We all envision our dream home, and by choosing to build, you can not only tailor the design to suit your requirements, timeframe and lifestyle but you won't have to worry about missing out on a bid or putting in an offer on a home only to watch it slip away. So with finance in place, your dream home build may be closer than you think.
2022 has seen resilience from those looking to build a new home, but is it justified given the current housing crisis and the desire for freshly constructed homes? In this article, we address some of the most common concerns that we are hearing and how we are combating them. Helping make building your new home a smart, enjoyable and rewarding decision.
Labour Shortages
Even without a global pandemic and supply shortages to contend with, building a bespoke home can come with its challenges. EBOSS 2022 Construction Sector Confidence Report, which polled 1,100 architects and builders throughout New Zealand, showed a sharp fall in confidence, with 59% of builders and 46% of architects expecting the industry to deteriorate.
According to the confidence report 91% of builders cannot get the staff they need to meet the projects in their order book with almost half (45%) running flat out at full capacity to get current builds completed.
If you’re looking to build, having a clear understanding of who is building your home is important. Not all builders are the same, there are different levels of quality, craftsmanship, materials, trades, suppliers, expertise, and knowledge and knowing who is working on your home can be critical to the level of craftsmanship that you are left with at the end of the project
At Location Homes, we have a construction team of 11 builders and all building staff are in house (not contractors). In fact, our senior foreman is a shareholder in Location Homes, and is on-site with his team each day to ensure that the quality is anything less than exceptional. Having our builders on wages also means we can control the quality and timeline of the build and not be reliant on external contractors. Further to this, many of our clients have commented on the friendly nature of our team, including the best and most loyal subcontractors (painters, electricians, plumbers) in Taranaki. It has taken 10+ years to create our build team.
Rising Material Cost
If we were to address the first issue, being supply shortages, then naturally we expect to see the rise of material costs follow suit, and of course all of these shortages will ultimately result in higher costs for home builders. Of recent times the construction industry has felt the pain of raising material cost due to world demand and supply chain being pushed to their limits. Due to labour and supply shortages, the manufacturer is unable to cover every loss, so they transfer the expense to the builder, who then passes it to the customer.
Although the industry has undergone significant change in recent years, Waitara ITM, our primary supply partner in Taranaki, has noticed things are starting to change. According to General Manager Craig Wallace; "We are starting to see supply chains ease up a little and we are also seeing further opportunities open to us to help create further choices for alternative products to ease even further the existing supply chains.” Not only that, we are seeing a flattening of material price inflation. We have a direct partnership and ownership with ITM so we can ensure priority service, we also have a distribution and storage centre where materials are stored and ready to go.
Interest rates on the rise
Low interest rates tend to increase demand for property, driving up prices, while high interest rates generally do the opposite. In 2021 record low interest rates sent inflation soaring above the norm, which in return forced the Reserve Bank to increase the OCR in an attempt to reduce the pressure on the economy by slowing consumer spending and raising interest rates.
The good news is that interest rates should start to dip after inflation is tackled, but in the meantime what does this mean for those looking to get a building loan in the near future? According to property investment company Ops Partners who help everyday New Zealanders become property investors, they “forecast the 1-year fixed mortgage interest rate will go as far as 5.75%, before levelling out to a long-term average of 4.5%.” We have a great relationship with Stephanie Murray mortgage broker and BNZ, who can meet and confirm lending in the first meeting. Having the client, bank and Location Homes in the initial meeting will create trust, rapport and will dramatically reduce lending timeframes. We can also get a preferential supplier interest rate on behalf of our clients.
Decreasing housing market
Even though the New Zealand median home price is declining annually, many are still finding it difficult to afford homes due to tightened lending standards, rising interest rates, and inflation.
Real estate markets are cyclical, and after a time of rapid ascent, they are now slowing. As prices tend to fall more gradually than they rise, and following a period of stability, the market usually picks up steam again and median prices begin to rise. The market cycle is currently in an easing phase. Economist Tony Alexander expects a short term drop of 5% before the market picks back up again, historically house prices have doubled every 10 years. There is no time like the present for property investment, as your debt remains fixed but your overall capital value and equity goes up! Investment in property is also the best curb for inflation, as inflation is far out running your money in the bank.
Further, according to the August 2022 REINZ report, the Taranaki region has seen strong annual growth, up 15.9% from $535,000 to $620,000. Because of the tightening of the lending standards the number of people looking for homes have decreased, meaning that there are less buyers in the market but the ones that are, are strong contenders. The only difference is that the market is seeing more contracts subject to sale or subject to financing are becoming more prevalent.
“Most buyer activity is driven by owner occupiers, with many offers being subject to sale. Agents say a good number of out-of-town buyers are actively looking in the Taranaki market - again, these offers are often subject to the sale of their existing property. Says Jen Baird REINZ CEO
Delayed completion dates
It is more important than ever to have designs decided upon and materials, such as flooring, countertops, fixtures, appliances, etc… chosen before construction gets underway. Long lead times are lessened as a result, and the most accurate estimations are also guaranteed. The builder's ability to predict the project's cost and completion date accurately depends heavily on having all plans finished and choices made prior to the start of construction. Making changes once your build has begun can throw a huge spanner in the works with council consents needing to be re-submitted or material order wait times putting a hold on the project. Good planning and decision making from the start can help you avoid delays and unexpected costs down the line. We have project management software where we can create a construction programme and link key subcontractors and suppliers in, so you know timeframes and move in date. Even during uncertain times our time frames have been accurate to the day, or within a week.
Is now the right time to build?
To summarise, there is never a bad time to build a home, especially if you intend to live in it for a long time.
If you plan to build a new home within the next two years, we recommend starting the design process as soon as possible because it can take 10-18 months from the start of the design process to receiving the keys. Because you are not putting time constraints on the project, you can save time, money, and heartache by planning ahead. Instead of having to do things twice, you have more time to think about things and make the right decisions the first time.
Nothing worthwhile ever comes easily is a great motto for those considering building a new home in today's market. But the end result is undeniably worthwhile, as anyone who has built their dream home with a respectable builder, at least can attest.
As we mentioned above, there is never a bad time to invest in a property, and building a new home is no exception. Our team have been building new homes and investing in property developments for over 16 years and have a wealth of knowledge. If you have any questions about the design and build process or would like to discuss your concerns, our team is here to help. Please contact us right away by clicking on the link below.