The Eye of the Fish

Maximus
March 29, 2008

No affordable housing?

On Thursday, Wellington held the Inaugural Housing Policy Forum. Admirably timed to help debate housing policies before the election, the Forum set out to examine New Zealand’s peculiar obsession with owning your own home: especially your own, detached, quarter acre, 4 walls and picket-fence type home. 

The range of speakers included the right wing: Don Brash, Phil Heatley, Owen McShane, and Hugh Pavletich – and their answers are a predictable right wing response: tax cuts, develop greenfield sites, reform the Resource Management Act. All these measures will – if you are a believer in right wing National Party / Act policies – allow housing to become more affordable. Key repeated issues such as the high increase of the land price component of houses, and the increasing disparity between wage inflation and house price inflation over recent years (the figures cited indicated a shift from houses costing 320% of wages (1991) to 400% in 2003, and 600% in 2007). That all ties in well with the announcements earlier in the week from Labour’s Shane Jones, that simplifying the Building Consent process will bring the cost of housing down. Umm, yeah right, Shane. Not really an answer to the housing problem.

Hugh Pavletich, of Demographia, has been banging on about freeing up land for more sprawling suburbs for quite some time now. His annual “Demographia Housing Survey” advocates for release of more greenfield land, to permit the market to develop the land and keep those suburbs expanding. The ability of the city’s infrastructure to cope with the expected growth is not seen as part of the problem of the developer. Its the same thinking that drove cities such as Los Angeles to expand from being an idyllic sea-side town, into its present incarnation as an unholy sprawl / smog-laden megalopolis. Originally people flocked to Los Angeles as it was an orchard area, famous for the smell of orange blossom filling the air as you neared the coast (John Steinbeck wrote about this in his depression era novel, The Grapes of Wrath). Oranges aren’t grown in LA any more. The most notable thing still growing in LA now is car ownership, and roads.

Brash and Heatley, both National Party stalwarts, advocated tax cuts, as you would expect. The likelihood of tax cuts miraculously making houses more affordable has not been thought through that well by the Nats, given that a $20 weekly extra in the hand will have little effect on the price of a half million dollar home. The gem in this seemingly predictable lot was the National President of the Real Estate Institute, Murray Cleland. Cleland was great in his undermining of stereotypical expectations. New Zealand needs to abandon its dream of the detached house and its section he claimed. He also referenced Unitec economics lecturer Keith Rankin who distinguishes “affordable housing” from “affordable property ownership.” The first, Cleland argued, was the responsibility of the government which was responsible to ensure decent housing as a humanitarian objective. The second was equity – like shares – a private investment which other taxpayers shouldn’t subsidise.Cleland stated in no uncertain terms the New Zealand had a lazy approach to land use, that the high land prices were a commercial reality, and that land banking was a fact of life. To address housing affordability he advocated for both tax cuts and a more astute reduction of the land use factor of house prices. Increasing density and appreciating iternational examples of high quality medium to high density urban housing is critical. Government policy needs to stop prioritising the detached house because it is too expensive. In addition to its poor land use, he argued that the construction costs of a three bedroom apartment were two-thirds that of a three bedroom bungalow. Equally local council have to revisit the shoe-box aberrations that were giving apartment living such a bad name, as well as addressing the high costs of building consents which were a major impediment to lower cost apartments. He also recommended council rebates for apartments greater than 70 m2.

Pieter Burghout, CEO of the Master Builders, raised several interesting observations. Apparently New Zealanders customise their houses more than other nations. To illustrate this he noted that 90% of the owners of new houses in New Zealand already own sections, meaning that NZ owners have greater input into house design. NZ has 50 window colours; Australia has 7, suggesting he asserted, that New Zealanders like to individualise their homes leading to extra costs. Wow. Window colour as an indicator of individuality. Life must be fun in the suburbs. But is that statistic true, I wonder? Is Australia just a giant land of honey-coloured brick and tile, like a nightmare large version of Huntley? Tell me that ain’t true…

Burghout also argued that the NZ Government was only addressing factors with low impact on the problem, in contrast to Australia which was putting $500 million into rental assistance, committed to building 100,000 extra houses and finding/importing 15,000 more builders. Guess where they’ll be looking for them to come from…

Ernst Zollner, from Wellington City Council, presented material familiar to most well versed with Wellington’s local politics. He stated that affordable houses = affordable cities, which located housing where marginal costs are lowest and where the average operating costs are either low, or where they are high and can be reduced with additional units. He advocated for total lifecycle costs made up of capital, servicing, and locational costs. This costing needs to be considered for all parties (householders, ratepayers, employers, service providers and taxpayers). Zollner was quite up front that his talk was focussed on one aspect of this – infill development, and he set the ground for the WCC’s policies on targeted development and the by now well-known Johnsonville to the airport “growth spine.” He argued that recent increases in stronger controls had been more effective in delivering more good urban design outcomes, and he staunched defended his/WCC’s policy position of not prescribing minimium floor areas which had received a heavy “middle-class reaction” and their misplaced paranoias of slums.

Zollner is an intriguing guy, young and active, a former European and therefore possibly more atuned to metropolitan living. Yet, he still hangs doggedly to his mantra of no minimum housing size for apartments, stating that they offer a good range of choice for pockets and people. Zollner asserts that minimium square meterages (such as those implemented by Auckland City Council) effectively zone housing for only certain income groups, preventing the lower classes from living in the city. Its a view that seems curiously out of place with the facts of the current housing crisis. There’s a glut of tiny apartments in Auckland at present, with Olly Newland in the DomPost today noting that: “As predicted the market for small, crowded “shoe-box” apartments has crashed, but prices have soared for quality, well-appointed units with good security. He predicts growth in this area with more families living in apartments.”

There’s something wrong with the situation therefore. That here we are, with a housing crisis, with a shortage of anywhere to live, and paradoxically at the same time a glut in the supply of tiny one room bedsits and studio apartments. What’s wrong with these poor people – don’t they know a bargain when they see one? They should be snapping up the small size homes, moving in en mass to fill the Scene in Auckland. Instead, they’re staying away, preferring to rent a house than to buy a depreciating asset of a rabbit-hutch sized room.Perhaps instead they know the truth: that the small apartment is not such a bargain, especially on a price per m2 basis. Larger apartments are more expensive, but not proportionally so. Its actually far better value to buy a larger apartment (equating to, say, $3500 / m2) than it is to purchase a smaller apartment (say, $5500 to $8000 / m2). And the sad truth is that those lower income people never get a chance to even buy one of the hutch sized apartments. They’re snapped up by the “investor market” of middle-class buyers, who then rent them out on short term leases to the average lower income workers. Small apartments are basically a rip-off, both to those living in them, as well as those foolish enough to buy them.

