There are many reasons our houses are too expensive, and several ways to make them more affordable.

After two years of searching for a suitable plot of land on which to plant themselves, TV producer Jon Bridges and his wife, Gemma, finally found what they had been looking for. They discovered a section for sale in Auckland’s Three Kings, “and we just went ‘wow’”. The land has a sweeping view of the city and, importantly, is not too far from downtown.

“I love to commute by bike but I’m too lazy to commute very far,” says Jon. In August, the couple’s offer was accepted, and they are now finalising plans to build their own home. Because Gemma’s father is an architect, and because the couple have a firm financial footing – they already own a house – building may be less of an ordeal than finding the right section.

“We saw a few sections in Meadowbank and Orakei that were too small, expensive, with a poor outlook or on a bad street,” Jon explains. “We saw plenty of stuff in Hillsborough that was on the shady side of the hill, and in Mt Albert that was way, way too expensive. So when we found this little handkerchief in Three Kings that was affordable, we jumped at it.”

Like many New Zealanders who either need or want to build their own home, the Bridges’s house will be built to their own design. An off-the-rack plan would not have suited their small steep section, says Jon, and anyway, their dream was to design their own place. New Zealand cities are unusual for their preponderance of bespoke, stand-alone homes. In residential construction, we specialise in the one-off, rather than the mass-produced, even though ex-state and railway houses have become popular buys. But according to a draft report on housing affordability recently released by the Productivity Commission, this desire to do it our way helps put New Zealand cities among some of the least affordable places in the world to buy a house.

This ranking hardly comes as a surprise. People who were already homeowners when the housing boom started in 2000 watched their valuations rocket every year until the global financial crisis hit in late 2007. During the boom, those who aspired to own their own home but could not afford one saw prices get further and further out of their reach. Houses almost doubled in price between 2001 and 2007, increasing by an average of about 12% a year. The boom was, as the commission’s report notes, “unprecedented in recent history and one of the longest and steepest since data began”.

The end of the boom has heralded a prolonged period of stable or even falling prices relative to inflation, and also relatively low interest rates, which have ensured that first-home buyers have not been entirely shut out of the market. But many other factors are at play that do not work in Kiwis’ favour. For a start, as the Bridges’s two-year search shows and the commission’s report attests, there is an acute shortage of desirable land to build on in Auckland, which is where the greatest demand for housing exists. As a result, sections tend to be expensive.

James Klein, director of Saltburn, which designs and develops medium-density housing projects, says that on top of the scarcity of infill land in Auckland, the time from when land is identified as suitable for residential use until the first sod is turned can be between two and five years.

“The hold-up is the resource management process. Notified resource consent of a 60-unit development in Auckland typically costs about $200,000, not taking into account holding costs for the land,” he wrote in a submission to the inquiry. The delay can be much longer if the Environment Court is involved, and there is not enough flexibility in planning policies to cater for high-density developments, he claims.

“The majority of Auckland has a density requirement of one unit [dwelling] per 350sq m of land, with the ability to build two levels only. This is incredibly restrictive, and new developments are not financially viable under this scenario. Successful urban developments can achieve a density of 1:100 and 1:150, and this should be allowed across most of Auckland, combined with the ability to build multi levels.”

The draft report by the Productivity Commission, which was established by the Government last year to boost New Zealand’s economic performance across the private and public sectors, is not the first inquiry into such issues. In 2008, a parliamentary select committee also conducted an inquiry into housing affordability. Among its recommendations were that local councils and landowners be encouraged to release more suitable land; that more thought be given to making better use of Maori land; that more models of shared ownership be considered; and that the Building Act and Building Code be reviewed in relation to how they affect consents for new homes.

Economist Murray Sherwin is chairman of the Productivity Commission. A former Deputy Governor of the Reserve Bank, and tipped as a potential replacement for current Governor Alan Bollard, he notes there is a natural tendency to focus on the position of the least-well-off people in society. He acknowledges such people have difficulty in finding acceptable and affordable housing, and suffer from social and health problems as a result. But what might surprise the public is how many people struggle on higher incomes, he says. They also might not realise that half of those who rent receive an accommodation supplement from the Government.

“That’s a big contribution by the state to quite a wide range of families. The extent of support through the public system via income-related rents, the accommodation supplement and the rest is getting close to $3 billion a year.” In the last financial year, the accommodation supplement was paid to 320,000 individuals, at a cost of $1.2 billion. The report suggests that with no fixed cap and with likely pressure in the rental market, the cost of the accommodation supplement could rise to $1.7-2.2 billion a year by 2015.

