06/11/2012 - 09:06

Analysis: Nasty surprise for WA building

06/11/2012 - 09:06

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Analysis: Nasty surprise for WA building

Western Australia’s high cost economy has produced a nasty surprise for the local building industry. It is now cheaper to truck a pre-fabricated, high-quality, suburban home across the Nullarbor from Victoria than build it locally.

The implications of that development, proved by the installation of a house in Cottesloe last week, are profound and a possible pointer to how other parts of the WA economy are being exposed to unexpected interstate and international competition.

In essence, entire industries which have been protected for decades by WA’s isolation are becoming susceptible because:

  • Costs in WA have skyrocketed to be among the highest in the world.
  • Interstate firms, benefiting from lower costs, are finding ways to crack the lucrative WA market.
  • WA buyers are learning how to bypass high-priced local service providers.

Internet shopping, which has hit local retailers hard, was an early pointer to how consumers will hunt down cheaper (and better) goods and services.

Buying a house and trucking it across the country takes the shopping experience to an entirely new level and raises questions which the local building sector probably wish would not be asked, principally: if it can work once, why not often?

There are reasons why it might work on a regular basis, and reasons why it might not, but to see it happen is the equivalent of seeing the thin edge of a wedge – and to now wait for the rest of the wedge.

What happened in Cottesloe’s main access road to the beach, Eric Street has, so far, not been widely reported, only making a local suburban newspaper because of the novelty of a major street being invaded by a fleet of semi-trailers and a big crane to offload the modular house.

But, hidden in report about the event was the clue as to why it had happened and why every business in WA ought to take note.

The new Cottesloe house was built in Victoria, transported to site on seven semi-trailers, and installed at a total cost estimated to be 30 per cent less than a comparable house built locally.

If it was only a 10 per cent cost advantage the transaction would probably not have proceeded. A saving of 30 per cent is an entirely different matter.

Cottesloe-based builder, Rick Brine, who provided consulting services to the project, said he would not be surprised to see a lot more pre-fabricated housing installed in Perth.

However, he also expects local pre-fabricators to become more active, expanding their offering from holiday and farm housing to suburban work, of an increasingly high standard demanded in the city.

“There are advantages, such as the house being built safely in a factory, and the on-site work lasting a matter of days, but it isn’t necessarily a system which will suit everyone,” Brine said.

He’s right, but when you wave a 30 per cent cost saving under a customer’s nose it twitches.

In the case of the Cottesloe home, it took a Swiss couple with a taste for modular styling and the finely-tuned understanding of money that is so very Swiss, to crunch the numbers which Brine said involved factoring in all costs, including rent in alternative accommodation while a conventional house took the 12-to-18 months quoted by many builders.

The style of the Cottesloe house, built by Modscape in the inner Melbourne suburb of Brooklyn, will not suit everyone in Perth especially people who think of modular homes as best suited to rural settings, but it does slot unobtrusively into the Cottesloe landscape.

Style and taste are, however, irrelevant to the financial factors behind the arrival of a new Victorian house in a Perth suburb because if Modscape can do it once, and presumably make a profit, it can do it again – and probably cheaper next time now that it knows how.

For every business in WA there is a fascinating lesson about costs to be learned in Cottesloe’s Eric Street – and that is, the higher your costs rise the more exposed you are to competition.

WA’s strong economy and ludicrously high cost structure for all local services makes it a magnet for interstate and international competition.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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