Mike Harmon
29 - 03 - 08

I came across your blog on Technorati. Nice site layout. I will stop by and read more soon.

Mike Harmon

Michael
29 - 03 - 08

Dude, paragraphs.

Maximus
29 - 03 - 08

Michael, exactly! Where have they gone?! Working on it….

Maximus
30 - 03 - 08

Paragraphs now corrected, and a link added to Saturday’s DomPost article on Ian Cassels’ interesting new proposal for “Model T” affordable houses http://www.stuff.co.nz/dominionpost/4455675a26959.html

“Wellington property developer Ian Cassels, managing director of The Wellington Company, hopes to build between 5000 and 10,000 homes, described as “very solid and long white houses”, throughout New Zealand.
“We’ve developed an affordable housing model which we are calling Model T” – named after the popular Ford motor car. The houses would be spread out in groups of not more than 10 in an area, he said. “We are aware of the potential criticisms but a row of 10 is not going to bother anybody.”
Final details were still being worked out but it was hoped the houses would cost less than $200,000. Long-term lease arrangements on the land were being looked at.

(architects listed as Geoff Fletcher, Carolyn Walker, and John Verstappen, industrial designer Rodney Adank, Engineer David Whittaker, Project Manager Will Coard)

Also, on a similar vein, a link to BLDGBLOG’s site from 2005 proposal for garage conversions to create an answer to the infill housing crisis:
http://bldgblog.blogspot.com/2005/10/garage-conversions.html

Maximus
30 - 03 - 08

And also, just to remind you of the link to a lively debate last year on the phenomena of small apartments, here’s a link to the WellUrban blog:
http://wellurban.blogspot.com/2007/11/when-is-shoebox-not-shoebox.html

erentz
30 - 03 - 08

I like your take on minimum apartment sizes. I agree with Ernst in some regard (e.g. his comment about those people that will use Scopa as their living room), but that’s a particularly small demographic and shouldn’t be foisted on everyone (typically young, students, or under-30s professionals). I’d be interested in hearing from research into the social and psychological affects of small apartment living too, I’d imagine it isn’t all positive.

A major point of denser living should (surely?) be that you can get a reasonable place for cheaper. It’s not all about lowering the cost for the council’s infrastructure, what about lowering the cost for home buyers. You should be able to get your 2 bedrooms, and a lounge, for cheaper than it comes on a section. When I look around I find that the cost of a reasonable sized (good quality!) apartment isn’t that different from going out and buying a house (even a house along the growth spine). So where is the incentive?

The other thing is quality, there are quite a few shoddy apartments in Wellington, I don’t know if this has changed in recent years (anyone?? haven’t been in many of the new ones), but that and size are the things that put me personally off buying an apartment. I want it to last a long time, be quiet (well insulated), and be comfortable to live in.

Philip
30 - 03 - 08

I’m not sure how well the model T would go down in suburbia, but they could be useful as infill/parasite developments in heavy/semi urban areas. I did have to laugh at the video slightly – is turning off the sketchup axis such a huge ask?

Speaking of garage conversion/infill, wouldnt those boating storage garages along Oriental bay make for some prime estate? Occasional flooding and minuscule area – but hey, everyone loves ocean views, right?

Bonus: the internet seems to be in love with this thing at the moment…
http://www.zerohouse.net/

g
30 - 03 - 08

I spent some time living in Germany. Some interesting differences there – most people rent, probably because of this, there are much stricter laws around the rights of tenants. Which generally makes renting much more attractive, and probably adds some cost/difficulty to being a landlord.

As a young non-home owner, given high interest rates, risky shoe-box apartments and not wanting to live in the ‘burbs, I’d much rather rent. I just wish that it was as pleasant to rent here as it is in Germany…

I still don’t understand why the “affordable homes” debate is all about home ownership. Why not make renting more attractive for young families instead? But I guess that would involve regulation… so won’t happen here till the current batch of influential libertarians grow old.

Here are some interesting differences I noticed:

– In Germany it’s normal for people who rent to redecorate their apartments. I.e. painting, flooring. This is probably because there is more certainty that you will be able to stay in the apartment long term. In Wellington it’s usually a yearly renewable 1 year contract, where people often end up getting bumped out with little notice.

– In Germany apartments are often rented “warm”, i.e. heating included in the rent. This gives the landlord an incentive to insulate.

– If the landlord decides to renovate the apartment block and increase the rent, often the tenant has the right to not have their individual apartment renovated, and to continue living there paying the old rent.

Maximus
30 - 03 - 08

Erentz, and indirectly, Ernst: I’ve been searching to find out the effects of small apartment sizes, but curiously it is not something that has had much effort put into. There is a lot of info linking substandard housing with mental health and physical health, and also info linking over-crowding with mental health, but there don’t seem to have been much in the way of studies linking over-crowding with substandard housing. It seems obvious that there would or could be a link, but until the sociologists do the studies, we won’t know.

My rationale is: small units are over-inflated in price. (They are mainly investor owned, thereby meaning they will be rented out. Auckland’s demographics should be able to confirm that the investors themselves are fairly unlikely to live in such small rooms). Therefore they need to be rented out at a reasonably high price to get the return (this week, the DomPost confirmed that landlords were looking to raise rents to make up for the return they aren’t getting from capital gains). If the rent is high, the temptation is to have more renters living in the same flat, and thereby cause overcrowding (ie renting out the sofa in the living room etc).

This is a fairly common situation with immigrants to a country, ie whether it is Kiwis living in London 10 to a flat, or immigrants coming here and filling apartments to overcrowding. Either way, its acknowledged to be not a good situation. If the house concerned is large, there is room to get away and get some space. However if the place is small to start with, there is nowhere to escape to, and the residents don’t like it. There’s a sad article in this week’s Listener (April 5-11) about the appalling situation some people are in in Auckland (Mangere to be more exact), where they are in sub-standard and over-crowded rental conditions. Definite link there.

