Could relocatable homes be right for your next development project?

Post by Ollie Mellsop - Commercial/Property Finance Manager

In New Zealand, we tend to think of property development as this idea of taking a section, getting rid of the existing house, and building a bunch of new ones in its place.

In reality, though, there are a whole range of approaches you can take to development—and one of the less-talked-about options (rather than building from scratch) is that of using relocatable homes instead.

As the name suggests, a relocatable home is basically where you move an older existing house from one property, to another, on the back of a truck and trailer. They’re different to transportable homes, which are generally built somewhere else and moved to a different site upon completion.

New Zealand is pretty unique in that we have a lot of high-quality older housing stock that’s perfect for relocation, and these days, with construction costs as high as they are, relocating a home can often be a much more affordable alternative to building new.

If you’re wondering whether relocatable homes could be an option for your next development project, here’s what you need to know.

What sort of relocatable homes are available?

As a general rule, older, standalone timber houses are the most popular style of relocatable in New Zealand. That can include anything from early-1900s villas or bungalows, right through to state or weatherboard houses built in the 1950s to 1970s, and beyond.

The great thing about these older wooden homes is they’re generally rock solid—in many cases, built using native timber—which makes them strong and sturdy enough to withstand the move process. The timber cladding also makes it a lot easier to split them into multiple parts, then put back together again, if needed to get the job done.  

It’s worth noting that it is possible to relocate brick and tile homes, but you’ll need to have all the cladding removed beforehand (which generally means demolishing the brick) so you’re probably in for a much bigger job at the other end.

What are the benefits to going relocatable over building new? 

Well, for starters, there’s the matter of cost.

With construction costs having gone up massively in the last few years—somewhere in the realm of 30% to 40%—relocatables can be a really cost-effective alternative to building new.

To illustrate, let’s crunch the numbers.

These days, building an affordable 120m², three-bedroom home is probably going to set you back at least $420,000—$3,500 per square metre—just for the build. So that’s the starting point for comparison.

Now there are two key components to the cost of a relocatable home: the cost of the house itself, and the cost of the move.

As you’d expect, house prices vary significantly depending on things like the quality and location of the home, and levels of supply and demand in the market. But broadly speaking, prices start from $0—usually in situations where the seller just wants the house off its existing property—through to about $100,000 at the upper end of the market.

Then, the typical price tag for a single-piece shift (say a 100m2, two- to three-bedroom weatherboard home) including standard foundations, is about $50,000.

So, all up, between the house and the relocation, you’re probably looking at somewhere between $50,000 to $150,000.

Even if you factor in an extra $100,000 or so on top of that for site works and improvements—connecting up wastewater and electricity, adding entranceways and decks, general renovations and landscaping—you’re still coming in well under that $420,000.

With high construction costs causing real challenges for development projects in terms of feasibility, we’re seeing more and more instances of developers turning to relocatables as a cheaper alternative.

The other really nice thing about a lot of these older homes is their added character. Older villa-style homes with ornate period features, like high ceilings and lead-light glass and windows; and ex-state houses with beautiful native timber floors. Stuff that you don’t often get with new builds these days—but that a lot of potential buyers really love.

What are some of the other things I need to keep in mind when looking at going down the relocatable route?

Depending on the age and condition of the home, there’s likely to be some additional remedial work required in order to get it up to a modern standard—in terms of things like windows, joinery, double-glazing and other insulation.

You can typically get a good idea of the state of the property before you buy, so it’s a matter of doing comprehensive due diligence in order to understand the work required, and what the associated cost will be.

There are also some things to be aware of when it comes to the process of getting your code of compliance sorted, once the house is fixed on-site.

Because a lot of relocatables tend to be older homes, certain elements may not be up to scratch under the current building code. Rather than requiring you to bring the house up to modern build standards, councils are generally happy to issue a code of compliance as long as you can provide a building report (from a certified building inspector) which states that the home was built to the standard of its era.

Any new improvements which require consent, such as decks and entryways, will still need to be compliant under the current building code.

What do I need to know about getting funding on a relocatable home?

The process of getting funding on a relocatable project can be a little bit trickier to navigate than with your standard development.  

That’s because, in most cases, you’ll need access to funding up-front to pay for the house, and the move, but until the home is actually fixed on-site, the security the lender has over the property is vulnerable.

It’s a very different proposition for the lender than a standard construction project, where funds are drawn down over time (and they control the release of those funds) as value is added to the property—and banks in particular can be really risk averse in this respect.

There best thing you can do to mitigate this risk is to ensure you’re working with a reputable relocation company that has appropriate levels of insurance in place to protect you should anything go wrong during the move.

It can also be a really good idea to engage a trusted and knowledgeable adviser who can help you negotiate better terms with your relocation company, to suit your lender’s requirements. That could mean paying in installments, rather than all up-front, which is going to significantly de-risk things from your lender’s perspective.  

If you’re looking at a relocatable project as a developer or investor, it’ll generally be treated as commercial funding—and there are heaps of options out there in this space, including lots of non-bank lenders.

If you’re doing it as an individual, intending to live in the property, unfortunately there are less options available, so getting funding across the line can be a little more difficult. Your first port of call would generally be a main bank.

In order to secure funding, you’ll need to be able to demonstrate that between the equity you hold in the section, and the additional value created through the relocation/s and any improvements, the end-value of the property will come in under the lender’s LVR threshold (which varies depending on whether you’re an owner-occupier or investor).

To do this, you’ll generally need to provide your lender with an on-completion valuation, done by a registered valuer—and that will determine the end-value of the property (or properties) that funders are willing to use as security for your loan.

If you’re thinking relocatables could be a good option for part of your next development project, get in touch today to chat with one of our experts and see how we can help.

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