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Where Labour got its numbers from for NZ$300,000 cost to build affordable homes; Delighted govt 'backs' raw land costs; Plus, can David Parker do maths?

Posted in Property
See video

By Alex Tarrant

The Labour Party's costings for building 100,000 houses over 10 years at an average cost of NZ$300,000 come from Department of Building and Housing figures, the Auckland Council, the New Zealand Housing Foundation and discussions with the building industry.

The NZ$300,000 includes estimated costs for raw land - about NZ$45,000 - which Labour says matches an estimate given by the Auckland Council.

Whether houses could be built for NZ$300,000 inclusive of land costs was raised in Parliament on Tuesday, with Prime Minister John Key, Housing Minister Phil Heatley, and acting Finance Minister Steven Joyce (Bill English is currently in Australia visiting mining developments) all taking pot-shots at Labour's KiwiBuild policy.

But Labour was delighted to hear from Housing Minister Heatley that the cost of bare land for each house in Housing New Zealand's Hobsonville development was NZ$46,000. Heatley argued other 'land' costs on top of that meant total land-related costs of NZ$200,000 in Hobsonville, before houses were actually built. 

KiwiBuild

Labour Party leader David Shearer announced the party's KiwiBuild policy at its annual conference two weeks ago.

Since then, Shearer has been visiting examples of house building projects which Labour says prove dwellings can be built for an average of NZ$300,000 each.

In Wellington last week, Shearer visited a Wellington Housing Foundation development. The Foundation said the four four-bedroom dwellings were each built for NZ$300,000 to NZ$350,000. Then on Monday in Auckland, Shearer visited some medium-sized New Zealand Housing Foundation developments.

Costs

Labour argues that economies of scale - bulk material and land purchases - will help it keep build costs down.

In its KiwiBuild policy document, Labour referred to this Department of Building and Housing starter home design competition winner as an example of one type of dwelling that could be built.

That example is of a 120 square-metre, three bedroom house.

Shearer has said different types of dwellings would be built under the scheme - new greenfields housing, town houses, and apartments are all on the radar.

“We’ve got to get away from the idea of a house sitting on a quarter acre section. That’s not going to be the future, particularly, say, in Auckland," Shearer said on Sunday.

Labour gave interest.co.nz ballpark figures provided to it by the New Zealand Housing Foundation of cost breakdowns for houses in a new greenfields development, with each house on about a 300 square metre section:

  • 15% (NZ$45,000) for raw land costs
  • 25% (NZ$75,000) for taxes, resource consent, building consent costs
  • 40% (NZ$120,000) for the actual house
  • 20% (NZ$60,000) for development costs

Labour's Annette King told interest.co.nz the Auckland Council believed 14% of build costs related to the cost of raw land - pretty much the same as the Housing Foundation estimate.

Labour also relied on Department of Building and Housing (now part of the Ministry of Business, Innovation and Employment) figures from this DBH calculator here when forming its policy.

The calculator allows for different permutations to be entered. But as an example, it provides an estimated build cost of about NZ$300,000 for a '202 square metre' house type built as part of a group in Auckland with 230 square metres of floor area.

The Ministry of Business, Innovation and Employment told interest.co.nz the calculator relied on figures supplied by Rawlinsons, a quantity surveying and construction consulting firm. The numbers are updated every six months, with the last update provided in July, the Ministry said.

Hobsonville

The cost of raw land was subject to much debate in Question Time in Parliament on Tuesday. While Prime Minister John Key and acting Finance Minister Steven Joyce took shots at the policy, King said figures provided by Housing Minister Phil Heatley on the government's Hobsonville development were most interesting.

"In light of his [Heatley's] statement that the Hobsonville affordable housing scheme demonstrates innovative, commercial, market-based solutions, that could be replicated elsewhere in New Zealand, what is the breakdown of the actual cost of land, house, and development for an affordable home to be built at Hobsonville?" King asked Heatley in Question Time.

Heatley had the numbers at hand.

"The bare land cost at Hobsonville's 46k; land for road and reserves, 46k; infrastructure works, 80k; professional consultants, 18k; consenting fees and development levies, 10k. The total cost before finance and margins, 200k," Heatley said.

"That's just the land, but apparently the Labour Party's going to build 100,000 houses, but not..." Heatley said, before being cut off by Speaker Lockwood Smith.

King asked whether Heatley had visited sites within the current Auckland City boundaries such as in Mount Roskill, Glen Eden and Mangere, to view homes which she said had been built for NZ$300,000 including land, house, and development costs, were of quality, and were affordable. 

"If not, why should New Zealanders believe the government that the only place that you can build a NZ$300,000 house is in Lumsden?" King asked.

Heatley said he had visited sites in those areas during the last few years.

"I think what the public question, Mr Speaker, is that you can build 100,000 houses in ten years. That's one house every hour, 24 hours a day, seven days a week, for ten years, and still be 13,000 houses short. That's what that party thinks Housing New Zealand is going to do," Heatley said.

At this point, Prime Minister John Key stood to ask Heatley a supplementary question.

"If it is so possible for houses to be built for NZ$300,000 in Auckland, un-subsidised, why isn't it happening today, and why would the government need to get involved? The answer is, it's not," Key said to cheers from Labour Party MPs.

Heatley said it was because builders and developers had advised the National Party that, "when they sell a property, people expect to buy the house, and the land. Not just the house."

24 x 365 x 10

Finishing off the session, Labour Party finance spokesman David Parker decided to question Heatley's figures.

"I would ask, Mr Speaker, whether the Minister checked his arithmetic coming to the House. Because by my reckoning, if there was going to be one house built every hour, for every hour of the day, seven days a week for ten years, there would be a build of 613,000 houses, not the 100,000 houses that the Labour Party says we're going to build," Parker said.

Parker now probably wishes he hadn't brought it up. Heatley said he supposed the press gallery would go and determine who was correct.