But i agree with your rationale that living in the city should be cheaper – and it can be, if you can bypass the greedy developers. They take a hefty cut of the price tag – they’re not out to build for the good of humankind. Some developers, such as Ian Cassels, seem to have their heart in the right place, while others, such as the recently bust “Blue Chip”, are just out to screw everyone. The answer seems to be: do your homework really carefully.

Maximus
30 - 03 - 08

g, tell us more. You say you wish it was as pleasant to rent here as it was in Germany. Fair comment i’m sure, but could you go into more detail as to why its more pleasant?

Arthur
31 - 03 - 08

Maximus,
I’ve heard that in Europe, maybe including Germany as well, that people have to take everything out when they move – including curtains, light bulbs, kitchen cupboards, stove, etc, which I guess we tend to just leave for the next tenant when we go in NZ. In fact, legally, we normally have to leave those behind.
Maybe G could confirm if that happens in Germany too?

LX
31 - 03 - 08

It is true that in Germany when you move out you have to paint the walls white ready for the next tenant to paint with their own decor. Also most of the kitchen except maybe the stove and sink are all provided by the tenant.

My understanding of the real difference is that tenants have pretty rock solid tenure and are almost impossible to evict unless maybe they damage the property. Also rents can not be increased unless the property is improved and there are controls on by how much they can increase by.

I know people in Germany who rent a good apartment that is expensive, knowing that over time the real cost of the rent decreases with inflation and they will end up with a good apartment they can retire in.

As I understand if you stay in the same apartment long term by the time you retire your rent will be very cheap.

This is why renting when you retire is not the issue it is here where our superannuation almost depends on owning your own home by the time you retire.

As for who owns much of the housing, apparently mostly owned by big companies or institutional investors rather than the small property investors that predominate here.

So yes with their tenancy system it is almost a case why would you buy?

Venture
31 - 03 - 08

“My rationale is: small units are over-inflated in price. (They are mainly investor owned, thereby meaning they will be rented out. Auckland’s demographics should be able to confirm that the investors themselves are fairly unlikely to live in such small rooms). Therefore they need to be rented out at a reasonably high price to get the return.”

Max,

Just wondering if you have any facts to back up any of this?

V

Maximus
31 - 03 - 08

V, just a hunch, based on anecdotal evidence. Its no big secret that apartments are promoted offshore to investors, who are highly unlikely to ever come and live in them. But, yes, hard facts would be useful – i suspect you might know more about this than you let on?

There are a lot of investor-owned apartments in Auckland, and a growing number in Wellington, given that many of the newer schemes are marketed overseas first, before opening up to NZ buyers. ie this advert from http://www.apartmentnewzealand.com :
“Auckland Central New Building – Dynasty Gardens

About 50 good quality brand new units available for sale. Located at tree lined Vincent St in
Auckland CBD. Recently completed. Very good material and quality. Good design and layout.
Fantastic views. 5 minutes walk to Auckland University of Technology, 10 minutes to Auckland
University. Gym, swimming pool and garden included. Be quick for this attractive building and
price ! This is a final opportunity to get an extremely good return on investment and such good
quality apartments, as future Parks & Reserves contribution will be increased to $40,000 per
new unit. The supply of apartments will stop.
* over 7% net yield
* Live-in property management
* Car parks available for some units
* 80% financing
* Pool and Gym facilities included
* Price from $238,000”
Gross generalization of course, but don’t you think its likely that this is pretty clearly aimed at the Chinese/Hong Kong investor, for rental to students? Just as the Soho Apartments in Wellington were advertised for some time on UK websites before being launched here. Or this ad on a british website for apartments in Wellington:

“Victoria Quarter
New Zealand: Wellington: North Island
1 – 3 bedroom flat/apartment
From NZD 244,608
GBP EUR USD
Added: Monday, October 15, 2007
Only £500 needed to reserve an apartment with nothing else to pay until late 2010! Nearly 3 years off plan growth. Superb facilities, including cafes, gym, indoor pool, sauna and steam room. No CGT,VAT,IHT or stamp duty either!”

Venture
1 - 04 - 08

Hi Max,

While I don’t disagree with you entirely, I have concerns about people saying small apartments are only good for a certain part of the market.

Or that because they are small they are expensive??? Most small Wellington apartments have been selling to date at about $6500 to $7000 per square meter, which is a good market price for the product.
It’s not realistic to expect the cost to construct of a small apartment to compare to the cost of a larger one based on cost psm.

Lastly the idea that these properties will be rented out at a premium because they are small is crazy. The investor has never had any control over the rental return on an apartment, by their very nature of being bulked togeather in blocks of 100s these properties are the ultimate test in the market finding it’s own rental.

I understand what you mean when you say that a large number of these properties are being sold off shore, but lenders will not allow more than about 20% of each property to be sold to off shore investors.
This means that if Asian or UK marketing has been completed they will normally try and sell 80% locally to appease lenders.

It’s also valid to note how many of these off the plan deals are bought with the intention of selling on completion at a profit, which in itself skews numbers and data on sales.

My thoughts are that as petrol gets up to $2/$3/$5 per liter over the next couple of years people will sell there cars and flock to inner city living.
We will start to live more like the british where you live in your house and relax at the pub.

Cheers

V

Maximus
1 - 04 - 08

V,
thanks for that info, useful to know re the marketing. I agree with you that inner-city living is likely to keep growing, and gets more and more important in the make-up of the city. That’s why I am so keen to see it built to reasonable standards in the first place.

I understand what you mean about rental properties finding their own level in the market, but you may have misunderstood me re their rental levels. Its not so much that smaller properties are rented out at a premium – more that if they are sold at a premium, then the rental needs to be recouped if the investor is to make a profit. As we all know in Auckland, an over-heated property market there led to people paying too much for small apartments, which they are no longer able to rent out at a level where they can pay off the investment. The resulting mess is mortgagee sales, or people hanging onto loss-making apartments.

The glib answer is that the market will sort it out, and, to an extent, it does. The real result though in our cities is that the rest of us have to deal with architecture that reflects that malaise, ie badly designed apartments. I’m keen to see better apartments built in the first place, rather than us having to live with badly designed environments around us for the next 50 years. Auckland has been, i think it is pretty widely acknowledged, totally screwed by its awful recent apartment boom. As a Wellingtonian, I’m keen not to see that repeated here.

Venture
1 - 04 - 08

No i agree with all of that.

Although I don’t think that people realise how much of the design that an apartment block gets that is under the control of the developer.

