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Stanley Group and Tallwood Holdings in liquidation after under-pricing a Housing New Zealand project in Auckland, liquidator says

Stanley Group and Tallwood Holdings in liquidation after under-pricing a Housing New Zealand project in Auckland, liquidator says
An artist's impression of one of the Housing New Zealand homes that is being built in Mangere.

The collapse of Stanley Group and Tallwood Holdings has left creditors owed over $13.3 million and the under-pricing of a Housing New Zealand project in Mangere has been blamed for their demise. 

Last week it was announced that the two construction companies had been placed in voluntary liquidation.

Tallwood Holdings director Martin Udale was also on the board of the Auckland Council development agency Panuku. The Council Controlled Organisation (CCO) announced this week that he would be taking a leave of absence after the voluntary liquidation of Tallwood.

According to liquidator Damien Grant from Waterstone Insolvency, Stanley Group’s creditors are owed over $10.6 million, while Tallwood’s creditors are owed a total of $2.7 million.

And like so many construction companies that have collapsed in recent years, their demise has been tied to an attempt to undercut competitors to win a lucrative contract in a booming market.

The liquidators report says the Matamata based Stanley Group has a long history, going back three generations to the 1920s. But it started to experience problems when it sought to expand beyond its base in the Waikato into the competitive Auckland market.

“The Auckland expansion was not successful. The business continued to win work, but was unable to maintain control of its costs and quality.”

And while it found work with Housing New Zealand it was a South Auckland project for the state housing provider that sealed its fate.  

“The business was successful in winning a large Housing New Zealand project in Mangere. The directors advised that they now believe that they under-priced this project by as much as $2 million dollars. This was further compounded by cost overruns on the project that eroded the group’s working capital.”

It says the top 10 creditors are mostly sub-contractors and have lost $3,143,610.

“From the present information it is unknown if there will be a distribution to unsecured creditors.”

According to the liquidator Tallwood was established in 2018 as an off-site manufacturing base to compliment the construction business of the Stanley group of companies. It also became the contracting business for the Housing New Zealand projects.

“It had a number of subsidiaries but operated as one business unit. For the Housing New Zealand projects Stanley companies would either undertake the work or engage sub-contractors. Tallwood would invoice Housing New Zealand for this work and Stanley would bill Tallwood.”

It says the company’s shareholders and directors sought advice in an attempt to save it in the days leading up to the voluntary liquidation to no avail.

The report says Tallwood’s collapse was caused by the underquoting on a Housing New Zealand project in Mangere by the Stanley Group which created “severe liquidity pressure on the business”.

“The directors explored several options to arrange the needed capital to maintain the business and advised their largest client, Housing New Zealand, that they were experiencing solvency issues and that they were struggling to cover their subcontractor payments.”

In March this year in the aftermath of the collapse of Arrow International and Ebert Construction, and Fletcher Building's well publicised woes, Auckland Council chief economist David Norman said the problems were being driven by demand side pressures.

“People look at the construction sector and see that it has been booming and say ‘how could a company go bust?’"

But he said in any form of construction where you see these huge increases in demand it becomes hard for businesses to accurately price their contracts. Norman said in the construction industry contracts can sometimes be agreed on years in advance, but they may not take into account inflationary pressures in the industry.

Economist Cameron Bagrie stated at the time that more building and construction firms were destined to fail. 

"You are going to see more failures within that sector, we haven't seen the last of it. What you have at the moment is a nasty combination where the sector is basically maxed out capacity wise, access to credit is becoming an issue because the banks are looking at everything closer, and costs keep moving up," Bagrie said.

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"And like so many construction companies that have collapsed in recent years, their demise has been tied to an attempt to undercut competitors to win a lucrative contract in a booming market."

producing a great deal of profit.

So no, not Lucrative, just large

Poor poor planning. And the consequence of race to the bottom pricing.

This is far from the last, in terms of construction company collapses.

Bit of a worry that the director is on the board of Panuku.

Was, he resigned that position.

Interesting that they are blaming incorrect costing for one project for a $2m loss when they appear to be $12m underwater. It looks more like many loss making projects and possibly operating while illiquid.

Anybody out there know a builder that can be trusted? Completely trustworthy for both the financials and the build quality that is. Next question. What the heck do you do about it. Can’t take them to court if they are bust, can’t take them to LBP or MBIENZ if they stuff up the job. Builders are unaccountable. And they know it. That’s largely why NZ has the problem it has in this sector.