There are potentially two answers, given the way Heatley worded the equation:

Twenty-four houses built every day over ten years (and excluding any leap years - 24 x 365 x 10) gives 87,600 houses. About 13,000 short of what Labour was proposing, and in line with Heatley's math.

Another way of doing it would give 87,360 houses: 1 x 24 x 7 x 52 x 10. Pretty much the same.

Either way, quite a bit off Parker's 613,000.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

76 Comments

Isn't Parker shadow minister

Isn't Parker shadow minister of finance?
He's added an extra 7 into the equation. 24 x 7 x 365 x 10 = 613k. Basically he got days and weeks confused.

God help New Zealand!

God help New Zealand!

As the article points

As the article points out  the second biggest cost (25%) in building a house is TAXES , RESOURCE CONSENT , and BUILDING CONSENT ( Plan submission fees, etc etc  ).
This  does not even  include GST on the materials and the land which means that all up around 40% of the price of a new house is TAXATION.
Thats almost half of the cost of a new house is some form of Tax !
We all know if you want less of something you TAX it .
With this level of tax , levies , fees , and hurdles , it is surprising anyone is building houses at all
If anyone was really comitted to bring the costs of housing down by a quarter , then why not eliminate these taxes , levies and fees .
Why cant the Govt see this ?

true boatman...when I read

true boatman...when I read the costing that 2nd element disturbed me also. How can, with a scale program like this, consents and taxes, be $75K per section and house. You'd think a streamlined consent process would be possible for this program. $75K per section and house. That is the salary of one person for a year - a whole year - for one section and house! Good god.
 
Come on...something is badly screwed up in these councils

The elephant in the room is

The elephant in the room is that housing is a local government problem. None of the political parties are going to solve the housing issue until they get local government on board.

Have you seen the local

Have you seen the local councils debts being passed on to the local ratepayers for generations to come? If you have and you have heard the LBA CEO speak on his views of this debt then.............you may understand why they don't give a roaring f***

Boatman, Don't forget rates!

Boatman,
Don't forget rates! After one has finished paying all charges, fees, and taxes for the new abode, one has to accept new valuations imposed on a house irrespective of owner's preferences. And thay blame the increase in price on speculators.
Personally, I have seen the value of my property re-assesed by the council's agents without the courtesy of an inspection. The criteria used was: The house next door went up on a bubbly market, so your new rates are up... Don't like it, tough! Simply pay up, chump!! Or else...
Is it any wonder we are starting to see the froth rise in the housing market?
It's akin to the price of fuel. The government gets a percentage of the price at the pump, and as the price rises, so does the tax take, and the government coffers fill up without any of their cost increasing. Of course, OPEC gets the blame.
In both instances, the government benefits at the expense of the public, and they get to blame someone else. Is this a brilliant racket, or what? And we elect the buggers!!
HGW

Boatman - Compliance and

Boatman - Compliance and taxes are where all the costs are and not just in housing. 
I think the Govt can see it.....the trouble is the government and councils have debt up to their eyeballs and if they lower any of the above costs for the people then they simply aren't able to meet their funding needs. So all those costs will remain.
 
 
 
 

IF Labour were to get this

IF Labour were to get this off the ground it would create downlward pressure on house prices wouldnt it?
 
That'll create some powerful enemies for this policy.
 
 
Have a look at how many MP's own multiple homes. It's pretty smelly.
http://www.parliament.nz/NR/rdonlyres/DFA6C21E-69A8-433F-8BA9-956431281F...

That's the smoking gun! How

That's the smoking gun! How on earth do they get away with this? Maybe we let them...
HGW

Whatever.  If we, as the

Whatever.  If we, as the national party seem to be tellings us, cannot build sufficient houses to adequately shelter for our present population then there is no justification to allow new immigrants into the country.  We have a raft of evidence that housing in NZ is overcrowded and innadequate. Where do they think that new immigrants are going to live?  How far are we away from slums poping up arround Auckland, as per 3rd world contries.  That will make a dint in our bright shiney clean green immage.

Low spec group houses would

Low spec group houses would be about $1400/sqm (which is actually wht the DBH calculator gets too) so the 120sqm house has a construction cost of about $170,000. Labour does this same calculation and gets $120,000 - how do they propose getting a 30% discount? Even the DBH 120sqm starter home they refer to was $1400/sqm
 
They seem to be quite confused about the cost of building a house and the cost of the whole package including land. The Hobsonville Point example of $200k land plus a cheap $170K house giving $370-$400K is more realistic.

I see the DBH starter home is

I see the DBH starter home is at 128C Preston Road, Otara.
 
The requirement was $1400/sqm build for 120sqm = $168,000. It sits on 474sqm of site with a current CV of $320,000. It wasn't not a greenfield site so much cheaper to develop (the road and services reticulation was already paid for). 
 
However the house next door is on 680sqm and has a CV of $240,000 so that's where the maths breaks down. 

Hi Bob, Good stuff. I've just

Hi Bob,
Good stuff. I've just interviewed the architect. Should be up later today or tomorrow morning.
Cheers
Alex

Cool - it looks like a nice

Cool - it looks like a nice house.

Here's the dbh starter

Here's the dbh starter home:
 
http://www.dbh.govt.nz/codewords-36-2
http://www.youtube.com/watch?v=BYIRoNdF2F8&feature=channel&list=UL
 
A more basic house could be built for around $120-140,000 excluding land.
 
If land was able to be subdivided without development contributions in South Auckland, sections could be available at $100,000.
 
So yes an under $300k home in South Auckland is entirely possible.  The problem is people don't want to live there.  The solution is an overall approach to these suburbs where the density of HNZ homes is reduced, the remainder are upgraded.  Private ownership in the area would only succeed if the area becomes a reasonably desirable place to live.
 
Of course solving the problem of these neighbourhoods would solve crime, health and welfare issues too.
 
Maybe an overall approach is needed?  Look at how Ponsonby transformed.