Once the council have had their way with the design, the urban planners and wind test boffins are finished with it, you are more likely to get a building that is designed by comittee than anything else.

We could have a city of great buildings but end up with horrible spaces between.
No developer sets out to design a brick, but sometimes thats what you can get built.

It’s Sad, jsut look at any number of the buildings proposed recently that will be built, and will not end up as a prize piece on the arcitects website.

V

erentz
1 - 04 - 08

In terms of affordable housing then, it seems apartments aren’t solving the problem at the moment. There’s no real incentive provide affordable housing really though is there?

Seems to me developers will hold onto land when the market is in a low patch, and then they’ll develop only for the conditions to quickly make as much money as they can during the boom times. So you get the expensive apartments, and the small investment apartments.

So there _has_ to be some kind of regulation to control the housing stock that is built, otherwise you’ll end up with a bunch of housing stock that is inappropriate over the long term (e.g Auckland).

I think this is where things like minimum floor area and such come into play. While discounted by many who think the market should dictate that, it surely is clear that the market is flawed. It doesn’t get influenced by everything it should.

The other thing a lot of cities overseas appear to be looking at or doing (though I’ve not looked at it in detail, and this is mostly north american when I say overseas), is to mandate some level of affordable housing. For example, 20% of all new housing must be affordable. This generally requires that its built to the same standard as the other units, but usually may be slightly smaller (though generally with minimum sizes), and of course you can’t just build lots of tiny studios and say they’re for families. If you build ten 2-bedroom units, two of them must be affordable 2-bedroom units. Along with this there is often restrictions on how they’re sold (i.e. price increases stuck to CPI increases and such).

It would seem to me this is a more direct, transparent, and honest approach to dealing with affordable housing, as opposed to the shady ideas of just releasing more land, or reducing building code compliance costs.

So perhaps we need:

– minimum size standards, which we know the council has the power to do because Auckland has
– time limits on requiring land to be development to forced a consistent development of land rather than boom-bust-boom-bust
– better quality standards (my pet gripe) because we want to ensure the stock we develop is of a good standard still in 50 years time
– central government to update building codes for apartments about minimum requirements (e.g. the window in every room type stuff), this is about healthy living environment to ensure people stay sane, and it is pretty important.
– central government to give the necessary legal powers to councils to mandate affordable housing plans

Venture
1 - 04 - 08

Erentz my old pal,

No No No

Government intervention just does not work.
If they were any good at this stuff they would not be in government they would be developers.

“There’s no real incentive provide affordable housing really though is there?”

No theres not but that’s not really the problem, the problem as I see it is that the average first home buyer is not prepared to buy what they can afford.
What ever happened to buying a flat or a unit then trading up in a year or so?

My parents purchased their first home 30 years ago and they bought as close to the employment in Wellington as they could afford at the time which was Raumati.
I doubt if we will see my generation doing the same.

“Seems to me developers will hold onto land when the market is in a low patch, and then they’ll develop only for the conditions to quickly make as much money as they can during the boom times.”

Only the rich ones ;)

“I think this is where things like minimum floor area and such come into play. While discounted by many who think the market should dictate that, it surely is clear that the market is flawed. It doesn’t get influenced by everything it should.”

The market is never flawed it’s just “Pre Correction” like we have been for the last 12 months.
If we mickey round with minimum floor area we are still going to have developers wanting a justified 25%+ margin to cover the risk they are taking and so they will build 3 bedroom apartments of say 140sqm which because of construction cost’s they will need to sell for 8000per sqm or $1.1m and thats not going to help people.

What we need is for the council to make it easier for developers to build inventive, interesting, usable and yes sellable spaces.

“minimum size standards, which we know the council has the power to do because Auckland has”

Yes and look what that has done to Auckland, with this and the reserves contribution it has halted “ALL” development.

– “time limits on requiring land to be development to forced a consistent development of land rather than boom-bust-boom-bust”

Sorry just not going to work, even if we discount the fact that most regulation ends up having the opposite effect than what was hoped for, this will not have any effect on boom bust as there are so many more influences at play than simply supply.

“better quality standards (my pet gripe) because we want to ensure the stock we develop is of a good standard still in 50 years time”

Why?

“central government to update building codes for apartments about minimum requirements (e.g. the window in every room type stuff), this is about healthy living environment to ensure people stay sane, and it is pretty important.”

Now this one I agree with, But (you knew there was going to be a but) they have to make it easier to do not harder.
And this is for everyone, Wellington council at the moment is easing up it’s rules on resource consent becuase they now aknowledge that they went a bit nuts over leaking homes, there needs to be a mid way point were developers are insentivised to build great buildings not just above standard buildings.

“central government to give the necessary legal powers to councils to mandate affordable housing plans”

Na, we can’t just palm this stuff off the “The govt” or “The council” we have to take direct ownership.

If your building adds to the city, Looks nice, works within its location, and conforms to all safety and possibly environmental standards (Green building) then it should be easy for you to get consents and council will be your friend.

It’s our city and it is too important to let this stuff sit on a desk for some grey suit to decide for us.

Sorry if I’m off your Xmas card list erentz, Rant over

V

DeepRed
2 - 04 - 08

The issue is not so much the actual size of the rooms. Rather, the shoeboxes that sprung up in Auckland were targeted strictly at investors to rent out to foreign students that never arrived; not a single one of them would have been marketed to owner-occupiers. And these apartments had little in the way of room size variety – they were basically cookie-cutter 1-bedroom shoeboxes. With the imposition of minimum floor areas in Auckland City, there’s a real risk of over-correcting a problem and turning Auckland apartment living into an elitist pursuit.

I think the solution would be for city councils to handle apartment developments on a case-by-case basis – specifically, developments that cater to owner-occupiers *and* investors rather than one at the exclusion of the other, and having a wide variety of room sizes and types. I suspect it’s only a matter of time before the shoeboxes remain empty long enough to the point where they go the way of the wrecking ball.

WellUrban wrote a nuanced post not too long ago about the ‘shoebox’ issue.

Maximus
2 - 04 - 08

Deepred,
i certainly don’t think that at even the minimum limits set by Auckland, that would qualify as an “elitist pursuit”. Auckland now has a 35m2 minimum size for studio apartments, which is small but not ridiculously so. You can have a reasonably comfortable existence in 35m2 – but not really so in 16m2, which at least one development in Auckland got down to.

