By Bernard Hickey
Finance Minister Bill English has again criticised council planners for regulations that he said have quashed supply of new affordable housing, pointing to rules on Auckland apartments that he said added around NZ$80/week to rents.
English said in a pre-Budget speech in Wellington that it was now difficult to build some types of affordable housing in New Zealand's least affordable cities. He said councils' "excessive planning rules" were putting pressure on interest rates, reducing investment and hitting household budgets. Higher rents also increased Government accommodation subsidy costs and higher house prices drove inequality, English said.
English gave examples of an analysis carried out by Treasury officials of data provided by apartment developers.
Planning rules limit apartment sizes in Auckland to a minium of 40 square metres, with balconies of at least 8 square metres, he said.
"These two rules alone add around NZ$80 per week to the rent. A range of other rules set minimum subdivision size, ceiling heights, bedroom size and even the width of your front door. All of these push up the cost of housing," English said.
"Local body planners and councillors are not aware of the wider social and economic effects of their complex rules and processes," he said, adding he saw three major consequences.
"First, higher house prices created by excessive planning rules put pressure on interest rates, reducing business investment, lowering productivity and hitting household budgets. And housing supply that is unresponsive to demand causes price volatility and the risk of a severe correction," he said.
"Second, as the cost of housing consumes a greater proportion of income, pressure goes on councils and the Government for greater assistance. Around 40 per cent of households that are renting receive accommodation support from the Government. This will increase if housing becomes less affordable."
"The third consequence is that rising house prices drive inequality. Inequality in New Zealand has been flat since 2004, but the situation could have been better had housing been more affordable."
The comment is the first from English acknowledging the effects of rising house prices on inequality of either incomes or wealth.
Later English expanded on his comments about apartment rules.
"In my view it cuts a whole lot of people out of affordable housing in the middle of Auckland," he said.
Asked if he wanted people living in "matchboxes," he said: "People have to live somewhere and they can choose not to live in something that's too small. There's a bit much of a mentality that a small group of people on a council know what everybody wants and needs."
"It turns out in the examples I gave today that the preferences of a small group of people about what a city should look like mean real cost for real households. If you have a set of measures that raise rents by NZ$80 a week you're putting housing in that part of Auckland out of the reach of a lot of individuals and families."
Later English told reporters the Government may detail new measures to boost housing supply in the budget.
"We'd be looking in the budget to set out some more measures to make housing affordable," he said, confirming this would be on the supply side.
"I think a lot of people have been sceptical that you can do anything about rising house prices,"he said.
"The house prices have got a bit of momentum, that does look to be slowing a bit. We've been on a programme for three years so far and the next three or four years we need to follow through on particularly working with our councils because the ultimate decision makers here are the councils and they are under pressure from some people who would like to see house prices go up forever and others who want to get into housing, and they are in a difficult position because both of those pressures are on them."
"I think one general point here is that the banks are unlikely to lend people the amount of money required to drive house prices continuously up 10 or 15% a year."
42 Comments
...and yes I have (I know council planning staff who chose to live in undersized apartments for the convinience and savings). I'd happily have lived in them at various stages of my life when location and cost was more important to me than size.
You call this 'souless;? http://www.isaaclikes.com/2014/02/2481-ahhh-one-bedroom-apartment-in.ht… - it's got non complying undersized decks. Shock horror.
'Concrete blocks'? Of course apartment buildings have concrete and steel structures - what else to you expect them to be made from? Flowers and unicorn paste?
Your example is the exact opposite of what you are arguing for. It is a heritage building. How many of those have been demolished and replaced with soulless concrete blocks.
Rob, for someone squealing self righteously for consumer choice, it is ironic you and your council apparatchik mates have a Soviet era vision for the city environment.
The arguement was that minimum sizes are required to avoid 'souless' buildings. Here is an example of a building that does not comply with minimum sizes and yet is not 'souless'. Therefore the arguement that minimum sizes are required to avoid 'souless' buildings is rubbish.
Emotional rhetoric about soviets is what leads to misguided rules that drives up accomodation costs. If you don't like the aesthetic of some more recent apartments (I certainly don't) you should be campaigning about the aesthetics - not for minimum sizes. Minimum size rules do not lead to better aesthetics. Some of the ugliest buildings on Hobson Street have complying apartments.
