Auckland's intensification problem

Property

'Going up' is not giving Auckland more affordable housing any more. In fact, most 2016 projects are for large and expensive apartments as capacity constraints shift resources

29th Jul 16, 2:08pm by David Chaston

Today's building consent data has revealed Auckland's problem with 'density'.

The public discussion around increased density in the Queen City is on the basis that "going up" will allow more affordable apartments to be built and these will be more efficient users of the infrastructure, like transport, in place.

The assumption is that such dwellings will be smaller ("compact") and cheaper than houses, hence "affordable".

The problem is, that is not what is being built now, even though more apartments are being built.

The consent data shows that from 2013 to 2016, the average house size has held steady at about 235m². The average building consent value has risen over that period from about $370,000 to $426,000, an increase of +15%. On a per square metre basis, the cost has increased from $1,575/m² to $1,890/m², a +20% rise.

However, things are dramatically different for apartments.

The average apartment size being consented is now just a tad shy of 200m². With the average size in 2013 being 130m² and 2015 137m², there’s been a clear jump in the size of apartments being built today.

Apartments are suddenly much more expensive as a result. The average consent value is currently $400,000, whereas in 2015 it was $240,000 and in 2013 it was $175,000. On a square metre basis, the equivalents are $3,980, $2,220 and $1,715/m².

Most of the apartments being built in Auckland in 2016 are at the luxury end.

This is perhaps understandable given the deep housing shortage and limited building capacity. Developers are satisfying the very profitable top end of the market with the resources they have. Very few are building affordable apartments.

And this trend will no doubt become as embedded as it is for new houses until capacity grows to meet the natural demand.

But given the enormous (and growing) construction demand from non-residential projects in Auckland (and the limited places builders have to live themselves), there seems little chance that transition will be occurring any time in the plannable future. Unless, of course, we import thousands of people to do the work.

Boomer demand may have crowded out younger generations from houses, but the latest building consent data suggests they are doing exactly the same thing with apartments.

Unless Auckland's intensification plans come with rapid capacity responses to 'deliver the Plan', things will no doubt be tighter from 2017 onwards, than they are now.

Building consents - residential

Select chart tabs

Source: Statistics NZ

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52 Comments

by hobo | 29th Jul 16, 2:24pm 1469759072

So.... Your solution is to "import thousands of people to do the work", and implement "rapid capacity responses to 'deliver the Plan'" ?

by CJ099 | 29th Jul 16, 3:08pm 1469761721

Don't worry Hobo, No one is actually going to live in the new apartments in Auckland, well maybe some will be rented out. They're really just property collateral asset units for Overseas Investors to collect.

Wow it's amazing just how much Auckland's property prices have increased, I was just comparing the figures from this article from last year to now, apparently we were an "Investors dream" and I guess we still are.

I have to admit I was very shocked the Real Estate Agent radio advert boasting that property investors can get New Zealanders to "go to work for you and give you hundreds of dollars a week" in rent.
I wonder will RayWhite do that?

Herald New article: Auckland property boast: 'An investors' dream'.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116…

by hobo | 29th Jul 16, 4:43pm 1469767437

I 'own' a house in Auckland, so I work for my bank for thousands (almost...) of dollars a week....

by Chris-M | 29th Jul 16, 5:36pm 1469770577

This isn't so bad.(not withstanding the fact that the whole market is elevated to a stratospherically crazy level) If we want to offer a real alternative to stand alone houses then apartments have to offer something approaching equal living conditions and that includes the living space. Do these apartment sizes include garaging. If not then they are effectively larger. They are luxury apartments, so if the finish was to a normal standard, the cost would be lower. It seems to me that with a bit of increased efficiency and targeting a larger apartment, but built to a normal standard we may yet see something worth living in at a price that is competitive or less than a stand alone dwelling.
Thanks for the article David

by Stephen L | 29th Jul 16, 3:31pm 1469763079

Are we best to:
Leave these things to the market, in which case new builds will primarily be at the upper say quarter of a quality matrix, and where simplistically supply will catch up with demand such that some older dwellings will become more affordable than they would otherwise have been, or
Somehow legislate like the UK, where a proportion of any development over x houses has to be "affordable".
I don't know the best answer, but would like to certainly see affordable housing come about, (and the Unitary Plan seems promising in that respect) with no concentrated ghettos of poverty- the UK's real objective rather than just affordable housing. On the surface, I would rather better quality new builds happening, than poor quality. Older houses will depreciate to that level soon enough.

by Penguin | 29th Jul 16, 8:19pm 1469780368

Excellent point on the the "affordable housing" concept as in the UK as it is a policy that has worked. It is something they need to introduce. Unfortunately it only really works on bigger projects and in Auckland it is more about subdivide and infill.

by Donald Ellis | 30th Jul 16, 4:22pm 1469852544

I hope this entire comment is ironic. The UK is one of the least affordable markets in the world. We are, in fact, already doing exactly what you suggest as part of the Special Housing Areas. The act requires that a percentage of all dwellings built in an SHA are "affordable".