But it is also a size which is, in theory, affordable to the “average person”. The Average NZ wage is $667 per week, which equals $34,684 per annum. If renting, at a max of 34% of earnings, this implies approx $230 rent per week, ie around $12,000 per annum payable in rent.

If our average earner was to try and buy, and look for a mortgage (multiply by 3.5 to get max 100% mortgage = $121,394 max cost for a home). While he or she could never look at the “average NZ house” priced at approx $360,000, ie 3x more expensive than the average single earner could ever afford, even this bottom of the range small apartment is just beyond reach.

But that same small apartment renting for $230 / week is also selling this morning for just under $150k.

Small Auckland apartment for sale (33m2) = selling for $149,000 = $4500/m2
Renting at approx $230/week = $12,000/year

Venture
2 - 04 - 08

This all fine and dandy, but you can’t build anything for $4500/m2.

V

Maximus
2 - 04 - 08

Maybe not, but you can buy it for that: the place noted above is for sale online today.

erentz
2 - 04 - 08

Venture,

“Government intervention just does not work.”

As I see it, the Government, central and local, is going to be massively involved in this issue one way or the other. One is paying for everyones rent when the bottom half of society is priced into refrigerator boxes (or their transport, or income, depending on which course things take), the other option is to be more proactive in ensuring that doesn’t happen.

Already the Government is massively involved with housing corp, and social welfare benefits. Local Government is also a masive land lord, and is massively involved with zoning, etc. This is all existing “intervention” of some form or another.

“No theres not but that’s not really the problem, the problem as I see it is that the average first home buyer is not prepared to buy what they can afford.
What ever happened to buying a flat or a unit then trading up in a year or so?”

Most people would like to buy a flat or a unit then trade up (hell I’d just be satisfied with a reasonable flat/unit), but they can’t even afford that. The affordable housing problem isn’t about giving everyone cheap access to huge 3 bedroom, 2 bathroom, study, double garage, mcmansions. It’s about *reasonable* and *comfortable* living, and avoiding the social problems that go along with stuffing large populations into crap conditions.

“My parents purchased their first home 30 years ago and they bought as close to the employment in Wellington as they could afford at the time which was Raumati.”

These days they’d more likely have to go as far as Palmerston North. That’s not a good thing. (I grew up there.)

“The market is never flawed it’s just “Pre Correction” like we have been for the last 12 months.”

Sarcasm right?

I’ll make a point here anyway. The market is controlled by so many things that its imbalanced. In a true uninfluenced market I could build Trump Tower on Mt Victoria if I thought there was the market for it, but of course I’m not allowed to do that (thankfully). Even in cities like Vancouver where they’ve been doing density for much longer than we have they still have this affordability problem, and they are looking at action to tackle it. Their apartment market has been running for over 20 years now, and if you haven’t been there, you wouldn’t believe how many huge-shiny-fancy apartment buildings they now have. How long will it take for the market to solve the problems? It wont.

As another example, look at NYC. Been doing density for centuries. Affordability doesn’t exist in that city (unless you count the various “Government interventions”). The market just does not provide affordable accomodation without control.

The property market is mostly a shortage market, you can’t just go out and make new land. It’s a finite supply, and it’s all been bought up. You could get some leg room by allowing all your parks and character areas to be developed, but that isn’t going to fly. You could reduce the population, but that’s not good for your economy.

You have some (small) room to play with for construction of the buildings you put on the land, but if you’re one of the few developers who owns land, you’re already cutting corners anyway to maximise your profit, and any more differences you can make aren’t going to amount to much.

The idea of a well functioning market things should get cheaper. So getting a 2 bedroom unit in the city should be more affordable now than 30 years ago (taking into account inflation etc.). This doesn’t mean it will be in a 4 unit block like it was 20 years ago, but it may be in a 50 unit block, but it’ll be cheaper. It would seem though that all the indicators are that things have been becoming less affordable in New Zealand. So it’s not well functioning. If that were Telecom, or the t-shirt market, they’d have been busted into a thousand peices by now.

So by its very nature the property market has been able to form a cartel and raise prices beyond what would be accepted in any other industry, because you have no choice on where to go, you need to buy that land and build that building. You need to live there, or work there. You can’t choice to import your land from a cheaper competitor in China.

“What we need is for the council to make it easier for developers to build inventive, interesting, usable and yes sellable spaces.”

Is it really that hard to build inventive, interesting, and usable buildings? Can you give some ideas how the Council can make it better without also giving license for building boring, basic, s**t, buildings?

Although fixing that is good for the character of the city, it isn’t going to change affordability, unless there is some super cheap construction method that is not permitted by the council at the moment.

“Na, we can’t just palm this stuff off the “The govt” or “The council” we have to take direct ownership.”

Can you explain how we take direct ownership?

I don’t/can’t own anything at the moment.

“If your building adds to the city, Looks nice, works within its location, and conforms to all safety and possibly environmental standards (Green building) then it should be easy for you to get consents and council will be your friend. It’s our city and it is too important to let this stuff sit on a desk for some grey suit to decide for us.”

Not understanding. The local government handles zoning and height restrictions and design guides and etc. You’re saying that they shouldn’t be responsible for that anymore?

Kerryn
2 - 04 - 08

Venture, my partner and i purchased a 2-bedroom unit in Berhampore for a relatively modest sum (probably because the tenant was karked out of kava in the living room during one open home which put everyone else off – suited me!) in 2005. You ask “What ever happened to buying a flat or a unit then trading up in a year or so?” 3 years later we’d love to upgrade to a house or bigger unit/apartment. Problem is everything is at least twice as much as what we paid for our unit and interest rates have gone up a lot recently. We simply cannot afford to upgrade and god knows when that will change.

Also, there’s no way I’d consider moving up the coast and facing a commute to Wellington for work purposes. Road traffic’s a nightmare and the trains are not very reliable. I want to live close to where I work and play so I can make responsible choices about how I get around more easily.

Venture
3 - 04 - 08

Good one Kerryn,

you mad the choice that your generation was “Unprepared” to make.

Rather than pay the same amount of money in rent you decided to pay a mortgage, and as you have said “Everything is at least twice as much as our flat” which means that your flat must also be worth “Twice as much” as when you bought it?

I’m not saying that it’s time for a 4 bed house in roseneath but it may mean you could take the next logical step which may be any one of the Hutt valley 3 bed properties being sold still for the $210k to $265k range.