Ponsonby, Chris J

Ponsonby, Chris J ,transformed by means of displacement....back in the late 40's through the fifties a lot of working class , such as freezing workers  and the like bought in Ponsonby but had to commute to Otahuhu and similar areas like Penrose for work.
 At that time Onehunga was considered an upgrade  for both practical and prestige reasons, hard to believe..? try Collingwood St for Church St and they paid more for the smaller home in Church St  ( still q/acre) than they got for Collingwood St....ha ha...boy if they only knew eh...?
 Still the point is when you displace a demographic , they still gotta go somewhere, so your really suggesting a herding mentality like harlem and so forth.
You say... Of course solving the problem of these neighbourhoods would solve crime, health and welfare issues too.
Phew, a little naive of you as you obviously don't know they come to areas to visit , well out of their own area , and burglary stats back that up ...auto theft and so forth similar stats.
As I said the other day , pardon my cynicism, but I think you have your own developmental and speculative interests at heart here......
 

christov: back in the late

christov:
back in the late 40's through the 50's a lot of working class, such as freezing workers and the like bought in Ponsonby but had to commute to Otahuhu and similar areas like Penrose for work.
 
Talking to a friend a couple of years back (about family, her father, and education, and qualifications) who said back in the 50's if you were tertiary educated and wanted a good income you worked as a wharfie on the wharves or in the freezing works at southdown ..
 
What she meant was, many who worked on the wharves and in the freezing works were tertiary educated ..

Working class does not imply

Working class does not imply a lack of education iconoclast, but certainly in the particular case I'm referring to ,and those of his workmate associates, some of whom that took on roles as inspectors production managers and the like , nonetheless identified themselves as working class.
 It wasn't a problem back then as with o/t /allownces and bonuses you could comfortably earn more than the Administrative staff.
 Ask any wharfie, toolmaker, freezing worker from that era.
 Oh and P.S. tertiary education was free and encouraged if so inclined.

Sor'right. Can relate to

Sor'right. Can relate to "working class" having come from that side of the tracks myself. My grandfather was a coal-miner in Rotowaro and lived in Glen Afton, got injured and moved the family north to Auckland and worked in the freezing works at southdown, got injured again. Not a health sustaining lifestyle. My ole man was working class too. Went looking for Glen Afton a coupla years ago to visit the roots. A remote little shanty town of about 20 small dwellings. In the case of my friend, her wharfie father packed his family up and took off back to england, dont think he liked the working class bit a whole heap. She keeps coming back every coupla years. The place is in her blood.

Best place for an

Best place for an Englishman....anywhere but here.!

I have no interests in any of

I have no interests in any of those areas - only in well-heeled and rarefied inner Auckland suburbs!
 
I can't see why the country has to put up with state houses being abused by their occupants, and whole sections of our cities being handed over to delinquents.
 
Give the occupants some strict house rules if they wish to live in state funded housing and punish them if they stray (either boot them out or give them financial penalties).
 
Why not ban smoking in all Housing NZ houses?  Enforce strict rules on noise and the number of visitors.  Why not require tenants to maintain their gardens?  Give them a sense of community pride.  They can develop some self reliance, grow their own veges, keep their homes well cared for.
 
We can't assume that 20% of our population is beyond redemption.  Many are just lost, wasting their time, falling into crime and becoming a drag on society simply because they have lacked any leadership roll models their entire lives.
 
Sort out the housing issues in these neighbourhoods, sort out the schools and the community issues.  Empower grassroots community leadership to return to these suburbs.
 
A diaspora of the ghettos is a solution in itself, as these ghettos simply agglomerate the crime and delinquency that blight our cities.  These ghettos can't be allowed to fester in squallow for future generations to come.
 
Improving the housing can be acheived with virtually no cost to the taxpayer.
 
The state can sell most of it's rundown housing stock and replace it with new quality homes at less than the revenue generated from the sales.
 
Transforming these suburbs with private and community involvement would create a huge amount of employment.  The transformation of peoples living standards from added employment opportunities would reduce crime, increase prosperity and allow other sectors to benefit from an improved workforce.
 
This is something that could transform the country from the bottom up at absolutely no cost to the taxpayer.
 
A broken windows policy that could see NZ actually become the best place in the world to live...
 

Why not ban smoking in all

Why not ban smoking in all Housing NZ houses?  Enforce strict rules on noise and the number of visitors.  Why not require tenants to maintain their gardens?  Give them a sense of community pride.  They can develop some self reliance, grow their own veges, keep their homes well cared for.
ever heard  of civil liberty.....?
I don't know whether to laugh or cry ...are you taking the piss..? because if your not then it appears you have the notion State house dwellers are all in need of monitored regulation.......deary me your not elitist by any chance...?
There are many types of bad neighbours Chris J.....
And one of them is the one think's he's better than you, needing to yank his head from his anus to get a clearer perspective of the world about him.
 Hey why don't we just sterilize them or lock em up....... 

As a landlord, I can ban

As a landlord, I can ban smoking in my properties - which I do.  I can put limits on the number of occupants - which I do.  I can ban tenants from having more a certain number of guests - which I do.  I can insist they maintain the property in a clean and tidy state and do inspections to that effect - which I do.  I even ban barbeques except in certain locations. 
 
If the tenant breaches I can serve notice and if they continue to breach I can apply to the tribunal to terminate the tenancy.
 
If the state doesn't do these things they are not a very good landlord.
 
Why should people get the benefit of living in a state house and have no responsibility?
 
There are plenty of things you do not have the liberty to do:  driving drunk, driving at 70km/hr round town, talking on your cellphone while driving, not attending school for under 16s, using drugs, stealing other peoples stuff... you get my point...

I love you Chris_J

I love you Chris_J

I totally agree on the

I totally agree on the smoking and keeping the property clean and tidy - these are almost ubiquitous rules with rental properties anyway.
The rules with BBQs and limiting numbers of guests are more interesting. Although I can see the reason for these rules, as a "good tenant" they would make me feel like a second-class citizen that can't be trusted. Renting makes financial sense for me, but rules like these are the reason I won't do it forever.