Sherwin says the first core factor in the housing affordability problem is that New Zealand has high natural population growth by OECD standards as well as episodes of high immigration, “and much of that population-growth pressure is Auckland-focused or upper North Island-focused and that puts real pressure on. The more we looked at it, the more we saw it was an Auckland-and-surrounding-areas story.

“Secondly, we seem to be struggling to bring supply through to meet those increased demands. For a bunch of reasons, we’ve pushed new house construction through to the upper price bracket. Part of that is that the cost of the land is high. Nobody builds cheap houses on expensive land, so we build expensive houses on expensive land, and as a consequence the supply of starter homes is poor.

“We end up with this growing group of ‘intermediate renters’: people with not a bad job and at an age where they’d like to be thinking about buying a house but who just don’t seem to be able to muster the deposit or the earning power to cover the scale of mortgage necessary to move into a house of the sort that they’d like.” What people would like, or expect, to live in has also changed. Sherwin says expectations among even first-time house buyers are much higher than they were for his generation, but that does not mean the shortage of affordable housing is not genuine.

“I have a couple of children in their mid to late twenties looking for houses to buy, and, boy, trying to find much for under $400,000 that you’d want to live in is hard to do. What that means is that the parents who can will assist, and it’s pretty clear also that getting into a house is a big step up on the net-worth ladder over time. If you talk about issues of income distribution and wealth distribution, that’s how it starts.”

For many years, the supply of new houses in New Zealand has been disproportionately at the upper end of the market, while demand has increased at the lower end. And in a related trend, houses are also getting bigger. The average new house in New Zealand is now slightly bigger than its American counterpart, second only to the Australians’, and twice the size of those in many European countries.

In the 1960s, a three-bedroom house was the New Zealand norm; 70% of homes had three bedrooms. But since 2000, new houses are more likely to have four bedrooms than three, and 10% of newly built houses have five bedrooms or more. The counter to the trend has been the growth of multi-unit dwellings, such as smaller inner-city apartments.

In an attempt to meet market needs and to make houses both more affordable and sustainable, there has been quiet but steady growth in the number of com­panies offering a range of fixed-cost housing, where house buyers can choose one of the available plans, or even a prefabricated or finished house, with confidence about the final cost. Some of the well-known larger residential construction companies, such as Lockwood and Keith Hay Homes, have long offered such a service.

Pamela Bell, chief executive of Prefab­NZ, says the industry is now starting to see high-profile architects team up with building companies to create “affordable architecture”. “This has been the social mantra for prefab since 1950 – to get a Keith Hay Homes combining with a high-name architect like Andre Hodgskin [designer of the acclaimed Bachkit and iPAD] and to get a house for $140,000.” Sherwin, for one, likes the idea of good-quality, affordable mass-produced houses. He has lived in the US from time to time and seen big housing estates emerge where a company builds as many as 3000 dwellings.

“Some are stand-alone, a lot are terrace houses, but they do pretty decent quality at very smart pricing. And that’s because they’re doing basically a factory job, rolling them out as modules, putting them together in different ways perhaps. But they’re a standard style, quite spacious, and they can do it because of the efficiency they can get, which you cannot achieve with a single builder doing one house a year.”

This is music to Bell’s ears, as Prefab­NZ is an industry body that aims to promote and support prefabricated housing as a way of improving the quality and efficiency of house-building. It is far from a new idea, she says. “We’ve been doing prefab buildings since Europeans first came to New Zealand. Even the Treaty House was pre-cut in Sydney and shipped over, and we exported prefab houses to California in the gold-rush era”. She says the main advantage is not economy but quality, and the main disadvantage is perception.

“People think prefabrication means cheap, flimsy and temporary. It goes back to the school prefabs, so the challenge is to help communicate the new or next generation version of prefab, which is all about the digital age and being high-quality, architect-designed and sustainable.”

Change is overdue, she reckons. “The design and construction industry can’t afford to continue building at twice the time frame and twice the budget and to lose customers who never want to go through the building process again. Lots of people who build a house get into great strife and have to sell as soon as it’s finished or before it’s finished, and along the way their marriage breaks up. It’s not right.” She says anyone who has watched the popular TV show Grand Designs and seen whole walls or modules roll out of German factories featuring precision engineering and minimal waste has glimpsed what is possible with prefabrication.

