Infometrics' Nick Brunsdon points out that the secret to building more houses seems to be building them smaller. A compositional shift is behind the reversal of the trend

Infometrics' Nick Brunsdon points out that the secret to building more houses seems to be building them smaller. A compositional shift is behind the reversal of the trend

Infometrics’ building forecasts show that consents for new dwellings in New Zealand are expected to crack 35,000 by the end of 2019. This article looks at the size of our new housing, how it’s changed over time, and one potential approach to address the housing shortfall – and meet KiwiBuild targets.

Sizes peaked in the 2000s

Bigger was truly better in the 2000s, with average floor areas for new dwellings growing from 174m2 at the turn of the century to 200m2 in 2010. However, we’ve since eased back on the size front. Average floor areas eased to 170m2 in 2018, with the growing cost of construction and rising land prices trimming the buying power of those looking to build. There has also been a compositional shift, with more apartments and townhouses, which tend to be smaller than standalone houses.

The secret to building more houses

At 35,000 houses a year, it will take a long time to reach KiwiBuild’s target of 100,000 dwellings and make a dent in the housing shortfall without crowding out the rest of the construction sector. But we only need to hark back to the 1970s to find a solution. In 1974, we built 35,000 new houses with a much smaller population and workforce. The secret? Building smaller. The average new dwelling was a little under 110m2 (see Graph 1). The government heavily incentivized small and modest houses, with strict requirements including price caps for developers to access underwrites, and for families to access low-interest loans and capitalize their family benefit for the deposit.

If the average dwelling today was 110m2 , then the 5.6 million square metres of residential construction consented in 2018 could have been spread across 51,000 new dwellings instead of 33,000. KiwiBuild could be done and dusted in two parliamentary terms.

Graph 1

 

That said, we must acknowledge that smaller houses are more resource and labour-intensive, and thus more expensive per square metre. Smaller houses still need expensive rooms like kitchens and bathrooms, but have fewer less expensive rooms like bedrooms and living areas to bring down the overall cost on a square-metre basis.

Matching our houses to our households

While 110m2 might feel a little cramped by today’s standards, there’s a good evidential basis for shaving a bedroom or two off the average house. Since the 1970s, we’ve been building bigger and bigger houses at a time when our households are getting smaller and smaller. As of 2013, the typical household consisted of two usual residents, but the typical house had three bedrooms.

Graph 2 shows that the number of bedrooms and number of residents seems to be almost unrelated.  These surplus bedrooms can’t be helping affordability for buying or renting. Not only that, but bigger houses cost more to keep warm, with the growth in floor area negating the impact of higher insulation requirements .

Graph 2

Construction is not just housing

In scaling up our construction sector to solve the housing shortage, we can’t forget the importance of non-residential construction. Just as we need more housing to accommodate a growing population, we need more shops, offices, schools, and factories to service and employ the growing population.

Since 2010, both residential and non-residential building activity has grown to reach record levels. The volume of residential work put in place has shot up by 72% while non-residential work has grown 30% (Graph 3). This growth has stretched resources across the industry, so further substantive growth in either subsector seems unlikely, lest we find a way to build more with less.

Graph 3

 

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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We are in the right direction..

Developers were building houses over 200sqm and pricing them over a million ..

Yup and building them on 160-200sqm of land with no outdoor space.

A couple with a small child can live happily in 35sq (family experience) but Auckland's Unitary plan decreed 40sm minimum for an apartment. Surely that is an arbitrary limit imposed by those who know 'what is good for the rest of us'. With so many young people actively wanting to be alone encouraging smaller apartments makes sense. There would still be some pressure towards size because banks restrict mortgages on properties they believe will be difficult to sell. The council should realise that the choice for many Aucklanders is not between a pokey small apartment and a decent airy well sized one but between the former and living in garages, cars and motels.

Are you paying $500K for that 35sqm apartment? Because that's how that seems to work. It then pushes the price of everything else up because the 'bottom' rung is now $500K. Until the fundamental shortage is address, high priced, small units will just decimate the affordability of anything else.

Let's not forget a few of things about building in the 70s, the houses were very simple, no insulation, no double glazing, no internal access garage, in fact no garage at all, that was added at a later date when you could afford it (section was big enough to do this), there was no landscaping done you did that yourself. There isn't really a comparison. Even smaller builds are going to comparatively much more expensive than our 1970s one, back in the 70s you could take over at lock up stage and do a lot of the interior work yourself. There were many, many ways to save on your new home, often a first home.
Section sizes would have been down to 6 or 700 metres in these subdivisions but that was plenty with a small home on it and the all up cost of house and land was split pretty equally between house and land.

Good post. Yeah look at Berhampore in Wellington. Very dense housing but quite adequate except for the lack of off road parking.

15
up

There is still no more simple solution than we simply stop importing people, it is not necessary and growth for growth's sake is just plain, straight out, unsustainable.

Still 200m2+ new builds over 1 mil keep popping up all over north Wellington. I'm glad the size is in decline though, as it's totally unnecessary. We're looking for a nice 90m2 for a young family.

Yes we just bought our first home — 80m2 in Khandallah, for two adults and two young children. It's small for a 3-bed but cosy and cheap to heat!