I would also like to see them

I would also like to see them enforce the maximum houseguest rule at tenancy tribunal. If your rental agreement had a maximum 10 guests or something and you had a gathering of, say, 20 or 30 and didn't have a history of wild parties, I imagine an eviction notice would be swiftly overturned by the Tenancy Tribunal.
 
I think it exists as a tool for allowing landlords to evict people that constantly have large, noisy gatherings. Trying to actually use it to the letter of the law would probably be another thing altogether.

I wonder, do you ban over

I wonder, do you ban over weight tenants incase they stress your foundations, or limit the number of steps per week a tenant can take in the house as a means to mitigate wear on your flooring? If you are banning smoking, why not ban the cooking of curries, which can equally taint a houses decor?
As such a fan of rules for tenants, are you also a fan of rules for rental housing? What about some rules stipulating minimum insulation standards, double glazing perhaps or is that a step to far? Keen to see a rule imposed for minimum levels of moisture in a house, or maybe something that deals with black mould?

I can't discriminate, but I

I can't discriminate, but I do ban high heels if the property has timber floors.  Ideally I would ban shoes entirely, but that depends on the property.
 
Actually a good test to tenant selection is seeing who takes their shoes off at the door.  If they don't and it is a property with good carpets or floors I will ask them to.  If they grumble they're goneburgers.
 
Re mould, at some properties I provide a dehumidifier.  I do ban gas heaters too!  (My tenancy agreements do run about 4 pages...).  Mould is often a tenant created problem (although I don't seem to have too many problems with it) as most bathrooms have mechanical ventilation attached to the lighting.  Some of the older bathrooms with louvre windows work very well for ventilation because tenants always tend to leave them open.

Would you like to

Would you like to discriminate?
 
If you are banning gas heaters, have you installed a heatpump, or ensured that the house has minimum standard insulation?
 
Mould isn't always a tenant problem. Its as much an issue to do with poorly design houses. Have you invested in your properties  by increasing their insulation values, installing an HRV style ventilation system for the older damper versions? But I guess there is no real need, as the tax payer via the health system can subsidise the effects of poor quality rental housing.
 
You have side stepped my question about minimum rental standards. Or is it that you prefer to have double standards, one set of tight rules for tenants, but a set of loose guidelines  for landlords?

I don't think it is necessary

I don't think it is necessary to discriminate, on any issue other than cleanliness, politeness and so forth (ie no dirty, rude ones please..).
 
Almost all my residential properties that are rented have heatpumps now (the couple that don't are smaller a small flat and a small house).
 
Standards can't be just for the sake of it.  For instance insisting on double glazing is just silly, especially in heritage and character properties.  And most of whether a house is warm and comfortable or not, depends on it's position and layout which are things that can't be changed by a regulation from some bureaucrat.
 
On double glazing, we recently refurbished one villa adding proper double glazing to the timber double hung sash windows.  It is do-able and not out of the question expensive if you need to reglaze anyway (as we did) but it would be an unnecessary expense for the gain if you had perfectly functioning windows.
 
Of course with all these refurbishments rents continue to rise.  Really it's moving to $450pw+ for a full house in ChCh - well up from the $300pw just a few short years ago.

LOL Why not ban smoking in

LOL

Why not ban smoking in all Housing NZ houses? Enforce strict rules on noise and the number of visitors. Why not require tenants to maintain their gardens? Give them a sense of community pride. They can develop some self reliance, grow their own veges, keep their homes well cared for.

Ah so that's why state housing tenants haven't managed to break out of the poverty trap and get ahead - we gave them too much personal freedom!

So you're saying if remove a load of the freedoms that home-owners are allowed to enjoy, impose a curfew, restrict visitors, and crack down on any noise infringements, this will give them a sense of community pride?

Or do we need to give them a sense of community pride when we hand over the keys (and crack down on those personal freedoms)? Your instructions weren't very clear.

And this will create a sudden outpouring of self-reliance, home-grown produce, and spring cleaning?

Awesome.

People need rules,

People need rules, particularly those that don't think they should have any rules.
 
All I am suggesting is that if a person gets the benefit of subsidised housing, then they should have the decency to respect that property and its neighbours and keep the property clean and tidy.
 
Most low income people would feel that they should do this.
 
Those that wish to fester in their own squalor should either not receive the benefit of state housing, or the state should assist them by deducting additional expenses from any benefits to keep their homes clean and tidy.
 
Private home owners of course would still be allowed to live in their own filth!
 
As a regular property buyer I can tell you some wonderful stories of unbelievable grime and filth in properties that I have inspected.  Generally the stories would shock and describing them here would probably get me banned by Bernard!  But for your benefit here's a couple of horror stories:
 
1. A house with only one bath (no shower) which doubled as the coal store.  The same house had no indoor toilet and papers stacked to the ceiling, and that's not half of that story.
2. A house with no indoor toilet and an outdoor toilet that the owner decided didn't need used while there were good plastic bags available.  I won't describe where the used bags (which weren't emptied) were left!...

That 20% you are refering to

That 20% you are refering to are property people I assume.
In that case, I totally agree. Sometimes they move into our area and we have to shoo them away. The schools can't cope, one day it's all champange for breakfast, and the next they are slinking away, broke.
How the hell are the schools supposed to plan the class sizes when these losers wet thier pants at every OCR announcement and have to move on?
 
 

Exactly! "100% PURE

Exactly!
"100% PURE CORRUPTION" 

Hi I need one of these

Hi I need one of these section for $45k badly now.
Can someone tell me where it is?
 
 

that section is behind my

that section is behind my house which is behind 3 other houses down a shared driveway .
not quite big enough for kids to play on after a house is built  but there is plenty of driveway.
Plenty of parties starting on fridays and loud music is turned down about 3 am .
By the way your car must be hotted up and make plenty of noise and if you have an arguement with your partner ,don't worry we will all know about it but say nothing.
Enjoy your stay.

