benefit.

4. More onshoring would help future-proof the industry

We’re a small country at the bottom of the world, which means we should be more self-sufficient. It’s great that Aotearoa can feed its people, but can we house them? I’d argue being more self-reliant is imperative for the future of our construction industry.

When major shipping lines are trying to cut costs, we’re a D-list client: it costs a lot to get here, and they don’t make much money out of us compared to other destinations. New Zealand is the first choice to be dropped off the shipping route, which means we’re hit hard by any supply chain snarl-up. Waiting on ships full of building materials is not a sustainable proposition. The just-in-time supply chain is not coming back, the cost of fuel is huge and the carbon footprint for these materials is increasingly coming under scrutiny.

Onshoring our production of essential materials might be more expensive in the short-term, but in the long run it should pay dividends for everyone, driving better profitability and ultimately a stronger economy.

5. Broader specifications would create competition

People beyond the construction industry think GIB is the generic name for plasterboard, that’s how wedded to the brand we are. Architects make specifications based on these household names and councils push back against alternatives, despite identical product performance. Competitors are forced out of the market, pushing up prices. One company has a 94% share of our plasterboard market; two companies have an 85% share of our concrete market.

Architects could help here: they need to specify a material that meets a certain code or standard, rather than simply writing in the name of the best-known product on the market. And councils need to broaden their understanding of product performance so they stop resisting excellent alternatives just because they’re less familiar.

Denser, smarter, more liveable cities

For decades we’ve been taking the easy route: turning farmland into suburbs with single-storey homes that force residents to commute for hours into urban centres. Compare that to the great cities of the world, which are compact and walkable, with retail at ground level and four levels of residential above that, served by an outstanding public transport system. We need to let go of our old habits and set ourselves up with dense, clever cities that suit our modern lifestyles.

Now is the time for our construction industry to change. There are so many smart people with fantastic ideas – let’s get them together to work out how to build better homes for future generations.