I understand that interest rates have gone up which has simply meant people have had to become more realistic about the price they will receive for there properties when they go on the market.

Also I understand your “Decision” to not move up the coast but it’s takes just as long to travel back and forth to the coast now as it didi when my dad did it, and so it’s just as much an option now as then.
You have simply decided that your lifestyle is worth more to you than spending 3 hours a day in transit, but it was an option either way.

But lets face it your on the property ladder so your a step ahead of your renting mates so good on you.

V

Venture
3 - 04 - 08

Erentz,

“These days they’d more likely have to go as far as Palmerston North. That’s not a good thing. (I grew up there.)”

I would never go as far as recommending that people move to Palmerston North (Yes Sarcasm)
What I was looking to highlight was that you can buy a 2 bedroom unit In Wainui for $145,000 (http://www.trademe.co.nz/Trade-Me-Property/Residential-Property/Houses-for-sale/auction-137840443.htm?key=145227)

$145,000 at 10.5% interest rate with 100% lending is about $300 per week.

Whereas median rent for a 1 bedroom apartment in the CBD is $290 per week (http://www.dbh.govt.nz/market-rent?Location=Wellington%20-%20Thorndon%20/%20City%20/%20Mt%20Cook)

And so the average person looks at a shitty unit in Wainui and a flash apartment in central Wellington and makes the “Choice” to rent the apartment, and not getting ahead in the property game.

As for affordability and dencity issues you have given me examples of Vancouver, NYC and I’ve heard Germany city’s being discussed also another you could add in would be San Fran.

And I agree all these city’s have density issues and affordability issues but they also all have development limits, and rent locked property which is a form of intervention.

And Guess what they don’t work!

San Fran is probably the worst it’s land locked, it has amazing old buildings with really strict height and view limits and has had rent freeze or Govt controlled rent reviews for 50 years to try to control the affordability of rentals.

All these controls have created an elitest inner city area with investment returns that run between 2 and 3 percent and it has handicapped the development of San Jose and all other suburban areas.

“Is it really that hard to build inventive, interesting, and usable buildings? Can you give some ideas how the Council can make it better without also giving license for building boring, basic, s**t, buildings?”

Developers are able to get boring sqaure box buildings through council very quickly it’s really easier than you would believe.
Building quality nice looking and appropriate development is a lot harder to get through.

Don’t get me wrong I have rather enjoyed your comments and don’t wish to offend but your comments are those of someone who has never applied for resource consent with WCC.

Alex
3 - 04 - 08

Something anecdotal

When I bought 12 months ago. I was really suprised how expensive inner city apartments in Wellington were. I ended up buying a house in Newtown instead – but if apartments were a hundred grand cheaper then I would have used one as a stepping stone (with much less debt) to later buying a house in the inner suburbs.

I guess when compared to the immediate inner suburbs (Mt Vic, Mt Cook, Kelburn, Thorndon) the apartments were much cheaper. But Newtown is still inner enough for me and I’m happy with the choice, an appartment or character home in Newtown doesn’t stack up for met at the same price. Oil prices don’t really affect me, in fact they probably (hopefully) protect my investment somewhat in a worrying market (for homeowners, especially Gen X homeowners buying at the wrong time!).

The things that made me nervous of buying an appartment:
– quality of building, I don’t trust anyhting built after 1990 and still want to wait a few years to see how the ‘post leaky-building’ builds turn out.
– Earthquake strengthening costs of building pre-1990! (and lack of balconies)
– You can build more appts but you can’t build more land
– Auckland’s appartment crash

Most appartments were starting in high 300’s – Although there was one appartment of about 50m2 for around 200K that absolutely stuck out like dogs balls compared to the pricing of everthing else!

Maximus
3 - 04 - 08

Alex,
it’s an old saying, but a good ‘un, that they aren’t making any more land. Well, yes, but not really: I mean, New Zealand is one of the more sparsely populated countries in the world, so there is a fair bit of land that could yet be converted to a more urban use. Hong Kong has a population several times larger, on a land mass almost infinitely times smaller. Of course, if we were in Hong Kong, there would be 40 storey apartment buildings all over Mt Vic and Mt Cook (and we’d have a great rapid transit system too, but that’s another story).

One of the reason’s that other, larger cities have managed to have an apartment boom, is that there are / were a load of old warehouses lying empty, and that were easily adaptable to urban living. Simple conversions were possible, with a “cheap” price for the “land”, as it was already built (see, you can build more land…). In Wellington, being a newer city with not so much warehousing, and with much newer building stock, there’s less chance of that. What few old character warehouses there were, have been snapped up and turned into apartments already ie Odlins, Shed 21, umm, umm, I’m sure there must be more. But that seems to be the simplest way of creating affordable apartment housing – just buy a an empty shell and convert it into your own residence as time goes by.

My biggest gripe with modern apartment fitouts by developers, is that they over-spec. It seems that every 2 bed unit has 2 bathrooms, and a flash kitchen with lots of cupboards. Maybe that’s some people’s cup of tea, but not mine. Less please, and therefore cheaper: I’d prefer a large, empty space, with minimal walls and gubbins – perhaps just something like the apartment in Diva (Jean-Jacques Beineix’s film from 1981) – big enough to rollerskate or cycle around in…. and an unihibited placement of a bathroom. check it out at http://www.answers.com/topic/diva2-jpg-1

Alex
4 - 04 - 08

I agree Maximus.

Perhaps what I meant is that you can’t build any more inner-suburb sections, although you can ‘build’ a section in Papakowhai etc. Therefore IMO – while stand alone homes in these suburbs are comparable in price to an apartment it makes the apartments less attractive. Everyone has different thresholds though, I’m sure Newtown is too far out for some which makes a similar priced apartment in the CBD attractive. I didn’t want to go any further than Newtown, if Newtown was at Mt Cook prices then I would have preferred an apartment.

Unfortunately a section in Papakowhai is ‘living the dream’ for many Kiwis. I personally have lived in an apartment in Wellington as well as in 3 other cities around the world. But when it came to parting with cash – the old Kiwi dream of owning your land is a pretty powerful force. Perhaps this is why so many apartments are second home investments – renting one seems attractive, buying and then living in one seems alien?

But somewhere like Auckland with nightmare traffic and ridiculous land prices seems like an apartment mecca – are the shoboxes really that bad that those ‘locked out’ of the market are still shunning them?