Fiji? 

Fiji? 

It surprises me (well not

It surprises me (well not really) that we are focussing on the symptoms rather than try to identify the causes of asset bubbles (house prices).
Asset prices are most linked to liquidity, and central banks have created a fair bit of that in the last few years. Tax policy has in NZ has favoured property as the least risky play to get capital gains on cheap and easy money. Property is worth what banks are willing to lend against it. And people will lever up their deposit based on that bank criteria and tax free profit (capital gain).
Our problem is getting capital to work productively, creating lasting wealth, earnings and jobs. The ability to rent or buy a house will flow from that.
Where is the discussion on the fact that no matter how crappy the economy performs bank profits are at record levels. Yeah yeah, heard all the drivel on how big their business is etc. The problem for me is bank earnings are on top of the productive economy, extractive if you like.
Disposable income continues to fall.
Build a bunch of houses, argue over the costs, what the hell policy is that.
Where is the leadership we need to realize the economy is bogged down under interest paying debt and cannot get moving, as is Europe, US, basically all of us.
Government will need to play a much larger role in this mess than many are comfotable with, but debts today will not be paid back......how will they not be paid back is the question.
Building a vibrant sucessfull growing economy will sort out the housing issues over time.
What we have now is simply peurile gutter politics.
Cheers.
 
 

Of course their are lots of

Of course their are lots of things that cause housing bubbles, which can be summarised as demand and supply. Everything from easy credit, immigration to local government planning regulations etc.
 
What is not often considered is that there are two types of bubbles, construction booms and price booms. In economic terms if the market has a limited supply response (inelastic supply) then increased demand leads to higher price rises than quantity increases.  If supply is responsive (elastic supply)  then quantity increases more than price.
 
In the US those cities with 'smart growth' policies the increased demand from easy credit, immigration, etc led to medium house price to income multiples of up to 10. Those cities with more liberal growth stratgies had more construction and lower price increases. Some of these cities over constructed and were left with a surplus of unwanted houses and quite low income to house price multiples.
 
New Zealand has had a limited increase in building but a big increase in house prices. So the major problem has to be supply constraints.

Of course, chaps and

Of course, chaps and chapesses, the 'raw cost' of land even at top of market dairy prices is around $30K/ha.
 
So, off with the socks, all computational elements in play, envelope (back of) as working surface:
 

  • Purchase 30 ha of rural land.  $900K at that top rate.
  • Allow 33% for roads, reserves and utilities.  20 ha left, per ha rate is now $45K
  • Chop the rest up into average 600 sqm lots that's - um - 33 sections, which therefore cost - double um - $27,273 each
  • Allow $40K each for roading and core servicing so we are heading to $70K/section.

So we have basic sections, serviced, but excluding the gruesome bits:

  • How much the Council will wallop each one for the Four Wellbeings, sustainable locavore festivals, community development advisors and other essential cultural infrastructure
  • How much to hook on to water/sewer/stormwater/power
  • taxes and resource consents (its ag land, dinnae ferget)

So it's clear that the rural-urban multiple (x10 in Auckland) has a lot to do with everything. As HughP notes, if the land price is wrong, everything on top is wrong too.
 
And how did the rural/urban multiple come about?
 
Squiggles on maps.....
 
I think the suggestion by some naif above was to 'get local government lined up'.
 
I consider it'd haveta be blindfolded, in front of a solid wall (NZS3604 and Building Code Compliant, natch), and with plenty of spare magazines....
 

Waymad I liked your

Waymad I liked your explanation more than my boring one above.
The country is being buggered by squiggles and the solution is not that expensive just the cost of a few bullets... pretty quickly those squiggles would be gone.

Ah Waymad, one slight

Ah Waymad, one slight problem:
 
20ha=200,000m2=333 x 600m2 sections.
 
So if you can buy the land at the rural price, the raw land cost is actually $2,700 each.
 
With no development contributions (aka taxes!) it would probably cost $40-50k to develop a flat site to a reasonable standard, ie sections around $50k.
 
BUT problems:
1.  Land isn't $30k per hectare near big cities. 
2.  Development contributions are around $30k per site in ChCh, even more in Auckland.
 
Around ChCh you might find land around $100,000 per hectare close to the city boundary (4ha blocks at $400k) - but not right on the city boundary.  That puts the raw cost at $9k per site.  Immediately adjoining the city boundaries you might expect to pay double that for rural zoned land.
 
Generally undeveloped residential zoned land has sold at around $30-50,000 per lot around ChCh.  Finished sections still start at $150k plus.
 

Chris J Your maths is right.

Chris J
Your maths is right. some of your other assumptions are questionable. Christchurch subdivisions are limited to 15or more household units per hectare. Selwyn and Waimak I think it is 12. That is why you can get bigger sections in Rolleston. Why would a developer buy an expensive lifestyle block of 2 hectares and only 30 house subdivision. They would buy an actual farm, orchard etc. that was much larger but cheaper per hectare. Not necessarily on the urban rural boundary but within a few kilometres of it. Certainly there will be cheap land somewhere closer than Rolleston.
 
But really we are only talking about a few thousand dollars per section. The land improvements i.e. roads, water, sewage etc. will be tens of thousand more. This brings the section price up to something like $50- 60,000. It is all the other charges from the council, which are basically taxes that is causing all the damages.
 
Finished sections in Christchurch large enough for a family home and a yard are $200+. Only 400m2 sections which means no yard for kids can be bought for $150.

Brendon, prices depend on

Brendon, prices depend on where you are looking.  Full sections in TC3 blue zones are selling for as little as $75,000.  The cheapest new subdivision sections are low $100s (Linwood). 
 
Anyone paying $200k for a full site on dodgy Halswell land is plain loopy.  Full sites in Merivale have sold for not much more than that recently.
 
