With increased density being pushed by State Governments, the townhouse and medium density space holds significant opportunity.  But it isn’t without it’s challenges. 

Few know the ins and outs of medium density construction better than Ryan Lee, the Director at Evolve Constructions Solutions, who has been responsible for the medium density output for builders such as Clarendon Homes and Divine Limited, at a time when it was building 800 homes across the country. 

The Good Builder sat down with Ryan to look at the 3 key elements to move from detached homes to medium density construction. 

“Successfully transitioning isn’t just about tweaking your current methods.”

“It’s acknowledging that you can’t manage medium-density builds using the same systems and processes you’re accustomed to,” begins Lee.

1. Funding and Finance

Understanding the distinct funding landscape is crucial. Unlike typical volume-building projects, medium-density developments carry different funding implications depending on whether you’re building independently or for a developer. Lee notes, “If it’s your project, you’ve got to secure funding, which is something most volume builders aren’t used to. On the other hand, working for developers means their funding requirements influence your entire delivery model.”

2. Contracts and Contract Admin

This shift significantly impacts contractual arrangements, moving away from standard Housing Industry Association (HIA) contracts to more complex Australian Standard contracts. Builders must adapt from stage claims to progress claims, fundamentally changing cash flow management and project timelines. Lee explains, “Contract management isn’t typically something builders worry about in regular markets, but medium-density requires constant vigilance. Missing a claim deadline can mean being time-barred, with significant financial consequences.”

3. Procurement and Estimating

Medium-density projects also alter procurement strategies. Rather than standardised pricing, builders can leverage volume to negotiate project-specific pricing. Estimation practices evolve, integrating what Lee terms ‘parent and child relationships’. For instance, builders might order roofing materials for an entire block but procure kitchens individually per unit. “This requires a different approach to estimation and purchasing,” he says, “but it opens significant opportunities for cost efficiencies.”

Additionally, entering this market introduces new construction techniques and trade requirements. Builders accustomed to straightforward detached builds might now require specialists in integrated retaining walls or other bespoke features. Lee advises, “You may need to source trades with specific skills not previously required.”

Moreover, builders making the leap into medium-density construction must also consider project timelines more carefully. “Builders typically might joke about a ’42-week’ contract for a single-story house knowing they’ll knock it out in 26 weeks,” Lee quips, “but medium-density builds don’t leave as much room for that casual optimism.”

Despite these complexities, the potential rewards are substantial. Builders who are prepared for these challenges can position themselves advantageously, tapping into the growing demand for medium-density living solutions driven by affordability and the changing Australian lifestyle.

As Lee puts it,

“If these things are considered when builders transition, there’s clearly an opportunity.”

“The medium-density market is poised for considerable growth.”

TGB Takeaways

So, what do you think? Are you ready to shift gears and embrace the medium-density opportunity? Here are a few takeaways from our chat:

• Re-think Your Systems: Medium-density projects aren’t just bigger—they require fundamentally different management systems and processes.
• Understand Funding Nuances: There are significantly more financial risks and cash-flow implications for these larger commercial contracts. 
• Master New Contracts: An experienced commercial contracts administrator is worth their weight in gold. Move beyond HIA or MBA contracts and look at Australian Standard contracts, carefully managing progress claims and timelines to protect your profitability.
• Optimise Procurement: Leverage the project size for better deals, adjusting your estimating and scheduling approach to match the ‘parent-child’ procurement model. 
• Expand Your Trades Network: Medium-density builds may require specialised skills and trades not previously needed, so prepare your network accordingly.
  

Have you considered stepping into medium-density projects? Let us know! We’d love to hear from you.

Author: Peter Love

Pete was the General Manager of one of Australia’s largest home builders for six years, before starting his own business as a buyers’ advocate, building over 200 homes in five years across South East Queensland and working with over 20 builders to deliver them. Across this time he has seen most facets of the industry, the good, the bad, and the beautiful.