House Building 101
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The slow moving trainwreck that is the NZ housing market continues on unabated. Those wanting a first home can’t buy one because those owning many homes keep buying them to rent them out to those wanting to buy a first home but can’t afford them…
Are you keeping up?
I’ve been coming across a number of people throughout NZ in the last couple of months in various stages of not buying but building a home for themselves and I mostly bite my tongue and nod encouragement when they talk about their build and how it is progressing.
I worked in sales in the housing industry for many years, the most recent company I worked for was GJ Gardner Homes, Central Otago. So, I’ve heard every build story there is and I am pretty skilled at biting my tongue. But I don’t work for them anymore so now I don’t have to keep my opinions to myself. But don’t think I’m going to bag GJ Gardner, I’m not, I would build with them tomorrow. Instead I would like to share a few observations about the clients I met along the way.
Kiwi’s are carrying mega amounts of debt and the majority of this is tied up in the house they rent off the bank and the subsequent houses they rent off the bank to rent out to people to get their return to pay back the bank (aka property investment). Actually building a house, instead of buying a ready made one takes both time and money and you can waste thousands of dollars getting it wrong. When it goes wrong invariably the builder gets it in the ear but the one thing I have noticed is ‛failure to plan = plan to fail’ rings incredibly true in the housing industry and a lot of it is client based.
Expensive houses are expensive, cheaper houses are cheaper.
When building a home it should suit your budget, not the other houses in the new subdivision you have chosen to call home. Your lack of money is NOT the problem of the housing company or builder, they are not too expensive, you probably just want too much. Seeing people over stretch themselves financially was constant. They had read far too many house magazines, watched far too many Grand Designs episodes and would create a mega wish list of ‘non negotiables’ and would dig themselves into massive debt to achieve them. More square metres than they needed, extensive tiling, wine room, entertainer's kitchen, mono pitch roof... I have seen people call on every favour they were never owed to scrape together the means to build a house. At the end they did have a house, but not a cent to spare and 30+ years of mortgage payments to look forward to. Watching a couple (generally older) build within their budget (either high or low) was always a far smoother process.
Build within your financial means.
“Forever home” is without doubt one of the dumbest terms I have heard. And people use it all the time to justify going over board. I’m thinking hard here of a person I know who has lived in the same house their entire lives. Apart from The Queen, I’ve come up blank. So, when a person says “I must have this $5,000 light fixture because hey I’m only going to do this once”, they are actually talking rubbish. What they are actually saying is I’m justifying spending beyond my means because what is another $5K when you are spending $500K?
I "want" it and I’m hiding behind the guise of I "need" it.
Lots of detail in your contract with your builder means correct pricing. Detail. Detail. Detail.
If you proceed with a builder without an extremely detailed specification and subsequent fixed price you are asking for Trouble. Your contract should tell you everything from what the toilet roll holder is to whether your guttering has snow straps on it. From how many light switches you have to whether your floor has insulation in it. If you don’t have every detail of your house listed and priced then you don’t know what it is going to cost you and NEWSFLASH nor does your builder.
Focus on the details that lead to the price. Make sure everything is covered.
Doing things yourself, or getting your mates to, rarely saves you money.
If you are a qualified construction supervisor, builder, house painter, electrician or plumber you might be the exception. But if you work a 9-5 job in I.T. and think you can paint your house after hours the following will happen (I am speaking from experience here):
- You will do a crap job
- You will take longer than you realise
- You will hold up other trades on the job
- That paint job will drive you nuts every single day you live in that house.
Getting your friends to do it for you will add complexity you never planned for. When your mate who works a day job as an accountant ALSO has tiling skills approach them with extreme caution. When they turn up late, do an average job, you then discover they are not qualified to sign off their work AND they have their hand out for payment, who do you complain to then? If your builder offered to come and help YOU out at your workplace what would you say?
Builders do this for a living. They want to complete your house as quickly as possible and bugger off to the next one. Leave them to it.
I’m “Building for resale” was a constant phrase I heard. Are you sure?
I was always intrigued as to when they would sell and who to. Don’t build for some fictional family in the future, build it for your needs and budget today. If you don’t like to take a bath, don’t put one in. It will cost you more, you won’t use it anyway AND you have to clean it. If people were so good at building “for resale” then why do we buy an existing house and set about changing it the minute we walk in?
Build for your needs only.
Do your homework, but not too much.
And I don’t mean just watching housing shows on TV. Read brochures, Google stuff and understand how a build progresses and the implications of making changes. Ask questions. But don’t go overboard, you don’t need to know everything, that is what a qualified build team is for. Sometimes a little bit of knowledge in the wrong hands can be the biggest impediment to a build.
Client says to builder…”I watched a Youtube clip on how to install a window and I think you have just done it wrong”. This is usually followed by silence and a long smoko break.
Take an interest, but not too much!
In my time in the industry clients wanted to keep their budget to themselves because they had the mistaken belief that if they told me then the house would miraculously cost that much. Or more annoyingly they themselves didn’t know what they had to spend. I on the other hand HAD to know their budget so we could design accordingly. Otherwise we were just talking in circles and wasting each other's time.
Actually know your own budget and discuss it.
I recall a young couple, recently married, who were embarking on building their “forever home”. They had purchased a heavily mortgaged section, we had designed up the house with all the bells and whistles. Total price for this “dream home” home was about half a million dollars. The bank just needed to see the contract and they were good to go. But the bank declined them. Their deposit was too small, their jobs questionable and the build price too high for their situation. So, what did their mortgage broker do? He advised them to borrow privately off family or whoever they could in an effort to scratch together a bigger deposit that would satisfy the bank. I feckin well kid you not! He was effectively advising them to borrow 100%. I lost a build but THANK GOD they walked away; the best decision they could have made. I felt nothing but relief for them. To get their payments down to any kind of manageable level they would have taken 50 years to pay it off. Plus they would have had to pay back their whanau as well. Banks are in it for the profit and mortgage brokers give questionable advice. Don’t ever forget that.
So, I’m all for building houses. I’ve built one and really enjoyed the process and I look forward to doing it again one day. There is nothing quite like designing and imagining the future home for you and your family and then watching it come to life. People with the means often built the most modest homes by the way as they had nothing to prove. The people with lack of funds were some of the most manic and irrational I encountered, so for those whose decisions all come back to budget you need to get real. If the difference between a toilet that looks fine and functions well and a flash dunny is $1,000 do you really want to work yet another week to pay for it? 50x all of the spending decisions you need to make when designing a home and how many more years do you have to work to pay for it? And remember all the other costs associated with building. Will you pay rent while the build happens? Do you need fencing? A driveway? Landscaping?
By not tying yourself to a mortgage until you die but instead focussing on getting a roof over your head that is affordable, you can take on as little debt as possible or build with the cash you already have. When you write your wish list for your new build at the very very top of the list should be:
- Build a home within my means to house my family. Avoid unnecessary debt.
Every decision you make which has an impact on the build price should refer back to this.
I can’t stress to you enough how good you will feel when that last mortgage payment is made and the freedom you will feel when you own what you have, whether it is a one bed unit or a mansion.
Happy Saving and Building!
PS. I have just been out for a walk with my dog on this stunning Central Otago autumn morning. By chance I went past the section that the young couple I mentioned were looking to build on. With dismay I notice that construction is well under way.
PSS. Gotta mention all the FABULOUS clients that I met along the way as well! Many of whom have become friends.