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Apartments and Housing Affordability

Below is a schematic of current apartment development in a small area of Melbourne just north of the City Centre, next to the Victorian Markets. These are pretty tall; one already under construction is 88 stories.

North Melbourne development

And here is a blog post from our Melbourne friends OhYesMelbourne on another City Centre adjacent development site; Docklands. And I thought Auckland is experiencing a building boom. Well it is, and this growth is impressive, but of course Auckland is a small city by global standards, and the current boom is well in proportion. Across the world it looks like we are in a phase that is concentrating development pressure in primary cities.  So while urbanisation is widespread it seems to be especially concentrated in the cities that dominate their regions, like the Australian State capitals and Auckland in the South Pacific. It’s not just in the new world either; that classic primary city; London, is building up at a new rate too.

Aside from issues of about the balance of this growth from a nationwide perspective or architectural style [blingy is the term that springs to my mind], what is the likely impact of this kind of additional dwelling supply coming onto the market in these cities? Currently Melbourne is getting about 1500 new residents a week [1838 per week last calendar year, in fact]; which at current household sizes means there is fresh demand for about 500-1000 new residences each and every week; pretty hard work to satisfy that demand you’d think?

Well think again; the boffins at the Reserve Bank of Australia are worried about oversupply according to this report from Business Insider. Here’s the recent apartment supply growth:

Australia-resi-high-rise-approvals

So while the RBA couches this situation as a warning to financial stability, or at least risk to property developers loosing their shirts in a saturated market, isn’t this exactly the sort of quantity of new supply that overheating urban property markets need, like Auckland?

Price growth is already slowing for inner city apartments in Melbourne and Brisbane, and there are signs that activity in the Sydney property market is beginning to slow after two years of breakneck activity. Supply and demand in all three regions appears to be nearing equilibrium, with significant more supply scheduled to come. It’s clear that downside risks to prices are building.

Australia-inner-city-price-growth-and-rents

It seems there is a lesson from the cities across the Tasman that supply/demand equilibrium in cities can be achieved most effectively by building up, although at the risk of supply overshoot. But then isn’t that always the case in any attempt to rebalance a market? So what are the barriers to this sort of solution occurring in Auckland? Is it even possible? One problem is inner city land supply, is there that much available space? Melbourne certainly has a lot of city proximate available land. Auckland is likely to need this sort of growth to also occur in metropolitan centres as well as the Central City simply from a space perspective; given how tightly bound our City centre is. But in that case we will also need to complete the Rapid Transit Network in a timely fashion to make that model function properly. But then we have to do this however we grow; or we are just planning traffic gridlock.

Then there are our planning regulations, especially height restrictions and view shafts, limiting spatial efficiency, and Minimum Parking Regulations adding unnecessary cost to construction [as well as feeding traffic congestion]. I’m sure some will argue that Aucklanders won’t live in apartments, but recent growth in inner city living shows that we have yet to find the limit of those happy to make that choice. It seems likely that out of 1.5+ million there still more willing to live this way, especially as the quality of city amenities and distractions improve [especially public transport, the cycling and pedestrian realm, street quality and waterfront spaces]:

City Centre Population - 1996-2015 2

And this is even more likely to be the case if new supply is sufficiently scaled to affect property price growth; then these dwellings will become even more attractive; more affordable as well as proximate. Perhaps, if the RBA’s handwringing is prescient, at the cost of one or two over-ambitious property developers’ businesses…?

Auckland Dwelling Consents

Is it happening already? Certainly all the growth in dwelling supply in the last couple of years has been in attached structures: Stand alone houses used to completely dominate Auckland’s housing supply; at three-quarters of the market four years ago to around half now.

The evidence from these nearby cities suggests that ‘up’ may well be a more immediately effective solution to rampant dwelling inflation in Auckland than distant, hard to service, and slow to deliver detached houses out on the periphery. Certainly in as much as it is a supply-side issue.

62 comments to Apartments and Housing Affordability

  • Stu Donovan

    One suspects the apartment and townhouse boom is only just beginning.

    And given the population growth Auckland is experiencing I have to wonder if the Unitary Plan goes far enough to relaxing development constraints? Given that property values have spiked without a commensurate pick-up in construction the tentative conclusion is “probably not”.

    Or what do others think?

  • Jay D S

    Everyone keeps talking about Auckland being constrain by its Geography. That Auckland doesn’t have much space to build on.
    So why cant we just built big, build tall apartments of townhouse that is not single or two stories high. Build something that will fit more people in small amount of land area.
    This will help preserve land area, and avoid Auckland sprawling all the way to Hamilton.

