I wrote in December that “2016 has been a big year for development” – now that we’re a little bit past the end of the year, it’s actually possible to see how big it was. Still, as the cheese ads say, good things take time. It will take many more years to fix Auckland’s housing challenges.
I keep a close eye on the number of new homes given ‘building consent’ each year. It’s a good sign of what’s coming up ahead. The figures have been rising, but certainly not as quickly as they were a couple of years back. In total, Auckland consented 9,930 new homes in 2016, up from 9,251 in 2015 and 7,632 in 2014.
Consents are fine, but it’s a lot harder to get information on how many homes are completed. There isn’t an ‘official’ measure. Auckland Council is now collecting this info, based on homes which have received a final building inspection or obtained a Code Compliance Certificate, and they say 7,920 homes were completed in the 12 months to September 2016.
Auckland grew by 40,000-45,000 people in 2016, according to Stats NZ, so that’s 13,000-15,000 homes we need each year just to keep pace with the growth. To say nothing of the undersupply that’s built up since 2008…
The RCG Development Tracker has had a tidy-up this month – I’ve removed a lot of ‘inactive’ special housing areas, ones where nothing much was happening and no homes were being built. The SHA programme is now almost over, and isn’t really needed with the Unitary Plan now in effect. The Unitary Plan allows a lot more homes to be built right across Auckland, so there will be a lot more yellow dots to come.
It’s not just tidy-ups, of course – more projects get added every month. This month, for example, we’ve had the airport confirm plans for a new Pullman hotel, and there’s also the ‘Newmarket Apartments’ which are just starting to be marketed.
Based on the Tracker, there were 1,982 terraces and apartments completed in 2016. That’s a decent chunk of the total 5,129 completed since 2012. These new homes are all over the city, in developments large and small. Here are some of the big ones:
|Unilodge on Whitaker
|Carlaw Park Student Village (stage 2)
|Hobson Fiore II
|Ormiston Town Centre (stage 1 terraces)
|Pinnacle Apartments (Auckland)
|Berechiah Gardens (stage 1)
|The Pines (Browns Bay)
Out of those, Unilodge on Whitaker and Carlaw Park are both student complexes. Carlaw Park has sizeable apartments, designed for 2-4 students. Unilodge is your classic ‘hall of residence’ – each of those 300 units is a small studio, designed for a single occupant. The other nine developments (and most of the others finished in 2016) are complete homes, and arguably do more to make a dent in the housing undersupply.
On the whole, the construction sector is still going flat tack – especially in Auckland. As per the Construction Crunch post, which I’ll update soon, the sector is still growing, and at record levels – but it’s going to get harder (and more expensive) to keep growing it.
Things in Canterbury are starting to wind down. The earthquake rebuild is still going, and will continue for years to come, but the rate of construction is tapering off. A lot of the major projects in the CBD are either complete, or almost complete – so 2017 could be a really good time to visit the city.
As for housing consents in Greater Christchurch, they’ve definitely been falling – although they’re still above pre-quake levels. Some of these builders are likely to make the move north to Auckland, and they’ll be very welcome, as long as they don’t go on and on about the rugby.
Over in Australia, it looks like the housing boom there could be unwinding. Bob Dey writes that “The Housing Industry Association of Australia is forecasting a slump in housebuilding over the next 3 years”. We could really use some of those Aussie builders over here, and they’ll be very welcome, as long as they don’t go on and on about the cricket.
2017 will be the Year of the Terrace.
Not these terraces. RIP. Image source: Te Ara
Terraced homes, built in rows: neighbours on either side, but not or above or below. They’re relatively cheap to build, and they’re within the reach of many small/ medium-sized building firms, ones which have traditionally concentrated on detached houses.
Of course, Auckland is building many kinds of housing – from detached McMansions right through to compact apartments. But terraces are a nice middle ground for many people, and this year they’ll be built in all corners of Auckland, and in many of the more central parts as well.
Which corners? For starters, Orewa, Silverdale, Whangaparaoa, Long Bay, Albany, Hobsonville, Massey, Sunnyvale, New Lynn, Mt Wellington, Flat Bush, Mangere Bridge, Takanini, and Papakura. As a rough guide, terraces will get built anywhere in the city where they’re allowed, and where the land values aren’t too high.
In high land value areas, people will probably hold off and try to build apartments instead. This may be a bit of a waiting game depending on the area. The high value areas include the central suburbs, much of the North Shore, etc. Many of these suburbs have already had their share of ‘intensification’, with sausage flats and back sections subdivided over the last 50 years or so. In these areas, it’s only apartments which will give a big enough leap in value for them to get further intensified.
Many of those apartments will be low-rise, maybe 2-3 storeys. They’re not much more complicated than terraces, so a lot of builders could start to look at them as well – and the Unitary Plan gives more flexibility around where they can be built. 2018 could be their year, but terraces have had a head start.
The RCG Development Tracker shows hundreds of apartment and terrace projects across Auckland. Big ones and small ones, private and public, and many Special Housing Areas. Enough to house many thousands of Aucklanders, if we could just get them all built.
