Auckland has a well publicised housing shortage. Over the ditch there's an array of property development companies and concerns about oversupply. So why aren't more of them coming to Auckland?

Auckland has a well publicised housing shortage. Over the ditch there's an array of property development companies and concerns about oversupply. So why aren't more of them coming to Auckland?

By Gareth Vaughan

Auckland has a housing shortage and a growing population. New Zealand's major banks have tightened up on the lending they're prepared to do to property developers. Both central and local government say they want an increase in house and apartment building. And, as highlighted by the Reserve Bank, the country has a dearth of big construction companies.

Against this backdrop, sitting a little over three hours flight away, is an array of Australian construction companies. In their homeland the Reserve Bank of Australia is worried about an oversupply of apartments in some cities. Thus New Zealand, and especially Auckland with its Unitary Plan designed to encourage increased building density, could hold some appeal. Especially to some of the big Australian firms such as the share market listed Lend Lease, Mirvac and Stockland, plus the likes of Meriton.

But, apparently it doesn't.

A spokesperson for Lend Lease, a large international property and infrastructure group, told interest.co.nz; “At this stage, Auckland is not currently part of our global gateway cities strategy.”

A spokesperson for Stockland said; "Stockland’s strategy is to focus exclusively on the Australian residential market. We have no plans to enter the New Zealand market at this time."

One from Mirvac said; "Mirvac is an Australian focused company. Our strategy is to continue to focus on urban markets, with an overweight preference to Sydney and Melbourne. We have no current plans to expand overseas."

And a spokesperson for Simonds Homes said; "Currently we only build in Australia and would prefer not to comment on outside markets."

Meriton and other Australian companies contacted for comment are yet to respond.And those who did respond gave no specific detail on why they weren't looking at Auckland.

Seventeen gateway cities but Auckland not among them

In terms of Lend Lease, the gateway cities strategy is worth a closer look.

In an investor day briefing last October Vikas Kaul, Lend Lease's group head of research, detailed the firm's 2014 study that gave it its 17 gateway cities. One of the criteria for selecting these cities, which feature in the chart below, is a population of at least 1.5 million.

One piece of evidence Kaul cites to back-up that Lend Lease has chosen well is the global appeal of these cities. The evidence for this is their share of global foreign investment flowing into property. The chart below shows this and features Auckland, sandwiched between Osaka and Sao Paulo in thirtieth place. That's ahead of Perth and Kuala Lumpar, two of Lend Lease's 17 gateway cities.

Auckland, as Auckland Council points out here, has 1.6 million people, and the population is expected to increase by 700,000 by 2043, giving Auckland 40% of New Zealand’s population.

A need for around 40,000 homes now

Credit rating agency S&P Global Ratings recently estimated Auckland's housing supply shortage at between 30,000 and 40,000 dwellings, noting; "With banks reporting a tightening in lending standards for property development, it's conceivable that new construction will slow, despite the rollout of the Auckland Unitary Plan, applying further upward pressure on house prices." 

Incidentally, S&P's housing shortage estimate is very similar to interest.co.nz's own estimate.

Although Auckland's median house price has dropped for four consecutive months, the supply-demand equation remains out of whack and is likely to continue to do so for some time. NZ recorded a record net population gain of 71,305 in the 12 months to January, and a very similar figure in the February year. For the January year, Statistics NZ said, 56,231 arriving migrants said they intended to settle in Auckland. However, the actual number's likely to be nearer 65,000 given almost 20,000 migrants didn't state where they intended to live and many of them are also likely to have settled in Auckland.

RBNZ bemoans fragmented construction industry

Meanwhile, in last November's Monetary Policy Statement the Reserve Bank aired concerns the fragmented nature of the NZ building construction industry, plus constraints on access to labour, materials and funding, could hamper high density construction and intensification in Auckland. It also suggested the entry into the local market of big international construction firms could help the construction industry combat its challenges by increasing scale and introducing new technology.

One Aussie firm that is here wants more

One Aussie construction firm that is involved in house building in Auckland is AVJennings, working with Housing New Zealand Corporation at Hobsonville Point

AVJennings CEO Peter Summers told interest.co.nz his firm is "very keen" to expand its Auckland operations.

