A land of developers

Most architects see buildings as boutique houses. However, developers construct the vast majority of Australian housing, and, as we shall see, that process fails at every point.

In new suburbia the process is led by land developers, such as Stockland and Lend Lease, who purchase greenfield sites and install infrastructure: roads, water, sewerage, and electricity. Small developers and builders typically purchase the lots and primarily construct 'project homes'.

Large firms, including Mirvac and Meriton, as well as many smaller players, also develop medium- to high-rise apartment buildings. The land is often re-zoned as brownfield or greyfield; designs are created and built by the developer or a contracted builder, traditionally for sale but now for build-to-rent.

The rule of thirds

For both development sizes, the rule of thirds endures, as it has since WWII. Put simply, the value of a final dwelling is based on the cost of the land (one third), cost of construction (another third), and overheads, margin, and, particularly, profit for the rest.

It’s extraordinarily lucrative in Australia, where 8 of the 20 richest Australians derive their wealth from property development, in housing as well as in shopping centres and commercial buildings.

At its heart is a process that is increasingly fragmented and complicated, leading to rising complexity and, particularly, costs. A complete rethink of that process is needed if we are to return to better value-based construction to achieve affordable housing for widespread ownership.

The cost of land

Land speculation is an Aussie lottery. Productive farms at the outskirts are plundered for development, making the grandchildren of the original farmers unqualifiedly rich. Equally, the council can create instant millionaires with rezoning decisions. This can become a potential major source of corruption.

In both cases the government should take a large slice of the created profits by controlling or taxing the unearned income or by creating enterprise zones to reinvest the wealth created. Sadly, they prefer private wealth over public gain. This must change.

Greenfield land costs have risen dramatically, as both a controlled shortage of available land and the demands of local councils to undertake better-quality infrastructure are exacerbating the price of family homes. Demands increase for a speedier, more transparent process.

Design process failures

Architects and engineers traditionally controlled this small but vital part of the overall process, developing designs for statutory approvals. However, the dramatically increased complexity required by councils and, later, certifiers led developers to lose trust in architects as both process managers and designers.

‘Project managers’ then appeared as third parties to oversee the process. Doubts proliferate about their added value, acting as a postbox, undermining design and enacting ‘value engineering’, a disingenuous platitude for cost-cutting, all the while adding their own fees. One original aim of the NSW Building Commissioner was to reinstate architects as overseers, but that’s lapsed, sadly.

Tendering failures

Not all developers are builders. The bigger ones have in-house teams, whilst smaller developers search for a builder through tendering, a process that has long vexed good builders as it becomes a race to the bottom.

The lowest price often means the lowest quality, as corners are cut and, worse, there is a drawn-out process of arguments and variations. Much of the bad name of construction originates from the tendering process. But wait, it gets worse.

Rising costs of labour and materials make those low-value, fixed-price contracts diabolical. Bankruptcy beckoned for over 1000 firms last year. But it is also a loophole enabling builders to avoid their debts and to ‘phoenix’ their builder's licence. We need a regulatory change to prevent phoenixing.

A better approach to avoid tendering is ‘open book costing’. Most tier 1 and 2 builders now refuse to enter a tendering process, preferring to undertake ‘early contractor involvement’ (ECI), where the detailed construction documentation is developed in conjunction with costings in an 'open book’, overseen by qualified quantity surveyors.

Increasingly complex buildings still break down three ways: labour, materials and preliminaries. Quantity surveyors, whose reputations suffered in predicting tenders, are on surer ground when analysing and offering arbitrage in the value of costings in a builder’s open book, being able to establish the true cost of construction.

It gives certainty for finance, reduces disputes, and speeds up the construction process. But it doesn’t satisfy the desire for a lowest-price deal demanded by shoddy developers; they need to be driven from the industry.

Subcontracting failures

Builders, or more accurately contractors, are no longer a single firm with employees. Increasingly complex builds gave rise to the growth of subcontracting and then sub-sub-subcontracting. This was meant to increase quality through specialisation but instead spreads the faults and the risk, making the work site often uncontrollable.

It is impossible for a ‘site manager’ (aka a foreman in old parlance) to ensure the quality of work of so many independent and unrelated entities on site, let alone ensure that the work is undertaken in accordance with the codes and standards. Certifiers inspect the latter issues, not quality.

We should reintroduce the requirement for an independent third-party superintendent on every site, so quality is assured. The extra cost is more than offset by the reduction in inspections by others and the decline in defects and failures, often leading to messy and costly drawn-out litigious arguments.

Defects failures

Every building will have defects; it’s how they are dealt with that counts. That the problems are so widespread and serious that no owner can get insurance against contractor default says a lot about the failures. A legal challenge in court is both expensive and dispiriting and off-putting for many home and apartment purchasers.

Increasingly, contractors are required to carry bonds to prevent the firms being wound up the moment the occupation certificate is issued. That’s a good start, but an increase in bonds is needed to reflect increasing original construction value and cost of repairs. Builders should also be required to have restrictions on their licence so it is not a tradable or phoenixed commodity.

Superintendence could reduce all these faults, but that’s rarely in the process now. On the flip side, a new industry is emerging: ‘defects ambulance chasers’, where building inspectors and lawyers seek outrageous compensation for multiple minor defects, only to pocket the cash, and the defects go unresolved. Not white yet, but needs to be silenced.

Ongoing failures

Every newly built home should have an enforceable contract for maintenance, like a new car warranty that covers all faults and some costs, to ensure that builders undertake continuing quality control. The better builders already do – but it would be one more nail in the coffin of the ‘get-rich-quick dudes’ who disappear.

In houses that’s easily achievable, but in apartments it gets more difficult with the added complication of the strata body. And the bigger the housing development, the more unwieldy the strata. Specialist management firms dealing with complex strata have seen strata costs and levies rise inexorably, sometimes ruinously, for purchasers.

So, the final failure that needs addressing is the strata laws introduced in 1961; they require a complete overhaul as they struggle to deal with building sizes and difficulties unimagined 60 years ago.

The final failures

There’s a lot that needs attention in our favourite sport of development: land values; council regulations and processes; tendering; subcontractor administration and supervision; defect management; and a strata reboot. And people wonder why we have a housing crisis.

‘Housing Australia – Noun + Verb' is a forthcoming book by Tone Wheeler, collecting fifty years of work on philosophy, policies, projects, planning, processes and the practice of housing.

Tone Wheeler

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