Country's biggest house builder says Auckland housing crisis requires major Government investment to fund housing, infrastructure; also calls for Council action and for MUDs to be considered; Housing NZ sees scope for 30,000 new Auckland homes

Country's biggest house builder says Auckland housing crisis requires major Government investment to fund housing, infrastructure; also calls for Council action and for MUDs to be considered; Housing NZ sees scope for 30,000 new Auckland homes
Mike Greer

By Bernard Hickey

Mike Greer, the founder and majority owner of New Zealand's biggest home builder, has called on the Government to invest heavily to kick-start a surge of housing supply to ultimately make housing more affordable in Auckland.

Speaking at an industry forum in Christchurch late on Thursday, Greer said the Government needed to substantially increase its involvement in funding the building of tens of thousands of new homes in Auckland.

Greer's views are closely watched in and around the Government and industry, given his success in growing the Christchurch-based Mike Greer Homes into the biggest home builder in the country, and its major role in the Canterbury residential rebuild. Greer is also pioneering the creation of more modular and factory-built homes. He built a NZ$15 million house-building factory in Rolleston and is producing 40 modular bathrooms a month at a facility in Belfast in Christchurch.

Greer said he expected Mike Greer Homes to build 1,400 homes this year and was building 300 more homes a year more than anyone else with construction costs of less than NZ$300,000 per home. Mike Greer Homes acts as both a builder and developer. It supplies 80% of its homes as home-and-land packages, with the other 20% being building work for Government.

"We're really focused on delivering as affordable a house as we possibly can in an environment that's becoming much more difficult to do that," he said.

Greer said the scale of the house-building needed in Auckland was greater than people understood, and the over-pricing of land was a major factor. He said Auckland needed to be building 20,000 homes per annum within the next five years, up from less than 10,000 per year now.

'The Government has to step in'

"Land is what's driving this crisis in Auckland," he said.

"We just need to knuckle down and build lots more houses to try create a bit of an oversupply, to bring down the house price across the board in Auckland," he said.

"The cat's out of the bag with the price of land. There's not much hope to pull it back. I believe the Government has to step in and build a lot of houses. That's the only way that we're going to get some kind of affordable product on the ground en-masse that more Kiwis can afford to own and live in."

'Have a look at using MUDs'

He called on New Zealand to consider the use of Municipal Utility Districts (MUDs) style entities to fund the infrastructure for new developments that brought land to market much cheaper and faster.

MUDs are non-Council-run authorities used in Texas and other US states to fund infrastructure in a particular new district that is usually paid for by Councils through rates imposed across all ratepayers. The Texas Government says MUDs are managed by a Board elected by property owners within the MUD. It may issue bonds to reimburse a developer for improvements and the MUD uses property tax revenues and user fees received from water and sewer services operated by the MUD to repay the debt. As the MUD pays off its debt, more of its tax revenue can be directed to other services, Texas says here.

Another option for paying for infrastructure in a specific new greenfields area without having to force ratepayers in other established areas to pay higher rates is to apply a targeted 'extra' rate in the new area. Greer did not refer to this prospect, but New Zealand Councils can use this technique.

'Do the civils in tandem with housing'

He called for Councils to help ensure developments were done where the horizontal infrastructure of roads, water and sewage (the "civils") were done in tandem with the house building.

"It brings houses to the market a lot quicker and there's less cost associated with putting civils in the ground and leaving them there until people turn up and build," he said.

He also called for more investment by the industry and Government in new technology and innovation around modular and factory house building, and that the current boom was the right time to do it.

"This boom time we're going through is the time that we need to be doing this kind of thing. There's extra profits available we can pump into some kind of innovation. No one is going to spend any money in a downturn on a NZ$15 million factory in Rolleston," he said.

He said his factory there had halved the onsite building time to 10 weeks and produced much less waste. It was particularly appropriate for Auckland where wet weather often delayed onsite builds. Factories also allowed for the creation of multiple shifts per day, rather than the single 8.5 hour shifts on building sites.

"Innovation needs a bit of government help as well...maybe a lot of Government help," he said.

'Put up rates to fund infrastructure'

"The TAs (Territorial Authorities) always claim poverty, but I think they've got to do something about it and put services where houses need to go far, far sooner...maybe put up rates to do it," he said.

Greer also called for simplification of consenting and the standardisation of consenting nationally.

He summarised his address to the conference thus: "Government investment -- we need way more of this. If the Government spent as much on new residential housing as it does on infrastructure we wouldn't have this housing crisis that we have."

