Commonwealth Bank eases prefabricated housing lending as it looks to boost supply

Commonwealth Bank is the first major bank to ease lending guidelines around prefabricated housing in a bid to lift supply.

Commonwealth Bank will overhaul its lending requirements in a bid to make it easier for buyers to access prefabricated housing. Picture: NewsWire/Bianca De Marchi

Commonwealth Bank has become the first major bank to allow mortgages on prefabricated housing, as its says more creative thinking is needed to get the government’s target of 1.2 million houses built by 2030 back on track.

Australia’s largest mortgage lender is the first of the major banks allow customers to access up to 60 per cent of the total contract price before the prefabricated home is affixed to land, compared to homebuyers who need to cover up to 90 per cent of upfront costs currently.

CBA executive general manager, home buying, Michael Baumann said Australia was not on track to hit the Albanese government’s housing target, with creative methods such as prefabricated homes, which are faster to build, needed to unlock greater supply.

“We are behind the target right now and so as an industry we have to think creatively and innovatively about the space and how we actually can achieve that target because it’s actually needed for the greater good for Australians,” he said.

“We think prefabricated homes can play a major role. In Sweden, 80 per cent of houses are constructed using the prefab methods so there’s amazing room to actually go into the space and we think we will see quite some demand from customers.”

Prefab and modular building involve constructing parts or entire structures off-site, typically in a factory.

Commonwealth Bank's Grant Cairns, left, and Michael Baumann at Modscape. Picture: CBA

These components, ranging from walls and beams to larger modules like pods, are then transported to the construction site.

Changes announced by CBA will take effect this quarter and include allowing customers to access progress payments prior to the property being affixed to land, of up to 60 per cent of the total contract price, rather than the customer having to fund up to 90 per cent of the upfront costs, which has previously been the case.

Customers who use an accredited CommBank prefab manufacturer to construct their property will be able to access progress payments for up to 80 per cent of the total contract price.

“Currently you have to have the cash to actually pay for the builder for the period of time that you build house, because we only pay out the construction when the (prefabricated) house is put on site and at that time about 90 per cent of building costs have already been incurred,” Mr Baumann said.

“Anyone that didn’t have the cash to actually buy a prefab house couldn’t afford one so this will unlock greater growth for buyers to have access.”

CBA will also become the first major bank to join the off-site construction industry peakbody, prefabAUS, where it will sponsor the development of a standard form contract for the modern methods of construction (MMC) sector to support home buyers and manufacturers.

Modscape builds modular housing at its Essedon Fields site in Melbourne. Picture: CBA

Standard-form contracts for traditional on-site construction are widely available and accepted by banks, allowing home buyers to enter into an agreement and commence dwelling construction on-site with bank finance. However, this streamlined process does not currently exist for the prefabricated construction industry where homes are built off-site.

PrefabAus founding director Damien Crough said the partnership with CBA would overcome barriers facing the prefabricated housing sector and solidify its role in addressing Australia’s housing shortage by unlocking off-site construction.

CBA executive general manager of business lending Grant Cairns said standard-form contracts for prefabricated housing would give home buyers, builders and the banks the confidence needed to develop the product.

“We really saw this great opportunity to develop this product and it has already been a proven success in and Japan. It’s not the solution to all of our problems, but we’re very excited about it,” he said.

“Better lending will give more confidence to buyers on when they’re going to be able to move in and reduce the cost by not having to rent for as long.”

Using prefabrication, a house constructed in a controlled factory environment is built in 10 to 12 weeks, compared to around 18-plus months through conventional building, which CBA expected would save buyers significantly on hidden costs including rent and labour.

Prefabricated housing is seen as a fast way to increase supply in Australia. Picture: CBA

The Albanese government wants to build 1.2 million well-located new homes between mid-2024 and mid-2029. Data from the Australian Bureau of Statistics shows that for the 12 months to the end of November, 164,749 homes were approved for construction – about 75,000 short of the 240,000 new homes needed to be built each year to reach the National Housing Accord target.

The collaboration between CBA and prefabAUS has seen Modscape, a major offsite manufacturing company in Melbourne install a new robotic line at its facility in Essendon Fields, the first of its kind in the southern hemisphere.

“It plays a crucial role in facilitating the delivery of large-scale residential projects such as the Affordable Housing Project in Cairns, which is the biggest modular social and affordable housing project in Australia and will see 1008 volumetric timber modules delivered,” Modscape CEO Jan Gyrn said.

The group was able to complete eight modules a day at present.

Originally published as Commonwealth Bank eases prefabricated housing lending as it looks to boost supply