Originally posted by Ogg
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Profiting from Property, not People
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Originally posted by Wayne View PostThere hasn't been low wage inflation for 30 years - 10 maybe.
In other words, taxi drivers know you need to get to the city, because they know people make loads of money in the city, so they charge people loads of money to get to the city.
Likewise, a real estate agent knows you will have lots of money when you sell a house, so they charge lots.
A taxi driver would rather sit in his empty taxi, then take a passenger for a lower fare. Likewise a real estate would rather have no listings then reduce their rate.
This is why you need more than ECO101 to understand what's actually happening. You need to master psychology, game theory, and computer engineering to solve the problem.
Originally posted by Wayne View PostIt's anti-competative because you want one outfit to control the price of an entire group of workers.
Once they can do that then they can ramp the price up also.
I don't need to stop it for builders because it will NEVER get started. Mate, you're dreaming.
Builders are in a totally competative environment now - they charge what they can get (same as landlords) - so they are worth what they are worth.
You want a builder you pay the going rate. Become one yourself rather than bitching about it or maybe you don't have the skills and can't get them.
Originally posted by Wayne View PostIt doesn't take a lot of capital to create an app.
What does take capital is sewing up the market (employing a big bunch of builders) and then running them at a loss for a while until you drive the competition out of the market.
This is what your favourite UBER is trying to do. We'll see what happens to taxi prices when the competition is gone.
Uber has competition.
Originally posted by Wayne View PostPre-fab is a good idea to cut costs - if people accept pre-fab houses (which, so far, they have been reluctant to do so).
I've seen that machine video before - interesting to see how that goes (differant style of building to ours).
These sort of inovations have more opportunity of succeding than (and are quite differant to) trying to tie up a work force to push prices down.
Back in 2009 my builder was very cheap - just trying to make ends meet with not a lot of work on.
When things got better he charged more.
Can't tell me that isn't supply and demand.
Your builder was on a normal wage in 2009. Then asset prices went up, so he charged more.
Thing of it this way. When a pharmaceutical company develops a new revolutionary drug, what's the price normally? Sky high right. Why? Because they can charge that amount and get away with it. They'd rather see people die then sell it at a lower price point. There's no supply issue. Competitors might make copies or clones of the same drug, isolating the same components, but their price will only be slightly lower, if at all. The price is artificially high throughout the market. Overtime the price will drop as patents expire but then the whole cycle starts over again.
What they're doing is pricing their value and that's basically what builders are doing too. They're saying "I'll make you money by building this house, because you'll be able to sell it for a huge profit". If you say no, and go with another builder, the first builder will just do nothing and watch. This is why it doesn't matter how many builders there are. Adding more does nothing. In other words, builders would rather see people homeless than lower their price point.
In order to break this value trap you need something that changes how the market operates. Regulation is one way, technology is another, consumer behavior is another too. Uber is great because it does all three. You can see countless other examples over the last 2 decades.
So to answer your question, "why don't I become a builder"? It's the same reason why I wouldn't become a real estate agent just to sell my house. I could easily do it but it's not worth it in the long term. Changing occupation has a cost and a long term investment is needed. My current occupation has benefits that offset the higher cost of changing frequently. That's why I don't do it.
There's no shortage of builders. It's a myth.
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Originally posted by DaveW View PostAre you building for your own home, or for selling/renting?
Building a minor dwelling so might rent and live in it if I can't sell it.
There's limited investment options in NZ apart from property.
Don't want to hold money so need to spend it somewhere.
Bought an empty section recently. 700m2. It's in the single house zone, up market suburb.
Probably looking at $1m build cost. Hope to come under that.
Need to save money anywhere I can, just to come in at budget these days.
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Originally posted by Meehole View PostOnce our investment property goes unconditional and then settles we are building another property.
Difference is that hubby can project manage the other trades including the builder, and then also do some of the building work himself to save costs.
Things like skirting, scotia, architraves, hanging doors to name a few.
Which he can do extremely competently, even though he was a high school drop out who took on a carpentry apprenticeship at age 16.
And yes the industry is fraught with compliance issues and red tape, which is why from the outset you make sure the land is easy to build on and the style of house is a basic design.
No builder enters the industry planing on living off a wage.
They enter it to become part time developers.
They get their mates as sub contractors and create a little 'cartel of bees'.
Then they moan about working for $50 per hour for someone else.
Builders love compliance and red tape because it makes it harder for everyone else. They also use it for an excuse to charge more.
Good on you though. I'm sure you've done well with your investment property.
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Originally posted by Bluecoat View PostI have built few in the past - given the climate I will not build any time soon - the industry is fraught with compliance issues , red tape, cost overruns.
