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Housing affordability – it’s not about detached houses

The government’s report on land supply and housing affordability released on Wednesday is actually a really good document – I like how it’s structured as a very visual document (almost like an extended powerpoint presentation) rather than dense text. The document also contains quite a lot of very interesting information about how much greenfield land there is at various stages of the ‘ready to go’ process as well as some of the discussion about housing affordability and what’s happened in the past decade in terms of housing supply.

The first page that really captured my attention was the analysis of future household sizes – especially how it’s projected the sharpest increase in household numbers will be those households with just one or two people:household-size
Smaller household sizes in the future should mean that most demand will be for smaller dwelling sizes – as 1 or 2 people households aren’t that likely to need places with more than two bedrooms. However over the last few years we’ve actually seen a pretty big decline in the number of smaller dwellings being built:

house-sizeDuring this same time period most of the decline in the total of new dwellings being built hasn’t come on the urban edge, but within the existing urban area. Larger houses and those on the urban edge have continued to be constructed at a relatively constant rate over the past decade:dwelling-locationIn short, we’ve seen the share of new dwellings that are apartments or other higher density housing types decrease fairly dramatically compared to the numbers in the middle of last decade:share-higher-densityWell so what? The reason this all matters becomes quite clear in the next slide – that apartments and other higher density dwelling types are much much cheaper than your typical standalone detached house.dwelling-type-by-costEffectively what we have seen is as follows:

  • Most of Auckland’s affordable housing is provided for through the construction of higher density typologies such as apartments, townhouses, flats and studios. Very little standalone housing can be built at ‘affordable’ pricing levels.
  • The supply of higher density typologies dropped off dramatically in the past five or so years.
  • Therefore, the supply of affordable housing has dropped off dramatically in the past five or so years.

This is summarised in the diagram below:no-affordable-housingWhat all this information seems to clearly highlight, therefore, is that if we want to improve housing affordability then we need to figure out what killed off the supply of higher density housing units and we need to do something about it. Today’s release of the Unitary Plan¬†might go some way towards resolving that issue but it seems like there are other matters such as the state of the development industry and the finance industry to fund the developers which needs to be sorted out before we’ll see progress. The other clear indication of this report is that increasing the supply of standalone houses and houses at the urban edge is likely to do nothing at all for housing affordability because those places tend to be very large and very expensive.

46 comments to Housing affordability – it’s not about detached houses

  • conan

    “if we want to improve housing affordability then we need to figure out what killed off the supply of higher density housing units and we need to do something about it”

    This handy page highlights the demise of finance companies that developers relied on for funding:
    http://aotearoaawiderperspective.wordpress.com/good-reads/timeline-of-kiwi-finance-company-collapses/

    And in 2007 the council introduce new rules covering ‘shoebox’ apartments, increasing the minimum size to 35sq.

    Those two things would have contributed to the big drop off in apartment building in the CBD.

    • Starnius

      Sorry, but a less than 35 sqm apartment is NOT suited as a long-term accommodation for more than 1 person living a normal Western first world lifestyle. So while I believe they should have capped the PERCENTAGE (say, every apartment building may have no more than 20% of its apartments be below 35 sqm), rather than the very fact, I don’t think this minimum size has anything to do with the lack of apartments.

      In another vein – I think that the lack of apartments must also have massive flow-on effects. Lots of people who would be quite happy to live in a good apartment (many European or Asian immigrants come to mind) being forced to flat, or if they can’t stand flatting (I can’t) having to rent or buy too-large houses. That then results in worse outcomes for everyone – those who prefer detached houses AND those who prefer apartments.

      • I disagree completely. I have two rental apartments, each about 33m2. One has had the same tenants for almost four years, the other for two and counting. Each is occupied by two people, one a young Asian couple, the other a white bread Pakeha husband and wife.
        Both couples love the places, har no intention of leaving and are perfectly happy with the size. I’m not exactly sure what you mean by a normal western first world lifestyle, but if you mean things like sleeping, cooking, eating, washing, doing laundry, getting ready for work, watching TV, playing on computers, studying, going to the gym, going out with friends, having friends over etc, then they do just fine. 35m2 is more than enough for a bedroom, bathroom, laundry cupboard, storage and open plan living, kitchen and dining.

        I’ve seen some very cool loft studios with a floor area of 20m2. Those probably only appeal to young singles and couples, but is that any reason to make them illegal?

        If people don’t want to live in a cheap compact apartment no one will force them too. I hear a lot of gripes about the undesirable ‘shoebox’ apartments up on Hobson St, but I’d have to ask what the occupancy is like. Are these horrible unlivable all abandoned and empty, or are they in fact fully occupied by people who a perfectly happy to live there?

