Unlocking the Prefab housing conundrum

The problem: Prefab housing is cheaper and faster but it’s not yet widespread because it’s hard to finance.

Normally when a house is built, the mortgage is released in parts as the house goes up and there’s material to secure the loan against. With a prefab house, it’s in the builder’s factory until it’s almost done so until now, the builder had to take the risk that the owner could get finance once it was finished.

Westpac has announced it is piloting a scheme to make it easier to obtain finance to build a prefabricated home.

A three-month trial will involve financing the construction of six prefab homes in Auckland and Waikato and – subject to the success of the pilot – the model will then be rolled out nationwide.

Westpac NZ Chief Executive David McLean said he hoped the new model would overcome the current barriers to finance and open the door to more affordable homes for many New Zealanders.

“This is a major step towards improving home affordability, especially for first home buyers. It will move prefab housing from sitting in the too-hard basket to being a viable choice for lots of Kiwis.”

PrefabNZ estimates that prefabricated techniques can reduce construction costs by around 15 per cent, and construction time by up to 60 per cent

Mr McLean said it was time for lenders to innovate in the same way that the prefab housing industry has been doing in recent years.

“Prefab housing is increasingly being built to incredibly high standards of design and construction, and its affordability makes it a great option for many buyers.

“Our new way of funding removes some of the hurdles that have existed until now, and gives buyers and builders confidence about partnering on a build.”

Mr McLean said borrowing money for a prefab house had sometimes been a difficult process because of the complex issues that would arise over security of the house while it was being built in a factory.

“It’s often meant would-be buyers have struggled to find a builder willing to take the risk that the buyer would obtain bank finance at the end of the prefab build, and have also had to negotiate bespoke terms with a lender.

“Usually, any arrangement has involved the builder getting a large temporary overdraft over the course of two months and financing the build out of that, essentially using their own money.”

Two prefab constructors in the greater Waikato have agreed to participate in Westpac’s pilot.

It was hoped the first of six houses built under the terms of the project would be built and arrive on site by the end of September.

“We want borrowing for a prefab house to become a streamlined, simplified and stress-free process for both buyer and builder,” said Mr McLean.

“Most importantly, it should help put New Zealanders into warm, well-designed, affordable houses that would otherwise have been out of reach.”