Land values in ChCh are going down, developers banking on getting anything like $200,000+ for outer subdivision sections with the huge amount of land rezoning and thousands of homes being torn down in green zones, are simply dreaming.

I hope you are right. I would

I hope you are right. I would like to stop renting and build somewhere in the norh-west (near family) but not interested in mortgaging my soul

North west is the one part of

North west is the one part of town that you will have to be very lucky to pick up a bargain section at the moment - for obvious reasons.
 
Section prices in the east and south will fall, and prices around $80-100k will (or already are common) for full (600-900m2) single unit sections in average streets.
 
In the north west, you may find townhouse sites in the late $100s, but the best bargains in these areas will be the Merivale, Fendalton and St Albans sites which are already selling at around 30-50% below what were realistic 2007 prices due to the huge number of vacant sites from demolition of older homes.
 
However if you do not remember how expensive it was in 2007, you may not realise the current pricing as being cheap.
 
In 2007 $1000/m2 in Fendalton was really the minimum.  Now $650/m2 is a good price to get even in a top street.
 
A full site in a reasonable part of Avonhead, Ilam or Burnside would cost around $300k+ in 2007, so if you can get a good one at $200k because of a demolition you could be doing very well indeed.
 
These price falls are because the landscape has changed.  However existing homes are well above 2007 levels in general.  The increased building costs have swallowed most of the discount you will get from buying sections at todays lower section prices.
 
However my firm view is that in the end section prices will recover in inner and desirable areas, but in the east and on some parts of the hills they will languish as supply will exceed demand for many years to come.
 
If you want a house don't wait until tomorrow, because house prices and building costs are going to outstrip any benefit from section prices falling (and they are only going to fall in areas that you don't particularly want to live anyway...)

Thanks Chris J good

Thanks Chris J good information.
For non financial reasons we cannot commit to buying/building at this stage. I reassure myself that there is a good chance (maybe 50%) that this whole housing affordability issue will break soon and something like what Hugh is proposing will occur. I think both the politics and the economics of the situation is pushing in that direction. But there is a lot of resistence...
If it does happen I think the recent post earthquake house price increases in places like the north-west will be reversed. I do not see any major collaspe in the existing house market. But the big effect will be in the house/land costs on the outskirts of Christchurch. And then over a 10 to 20 year period Christchurch the housing market will return to its historic ratio of house prices being 3 times medium income. This effect will occur by stagnant house prices in comparison to general inflation and wage growth.
That's assuming PDK's peak oil prophecy doesn't cause the end of world as we know it...
 
 

In an earlier article a

In an earlier article a figure of 120m2 per section was mentioned, but so has 250m2 so let’s run the numbers at 250m2. This gives 32 sections per ha (after allowance for roads, reserves etc.) x $45,000 per section = $1,440,000 ha raw land cost. The reason for this outrageous raw land price is due totally to smart growth restrictive land policies which Labour and the Greens promote. The real raw (rural) land value is about $30,000 to $50,000 ha.
 

So even $45,000 raw land

So even $45,000 raw land price for 250m2 is a rip off! Being $1.44 million per hectare, for nothing but grass and dirt. No roads, no sewage, no water, no parks. There is nothing special about this land except it complies with the squiggles.

"Complies with the

"Complies with the squiggles."
 
Love it!  I'm going to use that line when telling family and friends why housing in New Zealand is so expensive.  It's those damn squiggles they keep drawing around our towns and cities! 

Heatley.............one of

Heatley.............one of NZ's most gutless MP's!
When we live in a country where just about every builder and tradesman in the CHCH rebuild is being forced to sign a 'don't talk to media waiver' or no work........then forced to pay $100 a night for a unpowered tent site in Ashburton( inside knowledge) .............well..........it's pretty clear PRICE gouging is ok! 
When we live in a country where private landlords now hold the hearts and minds of our elected MP's no matter which party you vote in...........well..........it's pretty clear democracy and freedom of speech is long gone.... 
When our exporters are told to shove it in relation to the NZD! 
When our farmers can pollute at will and no LBA or MP's will hold them to account including the PM who thinks McD's  'lov'n it' is an adequate comparison to claiming "100% PURE"
This country is screwed, corruption and greed is everywhere........and not ONE citizen seems to give a toss..........aslong as they get a benefit to help breed 

Great discussion

Great discussion everyone.....Now after 8 years people are getting in to the structural numbers....this is great.
 
Just a few points...
 
(1)    The Performance Urban Planning and Cantabrians Unite websites have just been updated. Check out all the latest new at Cantabrians Unite facebook as well.
 
(2)    Note the Definition of an Affordable Housing Market on the front page of Performance Urban Planning. Building houses today is a very formulaic business....and has been since the time of the Levitts following WW11. Read Opinion: Houston, we have a (housing affordability) problem | interest.co.nz .
 
(3)    Why are they getting new starter stock on the fringes of the affordable US markets for about $US600 per square metre ALL UP – here north of a staggering $NZ2,500 ? Why haven’t the detailed numbers for both been lined up – so that we can see where the problems are ?
 
(4)    Here arenew homes for sale in Houston ... Houston New Homes, Greater Houston Home Builders | NewHomeSource . Note Americans use only living space when quoting building areas. Add 3x3=36 square metres for garages. Convert square feet to square metres by dividing by 10.764 .....so that you are comparing “apples with apples”....just so you get an idea how much you are currently getting screwed for new housing in this country.
 
(5)    The problems and the solutions are set out within Christchurch: The Way Forward | Scoop News .... in particular Section 4.
 
Hugh Pavletich

geez those houston houses are

geez those houston houses are like a different planet. Beautiful big houses at unheard of low prices for us kiwis....it's unbelieveable we're in such a pickle here in NZ

rp.....That has been the

rp.....That has been the whole purpose of the Annual Demographia Surveys with the associated work over the past 8 years....to illustrate to Kiwis and Aussues just how much they are getting screwed on housing....unnecessarily.
 