"The AVJennings brand has now been active in Auckland for just on 10 years and [we] feel well placed to increase our presence. In terms of pipeline we don't comment on specific opportunities until they are at advanced stages, but it has been reported that we are part of a consortium that is bidding on the Tamaki redevelopment," Summers said.

In terms of the challenges of operating in New Zealand, Summers said AVJennings has noticed the well publicised higher building materials costs here compared to Australia. On the labour front he also notes the trades and manufacturers are at full capacity. However, AVJennings's building partners have not experienced delays.

The much maligned Resource Management Act hasn't been an issue for AVJennings.

"The Hobsonville Point Development, where AVJennings is predominantly engaged, has been underway for some time and generally the resource management issues are addressed prior to them becoming critical to the delivery process," Summers said.

NZ 'a great country to do business in'

With the original Hobsonville Point agreements signed off just before the Global Financial Crisis hit, Summers said the early years were "challenging."

"After those initial challenging years, financial outcomes have been good. But it also needs to be remembered our role at Hobsonville has been to assist with the supply of land to local builders. So it is a business to business model and therefore pricing, and costs, are less volatile and more around volume than the retail market for housing."

Summers said he's not surprised more Australian property development companies aren't active in NZ.

"Even in Australia most property companies don't operate in all regions. It is also not well understood that we have had a presence in New Zealand in the past. Our group was a former owner of Universal Homes. So the step back into New Zealand was a little easier based on that history."

"Every market has its challenges. But overall, New Zealand is a great country to do business in. New Zealanders tend to see the big picture so much more and to set social goals, not purely financial ones. Without that type of mindset the shortage of housing that Auckland has would have no hope of being solved," said Summers.

Chinese developers & banks active

Meanwhile, Chinese developers are making their presence felt in Auckland. These include Hengyi Pacific, the firm behind plans for The Pacifica, a 178m, 57 level apartment tower, with 295 apartment units and 35 hotel suites, to be built on Commerce Street.

New Zealand's three registered Chinese banks are also set to grow in prominence. Already China Construction Bank New Zealand is funding Rose Garden, a large apartment development in Albany.

And along with ICBC NZ and Bank of China NZ, China Construction Bank NZ is set to apply to the Reserve Bank for dual registration status. If approved, this would see them establish branches alongside the existing subsidiaries of their vast Chinese parents in NZ.

 Local incorporation status alone currently means the three are subject to restrictions on related party exposures imposed by the Reserve Bank as part of their conditions of registration. In contrast a branch structure allows access to significant amounts of related party funding.

China Construction Bank NZ's deputy CEO Lloyd Cartwright recently told interest.co.nz having a branch alongside the local subsidiary; "Would give us a lot more ability to bring our global balance sheet, our global funding capability, our global expertise, to the fore in New Zealand whereas operating in a subsidiary has some limitations in that respect."

This comes after ANZ, NZ's biggest bank, tightened its lending criteria for rental property investors and owner-occupier borrowers by reducing loan-to-value limits, and by stopping lending to investors wanting to buy sections and apartments off the plan, last June. This saw other banks follow suit, and tighten their lending standards too. This is demonstrated in the S&P chart below.

ANZ CEO's caution

Shortly after that ANZ NZ's CEO David Hisco publicly aired concerns about the Auckland property market being overheated and potentially running out of steam.

"What we believe is that clearly wages have not risen in pace with Auckland house prices. And so there comes a point when if we're not already close to it or there, where kiwis can't afford to get a loan and pay it off," Hisco told interest.co.nz last July.

"This thing's going to come to an end somewhere, it has to because you can only borrow so much."

Low interest rates have enabled people to borrow more money, but Hisco (pictured left) said this doesn't compensate for the rise in prices.

"And of course the more you borrow, the debt doesn't go away, you have to pay it back," Hisco said.

*This article was first published in our email for paying subscribers early on Tuesday morning. See here for more details and how to subscribe.

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They say that there is a housing shortage, but you wouldn't believe how difficult it is to get funding to add an additional house to a section that already has one!

