The first rays of hope may be emerging on the housing construction horizon. They will take leadership and early market intervention to nourish. Political and market solutions have so far failed. But there will be a high price to pay if business as usual prevails.
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Australia has a cost of construction crisis. The impact of this plays out most visibly in the residential housing market. Residential project scale is most understood by members of the community trying to achieve home ownership. Purchasers are confounded by the high cost of market housing. All housing, including apartments.
This judgement does not usually apply to larger, more complex projects like hospitals and office buildings whose scale ranges to multiples of a single home price.
I first noticed this distinction during a value for money review of the 2007 $13.4 billion Building the Education Revolution program, which delivered more than 10,000 new school buildings across Australia.
The cost of construction was out of whack with what most in the community saw as simple buildings, much like a house.
Irrespective, ongoing housing supply policies and market failure continue to leave prospective entry level homeowners, out in the cold. This is despite continuing political policy and industry advocacy seeking to support home ownership as an essential core expectation in the Australian social and economic fabric.
The enduring aspiration remains.
Decisive action is needed. Maybe a new delivery model
Doing nothing is not an option. The foundations of housing construction in Australia are crumbling. They need rebuilding from the bottom up, not the top down.
There are too many powerful self-interests at the top.
There are many moving parts in the matrix of construction’s costs. The challenge is too complex for a single silver bullet that can fix the problem system-wide.
Some describe this challenge as akin to wanting to boil the ocean in one go. However, the only viable path is incremental, with clutter removed to ensure that doing nothing is not an option that can be sheltered by pointing to a problem of someone else’s making.
An essential first step is charting the core measures that will raise construction’s productivity. Raising productivity, will start to quell the upwards cost trajectory.
This does not require an endless research project with elusive conclusions. We know that end to end project duration drives the final cost. Add inefficient deployment of construction’s workforce and resources.
Where did Australian residential construction costs lose their way?
A variety of reasons can be blamed. Projects are now larger, so too the organisations needed to undertake them.
Some projects seem to be based on the imperative of “because we can”, not “because we can we afford them”.
The cost of debt has become frictionless to many. Frictionless in cost and the pricing of risk. But even cheap money has a judgement day.
Add to this, constructors who have leveraged their financial and physical capabilities to a point where their vulnerability is high. Unions pushing for pay increases and better conditions and increased migration add to the mix. All these factors have reshaped project risk.
In the end society pays. The homeowner aspiration is one of the most under pressure. Politicians and industry have seduced themselves on what seemed like simple fixes. However, most demand side props simply lead to the next cycle of handouts.
More planning concessions, trimmed regulation and tax have been the main props. Increasingly, the public purse is tested to fund social housing solutions that are expensive and create the expectation that taxpayers can always come to the party. It’s all a bit like a rabbit chasing its tail. Expectations that value uplift and increased incomes will keep this house of cards intact are hitting the wall. The metrics are failing. Have failed.
A common blocker in the quest to address the challenge construction now faces are risk aversion and greed. These are conditions that affect both public and private organisations. Collectively they conspire to ensure that almost nothing is left on the table for the next player. This affliction then plays out through construction’s supply chain. You only get what you pay for. Including shortcuts.
These conditions affect workers and enterprises. Especially the small and medium sized players who make up the bedrock of our industry. They are also blockers that conspire to make construction career pathways less certain and unattractive. Jobs and working conditions bear the brunt but so too does dumbing down of work to overcome the severe skills shortages that are eroding productivity and driving up costs.
Despite all the industry visioning and inclusionary rhetoric, those on centre stage where respect and the value of the workforce are proclaimed as the next blueprint seem to lose the script on the way home. The scripts hardly make it down the road and onto job sites.
The past can always help inform the future
AVJennings and Pettit and Sevitt are examples of companies that offered repeatable designs known a project homes to the market. They offered entry level housing that met purchaser needs and capacity to pay. These builders offered home choices that could be adapted to affordable trade-up and eventually trade down designs. They could be built on builder supplied land or land purchased by homeowners.
The house and land package that has worked for more than 50 years.
The main variables were site costs and finishes, but the base costs were grounded in repeatable construction, performed by trusted repeat trades, so they could leverage economies of scale.
House and land packages shaped post war greenfield suburban sprawl. These days the endless spread of our cities has its challenges, albeit new outer urban housing remains necessary in the overall housing supply mix. As does the higher density developments now being encouraged along transport corridors.
But the missing middle for purchasers seeking more moderately scaled market housing remains a challenge.
Developers claim that despite the concessions they have demanded and largely been given, these projects do not stack up. Perhaps it’s their business model?
Enter the NSW government’s Low and Medium Rise Pattern Book. One could imagine that these designs are much like standard project homes, except a lot larger and possibly more complex for the typical project home builder. However, the designs facilitate easier development consent pathways for projects from six to 24 apartments that fit on regular sized existing urban lots.
Here is the opportunity for agile small and medium sized constructors to look at the patterns seriously. They are in effect repeatable designs where the variables come back to site costs and finish specification options. The pattern designs explainer cites potential customer profiles as including,
- Small residential developers
- Existing landowners
- Small building companies
- Co-investors
- Housing agencies and community housing providers partners
- Multi-generational households
My own estimates of the time and cost savings that are now on the table suggest that 20 per cent is within reach from early adoption of a variant end to end delivery model.
Disruption? Why not?
Of course, the naysayers may claim otherwise. And adoption of a different land and housing supply options could be disruptive. The missing middle supply could be a case at point. If disruption is necessary, now is the time. There should be no sacred cows.
And just imagine if universities and TAFEs adopted the pattern designs as their standard construction teaching typography, how young enterprising minds may envisage new market entry and supply opportunities that could flourish in the future.
And imagine how a pattern book of standard construction and sequencing details could be widely adopted. Why are the basic details re-done repeatedly for no realisable value? It makes no sense.
Imagine if the avoidable risk aversions of business as usual could become regularised risk mitigations.
Imagine the cost and savings that could result from less wasted effort and materials. The construction industry has always been at the forefront of delivering trusted built outcomes that have met the needs of the community.
It’s time to pivot.
As suggested at the start of this article, there may be the first rays of hope on the housing construction horizon. They will take leadership and early market intervention to nourish. Political and market solutions have failed so far.
About David Chandler AM, B. Build UNSW
David Chandler is a 50 year practitioner in the Australian construction and housing sectors. He has over 30-years’ experience in housing planning, delivery and regulatory reform. He is an advocate of the need to measurably lift construction productivity and quality, to lower costs, while placing public confidence and interests at the forefront of industry strategy. David expressly raises the importance of small and medium sized constructors as a starting point to benefit all.
Over the last 30-years he has led and advised organizations involved in the delivery of green-field, detached and attached housing. He has overseen the planning, procurement and delivery of over 10,000 public and market dwellings. He is a leader in academic initiatives to embrace the modernisation of the Australian construction industry including co-founding Western Sydney University’s Centre for Smart Modern Construction. He has developed unique insights into the strengths and weaknesses of business-as-usual in construction in Australia and the Pacific Rim.
David participated in the reviews of major capital programs like the 2007 BER School Buildings program which reported on the procurement, delivery and value for money issues evidenced during the $13.4bn national 10,000 school buildings program. He was the Construction Director on Australia’s New Parliament House.
David Chandler is acknowledged for his recent leadership of the NSW Building Reform program as the state’s inaugural Building Commissioner. Since completing that appointment, he has returned to his CE Advisory business.