Housing NZ aims to free up Auckland land for housing

Elsewhere in the forum, Housing NZ Corp's new CEO Andrew McKenzie said the state-owned provider of social housing was working on a new asset management plan that would be sorted out in the next month.

He said that in the plan, which was yet to be agreed to by the Government, Housing New Zealand was looking to spend NZ$2 billion over the next three years on rebuilding and refitting 5,000 houses that were at or near the end off their lives. He also indicated that Housing New Zealand land could be used more efficiently under the new intensified Unitary Plan to add another 30,000 houses to Auckland's housing stock through Hobsonville and Tamaki-style build-and-sell programmes.

McKenzie emphasised that Housing New Zealand faced a massive task renewing most of its stock of 64,000 houses, two-thirds of which were built from 1936 to 1966 and were nearing the end of their design lives, or needed refurbishment. Houses built after then also needed refurbishing.

"The stock built post 1966 tended to have a design life of 50 years so that is about 15,000 houses there which, again, is coming to the end of its life," McKenzie told the Forum.

"When you look at the renewal and replacement schedule in the asset management plan, we've got a massive mountain of work to do in the next 20-30 years as those 64,000 houses, just about all of them, come to the end of their life," he said.

McKenzie pointed out that many of the homes were imposing extra costs on already vulnerable tenants, many of whom were making daily decisions about whether or not to use heaters and heat pumps. The drift of populations to cities from rural areas and ageing populations were also a challenge for Housing New Zealand, forcing it change its stock towards smaller homes in the cities with fewer bedrooms than the usual stand-alone three bedroom home.

"We're looking at a variety of methods of updating our stock and replacing it. At its simplest, it's a retrofit programme we're looking at, and a rebuild around our existing stock," he said.

Last year Housing New Zealand built 870 homes and it expected to triple that annual build rate over the next three years, but McKenzie said this was largely replacing existing houses in the stock.

"That was about standing still," he said of the 870 built last year.

"The tripling over the next three years is primarily about standing still with our existing stock. That's a big mountain we've got in front of us of our existing stock coming to the end of its life being bought up to date," he said.

"Over those three years there's about 5,000 homes in there," McKenzie said, pointing to a slide projecting Housing New Zealand's build programme for 2017, 2018 and 2019. "We haven't put the numbers in because we still have to negotiate that with the Crown. That's NZ$2 billion of spend that we are looking to deliver on over the next three years."

McKenzie's comments suggest the Government may be lifting its ambitions, given in July Housing NZ signalled plans to build 4,000 houses over the next three years after the Government's post-Budget decision to forgo NZ$92 million of dividends in the face of growing public concern over homelessness in Auckland.

McKenzie said Housing New Zealand was also playing a role in helping the Government add housing supply to the market, by intensifying Housing New Zealand land with houses built on that land for resale to private buyers.

'Auckland land could handle 30,000 new homes'

He indicated Housing New Zealand land in Auckland could be used to add 30,000 homes to the housing supply as the Unitary Plan allowed more intensification.

"We've also been asked to look at availability and supply. We own a huge amount of land that tends to be under-utilised, so what can we get out of intensification? The Minister has already talked about the fact that there's now capacity for effectively another 30,000 homes on the land that we own in Auckland alone," he said.

"So there is a role that we have around improving and increasing the level of supply, and obviously affordability is a really important element to that," he said, pointing out household incomes in Auckland of around NZ$82,000 per year meant there were currently few homes that were affordable.

"If you do the maths and work out how much you can put into housing you get a very small number you can afford, even with today's interest rates to service on a mortgage," he said.

"We've said we're going to be part of the thinking and the action that the Government takes around affordable housing."

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10
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Great idea however fairly pointless if they dont tackle the foreign demand from students and temp workers....

1. Classify foreign buyers correctly so include students and temp workers
2. Stamp duty 15% on foreign buyers and ALL nz citizens buying a second home purchases to catch investors.

Problem with having a business man as PM is that he chases targets such as gdp however completely ignores other measures such as income inequality....all his actions are to meet short term targets completely ignoring the mess he is creating.... household debt is ballooning at 8% growth a year with 250billion outstanding...

A Good example of john key's governments obsession with chasing targets however ignoring the real issues can be seen with education ...

http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11713953

http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11713957

"A Herald investigation has found the low uptake among poorer, Maori and Pasifika students wasn't confined to physics. It happened in chemistry, in maths, in history, in English. It was a clear trend, long suspected by educators, but hidden in a murky backwater of previously unpublished data, and obscured by the simultaneous rise in achievement against Government targets."

