Bernard Hickey argues the case for the Government to rapidly ramp up its program of building and selling affordable apartments on Crown land

Bernard Hickey argues the case for the Government to rapidly ramp up its program of building and selling affordable apartments on Crown land

By Bernard Hickey

The national quest for more (actually any) affordable new homes in Auckland took a few welcome turns this week, but there's still much, much more to be done, and it needs to happen with much more urgency and clarity.

The Government needs to emulate Waisake Naholo's direct approach in the first test against the Welsh when a try was desperately needed in the 62nd minute. He called for the ball and just bolted low and hard and fast for the try line. There was no faffing around passing it 15 phases and hoping for a break-through.

John Key's tentative moves towards an Urban Development Authority this week and Nick Smith's announcement of the first housing development agreement with Fletcher Building in Auckland were signs that the sense of urgency about the Government getting directly involved is building.

For way too long, the Government has taken a hands-off, incremental and deflecting approach to Auckland's housing supply crisis. It had hoped the private sector would step up to solve the housing supply crisis on its own. When that didn't happen through 2013, 2014 and 2015 the Governments (both in Auckland and Wellington) spent a lot to time milling around, consulting maps and pointing in various directions. There was a giant team talk behind the goal line with Bill English and Nick Smith gesticulating and pushing Auckland Councillors in the chest over land supply, consenting delays and asset sales. The end result was not much forward momentum.

English's allocation of NZ$52.2 million to Smith in the 2015 Budget to then go and buy Crown land to then commission Fletcher Building (was it ever going to be anyone else?) to then build and sell affordable houses in bulk was a sign the Government realised it couldn't just sit back and wait. That it took another year for the first deal to be signed and that the first home won't be built on that land until August 2017 shows that the Government is no Waisake Naholo.

Now the issues are clearer and the team seem to shaping up for a more direct approach. 

English allocated another NZ$100 million in the 2016 Budget last month to buy more Crown land for more of the deals like the one agreed with Fletcher Building on June 17 to build 196 detached, terraced and duplex homes on 9.2ha of land at Massey East, including 59 for social housing.

The Government then appeared to acknowledge indirectly this week that the Auckland Council just can't afford to borrow much more to fund the infrastructure needed for all these houses. John Key started talking publicly about the need for a central-Government-sponsored Urban Development Authority (UDA) that would enable developers and infrastructure builders, possibly from China, to pay for and build entire new sections of the city. This would be independent of Panuku, the Auckland Council version of a UDA.

Another sign that the Government is shifting came this week when it dropped its long-standing reluctance to allow congestion charging, which has been another source of contention borne of the Council's inability to easily fund new infrastructure. That was on top of the Government's (again) belated concession at the beginning of the year about funding a share of the City Rail Link.

But all of the Government's actions so far have been begrudging, delayed, stuttering and lacking in conviction.

Now it needs to step up and use its balance sheet, its land and its ability to kick-start a major structural change in the way houses are developed, built and sold in Auckland. It knows how to do it. The ramping up of a mix of affordable duplexes, apartments and stand-alone homes at Hobsonville and Tamaki over the last two years, along with the latest Massey East plans, show the models are there. The Government has also taken confidence from similar build-and-sell programmes in Christchurch, where 1,020 homes were built inside a couple of years.

I understand there is a growing appetite within the Government to ramp up these build-and-sell programmes, both through Smith's Crown land projects and through Housing NZ, which has plenty of land to build on. A UDA could also fill the infrastructure funding hole in certain areas.

The Council has also created a pipeline of land equivalent to 96,000 sections over the next 14 years for developers to build on, particularly inside the city's boundaries. Even before the Unitary Plan is decided, there is plenty of space for developers to build the sort of three storey apartment and townhouse developments with one and two bedroom houses that are desperately needed inside the city's old boundaries.

The Government can set the example and lead from the front by showing private developers that these sorts of projects can be built and are marketable. It has shown the way in Christchurch and Hobsonville. 

