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The ‘middle-rung’ suburbs – a great opportunity

Housing affordability is most definitely a ‘hot topic issue’ at the moment, with today’s NZ Herald running a fairly extensive article and opinion piece looking at the issue and its political implications. A lot of the impetus of housing affordability becoming such a big political issue was the government’s rather lackluster response to the Productivity Commission’s report – which in my opinion was a pretty lackluster and extremely narrow-minded and ideological approach to what is a very complex issue. Then a couple of weeks back the Labour Party announced a policy to try and build 100,000 affordable houses over the next 10 years – most of them in Auckland during the first five years after the next election, should they win it.

While the boldness of Labour’s scheme has been supported by many, its workability has been questioned in some areas – particularly in relation to where the land is going to come from, what type of houses will be built and whether the stated price of around $300,000 is realistic or not. For example, in today’s Herald:

Alan McMahon, Colliers International’s Queen St-based national research and consulting director, said though Labour’s scheme was commendable, it was also probably totally unworkable because of tight land supply.

“Unless we build to medium or high density (five storeys or more), we don’t have nearly enough land in Auckland to accommodate tens of thousands of new homes. And if we zoned currently rural land, it would cost a fortune to service, and transport to schools, workplaces, shops etc would render them unaffordable except to a minority anyway.

“Limiting house prices to say $300,000 will severely limit the developer’s ability to buy land, whether it is Housing New Zealand or a private developer. Private owners will be unlikely to sell land for the provision of such homes when they could get more for selling to a private developer to build a more expensive house, hence justifying a higher land price.”

It’s good to see further recognition that building through sprawl is not the easy option, but rather the enormously expensive option – for councils and government in providing infrastructure and services but also for the future residents themselves as they find out they’re absolutely miles away from their place of employment and need to spend a huge amount of time and money on transportation.

If the government needed to find a way to purchase new land upon which to build the vast bulk of these new houses then I’d probably agree with many other commentators that the task of constructing so many houses while getting their price down below $300,000 was just too hard. However, the government is actually the largest owner in Auckland of low-density housing on land which is pretty prime for redevelopment – through Housing New Zealand. Within Auckland, Housing New Zealand owns vast swathes of land across what might be termed the “middle rung” of suburbs – towards the edge of the isthmus and built from the 1930s through to the 1960s, typically at very low densities. These areas are broadly shown below:

There are obviously large further clusters of Housing New Zealand property in places like Otara, Mangere and Manurewa, but an important part of making Labour’s scheme work will involve being able to sell fairly high density terraced housing easily so the proceeds can be reinvested in the scheme. As demand for housing on the isthmus is much higher than further south, it seems that redevelopment of housing stock on the isthmus would be most likely to succeed in a market sense.

Looking closer at these parts of Auckland, one thing that really stands out is how low the ratio of improvement value to land value is – using the Council’s mapping system we can figure this out. A typical example in Mt Roskill shows that an 895 square metre site with a single house on it has a total value of $520,000, with $420,000 of that value being in the land (over 80%).

This ratio of land value to capital value just screams out redevelopment opportunity. And this site is pretty common. If we look over in Glen Innes there are large areas of extremely low density housing with massive potential for redevelopment. Take the area shown below which is over 32,000 square metres with about 35 houses on it:

If you were to split the block in half with a connecting street then redevelop most of the sites into terraced housing of about one unit per 200 square metres you’d be able to have around 150 units – over four times the current amount. And this is just one of hundreds of redevelopment opportunities across the middle rung suburbs, generally areas with pretty good public transport service and in areas (perhaps more Mt Roskill than Glen Innes at first) with likely good market demand for medium density developments.

Clearly you’d need to do this well, with good urban design to ensure that the intensification didn’t lead to poor amenity and eventually adverse social outcomes. But one other big advantage of using Housing New Zealand land for the redevelopments is that you will start to ‘dilute’ the concentration of state housing in these areas. If, for example, the area above was redeveloped then Housing New Zealand could keep 35 or so units with the rest of the new places being made available for private buyers.

