Productivity Partnership Newsletter March 2013

FEATURE

HOUSING AFFORDABILITY IN FOCUS

Housing affordability is tied to three key factors:

While the building and construction sector doesn’t have much influence over the availability and price of land and finance, it can help bring the cost of housing down. Moving to a manufacturing approach for new housing in New Zealand will make houses more affordable. This includes simplifying the building process – from design to installation. “It’s about thinking like a manufacturer, instead of a craftsman…knowing the value of time saved in building and being open to new ways of working,” says Productivity Partnership Secretariat Manager Chris Kane.

Several Partnership initiatives are making a positive contribution to housing affordability. The Value Stream Mapping Project – a joint project between the Construction Systems and Evidence Workstreams – is identifying where there is a lot of waste in the construction of residential buildings, in terms of materials, time and money. This knowledge can be used to reduce the time taken to build houses and lower costs. The mapping project flows into the Volume Builders Case Study and is identifying value gains made through mass construction of homes.

The Partnership’s procurement pipeline projects all provide for better balancing of demand and supply of building resources which should help avoid peak demand loading and associated price leveraging. Implementation of the Partnership’s Skills Strategy will enhance project management capability and reduce rework. The Partnership’s work to increase the uptake and interoperability of smart technology – both directly and through the National Technical Standards Committee – will result in productivity gains and significant cost benefits.

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GUEST COMMENTARY

VALUE BUILDER - BRENT METTRICK

FOUNDER AND MANAGING DIRECTOR OF STONEWOOD
HOMES – ONE OF NEW ZEALAND’S LARGEST VOLUME
BUILDERS – FOUNDING MEMBER OF THE PRODUCTIVITY
PARTNERSHIP’S GOVERNANCE GROUP AND NATIONAL
PAST PRESIDENT OF THE REGISTERED MASTER
BUILDERS FEDERATION.

For me, being part of the Partnership is about improving productivity and seeing if we can make the construction industry a better place. That means doing something to try and even out the boom and bust cycle.

Over thirty years in the industry I’ve seen a lot of people go broke when the market dips. Businesses ride high then go into survival mode. The impact of the sector’s volatility hits home when you have to let good people go – then they are lost to the industry.

An example of the cost to the industry is when I was forced to shelve a $400,000 software project in the middle of a downward spiral.

About three years ago being in this industry was like swimming in a river of rocks, rapids and piranhas. The market has improved but we need to turn the river into a beach people want to stay on.

We need to create an environment where the industry is seen as an asset, not a liability. The construction sector creates a lot of jobs and injects a lot of money into New Zealand’s economy – according to a PWC Report, $3 of economic activity is generated for $1 spent on construction. These efforts are often overlooked by economists and the Reserve Bank.

We can build the value of our industry by:

The Productivity Partnership is helping by identifying what levers are needed and where investment is required. It’s an effective forum to drive change, bringing together different parts of the industry. For once, the industry is looking to invest in itself for the good of the industry, rather than the good of individual suppliers.

Housing affordability

The other big concern for me is housing affordability. Affordability is about people getting into a home. The  very first house I built was in Auckland and I sold it for $28,000 to a couple who were earning $171 per week with mortgage repayments of $67 per week. They thought that was steep. When I look at the numbers now, those people were very well off. We need to get back to the days where a home cost four to five times the average annual salary and we’re a long way from that.

Thinking like a manufacturer

Apart from land and finance, I believe the key barriers to housing affordability in New Zealand are:

These can be addressed by:

We need to move to a manufacturing approach for new housing in New Zealand to make houses more affordable. The benefits of standardisation and multiplication haven’t been allowed to flow into the cost of a home to the level they should do.

Housing affordability is a numbers game. It’s about the cost of overheads per house and bricks and sticks per house. If you double your throughput you can halve your overheads, taking up to $20,000 off the cost of a home.

The cost of a house is mainly its external structure. Prefabrication and pre-assembly enable you to build more houses, faster. If you simplify the building process, you remove cost. In Germany a wall will arrive on site with cladding on and window in, with lining on, already gibbed and stopped. That wall will be installed and clipped onto another wall. It’s a very lean manufacturing process.

A workable solution

The Kiwi “norm” of building houses that are tailored to individual customers’ needs – bespoke homes – is highly inefficient and pushes up housing costs. A workable solution would be to segment New Zealand’s residential market into the volume/affordable market and boutique/premium priced bespoke market.

People forget about the end game – the focus has to be on Mr and Mrs Consumer who have to pay the mortgage and how much money they have to live on. We need to be open to new approaches to push the price of housing down. That frees up money in the rest of the economy.

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MEET OUR MINISTERS

MEET OUR MINISTERS

The Productivity Partnership works with the following Ministers who have an active interest in the building and construction sector:

*Also have Ministerial responsibility for housing affordability.

