Revenue earning options
BOB M2012 main theme
Building on Alternative Revenue Sources
Keeping afloat in rough seas
The current economic environment is bleak. Predictions of a bounce back have been made for several years, and each year they have come to nothing.
There are new predictions, being reported on mid-December, forecasting a huge bounceback for the industry as the Christchurch rebuild finally gets underway and the remedial work for Leaky Homes increasingly comes into play. Apparently, we will see this as early as the first quarter of 2012, so at least we’ll know early on in the year if it has started.
Even if it’s true and things are picking up, if you’re outside Central Auckland or Christchurch, it may be some time before things pick up in your region.
So with the current and future construction market and job and work opportunities being fickle for a variety of reasons, good business practice requires a review of work opportunity projections and planning at the start of the year.
Let's review some of the alternatives that could be investigated. These include:
1. Leaky buildings repairs
2. Earthquake recovery repairs
3. New houses for earthquake recovery
4. Earthquake-proofing existing buildings
5. Alteration work to existing residents
6. Relocatable homes
7. Repairs and alterations you can do without a Building Consent
Leaky building repairs
The estimates from the July 2009 PriceWaterhouse Coopers report, still being referred to by the Government, were that between 22,000 and 89,000 homes were affected by leaks, with a Government acknowledged forecast of 42,000 dwellings that were likely to be leaky. It is thought that only a minority, around 5,000, have been repaired to date.
Some estimates from specialists in this field put the number of leaky homes at up to 150,000. So the potential for work there is enormous.
As at 30 November 2011 the Department of Building and Housing has received 6677 claims lodged for 9262 properties [flats are counted as individual properties] and have completed assessments for 10,128 properties – although some of these assessments have been withdrawn from the claim process.
Therefore the repair of leaky buildings is still a multi-billion dollar industry (that’s billion – government estimates are $11 billion, the top end of the PWC estimates are $22 billion and then it goes up) and the work potential huge.
However, putting aside the issues of liability and accountability for the problem, it is also an area thwart with the most danger in regards to:
• identifying the exact extent of the work
• getting paid for all the work involved
Why is this such a problem?
Talk to anybody who is involved in the leaky homes situation and they will tell you that until everything associated with the water causing the leak is opened up and totally exposed, the exact extent of the repair work involved is not fully known. Even extensive investigations and reports often don’t fully identify the true nature and extent of the problem and the damage caused.
Liability for insufficiently completed repairs and you are brought into the mess instead of being in there to help sort it out.
The second danger is the requirement in some cases for someone having an almost open ended cheque book to pay for the repairs and the need for the builder to ensure that they regularly get paid.
The type of contract and payment process you have with the client is critical [in most contracts there is an escape clause for any price quoted, relevant to the exact extent of the work involved] as is regular, accurate and honest communications with the client as you expose work and re-evaluate the cost of the repairs – an essential part of best practice.
There are a variety of check sheets, hints and guidance notes relating to leaky buildings under the weather tightness section of the DBH website for both contractors and homeowners. These have been developed from experience and feedback and it would be wise to use such documents as the basis for any work.
Leaky buildings that qualify for a claim under the government’s Weathertight Homes Resolution Services Act 2006 as a stand-alone complex, or various parties in a multiunit complex, is a totally separate situation and a fully structured process is in place to handle this.
There are increasing opportunities for builders to participate in this type of work but as the process has been in operation for several years and has been amended it is more likely to favour those who already have experience in this specialist building role.
You would probably be best to go and work with a company already carrying out this type of work to gain experience rather than just jumping in cold. Production of documentation showing your involvement and experience in this type of work would be a logical business approach if you are investigating the possibility of work through the DBH process.
There is the additional health warning with this type of work in that some fungi which grow within wet wall cavities are toxic. In particular the stachybotrys (pronounced Stacky-bot-rees) mould pro-duces spores which will carry chemical toxins known as mycotoxins. These may cause flu like symp-toms which particularly affect the young, the old and those with weakened immune systems. You need to be alert to this before you start and it is often identified by affecting the inhabitants of the building. Again awareness and identification of the problem, communications with all parties in-volved and are needs of special handling and disposal by those involved in its removal must be all part of your business plan.
Earthquake recovery repairs
An approximate figure of around 100,000 residences is being quoted as requiring repair following the February 22 Christchurch earthquake. In addition to this number, EQC has received about 2000 claims for damage from properties outside Canterbury, mainly in Otago.
As at the end of November 2011, EQC had reached settlements totalling $2.2b and while this money covers both partial and full house damage and contents insurance, it does indicate that money is starting to flow into the construction sector. Most repairs to earthquake damaged residential buildings, however, that are not a replacement for total write-offs are linked to these EQC payouts and the repairs are being handled by the Fletcher Construction controlled earthquake recovery process.
We have commented in previous editions on the structured process of approved builders, tradespersons and material suppliers linked to this repair process. There is no clear statement on what opportunities are currently available but all the relevant application forms etc are still on the website.
So if you are interested go to EQR and make the necessary application.
In simple terms, once you are approved, regular work is available with payment based on realistic but still competitive rates. Unfortunately, the insurance companies seem to be hesitant in providing cover for new homes, so even though there is funding available from banks to rebuild, until insurance cover is in place, the funds are not released. This means that the tsunami of work forecasted for the region has been slow to kick off.
New houses for earthquake recovery
Rough statistics indicate that approximately 10,000 houses have been destroyed as a result of the earthquakes.
However there has been a major exodus and relocation of residents. A fair proportion of these may never return or do not fit the profile of requiring a new replacement house, so the number of replacement homes required will be less than this. Even so this is still an extremely large number of new residences required and a challenge for an industry hit by a major recession to actually have the number of suitably qualified persons who can rebuild Christchurch.
