Opinion
Paul Keane's picture
Paul Keane

Contractors and Buildability pose Serious Problems

The past week has driven me to reflect on the Building Industry and the size and use of apartments that are being built to accommodate the increase in population.

Most of us have the belief that the country is under the hammer for accommodation given the growth in the number of new entries to New Zealand. That is no myth, the facts are that housing for new arrivals is under pressure and as we all know, the cost of housing is impacted as a result. Simply put, demand outweighs supply. It is straight forward, no Einstein theory. As a result, Developers and Builders are getting caught up in the hype.

Recently we have seen the problem Fletcher Construction have faced with a profit result which impacted on its share price. We also saw the receivership of a small construction company which ultimately went into bankruptcy leaving its clients with half built homes and no certain future. So how do these problems arise?

There really are a number of answers, but let’s take the simple reason.

The cost of land in development generates the ultimate price of a house; hence the reason why houses are getting smaller as are apartments.

Developers are stretching the rubber band as far as possible with a view to making a profit. Contractors, who price these projects at the outset, have been known to submit a price which cannot sustain the cost of building over time. Whilst this is more prevalent in large projects the likes of which have impacted on the Fletcher Group, smaller projects are impacted for the same reason. All contractors are faced with the same problem; that is the availability of sub-contractors to complete projects on time and within budget. A project price therefore is at risk if the main contractor has underestimated his costs, which in turn means he cannot complete the project at the cost of the original sum submitted. The outcome is an increase in price to the end user or in the case of the small contractor they go broke as they cannot fulfil their financial expectations.

How serious is this problem? Very serious.

There are simply not enough Building Contractors available to complete the work that is currently in demand.

This is something that Developers and Politicians simply don't understand. The cost of land today will drive the final cost of a house. However in-between, the cost of construction and the reliability of the contractor will be paramount. I sense that this is a major problem for the industry generally. Gone are the days when one can get one or more construction companies vying for projects. It’s a matter of getting a reliable contractor, agreeing a price subject to inflation and variations and sticking with them.

There is no doubt that the goal posts have shifted and Contractors are more in demand, as are their sub-contractors than ever before. Housing demand will not diminish but buildability certainly will.

Finally, the size of apartments being built also has me mystified. Having experienced a number of visits recently, it occurs to me that the physical ability to get furniture into some of these "boxes" will be a challenge. Thereafter when the apartment is sold getting the same furniture out will be a bigger challenge. I remember the expression of my parents “there is not enough room to swing a cat". That expression certainly applies today to apartments being built in this "hyper age" of development.

by Paul Keane


Sharewatch| Hallenstein Glasson 

Hallenstein Glasson is in good form, one of only a few New Zealand fashion retailers who can foot it with the big international players. It didn’t have a great 2016 financial year – profits were the lowest they had been since 2009 – but 2017 is shaping up to be much better.

Fashion goes in waves, and Hallenstein Glasson has been lucky in that when its women’s fashion has been struggling, its menswear has been doing well, and vice versa. Glassons was the fashion darling a few years back, but Hallensteins has been shining more recently.

As such, it’s unsurprising that Hallensteins is now expanding in Australia. The company had a brief foray there in the early 2000s – only opening four stores – but closed these in 2003. Glassons, on the other hand, has been established in Australia for many years.

The thing is, Glassons Australia has not been hugely successful. It’s lost money in four out of the last six years, and it’s never made make much of a contribution to the overall bottom line. But Hallensteins’ star has been on the rise in New Zealand, and the group will be hoping to repeat that success across the Tasman – maybe even converting some of the lower-performing Glassons Australia stores. Of course, these days much of the retail action is happening online. In their interim results (to January 2017), Hallenstein Glasson reported that online sales had risen 35% from the previous year.


In the Press

Local media highlights 3 May - 9 May 2017

Inside controversial inner-city Bunnings
A controversial new Bunnings store that a group of Auckland residents fought hard to stop opens on Monday.
However, the company says it will operate in a novel way that aims to make it less intrusive in the neighbourhood.

(Source: NZ Herald)

KiwiSavers 'harshly' taxed compared to property investors, book claims
KiwiSavers are being "harshly" taxed compared to property investors, the authors of a book designed to fire up Kiwis over tax fairness claim.
Deborah Russell, senior tax lecturer at Massey University, and tax consultant Terry Baucher release Tax and Fairness this week, published by BWB Texts

(Source: Stuff)

Construction firms get tougher on site safety
Some of New Zealand's leading commercial construction companies are joining forces to get rid of inconsistent approaches to health and safety between sites.
Site Safe, a non-profit industry group, is facilitating the agreement, which is aimed particularly at new entrants and subcontractors in the booming construction sector.

(Source: Stuff)

No excuse for the OCR to be just 1.75%
BNZ economists now predict rate hikes early next year and the RBNZ will be 'negligent' if it doesn't explicitly indicate higher interest rates in future when it reviews the OCR ths week

(Source: interest.co.nz)

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