Don't think much will change though.
Maybe contractors will be less busy but they'll charge the same rate.
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Originally posted by Bluecoat View Posta minor dwelling for $1M ?or with the section? whereabouts the section?
Minor dwelling is not economical if standalone , returns works out better with existing house
It's to do with the contour of the section. Two separate dwellings will probably work best.
Don't wanna say where. In one of the top 5 suburbs of Auckland.
Section was under $1m.
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Originally posted by Ogg View PostMostly economic reasons.
Building a minor dwelling so might rent and live in it if I can't sell it.Profiting from Property, not People
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Originally posted by Ogg View PostYes, I'm going to manage the build myself.
Most builders I've talked to prefer to do contract only and want to handle the project from start to finish. The ones that do offer labour only, seem to want at least $65 per hour plus GST. A yearly salary at that rate works out to be $135,000 per year, which is high, at almost twice the medium wage for the average Aucklander. However, after expenses it's probably a bit less. Still, a decent take home pay for an occupation that requires minimal education and less than 5 years experience. Not to mention a business with almost no barrier to entry and little start up capital required.
According to "payscale" ( https://www.payscale.com/research/NZ...er/Hourly_Rate ) the average rate for a builder in NZ is $25 per hour. Yet, finding a builder in Auckland for twice that amount is unheard of. How can that be?
Obviously, with high demand prices go up but is supply and demand the real issue?
It seems like there are two rates in NZ. The "immigrant rate", ie the typical Chinese/Indian/Filipino worker employed at a large building company or working out of Albany. Then there's the "cowboy rate", ie the average 30-40 year old something kiwi bloke doing renovations in Ponsonby or Devonport.
The real issue is how do you get these two groups to compete with each other and integrate together into the market place. I don't want to exploit hard working immigrants and hire a translator, but I also don't want to get ripped off paying some young kiwi bloke who dropped out of high school.
Where else can you go? There's Builderscrack, TradeMe or the local newspaper? Either that or drive around town looking for building signs. It seems like most builders don't even advertise these days - by the time they've finished one job they have another lined up, mostly through word of mouth.
When you ask them to quote on a job, they just send it to Carters or Fletchers and they work out how much. Then they just slap on a 20% margin and charge themselves out at their regular rate. If you reject their quote, the price is almost exactly the same elsewhere. It's as if there's no competition at all in the industry, the prices are all fixed.
The biggest problem seems to be trust. The average New Zealander doesn't trust immigrant workers, or if they charge a cheaper rate, they mustn't be any good. Most people just seem to hire a builder because they did a job for their friend or because "he's local".
There really needs to be some kind of nation wide auction faculty or some kind of official review system that keeps track of builder work details. Similar to what Uber did to the Taxi industry, where by it created a level and open playing field that encouraged competition and put more emphasis on driver reviews and profiles. This lead to lower prices, greater trust, and more efficiency. Maybe one day this will happen to builders.
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Originally posted by Ogg View PostIt's not a supply and demand issue.
Originally posted by Ogg View PostTaxis didn't all of a sudden become cheaper because there were more cab drivers. It was because Uber changed the way the market operated.
Originally posted by Ogg View PostThe myth that there is some how an under supply of builders is false. The way the building industry is setup is the problem.
I can't find a builder for $50 per hour because it's not a free market place. The system is broken.
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Originally posted by elguapo View Post
Uber significantly increased the number of cab drivers, that is how they changed the way he market operated.
It is a free market place, which means builders are quite free to ignore your offer of $50/hr and take on other clients who pay better.
There's always been an over supply.
The taxi industry in New Zealand was deregulated back in 1989. Anyone with a drivers license could enter the market and become a cab driver. This resulted in a huge growth in taxis during the 1990's. ECO101 would tell you this would lower prices - but that didn't happen!
With so many taxi drivers on the road, the competition between drivers was intense, but demand was fragmented, as it only came at certain places at certain times. This also made it more difficult to commoditize and create an efficient market.
The way taxi drivers made money was to work 100 hours a week, but they only drove a small amount of that time. When they did drive they charged a high price. Over time most drivers became unionized and joined large cooperatives. However, this just created red tape, corporate bloat, and wide spread price fixing.
Uber hasn't created any more taxi drivers. Most Uber drivers are/were taxi drivers. The market is still way over supplied but consumers aren't paying the high prices they once were. The market is working more efficient. Customer satisfaction has been raised which has increased demand. There's a better return on investment though out the entire market.
Going back to builders...
Yeah, sure, a builder can reject my $50 per hour offer but that doesn't mean he's worth that much, or that in a perfect market that's the fair market price. It's a pricing strategy that he's implementing, that works industry wide.