Now it is time to step up Naholo-style and just blast through with a much bigger programme of house building on Housing NZ and Crown land that can be sold on to first home buyers at affordable prices. It would cost several billion dollars to kick-start, but it could prove the model for private developers to kick their addiction to big and unaffordable bespoke houses on the fringes, and more importantly, give the land bankers a fright with a rush of supply.


A version of this article was also published in the Herald on Sunday. It is here with permission.

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?

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Bernard, if developers are building one off largish bespoke houses on the margins, this is because this is all the development/consenting milieu allows. The private sector is like water running downhill. They take the easiest option that makes them the most money - like all business enterprises - and rightfully so.

The reason you're not seeing loads of multi-level inner CBD developments is because it's still very difficult to do, it costs a small fortune, is therefore risky and they don't make that much money out of it.

The consenting delays and costs from Auckland Council are still very real and problematic. The council are still very much in a "No you can't do that" or "Well to get consent to do that you will also have to do this, that, pay this, then pay some more..." kind of mindset. As Bill English has said several times, this issue can be fairly and squarely placed at the feet of 20 years of failed planning by the various Auckland councils - and the merged council has been dragging it's feet since it was created when it comes to allowing for development.

They simply want to continue with their failed Smart Growth model - and the government has so far allowed them to do it.

Please remember that supply is important and needed but effort will be zero if nothing is done to curb speculation and now evrryone knows that national government has no interest in doing anything as a result in denial. Infact have interested in the bubble to continue and promoting it.

So no discussion and suggestion will help till the current government goes which sadly though representing NewZealenders is working for the interest of China.

The best example to prove the point is that housing crisis is being used to get entry of chinese firm in i frastacture. No wonder nation govt is doing nothing. Slowly and steadily tbeir design / plan would be out in open just like China firm entry for infrastracture.

So does the discussion and suggestions help. Best is to wait for next election and juzt hope that the damage that the current govt does is not unmanageable.

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Limited housing supply should put a stop on immigration and more sustainable for our country................a form of Brexit I hope also, a revolution is happening and people are starting to wake up that they are subsidising immigrants at the expense of their livlihoods

Everyone is obsessed with growth and cannot accept that Auckland is at its capacity and that is okay. House prices reflect a level that our economy can currently sustain and this will stop them from going any higher unless the banks want to suicide. Soon the migrants will stop because where are they going to live? and why is this so concerning for us? it shouldn't be. We have it good now, lets maintain and plateau

Re Hobsonville - not sure why you are using that to illustrate affordability. Small sections of 300m2 were being sold for $175,000 in 2009 whereas now they are around $350,000 to $400,000. A huge amount of on-selling and profiteering has taken place at Hobsonville for example:

47 Station St sold as land October 2009 $174,636
$669,000 new house sold off the plans June 2012
$810,000 resold in July 2014
$952,000 resold again in December 2015

Current CV is $785,000.

Yep, Hobsonville Point a complete fail for affordable housing. The developers must be raking it in - as far as I'm aware they don't have to pay for the land until they've sold the property. Highly inflated land values are never going to allow for affordable housing.

Of course, it's the valuation model that is flawed. Our belief in being "wealthy" and rich by owning land and that land values must always go up is an outdated belief from medieval, roman times. Maybe it's time to set a cap on land values.

The media seems to think that new builds should be "affordable". Why?
Shouldn't the existing run down housing stock (do-ups) be the affordable things?

Well they would be if the investors, speculators and flippers had stayed well away from them

That would be the logical solution. The supply and demand issue again though. If there's a shortage of affordable housing then it seems logical to produce/build affordable housing.

40 years ago existing stock that wasn't run down or needing do up was affordable for a FHB. 40 years ago houses were homes and weren't "investments". 40 years ago I don't think every man and his dog was in the rental/speculation game. These are only symptoms though of underlying issues. What has happened over the last 40 years to create today's problems and do we have any hope of creating a different reality if we keep doing the same thing and expecting a different result?