Think about this:
Construction rate of $2500 per sqm. Retail rate of $9000sqm. If an apartment was 3sqm less than minumum size the purchaser will pay $27,000 less (IF they chose to and all saving passed on) or some of the $7500 build cost can go to making building look nicer.
I'd rather Council required the developer to put more money into the facade of building and street frontage which is what public interface with, than force it to go into floorspace that makes no difference to the publics experience of the building.
I don't think I have confused the two issues of apartment size and architectural merits - the problems tend to go hand in hand as a result of maximisation of developer profits, ie big grey concrete slabs stuffed with shoe boxes, and a gap between towers you can shake hands across. And that is the vandalism developers and their council pets got away with in the CBD for years - until the public got enraged enough that the council muppets got scared and had to look like they were doing something.
Except the balcony the example apartment you give is actually very spacious from what I can tell, especially the extremely high ceilings - may be this is what gives it a spacious feel.
We have all seen the funny pics on the net of small apartments where you can't close the bathroom door if you are doing No. 2s because there is not enough room for your knees. I am sure you want to avoid that Rob, so lets agree regulations on apartment sizes are a necessary evil.
Personally I don't want to see anymore damage done to the inner city. High quality renovations of charactrer CBD builldings - all good. Some additional towers with real architectural merit like what Ghery produces - all good. Cheap and nasty - no thanks.
I admit what I really want is a halt to Aucklands growth while other centers like Wellington shrivel. At the moment Auckland is just big enough to feel like a city but not a rat race - another half million squeezed in, is going to destroy that balance.
I'd have to say you are... is Metropolis acceptable enough for your delecate aesthetic tastes? - do you know if any units in that building don't comply with minimum sizes (lots)? You like Gehry - so look at the plans for Foster/Gehry Battersea and see how many don't comply with our rules (lots). What about Sydney's Central Park developement by Nouvell and Foster. Plenty of stuff in there would not comply here.
Now lets look at some scaffold clad under repair leakers on Hobson Street - oh, fully comply with minimum sizes.
So we have starchitect (nominated by you) buildings, presumably of architectural merit and one of Aucklands flashest full of undersized units while buildings you don't like 100% complying. Size does not force quality.
Bill English is out of touch.
Planning rules are needed to prevent rubbish being built, and in most cases they are too lax.
If he wants to fill our cities with "mean" houses, then we will have a city of "mean" streets which will produce "mean" men. That is the last thing we need.
What we need are development contributions slashed, sensible development on the fringes and quality development in the centres. As well as the decentralisation of Auckland.
No part of NZ other than central Auckland and Central Wellington have any problem with space to grow in the proximity of local amenities.
Wellington doesn't exactly have a great demand situation at present, so there is only one area that needs attention and that is Auckland.
Jamming more people into Auckland doesn't solve anything.
National seem to be clutching at straws not actually understanding the problems. All they seem to be doing is listening to their mates so that they can turn a profit...
We have a Building Act to ensure buildings are safe and sanitary (and an undersized modern apartment will be warmer, drier and healthier than a M$1.5 grey lynn villa).
Rest of your post becomes emotive nonsense about your prejudeces and how you want to comtrol how other people live. Someone living in 39sqm will suddenly become 'mean' whereas 4 people living in 100sqm won't - just nonsense. Metropolis is seen as a luxury apartment building - care to comment on how it complies with minimum size rules?
But ChrisJ's last sentence is spot-on. We are watching the evolving of two very divergent and totally-incompatible trains of thought - both riding on some interesting assumptions.
One wants no rules, sprawl forever, thinks short-term and selfishly. The other wants rules, is thinking longer, and thinks that 'compact' is easier-served in the medium and long terms.
Both miss the obvious fix - contraception, education and restrictions on ownership and immigration.
Beyond that, which is the more long term sustainable? Well, in favour of sprawl (but it would need a minimum-size rule!) is the abiity to grow food in the backyard, and the ability to gather solar energy formaximum hours - maybe water via area too. Against sprawl are the reliance on the car (electric ones require global fiscal ineraction to remain cohesive - not a bet I 'd back) and the distances involved - but those distances are to do with the size of community. In a village, your friends are at vilage distance, in a city, they can be across town.