In Hobsonville "affordable" turns out to be $550K or a smidgeon under 8 x median household income. It also turns out that there is no reliable way of finding out when these "affordable" homes are coming on to the market or any way of allocating them to the people who have the greatest need.

It is a disastrous policy.

by Uninterested | 29th Jul 16, 4:12pm 1469765565

This is interesting isn't it. This sort of info should be published widely. I believe that you are actually comparing apples with apples here. Therefore it show up the lie that dense buildings are more cost effective. The land value under them will be as high as a developer can afford, so there may not be much of a difference in terms of resultant sale price either.

by PhilBest | 31st Jul 16, 4:21pm 1469938889

Your intuitions are exceptional, my friend. In fact specialist urban economics literature makes the exact point that "site value is elastic to allowed density". But almost no-one, even economists, ever read the truly specialised literature on urban land economics.

However, the above "rule" is dependent on urban land supply being constrained in some way, usually by a regulatory boundary. Back in the era of median multiple 3 housing in most of the first world, urban land values were derived from what specialist economists call a "differential" process. That is, the value of the cheapest rural land within driving distance of the city, plus capitalised transport savings. The value of sites tended to remain anchored regardless of allowed density of development, so that where there was demand for apartments, the land value input could be split up over more "units" on a site and they ended up truly cheap. It still works this way in the several dozen median-multiple-3 cities in the USA.

If you look at RE sites, you will find that a city like Houston has new suburban McMansions for 1/3 the price of Auckland's not as good ones; AND Houston also has CBD apartments for 1/3 the price or rent of Auckland's not as good ones. Bear in mind that Houston CBD has more Fortune 500 Company Head Offices than any other city except New York, so it is quite possible for "high value" locations to still have "free market" efficiency advantages in housing costs if urban planners are not empowered to wreck things.

by nzakl | 29th Jul 16, 4:20pm 1469766056

If Really want to control housing Crisis - If PM really has the will to control could be done by taking action against the speculation side of the housing problem. It is not a state secret that same house is been sold number of time in a year for capital gain. What is stopping PM to introduce Stamp Duty or as he mentioned Land Tax for non resident buyers as that may ease the pressure slightly.

When they are ready to try everything why not try to control demand also. What is stopping them. Unitary Euphoria will end soon. It may be a good step but even that is not a silver bullet, even if it is a good plan (only time will tell that too in few years) so nothing is silver bullet.

It should be highlighted what is the reason that government shy away from curbing speculator - Data, Data...crying but do not want toget the correct data but to be honest one does not need any data and can go to any real estate office and see the last week sale - do it with few office and will get the result based on that survey- But Intention is lacking as RICH People Think like and for Rich People.

Need Leader with a Vision for All section of the society and for that #JKEXIT

by reena | 29th Jul 16, 4:43pm 1469767433

Unitary plan may be good or may not be but one thing is for sure that Unitary by itself is not going to solve the housing crisis, now and also not in near future.

National will have to act like Australia and Canada have, to control overseas/non resident buyer. In everything national ministers gives example of other country but why not on this instance. Strange.

by O.Farr-Kinnell | 29th Jul 16, 7:09pm 1469776150

Maybe the "unitary plan " should be tempered by the first rule of holes. "If you're in one, stop digging". And all these wise progressions are to be implemented via the "one stop super-city website". (I read they'd had a few problems a while back).

by J.C. | 29th Jul 16, 4:48pm 1469767733

Very similar issue happening in Vietnam right now. Apartments going up like wild fire in HCMC, all very much out of reach for low-, mid-, and even high-income households. Apartments being actively marketed in S'pore and Korea by the "white faced" CBRE, etc. On the surface, it looks completely absurd and appears as a ridiculous "quick buck" mentality promulgated by Western and Chinese mentalities.

by PhilBest | 31st Jul 16, 4:31pm 1469939492

What you are noticing, is the beginnings of a vital insight. There is no correlation at all between cities density, and "affordability". In fact there is not one city that is dense and affordable. ALL affordable cities are low density. Affordability only occurs by a city spreading out and becoming less dense. Land values are exponentially elastic; they fall faster than land consumption increases when there is freedom to consume more land, and they rise faster than land consumption is sacrificed under deliberate rationing policies like growth boundaries and intensification.