It started in the mid to late 80s mostly after the 87 crash. Lots of infill housing and the beginning of the bulk house buyers. I was in Real Estate then and even though the whole Rogernomics thing was in its flush and everyone was getting used to no tariffs and the Warehouse and Japanese import cars, I felt very uneasy about what was beginning to happen with housing. Lots of farms were being subdivided into 10 acre blocks, the sellers of them were heading to the Waikato and sellers there were heading to Southland.
Its gone on so long now, that maybe most people have no concept now of people, by and large owning their own homes, it was not considered an "investment" then but it was definitely security. We need a lot of that back. At least people who own their own homes tend to mow their own berms.

Common denominator seems to be Rogernomics, Reagonomics, Thatcherism - Neo liberal economics. Seems to me that economics is one of the underlying problems, the other being the pursuit of "growth" and money/profit at all costs.

The growth of property investment is purely the result of rising price values. Investors don't cause price growth. They are a response to it.
Excessive demand is what causes price growth. Immigration is the main driver. Population growth of 68,000 in just the last year alone.
Foreign investment is where investment is a problem.
Cut the artificial population growth and the market will correct itself. Stop the foreign investment as well.
It is becoming very obvious that these are the issues where the next election will be won or lost.

Half of properties in Auckland are bought by Kiwis and the average ownership time is one year. 'Investors' as a whole (aka speculators) are the cause and effect of this issue. If you took speculators out of the market house prices would also correct.

JK has been succesful in diverting nations attention from demand to only supply side of housing crisis as avresult please chinese who are major speculators in Auckland Market. Check any auction or ask any estate agent to get the answere and do not need to be an scientist to kniw that.

Surprisingly opposition, media and so called experts have fallen to JK ploy. Can see few article
here and their but no strong voice to rause the demand isdue and nit let it be subfued by government supply ploy, which they are uding as do not want to take any action and upset their friends as who cares about kiwis- they will survive as have always survived but let the foreign govt friends prosper.

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I object to the continuing assumption that any housing related contracts that the government may let would go to Fletchers. This amounts to corruption. It is our money and we have a right to expect that our representatives will deploy it through an open and contestable process. Fletchers are such a large part of the present over priced housing industry (materials and construction), that it is hard not to see them as a big part of our problem. Placing them in such a position of power as they were in Christchurch enables them to entrench this and to exercise undue influence on where the work goes and whose building products are used; if not in reality, then certainly in appearance. Given the mess we are in, it is long past the time when we need some fresh thinking and we certainly will not get this from the same old uncontested "jobs for the boys" process. We are certainly not going to get this from Fletchers. They have had more than enough opportunities in Auckland to prove otherwise and have failed to produce the sort of affordable housing that is required. The over priced mansionettes in Stonefields are of no use what so ever to the increasing number car dwellers.

Good point I'm sickened by the Fletcher gravy train too.
We should be bringing in some of the big Aussie players like Lend Lease.

What if Prime Minister, Big Norman Kirk could come back to life and be our PM again?
Can anybody even imagine, for one instant, that we would/could have a housing crisis? That Maraes would have to house homeless families, or young people with cancer, because the Government "could not"?

Norman Kirk built his own house from concrete blocks that he made himself. "The Kirks stayed in Katikati until 1948. They then moved south to Kaiapoi, where they bought a section for £65. Norman worked as an engine driver at the Firestone Tyre and Rubber Company’s factory in Papanui, cycling back and forth to save money. He passed his engine driver’s certificate, first class, after more night study. To raise the cash to build his house in Kaiapoi from concrete blocks he made himself, Kirk occasionally cut scrub and revived old cars, turning some into half-ton trucks."
http://www.teara.govt.nz/en/biographies/5k12/kirk-norman-eric

Yes we have come a long way in the ensuing years. Unbelievable!