Greg
4 - 04 - 08

As a foreigner, there are some things that I just don’t understand. Why the mad rush for property? There’s so much focus on the property ladder and making sure you get on it before it’s too late. (Does that mean that we’re condemning the next generation to Life In Hell?) I look at the housing stock with an air of negativity. I can’t imagine spending half a million, or more, on a crap house: draughty, leaky, cold, whatever it happens to be. I don’t understand how people can live in a disappointing house under a crushing debt for the next quarter of their lives. Why?

Taking a tangent, Paul Callaghan (Royal Society Fellow) gave a presentation at my work the other day on the topic of Kiwi prosperity. One of the points that he put forth was that Kiwis don’t know how to save money. They feed their paychecks to their debts, which promptly flows to the overseas banks. As a result, local/national research and development is horribly underfunded, because there is next to no investable money staying in the country.

It strikes me that the idea of investment here is limited to buying houses; the tax laws seem geared to promote this idea. Isn’t this why homes are unaffordable? They *demand* high return-on-investment. And it’s also very much an eggs-in-one-basket problem. When the market corrects, people can lose their life’s work.

I prefer to not consider apartment living to be a stepping stone. With adequate urban planning, apartments can be as suitable for families as it is for non-families. In fact, this was one of the points that I was trying to get across with the recent Adelaide road public consultation. I have high hopes for the area as quality urban living. I’d buy into that over 3 hours of commuting any day.

DeepRed
4 - 04 - 08

Greg: NZ’s obsession with property investment thing is partly to do with favourable tax treatment, but it has even more to do with the sharemarket crash of 1987. It was a given that investors were losing their shirts the world over, but in NZ’s case the effect was much more pronounced. Many of NZ’s ‘glamour companies’ turned out to be junk bond holding companies. And the insider trading antics of Fay Richwhite and its ilk guaranteed that investors had the last straw. To add insult to injury, some of NZ’s biggest state asset privatisations bungled so badly that they either ended up being majority re-nationalised (Air NZ, TranzRail), or anti-trusted (Telecom).

Thankfully, KiwiSaver and the Super Fund have made a start of making the long climb back to rebuilding NZ’s saving base. Sharemarket analysts certainly think so.

Alex: WellUrban wrote a pretty good post on societal attitudes and the quarter-acre myth a couple of years ago. In particular, “Unlike Europe or the American East, most of New Zealand’s urbanisation has occurred after the advent of the car: with apologies to Oscar Wilde, one could say that New Zealand went from rurality to suburbia without urbanity in between.”

Venture
5 - 04 - 08

http://www.stuff.co.nz/4464968a10.html

Maximus
7 - 04 - 08

V, not sure what that link was to, as it has expired. But this article certainly seemed relevant:
http://www.stuff.co.nz/4466708a13.html
Them and Us: The Housing Divide

Maximus
7 - 04 - 08

and in case that expires also, the gist is here:
Them and us: the housing divide
By RUTH LAUGESEN – Sunday Star Times | Sunday, 06 April 2008

Many struggling under-35s may have been permanently shut out of securing their financial futures, new figures show. The figures reveal stunning growth in household wealth since 2001, with baby boomer property owners cornering many of the gains in what economists say is one of the biggest accumulations of wealth in New Zealand history. The wealth boom has been driven by soaring property prices, but that has in turn created a wealth divide between old and young Kiwis essentially those who are in the property market and those who are not. And National finance spokesman Bill English says it is time for the younger generation to be given more help. He says a National government would stop any further expansion of Kiwisaver to older workers, many of whom are already asset-rich.

New government figures show net household wealth per capita doubled in real terms in just five years, between 2001 and 2006. The last time it doubled it took 21 years to do so, between 1980 and 2001, according to a recent report by the House Prices Unit of the Department of Prime Minister and Cabinet.
The wealth boom has been driven primarily by soaring property values, with real house prices increasing 80% since 2002. Concerns are now emerging that the flow-on effect has been to erect barriers to wealth creation by younger New Zealanders and others who do not own property. Home ownership has been the traditional path for New Zealanders to build up their financial assets.
The House Prices Unit report warns the wealth boom has created winners and losers, triggering a “redistribution of wealth from non-home owners to existing home owners”.

“Increases in house prices have raised the wealth of home owners and driven a widening gap between the affordability of houses and the incomes of people who aspire to own a home. Wealth inequalities within New Zealand have increased as a result,” says the report. English said many older New Zealanders had done well out of the wealth boom, and now it was the turn of younger people to become the focus of government attention.

Venture
7 - 04 - 08

It was a link to the article about the couple who bought a freehold property for $50,000.

It was not in Wilton.

V

erentz
7 - 04 - 08

It was Eketahuna or some place like that. I.e. they decided to live the rural lifestyle and didn’t work in Wellington, so its not relevant to the 80% of NZers that do have jobs in th city. I don’t remember there being any indication of what their income was either. It would be interesting to see how they’re doing in another 20 years.

Venture
7 - 04 - 08

Yes but the thread is not “Some affordable housing if you don’t live in Wellington” it’s “No affordable housing”.

What I’m trying to get at is that most people have prioritized home ownership and have put it further down the list.

The list might look like this………

I want a house
In Wellington
Central
With a veiw
And parking
not an apartment
not too many stairs
Im prepared to pay a deposit of 5%
I’m not prepared to pay more in mort paymnets than it would cost to rent the same property.
I’m not prepared to live further out of town than Wilton
I’m not prepared to make my own lunch to afford it.
I’m not prepared to stop buying watered down crushed plant seads in a cup every morning.

And if I can’t get all this then there must be no affordable houseing in Wellington.

I don’t think this is too far from the average buyers list.

V

erentz
7 - 04 - 08

Man V, you’ve got some chip on your shoulder about these people don’t you. :)

I looked at that Wilton couple in the paper and thought similar things, but don’t just buy into what the papers tell you and assume everyone who is complaining about this is the same breed of person.

People have a right to be picky about where they choose to lay down their 400,000 dollars of cash (or 800,000 dollars by the time they’ve paid off the mortgage). It’s a lot of money! Especially for the average person. Would you run a business without being diligent with your spending? And most people shy away from apartments because Wellington’s early apartments (which they’re all familiar with) were utter crap, and they’ve seen a lot of people lose money in the apartment market due to dodgy deals and over inflated prices, and not to mention a large amount of it is targeted not at home buyers but investors. So that’s only sensible on their part when they can get land for the same price.