There is no "developing" country with affordable housing of any kind, no matter how dense their average housing is - dog boxes stacked and packed, yet half the population still lives in illegal slums and shantytowns.

The only thing that might be de facto substituting for "automobile based suburban spread" in nations like Vietnam, is that slum dwellers are now using the motor scooter as means of accessing further-away rural land so as to build themselves more spacious and better-appointed shanties on the greater space.

Actually none of this should be rocket science, you just need to notice the evidence, that is all.

by xelnaga | 29th Jul 16, 7:56pm 1469779008

I have no problem with larger apartments being built. It's good to have more choice, interesting to see to boomers blamed here.

However the assumption that increasing supply will gradually bring prices under control is a dangerous one to be experimenting with.

Overseas examples show that it often doesn't work that way when speculative mania has taken hold. The government flat out refusing to address demand is naive and reckless.

by SmoKey | 30th Jul 16, 10:00am 1469829607

Spot on. Increasing the house supply may only go to satisfy/stoke the overseas feeding frenzy, which is bound to increase if uncertainties increase in the world, awash with QE and other hot money. Private sector is not going to bring down the prices for FHBs. That is not how Capitalism works.

by PhilBest | 31st Jul 16, 4:41pm 1469940108

You are quite correct that "releasing" quotas of land supply in the face of accumulated speculative pressures, merely increases the amount of property being speculated on, and leads to a more severe crash than one in which chronic undersupply was the norm.

However, cities with markets for land around them that have always been "liberal" - rural land able to be converted to urban use without oligopoly gouging powers on the part of lucky "within zone" land owners - do not start to have speculative property price bubbles in the first place, The evidence is undeniable. Most western cities used to have sufficiently co-operative local government and infrastructure provision bodies, that this was a norm. The change is blatantly obviously in the "quota" approach to land supply for development.

I think we should continue to undersupply for now, and hike interest rates, apply stifling LVR's to all buyers, stop immigration, make CGT's more explicit, abolish the landlord operating loss tax write-off, and even change the rates proportion more towards land and away from structures - and deliberately crash the prices by demand-side strangulation. THEN we should abolish the growth boundaries, and reverse all the demand-side restraints and watch the real economy boom. We need an "undersupply" as a means of stimulating the real economy with a post-crash catch-up.

by JimboJones | 29th Jul 16, 9:03pm 1469783021

Not sure why it matters. More supply in any price bracket will drop prices in all price brackets.

by xelnaga | 29th Jul 16, 11:20pm 1469791218

That's not how the real world works when speculation is involved.

by SpaceX | 30th Jul 16, 10:50am 1469832645

Not when 50% and increasing of buyers are investors.

by kiwichas | 30th Jul 16, 5:17pm 1469855825

That's how you would think,and it's a reasonable theory, but it seems the bigger Auckland gets the more people want to come, the faster it seems to grow,exponentially increasing demand, and destroying quality of life not to mention the environment; not reducing property prices, just their quality.
Put another way, forty years ago when Auckland was 0.5 million, property prices were relatively a lot cheaper; so empirically you could say increasing the supply increases price exponentially in real life

by PhilBest | 31st Jul 16, 4:50pm 1469940632

It is a funny thing, but generally you either have "all housing affordable" including existing stock of all kinds, and new housing being supplied at all price levels - OR you have what we do - a market distorted by planning (a classic "quota" distortion) and whatever supply there is, is all top-end. There is not the conditions in any available site costs, for cheaper housing to be worth supplying; even the expensive stuff has a site - structure value ratio of around 50/50 when in a healthy market it is more like 15/85.

It is not worth trying for affordability when the site value is so high it will end up as 90% of the housing cost.