http://www.teara.govt.nz/en/photograph/23339/norman-kirk-paints-the-house

"Labour Party leader, later prime minister, Norman Kirk paints a window frame of his house in Cashmere, Wellington, in 1971. As leader of the opposition, Kirk would have earned enough to hire a painter but, in the New Zealand ‘DIY’ tradition, he did it himself. He had previously built his own house in Kaiapoi, and had worked as an assistant roof painter on leaving school. Later he was a railway engineer before becoming mayor of Kaiapoi and then entering national politics."

that was different era where politicians lived in the area, knew the local people and issues.
now we have career politicians who only goals are to rise the ranks and be in power

There is no way out of this mess. Encouraging migrants and building dwellings both exacerbate the overall NZ predicament. Meanwhile, the global financial-economic system staggers on, digging an ever deeper hole for practically everybody and 'progressively' destroying the environment.

Will the collapse be this year?

Still watching the ice melt at an unprecedented rate, so new dwellings better be more than 5 metres above current high tide or they won't last very long.

http://nsidc.org/arcticseaicenews/charctic-interactive-sea-ice-graph/

The USA can only deal with its de-regulated financial laws by way of implosion, an oppressed people and the majority of the middle class west who have been manipulated by the finance industry and big corporates. They are parasites and are killing their host, the honest and hardworking people

Oh please. Volumes are nudging thr 03-14 in an El Nino year. Arctic temps below the 58-16 average. Greenland SMB above average 90-13 average. Collapse? Find a new hobby.

http://ocean.dmi.dk/arctic/icethickness/thk.uk.php

http://ocean.dmi.dk/arctic/plots/meanTarchive/meanT_2016.png

http://www.dmi.dk/uploads/tx_dmidatastore/webservice/b/m/s/d/e/accumulat...

Its a "National crises" record poverty with huge Social consequences requiring urgent and positive action on supply to achieve affordable housing.

After reading the Cassandra article on the (non) benefits of immigration I am still waiting for JK to explain why we need more immigrants.

Affordable?

"Ramping up a mix of affordable duplexes, apartments and stand-alone homes at Hobsonville"

Something is amiss here - is this the same Hobsonville dicussed here (just) 6 days ago?

If it is the very same location then Bernard is seriously remiss and hasn't done his homework

commented on here
http://www.interest.co.nz/bonds/82188/roger-j-kerr-says-risk-investor-mo...

based on an article in the NZ Herald
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1165...

The Chinese are buying the Hobsonville sections for around $350k to $400k. A 180m2 new home will cost them say $450k or total of $800k to $850k and they will sell them for $1.1m in a year or so when they are completed. Huge profits! Many will just flick the land on for a quick and easy profit - why bother building when you could make $150k per lot on selling when the titles come through. There is so much demand from all the Chinese coming into the country that the "greater fool" theory is fully in action with no end in sight.

Friends, the only solution to housing crisis is first to change govt ( though opposition is not strong) but national has to go and will go as denial and lie by anyone, more so governmentbis highly unaçepatable.

So if need solution for housing crisis, first make national govt govt and earlier the better.

Evita - you keep saying the opposition is not strong - are you sure you are not just perpetuating an urban legend?
Strong - compared to what? Smith, Brownlee, COLLINS? You have to joking right.
National is all about the smoke and mirrors that is Key. Once the voters realize this its all over.

Wish opposistion was strong and raise the issue facing NZ strongly and able to expose givernment - role of good opposistion.

As I've banged on aboot for years, http://waymad.blogspot.co.nz/search/label/Housing the issue about 'affordable' housing costs is twofold: land costs and construction costs.

Rural land (top dollar, hort or best dairy) tops out around $50K/ha. If we assume 1/3rd goes to roads, reserves, utilities and related space, there's 6667 sq m/ha. If we further assume 11 plots at 600 squares in that remainder, we get a raw price per plot of $4,550 (rounded).