Houston is just one of the vast majority of affordable and NORMAL markets throughout middle North America.
 
In contrast ours are unaffordable and ABNORMAL.
 
As Deputy Prime Minister Bill English has made clear, it is a very dangerous market indeed.
 
The Government simply has to act now, because they cant afford to see another $100 through $200 billion of addotional bubble value incorporating $25 through $50 billion of bubble mortgage debt pumped in to it. Thats on top of the $300 billon of bubble value already in there incorporating about $75 billion of bubble mortgage debt.
 
Put another way....in noramal affordable housing markets mortgage loads should not exceed 2.5 times annual household incomes. Lending Multiples must mirror the Median Multiples of specific markets, So silly Kiwis are taking on currently around 6 through 7 times annual income of bubble mortgage debt....which will expand out to 8 and 9 times if this bubble is allowed to inflate further.
 
It got theough to 11 times in California during 2007, before the thing blew apart, triggeringthe Global Financial Crisis.
 
Our housing market is a shambles. Personally, I wouldn't develop a dog kennel in it.
 
Hugh Pavletich

....well please don't get

....well please don't get discouraged and keep at it Hugh. 8 years is a long time, but you will do a great service to the country if you can assist turning this huge problem around. I personally look at it from the economics side. I see this as both a great anchor holding NZ down and a pied piper leading us toward a collapse. I will certainly be voting for whatever political party has solutions to pop this terrible bubble. It is the number issue in the country.

When was the last time NZ had

When was the last time NZ had a good old fashion riot about injustices commited by our so-called "leaders" ?
hmmm, 1981 I think..........
"Power corrupts and absolute power corrupts absolutely". 
No one does anything to society's benefit as a whole without forced persuasion and threats to liberty, hence we have police, courts, judges, councils etc making sure every citizen tows the line........
Yet..........where is this concept of FEAR based leadership and control to keep in line the MP's, the monopoly/duopoly corporations, the councils themselves, the richest members of our society?
No..........this is not Egypt yet.............
But............we are very rare as a democratic country and here is why:
To have  a properly functioning democracy, there are three branches of the State - the Executive [the Government], the Legislature [Parliament] and the Judiciary. Each branch has a role to act as a check or balance on the excessive powers of the others.

But New Zealand does not fit that category. Traditionally the Executive dominates the Legislature, and both dominate the Judiciary.
 
So...........when the Government feels threatened it...........................that's RIGHT!  It NEVER feels threaten! So how do we define democracy under such rules?
 

Alex....congratulations on

Alex....congratulations on the outstanding jon you are doing reporting on these hugely important issues.
You and the Interest Co NZ team have made an enormous contribution over the years.
Hugh Pavletich

Poor Heatley.....isnt he

Poor Heatley.....isnt he pathetic with STILL no grasp of the issues.
 
If he was up to speed with his subject, he should easily be able to tear Labour apart. And didnt David Parker just hand it to Heatley on a plate ! But sadly there appears to be only birdseed between Heatleys ears.
 
This is very disapointing as I spent so much time "educating" him in these issues through 2007 and 2008.
 
Its past time he lifted his game.
 
Hugh Pavletich

Remember those kids at

Remember those kids at highschool who got into debating competitions, and got all exited about the most meaningless and ridiculous non-issues. They grew up and became politicians. They're little kids playing games. They don't really give a toss - in one ear, out the other.

Says a man who spent

Says a man who spent thousands of hours investigating the global relationship between house prices and incomes, but who steadfastly refuses to ascertain the future of said incomes.
 
You can't be said to be educating if you're coming from a stance of chosen ignorance.
 
Heatley probably knows. I suspect that a good number of the Govt are not just blind ideologues, but folk who realise this is the beginning of the end-game, and are manoeuvring accordingly. If they genuinely believed in infinite growth, they wouldn't need to narrow down the list of those who benefit from power-co ownership. The fact that they have to play a 'relatively-worth-more-in-a-zero-sum-game' game, speaks volumes.

Are they all buying

Are they all buying bunker+land packages from the local property developer kilmog (pdk) area? I hope you're paying the required resource consent fees etc ...

Not

Not bunker....re-align....humans have survived best in a village / tribe kind of setup for thousands of years.
Hence the best quality of life and longest will be statistically something along these lines and not sitting on your own with a SVD....much as I love it.
regards

A village/tribe (direct

A village/tribe (direct descendants of the monkey clans - see 'Before the Dawn' - Nicolas Wade) may well be the default setting if we have to hit the factory reset button.
 
But consider the losses in this highly sustainable way of living:

  • kiss goodbye to most present rights, including personal freedoms and gender equality.  Tribes are ruled by The Big Man (note that gender) and if'n yer not in with The Man's crew, (like, wearing the wrong colour cap down Main Street) you'll shortly find yerself on a Ship of Fools (on a Good Day) or pegged out on the local beach at low tide (on a Bad Day).
  • kiss goodbye to most scale enterprise:  mining, metals, the shaping thereof etc.  Enterprises and capitalism depend on the utmost trust between total strangers, and tribes/clans do not take kindly to strangers (that's part of their core definition..,.)
  • kiss goodbye to cities and hence to the clustering and innovation thereby made possible:  the various Renaissances that have taken place over the centuries have arisen from the cross-fertilisations of (quelle horreur!) Different Types Mingling: tribes don't take well to such uncontrolled goings-on.

 
The genius of the Anglosphere is that we invented portable, discretionary (choose your own) tribes via countless associations, enterprises, and ventures, after millenia of imposed tribes via blood, locality, religion etc.  The Enlightenment did for all that.
 
Mind you, the re-tribalisation of the world has been long predicted, and Blut und Boden still has a visceral appeal to the revanchists amongst us....

stupid comments. Personal

stupid comments.
Personal rights go out the window when a species is in overshoot. There aren't the resources to underwrite them - the Wade fellow is counting the wrong thing.
 
Scale enterprise is energy-consumption, writ large - the Wade fellow is counting the wrong thing.
 