I really hope that this is how Labour see their KiwiBuild policy happening, rather than on the urban edge through sprawl that will just lump the supposedly cheaper housing costs onto the public to provide the infrastructure and onto the owners themselves in terms of their future transport costs. There’s just such a great opportunity in these middle rung suburbs that it’d be stupid to ignore it.

33 comments to The ‘middle-rung’ suburbs – a great opportunity

  • Christopher

    Key phrase here is “good urban [holistic and comprehensive] urban design”. Given the Auckland context, pigs might yet fly.

    • TimR

      Not sure things are as bad as they used to be on that front….

      Interesting point in this post. In theory at least these HNZC-characterised suburbs are capable of and due for a renewal cycle – stock at the end of its first major maintenance cycle, generally not well looked after and mismatched with modern lifestyles. HNZC are onto this already within their own stock renewal. I think there should be a lot of thinking about how to make these areas fly in a good way.

      The Tamaki example is definitely a test case, and an interesting overlap with the current politics – it is National’s opportunity to show it can do more than just greenfield affordable, and if both parties continue to up the ante then we might actually see improvement in Auckland housing models – physical and cost-wise.

      At the same time, the ‘burbs Peter is talking about have hidden challenges – fragmented ownerships that prevent full block development, disjointed curly-wurly road hierarchies that reduce the ease of access across wider areas, lack of mixed uses (and obvious opportunities often). While the CV ratio in the example indicates that the building needs replacing, the price price to acquire (assuming current sales at CV value, and we all know that is not where things are at now) based on subdivision to say three townhouses on 300 each is still 170k land cost. More like 5 terraced units and the land cost element improves – but so would the CV and selling price expectations, and complexity/cost of getting consent.

      So – land price is still a problem, ownership patterns are not always ideal, and development needs integrated attention to mixing uses.

      There’s the challenge, National. Labour has stolen the initiative at this point. What can you bring to the table to make sure the Tamaki scheme and other inner rung suburbs succeed in terms of good physical and affordability outcomes?

  • NCD

    You’re spot on- There’s a lot of potential, and a lot of these suburbs need a bit of new energy.
    Panumure and GI especially will be very handy to the city once the new trains start running.
    Panmure also has a lot of park land, and you can go much smaller than 200m2 if you’ve got public space on one or two sides.
    The other thing we should be doing more as the density gets up is using our roofs better- sitting, solar, drying, growing.

  • SteveC

    have a look at 68 to 84 Tonar St in Northcote in google maps and streetview to get a feel for what Housing NZ is doing with revitalising and replacing some of their older stock, two and three story attached units with up to four dwellings replacing single houses per site, these are oldish images and the units are tenanted now

    they’re also building for a mix of family and single person units to foster a greater sense of community

  • obi

    Protesters have marched on parliament and Hone Harawira has been arrested over the redevelopment of a tiny handful of state houses in Auckland and Lower Hutt. If you’re going to redevelop these houses as terraces on, say, a 2:1 replacement:existing ratio then you’d be looking at demolishing 100k existing state houses and building 200k new terraced houses over the next ten years. Labour’s (almost certain) coalition partners Mana are going to go ape shit. As will beneficiary groups, ethnic community groups, and probably unions. I don’t see it flying politically.

    Bear in mind that you’d be building 20k homes a year, which is 80 per working day. That’s one every six minutes of the working day. No way!

    The only way to pull off Labour’s plans is to go big. Build tower blocks on brown-field sites. You’d need to build 40 apartments a working day. That represents one medium sized (10 story) tower every working day, or one really big tower (20 stories) every two working days. You might just about manage that, even if whole sections of NZ cities end up looking like East Berlin. Maybe use the pre-fabricated tower block technologies that the Chinese are developing (http://www.geek.com/articles/geek-cetera/chinese-builders-erect-30-story-building-in-15-days-20120115/)

    • Tom

      That’s one every six minutes of the working day. No way!