        • Size is a [usually] a luxury, but so is freedom from debt or higher rent, and so is location. So it’s a trade off. People who really value space can have that, and that will usually cost them more and/or push the location further from the centre. But those who can’t or don’t want to pay for bigger places or don’t want the responsibility, or enjoy a more compact living arrangement, or just really want to live in the middle of the city, have a right to exercise their preferences too, don’t they?

          The issue is some very vocal players in this argument don’t want that second group to be catered for, only the first one. Let Auckland grow up as well as out; the market will decide how much appetite we have for each….

        • Sailor Boy

          One of my mates lived with hois friend on the top of Hobson street in a sub 35m^2 apartment and they never had issue with the space. He loved it.

      • conan

        I wasn’t passing judgement on apartment sizes, just pointing out why some of the reasons why apartment building numbers may have dropped.

        You hit the nail on the head with your comments about the flow on effects of a lack of apartments. When I first moved in with my partner I moved from a 55sqm apartment to a 200sqm townhouse because there simply wasn’t anything in-between that was suitable. We now live in a 110sqm fully detached house with two little extras quite happily.

  • Molly Woppy

    I suspect part of the “anti-density” fear is that it has been so badly handled in the past resulting in poor quality developments that give the impression that dense = cheap and nasty. Although I live In a detached suburban home (in an evil cul-de-sac!), that is because I am “married with children”. Our house is walking distance to all the schools in the area and pretty close to other amenities (admittedly via car). It suits us at this stage in our lives. However, once the kids leave home (in 20 or 30 years :) ), our housing needs will change. I will be looking for something that is lower maintenance and closer to services other than schools. I hope that quality, high density housing that enhances the local area is available at that time. What I want from Auckland is a mix of good quality accommodation that suits a variety of needs and budgets rather than a one size fits all.

    • This is surely the point- out or up, it’s the quality that matters. Quality of design, of build, and of location. There’s good and bad greenfields, just as there is good and bad intensification.

    • Liz

      Yes, there have been some awful apartment developments, and I’m sure the leaky homes issue scared some people off townhouses. But high density housing can be really awesome, if done right (like any house!).

  • Liz

    I wanted to do a visual post that shows the range and character that well-designed higher density housing can have… maybe if I can put something together over the weekend…

    • Icebird

      After Nick Smith’s comments about “No one in Auckland wants to live in high density dwelling”, I thought about starting up a Tumblr blog just to highlight how many existing high density developments there are already. I think when people hear “high-density” they picture high-rises in the CBD, but out in the suburbs low-rise high-density (1960s blocks of flats, terrace developments) are far more common. Look forward to seeing your visual post Liz (I seem to remember Patrick I think doing something similar last year).

      • Liz

        The problem is that I don’t have all the pictures I want. I have been meaning for weeks to get the camera out and go roaming around, but other things always get in the way. I have several places in mind already, but if you know of particular examples that you think should be included then perhaps leave a link to the streetview image and I will see what I can do this weekend…
        I have heaps of photos from other cities but I really want to show, first of all, what already exists in Auckland.

  • DAS

    Sorry Mr Anderson, but you have missed the point entirely. All housing in NZ is unaffordable when compared internationally regarding house price to annual median household income. Unaffordable housing hits low income families the hardest. Maybe the rise in childless couples is simply that people cannot afford to have children. If housing was more affordable, you might see a different trend emerging. I’m all for higher density or lower density, but the non value costs should be stripped from the land supply amongst others, this would leave more capital to put into any type of house you chose, which I’m sure would result in better quality and better designed developments.

    • Liz

      I read an article a while ago (I think in North & South) which discussed the relationship between house prices and the amounts banks were willing to lend. Essentially that a house is worth what a bank is willing to lend on it. Maybe someone could put some excerpts up if they have a copy?

      But personally I’d like a focus on (well designed) higher density housing even if we didn’t have an affordability problem, because it uses the land more efficiently and can help create a better urban space. I think we need that in NZ.

    • Starnius

      DAS – there was a Herald article recently (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10865494) that explained that our key problem may indeed be our low wages compared to costs of building a home. That is a whole different kettle of fish for a government to try and solve (full opinion disclosure: NOT this government in my opinion, EVER – they are happy to market us as a low-wage, weak-union, still-some-skilled-people-left kind of country).

      But within the more ring-fenced area of housing prices, there’s still a lot one can do.