I heard the same comment from someone looking to take advantage of the Unitary Plan by subdividing their property, "the bank told me they are not lending to small developments". Personally, I'm not sure if that is good or bad for build quality, which is more my concern.

The banks are protecting their patch. No way will they advance funds to any development which will lower the value of current builds, particularly those in which they have a vested interest i.e. a mortgage!

And whilst current mortgage borrowings sit at 260 billion dollars, I think they have huge concerns going forward for their current position.

Bring back Housing Corp loans as in the past?

Probably not, unless there's a way to limit further speculation and potential rorts around building supply costs.

Building costs I think are the biggest issue...just mean prices will remain elevated for longer.

A lot is in materials, due to a lack of competition, and many materials companies seem to be overseas owned running under multiple brands.

Why would any residential building company, from anywhere, crack on when the banks are pulling back and reducing funding, reducing the $ and money they lend?
Where do you think the cash would otherwise come from?
The developers, you know, with a site, drive the feasibility basis the bank funding everything.!

Aucklanders need save themselves, (as if they would take advice) in the sense of poor policy and questionable standards need be ripped out and replaced.

Question: Are Aucklanders up for the job, do they have the character?
- Good luck the Blues!

They are waiting for the election result. If National win they will rush in, and if Labour win they will pull back.

Really? I've heard this trotted out each of the 17 election years I have been able to vote and have yet to understand why business would halt its plans for a period every three years on the off chance that policy scuppers their plans. For the record, I have voted National 17 times. This year I'm voting for Winston. I really dislike his personality but I think Nick Smith is worse and if he wont go then voting Winston is my best way of effectively knee capping him.

This is not a standard 'each of the 17 election years'. National have been at the helm since 2008 and we are entering an interesting election year where there are loud noises on housing affordability and overloaded immigrants in Auckland. A lot of people are wanting change because they are about to explode (evidenced by the screaming noises on this website) and it has reached an uncontrolled level. It is interesting time, not just a BAU election year anymore.

I have no doubt that Party polling is highlighting the issues you mention, which is why Nick Smith is getting so much air time with his various utterances on the Unitary Plan, Three Kings, Urban Development Authority etc. Perversely, for this life long National voter, every word out of his mouth is what's driving me to vote for Winnie. Smith comes across as a bully looking for sound bites that show National has a plan. Voting Winnie is akin to putting another (unpredictable) bull in the paddock so the focus turns inward and the market can work it out without unnecessary interference.

Second Layer

My lady is a trained head doctor and behavioural analyst - she says of Bill English

ideological, dismissive similar to John Key but less smooth, doesn't take people concerns seriously

Always a second layer filtered through their ideology
Never know what they really mean or stand for

Winston Peters - straight shooter - says what he really thinks - No second layer

Me thinks your lady should get another job. I've had quite a bit to do with Winston over the years and I can tell you from experience he never ever expresses his true opinion on anything.

I'm very similar to you politically. Blue for as long as I can remember, now switching to Winny. Interesting times if there are many more like us

Cant say I blame them - new Auckland plan or not - the consent process in Auckland is a joke - about a 50% turnover rate of planners - cant cope with the volume - ridiculous RFI's that just double and triple consultant costs - annual 16% increase in developer contributions with another double digit increase planned -- lack of qualified and skilled labour - RORT level building materials costs --- Any overseas developer would need to be mad to come here

Even with a monopoly - looks like fletchers cant make it work !

Good point.

Those that are carrying on with projects will be doing them already. I'm not sure why anyone is looking overseas. We do have different rules that they won't be familiar with and will need staff living locally. Thing is there's a huge constraint with skilled, educated and experienced staff so you just have to take whoever needs work. It's a really bad chioce to try to start up here, especially in Auckland.

Perhaps if Auckland Council wasn't so obstructive with their red tape and construction had been freed up earlier but it's a bit too late. The likelihood of something going wrong is too high right now.

Perhaps we should just go full Tokyo mode. Simple set of regulations, no NIMBY zoning, let people build anything they want within those regulations.

