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John Dalzell

Managing Director, Silk Road Management Limited

John Dalzell: Modular construction at scale can help solve NZ housing affordability

A key speaker at the NZ International Building Expo & Summit, John Dalzell is the former CEO of Waterfront Auckland, and one of three Independent Directors for the Industrial and Commercial Bank of China (ICBC) New Zealand Limited.

A prominent voice in building links between New Zealand and China to achieve more together, Dalzell says that if our ideas about modular building and achieving sector scale can evolve, our ability to build more houses and solve our housing affordability challenges will also be enhanced.

Speaking directly, he says:

New Zealand is ready for modular buildings, but the New Zealand public needs to really understand what we mean by ‘modular’

You can see why there are preconceived ideas about prefabricated and modular buildings here in New Zealand because many of us grew up in the 1970s and remember ‘prefab’ school classrooms that were pretty basic. Even today there’s still a lack of understanding as to what is available and what is good in terms of modular building solutions.

In this context, there is still some way to go before New Zealand is more accepting of this form of construction. However, housing affordability or the lack of it, will compel many first-home buyers to take a closer look at the advantages offered by various modular build companies.

There is a continuum as to what can be described as modular: from prefabricated components to complete pods (e.g. bathrooms and kitchens), precast concrete, and factory-built steel and timber frame panels.

At the other end of the extreme is ‘Prefabricated Pre-finished Volumetric Construction’ (PPVC) – what we refer to in New Zealand as ‘Manufactured Construction’. This involves complete modules that are pre-finished and just require a ‘plug and play’ approach: i.e. stacking on top of each other, with services connecting. A good example of this is the new Crowne Plaza hotel at Changi Airport in Singapore. This 5-star, 10-storey, 243-room hotel was assembled on-site in just 26 days using 250 completely prefabricated modules, right down to the furniture, fixtures, and fittings. Every component was delivered by ship, craned into position, and bolted together on-site.

If you look at the more sophisticated markets of Singapore, UK, and USA, modular construction really involves a production line manufacturing assembly process that provides great quality control and traceability, resulting in much more sustainable whole-of-life costs that are lower than traditional building – plus lower construction costs and reduced construction time.

A little of this type of work is happening in NZ – but not much by international standards

A little modular prefabrication work is happening in New Zealand – some, but not a lot by international standards, and mostly at low volumes. Ours is almost like a little cottage industry by comparison to what’s going on elsewhere.

The most definitive research on this industry has been carried out by PrefabNZ, which talks about a supply and capacity of 1,200 prefab-modular units per year here. A review of their existing members predicts that by 2020 this could increase to 2,300 units per annum. This sits alongside the international companies, which have the capacity to build 6,500 units offshore and bring them in.

We need scale to solve housing affordability

The challenge for existing players here in New Zealand is about increasing capacity. In New Zealand we don’t have a lot of people good at taking small businesses and scaling them. We might be good at building, but we are not necessarily skilled at scaling businesses. One of the big challenges for the Government and industry therefore is creating the right environment to reduce barriers to entry and enable the critical investment required to achieve additional production.

A recent Infrastructure New Zealand statement made a comment on the continued challenge faced around residential dwelling numbers. We are still 50,000 units short. For the foreseeable future we need to add an additional 20,000 residential units per annum. We’re probably only doing half of that. There’s a real role for modular construction here, but there are some real challenges in getting started, including a Building Act that is currently not fit for purpose for the manufacturing solution.

Reform is a work-in-progress. From a consenting perspective the real issues are to do with the time it takes to go through the testing regime for compliance. Streamlining the consenting process for manufactured construction proposed by the Building Reform Legislation has the potential to significantly improve the situation, but the final detail will determine whether improvements are incremental or more substantial. Substantial change is required for longer term viability.

Modular volume can be stipulated by the Government

The key to any manufacturing solution is volume. If you can’t access volume, there’s little incentive for the private sector to participate.

The Government can help in this area. The building reforms underway at the moment are a good start, however, the Government and Crown Entities can also influence market response via policy.

If you want to look at stimulating production and volume, the best example is Singapore, where all new government projects are required to include a mandatory level of modular construction. This arguably doesn’t cost the government anything and provides certainty for suppliers so they can incorporate modular build solutions into their tender responses. You don’t always need a subsidy to bring about change – policy can be cost-neutral.

Although there are obvious differences between New Zealand and Singapore, what is stopping us from putting out a similar requirement in new government housing tenders, and reward people for providing modular build as part of the solution? It could also be provided in the Government’s General Policy Statement for example – it doesn’t have to be embedded in legislation – agencies just need leadership to pick up on the idea and follow through.

We need to look at ways of getting construction costs down

Modular, volumetric building is one way to do this in the residential market. In the vertical, commercial industry, ensuring that there is competition from the larger international entities on the bigger projects is another potential opportunity, but only where there is alignment and commonality of purpose.

Structural and systemic changes are needed in the industry, from education and apprenticeships all the way through to the government agencies procuring the major projects.

We need smarter procurement that can be used much more strategically to pre-qualify parties and quickly choose two or three parties to price jobs on an outcomes basis, not to reference designs produced by consultants who frequently are not versed in the practicalities of constructability or completely up with the latest innovations.

Procuring agencies or council entities need to ensure they are talking to the right consultants and advisors, certainly those firms who are involved or embedded in consortiums or teams that have access to the latest innovations. Breaking through the status quo and establishing the right platform for innovation is essential, for without innovation we will not be able to access the cost savings required to achieve a sustainable commercial, financial, and affordable funding model on major projects.

If we can change perceptions, Chinese and New Zealand companies can do more together

The view that we have to create a bespoke solution for everything, and that anything else is inapplicable, is a shallow view. We need to push back perceptions. If you look at what is good process in terms of manufactured construction around the world, we could pick up aspects of what they are doing – and their documents and processes – and customise something appropriate for New Zealand.

One thing I’m keen to do is work with the private sector and apply international best practice to solutions that are relevant for and can add value to New Zealand. We need to communicate to the market – buyers and sellers – what is best practice for New Zealand, so the public can identify what is good and avoid what isn’t.

The NZIBES conference is trying to encourage people to demonstrate what is good. Getting the systems and settings right will mean we can then access cost savings in a much deeper way. It’s really a question of what extent we can access cost savings. Modular supply cost savings can be as high as 25% and modular techniques can cut construction time in half.

Having said that, the current consenting and compliance regime we have in New Zealand means we can probably only access cost savings of perhaps 5% - 15%. We can only access the remaining 10% in cost savings if legislative changes come through.

I see a lot of frustration at not being able to get things done in the New Zealand construction market. The fact is, you have to do something different if you want a different result. We have to see and understand what others are doing and adapt that to New Zealand conditions. There no reason why we can’t innovate in our own way. Bringing in new ideas, adapting them, and innovating. But we have got to get out of seats and have a look at what’s out there. Staying at home is not going to re-set the dial!

 

John Dalzell Bio

John brings together services and resources to help deliver major infrastructure and real estate projects in New Zealand. John brings vast range of expertise to the business including project management, strategic advice, financial structuring, funding and
finance. John has an extensive network of influential relationships including Chinese-New Zealand commercial relationships and working with Maori iwi.

John has experience in both the private and public sectors at senior governance and management levels. As the former Chief Executive of Panuku Development Auckland and Waterfront Auckland, John has delivered more than $1.5 billion worth of private and public
investment into the transformation of Auckland’s waterfront.

Areas of Expertise
• Project Management
• Strategic Advisory
• Financial structuring, funding and finance
• Construction Management
• Asset Management
• Real Estate Advisory
• Owner’s representation