    • Mr Anderson

      Median is a stupid measure of affordability. Much more interested in how many places are available below a certain price. Vancouver has really high median house prices but most new places coming on the market are at the cheaper end whereas in Auckland most new places are at the top end.

      • DAS

        The House Price/median gives a comparitive of affordability on an internationally recognised basis and while not perfect, is better than any other measure out there.What it does highlight with further research, is that cities or regions that have a low median multiple also have zoning policies that favour housing development, and those cities or regions that have a high medium multiple have zoning policies that don’t. The result being that housing of all types is more affordable by half in places with favourable housing policies than those that don’t. Using this a yardstick, almost all housing in NZ in unaffordable, so rather than using the word affordability in NZ which is a re-definition of what affordablity really means with regards to housing, we should be talking in terms of a property being more or less unaffordable than another property. EG the price of an apartment is less unaffordable than the price of a detached property.

        • But when you say “zoning policies that favour housing development”, you mean that favours low density detached housing. Houston, the darling of the Demographia low density, anti-urban movement still has very restrictive controls on dense developments (minimum lot size, minimum set back, minimum parking, maximum height) so there is no level playing field.

          Also, if you look at where that affordable housing is in somewhere like Houston it is about 25 miles from the centre and there is often no public transit option. And I mean none. I looked at a real estate site in Houston and used Google to see what the transit options were, many actually said you had to walk/drive up to 5 kms to the nearest bus stop. Thyere are high density options but the prices are very high even in Houston as they are so in demand and it is now building light rail to cater for that.

          So although those types of cities are billed as being a product of a free market, from my point of view they are far more mono-modal and have less options (especially fro low income households) than the dense, transit oriented European cities that I wish Auckland would emulate. In Prague for example, if you want to live 20 kms from the city centre in a detached house and drive to work you can do that but I can also choose to live in an apartment/terraced residence with a mall (supermarkets, cinema) 200m away, metro station and a tram every 10 mins to the centre (the choice I made when I lived there).

          True choice comes from a level playing field and that is what a transit city offers.

          • DAS

            I did not say no controls, which funnily enough is what one-eyed anti sprawl advocates would say about places like Houston, so good to see you are not one of them. All I am saying is that the price of anything is made up of two costs, value added and non-value added (waste). Zoning policies a la council have a huge impact on what these are and how much non-value added costs in particular are added to what we pay for housing. People should be able to chose whatever density they want and they should be offered it at a price that is not wasteful in how in arrives at that price. Every unneccessary dollar that someone, especially low income earners, has to spend on housing is one less dollar that could have been put to a better use.

        • I also realised that there is no point in debating with some of the pro-sprawl, anti-urban, low density people when they have links to things like this: http://www.theobjectivestandard.com/exploit-the-earth-or-die.asp

  • dan again

    What you need to remember is that those high density affordable apartments where also the same really cheap ghetto apartments. I don’t think the solution will be to build more of those so that someone on an above average wage can buy a home.

    • Starnius

      Having lived in a 300-unit apartment building on Nelson Street for 3 years, I can say that even the large mass ones can range quite strongly in quality. But you also seem to believe, dan again, that there isn’t an affordable way to build GOOD apartments? In that case, we are fu**** either way. But then, I don’t believe it is impossible to build good quality apartments. I live in one now, and it was affordable, though admittedly not at the cheap end.

      • dan again

        Affordable in terms of 3 bedrooms 2 bathrooms and under $400k you say? And not lease hold?

        • You’ve just described where I live in Auckland. Only downside was the 25% deposit required by the bank. Having said that, it’s a lot more stable with a higher level of equity from day one, although ten or fifteen percent would have been easier.

          • dan again

            Oh well if you just moved into one that must mean there are tens of thousands of them in they city.

            So why did you need a 25% deposit. What’s the floor are of the place?

          • Steve D

            In a CBD apartment?

          • No actually it took me quite a while to find a good one, Auckland definitely needs a greater number and variety of apartments and flats.

            The floor area is about 100m2, not including the balcony, parking or storage room.

            Two bathrooms is just for the luxury of having a en suite on the master.

            The 25% deposit is a bank rule they introduced some time ago over the perceived risk with unit title properties. It’s a bit misguided I think. What’s the bigger risk, a guy like me paying the mortgage on a unit in the low three hundreds, or the same guy trying to make payments on a house costing $600k. According to them it’s the former!

          • No actually it took me quite a while to find a good one, Auckland definitely needs a greater number and variety of apartments and flats.

            The floor area is about 100m2, not including the balcony, parking or storage room.

            Two bathrooms is just for the luxury of having a en suite on the master.