For compression, is the cost (via short-runs) of infrastructure, and maintenance thereof, Also for compression is the shortness of travel - can get by carless with good public transport. It's problem is the feeding and servicing; everything has to be brought in, and the residue taken away. It also continues the 'I hit a button and it all goes away......somewhere else' mentality.
Ultimately, reducing population has always been the best approach. Sooner or later, planning for projections of increased demand has to stop. Better it is sooner. That relieves the pressure - indeed soon gives us more houses each, and a collapsed price.
Of course, there would be 'losers', in such a descent.
No one will go near contraception, not even the Green's, the subject is tabboo.
I to am unsure on whether sprawl with area V density is the answer. What I come back to is the amount of time a family can actually earn money in order to buy food/essentials. I'd suspect that like the Great Depression we will have huge un-employment, in the order of 25%+ and part time working. 2 or 3 days per week even for those with jobs. In such a scenario how do ppl afford the cost of food when we have density? I dont see how unless we have huge handouts. Then there is also the idle hands aspect. So for me I think we should consider that the 1/4 acre is the way to go and soemthing like earthship housing, ie ones that are passive heated and have their own power with their own water catchment and waste treatment system. Transport, well Im not sure why we'd need transport if we are not making goods as ppl cannot afford them. So really this points back to villages and towns, this concept after all developed via evolution, the fittest system surviving.
regards
Not quite true. The first train of thought definitley wants rules - banning density and forcing sprawl.
The food growing arguement is interesting, but if you are advocating or expecting a shrinking population anyway why pay for infrastructure thats going to be abandoned? Compact makes more sense for growth in short term followed by negative growth in a possible future scenario.
Thanks for that PDK. Good summary on the different trains of thought. Bryan Leyland characterised the two options as the following. It is a good link because it is visual and conceptual without being too wordy.
https://www.dropbox.com/s/q1zk4vktxb0d8pf/Auckland%20Plan%20IPENZ%20wide.ppt
I actually think we have more options than the two options Bryan gives (along the lines of what Steven is saying above) and I am suspious of his extreme technological rescue belief. I will try to get my thoughts together on these issues in a later post.
Would I be right in saying that the following is consistent with what you are saying? We need to stabilise population and consumption with the aim to prevent the overshoot of resources. NZ should stop immigration, continue to have more deaths and births (although at some point a balance will be needed) and become more capable of producing our own needs from renewable sources. The first step being to make our our own energy instead of importing it.
backyards big enough to grow your own food?
Growing your own food, while pleasurable, is hugely inefficient. You'd be better to have smaller yards allowing smaller cities, meaning the large efficient farms can be closer to where people live.
And solar, you don't need sprawl to gather solar. Once you get into appartment blocks, then yes if you have three levels of appartments with only one roof, you can't have solar on your own roof, but there's still enough shared roof for solar. Once you get into CBD style 20 storey towers, then sure there's not enough roof space to generate enough electricity for all the people under it, but who says each building needs to be self-powered? Better to have less space taken up by housing and have large scale efficient thermal solar plants just outside the city, that can generate electricity in the winter evening as people come home.
Who likes the idea of the next generation and every generation onwards paying $500,000 too much over their lifetime for housing costs, so that their share of the cost of infrastructure for "sprawl", at around $5,000, can be avoided?
Of course the people who reap the $500,000 per household are perfectly happy with this sort of advocacy, which is why you find Rockefeller and Soros money in every second major international "Compact City" promotion "study".
There have always been Malthusians who say the world is overpopulated: Tertullian said this in about 100 AD, when the world had about 30 million people. Malthus himself said it in the 1700's when the world had about 1 billion people.
Colin Clark, a distingiushed colleague of J M Keynes, calculates in his major work, "Population Growth and Land Use" (1967), that the earth is capable of sustaining 47 billion people - and firstly, he was talking about existing state of technology at that time, and secondly he was saying that USSR resource economists who said it was 80 billion, were too optimistic.
None of the Malthusians that have ever existed, have actually known jack about the specialist subject of resource economics.
Bob, the building act does not cover appearance and how it functions at a street and city level - urban design - how the building works for people who are not the owners of it but are citizens who must look at it every day.