It's not worth building small stand alone houses in Auckland. Once you've spent 200k on drainage, water meters, driveways, council consents, power and fiber connections etc (which are largely fixed regardless of the size of the house), you may as well build the biggest thing you can.

In the name of affordability - will be buying tiny 40 sqmt apartment for $500000.

Everything is wrong in housing market - affordability is a decent house at decent price and our Leaders (Who decides the faith) will decide that $500000 is very affordable (True) BUT for 40 sqmt house.

Think

Unfortunately, North of Auckland they are building a lot of 4 bed late houses. Much of a muchness, most of them are over 160m square and are on a plot ever smaller. Millwater has lots of 5 bed places for instance. But Red Beach is now building lots of 4 beds on even less land (about 450m). Prices for these and Millwater are not dropping in last 3m and 4 bed places can now be had for under $1m. That is about 15% less than 6m ago. This is not speculation it is happening now. They build lots of apartments and smaller developments in Central Auckland but problem is that the building cycle (as so often - see Mr Tookey's academic work) is not over-shooting the economic cycle. Buyers are waiting, not buying, in increasing numbers. So we are going to have a glut of apartments, the price of which will therefore have to come down.

"Smaller houses still need expensive rooms like kitchens and bathrooms" - but these are precisely what can be and is being fabricated offsite in a modular way, and plugged into the structure as a unit.

The article also does not contain any of these phrases:

  • Prefabrication
  • Offsite
  • Modular
  • Factory

which rather spoils the otherwise useful meme of 'Small is Beautiful' - because smaller units lend themselves wonderfully to factory-built, properly QC'ed, prefabricated, built under cover, assembled on-site production.

I've an entire thread on the woeful housing business, that covers the impediments to actualising this dream of Mo' Littler Hooses....feel free to appropriate the better bits among the rantz....

Fun fact: You don't have to have 'little' houses with offsite pre-fab - you can get a terraced home up to five levels at a reasonable cost advantage over constructing it. You're talking 140sqm+ but delivering it for far less on a much smaller foot-print.

I had my Passive House pre-fabricated in a factory in Chch as this gave a higher quality result. It went from bare slab to fully assembled, weather-proof (including all external windows and doors in) in 2.5 days. All the panels were square and true and fit together with minimal effort onsite. This house got an airtightness result of 0.39 air changes per hour - about 10 times better than a new code built house.

Interestingly...
1973 we had a oil crisis. Between 74-80 we had a 40% price drop.
The housing crash no longer talked about.

Last year, we stayed in Tokyo for 3 weeks in a 3br house not much larger than 75sqm (according to AirBnB). It's so well laid out that we forgot that we are only have 75 sqm.
It's all in the design!

Yes, this 'size to affordability' issue is a red herring.

The status quo solution (which is its own problem) seems to be - cut the house size in half, cut the price by a 1/3 and hey pesto a so called affordable home.

As you say it's about design, there are just as many poorly designed small houses as there are big houses.

If the first thing they did was improve design, including quality of build, then you would be half way there to the a price reduction in build, and operating costs.

Of course, as long as they restrict the supply of land, then you would lose all that saving as it will get capitalised into the cost of land.

Seeing my mother-in-law rattling around alone in a 3 bedroom house that otherwise suits (low-maintenance, small section, close to transport and services), I've often thought that it would be great to have a design that could be easily changed from a single family dwelling to two separate self-contained units in the one building. It would be ideal for retired folk short of cash to have something they could rent.

There would be next to no subdivisions in Christchurch that will allow 100m2 houses to be built, as our standards for new subdivisions are far higher than in Auckland, where you are allowed to build these shoebox so-called houses that are grotesquely overpriced!
If that is what people want to live in, in Auckland pint sized boxes all looking the same then that is their choice obviously but it so t be happening in Ch.Ch.
The negativity of the market in Auckland is helping investors in Ch.Ch. With opportunities.

Yeah but, then you live in Chch... I'd take my chances with the box

Get out and travel man.. spend a few weeks in London and see what well designed smaller terraced houses are like, they are fine, when you couple them with some decent common areas, and good public transport infrastructure

UK has the smallest new home builds in the EU at 72m2, and that's not because it is the 'right size' or better designed.

It's because they are the originator of the command and control land restriction laws that we as a UK colony inherited, and doubled down on.

The UK has 60 million people and house prices are less per median income multiple that we have in NZ with 4.9 million.

And the quality of our house builds is lower.

What a cluster.

It's not really the size of the new house built that matters - whatever is the size that sells the most is the best size. As it's numbers supplied that matters. The more the merrier of course.

US research suggests for every two upper quartile priced houses built one lower quartile house becomes available to buyers. This is due to migration up the price brackets by buyers. So when you see a McMansion being built - don't despair that they are not building an affordable house for you - as half a lower quartile house has become available.

This is why "inclusionary" rules don't work - where the developer is forced to build a certain percentage of affordable houses to get consent. More often than not these rules mean the development doesnt happen as the profits in the pricier houses wont offset the subsidies needed for the cheap ones.

I doubt those numbers were based on an unnaturally high, sustained increase in the adult population, or possibly investors piling in on the lower part of the market, squeezing out potential home owners on limited budgets.
We still need lots more affordable homes for people to BUY not rent.