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Why are some tiny home companies going into liquidation?
They were meant to be the saving grace of a dire housing market – so why are some tiny home companies hitting trouble?
On Thursday, Amazing Spaces NZ, a tiny house company based in Morrinsville, went into liquidation, leaving about 14 clients waiting for houses secured with deposits between $100,000 and $130,000.
The company was founded by director Michael Christopher Goodall in 2019, who said it first got in to trouble after Covid hit, when freight costs jumped from $15,000 per tiny home to between $45,000 and $50,000. The company had to absorb that cost, he said.
The liquidation follows that of NZ Tiny Homes, NZ Modular Homes and Kiwi Modular Homes.
QV operations manager James Wilson said tiny homes, which are often built in factories and re-located to sites, have become increasingly popular over the last few years, as they can offer a faster, cheaper way to add improvements to a property.
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But they can be difficult to obtain bank finance on, because they don’t fit the “traditional” mortgage model and some lenders find it difficult to use the building as security until it is permanently fixed on the site.
This means that often the borrower needs to fund a large portion of the build themselves until the bank can take security, which could be risky and, for many borrowers, simply not feasible, he said.
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“Some innovative building companies have developed financial structures in which they absorb a lot of the upfront costs and build the homes in ‘stages’ – allowing banks to partially fund the build process. However, this places a significant financial risk on the build companies, as delays in a build or a cancelled project can really dent their cash flow.
“This is why you often see increased business failures in this space when the market begins to soften and borrowers become more cautious.”
He said it was important for borrowers to understand the risk involved with such a build and take time to do research.
Supplied
Tiny homes builder Amazing Spaces NZ has gone into voluntary liquidation.
“Make sure you talk with your lender, as they may have tiny home companies they have worked with in the past and have a proven track record.”
Tiny homes were talked about as a potential solution to the rising cost of housing, and reports of wait lists doubling at some companies as they became more popular.
But Nick Goodall, head of research at CoreLogic NZ, said, although there was an increase in the number of tiny homes being made, it was never enough to call it a boom.
Jason Dorday/Stuff
Nick Goodall from CoreLogic doubts there was ever a tiny home ‘boom’.
Whether the liquidations of a number of companies was expected or unprecedented, Goodall said, all depended on the industry’s estimation of demand.
“I can understand the gap in the market this should cater for, given housing is so expensive here, but perhaps this shows that despite the challenges and level of unaffordability for housing in NZ, for the majority of people the preference remains for larger homes or the likes of townhouses, which are well located,” he said.
The cost of land was also a factor into the success of the industry.
“You still need somewhere to put the tiny home and land is very expensive in NZ.”