The minimum size rules were put in place originally to help address adaptive reuse (if I remember correctly) - it is really hard to reconfigure a 16m2 space but easier to reconfiure a 40m2 space.
Don't forget there were no (or almost nil) apartments 20 years ago in NZ. Auckland City had to incentivise their development with rates relief and a few other things. Now we have the Govt saying they need to be built smaller AND development contributions wont be allowed for all the civic amenities the apartment dwellers will need as a result of living in such shoe boxes.
Nats weren't interested in housing until 12 months ago.
I completely agree that planning/UD should ensure buildings interface with public realm in positive way, with high stud activated ground floors etc. that is their job.
I dont agree that Council planners need to be able to dictate the miniumum size of your wardrobe in the CBD. Adaptive use is a red herring - you can buy multiple unit titles and anyway why should I pay a big premium for my accomodation on the off chance that some unknown person at some unknown point in the future might want a bit more space in this particular building? Why 40sqm? Why not 38sqm? It's arbitary. Stud height is a useful rule but not minium sizes. When one of the authors of the 2006 rules saw some of the effects their response was 'woops - didn't mean for it to do that'
The government is NOT saying "they need to be built smaller". They are saying they should be allowed to be smaller if the market wants smaller and cheaper. Apartments are not automatically built to minimum sizes. They are built to meet percieved market demands which more often than not means bigger than minimums. One of the most popular sizes in market currently is 55sqm - 10sqm bigger than minimum for 1 bed.
Minimum sizes are not just a CBD issue - the UP wants to make it throughout Auckland. 35sqm sleepout - too small to be allowed.
If the "contributions" are fair and justified how can they be slashed?
The problem of de-centralisation is the cost of transport, capital and operational.
"Jamming" well with rents flat I question just how much jamming is going on. I mean in chch for instance we have houses rising in cost and rents going up...why is Auckland different?
Why is just specualtion right now, so setting policy on guest work is just crazy.
regards
Shoebox apartments. Get out the money printers lads.. Just think of how many units can be squeezed into a development if they take away minimum size! Developers profits will soar!
If there must be a minimum size I propose 1.4m2. Here's an idea to solve the housing issue overnight Mr English.
Thanks bob... I think there is a correlation between the number of units per development and profit. At the lower end of the market more units = greater profit. When you are talking about the difference between 10 X 40sqm apts and 13 X 30sqm apts where do you think the greater profit will be?
There is no profit if you can't sell it. So your assertion that no minimum sizes will lead to 1.4sqm cages is silly scaremongering (although old people in Remuera will be terrified that no minimum sizes will lead to Hong Kong slum apartments appearing overnight right next to them).
It's not a very slippery slope. If every development will automatically revert to minium sizes then explain why they don't. All the recent Ithsmus apartments are way over minium sizes. Issac, Turing, Balfour, Vert, Saint, everything at Vinegar Lane. There are different markets that want different things. As zz notes below there are other banking factors also.
Machiavelli is right in the overall big picture. Bob is right in the case of any one development at any one time - there is a limit to how much smaller you can make apartments, and still sell them.
However, in the big picture, when you are systematically containing fringe growth and building "up" instead of "out", the average cost of housing NEVER falls as average sizes fall.
The lowest housing costs are all in cities with no fringe growth constraints. 3 times household income in an affordable city gets you a decent multi-room family home, almost regardless of what income quintile you are. The very lowest income earners MIGHT have to accept a medium size apartment.
In contrast, if you are a median income household in Hong Kong, a 40 square metre apartment will cost you 12 times your income.
If you are a median income household in London, a 70 square metre rowhouse will cost you 9 times your annual income.
If you are a developer on the fringes of Boston and you are obliged to not develop at any denser than 2 homes per acre (due to their zoning mandates) then you are not going to pay the rural land vendors more than about $500,000 per acre, (plenty of profit for them anyway seeing they will have got the land as rural land years ago at about $20,000 per acre) and you will sell 1/2 acre sections - at a profit - for about $450,000 each, after development costs, infrastructure contributions, and after sacrificing the necessary 50% or so of total space to non-saleable uses.
If you are a developer on the fringes of Manchester, Portland, Vancouver or Auckland and you have permission to do 20 units to the acre, you will pay the rural land vendor about $2,000,000 per acre and sell each townhouse on its 1/20 of an acre, at a price that incorporates around $250,000 for the land - after development costs and infrastructure contributions.