“As soon as you use computer-­controlled cutters, you have to be under a roof, so that’s where everything’s going. New Zealand has a great legacy in small prefabricated components, and in the house on the back of the truck, but the panels and modules that we’re seeing in Australia, Germany and the US and on Grand Designs are what we can move towards. The industry can explore those options as a way of improving the quality of construction, and reducing the chance of remedial work.

“We’re a small country but we need to be a lot more connected in terms of digital communication tools. BIM – building information modelling – is about everyone being on the same computer files, so the engineers, architect, contractors and the guy in the shop folding the flashing for the windows are all using the same set of drawings, so communication should be clearer, instead of everyone replicating their own drawings, which is what happens currently. Every program is slightly different, but what they are moving towards is modelling in three dimensions, so you’re not just drawing a line but a three-dimensional wall, giving it a height and a volume.”

She says greater use of prefabrication could also mean a more efficient use of the workforce. The nature of the construction industry has also been blamed for New Zealand having expensive houses. As Fletcher Building said in its submission to the Productivity Commission’s inquiry, “New Zealand’s residential construction industry is often characterised as a cottage industry.”

According to the commission, the industry is indeed dominated by very small independent builders constructing bespoke homes. Sole traders are the most common-sized businesses in our building industry, and just 9% of total employment in the sector is made up of businesses employing 20 or more. Moreover, productivity is low: most firms built just one house in the year to May 2010, and only five built more than 100 homes.

A report prepared for the Construction Strategy Group by PricewaterhouseCoopers last August said, “Among businesses that are usually assumed to be larger, construction businesses tend to be the smallest. This helps explain the sector’s low productivity, as there is not the breadth or depth of finances to invest in capital or human resource development.”

That report also said with an average wage of $23.60 an hour in the year to December 2010, construction workers received the fourth-lowest hourly earnings of all sectors in New Zealand, after accommodation and food, retail, and “arts recreation and other services”. One of the implications of low wages and relatively low qualifications, the report says, is that in a downturn, workers more easily move on to other unskilled jobs, or to Australia.

Bell says prefabrication could make better use of the workforce. Small construction firms are already using pre-nailed roof trusses and wall frames, and if they could also get them pre-clad with internal and plasterboard linings, and use external cladding straight from the factory, enormous potential gains in efficiency could be made. Actual savings using prefab methods are difficult to estimate, especially if one house is being built at a time, but comparisons become more valid on a commercial scale.

“For example, for the University of Auckland student accommodation tower finished last year, Stanley Modular took 468 bedroom modules from Matamata, where they were made, to Auckland. They saved something like nine months on the schedule and however many millions of dollars. So, where you have repetition of units, and that economy of scale, you can achieve really good cost savings.

“There are also sustainability aspects. If you’re doing your joints under cover in a factory, they’re going to be more weather­proof, so you’re going to have a tighter envelope, less air leakage and, ultimately, lower heating bills. It is important to get people thinking about those lifetime costs of their homes and not just set-up costs, because in New Zealand we’re notorious for going for a low start-up cost and then expensive running costs.

“Of course, for someone to invest more at the start, they’ll want to know that the next buyer understands that value – to know that they’ve put that extra insulation in the wall, etc, so we are starting to get tools, like the New Zealand Green Building Council’s Homestar residential rating tool, to help communicate that.” Bell says the size of the average house has started to reduce in Australia and the US and she hopes the same happens here.

“There is now, and always has been in the architectural community, a lot of interest in compact houses and being clever, rather than the awful American McMansion thing. It’s a real bugbear in the prefab industry and in the architectural profession that our housing and commercial property market relies on cost per square metre. Often your construction is cheaper if it’s a larger area, but it’s not necessarily a better quality, so size is not an indication of the design quality, or the quality of the build. It’s a terrible comparison. Even a volume message rather than simply square metres would be better.”

Rod Gibson, designer of the Habode, says people seem to think their home needs to expand as their children grow, “but that reason becomes short-lived when suddenly the children become adults and leave the nest. An overcapitalised home is not an investment. It requires constant annual maintenance that if not kept up results in a massive outlay 10 years later.” The key to affordable housing is beginning with a view of what you need, rather than what you want, he says. “Most people build homes that are far in excess of what they really need.”

Back in Three Kings, Jon and Gemma Bridges are very conscious that in the post-boom era they cannot rely on capital gains from their planned home, and do not want to spend more than it will be worth. They are also hoping to choose a builder offering a fixed price. “We’re in the quiet period right now waiting for consent and plans, but all of a sudden it will be full-on spending money and that’s the scary part,” says Jon. “Everything that we do will be spending thousands and thousands and thousands of dollars.”