Worse, the same phenomenon applies even to existing housing stock. Depreciated old cottages should be dirt cheap but in distorted markets they are not, because the land under them is valued at "redevelopment potential". Even if redevelopment is not happening, the dilapidated cottages in mature locations change hands for over a million dollars. The website "Crack Shack or Mansion" is about Vancouver but it might as well be about Auckland too now.

by KH | 30th Jul 16, 11:02am 1469833340

Auckland needs some huge apartment complexes. Like 1000 units. And in places like Albany and Manukau not the CBD. Good size and quality will pay off for the citizens in the long run.

by SmoKey | 30th Jul 16, 2:28pm 1469845727

Provided there is a reliable and reasonably priced transport option for commuting, which is a big ask from AC now.

by kiwichas | 30th Jul 16, 5:18pm 1469855891

Go live in a GI highrise then; experience the future now!!

by TommyYank-old | 31st Jul 16, 8:21am 1469910098

And why not instead of Apartment Buildings single family homes north of Albany built on rural lifestyle block land subdivied into 600m2 lots. Build them in Keith Hay like factories, 3 bed-130m2, and truck them to the sites from factories all over the North Island. End result under $500k family homes which people want. 5000 could be built and people would line up to buy them. All you need is the City to call in the surveyors and bulldozers and put some infrastructure in. As for acquiring the land? That comes easy when you change the rates from rural to special housing residential rate and the landbankers have to sell as they can't pay the rates. ( Insuring there is cheap land supply (always rural land) is how large American cities manage to keep Median Housing Costs at 3x's Median Income). Do you realize that in 1942 by the time the 1st Marine Division landed in the Kapiti Coast they had already floated in housing built in Christchurch just to house the troops. Government inaction in this crisis-local and national buggers belief. This is a Housing WAR.

by PhilBest | 31st Jul 16, 4:52pm 1469940772

If you look at the RE sites for median multiple 3 cities in the USA, homes of that kind in developments at those locations, are even less than $200,000. It is a measure of how distorted our market is, that we now think anything under half a million would be helping us get back to normal!

by unaha-closp | 1st Aug 16, 9:56am 1470002175

No one has a clue why suburbs don't happen.

It is the biggest mystery in Auckland. Auckland Council when faced between proximate suburbs and far off exurbs relies upon the expertise of Auckland Transport - who invariably tell them far away exurbs are preferable?

by ngakonui gold | 30th Jul 16, 2:34pm 1469846081

The end of an era.
No kids running around feeling the green grass between their toes.

by PocketAces | 30th Jul 16, 2:49pm 1469846999

by PocketAces | 30th Jul 16, 2:53pm 1469847186

To me, that is just about child abuse. I love driving through Te Teko though its a few years since I did. It warmed the old heart to see a horse with 3 kids riding it bareback along the road. Should be bloody compulsory that, for all kids

by Donald Ellis | 30th Jul 16, 9:36pm 1469871396

Nominated for "Comment of All Time"

by PhilBest | 31st Jul 16, 4:54pm 1469940849

And the robbery of discretionary incomes in repayment of mortgage principal over 25 to 30 years, reducing what young parents can do for their kids, is just another side to the same child-abuse coin.

by sharetrader | 31st Jul 16, 5:54pm 1469944460

that memory strikes a cord, riding down to the shops, three to four kids on bareback.on a summer day
I am so glad I grew up when I did, all the local kids of the neighbourhood playing games on the grass in someones yard in the summer
and so sad for the young ones growing up today in a city that will never have that

by Musicman | 31st Jul 16, 8:32am 1469910766

The bright side is that it would minimise the chance to step on dog poo.

by Donald Ellis | 30th Jul 16, 9:53pm 1469872423

David,

Excellent analysis. There are a couple of extra hidden costs associated with apartments that usually escape quantification.

Firstly although apartment owners pay the usual council rates (directly or indirectly) there is a bit of a rort going on. Whereas the piping between road and tap (or toilet pan) in the standard suburban house is basically free that is not the case in high-rise apartments. The 'end-mile' reticulation in apartments is sophisticated and expensive. But the charges are made through the annual BC levies or other rentals. It's terrific for councils as they wholesale to apartment blocks but all those little niggles in the last bit of reticulation is someone else's problem.

Secondly there are all sorts of 'soft' costs associated with density such as trudging home in the rain with both hands laden with shopping bags. And it is rare (or unknown) that anyone factors in the cost of waiting for and riding in lifts as part of transport costs - let alone the psychological costs of being forcibly confined in a small space with strangers.