The price elasiticities of demand for land space per home, are a funny thing. They could be represented as a curve on a graph, where the curve gets steeper and steeper the higher the price gets. People gotta have space, it is a necessity.
But let developers get rural land at $10,000 per acre and it does not mean that home buyers consume 20 acres each. Well, they do, in NZ, outside urban growth boundaries; but if the UGB's were abolished along with the lifestyle block minimum size zonings, you would see a lot FEWER 20 acre households - and a lot of households who were otherwise tolerating 1/20 of an acre each, happily buying 1/8 of an acre for half the current cost of the 1/20.
Of course the land rentiers love the combination of UGB's and upzoning. Bob's argument that you can't just reduce apartment sizes forever and make more profit, is an argument reductio ad absurdum, probably made by a happy land rentier who knows he is gaining from being able to force 100 households to pay $400 per week each to live on his developed site, compared to an undistorted market where probably only 20 households would be prepared to do so, at $200 per week.
The mention of apartments is actually a little odd. Apartments are still rationally valued and can get a good 1 or 2 bedroom apartment for under 300k still, can use welcome home loan for it, they should become more popular as people save big time and money by walking to work instead or commuting, and handouts for having babies reduces forcing couples to rethink starting a family until they can actually afford it (revolutionary thought I know..).
If they build more under 40 sq m apartments they will have a hard time marketing them to anyone other than students anyway, fine if they want to, I dont think it should be against the rules to build small apartments.
The real issue is stand alone houses which in auck that have become completely disconnected from rational value. Sprawling is the best way to add supply; there becomes a price limit you hit where it simply becomes cheaper and a better option to build new yourself; the key thing is to make all council related costs as low as possible, and decent supplys of land, so developers can produce these at a reasonable cost. 700k should get you a new nice 3 bedroom stand a lone house;considering 2nd hand houses in auck are aready very close to that price level means a natural price cap is expected once this land and better council costs come online.
Valuation normally uses income to value ratio. In stocks its price to earnings multiple.
Your argument has merit if you consider future potential earnings from say subdividing or adding rooms which is possible on certain landed properties. This sort of valuation is generally called speculation (Benjamin Graham, securities anaysis). This was used for Xero to reach irrational price levels based on no earnings. We all agree xero should be worth something dispite its lack of earnings, but how much is pure speculation.
I agree some landed properties (how easy is it to add rooms? to add a secondary dwelling? to sub divide? To demolish and replace with units/apartments, is there demand for this in that area and what price could you charge V. the cost of development for the area?) should include a premium over what the income level would suggest, the level of this premium is hard to know.
Apartments are already generating close to max potential income, you could argue that trends would suggest more rent rises in the cbd, so people could price them at a slight premium to the income they currently produce. Either case, they make sense compared to the opportunity cost of storing your money somewhere else.
I've long argued that Councils are utterly clueless about the economic effects of their rules, policies and decisions.
And publicly.
I applaud Bill E the Dynamo from Dipton, for his focus on these economically inept planners: they are causing real externalities and behaviours without the faintest hint of assessing beforehand, let alone measuring afterwards.
Bozoes and clowns, and we can thank the Brit Town and Country Planning Acts for this clusterf..k.
I hope interest.co.nz covers the governments second housing accord in detail so we can judge the governments real attitude to housing from there actions. All I will say is it has not been worth the wait....
Funny how Bill wants smaller appartments in the city but didn't mention the rediculous minimum 600m2 section size in Epsom unitary plan.
Anyone opposed to smaller sections just needs to go to Ponsonby - lots of houses 'crammed' in on small sections with very little road frontage. Its hardly a slum. So small sections can work as long as there are reasonable controls on what gets built on them (although I'm not saying the current council rules are reasonable).
Actually a lot of Ponsonby and surrounding area were slums. Even in the 70s St Mary's Bay was full of flea pit crowded rentals and had a cat house with a colourful history. Only because of the shift back to urban living did its proximity to down town cause its re-gentrification. At least in St Mary's Bay there has been some effective conservation thanks to a well resourced and funded community group, so it still has an old world feel for the most part.
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