Author: Leonie Freeman

How to stop construction companies going under when they should be busy building

What many people are finding hard to credit is that, while we seem to be on the brink of a house building boom, construction companies are falling over. It’s like striking famine in the midst of plenty. So, what’s going on?

 

Some huge aspirational targets have been set to fix the housing crisis. They include the Kiwibuild target of putting up 100,000 ‘affordable’ houses in the next 10 years (50,000 in Auckland) and Housing New Zealand’s announcement last year of 34,000 new houses for Auckland by 2027.

 

It’s clear that demand far exceeds supply. Kiwibuild registrations in the first month were more than 35,000 people. Shared equity schemes offered by the non-profit Housing Foundation have elicited interest from over 7,500 families. The latest National Pipeline Construction Report estimates that dwelling consents are expected to exceed historic highs, reaching a level of 43,000 in 2023 (a construction value of $26.6 billion).

 

The non-residential sector – which includes hotels, offices, retail outlets and industrial buildings – is forecast to grow to a peak of $8.4 billion in 2019.

 

It just seems incongruous with targets like these that we should be seeing construction companies – big and small, residential and commercial – tipping over.

 

First of all, let’s have a thought for the business owners who have lost their businesses, and all the staff who have lost their jobs. The personal impact on the families who have been impacted and their wider communities is huge.

 

Then, let’s put the blame and shame instinct to one side long enough to appreciate that development is risky and complex – I’ve likened it to a more messy, real-time rubix cube.

 

Sure, property cycles can mean that one development with perfect timing will make significant profit but there are many other developments which barely break even and the media is replete with stories of failed developments and unlucky developers.

 

To achieve a successful development project there are a lot of levers that have to be pulled. And they all need to be pulled at more or less the same time. This demands an unusual skill set.

 

The skills begin with the commercial ‘smarts’ to conceptualise an opportunity where it doesn’t currently exist. Then, they include being able to bring everything together – understanding demand, developing a concept, leading a strong team of professional experts, ensuring that the financials work, masterplanning and consenting, funding deals and the marketing and sales strategy, even before you get to the construction phase.

 

To understand how challenging the whole process is, we need to confront the reality of ‘risk’. Because risk is a key issue for developers and construction companies.

 

  • Development is a long term play – particularly for the larger developments, which span many years, meaning you might be managing through multiple property cycles.
    • Funding can be a challenge for the more complex, long term, large scale projects. It’s a capital-intensive process and the challenge is to secure lines of credit over a long-term time frame.
    • Where do you go for the funding? We saw the collapse of a number of finance companies after the Global Financial crisis. Finance companies were the main source of second-tier development funding. The banks even now aren’t totally filling that gap – which provides another stiff challenge in getting would-be development projects off the ground.
    • Construction projects are tendered, but cost escalations, shortage of materials, lack of capacity within the construction industry all have the potential to impact the successful outcome of a project.
    • There is a rich potential for delays, ranging from consenting and obtaining sufficient sales to advance the build through to weather and unexpected issues such as contamination. All of these factors have the ability to impact the potential feasibility of a development project.
    • In the housing sector prefabrication has been talked about as a key initiative to solve the housing crisis. And it is! However, the reality for those in this sector includes the challenges of meeting compliance and regulatory requirements; consenting delays; financing difficulties and the time and delays in securing large scale government projects has put pressure on this sector.
  • There is also scope here for basic human misjudgement. For example, in a highly competitive market you ‘sharpen your pencil’ and quote a fixed price that doesn’t allow for any reverses over the course of the development and may not produce the sort of margin you need to sustain your business. Winning the tender on this basis becomes a Pyrrhic victory – you win but you lose!

 

Going back to my rubix cube analogy, to successfully put big development projects together, everything needs to come into line. A change in one area of the development process can have an impact on many other parts.

We need to have a rethink on how the market works and look at models that work for all involved and ensure we can produce the outcomes we need.

 We can find answers to the complex web of challenges associated with large scale development. Generally speaking, we won’t find them by reflexively pointing the finger of blame. Let’s be clear, though. I’m not arguing that we shouldn’t point the finger of blame when it can be shown that greed, or fast practice or incompetence are at work. But our priority has to be to produce solutions that will reinforce the confidence developers must have if they’re to commit to the building we desperately need in order to house our people.

I’m convinced that our process has to be based on partnership – meaning everybody in the building and development waka shares ownership of the problems and shares responsibility for coming up with constructive solutions. We’ll start getting somewhere when all the players – government, council, iwi, developers, the community housing sector and the finance community – focus in a common effort to resolve the barriers and blockages that exist.

 

 

“Not afraid to tackle the hard issues.”

Recognition for housing strategist and her plan to solve Auckland’s housing crisis

 

Auckland, 2nd November 2017: Housing strategist, Leonie Freeman, who is driving an independent solution to Auckland’s housing crisis, has been awarded the Kiwi Property Judges Choice Award at the prestigious Property Council New Zealand’s Auckland Property People Awards.

During the awards ceremony, the judges cited Ms Freeman’s win as recognition of her continued dedication and contribution to the property industry. “Working in several roles throughout her career, she has provided strong, strategic thinking to both the private and public sector. Not afraid to tackle the hard issues, her continued commitment to better the industry is to be commended, and makes her a perfect recipient for this award.”