Fortunately, he will still have his bike for commuting.

Hive, a Home Innovation expo of architect-designed prefab houses, runs from March 24-25 at Canterbury Agricultural Park.

Prefabulous houses

The fixed-price Habode prefabricated house designed in New Zealand is finding markets around the world.

Sick of hearing stories about building projects that blew their budgets and missed their deadlines, Rod Gibson decided in 2000 to design his own prefabricated holiday home in Wellington, then ship it on the back of a truck for assembling on-site in Central Otago. Almost everyone has constraints when designing a house – usually financial or to do with the site, or both – but for Gibson the most significant factor was that when it was folded down on the truck, it could be no wider than the narrow, single-lane Awatere Bridge south of Seddon.

Gibson, who started out as a graphic designer and has “always built things”, found the 28sq m confines of an ordinary shipping container too restrictive for the size of house he wanted to build. On the other hand, he did not want the truck carry­ing the house to be classified as a wide load, requiring a pilot vehicle and other restrictions.

“I worked through the process of making the house bigger but free to go on the open road. I looked at the best way of using space, knowing that people around the world live on boats or in small spaces. I asked how big does a bathroom actually have to be, how big does a kitchen need to be?

“So, the living room is the biggest part, with bedrooms becoming secondary spaces and fundamentals become tertiary in terms of allocating space within the structure, and that’s how I came up with the Habode.”

The original prototype went 100% over budget “and instead of building a house that was economic to ship, it became more expensive than it should have, so the solution hadn’t been found”. But Gibson kept at it, making a 1:32 scale model by hand, then a 1:10 model to work out how it would all fit together. “But even then, you don’t find out things until you build them.”

At about that time, the idea of the house changed from a personal project to a commercial venture. Gibson was sure there would be a market for a contemporary-looking, strong, durable, well-insulated house that was low-maintenance (the Habode never needs painting) and could be delivered and quickly assembled almost anywhere in New Zealand for a fixed cost. About eight years ago, he moved production of the Habode to China, where the houses are now made in a factory in Guangdong. The decision to manufacture offshore was not necessarily about cheap labour, he says.

“It’s about the ability to upscale your business when you want it to go from one [house] a year to 10 a year, then 20, etc. If you did it locally, you’d spend another $100,000 more than you do now to manufacture it. We can’t build just one and get economic efficiency. We have to build four, eight or 12 at a time and we don’t have that scalability here in New Zealand.

“Also, if you were selling into Europe or the United States, which we haven’t done yet, New Zealand is not the place to export from. It costs as much to ship something from New Zealand to Australia as it does from Hong Kong to London.” So far, the company has built nearly 300 houses – both Habodes and another variation, most of them in Australia. Some have been used as commercial premises, some as holiday homes, but most as permanent residences.

The Habode costs $145,000, which includes full assembly. Finished, it is 80sq m and can be configured with either two or three bedrooms. “If we have one in stock, you put your building consent application in and within 14 days of getting approval we could have a house ready for you to live in.”

In addition to the house price, there is the cost of piles, drainage and stormwater, which ranges from $5000-15,000 on a section that already has services, and costs more for a section that requires a septic tank and rainwater run-off. The piles usually vary only in length, depending on the slope of the site and type of subsoil. The Habode has a “multiproof” from the Department of Building and Housing, which means code compliance is essentially guaranteed when an approved structure is repeated identically.

“It’s like when the first new model Toyota comes into the country and gets approved by the NZTA if it meets all the required New Zealand standards, then every subsequent Toyota of that model does not have to go through the same process,” Gibson explains. He says the effect is that when someone applies for a building consent for a Habode, the local council needs to check only the piles, drainage and stormwater.

He says one of the key points of a Habode, yet also something New Zealanders seem to struggle with, is using a design that already exists. Why is it, he asks, that people are happy buying everything else off the shelf, trusting the designers who made their cars and appliances and knowing that someone else has already tested the design, yet they want a customised house?

“People don’t ask the car dealer to change the number of doors, adjust the head room or install a larger engine. They buy what has already been carefully thought out by a team of professionals. Custom-designed homes are a luxury that the average homeowner should steer well away from. The big thing with our buildings is that what you see in the showroom is what you get, and you get it for the price we say you’ll get it for.”

More information at www.habode.com.