Disclaimer: I own an apartment in Auckland, which generates excessive rents that inn turn help fund a lavish overseas lifestyle. My pecuniary interest in maintaining policies that reduce the supply of apartments in Auckland has not influenced this post in any way.
This post from a few months ago explained how apartments (even expensive ones!) can improve housing affordability. The same is true for housing generally: Provided that developments make a net positive contribution to the housing stock, then houses will become more affordable. So new housing is generally a good thing, and should be viewed as such. Despite the efforts of the anti-housing brigade, such as Bernard Orsman at the Herald and Auckland2040, we seem to be moving towards consensus on many issues. It was encouraging, for example, to see Phil Twyford and Oliver Hartwich collaborate on this recent article about housing in Auckland.
In this post I want to focus on the relationship between apartments and affordability. The reason I focus on apartments is because I consider them to be the *only* viable solution to Auckland’s housing issues. Why? It’s a numbers game. No other housing typology appears to have the ability to scale up to meet the demand for new dwellings in Auckland, especially in central areas. The figure below illustrates trends in consents for different housing typologies in Auckland.
To illustrate my point, I think is instructive to consider the example of Hobsonville Point. This often-touted greenfields development has been 10 years in the baking and will ultimately deliver 3,000 new dwellings. That’s all good, and the development itself has many commendable attributes. But what impact does Hobsonville Point have on the wider housing market in Auckland? As it turns out, not much.
While we’re currently consenting about 8,000 new dwellings per annum, most commentators believe Auckland needs to average 12,000 – 20,000 new dwellings per annum. This means we need to increase the number of dwelling consents by around 50% from the current level, or 4,000 dwellings per annum. If we are to achieve this increase by building detached dwellings, then we would need an extra 1-2 “Hobsonville Point scale” greenfield developments ready every year.
It’s difficult to see how this could be achieved, for the simple reason that detached dwellings are resource intensive. Not only in terms of the land they require, but also the materials and labour involved in their construction. Even at present levels of activity, Auckland’s construction industry is approaching short-term capacity, most notably in terms of skilled labour. Meanwhile the infrastructure required to support an additional 2 Hobsonville Point developments per annum would likely stretch the public sector. And investment in public infrastructure would of course compete for resources with private sector construction, adding inflation fuel to the construction/housing cost fire.
If you’re interested in these issues more generally, then I’d suggest reading this report by Auckland Council’s Chief Economist, Chris Parker. It’s worth the effort …
Let’s now consider trends in Auckland’s apartment market. The previous figure illustrates how attached dwellings constitute approximately 40% of new dwelling consents. However, as discussed in this post on Australia’s apartment boom, 40% is relatively low compared to cities Sydney, Melbourne, and Brisbane, where attached dwellings represent more than 55% of new consents. And compared to what Auckland achieved in the recent past, 40% is definitely on the low side, as shown in the graph below.
What caused the big drop-off in apartment consents in Auckland circa 2005? This article from June 2005 provides some hints (emphasis added):
The Auckland City Council is continuing its attack on sub-standard apartments with the introduction of new design controls that spell the end for “shoe-box” sized dwellings. The new controls stipulate a minimum studio apartment size as well measures to improve poor ventilation and sound-proofing. Cheek-by-jowl apartments and ugly concrete towers also will be banned. The moves are the second council initiative aimed at improving the standard of Auckland apartments, following its earlier decision to score all new buildings on their design merits and to reject developments that do not come up to standard and fast track those that do. Deputy Mayor Dr Bruce Hucker said the latest moves “sounded the death knell of the pokey apartment, ugly building era”.
The above quote is instructive for planners and policy-makers everywhere: The last comment by Dr Hucker (who was both a planner and a councillor) suggest that “pokey” apartments and “ugly” buildings go hand-in-hand.
Is the external appearance of a building defined by its internal configuration? No, obviously not. There are many examples of fine-looking building which house small apartments, and vice versa. This statement conflates two rather distinct issues, namely 1) the external appearance of apartment buildings and 2) the internal configuration of apartments. Nonetheless, Auckland City Council’s “attack” on apartments was “successful” at achieving its objective: The number of consents for new apartments in Auckland dropped off rapidly following the drafting and adoption of these policy changes circa 2005.
Fast forward 10 years and Auckland is now experiencing a positive demand shock caused by strong net migration, which in turn has seen prices rise rapidly. Unfortunately, our apartment market is less able to respond to this demand shock. I appreciate that it is all very easy to criticize policy decisions with the benefit of hindsight. The main point, however, is to observe that policies were implemented which made it harder to develop apartments in Auckland. These policies do appear to have reduced the supply of new apartments, and Auckland now lags behind comparable Australian cities in terms of rates of apartment development.
In a city that is experiencing considerable growth and house price pressures, I think this is undesirable. That’s all there is to it.
Given this recent historical experience, one might think Auckland Council would now be looking to enable more apartment development. Unfortunately, planning policies in Auckland remain somewhat hostile to apartment development. Consider the following figure, which shows the proportion of land assigned to different zones under the proposed Unitary Plan, as well as the Preliminary Position ultimately adopted by Council (NB: The latter made a slight shift towards enabling more intensive development).
The preliminary position would zone only 6% of Auckland’s urban land for “Terrace Housing and Apartment Buildings”, while another 17% is zoned as “Mixed Housing Urban”. Put another way, more than 75% of Auckland is zoned as being off-limits to apartments. I’m interested to know if anyone has data for other cities.
Zoning is of course not the only regulatory barrier to apartment development. There are a number of regulations which apply to the apartments that are constructed, including minimum apartment sizes, minimum balcony requirements, and minimum car-park requirements. The general effect of these regulations is to increase the cost of apartments. While estimates of the costs of these regulations vary between study, but the general range is illustrated in the figure below (NB: Ignore the Demographia numbers; their analysis is bollocks).
In percentage terms, these additional costs will have the largest impact on the cost of small apartments. That is, not only have apartments become more expensive generally (and hence we have less of them), but low-cost apartments are likely to have become proportionally more expensive. Research by the Productivity Commission shows that Auckland’s house price distribution has indeed shifted up in the last two decades or so, i.e. there’s a lack of affordable houses in the Auckland region, as illustrated below.
At this point I hope all of you are screaming “eeek”: Our housing policies appear to be screwing over the people who can least afford it. I don’t think it’s too much of a stretch to suggest that the escalating costs for low-cost housing in Auckland has contributed to worsening child poverty statistics. Yup, it’s that serious. Regulations like minimum apartment sizes and minimum balcony sizes are that serious.
What do you think? Is it reasonable for more than three-quarters of Auckland’s metropolitan land area to be zoned off-limits to apartments? Is it reasonable to impose regulations that increase the cost of small apartments by around 50-100%? When these costs are being borne by the households which can least afford it? When the purpose and benefits of these regulations don’t seem to be well-understood by the people who advocate for their adoption?
It all seems a bit naff to me.