Smart work

By - , Build 132

The Group Builders Project report for the Productivity Partnership has identified ways the home building industry could be more productive.

MOST HOUSE BUILDERS are not interested in reducing build time, but they are interested in reducing materials and labour costs. The study found specific approaches offer significant opportunities for productivity improvements in house building.

House building business models

The business model employed in the house building sector is important to the profitability of individual house builders and the competitive behaviour of the sector as a whole. Two business models are used in New Zealand – the speculative or spec builder type and the contract builder type.

Spec builder model

Spec builders construct houses in estates on land they either own – a land bank – or have purchased from land developers. The estates are normally more than 10 properties – sometimes hundreds.

Spec builders allow limited product variability in their projects. Clients can specify fixtures and fittings but no structural modifications. This allows economies of scale and skills and technical learning from house to house as the development grows.

Spec builders have to judge how many houses to build so as not to oversupply and depress prices. The balance is a fine one in new areas where local amenities such as schools and shops are not fully established. Therefore, they tend to build only when they have an order, sacrificing customer responsiveness for a minimal overhead.

Contract builder model

Clients provide the land and contract builders' provide the construction and often the design service. This takes a significant amount of risk away from the builder.

Contract builders generally focus on the bespoke end of the construction market where there is greater variability in the product, such as the client personalising a standard house design.

Opportunities for learning from the build process to feed into the next project are consequently limited. The contract build model frequently involves franchise holders delivering the build phase, with centralised marketing, order processing and procurement functions supporting franchisee subcontractors.

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Economic effects

While most builders in New Zealand are either spec builders or contract builders, there are hybrids. Some spec builders build the occasional bespoke project through a subsidiary brand, while some contract builders maintain land banks.

Generally, however, land banks have been wound down since the global financial crisis. At the time of writing, the smart money in house building is leaving land development to land developers.

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Productivity and the market

Productivity in house building can be improved by:

  • reducing overall construction time, cost and total amounts of materials, cost of labour (by forcing down labour rates) and amount of labour hours worked
  • increasing the selling price of a finished house.

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Reducing overall construction time

Reducing a 14-week build period by 1 week equates to a 7% increase in productivity, enabling a builder to significantly increase output during a housing construction boom. However, increasing output without the demand will undercut house prices and leave builders with empty housing stock. It also increases costs and programme risk.

From a client’s point of view, there is limited value moving in to a new property 1 week earlier. When it becomes worthwhile depends on the living and financial conditions of the purchaser and the trading situation of the builder. A simple calculation is the additional cost and risk versus value of additional occupancy time for the customer.

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Reducing material costs

The cost of materials is relatively high in New Zealand because of transportation. The spread-out population reduces economies of scale, and the small population limits potential for materials manufacturing. Timber is often exported to manufacturers overseas who then reimport it as house building products.

Significant savings could accrue if the industry as a whole developed smart logistics solutions to control and reduce the roughly 30% of construction cost that comes from transport.

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Reducing materials

While the physical volume of materials used is largely outside the process of house building, the amount used is increasing due to demands for better thermal performance. To reduce the amount of construction materials, houses must be smaller.

Houses with smaller footprints using common structural elements reduce materials use, increasing productivity.

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Reducing labour costs by reducing rates

The effect of the Christchurch rebuild is now forcing up labour rates as demand in Christchurch takes labour away from other areas. Without effort by industry and government to attract skilled immigrant labour, labour rates will remain high.

Alternatively, new technologies that significantly reduce the skill needed for house construction will have to be explored, for example, introducing prefabrication or, at the extreme end, adopting flat-pack housing that can be assembled by semi or unskilled labour.

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Reducing labour hours

Reducing the total number of hours worked should reduce the cost of a house and increase value added. This could be achieved by transferring assembly operations from labour-intensive modes to machine-intensive systems combining prefabricated components and larger preassembled elements. Preassembled elements would be used for standard elements such as kitchens and bathroom units that could be bolted into place in a standard framework.

A future scenario would be to adopt innovative designs maximising the use of preformed structural panels that can be bolted together by unskilled labour without the need for heavy equipment.

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Formula for productivity

While the business models adopted by house building companies largely dictate their behaviour, there are specific opportunities for house building productivity improvements including:

  • prefabrication to reduce labour input with the use of structural panels and podded standard room systems
  • reducing house sizes by reducing the footprint and room sizes
  • designing common infrastructure elements for multiple houses such as terraced, semi-detached and multiple-storey housing
  • deskilling the building process
  • actively managing the logistics system to reduce transportation costs.

Productivity improvements achieved in these ways should increase profit and business sustainability in the house building sector.

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