Some thoughts ahead of an opening address at the 18th Pacific Rim Real Estate Society Conference, Adelaide 17 January 2012.

Writing on his blog last week, economist and former Gillard adviser Stephen Koukoulas declared that the construction sector in Australia was in recession. This definitive statement has to be put in to some context. While Standard & Poor’s continues to revise the forecast for European economies downward, Australia enjoys a privileged position as a wealthy people in a robust economy. Koukoulas quotes IMF data confirming that Australia ranks a global fifth behind Qatar, Norway, Switzerland and Luxembourg in GDP terms. Australians enjoy a per capita GDP that’s 69% higher than the UK.

In spite of this, there’s uncertainty ahead and some predict the Reserve Bank will ease interest rates at its February meeting which is expected to breathe some life in to Australia’s housing market. But will the easing in monetary policy help to accelerate the change we need in housing, and in the supply chains that we rely on? Maybe, but not at the rate we need.

A scan of emerging housing design and construction practices in around Australia reveals innovation is occurring. But it’s sporadic and yet to be sustained. The best examples show that we can simplify the old complex supply chains, improve worker safety, reduce costs and waste to landfill, while radically cutting construction times. It makes sense that the way we design, plan and build should impact on the way we finance. But does it? If financiers knew that steps could be taken to reduce project risks, wouldn’t they demand these next generation processes? Eventually they will, and prefabrication, digital manufacturing and modular construction will become more common. Until then we need to highlight leaders in the field and encourage industry to move towards the light.

In 2009, the Australian Treasury predicted an Australian population of around 35 million by 2050. Ken Henry described it as one of our biggest challenges since Federation. Not long after, a review of the domestic housing market identified a lack of innovation putting at risk our capacity to accommodate that many. The review concluded we can’t build fast enough, green enough or affordably enough for new entrants in to the market.

Increasingly, both government and private sector are seeking new ways to attract finance for the reform our cities need. But this growing need coincides with a GFC and desperate sovereigns seeking backers  to stave off default. Financing is becoming difficult to obtain at higher cost and with higher levels of pre-sale commitment on residential property. With obvious impact on Australia’s  real estate market.

Compounding the problem, institutional investors are often unaware of project risks inherent in the delivery models, and unaware of the capacity for emerging technologies and practices to significantly reduce this risk.

You’d think the cost of finance would accurately reflect how that risk is managed but from discussions with the lending institutions, it seems there’s more work to do here for those in the built environment. It’s clear we need to introduce the private finance sector to those architects and developers leading the charge in radically redefining what’s possible in time, cost and quality through R&D in design and construction.

 

 

Firms like Unitised Building and Tektum show that contemporary manufacturing practice can produce completed pre-fabricated, modular assemblies in controlled environments, offering a securable asset far earlier in the construction program than traditional site-based construction. No days lost to rain or industrial dispute. Better Occupational Health & Safety, meaning a more attractive workplace to what will become an increasingly thinly spread trade sector. Tektum can erect a well designed home in just 3 days. Unitised Building can start and finish an apartment in just 3 weeks.

Materials like Cross Laminated Timber has reintroduced wood into multi storey construction for more carbon efficient buildings. The panelized system approach is suited to pre-fabrication, with only basic trade skills required. And with its reliance on advanced software systems, we can further reduce risk by simplifying the relationship between a subcontracting supplier (like tapware, tiles, sheet walling etc) and the ‘assembling’ contractor. Add to this the appeal of living surrounded by natural materials, and of “tree-powered urban growth” and it’s hard to see a downside.

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Who needs modular housing?

In a state that’s positioning itself for a mining windfall, well-designed modular housing offers an obvious response to the need for mass housing in regional and remote areas. Pre-fabricated ‘huts’ may cut it for a while but regardless of whether the workforce is fly-in, fly-out or  part of a long term local community, there’s a strong argument for investing in dignified, cost effective and creative housing models to increase worker satisfaction and support family life (often in remote environments).

Prefabricated housing is already common in servicing the needs of South Australia’s farming community on the Eyre Peninsula, and remote housing in the APY lands. Developing systems that are better suited to these rural settings and that could be erected by local communities could power local skills and diversify regional economies.

Finally, having built a supply chain around pre-fabricated, modular assembly we should be better able to offer emergency housing for the Asia Pacific for what seems to be, unfortunately, a growing need. And not just for those offshore. In the aftermath of the Victorian bush fires, the ‘Regrowth pod’ competition sought temporary solutions for those who lost houses.

In any scan of the market leaders, it’s hard to go past the ‘Little Hero’ apartments from architect Nonda Katsalidis. This represents a completely new paradigm for a nation seeking faster, cheaper and greener housing models.

 

Little Hero

On a constrained site near Melbourne’s Bourke Street Mall, 63 apartments were completed in around 20 days by Unitised Building; a construction company started by successful Victorian architect Nonda Katsalidis. Using a custom system developed through self-funded R&D, each apartment was constructed in around 18 days in safe, protected workshop conditions. Completed apartments were inspected by owners off site. Owners were the last to sign off on the completed apartment, and first to enter once installed. Each apartment was installed in just 1.5 hours. It takes a whole half day to ‘plug in’ a whole floor to power from umbilicals tied off outside the apartment. In the process, neighbours were spared the grief of lengthy construction programs along with the noise and inconvenience it brings. Unitised Building estimate their system reduces construction time by 50%, and can result in cost savings of around 20%.

 

 

New finance, new ownership

The need for new financing models, and the procurement reform we all agree is needed goes hand in hand with new models of ownership and tenure. In their work at Griffith University, Dodson and Sipe identified that ‘a longer term, solution to the suburban oil and mortgage vulnerability challenge must reconsider the tenure structure of Australian cities and seek a wider set of stable and secure housing choices for suburban households’. What might this look like? Urbanist, thinker and lapsed Welshman Tim Williams is a strong advocate of the “institutional investment” that’s underpinned quality housing and open space in London. Or consider the co-operative models of housing like Adelaide’s Christie Walk by Ecopolis. 2012 is the International Year of Co-operatives and co-operative housing puts owners back at the centre of the development model – more recently dominated by speculative development. Evidence from Europe shows falling rates of housing ownership with a growing preference for rental as a response to both the cost of housing but also the uncertainty of employment and the value in ‘staying mobile’.

 

So what does the future hold?

The real estate sector is based on the regular turnover of property – in particular, the sale and resale of housing. So too are governments through state based stamp duty and the like. But if this market follows the general trend, we could be trading modular housing components on third party websites like e-bay within a decade. If one response to housing affordability is to build smaller houses for those entering the market, then modularity is its natural partner. If we designed for ‘plug and play’ modularity, homes could grow and shrink according to your stage of life. Buy a bedroom module when children come along. Trade it for a media room when they leave home. Sell it and convert to garden in retirement.

 

Download Tim Horton’s presentation at the 18th Pacific Rim Real Estate Society Conference 2012