Greg Ninness takes a look at the Auckland apartment market and finds most of the new apartments are aimed at the upper end of the market & there's a lack of affordable apartments

By Greg Ninness

The Auckland apartment market faces some major challenges if it is to continue growing and play a meaningful role in solving the region’s housing shortage.

Over the last five years the number of new apartments consented in Auckland has increased six-fold, rising from just 358 units in the 12 months to September 2012 to 2309 units in the 12 months to September this year.

That’s a useful increase for a city with a housing shortage, but unfortunately most of what has been built has been priced at the upper end of the market.

Over the last five years the average value of apartment consents in Auckland has more than doubled, rising from $188,159 per unit in 2012 to $410,334 this year, an increase of 118%.

Over the same period, the value of consents for standalone houses in Auckland increased by a comparatively modest 33%.

And of course those figures only capture part of the costs associated with new developments.

The effect those costs have on the apartments’ ultimate selling prices is evident in a survey of Auckland apartment projects Colliers International completed in August.

It found that the average selling price ranged from $824,000 for projects in suburban areas such Hobsonville, Albany, Onehunga and Stonefields, to $1.32 million for those in the CBD.

The average selling price across the entire region was $1.12 million.

Clearly the apartments that are being built have not been aimed at the affordable end of the market.

Those prices put a natural limit on the size of the market, with buyers restricted to people on above average incomes and/or those who have built up a substantial amount of equity in an existing home.

Many of those who have been buying are the better off baby boomers or retirees selling their existing family home and making the move to an apartment.

Sadly, this is often the result of a marriage break up, with the female partners in such cases increasingly attracted to the apartment option because of the greater security and lower maintenance requirements that apartments are perceived to offer.

Another group that has been active in the new apartment market are overseas investors, mainly from Asia.

They often buy off the plans as a speculative punt, hoping to give the unit a quick flick once the project is completed.

However developers planning new projects now cannot bank on this latter group staying in the market.

The clamp down by Chinese authorities on the outflow of capital from that country, and the uncertain outlook for ongoing capital gains here, makes such a speculative punt far less attractive now than it was a year or two ago.

There are also signs that many of the overseas buyers who purchased apartments off the plans two or three years ago are now selling them as soon as their apartments are completed, and they are often not as easy to sell as they had expected.

And when that happens, word soon gets around.

That leaves the higher income earners/baby boomers as the main buyers.

The trouble is there are only so many of them looking to buy an apartment at any particular time and supply and demand have probably been reasonably well balanced.

But that supply and demand balance could be tested over the next couple of years.

The Colliers survey found that the highest number of apartments in a decade would be completed in 2018 and a total of 138 new apartment buildings would be completed by 2020.

That could be one of the reasons why banks have become more cautious about funding new apartment projects of late.

When you are catering to a relatively restricted market, it doesn’t take too much extra supply for it to start to exceed demand, and that’s when projects can get into trouble.

However the bigger challenge for developers now is to bring more affordable projects to market that will appeal to a much bigger market.

In other countries apartments are a mainstay of the affordable housing market.

Auckland needs some of the same.

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26 Comments

I'd be a bit uncomfortable if apartments became the major response to affordable housing in NZ.

I regard them as a blot on our urban landscape.

TTP

tothepoint. Apartments. If the inhabitants are happy they have a place. But if we allow the population to increase any more than our current 4.5 million, then lots of folk will be forced into that option unhappily.

Hi KH,

Alas - I think you're correct.

TTP

It's very common in Europe for people to live in apartments. And more to the point, I'd say 95% of people living in big cities like Beijing and Shanghai are apartment dwellers.. no drama there

You could just as easily argue that human beings are a blot on the landscape full stop. But unless we all choose to commit mass suicide, we have to live somewhere and apartments are the most efficient use of land for big urban populations.

I lived in apartments as a student, as a young working professional in London in my 20s, and even when my eldest was a baby. It was awesome. No regrets at all.

Hi Gingerninja,

Personally, I've never regarded human beings as being a blot on the landscape - and mass suicide is a repulsive thought.

But when I think of all the beautiful old villas in inner city suburbs like Freemans Bay and Ponsonby, then I despair at the thought of developers buying them up to demolish - and replacing them with "cost-effective" multi-storey concrete edifices.

Nonetheless, good to know you enjoyed apartment living in London.

TTP

The character of Auckland should be preserved. It is a very attractive city. I watched the sun set on One Tree Hill last night and it was a beautiful sight with the volcanic cone studded isthmus being flanked by the Tasman Sea and the Pacific Ocean.

I'm very, very surprised by this comment from you TTP. Have you travelled much ? To large cities in the world. It's precisely the density of apartments that create the buzz of a vibrant city, houses define more suburbia. Can you see many houses in central New York, Paris, Shanghai, Tokyo ?

Hi Yvil,

For sure, there are plenty of apartments in cities world-wide - and, happily, not all of them leak.