Now the fun begins,

This is something the Productivity Commission noted in their Housing Affordability report. Land values 2 km outside a rural/urban zone boundary are something like 10% of the urban side of that squiggle on a map.

Well, first of all, that zoning boundary now its Urban, instantly inflates the raw land cost by say 10 times: $46K. Planning gain, yum yum.

1 - Time taken - interest will double any early costs (like land purchase, survey, consenting etc) every 6-7 years. Allowing say $5K/plot for plans, survey etc, and land value of $5K. Allow 7 years from pony paddock to sale, at a commercial credit-line rate of 10%, and the raw surveyed land cost is now $20K for that one plot.

2 - Council development contributions. Ostensibly for reserves and green space, these have blown out over the years to include all manner of social and cultural objectives. Allow $40K per section. Raw land cost is now $60K/plot.

3 - Of course there will be services, roads, connections to and share of, services etc to apportion. Allow $80K per plot. Raw cost is now $140K/plot.

4 - Nobody does any of this for free, so allow a developer's margin of 30% or $42K/plot. Cost is now $182K/plot.

5 - And then there's GST on the sale price at 15% so plot price is now $209K.

But as all surrounding plots are worth twice that, why sell 'em for less? Meet the market and trouser the difference.....

Oh, and do note that the sell-less-all-costs margin is very possibly not taxable, being mainly planning gain (if structured correctly). Just to add a leetle, shall we say, frisson (a sudden, passing sensation of excitement; a shudder of emotion; thrill).

Now the build costs.

  • Building material prices are in the steel vice-grip of a cosy duopoly, so materials alone are much more expensive than they need be. A quick Google of Bunnings, the co.nz and the com.au, should serve to convince the unbelievers.
  • The LBP mania largely rules out self-builds, sweat-equity and other self-help possibilities. Time was when anyone could build their own. Norman Kirk did. No more, at least, not easily.
  • Elfin Safety adds $5-10K layers at every turn: for such innovations as scaff, fall protection, site meetings, inspections, certifications of scaff and electrical cords and tools, Most completely unknown (and, arguably unnecessary) 15 years ago. Ask older tradies (who have, sensibly, quietly faded into the shadows or gone under the radar)
  • Building inspection and other regulation is mainly concerned with liability avoidance, not actual structural assessment. Witness the mountain of Producer Statements for every bracket, beam, bolt, fitting and component. Easy to count and file to get the ticks, very little relationship to (say) the performance of the structure in a severe earthquake. There's little to no dynamic testing (e.g. exerting a 0.5 tonne upwards force on a purlin to test security in a gale or pushing a corner of a building sideways with a known pressure and measuring deflection) All cost, close to zero benefit. So Quailty is essentially, unknown: it's for the hapless buyer to realise, years later.
  • Few builders exceed 100 units per year, and most is done outside, in the weather, with close to zero QC, by indifferently skilled hammer hands (drug-tested, if you're lucky). Contrast that to the build regime for boats, aircraft, caravans and portable structures: indoors, CNC machinery everywhere, tight QC, tight tolerances, done in volume and serial-numbered/guaranteed. Spot the difference? Check a local build, and count the weeks the frame stands outside, unprotected, in the rain...

So builds, if done this 'traditional' way, will just not cut it.

My solution?

Use factory builds to standard, multi-proof consented designs.

  • Multi-proofing the designs largely side-lines the stupid TLA's and their interminable and expensive consenting processes. They get to look at foundations and little else.
  • Getting a few House Factories up and running means some development incentives, and some volume: the former possible via e.g. tax or depreciation breaks, the latter via letting social-housing contracts for hundreds of houses to achieve short break-even times for aforesaid factories.
  • My personal favourite: staff these factories with re-trained and now unemployable TLA consenting wallahs. Instant productivity increase for NZ.