      Do you have a reference to back that opinion or is this just a WAG? I thought we had heaps of builders that are just aching to get to work and build some stuff but the government is just slowing them down. I mean, sure, thi is probably just a political stunt but some of this might actually happen and if a few houses get built at cost, in this market, would it really be so bad?

      The only way to pull off Labour’s plans is to go big. Build tower blocks on brown-field sites.

      This sentence reveals that you haven’t actually seen (or maybe noticed?) what true density looks like. Only rich cities have towers, poor ones get apartment blocks like this http://goo.gl/maps/ZM6BS only nastier – cheap, fast to build, no balconies, no views and no architecture. Go with 3-5 stories and the builder can get away with no elevators. Not a big fan personally but it isn’t that bad unless you’re over a busy road. Auckland could do much better if the builders use the terrain to make terraces.

      btw. the free market folk are sounding more and more like the communists sounded like before the fall … lots of faith in the system but struggling to convince the people who are actually living in it.

      • obi

        “Do you have a reference to back that opinion or is this just a WAG?”

        NZ has constructed around 15-20k homes a year over the last decade. There just isn’t the excess capacity in the industry to double this number, and also to demolish an old state house every 12 minutes for ten years. You’d need to significantly increase the productivity of the industry, which is why the step change of pre-fab tower blocks are a good option. And you just can’t demolish 100k existing homes in order to rebuild twice as many at twice the density.

        “Only rich cities have towers”

        Really? Every Chinese city has an endless supply of them. Here is a photo of a pile of them in greater Mumbai: http://en.wikipedia.org/wiki/File:Navi_Mumbai_Skyline.jpg . They’re pretty much the norm in miserable Pyongyang, where Wikipedia reports: “As of 2011 current construction includes claimed 100,000 new homes in the city, including a large project along Changjeon Street. This is the top construction priority and uses KPA soldiers as labor.” So there is a potential may ahead… Put the army in charge of Labour’s housing policy.

    • Robert

      I don’t think anyone is a fan of too many tower blocks out of the CBD but intensification doesn’t need tower blocks. I hope the unitary plan does try to retain Auckland as a city of views like say Paris is. Where you can look around and still see Mt Eden, the Waitakeres, the harbour, etc and not have your view blocked by inappropriate tower blocks.

  • ejtma

    This policy of labour is another example of spend spend spend without considering the cost or how it will be funded. Then again they will say tax the rich.

    As an example even if they only fund 10000 houses (one years stock) to start with and then sell them to fund the rest that will be $5bn that needs to be found assuming the need to buy and demolish existing properties at an average price of $400k, plus a build cost of $100k

    It is just political hot air, and will send the country bust. It will never happen.

    • Bryce P

      There is something really wrong with your maths. You are assuming that they are going to buy a property for $400k, demolish the house and sell it for $500k. This is not what will happen. What they will do is use existing HNZ land or buy suitable land off council in large blocks. They will then build, I envisage, quality terrace house type developments where something like 12 x 4 bedroom, houses can fit on a single 2,000 sq/m block. So, say 2 x 1,000 sq/m properties @ $800K (if they do not already own them) and 12 x terrace houses with a build cost of, lets say, $2.4m = investment of $3.2m / 12 = $267k per dwelling or $2.7B of which they will then sell these properties for a profit. Sounds like a good strategy to me. (disclaimer: these figures are purely guesswork in case you couldn’t tell but I don’t think I’ll be that far off).

  • Malcolm M

    If the private sector can already provide homes for $350,000 and make a profit, HNZC should be able to go to $300,000 by redeveloping the land they already own. Compliance costs can be spread across a much larger number of units, because HNZC already have agglomerated fully serviced land. Even in Melbourne there are new apartments (1-bed or studio) for sale on the doorstep of the CBD for $350,000. Of course other developers would rather keep prices high.