And there are other factors that come into play.
It would seem that human nature of “I know what I like and what I don't like” has an over-riding affect on peoples'' attitudes and actions such. Availability of what people consider as suitable new sites is another limitation, however payouts, or lack of them, by the insurance companies are definitely slowing the recovery.
Insurance companies are also coming under fire for not granting insurance cover for the construction or purchase of new homes because of the uncertainty of the continuation of aftershocks and consequential damage.
The banks, in linking loan approvals to this process, see their investment being uninsured and therefore won’t release the funds, so the rebuild process doesn't get off the ground.
So, while the opportunity for new work is enormous, things are not as rosy in Christchurch as most of us expected things to be.
There is the possibility of spec houses being built, but it may be difficult for a builder financing the costs of a speculative design and build and then seeking a buyer who may well be caught up in finance and insurance wrangles.
Relocating to Christchurch to attempt such a venture just increases the risks that are already linked to speculative work: choosing a suitable location, a saleable house design and managing new subcontractors at the right price to produce a worthy building. And then you have to find a buyer.
Earthquake proofing existing buildings
Several genuine investigative reports have identified the extent of damage caused by chimneys and heavy roofing materials, especially brick and concrete tiles. The Metal Roofing Manufacturers reported “Heavy roof tiles and brick chimneys consistently failed and as they fell they created more damage and danger to anyone below", although it should be noted that modern brickwork held up well.This greater awareness of the consequences of earthquake risks throughout New Zealand has been highlighted even more by the more recent post-earthquake structural reviews that have required an immediate evacuation of some buildings.
So, for the residential market in your area there is an opportunity to offer earthquake risk checks, especially on brick chimneys and their resultant repair, removal or replacement. Tie this in with insulation upgrades, double glazing, installation of a more eco-friendly heating and hot water system and a replacement of that heavy roof with a lighter material and you could set yourself up with a niche market for future work.
For this type of venture you need sound business practices of
• coordination of subcontractors
• clean and safe operation
• realistic costings
• being prepared for the unknown
Launching such a venture would require a proper marketing strategy to target the right customers. Successful completion of two or three lots of work could see word-of-mouth praise and marketing by clients often paving the way for future work. Another flow-on effect of this type of work could see other upgrades and alteration work being required by satisfied clients.
Alteration work to existing residents
Nationally new house-building statistics continue to show a depressed market but there are signs that people are investing in reasonably extensive alteration work and upgrades, especially in Central Auckland.
While this type of alteration work is not as ‘clean’ as a new building it can be a regular source of income or a fill-in between constructing new properties.
There is an increased reliance on the designer’s input to identify the exact nature and extent of the existing building which you are cutting into.
The project management business requirements for alteration work are also often more complex, require more careful planning, especially if the client is living in the existing dwelling. They are usually more intense, with the same number of tradespersons focusing on a smaller area over a shorter period and greater skills are required in integrating subcontractors while maintaining existing services. A situation that arises often is that you there is often some unknown as to what is actually there and the condition of the existing structure may not be of the quality expected.
Three years ago, BRANZ highlighted another huge area of work that will need to be addressed over the next few years.
Houses built between 1940 and 1970 are coming up for major remedial work. BRANZ estimates that currently consented renovation work is about $1.2 billion per year, however they have forecasted, in its Housing Life Cycle and Sustainability report, that this will rise as over 480,000 homes built from
1940 - 1960 now require major improvements.
“About 30,000 houses per year will shortly require major renovation including some wall and roof cladding replacements, and addition of insulation and efficient heating appliances,” says Ian Page, BRANZ Economics Manager.
In addition to the housing stock over 50 years old, another 150,000 homes built in the 1970s will also require upgrades in the near future. Red the full report here
If you go out and target this kind of work, it can provide additional sources of revenue in between new houses and major renovations that may be proving few and far between.
Like design and build spec homes, self-initiated relocatable homes can be constructed on your own site or premises. The aim is to sell the completed building direct to the client, transporting and locating it on the client’s site after developing the foundation and the services.
This has a lot of the same risks associated with design and build noted earlier but reduces the overall capital commitment because you don't need to buy the land. While at first glance you may consider that there are extra costs involved in at least the transportation of the erected building, careful planning and juggling of other work and resources should allow you to construct the actual building more cheaply considering it is in your own yard. You also don't incur daily transport costs to the site.
Second-hand relocatable homes are quite often available and the upgrading or conversion of one of these is another option of providing you work. The usual drawback with this is that you are limited in the range of options you have to start with.
Things you can do without a Building Consent
Piecework requires more work and there’s less efficiency in moving from small job to small job, but these kinds of small projects can provide vital revenue. Coming across them is another job altogether.
Put yourself in the mind of people who need this work. Most people don’t know a builder and so have to seek them out, so you have to make sure your name is out there. Use the various online opportunities – BuildingGuide.co.nz, Yellow, Builders Crack, etc., as people are increasingly going here to find tradespeople. And use more than one – people use different ways to find information, so you need to be in different places. Appropriate hardcopy directory listings can also put your name out there, so pick appropriate vehicles.
Unfortunately, these things can often cost a bit of money, but it’s still necessary. There are sometimes free options with online directories, so spend some time investigating. It’s all about putting your name out and about.
Letterbox fliers can work, too. Often people have small jobs that they put up with because the hassle of finding someone to do the work is more than the irritation of the problem itself. Then if someone arrives in their letterbox with an offer to come through and quote on small jobs, work can actually be generated for yourself. And this can even move into bigger jobs, as word of mouth kicks in.
And make sure you have a website. There are many easy ways of putting your name up on the internet, with photos of projects you have worked on. More and more, consumers will not use anyone unless they have first looked at their website and checked them out. If you don’t have one, then they’ll go to someone who does.