Ms Freeman, who also created the concept of what is now realestate.co.nz, appeared on The AM Show earlier this week, to discuss ‘land banking’ in Auckland. She also highlighted the siloed approach to fixing Auckland’s housing crisis. “Nobody in any individual sector can solve the housing crisis on their own. You have everybody from Government, council, private sector, developers, iwi, the community housing sector and the finance community… somehow we have to find a way to bring them together, to implement a collective housing plan for the city.”

Following the launch of her independent not for profit organisation last year to solve Auckland’s housing crisis using a collective approach, she has attracted increasing interest from key industry players in New Zealand and abroad. In August this year, the first independent Auckland Housing Summit was held. Chief Human Rights Commissioner David Rutherford, was one of the speakers to address the 130 participants.

The Summit marked the first step in a collective call to Aucklanders, to connect and brainstorm the way forward. “There’s no silver bullet on its way, so we’re taking the lead from other countries who have successfully solved similar problems using a ‘collective impact’ model,” says Ms Freeman.

One example is the award winning US based ‘100,000 Homes Campaign,’ a national movement that housed 105,000 homeless Americans over a four year period. This was achieved by the commitment and collaboration of multiple organisations who left any political agenda at the door and pooled resources and expertise.

In New Zealand, the same model was used by The People’s Project in Hamilton. In 2014, a goal was set to end homelessness in the city by 2016. Through the collective action of local and central government, and not for profit organisations, 254 people were housed in just two years with support provided to 311 people seeking housing solutions. Of those housed, 94% remain in their own homes two years later.

Ms Freeman says she is humbled by the award and is thrilled to be able to ‘give back’ via her philanthropic initiative. She is continuing to meet with industry partners as momentum to implement the collective impact solution builds.

“The goal is to establish a new not for profit organisation that would be run in a disciplined and business-like manner. Whilst central and local government would be key stakeholders, the organisation would be neutral, driven by solutions rather than politics.”

Such an organisation would be governed by a group of influential champions to provide clear leadership for the city, says Ms Freeman.

Auckland Housing Crisis – Not Even Half the Number!

We’re in the countdown to the election and the tone of the media coverage reinforces what we’ve been assuming for more than a year – that Auckland’s Housing Crisis would be one of the key issues of the campaign.  So, time to look past the rhetoric and the political promises to focus on what the hard numbers are telling us.

So, what do they tell us about our progress towards solving perhaps the biggest issue facing our city?

Numbers of Houses completed

Statistics produced by Auckland Council show that in the 12 months to June 2017 we completed only 6,827 new houses.

This is far short of the target needed of 14,000 houses each year.  In fact this is not even half the target needed.

How many do we need to build? 

 The Auckland Council’s Unitary Plan published in 2015 assumes that Auckland needs to build an additional 420,000 more homes by 2045.   That equates to 14,000 each year for the 30 year period.  It’s more than a little sobering to recognise that this requires a building rate two and a half times greater than what we’ve actually managed over the past quarter century!

How many homes are we currently consenting?

We regularly hear about consenting numbers and how important they are in the drive to lift our game on housing supply. Fact: In the twelve months to June 2017, 10,364 houses were consented.   However, this just highlights the big gap between the number of consents and the number of homes actually completed. Just to re-state: we built less than 7000 new houses in the past year – we needed to have built twice that number. This is a huge and deeply troubling performance failure.

Consumer’s Warning:  Just because a home is consented, it doesn’t mean that home will actually be built … as we see when we ask the question –

So what next?

 Which leads to a further question: when exactly do we acknowledge that what we are doing isn’t solving our problem and won’t solve our problem?

Surely, it’s way past time to be implementing a different approach. The approach I’ve been advocating is based on genuine partnership. It would see all the players – government, council, iwi, developers, the community housing sector and the finance community single-mindedly focused on  how we get more homes built, and how we make more of them affordable.

Here are some of the headline outcomes I’m confident we could achieve by taking this ‘collective impact’ approach:

  • 420,000 new homes by 2045 with 125,000 built by 2025 – 50% of them classified as ‘affordable’;
  • 3000 more social housing places by end of next year;
  • an end to homelessness in central Auckland by 2022;
  • more and better tenure options for renters and tenants;
  • home ownership levels, which have been falling sharply, to be back up to 65% by 2025 for all Aucklanders.

You’ll find more detail about the tangible targets and how we can achieve them on my website – www.thehomepage.nz.

On 1 August, a group of concerned Aucklanders who want immediate action to fix the housing crisis organised the Auckland Housing Summit.  The Summit called for collective action and innovative thinking, including establishing an independent not for profit organisation, tasked with solving the City’s housing woes. This is a particularly crucial step – but just one of several key actions identified in the first Auckland Housing Summit report.  Further details, including the full report, can be found at our website – aucklandhousingsummit.co.nz

Let’s be clear. This is categorically about more than just talking. Talking’s important but we’ve had a heap of debate and, if anything, we’ve continued to go backwards on finding a fix for the housing crisis. The Summit was focused on getting action and achieving the results our city so desperately needs.  My process is designed to achieve, collaboratively, a long term fix for Auckland’s housing crisis. Which means it zeroes in on getting the houses we need built.  Nothing less will do.