Universal Homes - wondered what happened to them and other group home builders ie Neil Homes etc building simple 110 sqm single level house plus land packages (no landscaping, no garage, no driveway, no footpaths, no fences) - have they all gone

They're all building 200sqm+ now, leaving younger Kiwis to build their own tiny houses instead.

They don't move into Auckland, because land costs too much and apartments sell for too little. Auckland is a high cost, low return construction market.

And will be for at least the next 24 years, thanks to our Unitary Planning.

The only way to make money in Auckland is to build for high price sales. High end wealthy investors (local or more probably foreign) are the only game in town and there aren't currently enough of them.

Rubbish, the margins on new builds are much higher in AKL than anywhere else in the country. Mike Greer was saying exactly this the other day.

Look at the price of a tiny sliver of land way out at hobsonville point. Building doesn't make any sense when the land is so stupidly priced. Only Chinese can afford it.

13
up

Collaterating the common taters yields the following 'perfect storm' list:

  • Land prices wrong = everything on top wrong (Hugh P's refrain)
  • Materials duopoly and no chance of breaking it while BRANZ and other regulators drag the chain
  • Plannerista - the usual public service muddle which adds time and therefore money to everything they touch
  • A thriving parasitical infestation of consultants, architects and similar, needed to wade through the regulatory morass, each clipping the ticket
  • Complete lack of anything approaching a multi-proof (for consents) modular-housing approach, at least in any mass form
  • Hence no serious challenge to the existing paradigm of whacking together components on site, carried out by - wait for it - occasionally drug-free hammer hands, and then letting it stand out in the glorious Awkland weather for weeks at a time between tradie attendance

So the lack of enthusiasm for Oz firms to dip a toe in this murky swamp is perfectly understandable. If I were an MD that's exactly the strategy I'd urge.

There are easier ways to make a living....

Absolute certainty all the above mentioned firms have run the ruler over the Auckland market

They have all come to the same conclusion - they probably speak to one-another at conferences

waymad... summed up very nicely... thks

Tauranga has the same NZ regulatory regime, worse material supply constraints and the BoP tradies do consume.

Tauranga builds twice as fast as Auckland.

It is mostly land.

Your finest version yet!

May I suggest a slight amendment: "... letting it stand out in the glorious Awkland weather for weeks at a time between tradie and building inspector attendance"

Yes, Donald, every time I spin the 'ol '78 it gets more succinct.

Cheers, Wayne

"With banks reporting a tightening in lending standards for property development, it's conceivable that new construction will slow, [due to] the rollout of the Auckland Unitary Plan, applying further upward pressure on house prices."

S&P - fixed it for ya.

The Auckland Unitary Plan is a work of unique conception. Auckland finances the rapid expansion of towns miles away.

Warning - exaggerated pontificating to follow!

Currently there is a global property boom and prices are going high everywhere (Auckland included). However everywhere in the world builds so much faster than Auckland, when the boom ends homes and offices will be a lot less expensive to rent everywhere. All the jobs and young people will leave.

There is an over supply about to occur in Australia in 2018 - 2020 and various forecasts anticipate a global slow down in the 2020-23 range.

Short term - Auckland property prices high (currently $800,000) due to land supply restrictions in a booming market.

Medium term - a transition occurring sometime in the 2018 - 2023 period.

Long term - Auckland will likely have house prices fall similar to Adelaide ($400,000) which has had the people leaving problem for years. Affordable, but only because no one will want to buy.

I do see this as a big problem for Auckland. Speaking to other young professionals, many are looking at where next instead of Auckland. E.g. Melbourne gives you a higher salary in many roles, and cheaper housing costs - even to rent. Let alone the likes of Adelaide. Brisbane is also much more reasonable.

If the current population of Auckland is 1.6m and going to grow by another 700k over the next 20 years, I am having trouble understanding how it is going to be able to cope with this size population

The southern motorway will be fun, that's for sure.

Re other infrastructure,...yeah, what's it going to be - big rates rises, or a Stamp Duty on purchases by non-PR/citizens etc.?