    Labour only promised homes, not houses.

    • Peter M

      Indeed. Biggest cost for developers is acquiring the land and then the holding costs of paying heaps of interest while they go through the consenting process. HNZC land has none of those problems so provides the potential for massive savings.

      With economies of scale you could pretty much get a dedicated consenting team working with them every step of the way to ensure that’s not a problem while also getting really good outcomes from an urban design perspective.

      • This is where I think the council/government could be really innovative. Work together to develop a series of designs that are scalable and that could be mixed and matched but that all meet the planning criteria. After doing a number of test developments to iron out any issues and get enough money to recoup the cost getting the plans together they could sell them cheaply or even give them away to private developers. The goal being that a private developer can pick up one of these plans knowing that they are pretty much rubber stamped already and very quickly and easily start building without having to go through the arduous processes that currently exist. Ultimately it is about making it as easy as possible for people to develop higher density sections and something like this would even enable mum and dad types to get into property development.

        • Robert

          Alot of interesting posts and comments. I think getting Mum and Dad investors involved and capable of doing so is a key. Intenisfication needs to be moved away from just the government and developers. Alot of the intensification is individual plots so Mum and Dad investors need to be free and able to do so. There are some horror sites in Australia where Mum and Dad investors have butchered neighbourhoods by their attempts but I guess that’s what the unitary plan should control.

          My other fear from this is that everyone will start creating slum like suburbs converting every garage in to 10 bedroom shacks like they do in South Auckland.

      • Peter M

        Yeah absolutely. I think that most of the developments of HNZC land should be done as PPPs anyway to introduce a bit of risk and reward sharing plus to ensure a bit of variety. Could be a huge boost to the local housing construction industry and the catalyst to get a bit of upscaling in the industry so we can bring down the construction costs.

  • An interesting comment from Hank Dittmar in his talk was than when developing greenfield sites using a traditional sprawl based houses, was that the first house you sell is the most important one as that is what “sells the dream” as you have a house surrounded by empty land. By the time you get to the last house you have a typical suburbia of which there are usually plenty of other examples around. When building a higher density sustainable community it is the last place you sell that is the most important as that completes the the neighbourhood and by the time you have it you will usually already have things like local businesses established which makes the place more attractive to potential buyers.

    Associated with that is also the financial pressures, traditional developers usually have banks or investors who tend to demand a return as fast as possible which can usually be more easily done with traditional sprawl. That higher density community construction tends to take much longer to get a return as the developments really become attractive once you get those other amenities in place that enable the lifestyle. I guess it could be summarised as a toss up between decent short term return vs a greater long term return. Most private developers take the short term gain. This is where the government/council getting more involved in the solution (whether it be Kiwibuild or something else) could be useful as they should be able to take a more long term view of the investment to help provide better outcomes.

  • Kent Lundberg

    Peter, what do you see as the transportation structure/system serving this swath of land?

    • KLK

      Well, if I’m not mistaken, the area west of Great South Road is about the line the proposed Avondale-Southdown rail line would run….

      • KLK

        …..and to the east, part of it is picked up by the eastern line, while a new CBD ferry service from Glenn Innes/Glendowie would pick up the rest near the coast

        • Ejtma

          Would only be possible at high tide. At low tide you could just about walk to bucklands beach, when the channel would be no more than 20 metres wide. The train service is very good, all that needs to happen is for Auckland transport to get innovate and start feeder buses to the tain station, rather than all going into town.

        • Stu Donovan

          Ferry? No …

        • Mr Anderson

          Glen Innes is less than 15 min from Britomart on the train. Just need a really good network of feeder bus services for areas beyond walking distance from the station I reckon.

        • Bryce P

          A ferry would be a terrible idea for GI. It takes forever to get out of the Tamaki River and then to cut across St Heliers, Kohi etc. The train would be much faster not to mention more frequent.