So let’s check out the growth trend for terraces:
In Auckland, we’re now at near-record levels for terrace consents. Over 2,000 homes per year being approved, with a strong upward trend. Contrast that to apartments – which hit 2,000 a year but have eased back – and retirement village units, which have also eased back.
All of these “attached” dwellings combined add up to 4,443 homes approved in the last year, still less than the 5,694 detached houses approved. I’ve previously claimed that 2017 will be the first time Auckland approves more “attached” homes than detached ones – that prediction will succeed or fail based on how terraces do this year.
Here’s the other graph that makes terraces a winner in 2017:
The average house now costs almost $450,000 to build (just the construction cost, not any of the other costs. Tell that to the next person who mentions Demographia). Most of the homes we build in NZ are detached houses: over the last 25 years costs have tended to increase smoothly, although there’s a sharper trend at the moment with builders under pressure.
There aren’t that many apartments built, so the line is a lot jerkier based on individual developments having an influence. Very few were consented from at least 2008-2013, so don’t pay too much attention to that part of the graph. The real kicker, though, is the huge cost increase in the last year or so: the average apartment now costs more to build than the average new house!
I put this down to the small number of builders who can handle apartment construction – mainly big commercial firms, most of who are very busy, not just with apartments but with offices, the Christchurch rebuild and all the rest. If any Australian builders are reading this, they’ll be looking at the graph and wondering how soon they can set up an office in Auckland. Hopefully some are, we desperately need the competition. Apartments should be much cheaper to build than they are at the moment.
Retirement villages are in the same boat, and up to almost $400,000 per unit. Of course, most of these units are apartments – Auckland’s retirement villages have started to build upwards in a big way.
Terraces have had a much smoother cost curve, like houses. They’ve avoided the huge cost inflation of apartments in the last year, and the average terrace now costs about $230,000 to build.
There’s a lot of other costs that go into new homes besides just the construction – but at the moment, terraces have a big cost advantage. Add that to the fact they use a lot less land, and you can see why developers all over Auckland are trying to get into terraces.
2016 has been a big year for development, and by “development” I mean the process of getting new homes built, or any other new buildings for that matter.
In the last “development update” post for the year, I wanted to look back at some of the highlights which you might have missed. You can click through to these at the bottom of the RCG Development Tracker page.
- January focused on retail. “Up until 2007, the retail sector was on a roll, and new shopping centres were being built all over the place. That changed when the recession hit in 2008 [but] 2015-2016 sees the biggest expansion since the GFC”.
- In March, I covered some research I did with RCG, and some other housing stuff. “In the long term [attached homes will] make up at least 50% of the new homes we build”. I’ve picked that in 2017, we’ll consent more of those than detached houses. Will we get there? Hard to say at this point.
- June was all about housing. I looked at the pipeline for ‘attached dwellings’, which I’ll update in the new year.
- July compared construction trends for Auckland and Christchurch
- August focused on Stonefields, a 2,500-home development. “Looking at Stonefields today, you could be fooled into thinking it’s almost finished, but the reality is it’s not even halfway”.
- September covered office development across Auckland (most of it is in the city centre)
- November looked at some of the housing projects which haven’t gone ahead, for various reasons.
Tracking housing and other projects
The RCG Development Tracker has an interactive map, now showing 827 projects across the country, including every brownfields Special Housing Area, big growth nodes like Hobsonville Point and Stonefields, plus billions of dollars’ worth of retail, office and accommodation developments.
It also shows Auckland’s Rapid Transit Network – the trains, the Northern Busway, plus some new links which will be built in the next few years such as the City Rail Link (now thankfully underway) and AMETI busway (which continues to languish). The Northwestern busway isn’t on there, as it’s even further away and doesn’t have any funding yet.*
In Auckland, we’re building some of everything. Shopping centres, offices, industrial buildings; hotels and other accommodation; and of course homes of all types and sizes. Apartments, terraces, retirement villages, and “traditional” detached houses (more on those later). Just about everything is booming. This year I’ve written on the tourism boom, migration boom, international education boom and construction crunch (which is really a boom as well).
So those are all positive, I guess, but there are issues that come with them. The big issue being a shortage of housing, with real effects on people’s quality of life. Other issues being high construction costs, and what looks like low wage/ productivity/ real income growth (so we’re not that much better off on a ‘per capita’ basis). Plus, there are some wobbles starting to emerge: house prices flattening or starting to fall, and signs of real problems in the international education industry.
How many homes are we really building?
Most months, I put together a graph showing the number of building consents for new homes. This is a good indicator of how many homes are going to be built. By the time a development gets its building consent approved, it already has planning approvals, and the design is pretty much complete. The developer has 12 months to start building (otherwise the consent expires), and almost all consents do eventually turn into homes.
Here’s the latest consents data, which shows that 9,800 new homes were consented in the 12 months to October 2016:
There’s obviously a lag between building consents being approved and the home being completed. Historically, the average lag is about six months, but this lag is getting much longer. Only 7,700 homes were completed in the 12 months to June 2016, but 9,251 homes were consented in 2015, and 7,632 were consented in 2014.