Contrary to your view of some snobby elite (stimulated by the press and tv coverage of this issue), a large amount (probably the majority) of people in this country are on pretty crap wages, just go out work a 9-5 job (or more) for their money, partner up with someone else doing that (eventually divorce), want a simple life, the bbq’s in summer, etc., want to build a home for their family. This is it for them. They DO NOT want to become property investors and most of them DO NOT have the smarts and money to become property investors. But unfortunately for them, the system is set up to favour investors (no capital gains, LAQCs, etc.).

So you’re very constructive options so far seem to consist of:

– Get over it and rent
– Move to the country you whinging poofs, back in my parents day they had to take the train! And there was only 1 TV channel!

With no thought to the consequences economically of shifting everyone into the boonies. Or consideration about what will keep rent low and fair. Or consideration about how much it actually costs to live far away from where you work these days (and that’s only going to get worse). Or what happens when a large amount of low income people are forced into one area by the lovely “market”. Or what happens to the economy when productivity reduces because of this.

So I think we arrive at two points:

1. Does the analysis indicate that the cost of buying or renting a house today is equivelent to what it was throughout the last few decades? Or is it increasing? And can we project that it is likely to continue increasing? The stuff I’ve seen indicates it has been increasing, and is going to continue increasing, but I’ve not done thorough analysis so would like to hear other opinions.

2. If we want this country to grow, we need to provide adequate living conditions for workers close to their jobs. The conditions should be on average reasonable, and improving, not decreasing. We’re a 1st world country, not an emerging economy like china or brazil, and we certainly don’t want to end up forcing a large class of people into slums because we didn’t control rents, or we didn’t provide the opportunity for families to own homes. So how do we best do that? (And if the answer to 1 is yes, its increasing, then the answer to two can’t be do nothing.)

Venture
7 - 04 - 08

So you agree with me then?

Frank
7 - 04 - 08

Erentz, and Venture:
it seems that average housing is not going to be affordable by average people, without a fall in the value of some other average thing. That doesn’t have to be the average price (although it might well be). But other things to reduce the price could be average size, average quality, average land cost, average compliance cost etc. That would seem to be saying that if you build tiny, build low quality, build on bad/compromised land, or build with low compliance checks, then you’ll be able to afford it.

So, a small tin shed, with cardboard walls and a tin roof, on the side of a muddy hill sounds about right. But isn’t that just called a slum?

rondo
10 - 04 - 08

There is one other way to get a more affordable house: ensure that your neighbours are students…

http://www.stuff.co.nz/dominionpost/4473753a6479.html

Student neighbours can devalue a house by 10pc
| Thursday, 10 April 2008

Suburban New Zealanders rate students as second only to squatters in a roll-call of undesirable neighbours, such as party people sharing houses and families with teenage kids.
A small on-line survey by property listings website allrealestate has “revealed” that “doof doof” parties – with lots of that electronic music that thumps monotonously – and students’ reputations for long lie-ins and piles of dirty dishes around the sink alienate their middle class neighbours.
Having such students as neighbours could devalue a home by up to 10 per cent, according to the website’s Melbourne-based general manager Shaun Di Gregorio, who said 59 percent of New Zealanders ranked students as the worst neighbours.
“Students are notorious for having a good time and living in messy conditions,” he said, in comments based on a survey of 242 people.
Squatters fared worse, scorned by 83.5 percent of respondents, and people sharing a house rate marginally better than students, despised by 44.5 percent of the people surveyed.
Families with teenaged children did comparatively well, annoying only 27 percent of the population with slamming doors, arguments and musical instrument practice.
Mr Di Gregorio said one in 10 potential homebuyers believed squatters next door would devalue a house by up to 15 percent, and almost a quarter believed students would wipe 10 percent from the value of an average New Zealand home priced at $337,000.
Party prone youngsters were said to knock 5 percent off neighbouring home’s value, with their critics citing a lack of interest keeping a rented property tidy, and headaches caused by loud music and rowdy revellers.
Childless couples, retirees and singles were voted the perfect neighbours, Mr Di Gregorio said.
“Our neighbours have a significant influence on our quality of life, especially in suburban areas and increasingly, house hunters are prepared to pay a premium for a quiet, trouble-free life,” he said.

DeepRed
14 - 04 - 08

Or build a gang pad…

DeepRed
14 - 04 - 08

Oops, the link didn’t work, and there’s no edit function…

—-

Or build a gang pad…

rondo
14 - 04 - 08

and here’s a link to that Listener article on Slums in Mangere.
Sobering reading.

http://www.listener.co.nz/issue/3543/features/10784/lodges_of_last_resort.html

Lodges of last resort
by David Fisher

In Mangere, property owners are making money from families who have no choice but to live in squalid, crowded lodges. Many are beneficiaries sent there by Housing New Zealand staff.

In the winding backstreets of Mangere, where most New Zealanders will never go, there is a shameful secret. Here, in a South Auckland cul de sac, almost 1000 people live in a cluster of buildings that was once the Mangere hospital for the insane and intellectually handicapped, closed in 1994.

In an area of about a square kilometre, the buildings of the former institution have been turned into privately owned boarding houses.

Entire families – some with up to four children – live in rooms little more than three metres by four metres that were originally designed for single patients. Each boarding house has about 30 rooms, branching off long, lino-covered institutional hallways. There are a handful of toilets to cater for as many as 100 people. Showers are shared, as is the single stove in a communal kitchen.

Many were brought here by Housing New Zealand Corporation, the state housing provider that boasts it “provides New Zealanders with access to good-quality, affordable homes”. Some are on waiting lists for state homes. They have waited months, even more than a year, after being told, they say, by Housing NZ staff that their situation is not an emergency and that they don’t require special treatment.

And so they stay. For rooms with a single occupant, the private landlords collect as much as $140 a week. Families pay up to $250 a week for a room – just under the national average of $300 for a house. Many are beneficiaries; their rent comes from taxpayers and vanishes into the pockets of private landlords.

etc… quite a bit more online…

But going from what they were saying, a “room little more than three metres by four metres” is therefore about 12m2. And they’re claiming that in some cases, entire families live here ie 6 persons, in 12m2, that’s 2m2 per person.

Michael
4 - 01 - 10

Dude, paragraphs.