    • Well I think it’s actually vital that we get more efficient with land use for so many reasons. This from today’s Herald:

      The area of Auckland land being farmed is 25 per cent less than just over a decade ago, likely because more is being used for housing.

      Around 14.1 million hectares (ha) were farmed in this country in 2014, down from 15.6 million ha in 2002, according to Ministry of Business Innovation and Employment data.

      Across New Zealand, that’s a reduction of 9.3 per cent.

      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11543192

      Now that the old myth of the 1/4 acre is firmly dead, ie there isn’t a market barrier to more urban dwelling typologies isn’t it time we properly and unemotionally addressed the regulatory ones? For the sake of the countryside, the planet, debt levels and choice.

      • Ricardo

        So my question is where does this all stop? Or do we build bigger, taller, higher etc forever? Or will there be a decision in the future that x population is big enough? I do not have the answer but as NZ is an attractive country this could go on forever until the values and attractive qualities are destroyed by immigration? All of China or any new wealth country for example could not all fit here. Just asking.

        • The idea that immigration (as opposed, for example, to endogenous overpopulation) will “destroy” what is good about New Zealand is quite an offensive one, to me. Especially from descendants of people who came here from overpopulated Europe in the 19th century. Population growth if properly managed – with proper housing and civic planning – could make things better for everyone while preserving our natural environment.

        • 2/3 of population growth comes from New Zealanders having babies. You could shut the door on all immigration tomorrow and it would only slow growth by 1/3rd.

          Don’t want more people? Don’t have any children! If that is acceptable for you, or for you to expect of others, then you might have an angle…

      • Angus Robertson

        The farmland subsumed was converted to lifestyle blocks (average size 12 acres), not 1/4 acre sections. If we had allowed 1/4 acre sections to be made we would have accommodated the same number of dwellings on as little as 1/50th of the area.

        Isn’t it time we properly and unemotionally addressed the regulatory constraints? For the sake of the countryside, the planet, debt levels and choice.

        • Of course it is, you are right. But it appears many NIMBYs in Auckland are not ready for that grown up conversation around density restrictions.

          And until density restrictions are removed, the MUL can’t be removed – otherwise you are just distorting the market in favour of unfettered sprawl. You are actually taking choice away so that only low density housing far away from jobs will be available.

          • Angus Robertson

            Yes, to remove either the density restriction or the MUL requires the removal of the other.

            Retain the density restrictions alone and you are correct, unfettered development over a vast area driven by price distortion.

            Retain the MUL alone and we will prevent low value housing away from jobs from ever being built – the non-employed people who would occupy these houses are faced with a choice of either staying where they are (causing upward price distortion) or moving far away (causing social distortion).

  • Myles

    Is there any more open space planned in the UP to compensate for the extra population groing up in apartments? No. We seem to be intent on breeding generations of nerds. Where would Dan Carter be without his backyard when he was a boy?

    • I certainly enjoyed the RWC but I don’t think we should attempt to distort our entire economy with that argument. Especially as Carter grew up on a farm didn’t he?, and [see above] cities growing up not out are the best way to maintain more rural land and living. Otherwise it’s just oceans of countryside-ruining suburbia which do not these days come with back yards where you could put up a set of posts. Auckland produces All Blacks and will continue to do so. A keen sporty kid will join a club. My neighbours kids are sport mad; they don’t do it at home.

    • I played Rugby for 25 years and I love the game. But NZ is changing and we need to accept that. Dan Carter grew up in Southbridge and Christchurch – places that are much smaller than Auckland and much more rural and rugby mad. But his children will grow up in Auckland and I doubt very much if they will have the same interests as him. Does Dan Carter care? I know I don’t and I also grew up in Chch and my kids will probably grow up in Auckland.

      So what if kids grow up to be nerds? Who are you or I to judge? Why should things stay the same? Why do our kids have to do the same things we did?

      If kids nowadays want to play football or hockey then fine. If they are more interested in computers and online stuff then fine as well. We should encourage kids to get out and play sport but many don’t want to. I hope my kids play sport but if not then so be it.

      Plenty of people hate sport because they were forced into it as a kid and also bullied by those who were good at it. Not everyone wants to fit into some cookie cutter idea of what a NZer is, especially not in the big cities.

    • Jay D S

      Not everyone needs a backyard to become the best rugby player. Your argument is just flawed.If you really want it, you will work for it. Nothing to do with having a backyard. And that is why we have parks and fields for. Its larger and spacious than a backyard.