But, in Auckland and Wellington, old style houses (villas) also help create the buzz of a vibrancy (as well as character/charm) in our inner-city environments......... I'd be extremely sorry to see the villas mowed down and replaced with cheap/budget apartments.

I don't think it's essential that we mimic the likes of Shanghai, Tokyo or Moscow - though some of our left-wing friends here might feel an allegiance with Moscow.....

TTP

though some of our left-wing friends here might feel an allegiance with Moscow.....

That's an ambitious reach if you've just voted for The National Jian Yang People's Party of NZ.

Back to the point though, as it were, it makes more sense for Auckland to intensify. We don't see anyone clamouring to reinstate Hobson Street to old villas as it was in the past. We've a global city now, as folk are apt to spout - and global cities need to grow up.

Better that than the ridiculous NIMBYism that plagues San Fransisco, for example. Especially when the same NIMBYs don't want to be rated based on the real value handed to their land via betterment.

We should just free the market and let intensification take place. Enough protectionism...that's supposed to be bad, isn't it? Free market good, etc.

Tithe point(less),

I cannot decide which is greater;your ignorance or your arrogance. As someone who voted Green,I am presumably 'left leaning',but I detest Putin and everything he stands for-his misuse of power,his corruption,or his disdain for the environment.

Hi linklater01,

That's fine - each person to their own political views.

But concerning your comment about arrogance and ignorance, my moniker is "Tothepoint" and not "Tithe point(less)".

TTP

What are you on about linklater01? Putin is like one of the most awesome people on the planet. His own people love him,

A 2005 survey showed that three times as many Russians felt the country was "more democratic" under Putin than it was during the Yeltsin or Gorbachev years, and the same proportion thought human rights were better under Putin than Yeltsin.

It's like having Yul Brynner as your leader. Tothepoint is a bit out of touch as Putin is a right wing idol rather than a Leftist or Centrist one as Xi of China should be as well. Men in charge who think about the future of their nations.

I agree. Putin has managed to change Russia towards democracy and away from communism more than any other leader in their history. I would even go as far as suggesting that the USA is only a democracy on paper, but the changes they have experienced over the past two decades suggest that they are in fact more commie than Russia is these days.

I would suggest both USA and Russia are great examples of the ability to maintain the appearance but not the actuality of democracy by keeping the masses distracted. Putin learned from communism to never let the hoi polloi get bored, lest they get politically active.

Actually

"Mr Morgan Phillips, when he was General Secretary of the Labour Party, once said that the Labour Party owed more to Methodism than Marxism."

Your statement shows a failing to understand the origins and history of the Labour party.

http://www.billhunterweb.org.uk/articles/Rise_fall_of_LP.htm

Auckland is about to become like Perth, apartment glut.
https://www.youtube.com/watch?v=PNjtNSzdOBY&t=328s

Auckland has just about the slowest apartment building rate of any 1million+ city in the developed world.

Thats because the locals havn't embraced them, most are jammed with overseas students and young immigrants.

Kiwis see apartments as slum living

Slum living. Considering the build quality 'slum living' is accurate. And I own one on Hobson st so I do know what I'm talking about.

once this lot of apartments are built and settle, my understanding is there is not a whole lot more in the pipeline.

Maybe someone can shed some light?

"However the bigger challenge for developers now is to bring more affordable projects to market that will appeal to a much bigger market.
In other countries apartments are a mainstay of the affordable housing market.
Auckland needs some of the same."

Hmmm, good luck. Apartments are not 'affordable' anywhere, unless they are heavily subsidised.
NZ faces even bigger challenges due to our very high construction costs.
Based on current cost structures, it is next to impossible to deliver an apartment to market for anything less than 11K per square metre. This means a mid quality, 70 square metre, 2 bedroom apartment will need to sell for 770K. A one bedroom 50 square metre apartment 550K.
If the Unitary Plan allowed it, 2 bedroom low rise (2/3 storey) apartments could be realised to market for 550-570K

There are also surrounding issues of body corporate behaviour/accountability/transparency, and the big one of build quality. Auckland has a woeful history of building poor quality apartments with subsequent owners getting stung for huge amounts.

I could easily live quite happily in an apartment in Auckland as a renter only. I would never buy one for the exact reasons that you suggest. As an apartment owner, you are held to ransom by the Body Corporate, Developers and their shodding building work and the City Council due to huge land rent hikes and that makes it a far worse option than owning a single dwelling on freehold land. Apartments in Auckland have a terrible history and I know plenty of people that have been burnt badly after the fact.

Auckland planning is designed to:
A - short supply urban land and drive up its cost.
B - grow lots of fast expanding exurban centres, inaccessible to public transport.

Apartments are disadvantaged:
A - costs go up fast.
B - utility value declines.

The Auckland apartment market is to be based on units that are not cost sensitive, incorporate private transportation modes and derive value from something other than utility value. Which seemingly will mean luxury apartments only until 2040.

Milan developed a new inner city residential area called "Porta Nuova". If Auckland can replicate the same development style I would be quite happy to ditch a 3 bedder in Ponsonby for an apartment.