            The 25% deposit is a bank rule they introduced some time ago over the perceived risk with unit title properties. It’s a bit misguided I think. What’s the bigger risk, a guy like me paying the mortgage on a unit in the low three hundreds, or the same guy trying to make payments on a house
            costing $600k. According to them it’s the former!

        • Peter H

          Why 2 bathrooms

      • Peter H

        Important point you make Starnius “admittedly not at the cheap end”
        There is a way of building affordable housing. but building housing 4 story and above is not affordable housing, unless you compromise on Quality
        http://places.designobserver.com/media/pdf/Explaining_Res_803.pdf

        • Steve D

          From that report:

          but as the chart shows they are more expensive to build, largely because of the need to build common structured parking

          It’s cheaper if you don’t have to provide storage for a bunch of useless metal that’s going to just sit there 95% of the time.

          • dan again

            And it’s even cheaper if you don’t provide for that organic organism that’s not even there 50% of time.

          • Steve D

            Maybe, but it’s the organic organism that’s paying the bills, and it tends to like having somewhere to sleep. I’m starting to wonder is whether you actually are a human yourself Dan, or whether you’re a more internal-combustion based lifeform? On the Internet, no-one can tell if you’re a car.

  • James

    I am a NZer grew up up on a quarter acre section and my parents live on a lifestyle block. However I lived in south korea for four years, I lived in a 4 story rooftop apartment with easy access to schools and parks, I lived in a 15 story apartment with a rooftop garden. They were both well built with a mixture of owners, renters, families and businesses. There were a mixture of studio, 2 bedroom, 3 bedroom and penthouse apartments. I had free bike parks and car parks if I wanted to pay. I also lived in Brussels and had much the same. Maybe less well built but more character (less parks though). When I returned to NZ I looked for something similar, maybe a nice townhouse, central, with easy access to shops and parks. Not only couldn’t I find one with the quality and size we required but the deposit required by banks made it impossible.

    Instead we bought a standalone further out than we wanted. We wouldn’t have bought the stand alone if the apartment/town house that we wanted was available. I have seen and lived in well built, well designed apartments that are affordable. We don’t have to reinvent the wheel here. There are some really nice town houses in NZ, they just aren’t affordable/quality is terrible/banks won’t loan (without huge deposit).

    If we weren’t planning a family we would be out of NZ (our families live here). Many of my friends and coworkers feel the same. People want well made well designed townhouses and apartments

    • Liz

      Totally agree with this. I have friends buying really nice apartments and terraced houses in the UK, and it is so frustrating that I don’t have that option here. Admittedly the deposits tend to be higher over there, but at least that’s across the board so buyers aren’t forced to favour one type of housing over the others.

  • harminder

    This may interest some of you – AUT is holding a public lecture on Tue 9 April on Australia’s experience with the capital gains tax. The speaker is Professor Sue Cassidy. More details here: http://www.aut.ac.nz/research/professorial-addresses; http://www.aut.ac.nz/__data/assets/pdf_file/0010/361657/AUT-Lecture-Series-Professorial-Julie-Cassidy.pdf

  • nzdn

    Why are apartments/terraces or greenfields always touted as the only options? Both of these are immediately polarising to large groups of people – we need intensification that is sympathetic to Kiwi lifestyle aspirations.

    To me this would mean a three-to-four storey building where each floor is a family home, except with 4 bedrooms instead of 3 to make up for lack of roof/basement storage, and a deck so huge that it could act as a private garden. I would call this type of building a “jengalow”, i.e. a stacked bungalow.

    To me this doesn’t sound like that big of a construction challenge for a capable architect or developer. So why hasn’t someone done it yet? I suspect it’s because developers want a guaranteed profit, and subdivide/ terraced/ apartment has a successful track record already. So it’s more about risk avoidance than anything else.

    Putting a house on a half section in Mt Wellington might sell for $500-600k these days. Build a jengalow and you would probably be able to sell three or four properties for say $350-450k each – ka-ching!

    Go on somebody, have a punt, and cut through the debates in the process!

    • Short answer is that Ak is oversupplied already with 3/4 bedroom houses, some, if you go out far enough are even at that pricepoint. Also 3/4 bedroomers are also the end of the market most attached to the back lawn…. It’s the singles and couple no kids that are under catered for now and into the future….

      Anyway if you think you’ve found a gap in the market…? Ka-ching

    • Sailor Boy

      I like the portmenteau ‘jengalow’ I like the idea too, probably do it terraced rather than vertical face though to all ow some light on each deck. I would love to raise a first and possibly even second child in such a home

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