The builder knows these two facts:
A) His competitors will charge a similar price.
B) Demand is fragmented
Demand is fragmented because I only need a builder at a certain time at a certain location. I can't get a builder from Chirstchurch for example, nor can I get a builder who is busy on another job. Furthermore, of the thousands of builders available on the market, I can't approach all of them.
Essentially, what's happening, is that a builder is looking at me and also looking at the market, and then pricing his salary based on that. He's not looking at the demand or supply of the market. He's looking at the market dynamics.
So, figuratively speaking, I'm basically at the airport, with no ride home. My only option to get home is to pay the high taxi fare.
The answer to this is to fix "A" and "B" above.
Uber fixes "A" as it controls and sets market prices independently of taxi drivers. It also processes the payments. In other words, builders shouldn't be pricing jobs, nor handing money, it should be done by a third party market. How this will work I don't know, but it solves problem "A" as builders will be unsure of what their competitors "will be" charged at. There are times when builders should be charging $200 per hour but likewise there will be times they should be charged at only $20 per hour.
Fixing problem "B" is more difficult and would require multiple systems working together at a centralized location. For example, it might be cheaper flying a builder up from Christchurch and having them stay at a hotel between the 20th - 23rd of September, but only if it was for steel framing and there was also another job that required the same skill nearby within 25km, and only if Air New Zealand had a special pricing on those dates because the global fuel price was lower, etc, etc etc, get my drift? Complicated systems that work out where there is demand/supply and efficiently work out where that demand and supply should go.
Just lol at thinking more builders will solve the problem. If anything there's probably too many of them.
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Originally posted by Ogg View PostUber hasn't created any more taxi drivers. Most Uber drivers are/were taxi drivers. The market is still way over supplied but consumers aren't paying the high prices they once were. The market is working more efficient. Customer satisfaction has been raised which has increased demand. There's a better return on investment though out the entire market.
What you suggest doesn't match what has happened. Care to share any facts to back up your assertions?
Going back to builders...
Yeah, sure, a builder can reject my $50 per hour offer but that doesn't mean he's worth that much, or that in a perfect market that's the fair market price. It's a pricing strategy that he's implementing, that works industry wide.
The builder knows these two facts:
A) His competitors will charge a similar price.
B) Demand is fragmented
Demand is fragmented because I only need a builder at a certain time at a certain location. I can't get a builder from Chirstchurch for example, nor can I get a builder who is busy on another job. Furthermore, of the thousands of builders available on the market, I can't approach all of them.
Essentially, what's happening, is that a builder is looking at me and also looking at the market, and then pricing his salary based on that. He's not looking at the demand or supply of the market. He's looking at the market dynamics.
So, figuratively speaking, I'm basically at the airport, with no ride home. My only option to get home is to pay the high taxi fare.
The answer to this is to fix "A" and "B" above.
Uber fixes "A" as it controls and sets market prices independently of taxi drivers. It also processes the payments. In other words, builders shouldn't be pricing jobs, nor handing money, it should be done by a third party market. How this will work I don't know, but it solves problem "A" as builders will be unsure of what their competitors "will be" charged at. There are times when builders should be charging $200 per hour but likewise there will be times they should be charged at only $20 per hour.
Fixing problem "B" is more difficult and would require multiple systems working together at a centralized location. For example, it might be cheaper flying a builder up from Christchurch and having them stay at a hotel between the 20th - 23rd of September, but only if it was for steel framing and there was also another job that required the same skill nearby within 25km, and only if Air New Zealand had a special pricing on those dates because the global fuel price was lower, etc, etc etc, get my drift? Complicated systems that work out where there is demand/supply and efficiently work out where that demand and supply should go.
Just lol at thinking more builders will solve the problem. If anything there's probably too many of them.
When they get lots of enquiries they know that they can pick and choose and price accordingly.
A number of years back there was a shortage of work. Builders were pricing to get the work just to put food on the table.
Things got better and they charged more to start to make a living. Like others, they want to get richer and retire in comfort.
Uber makes for an interesting study in how you can treat your workers like shit and still not make money.
They are very predatory and if they managed to drive the competition out of the market prices would go up.
Fortunately other companies have fought back and they have competition now from new comers and the old guard alike - hopefully we will reach an equilibrium where the drivers can make a living.
Remember also that you can't get a Uber driver from Chch to take you around Auckland so the same thing as with builders arises.
So, figuratively speaking, I'm basically at the airport, with no ride home. My only option to get home is to pay the high taxi fare.
Uber call it surge pricing.
What is it you do for a living, certainly it doesn't involve anything to do with thinking about market forces?
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