      • fab

        I grew up in an apartment like my cohort – and we’re doing just fine. Myles however has a point in that we cannot expect kids to grow up in apartments if we do not provide some outdoor space for them to play- if we are going to have more people living in the inner city, including families, we have to plan for and provide amenities.
        In European cities where most people live in apartments, there are kids playgrounds everywhere. If we are to have families embracing inner-city apartment living, we need to ensure that we plan for these future needs: playgrounds, primary and secondary schools…

        • “In European cities” – Although I know what you are saying, let’s be careful with what “Europe” is. Many Eastern European cities were developed with very little park space. Bucharest has the least green space per capita in all of Europe – it is a grey concrete mess.

          But in saying that, many of the big housing estates in Prague and other Czech cities have football fields between the towers and parks and forests nearby. Maybe that is why the Czechs do so well in sport for their population.

    • In soccer, Brazil used to be the best, and the archetypical image explaining how that country got so many good players was always the kids playing soccer on the street in their neighbourhood, and not in their backyard.

    • Brutus Iscariot

      I don’t know, maybe a world leading scientist or engineer?

      The meathead WO influx continues.

    • Peter Nunns

      I grew up in a house on a big section next to the edge of a regional park. (Actually, several such houses.) Loved the wilderness out the back door, hated the suburb down the hill. Now I’m happily living in an apartment. I don’t play rugby.

  • JimboJones

    “given how tightly bound our City centre is”: is there any good reason not to build over the motorways? Some kind of agreement where the ‘land’ use is free to developers as long as they also supply paths, parks, ventilation, etc? Is the build cost prohibitive?

  • Ain’t gonna be no backyard Dan Carters in Sprawl land, like any apartment dwelling sporty kids they’re all going to have to go to a park. Here’s Flatbush:

    Meet the Carters:

    http://www.stuff.co.nz/the-press/news/3252171/Goalpost-setting-of-a-different-sort

    • Yes Southbridge is far from a suburb. It is a very small country town. More comparable to Pokeno or Waiuku.

    • Sailor boy

      Somewhat ironically, if all of those houses were terraced or even duplexed they would have quite large outdoor areas

      • Frank McRae

        Or if you arranged the exact same number of dwellings in that picture into apartment blocks there would be tonnes of open space for kicking rugby balls.

    • john smith

      I scratch my head at the dysfunctionality and waste of this sort of landscape. The worst of both worlds: all the disadvantages of low density, car dependent sprawl *and* no useful private back yard. From the point of view of encouraging kids’ sports etc, you would be better off in an apartment as long as there is *useful* communal open space within walking distance – something that is more likely to be possible with apartment-style density.

      Note how, while staying within the general aesthetic of low density separate houses, they have upped the density a little by eliminating the useful backyard alone. All the land wasted on stupidly wide streets and setbacks is still there. A c1880 terrace in Newtown, Sydney (sorry, don’t know how to link to google maps) probably has double the density *and* more useful private space (similarly with the suburban street in Japan that was discussed here a few months ago – can’t find the post). (tbc)

    • john smith

      …What this landscape seems to say is, ‘people value the superficial street appearance of traditional low density suburbia more than they value smart use of their own land.’ Is this really what the market wants? Or it is just spec builders doing what they have always done because people are dumb enough to accept it? If developers built terraces or townhouses in Flatbush, abandoning the appearance of low density in return for having useful back yards, how would they sell compared with the houses shown? I really want to know.

      • Easy answer. It’s illegal to build terraced houses.

        Slightly more complicated conjecture: The zoning has been very carefully designed to shut out people who want to build their own house, and to ensure that only developers can build new housing. A developer may have different incentives (maximising profit) than the future resident (make it a nice place to live) of a house.

        And talking about dysfunctional: note how in a lot of sections the driveway takes up more space than the backyard.

        • Of course. In NZ cars are more important than children. It is obvious from the way public space (and yes a road is a public space) is allocated.

          • Scott M

            It is not “illegal” to build a traditional terrace house. It is just that developers are greedy and planning regulations are weak.

          • Sailor Boy

            No, it’s not illegal, it’s just far harder to get approval hence why greedy developers don’t build the far more profitable attached typologies. It’s called market distortion.

  • sausagechops

    more residential development doesn’t reduce the amount of other existing things, and many of those other existing things are significantly underutilized at present (ie parks). More people using those same parks does not preclude others from doing so.

    Given the constraints on land in the built up area of Auckland, the low usage and quality of many parks and reserves suggests that maintain a constant m2 of ‘parks’ per person is an unviable proposition. A focus on improving quality (and thereby encouraging use and responding to potential increased demand from people who want to do back yard things who have chosen to trade off having one associated with their dwelling) would be a more reasonable approach.