Cities are artificial habitats - requiring transported inputs. Whether or not they are a breeding ground for intellectual intercourse, doesn't change that fact.
 
He puts the wish ahead of the fact.
Even intelligent folk do this, amazingly. I regard Gwynne Dyer to be one of the more intelligent journo's on the planet, but in his lecture here, he opined "I like who we are" then attemted to take it from there. Same problem, and it leads to twisted logic like his latest (nuclear/ODT) offering.
 
Presumably the first-class passengers on the Titanic enjoyed their cerebral intercourse, and 'liked who they were' too. They may even have come from cities.

PDK... Do you really believe

PDK... Do you really believe what you write? "I suspect that a good number of the Govt are not just blind ideologues, but folk who realise this is the beginning of the end-game, and are manoeuvring accordingly."
Or are you keeping an eye out for chemtrails? Serious stuff!
 
http://chemtrailsnorthnz.wordpress.com/

Robbybynumber - you can't

Robbybynumber - you can't 'bunker', any reasonable thinker would see that you have to change society, that you can't insulate. That's why the nuclear fallout shelter folk of the '60's were wrong, at the end of the day, you had to push to make society non-nuclear, the only valid approach.
We have demonstrated what can be done, sustainability-wise, which is a quite different thing from bunkering. Going down the track others will have to follow, whether they accept that at present, or not. (You don't need consent for vegie gardens, last I heard.....). Now, I teach, although I note with interest, that there are a lot who don't want to (or can't) learn.
 
www.smithsonianmag.com/.../Looking-Back-on-the-Limits-of-Growth
 
GHB - I don't 'believe' anything. It doesn't take a great deal of intellect to see that 'wealth' is based on use of, and extraction from, the planet. If it wasn't, the Nats wouldn't have to be looking at extracting everything in sight; we could all get 'rich' in some magical way without natural resources.
 
The fact that this is their only move (aside from shafting the bottom-end) verifies the obvious. So you can look to an end-game, given it's a finite planet. Time is the only variable. Given that theirs is a growth path, you can anticipate it will falter at the half-way point. 'T'aint rocket science. They can't all be stupid enough to think that resource-based growth goes exponentially forever.
 
Can they?

Vegie gardens, actually when

Vegie gardens, actually when you look at the way home grown produce is being frowned on plus the "intelectual property" scam thats comeing to us via the TTPA (or what ever its called) I wouldnt be too sure.  Or maybe we'll find sure you can have a vegie garden but it has to be monsato suicide runner beans....
regards

I certainly see what he

I certainly see what he writes is based on math, physics, engineering and geology, hence I certainly believe it (if belief is the right word).
The only point we differ is the intermediate stage where I think we'll see huge deflation and he seems to see inflation as more likely....kind of an interesting difference...in a way its the same thing....prices might inflate but there wont be the return on the investment....so if its borrowed $s its bye bye.....
"end game" well if you assume they are not (mostly) stupid like say Brownlee or fanatical in their beliefs then I would expect them to get into a position to best get through this....its a case of watch what they do and not what they say.
I dont for an instance consider JK stupid....he's made a lot of money, in a very hard arena stupid ppl dont really.  So it depends on if he is wedded to his political beliefs or more practical....I think the latter.
regards
 
 

Yep, there's the

Yep, there's the race-to-the-line with the corporates of the world. They try and privatise the commons, then profit from the monopoly. They can't do anything else, given the blind obligation to profit.
 
Same with builders, almost everyone. You make your activity exclusive, then charge for the monpoly. Doesn't work when they can't pay, though, and that's where it has to be headed.
 
Folk will grow food whether it's legal or illegal, if they have to do it to live. One of my columns recently was about how rules in society, are only enforceable in a high energy-input regime. Just look at the stress coming on LA's. My November one was about the possibility of those of us with land, sharing it (in garden allotment form) with young folk who 'get it', and know the door is shut for them.
 
This kind of folk:
generationzero.org.nz/

Sorry for the stupid

Sorry for the stupid computational error folks, of course a hectare is 10,000 sqm.  I'd blame it on having only one sock off, except....
 
The economic damage caused by these crazy policies is what needs to be hammered home:  HughP has been very focussed on the 'broken-record' approach and it is gradually seeping through.   Perhaps.
 
Let's tabulate the said damage:

  • Median multiples in perma-unaffordable zone
  • Acquiescence in a materials supply cartel
  • Lack of nation-wide type approvals (for e.g. factory-built dwellings) - consents are Still a local-authority issue.
  • Complete absence of time-money rules in the entire consents etc processes including the RMA.  Quick fix would be to adopt current IRD rules - just try missing a tax payment and see what happens!
  • Disenfranchisement and disengagement of young citizens shut out of the housing market
  • Consultants, lawyers, engineers, insurers all feasting on the corpse of what passes for the development industry - 100% pure deadweight
  • Regulation of everything that is an input to the industry - if only the synthetic-cannabis rules could apply (use it until sufficient numbers of addled users clog up the A&E's of the nation, then stroke chin and say ' why, something's Gotter be Done)
  • Granting untaxed capital windfalls to landowners by continuing to squiggle on maps
  • Acquiescing on land-banking

 
Play this record at Every Opportunity, and don't forget that it Cannot be fixed by voting in a new lot of faces at either national or local government levels.  It's a classic cluster-f**k.
 
This stuff is systemic......
 

Spot on. I think the first

Spot on. I think the first thing we all understand is the present sytem is not working. Even those who agree with the present smart growth system know that it causes higher house prices and think that is because we have not densified enough to off-set this, although the evidence shows there is no off-set. Therefore they wan't to speed up the present system, ie do the wrong thing quicker. Eitherway change is a coming. The system needs to be changed to get rid of the systematic waste in it first . Once that has been done, you have more choice whether and where you want to live at whatever density you chose, because it will be at half the price.It's a whole new arguement after that about whether or not you get to chose what density you want.