An Uber for apartments could solve some common housing problems

Bringing together buyers and sellers of apartments could result in better apartment pricing and design. CucombreLibre/Flickr, CC BY

Andrea Sharam, Swinburne University of Technology and Lyndall Bryant, Queensland University of Technology

Speculative property developers, criticised for building dog boxes and the slums of tomorrow, are generally hated by urban planners and the public alike. But the doors of state governments are seemingly always open to developers and their lobbyists.

Politicians find it hard to say no to the demands of the development industry for concessions because of the contribution housing construction makes to the economic bottom line and because there is a need for well located housing. New supply is also seen as a solution to declining housing affordability.

Classical economic theory however is too simplistic for housing supply. Instead, an offshoot of Game Theory – Market Design – not only offers greater insight into apartment supply but also can simultaneously address price, design and quality issues.

New research reveals the most significant risk in residential development is settlement risk – when buyers fail to proceed with their purchase despite there being a pre-sale contract. At the point of settlement, the developer has expended all the project funds only to see forecast revenue evaporate. While new buyers may be found, this process is likely to strip the profitability out of the project. As the global financial crisis exposed, buyers are inclined to walk if property values slide.

This settlement problem reflects a poor legal mechanism (the pre-sale contract), and a lack of incentive for truthfulness. A second problem is the search costs of finding buyers. At around 10% of project costs, pre-sales are more expensive to developers than finance. This is where Market Design comes in.

Matching buyers and sellers

Market Design argues individuals will cooperate where there is an advantage in doing so. This is the premise of the “sharing economy”. Much of the innovation in the sharing economy also reflects another insight of Market Design; that markets can be constructed in different ways to serve different purposes.

Our interest here is in two-sided matching markets, which is a common design for e-commerce. Buyers are aggregated on one side of the market and sellers on the other with a market manager. Think Airbnb or Uber. Aggregating potential buyers of apartments would resolve the issue of searching for presales: taking the process from looking for needles in the haystack to shooting fish in a barrel.

Both buyers and developers would need to be registered participants, and the market manager would be responsible for recruiting participants and matching development opportunities to buyers. Pre-identification of buyers would avoid much of the cost of pre-sales and search time.

In addition there could be real-time communication and customer segmentation that permitted developers to take account of the actual expressed preferences of the buyers. An expanded apartment product range and cost reduction should make apartments more attractive to owner-occupiers, reducing settlement risk. The same can be said of having more owner-occupiers and fewer investors.

Pre-sales are one of the most expensive and riskiest elements of property development.
Dean Lewins/AAP

Keeping developers honest

However, as one financier (who agreed to be interviewed but not identified) rightly noted, developers can be expected to pocket the savings. Residential development is oligopolistic so there needs to be a source of competition to put pressure on prices, and who better than consumers themselves?

DIY apartment developers, what we call “deliberative” developers, now comprise 10% of all new housing in Berlin, and it has taken off in Europe. Deliberative developers make cost savings in the order or 25-30% and get the type and high quality product they want. Financing constraints have meant deliberative development in Australia has been the preserve of the well heeled, but support from impact investors for example, would enable ordinary households access to such self-help schemes.

One further change however is required. Planning schemes need to impose density restrictions (in the form of height limits, floor space ratios or bedroom quotas) in urban localities where housing demand and land values are high in order to dampen speculation and de-risk development by creating certainty.

Building a model that encourages owner-occupiers

The existing development model relies on capturing uplift in site value, and suits investors (incentivised by tax concessions) seeking rental yields in the short term and capital gains in the longer term. The price of land in the vicinity of redevelopment sites is then pushed up as landholders’ expectation of future yield is raised. It is a vicious circle in which developers seek to compensate for these higher prices through increased dwelling yields, smaller apartments and reduced amenity, further alienating would be owner-occupiers from the market.

However restrictions on over-development of larger infill sites needs to be offset by permitting intensification of “greyfield” suburbs. Aggregating existing housing lots to enable precinct regeneration, and moderate height and density increases would permit better use of airspace, delivering housing designs that can optimise land use while retaining amenity.

Redesigning the market and supporting deliberative development are the keys to achieving good, affordable apartments.

The Conversation

Andrea Sharam, Research Fellow housing & homelessness, Swinburne University of Technology and Lyndall Bryant, Lecturer in Property Economics, Queensland University of Technology

This article was originally published on The Conversation. Read the original article.

