Banks urged to ease lending rules for flat-pack homes

The Albanese government has challenged Australia’s major banks to relax their lending rules for flat-pack homes after the Commonwealth Bank moved to make financing easier for houses built from prefabricated parts, amid a nationwide push to address the housing supply crisis.

CBA on Friday announced it would address barriers to financing for prefabricated construction, following a Treasury roundtable in November when banks, superannuation funds and other institutional investors committed to making it easier to lend for prefab homes that are quicker to build than homes built with traditional methods.

The Commonwealth Bank will relax its lending rules for prefabricated homes, which are being constructed at Modscape’s factory in Essendon Fields before being transported. Credit: PENNY STEPHENS

“There’s a national effort needed … to actually come up with innovative and creative solutions [to address the supply of housing’],” said CBA executive general manager of home buying Michael Baumann while touring ModSpace, which makes prefab homes, in Essendon Fields on Friday morning.

Prefabricated homes, also known as flat-pack and modular homes, are built in factories and transported near completion. However, homeowners are traditionally required to stump up 90 per cent of construction costs for prefab homes banks lend only for the final 10 per cent once the home has been transported to the site.

Under CBA’s new policy, which is a major bank first that will take effect this quarter, the bank will now provide progress payment loans of up to 80 per cent of construction costs ahead of the prefab home being affixed to the land, in a move welcomed by Industry Minister Ed Husic.

CBA will provide a maximum loan of $1.5 million for the construction of homes larger than 30 square metres. CBA will also help develop a standard form contract for “modern methods of construction”, such as flat-pack homes, to streamline the process for builders and borrowers when applying for a bank loan.

CBA’s Michael Baumann (left) tours Modscape with (second left to right) its chief executive Jan Gyrn, Prefab founding director Damien Crough and CBA’s Grant Cairns.Credit: PENNY STEPHENS

“As a government, we’ve been working with the building industry to cut red tape while encouraging banks to remove financing barriers holding back prefab and modular housing,” Husic said. “CBA has thrown out the challenge to the other banks with this move to see what more they can do to smooth the path for homebuilders interested in these methods.”

The Albanese government has turned to prefab homes to help deliver its target of building 1.2 million houses by the middle of 2029, which is behind schedule as construction costs remain high and potential buyers struggle due to high interest rates.

Treasury convened a roundtable in November to help drive capital into housing. The government is funding a voluntary certification scheme to simplify the process to get prefabricated housing approved under the National Construction Code.

Mathew Aitchison, chief executive of Building 4.0 Co-operative Research Centre and a professor of architecture at Monash University, welcomed CBA’s move, which he described as a breakthrough that he hoped would spur other major lenders to follow suit.

He said financing challenges had been a “thorn in the side of this industry”.

“I had a friend who was caught up in the northern NSW floods. He sourced a prefab building that he could afford and that responded to the design needs he had, only to find banks wouldn’t lend him the money because they didn’t have anything to secure it against like they would in a traditional build,” Aitchison said.

“Lending on things that aren’t physically located on one site is not novel to almost every other part of the economy, but given the ways banks lend on mortgages … it felt like a vestigial remnant of pure inertia. The fact they addressed this finally is common sense.”

The construction industry says 5 per cent of homes in Australia are made from prefabricated parts but Aitchison said the real figure was unknown because of poor data collection. The federal government hopes modular homes will make up 15 per cent of the country’s housing supply over the coming decades.

Prefab Aus founding director Damien Crough said he was confident CBA’s new lending rules would lead to a significant uplift in the number of people buying prefabricated homes.

“We have a significant challenge with the housing crisis, but we have a lot of really positive things happening … and there’s a lot of government incentives to push towards re-industrialisation and creating a really sustainable industry in Australia,” Crough said.

A recent Productivity Commission report showed prefabrication could reduce construction costs by up to 20 per cent and halve project timelines.

However, the cost of modular homes is comparable to traditional builds as transport fees can offset savings. But the industry says buyers could save money on rent and mortgage repayments while waiting for their modular home to be built as they are completed sooner.

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