Construction companies going bust because of underpricing.
Kiwibuild not able to deliver affordable housing.
I've had my own Architectural business for 18 years. You simply cannot, today, with current land prices, consenting and construction cost, build affordable houses. Those who claim they can, will fail.
This also provides a floor to existing housing, if land could be bought and houses could be built cheaper than the values of existing houses, then the latter would definitely fall in value. But this just cannot be done

So...ultimately if no one has affordable houses then there will be no meeting of supply and demand. Then at that point, something will move if people wish to buy or sell.

Land prices?
Existing house prices?
Building supplies in order to sell more?
Cost of labour, to keep working?

Do you believe in Santa as well as the free market.

I'm dyslexic. I sold my soul to Santa.

What might move is people.. NZers catching the Tin Bird out of here in increasing numbers again, and reductions in incoming migrants.

Cost of labor in NZ is too high. Minimum wages (& clamour for Living Wages!) is costing NZ to lose its competitive edge compared to other countries.

Hell yeah because a living wage of $20 an hour in a few years time will make it so much easier to buy a $1M house in Auckland ! The problems are elsewhere, its not the wages. Way to many "Hidden" costs that stack up, materials costs and land prices. To many people on the gravy train so the whole supply chain is a ripoff with the buyer at the end of it picking up the tab for the "Party".

'The problems are elsewhere, it's not the wages.' 100% correct.

That's why the house price to median income ratio is a good measure. After all, it doesn't matter independently what the price of the house is, or your income is, what is important is if you can afford the property, which is dependent on the ratio between the two.

So the solution is that either house prices have to come down or wages go up, or a combination of the two.

Up until the late 80's early 90's median ratio income to house prices was 3x, now it has ballooned out to 6x NZ wide, 9x Auckland, mainly due to the cost of land.

The reason land has gone up in price is because of the deliberate restriction of supply that has given a monopoly to those landowners.

They have earnt huge profits but have added NO value to the land. The less they do, the more they earn.

Imagine if the median multiple was the same today as it was up until the early 90's, your house deposit would go twice as far, your mortgage would be half the amount, you would have far more disposable income. All based on your present wage. No need for any of these wage strikes.

"So the solution is that either house prices have to come down or wages go up, or a combination of the two"

There is a third outcome which, unfortunately, looks more likely to me, there will be less and less house owners and more and more renters in the future, a trend that has started a very long time ago

Renting is not a third outcome.

Irrespective of the price, and irrespective of why people occupy it, someone has to own the house. Rent prices, are to some degree tidied to the price of the property, and more so were there is little capital growth. And yes while you will get less owners, what that means is these less owners, own more houses.

It is not so much if people rent, but to why they rent. If you rent because you can't afford to own, then that is more to do with the issue of affordability as we have in NZ.

But even in jurisdiction were houses are more affordable than NZ, many people initially rent, even when they could afford to own. This is because there is no real financial benefit either way, especially for owning long term. It would make no sense to buy early in your life when there is no difference than if you buy later in life. Especially where by not owning now makes it more affordable for you to buy later.

In such jurisdictions, what renting does is give you a lot more flexibility on where and when you live, so for example if you get a better job, higher income earning ability in another city, you are more free to accept. Where as if you are tied down financially into a house, especially one that you have bought on the wrong side of a cycle, then it ties you to that place and limits your opportunities.

Thus in those jurisdictions were most of peoples equity gain is not derived from housing capital gains, then when they do go to buy their forever home(for the emotional reasons for home ownership) later in life, then the house prices had never inflated beyond the general rate of inflation, and their increased income earning due to the flexibility renting gave them, plus their cumulative years of savings and investments in growth investments (because there money wasn't tied up in housing) means they can more easily afford to buy a property and of course the median income multiple of the property is lower than in NZ.

The cost of housing and people buying too early, trapping many of them in place, is one of the reasons for NZ's low productivity compared to other jurisdictions that have low medium multiples.

Also this 'only game in town' to wealth creation through property, means many other investments types are starved of needed capital.

Yvil, thanks for this comment from someone who obviously knows what they are taking about. Something has got to give to make building affordable again. Can you see a time ahead when construction costs could go down (labour costs I guess). Land costs certainly could if the market slides further in Auckland.

Thanks VoR, see my comment of 2 minutes ago, just above

Under priced by $2m but $13m in the red. The problems are way deeper than one project.

Cheap credit available and thus used it to expand into Auck?