I watch longingly at our building of roads and motorway tunnels and imagine -
What if there were three shifts and the project worked 24 hours a day ?
What if there were 7 days a week and they worked on every one of those days.
What if 4 years to build a tunnel took only 18 months ?
What if there were less traffic trucks and those guys were productive instead ?
What if there were no stupid on ramp lights

Back to Hansel and Gretel

Assuming your tunnel comments are aimed at waterview, you might be interested to know that they did run the TBM 24 hours a day (2x 12 hour shifts). They only ran the machine for 5 days weeks, but the remaining 2 days were for maintenance, cutting tooth replacement and repair.

Yip, there would be massive productivity gains if there wasn't traffic. Unfortunately in a city of over 500k population, you can't build your way out of congestion (look up induced traffic). Only way to "solve" congestion is to use road pricing to get low value users off the road for benefit of high value users. Great public transport can help, in most major cities (with decent PT networks) an equilibrium is reached where traveling by road is slightly slower than traveling by train. (cars are more comfortable, so users will put up with a little delay for comfort, but otherwise will switch over). Unfortunately neither road pricing, or a massive Public transport build seems imminent.

If there were no ramp lights, traffic on the motorway would slow to a crawl, hence reducing the cars/hour capacity of the motorway, making congestion worse on the whole (especially for those already on the motorway).

Regarding residential construction, 24/7 construction is pretty much banned due to noise issues.

Re other infrastructure, why don't we build where people do not have to uses the motor ways?

Here are 2 of the areas with excellent existing infrastructure which the NZ taxpayer has added capacity to:
- Takanini / Ardmore area where you can get on a train (electrified rail service with double the frequency thanks to the CRL).
- Between Albany and Dairy Flat where you can access the Northern busway (like a lot on the Northshore already do).

Here are 2 areas that Auckland Council are banning development on, until at least 2037:
- Takanini / Ardmore area
- Between Albany and Dairy Flat

Well the so called housing crisis seems to be easing with the number of property listings increasing day by day. Judging by TradeMe; we're currently at 11062 listings for Auckland, that's a good 200 more properties than last two weeks.

Not surprising property prices are starting t o drop in Auckland.

94% discount to fill the seats! I see 83 suckers bought!
https://new.grabone.co.nz/services/budgeting-finance/p/property-masters-...

Trademe Auckland sales with "reduced" in the title up to 110 now..

Anyone been to one of those seminar's?

I am tempted to go to see what message they push.

Wonder if they cover shorting the market, holding negitive yield properties, proper risk analysis, prudent levels of leverage, history of market cycles, historical analysis of proporty bubbles (i.e. asian crisis) etc.

Or is just a guide how to dupe you bank (and then non-bank lenders) into loaning you massive amounts, which you then poor into a single asset type in a small geographic area to maximums potential gains. (don't worry about diversification, if the market plummets, you will be bankrupt anyway)....

My special area of interest - houses, apartments, and townhouses in the greater Auckland area - increase of 123 today so far - that's 378 properties listed in the past 8 days! Hmmm...

A lot of negative commentary concerning trademe listings etc... Not sure how relevant any of this is when you look at the analysis of market activity around this time you'll note that it's par for the course that buyers and sellers come out of the woodwork at this time of year (see Corelogic's March report)
Not saying the market isn't down compared to last year but in my opinion the supply and demand figures look a lot rosier than Oz right now......

There is no shortage! Auckland trade me for sale listings now over 11,100...

Zachary Smith you might be interested in the following sale this week:
182 Gillies Ave, Epsom (DGZ)
https://www.barfoot.co.nz/589495
CV = $1,370,000
Homes.co.nz = $1,865,000
SOLD = $2,040,000
48% over the CV

Double-GZ, yes this is a perfect example of what we were discussing the other day. A small section yet perfectly flat with its own driveway. The house in very good shape and constructed of good materials. This reveals that such a parcel of land is indeed valued at around $2M. Not sure if it was a cross lease or freehold. I do wish they would get rid of cross lease titles.

I am interested to see how this house fairs:
http://www.trademe.co.nz/property/residential-property-for-sale/auction-...
Shares a driveway. Will it go for more than the homes.co.nz high figure or $1.64M? I suspect so.

Yes it is cross lease (1/3SH 1431M2) but I think it will go over $1.6m. Keep me posted :-)