No doubt you’ve heard the rumours, or read the reports, or know someone who has been affected by a home building company falling into financial crisis, going into voluntary administration, or as we used to say, have gone “bust”. And these can be big builders, with familiar names and strong reputations in the industry.
It seems that the recent events around the world have had a toll on many industries and it’s taking no prisoners. The construction industry has been no exception!
Building companies are under a lot of pressure right now with rising material costs as well as shortages in supplies and labour. There is a lot of “talk” about Home Builders’ ability to complete the build of your new home – and at this moment you’re thinking “is this going to happen to me?”.
Contrary to popular belief, these unprecedented times have made it apparent that “bigger” and “older” doesn’t always mean “safer” and “stronger”.
Let us explain:
- Big companies are slower to adapt – When a market is this volatile and dynamic, you want to be in the hands of a company that is large enough to be across industry changes and price variations, but small enough to provide solutions quickly and easily. This ensures clients aren’t too heavily affected by those changes.
Big companies, with many layers of management, can be like trying to change direction in the Titanic instead of changing direction in a speedboat.
- In a building boom, large builders generally grow earlier and faster than smaller builders. This is because they have bigger advertising budgets and can sell homes earlier and more rapidly in a boom cycle. However, when a big company grows quickly, they need to employ staff and trades to manage that growth and build those homes in a timely manner.
- What does that mean for you? Let’s say a company builds 1000 homes a year and experiences 25% growth in new home orders. Coping with the extra 250 homes per year is like creating 3 to 5 separate small to medium sized building companies from scratch and at the same time, it then needs to be done in less than a year. It’s usually time, cost or quality that suffers – but more often than not, it’s all 3!
- Clients pay for the builders resourcing issues in time, cash and frustration. Rapid growth and resourcing issues leave clients caught up in pre-construction for months, if not years on end, all the while having to absorb rising costs as time passes by. This is compounded even more when trying to get through the many layers of management in order to find answers and get results.
- Large builders have large overheads. Like any large company, big business means large workforce which means substantial overheads. New home builders typically have sales quotas to cover their overheads and will fix the tender costs for up to 12 months for their clients. However, in 2020, the first wave of COVID saw large builders needing to fix their tenders for up to 24 months just to capture enough market share and ensure their enormous overheads were covered. Fast forward 2 years to the end of the tender period as these new home orders are ready to start construction, and we’re seeing that costs have blown out of the water. When they sold all these homes, no one could have anticipated the unprecedented construction cost increases and so now these big builders are left with 2 options; 1) To wear the cost increase and make a loss on their contract or 2) Renegotiate contracts with their clients.
- Covid price rises have left large builders and clients in a “no win” situation. With the quantity of orders received during the pandemic, and the immense size of cost increases, option 1 is not possible for even the most financially stable large builder and would invariably lead them to bankruptcy. With option 2 the only viable solution for big companies, combined with other pressures like interest rate increases, it leaves many prospective home owners unable to continue with their home. Now, with so many cancelled contracts all at once, what happens to the builders anticipated income they needed to cover their overheads? Remember they’ve just employed extra staff members and trades to cope with the 25% increase in annual sales they thought they had?
So what about the small to medium size builder? Historically, they may have been considered less robust or higher risk. However, let’s use the same example of growth as noted above during these extraordinary times;
- ‘Small’ allows for flexibility and speed of change; A small to medium size builder who builds 60 homes per year, experiencing the same 25% growth as the big builder, only needs to find resources to build an extra 15 homes per year. That type of growth is generally managed with their existing staff and tradies leaving little to no additional strain on time, cost or quality, while new team members are brought onboarded.
- ‘Decision makers’ are generally in direct contact with clients; smaller companies will commonly have business owners in direct contact with their clients. This allows for flexibility in tailoring solutions to the individual should a major global event occur, for example.
- Lower overheads = more up to date costs and less aggressive sales tactics; most small builders do not require the same strict sales quotas to pay for their overhead costs. They have flexibility in their work flows and they tend to be less aggressive in booms, allowing them to adjust with the market conditions. They generally do not need to resort to creative sales tactics, like trying to fix costs for 24 months in order to capture a large share of the market, which means clients aren’t met with nasty surprises after 2 years when the costs have risen.
- Lower overheads = less exposure to a mass exodus of client who can no longer afford to build their home; Small builders will typically have lower overheads and less dependence on large quotas of homes being built each month. This allows them the flexibility to work through issues with each client without having to penalise the client with price rises and unrealistic deadlines. It doesn’t have to be a ‘one-size-fits-all’ approach to getting homes built when you’re with a small to medium sized builder.
What does this all mean for you?
If you have recently started the process with a large builder and see the early signs of resourcing issues like what we’ve mentioned above, then why not talk to one of our expert consultants about how we can fast track your home?
At ANSA Homes, we’re a small to medium sized building company with a team of dedicated and experienced professionals that are helping our clients get from concept to construction in a matter of months – even with the uncertainties of a post-covid world. Meaning, you’ll be building with certainty and much sooner than most of the major builders.