    Slippery slope follows: are you saying we should regulate to ensure all dwellings have sufficient backward area to contain rugby posts, a 22 and a dead ball area to ensure sufficient supply of classy fly halves?

    Cause thats equally as daft as requiring all dwellings to have a dedicated high speed server room for LAN parties to ensure more nerds.

    • well said, and additionally apartments make proximity to parks for more people more possible, as they do proximity to everything else. Low rise horizontal spread pushes all amenities further apart.

      • Even when definitely building houses, one could still wonder what’s the most desirable:

        • 100 houses on a 500m² section each.
        • 100 houses on a 250m² section each, and a 25,000m² park.

        Both take up the same amount of land.

        And if you want a backyard and can live with terraced housing, then on a 250m² section you’ll have a larger backyard than most of the houses in that picture.

        • +1000

          No doubt that park would be better used than any of the 500sqm sections. Plus a much greater sense of community as all the children and parents get to know each other.

          Who knows, the children might even be able to walk or cycle down to the park alone (if there are decent offroad paths). *gasps from the audience*

        • mfwic

          If you set the limit at 250sqm then they will build 200 houses at 250sqm. I am not saying that is a bad thing just that land gets valued at its best use. The best use follows the zoning. So then developer buys the land at a price where s/he has to develop at the minimum density with the maximum yield.

          • Sailor Boy

            *maximum density at the maximum yield.

            Which is a good thing as we already have a lot of housing at lower densities.

    • Peter Nunns

      Fully agreed. Public parks are usually non-rival – i.e. one more person enjoying them doesn’t detract from the enjoyment of others. At least, that seems to be true within the range of usage observed in Auckland.

      I look forward to the day when there are a few more people around to use the little pocket parks in my neighbourhood – many of them go sadly unused most of the time.

      • In Bayswater, within 1km of my house there are 3 playgrounds. One of them I have yet to see a child playing in (other than mine) and another is seldom used. And that is not including the huge school playground that is only 300m away. You do see the odd family there.

        And yet the NIMBYs in this area are opposing Ngati Whatua’s intensive development of the former Navy land in Plymouth Crescent as they say there is a lack of green space: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11542554

        Even with three times the number of people in the area, those playgrounds would not be full.

        • john smith

          Same scenario plays out in Canberra. I suspect ‘not enough green space to support increased population’ is often just a reflexive answer from people who don’t want change.

          With green space, it’s all about what, where and detailed design. A quarter acre park every 200 metres? Good for getting out of the apartment and letting small kids run around; too small for ball games. A 2-acre park every 500 metres? But of course then we have to design the whole neighbourhood so that kids can get to it safely (are you listening, traffic engineers?). A community vegie garden? What is the best balance? Focussing on ‘x square metres per person’ as an urban average is far too simplistic and likely to lead to proliferation of unattractive, little used open space as authorities and developers try to meet the performance measure in the laziest way without working through the details.

  • Myles

    No answer to why the UP or AC planning for more open space ? The only decent park on the whole Auckland, crowded every fine day, is Cornwall Park – and that is controlled & maintained by a Trust.

    Look at London’s magnificent park’s & of course its satellite towns connected by rail so that families don’t have generate nerd children. Our satellite towns are connected by gridlocked motorways. .

    • Neil

      Why doesn’t the Domain achieve “decent park” status?

    • And yet England were knocked out in pool play in their own RWC and haven’t won a football world cup since 1966.

      I can’t believe you think Cornwall Park is the only decent park in Auckland – you must be trolling. It is useless for learning Rugby by the way. Victoria Park would be much better as it is actually a Rugby (league) ground.

    • Peter Nunns

      “nerd children”

      This is my mental image of you: https://www.youtube.com/watch?v=gZEdDMQZaCU

    • James B

      What do you have against nerds anyway? We program your computers, put rockets into space, and keep bridges from falling down. I like rugby as much as the next bloke (unless the next bloke is Richie McCaw) but in the event of the apocalypse I’d rather stuff a bunker with engineers and scientists than professional sports people.

    • Sailor boy

      If you’d never been to Albert Or Victoria Parks or the domain then you probably wouldn’t think that they are in fact well used everyday late into the night

    • sausagechops

      Do you mean other than in new greenfields areas where provision of new public open space for the new developments is a very significant cost to Council/opportunity cost for other uses/land user/additional and everlasting operational costs?