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FEATURE

MAJOR STEP TOWARDS CENTRE OF EXPERTISE – CONSTRUCTION PROCUREMENT

MBIE’s Senior Leadership Team has given the green light to the establishment of a Centre of Expertise - Construction Procurement (CoE) to promote better procurement practice, subject to Cabinet approval and funding. Productivity Partnership Programme Director Peter Cunningham will be involved in the establishment of the CoE with MBIE’s Government Procurement Branch. It will dovetail the Partnership’s extensive procurement work in Auckland and Canterbury.

The Canterbury rebuild has highlighted an immediate need for co-ordinating and sequencing construction projects to deliver what Canterbury needs most, first. Effective allocation of resources, including material and labour, is integral to this.

“The Productivity Partnership has been championing this initiative for some time and it’s exciting to see the concept becoming a reality,” says Peter Cunningham. “While, initially, the Centre will support the management and co-ordination of the Canterbury rebuild, focusing on public sector and then Canterbury construction clients, over time, its sphere of influence and associated benefits will be extended nationally.”

The Centre of Expertise - Construction Procurement aims to provide major construction clients with access to resources to inform better procurement practice and decision-making. Resources could include:

The CoE will also capture learnings from the Canterbury rebuild so they can be applied more widely to accelerate industry reform.

It is expected that improved procurement practice will reduce pressure on the construction process itself, resulting in better long-term outcomes such as improved project management, better design and construction of safer, more resilient buildings, and a shift in focus from upfront costs to delivering better value for money over the life of a building.

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FEATURE

CANTERBURY PROCUREMENT PIPELINE ADVANCED

At its third meeting on 5 March the Canterbury Procurement Forum reviewed the second iteration of the Canterbury Procurement Pipeline and decided how to share the key data it captures. The Canterbury Procurement Pipeline presents a five year forward view of major construction projects planned for the region.

The Forum agreed that the Canterbury Procurement Pipeline will be released at targeted industry events, starting with the 27 March meeting of the Construction Clients Group in Christchurch. A market information session to socialise the Pipeline more widely with all parts of the supply chain in the Canterbury region is also proposed. As well as presenting the forward work programme for the Canterbury rebuild, clients will be invited to talk about their particular projects. The information day will be jointly hosted by the Productivity Partnership, the Ministry of Business, Innovation and Employment and CERA.

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FEATURE

NATIONAL TECHNICAL STANDARDS COMMITTEE GETS SMART

Making sure all your data packets are lined up in a row – is what the National Technical Standards Committee (NTSC) is working towards. This Committee was set up last year by the Productivity Partnership.

It is an important piece in the jigsaw to make GeoBuild a reality and encourage faster uptake of smart technology by the building and construction sector.

The GeoBuild initiative will bring together three individual electronic systems:

The Committee is selecting open industry standards for data for building and location data for all of these systems so that they are interoperable and can be rich sources for data mining. This interoperability is essential for the synergy of GeoBuild to be realised.

"Use of BIM alone is reported as showing up to an 18% increase in productivity in the UK," says the Partnership's Construction Systems Workstream leader and NTSC member Andrew Reding. "The potential productivity gains that could be delivered by GeoBuild are huge. These different technologies exist all over the world but we believe nobody else has put them all together, so this is a first."

NTSC has pan-industry and government membership including representatives from architecture, construction, engineering, city councils, Auckland University, MBIE, LINZ and the Productivity Partnership. It is chaired by Simon Lloyd-Evans who is leading MBIE's GeoBuild project.

NTSC has already delivered a significant piece of work – a recommendation for an information exchange standard (IES) – to inform the development of a national online consenting system. Attention is now focused on producing a handbook on BIM to promote its greater use in building design and construction in New Zealand.

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FEATURE

LOOMING CONSTRUCTION PEAK BOOM

New Zealand can expect a large construction peak soon as the following graph shows.

While that's good news, companies need to act now to ensure the boom is not followed by a significant drop in workload. Planning can help beat the boom and bust cycle that characterises our building and construction sector, according to Productivity Partnership Programme Director Peter Cunningham. "It's easier to make enduring changes in an upswing," says Peter. "When change in demand rises too fast there's a tendency for the industry to go into meltdown mode. That can be avoided."

Several Productivity Partnership tools have been developed to help mitigate the sector's boom and bust cycle. The Auckland and Christchurch Procurement Pipelines provide a forward view of work programmes in their regions, enabling construction firms to sequence and prioritise work accordingly. "When clients see where the upcoming peaks are, they can try different approaches such as using new technologies," says Peter. "It can be a positive catalyst for improving productivity. Workload transparency also enables the supply chain to respond accordingly."

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PEOPLE MOVES

APPOINTMENT

Ian Elliott has taken the Skills Workstream baton from Ruma Karaitiana and is leading implementation of the Partnership's Built Environment Skills Strategy. The Partnership acknowledges the vision and energy with which Ruma drove the Skills Strategy forward. He is now focusing on his role as Chief Executive of the Building and Construction Industry Training Organisation.

Ian has left the Partnership's Governance Group to become leader of the Skills Workstream. See his profile in the last issue of the newsletter.

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