When you add up all the real costs of living in an apartment then the benefits of living close to amenities have to be pretty compelling.

by KH | 31st Jul 16, 9:07am 1469912842

I've stayed in an apartment building in the USA where the atmosphere was friendlier than any kiwi street I've lived in.

by Roy1 | 30th Jul 16, 10:21pm 1469874074

Is Unitary plan - receipe for slum

http://www.newshub.co.nz/politics/auckland-unitary-plan-a-recipe-for-sh…

by Musicman | 31st Jul 16, 8:38am 1469911122

The Unitary plan is a recipe for developers to cash in.

by Yvil | 31st Jul 16, 11:54pm 1469966057

no it isn't

by 12000 | 31st Jul 16, 8:38am 1469911081

Last year article and comments, proved to be correct

http://thestandard.org.nz/if-you-thought-the-auckland-property-bubble-w…

by 12000 | 31st Jul 16, 10:41am 1469918506

How about referendum on unitary plan in Auckland.

by AMAM | 31st Jul 16, 11:25am 1469921112

Not abad idea. Though if convinced may vote for it but am sure will be lot of debate and who knows legal case as well.

To avoid all hassel and not to get feeli that it has been forced, not a bad idea.

Though must admit that a situation has been created by peoplw in oower to force it with no alternative at this stage

by PhilBest | 31st Jul 16, 5:44pm 1469943856

My slightly more complicated proposal is this.

The referendum should be taken by meshblock or neighbourhood.

It should ask whether the respondents approve of "the compact city" and growth boundaries to prevent sprawl. That is the only question necessary to ask.

Then, on the basis of the responses, building "up" with no restrictions or NIMBY rights of objection apply to all neighbourhoods where the majority voted for continuing to restrain sprawl.

Basically, in the US cities where they have not adopted this utopian planning, the voters are smart enough to understand that if you don't want intensification in your neighbourhood, and you want your kids to have a fair go with housing, then you allow sprawl. Kiwis like to assume we are more sophisticated and that the Americans, especially where they allow sprawl, are ignorant hicks. Hmmmm.....

by Yvil | 31st Jul 16, 11:56pm 1469966211

What a terrible idea, why not waste another 5, 10 or 20 years doing nothing, and complaining that nothing is being done

by AMAM | 31st Jul 16, 8:28pm 1469953689

If the house price after unitary plan will also be more than a million dollar, than why the exercise

https://www.tvnz.co.nz/one-news/new-zealand/labour-most-aucklanders-won…

Can the government give gurantee that what labour party is saying is not truth and that the house price after unitary plan will be affordable.

If the house price will still be more than million than why change Auckland to slum as it is FHB are $#@& if the house is million dollar with or without unitary plan so does not make a difference to them and to speculators and asians also it does not matter so WHY UNITARY PLAN.

May be to give more opportunity and playing ground to speculators and builders.

by Roy1 | 31st Jul 16, 9:56pm 1469959014

I thought that Unitary Plan was to solve housing crisis but even we know that unless government does not put measures to control demand - Unitary plan is just to divert attention. Andrew little is correct at least they have a policy to tax foreigb buyer.

Council should not be under pressure but should evaluate the plan on its merit and decide for the benefit of Aucklanders..

by Joe Public | 1st Aug 16, 12:51am 1469969481

Agreed demand needs to be dealt with..... DEMAND is the elephant in the room

Investors 46% of buyers
Foreign Buyers 39%

by ki | 1st Aug 16, 8:57am 1469998638

Could you please explain why some figures correlate (ie Consent Val/m2 = $/m2) and some don't...

Houses Apartments
Ave size m2 2013 236.3 132.8
2014 237.2 128
2015 231.7 136.7
2016 235.3 198.2

Ave Consent Value $ 2013 $372,444 $176,988
2014 $397,225 $255,836
2015 $409,036 $239,848
2016 $426,220 $396,034

Ave $/m2 2013 $1,576 $1,333
2014 $1,675 $1,999
2015 $1,765 $1,755
2016 $1,811 $1,998

by unaha-closp | 1st Aug 16, 9:58am 1470002280

Auckland has extremely high cost land and a low value apartment market. We restrict land supply and price most developments out of existence.

by waymad | 1st Aug 16, 10:52am 1470005557

DC, what about giving PhilBest a column? His comments are pure gold.

by Neven911 | 1st Aug 16, 4:39pm 1470026365

Fundamentally the laissez faire market driven belief system subscribed to by our PM and his cronies has no interest nor any reason to provide "affordable housing" period, end of arguement, all this supply side dogma is simply deck chair arranging and will make no difference, as soon as prices show the merest hint of dropping they will stop building. You have two options, firstly incentivise this behaviour via regulation or fund bodies to perform this service. Of the first there is no evidence and of the second a declared policy to the contrary.
The solution in my opinion is for the establishments of housing associations for affordable housing which have the required politcal distance from central government, these social bodies can then perform this function without polical interferrence