Prefab revolution? Factory houses are the secret to green building

A green, pre-fab house. Karen Manley, Author provided.

Karen Manley, Queensland University of Technology

The building sector globally currently consumes more energy (34%) than the transport sector (27%) or the industry sector (28%). It is also the biggest polluter, with the biggest potential for significant cuts to greenhouse gas emissions compared to other sectors, at no cost.

Buildings offer an easily accessible and highly cost-effective opportunity to reach energy targets. A green building is one that minimises energy use during design, construction, operation and demolition.

The need to reduce energy use during the operation of buildings is now commonly accepted around the world. Changing behaviour could result in a 50% reduction in energy use by 2050.

Such savings are strongly influenced by the quality of buildings. Passive buildings are ultra-low energy buildings in which the need for mechanical cooling, heating or ventilation can be eliminated.

Modular or prefabricated green buildings, designed and constructed in factories using precision technologies, can help achieve these standards. These buildings are higher quality and more sustainable than buildings constructed on-site through manual labour. They are potentially twice as efficient compared to on-site building.

However, despite support for modular houses, there are a number of hurdles in the way of a prefab revolution.

How green can modular buildings be?

Factory production means modular green buildings are better sealed against draughts, which in conventional buildings can account for 15-25% of winter heat loss.

And factories also have better quality control systems, leading to improved insulation placement and better energy efficiency. Good insulation cuts energy bills by up to half compared to uninsulated buildings.

Because production in a factory setting is on-going, rather than based on individual on-site projects, there is more scope for R&D. This improves the performance of buildings, including making them more resilient to natural disasters.

For example, factory built houses in Japan have performed very well during earthquakes, with key manufacturers reporting that none of their houses were destroyed by the 1995 Hanshin Great Earthquake, as opposed to the destruction of many site-built houses.

Buildings constructed on site probably can’t achieve the same benefits as modular buildings. Case studies in the UK show savings of 10% to 15% in building costs and a 40% reduction in transport for factory compared to on-site production. Factories also don’t lose time due to bad weather and have better waste recycling systems.

Sorting waste at Sekisui House Ltd Recycling Centre
Karen Manley

For instance, Sekisui House, a Japanese builder, has a system for all their construction sites where waste is sorted into 27 categories on-site and 80 categories in their recycling centre to get the best value from the resources.

On-site building is open to the weather. This prevents access to the precision technologies required to produce buildings to the highest environmental standards. These technologies include numerical controlled machinery, robotic assembly, building information models, rapid prototyping, assembly lines, test systems, fixing systems, lean construction and enterprise resource planning systems.

For example, numerical controlled machinery provides more precise machine cutting that can’t be matched by manual efforts. This, combined with modelling, fixing and testing systems helps ensure that factories produce more airtight buildings, compared to on-site production, reducing energy leakage.

High-Tech Factory, Shizuoka, Sekisui House Ltd.
Karen Manley, Author provided

Australia is behind the curve

Less than 5% of new detached residential buildings in Australia are modular green buildings.

In leading countries such as Sweden the rate is 84%.

In Japan, 15% of all their residential buildings are modular green buildings produced in the world’s most technologically advanced factories.

Globally, there is a trend toward increased market penetration of green modular buildings. Yet their adoption in the Australian building sector has been slower than expected.

Constructing houses on site is less sustainable
Grand Canyon National Park/Flickr, CC BY

However, we can still catch up. The latest evidence suggests that strengthening building codes and providing better enforcement is the most cost effective path towards more sustainable housing.

Australia doesn’t have a great record here. Our building codes could be better focused, stricter, and certainly our enforcement could be a lot better.

Building for the future

As the biggest polluter and a high energy user, the building sector urgently needs to reform for climate change mitigation.

There are serious legacy issues. Mistakes we made in the past endure throughout the life of buildings. Building decisions we make today can be very costly to reverse, and buildings last for decades! In Australia, a timber building is likely to last at least 58 years, and a brick building at least 88 years.

Currently, potential building owners are funnelled toward on-site construction processes, despite the clearly documented benefits of factory-based production. This is reflected in the low profile given to modular housing in the National Construction Code and a lack of aggressive and well enforced environmental standards. We clearly need better policy to support the modular green building industry.

The Conversation

Karen Manley is A/Professor of Construction Management at Queensland University of Technology.

This article was originally published on The Conversation.
Read the original article.