"Earlier this year, education minister Hekia Parata celebrated record growth against the Government target of having 85 per cent of 18-year-olds with Level 2.

Pass rates grew by more than 10 per cent in just five years, to 83.5 per cent. Maori and Pasifika achievement increased most, while remaining below other ethnicities.

However, Labour education spokesman Chris Hipkins said the more detailed data showed the target was "meaningless".

"You can get to the target in many different ways that don't leave kids better off at the end of it," he said. "All it's doing is reinforcing a class division. But kids' abilities aren't determined by their socio-economic status.""

Same issue with gdp at any cost .... look at the details and you see GDP per capita barely moving. Obsession with gdp pumping it up by keeping immigtation at a rate 3 times higher than uk... and a property bubble driven by foreign buyers making up 30% of purchasers nationwide.

No idea and solution will work as Chon Kee has no will to act and solve. May be election year will humble him and force him to act otherwise the only solution for NZ future is #JKEXIT.

14
up

"The government needs to substantially fund the building of 10's of thousands of new homes"
and this is on top of all the infrastructure the government needs to build.
not to mention the damage to the economy due to Aucklands gridlocked traffic system.
Where is the win from immigration that our leaders are so excited about??
John Key "we can be proud so many immigrants want to come here"
We have damaged our lifestyles and created a deficit of infrastructure that is now needed to keep our cities functioning.
Selling our low population has been a boom to 'multiple property' owners but is at the cost of everyone else. The 'multiple property' owners are a minority of our population and are the only winners and yet the majority of populace who just have stakes in one property somehow think they are winners as well and support our governments immigration policies.
This government is the biggest unfolding financial disaster that this country has ever had and we seem hell bent on voting them in again.

"Where is the win from immigration that our leaders are so excited about??"
Well we are doing a lot better than most countries at the moment - lower unemployment, higher GDP growth, etc. It obviously ins't due to our diary exports!

Jimbo, the job growth isn't in productive enterprise bringing in foreign trade dollars.
The job growth is building houses and infrastructure for immigrants.
Once they have spent the capital they brought with them they also have to live off NZ's true productivity.
Dairy farming might be in the doldrums but they still export and bring in the foreign currency we need for purchasing cars and computers etc. The larger our population the more people that our productive industry has to support.
The fact that we are doing better than most other countries is thanks to our low population and that's what we are now selling.
The deficit of infrastructure created by an increasing population has to be paid for by taxpayers and ratepayers. As just one example, we will start having to pay tolls on roads and motorways we built and paid for years ago.

You are assuming that the people we are importing are less productive than those we already have. That's a fairly big assumption.

No presumption there at all Jimbo. Most of the immigrants I know are great people and would be an excellent swap if we were trading for some deadbeats.
Unfortunately the author of this article is stating that the taxpayer needs to build 10's of thousands of houses to replace the housing sold or rented to immigrants.
I question the long term benefits of this immigration policy and publicly state that the majority of the people of NZ are paying for this immigration with higher taxes, lower wages, expensive housing and traffic jams.

Interesting to go to their web site and compare the prices of homes in Christchurch and Auckland. Even after making allowance for the crazy land prices in Auckland they seem to be charging a hell of a lot more to build similar houses in Auckland. Ie lack of competition and a total failure of the market.

It isn't a lack of competition in the labour market. It is a lack of qualified trades people that is the problem - supply issues.
The lack of competition comes from the goods marketplace - carters/fletchers duopoly.
JK - Less chefs/students/hospo workers - more skilled tradesman (emphasis on the skilled). Apprenticeship scheme is what needs some love to move things forward.

Yes, we really need to find out why our building costs are so high. Perhaps unveiling the true profit margins of suspects like Fletchers and Greer would be a good place to start?

As for government “investment” – subsidies are great for improving those profit margins even further, but has there ever been a case where a government subsidy to industry has led to lower prices for the end consumer?

I wonder how the Stand Up for Housing went off on Saturday?

Why should the rest of the country need to bail out Auckland's housing problems?

Auckland damned near is the rest of the country

Hardly. Barely a third. But even at that we we are hopelessly imbalanced. We have far too many eggs in the Auckland basket and the country is very vulnerable to something going wrong there. Apart from a property value crash, imagine the effect on the whole country if we had a "Christchurch" earthquake there or one of the volcanoes blew up.