Of course there are significant trade-offs:

  • Accept that small, highly modular designs are all there is. Small = less cost, modular = able to be cranked out by CNC machinery in factories.
  • 'All there is' means abandon architects, consultants and the plethora of ticket-clippers who infest the building industry as currently constituted. If any of these types find themselves unemployed, into the Factories with 'em...
  • If Design is needed, use people used to designing for boats, caravans and Tiny Houses. Only they have the smarts to get best utilization of small spaces: the rest of 'house design' is infected with Embiggenment Syndrome and must always be 'On Trend'.

After all, folks, this is Social Housing. The objective is to get customers out of cars, vans, garages, three-families-to-a-room situations and the like. Make the homes cosy, fit for purpose, fast to build and cheap.

Well, common taters, feel free to pick holes in all of this.

As Evita said no amount of discussion will help unless you have a government willing to work for the people of NZ and not for rich overseas non residence ( everyone knows who those non residence overseas buyers are and if any doubt can go to auction or ask any estate agent- normally overseas data should help but have doubts about its accuracy and fairness).

HIgh house price will also impact social housig and will give rise to slums in NZ.

Will be legacy of National Party - Gift to Kiwi and generation to come.

"unless you have a government willing to work for the people of NZ and not for rich overseas non residence"

I put too you that they (government) are using/exploiting the tsunami of money of those rich overseas non residents to protect the asset prices of NZder's who have well and truly over borrowed on a domestic asset.

A 'stealthy bail out' if you will, by default because the government know damn well if they let the bubble burst as would/should naturally occur then their political days are over.

Let me make it clear, I do not support this plan. But ......is this not what is really behind government turning a blind eye to the wishes of future NZder's who have little to lose asset wise cause they have none and never will be able to afford IF allowed to continue? National know such people are not going to vote them back in

Hopefully this time will be out as are exposed. See world over things are changing, people are fed up of denial and lie of arrogent politicians.

The way bubble has built up it will burst and government may delày it but will burst and earlier the better as less harm to local new zealanders.

If government put restriction and control speculation will not be as harmful as it happens by itself - which it will and the only question is when and this too is delayed only because of low interest rate but one trigger from anywhere and will burst, without govt and experts realising what has happened.

If Karma, should happen in National govt time instead of after election, when another govt is in power.

I hope your are right Roy. And there definitely is a real global sea change happening that is fantastic to see. People are getting angry and engaged like I have never seen....abroad. I just hope to see that at our next election.

Bernard Hickey can be watched in video discussing housing with a panel of experts and a large audience of questioners here
http://transportblog.co.nz/2016/06/26/auckland-conversation-the-future-o...

Saw and again empasis only on supply. What about demand. Is their no need to curb speculation.

Should have one discussion only on demand and how to curb it and why national party is not doing anything but playing with time todelay the inevitable.

Now even australia and canada has accepted the fact. Government hide behind faulty data and wants proof of something which is in public domain and all experts too know but cannot say much in absence of data which govt is good at manupilating to suit their purpose.

Each and every expert knows but in the absence of investigative journalism has to keep mum based on data released by govt agencies, which are hard to believe now for trust defecit.

Let the new data differentiate clearly between citizen/residents and non residents(students, work visa, overseas buyer).

Why manipulate or collect data in a way to give incorect distorted facts. Can any of the experts decline this fact and how many have raised it and if raised,have they got satisfactory response that this time data will be collected to give true picture.

DP

Noticed some poncy news articles about how Key was feeling for his bestie Cameron and also pontificating about how at the end of the day Brexit wouldn't affect NZ as if he was the Oracle. Inwardly I wonder if he was thinking " if they can get rid of Cameron will these dumb hicks be soon getting rid of me?"
Brexit was largely about immigration - per capita on immigration we are running 3x more than the UK,

No one has ever made money on under estimating how dumb kiwis are but will this be enough to bring on Jkexit?

If we had some mechanism to remove before election would have happen now.

More the denial and lie from them more the anguish and isolation.

JKEXIT