          • KLK

            I only mentioned the ferry because I had just been reading an article about the local board and how theynwanted a ferry service from Glen Innes/Glendowie/Howick

  • Ricardo

    Peter M, you are right about the Productivity Commission report being “lackluster” and “narrow-minded”…it was comprehensive in terms of freeing up land supply…but it ignored demand side solutions such as LVR controls, capital gains tax etc…to address housing affordability we need a suite of tools addressing both supply and demand.

  • bbc

    The housing going in around Glen Innes which I presume is being done by Housing NZ looks pretty nice IMO (http://bit.ly/VcbN8s) and shows what could be done in many of these older HNZ areas. There are vast amounts of land locked up in very low density, the issue is also that because many of these families have very little money and are not owners, most of the land remains as grass and is under-utilised. Higher density with community shared gardens, and the simple fact that there’d be more people around would invigorate these areas and allow more amenities such as better shops to enter.

  • Tom

    NZ has constructed around 15-20k homes a year over the last decade. There just isn’t the excess capacity in the industry to double this number …

    Truly? It’s impossible to double building capacity in one city in 10 years? Methinks that is related more to smaller profits than lack of manpower. Besides, the 2:1 intensification you are talking about is simple subdivision of current housing. No teardown / rebuild necessary.

    And you are seriously saying that Mumbai and Pyongyang are poor cities? Nasty and overcrowded, sure, but far from poor.

  • kalelovil

    Where are the existing tenants to be housed while the land is redeveloped?

    • Luke C

      I think the way Kiwibuild in any state hosting areas can be managed much better than National are currently doing theres. If you look at the streets chosen for the current controversial Glen Innes it is Silverton Ave http://goo.gl/maps/WMwbZ. Note how it is right by the sea, and also far north of Glen Innes, almost in Glendowie really.
      That tells me this is being done to increase HNZ dividends, not actually house more people. It is likely these sections will be sold off individually and McMansions will be built, and the street will quickly go from very deprived to very wealthy.
      I think if programme is done in less of a rush residents can be shifted to nearby houses that become vacant, rather than being offered unsuitable places in different parts of the city. I think the key is finding blocks of say at least 3 sections than can be redeveloped as one. Standard 800m2 sections being intensified one by one don’t usually end up with the best results.

  • Matt Lee

    There’s no doubt this a big project, but not impossible.

    In the peak year of the first Labour government’s state house programme about 4000 units were built. (This at a time when N.Z.’s population was less than two million).

    Remember only two-thirds of the 10,000 would be in Auckland, and it would likely take a year or two at least to ramp up production.

    Does anyone know if land above the Waterview tunnel will be available??

  • Matt Lee

    If you break it down the numbers are less daunting…

    Of 6,000 – 7,000 houses each year, you might, for argument’s sake, spread them between

    • medium density greenfields, Pukekohe
    • multi storey flats, Karangahape and Newton stations
    • re-development in Peter’s “middle ring” suburbs
    • intensification at Takapuna, New Lynn, (and Newmarket?) etc.
    • and the remainder elsewhere

  • Luke C

    Remember we are currently building around 1300 dwellings a month, in 2007 is was about 2200 while in 2003 we were hitting 3000! Therefore we are more than 10,000 units below the industries maximum capacity within the last decade, so should be no probe heading back up again.
    Also Kiwibuild will fit well with the Christchurch rebuild, will ramp up as Chch residential rebuild will be largely finishing, as Kiwibuild will not really kick off until 2016.
    This provides are great outlet for the skills and industry capacity gained from Chch rebuild.

  • Good analysis – the only other gotcha here is in using council CV’s where they have shown a tendency to undervalue the CVs of properties owned by HNZ.

    An example of this is riverside (peninsula south of Sylvia Park) where you can actually see differences in the land values (as well as improvement values) of HNZ properties versus the privates.

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