There's not much of NZ not vulnerable to some nasty from the bowels of the earth or other. I am not sure where you'd want to be to make yourself impervious to earthquake, volcanic eruption or tsunami.

Yes but the point is that by concentrating such a high proportion of the population in one place, the consequences for the country is so great should something happen there. To be fair, I suppose that mathematically the long term average is the same. I.e. lots of little costs more frequently compared to one huge cost infrequently. However a person living in Auckland is a lot more likely to strike resistance from the insurance companies in such an event compared to someone in say Westport because the impact on the Insurance companies will be so much harder for them to absorb.

In what world?

only 25% of population
>5% of the land area
accounts for only 36% of GDP.
Zero natural resources: no Gold, oil, gas, electricity, forestry, farming....

My understanding is that Housing NZ have been demolishing state houses, building three or more new houses on each site, and then selling about half of them on the open market. They should really be making a profit out of this. If they are making a profit I assume you want that profit to be spent in Auckland - surely Auckland shouldn't be bailing out the rest of NZ? And all the GST and other taxes that get paid during the build should also stay in Auckland?

Talking GST, I have thought for some time that some percentage of the GST for new builds should be returned to councils for infrastructure. Not going to happen though.

Definitely, and it should be 100% of the GST. Same with rates.
I understand that not charging GST on certain items creates distortions and complicates the system, but giving some of the funds raised to the council sounds like a great idea.

Have you noticed that all of the building is done by about 4/5 companies that buy up all the land and then sell house and land packages. No room for the small builders.

Plus these big companies are quite happy to sit on large amounts of land while it appreciates in value. The model seems wrong to me.

Trades costing more... The tradesman still has to live in Auckland, and is subject to reduced productivity due to the crap traffic, and he/she probably wants to buy a house as well, which is all paid for through higher charge rates.

The solution provided by our construction industry just shows why we have the unaffordability we do, and will continue to have.

Mike Greer says:

"The cat's out of the bag with the price of land. There's not much hope to pull it back. I believe the Government has to step in and build a lot of houses. That's the only way that we're going to get some kind of affordable product on the ground en-masse that more Kiwis can afford to own and live in."

'He called on New Zealand to consider the use of MUD style entities to fund the infrastructure for new developments that brought land to market much cheaper and faster.'

Mike is saying forget about the price of land, it's beyond anyone's control, the savings can be made in building more houses quicker, by using MUDs.

He assumes wrongly that MUDs are only about allowing land to be serviced quicker, and by using MUDs alone will result in savings that will result in in more affordable housing.

He is wrong because until you can buy land in a truly competitive non monopoly environment and supply infrastructure in the same way, like they can do in Texas, any money you may save elsewhere in the system in constructions costs, reducing finance costs, access to kiwisaver etc. WILL GET CAPITALIZED INTO THE LAND PRICE. PERIOD.

To give a simple example, if a developer was to save $50,000 per house in construction costs, when he went out to buy more land(with the land still being in a land banked semi monopoly situation as it is in NZ), then all that does is allow him to bid some or all of that saving away to secure the land against the under-bidder.

Remembering of course he has to build an x number of houses per year to cover costs, and if he has a large infrastructure eg a prefab factory, it is a beast that has to be fed consistently to make money. Even if you end up buying the land at a price where you would make little profit, that is less expensive than not having any land on which to build the houses to you need to keep the wheels turning.

Secondly any real savings will only be passed onto the end user eg the FHB at the minimum amount needed to make that house more competitively priced than its competitor, which might only be a few thousand dollars out of the tens of thousands in savings.

Of course the kicker is that if every developer can make these savings then all that will happen is they will bid up the price of land so there is no saving to pass on to anyone, because it is all captured in the land price.

So when I hear words like MUDs mentioned in the same context as Govt. contracts, control of infrastructure, LG etc., it is all just a rinse and repeat of the present system and re-branded. All the developers, LG and CG are doing is playing musical chairs to see who gets what.

BUT the end user, who ultimately pays for it all, ie like FHBs, will not get more affordable housing as we know it, unless of course part of the Govt. scheme is to subsidize purchasers into houses to offset the rising land prices, which means we all pay to enrich the landbankers.

Surely this is someone just talking his own book.

Why should taxpayers have to fund building just to keep a Ponzi going? I can see no mention here of restricting demand and putting limits on foreigners and poor quality immigration.