Construction and property entrepreneur Shane Brealey is the managing director of Simplicity Living, and his firm is partnering with the Simplicity KiwiSaver fund to create affordable long-term rental properties.
The aim is to develop 10,000 long properties that Simplicity Living will fund, build, own and manage.
The construction and housing sector has got itself into a mess through over complicating things and not having a production system mindset, Brearley tells Kathryn Ryan.
Photo: NZ Living, Shane Brealey
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He says it is a meeting of finance and know-how that will make scaling up the venture possible.
“The base principle is that the world is awash with capital, trying to find a good home. And there are a lot of people that can't find dry, warm, safe, secure tenured housing.
So, between Simplicity, the KiwiSaver provider, and our company, we're coming together to hopefully provide a solution that works for both of those sides of the equation.”
The company is currently building 270 homes for first home buyers a year, but wants to make a bigger impact, he says.
“You can't solve a housing crisis until you can provide serious scale, make a dent in it. So along came Simplicity, we were like minded and we combined energies.”
The two organisations coming together makes sense, he says.
“When you're able to build, design and build very efficiently. You've got two major parties that can benefit from the efficiencies that come from that.
“At the moment Simplicity have around 125,000 kiwisavers in their scheme, and if we can deliver these 10,000 homes that we plan to as the start, there'll be 25000 people living in those in those homes.
“So, with the efficiencies that we will have in our system without the complexity, there are two groups; there are the kiwisavers trying to get a better than average return on their investment so they can save and get ahead. And there are the people that are living in the accommodation which we are aiming to provide a more affordable rent.”
He believes their system will deliver quality housing that can be offered at reasonable rents.
“If you look at the fundamentals of creating a medium density, housing complex, typically there'd be a 20 percent development margin, six to seven percent builder margin, and a whole lot of inefficiencies in the way that that asset is delivered.
“We're on a bit of a journey here, exploring how best we make use of the efficiencies that our approach will invariably have, they'll be in the order of 30 to 40 percent less than the traditionally delivered, build-to-sell product.
“We've got these two levers we can pull, we can increase the returns to the kiwisavers in the Simplicity scheme. And we can reduce the rents … what they actually end up being, we're still on that journey to determine.”
Much of the efficiencies, Brearley says, will come from cutting out complexity.
“Our industry is just in the practice of creating prototypes, there is so much complexity in everything that we do. Every design starts from a fresh sheet of paper. And we just create these very complex buildings to build.
And where there's uncertainty, there is risk and there is added cost.”
Their approach is more akin to car manufacture, he says.
“There's a lot of off-site prefabrication. And then we use our site as our on-site assembly platform. When you've got a good solution, you lock it in and then you repeat it.
“Standard components can be assembled in many various ways. Each project doesn't look the same as the other, but they all have the same high-quality materials, concrete, brick work, low maintenance and long life.”
Because of the funding model there won’t be additional borrowing costs, he says
“I'm an engineer by training and I love the concept of a perfect machine with no frictional losses. So, the people who are living in the homes and the people who are invested in the KiwiSaver are directly connected, and there are no frictional losses or margins on margins being taken out.
“So those are the two parties that that benefit and very few others.”
The properties will be managed in-house, he says.
“We're going to be completely vertically integrated - our customers in the KiwiSaver scheme, our customers in our homes.
“We'll carry the Simplicity brand across everything that we do so we are highly exposed to reputational damage, if we get any part of that wrong. So we're going to stay front and centre and be completely vertically integrated across design, construction, property management, resident management and funding.”
The company will own the properties long term, he says.
These things are built to last 100 years; concrete, steel, brick. So yeah, we intend to own these for a very long time.”
The production process will use pre-fabrication but onsite more than offsite, he says.
“That offsite manufacturing approach is very capital intensive, you need a consistent flow of work.
“We're on site manufacturing, we're assembling standard components, bringing them to site and assembling them in their various combinations very efficiently.”
Each development will have around 100 properties, he says. The plan is to start in Auckland then move on to Tauranga and Wellington.