Housing: trouble at mill for the fledging prefab industry
Tina Perinotto | 9 February 2017
The failure of one of the older companies in the prefab housing business last month was a sign that all can’t be expected to go smoothly when it comes to breakthrough technology promising to disrupt the housing market.
A note now on the Tektum Ltd website says:
Bruce Gleeson of Jones Partners Insolvency & Business Recovery notes was on 12 January appointed Voluntary Administrator of Tektum Ltd also trading as: Live in Tomorrow, Total Housing Solutions, House2.0 and Tektum Future Housing Solutions.
The company was founded 2010 by Nicolas Perren and David Hartigan.
In our story here, we outline some of the unexpected financing difficulties that some people have encountered in building prefab.
Some banks, it seems, don’t recognise they’ve got a housing asset to lend against it until they … actually have a housing asset. By that, we gather, they mean that they don’t view a piece of land with a part-built house in the factory as an asset to lend against.
That’s not always the case.
CommBank in WA, our article finds, is the “number one financier in the state” for prefab.
In the bankers’ eyes a huge weight attaches to the quality of the builder and its payment terms.
Strongbuild director Adam Strong, for instance, says his clients don’t report difficulties with finance.
Though lending difficulties may not be what undid Tektum, co-founded by Nicholas Perren and David Hartigan in 2010.
In fact, we don’t know what the tipping points were since the administrators haven’t returned calls.
What we do know is that it’s possible to trade out of voluntary administration, though rare.
But despite this failure and some private warnings that it may not be the last such company to come unstuck, industry observers says the fledging prefabricated building industry is exciting and has massive potential.
According to industry observer David Chandler, who has investigated the building industry and made an extensive submission to the Senate inquiry on non-conforming building products, bigger companies such as Strongbuild and Hickory know how to produce good quality prefab buildings. Another is Sekisui House, which he says has broken through early hiccups to do quite a good job with its Shawood range.
There’s even a company that, believe it or not, builds prefabricated bridges – quite handy with all those ageing structures in flood prone areas of the bush (which might soon be pretty much most places in these days of wild and wilder weather).
And there is M-lex, a modular turnkey electrical solution, with all the wiring and switches embedded in the panelling, so the builder can just plug and play. The sparky just has to come at the end and flick the switch.
Warren McGregor, who is CEO for PrefabAus, would not comment on the failure of Tektum but points to an industry in its infancy. Obviously there are going to be teething issues, he says.
Members of his organisation come from a range of sources, from building to manufacturing.
Some of the problems can come from the transition between one industry to another, he says. Those from building are used to pulling a team together for a project and then disbanding it. In a factory, however, some people can get caught with overheads that don’t disappear like the old team did.
There are also aesthetic drawbacks in the views of some people. McGregor is organising a trip to Sweden in May to look at how the Swedes have nailed the design issue, so much so that prefab looks like every other type of building.
They’ve evolved, McGregor says, “to the point where they’re not just delivering boxes but panel systems so the designs are more flexible and you’re not constrained by being able to fit hem on the back of a truck.”
This means some of the prefab ends up with ceilings that might be lower than some people want.
Prefab building panels can be any size and shape, meaning you can achieve a more bespoke look.
Problems with site construction
Chandler is a busy man. He’s often asked to look at projects and when he agrees he insists on starting at the bottom, not with the lovely kitchen benchtops.
Some builders cut corners and he will happily tell you horror stories in private of the buildings he’s seen with footings that don’t quite meet the bits that are meant to slot into them.
It’s a bit late to make alterations when the whole house has arrived on the back of a truck and the crane is hovering close by racking up ridiculous dollars per hour, he says.
The Dodgy Brothers Builders, it seems, didn’t get the message that they should stay out of the prefab industry and stick to unsuspecting mums and dads in the burbs.
So pick your builder carefully, is the message.
Other issues beyond the structure relates to contracts. Chandler warned to pay particular attention to the contract. Who carries the ultimate responsibility for a project that goes wrong?
You need a “builder of record”.
“But the builder of record becomes a wood duck because they end up exposing themselves” to the other suppliers on the job, he says.
A good builder of record is only exposed to the client for the work the builder of record does. The client is exposed to the work that the prefabricator does, Chandler says.
These are fledgling issues that can be overcome.
A tougher adjustment period could come, Chandler says.
The hot property market has pushed up building prices from around $2500 a square metre to $3500 and sometimes $4000 a sq m.
“That’s made a lot of prefab business models viable,” he says.
But when the “needle” settles back down to $3000, there could be trouble for some who have predicated their business models on higher prices.
Global growth – Insurers will be key
Chandler says it’s only a matter of time before the entire building industry globally is transformed and everyone can be protected from poor building practices, something that will assist the prefab industry.
In the UK, Chandler says, the massive Lloyds insurance group has swung behind the prefab industry to work out how to become a kind of certifier.
When you think about it, this makes sense because it is, or should be, the insurer that can manage risk. In this case Lloyds is working on how to certify all components for prefab, whether produced locally or abroad, using systems that will help smooth the way for easier finance for builders and home owners.
Key will be the emerging technologies of Blockchain and crypto-currencies, Chandler says.
These will enable the tracking of components from overseas locations. So you can stand on the shipping docks with your scanner and check that all materials and products have actually arrived. But are they okay, or are they dodgy?
Chandler says the RFID or barcode technology will merge with Blockchain to encrypt all the certification that an insurer needs, to the standards they require, at point of departure.
So presto: no more danger that you, the home owner, will be swindled with the single biggest purchase you’ll ever make, only to be ignored by every government agency in the land while dodgy builders vanish, insurance likewise disappears and you feel yourself slipping into the nether region of invisibility, just like the folks who diddled you.
Lloyds Insurance certainly think it’s worth the trouble: as far as it’s concerned the building industry could be worth $15 trillion industry by 2025 (though we don’t know if that includes rebuilding after storm damage from global warming).
“In years to come you will be sitting with your grandchildren and telling them about home warranty insurance, which was not worth a pinch of shit, and they won’t believe such a thing existed,” Chandler says.
David Chandler’s submission to the Senate inquiry is number 85 and is publicly available.