      Because in brownfield areas where the land is already fully allocated to other uses, the only way to provide ‘more’ land for parks (even if this was a logical response) is to take it from other uses/users – alternately and more realistically we can use what there is already ‘better’ (eg parks use must intensify along with the other uses around it – for most parks this is not a bad thing)

      To further utilize a slippery slope to make my point – whats your address? Because that’s where the new park is going. (is actually needed for an intergalactic bypass, but saying its for ‘parks’ sounds better)

  • JimboJones

    “although at the risk of supply overshoot” – you mean the risk of prices going back to an affordable level and a few greedy investors and unlucky first home buyers losing some money?

    • Sailor boy

      I read it as “despite the risk of the market working “

      • Exactly. Remember these institutions like the Reserve Bank tend to come across as full time bedwetters; they spend all day scanning the horizon for zombies approaching the economy. Or at least that may be the only way their statements get reported: Panic! sells papers.

        Anyway a Supply/demand equilibrium is probably a Glodilockian impossibility; the market will surely always either be heading to over or under supply… so yes markets operating as it says on the packet.

        • mfwic

          Macroeconomists call it jawboning. It doesn’t work and it shouldn’t work but central bankers all do it anyway because they are public servants working in the full view of the public and they feel a strong need to appear to be doing something even when doing anything would probably make the situation worse. Think of them like a caveman with a monetary policy club. They have three choices: hit the economy with the club, not hit the economy with the club, or wave the club around and make a lot of noise.

    • Frank McRae

      I was about to make the same point. Talking of “oversupply’ makes no sense in this context except from the point of view of speculators and landlords losing or making less money. From the point of view of someone looking for somewhere to live “oversupply” can only be a good thing.

      Sure there are genuine cases of oversupply like the ghost towns built on the outskirts of Madrid or in rural Ireland but I can hardly see there being empty apartment blocks in the centre of Melbourne.

      • Scott M

        These are the same geniuses whose own banking rules encouraged retail banks to loan on housing and now its a problem… the Reserve Bank have had a heavy hand in this.

  • Angus Robertson

    Then there are our planning regulations, especially height restrictions and view shafts, limiting spatial efficiency, and Minimum Parking Regulations adding unnecessary cost to construction [as well as feeding traffic congestion].

    You forgot the big one: historical heritage. The first settled, most central, most valuable areas are the areas that need intensification.

    The evidence from these nearby cities suggests that ‘up’ may well be a more immediately effective solution to rampant dwelling inflation in Auckland than distant, hard to service, and slow to deliver detached houses out on the periphery.

    It may be, it may not be. We should remove the idiotic rules we have restricting development of both up & out. Then we can see what happens without any guesswork and we’d experience a building boom.

    • JimboJones

      Completely agree – let the market decide whether up or out is more economic / more desirable / etc.
      I do think the cost of infrastructure needs to be considered however (e.g. appropriate development levies and/or targeted rates) – unfair to disproportionately subsidise one over the other.

    • sausagechops

      oh there would still be a lot of guesswork under that scenario.

      I presume you would still support some ‘regulation’ including the provision of reticulated services, parks, roads and schools etc for these new residences.

      Provisioning this brave new world with these things in all the possible locations where the market might like to go, in advance of it doing so while also having these very expensive things last around 100 years or so would be quite the trick, especially on the same (or less) budget at present.

      • Angus Robertson

        That is “guesswork” that all the Australian cities seem to be able to cope with. Perhaps Auckland could cope as well.

        And it wouldn’t be on the same budget as current, it would be on a higher budget. If we opened up development and someone wanted to develop an apartment block in Ponsonby or a suburb in Clevedon Valley, they would be paying money to do so. We would be attracting investment in Auckland that builds stuff, rather than more investment in Auckland that services debt for foreign bankers.

    • Yes! Kill the historical heritage! That’s what’s ruining everything… Drone drone drone…

  • John L

    Asian cash buyers and property developers.
    Developing corporations are lifting the building restrictions and regulations while we speak, for building heaps of apartments for the not so “smart” city.
    Its all debt to foreign banksters.

    • Mary M

      This comment has been deleted for posting a link to a comment thread full of racist slurs targeted at Asian and Jewish people.

      This behaviour is very strongly discouraged by our user guidelines. If you want to have a discussion about the impact of foreign investment and banking practices on Australasian property markets, that’s perfectly fine. But you will have to do it politely and without bringing your bigotry into the mix.

    • Whereas low density exurban developments are built by charitable organisations and NGOs?

  • Evan James

    Question on Million Hot Seat tonight – what percentage of the Australian population lives in the capital cities of the various states – answer 66 percent. The contestant missed out on $10,000 because she guessed it at 77 percent.

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