So, consents do get converted into homes, but we’re well behind on doing it.
Why the delays?
There are two reasons for the delays. One is that builders everywhere are busy, so they’re struggling to put enough resources together.
The other reason is that apartments take longer to build than terraces, and terraces take longer to build than detached houses. As Auckland builds a larger share of attached dwellings, the lag between consents and completions would be getting bigger even if builders weren’t flat out. At a guess, we probably need to allow at least two years for apartments from consent to completion, and at least one year for terraces.
So does that mean that we need to build more detached houses if we want to solve Auckland’s housing crisis? Surprisingly, the answer is no – in the long term, we’ll get more homes built if we focus on attached homes, like apartments and terraces.
There’s nothing very traditional about the detached houses being built today. They average a whopping 235 square metres – what is that, six bedrooms? – and they’re often double storey, with complicated shapes compared to the brick-and-tile boxes of the past. Plus, they’re mainly on the edges of the city. Affordable housing they are not.
Apartments and terraces, of course, tend to be much smaller in size. Although they cost a bit more to build on a ‘per square metre’ basis (especially for apartments), they tend to be cheaper overall.
And on that note, have a great summer everyone, take care when getting around and remember to wear sunblock!
* Motorways aren’t shown; they get enough attention already. Suffice it to say, the government is widening pretty much any motorway they can, and trying to put new motorways anywhere they can, and the costs are never questioned.
Last week I was in Brisbane for work. There seem to be quite a few cranes around the city, including midrise apartment developments creeping along the riverfront to the west of the city centre. The Brisbane CBD proper is still quite sterile at night after all the office workers have left – it’s an absolute pain in the neck to try and find dinner. But it seems to be developing little live-work satellites along the side of the river.
Transportblog kept an occasional eye on development trends over in Australian cities as a sign of what could happen in Auckland. (If urban planning rules and the development sector were geared up for it.)
New data suggests that Australia’s apartment boom is paying off: Prices are levelling off and potentially even falling, and city centres are becoming increasingly vibrant around the clock due to an upsurge in residential population.
However, the odd thing is that this success story is being reported as a bad thing by Australian journalists.
First, Jonathan Pearlman (The Straits Times) warns that an “apartment glut looms in major Aussie cities“:
In the two largest cities of Sydney and Melbourne, high prices and strong demand for properties in the inner city or near railway stations have led to a dramatic shift away from houses to apartments.
The central bank and analysts have warned of a looming “apartment glut” which could deflate the nation’s soaring property market.
Economist Shane Oliver from AMP Capital told The Straits Times that apartment prices in parts of Sydney and Melbourne are likely to fall by about 15 to 20 per cent over the next two years.
The falls could cause a broader decline across the market, even though some areas, especially in Sydney, still have an undersupply of housing.
“We have a huge spike in supply of apartments over the next couple of years, often in fairly concentrated areas,” he said. “It will cause an indigestion problem.”
This seems like an excessively negative spin. Personally, I would describe this as “improving housing affordability” rather than an “indigestion problem”. But regardless of how you describe it, it does seem clear that building lots of apartments can improve affordability. (As it seems to have done in the Auckland city centre.)
Second, Michael Bleby and Nick Lenaghan (AFR) say that “things not so great when you go downtown” in Sydney and Melbourne. Again, this seems like a good-news story being spun as bad news:
Neither Sydney nor Melbourne is the old-fashioned post-5pm ghost town it once was – when Australia’s army of office workers deserted its day time environment en masse for homes in the suburbs.
The country’s two largest CBDs are now thriving residential centres. People walk their dogs, buy their groceries and exercise on streets that just decades ago were limited to suit-wearing, white collar employees.
“You couldn’t have envisaged this, given our suburban history and the fact that the city just died at night,” says Sydney Lord Mayor Clover Moore. “Australia’s grown up in the last couple of decades.”
That change in Sydney and also further south, in the Victorian capital, marks a huge turnaround. The problem is, it’s too successful. A city can’t thrive on residents alone. It needs workers – preferably highly paid ones – in industries that make the city a place people want to go to.
We’ve also seen this in Auckland. Unprecedented and unexpected growth in the city centre population has led to a downtown revival: More people, more restaurants, more street life. This is a basically good thing, as it means a city where people can get more of the things that they want.
However, perhaps it’s possible that things can get out of whack – that development can tilt too far in one direction for a while, and “crowd out” other uses. The problem is that the “solutions” proposed in Melbourne and Sydney are likely to make the problem worse. Take this for instance:
In Melbourne, the state government has introduced plot ratios to rein in the extent of development on each site. In a bid to swing the balance back toward commercial space, developers can win additional height if they provide a “public benefit” which, oddly enough, these days includes office space.
[…] The sort of tenants that global cities are seeking to attract – the offices of global corporations that in part sell themselves to their own customers based on their prime global footprint – won’t just swap the CBD for somewhere nearby, Rawnsley says.
“If they can’t find a home in the Sydney CBD or the Melbourne CBD, they’re not going to go Box Hill or Parramatta, they’re going to Singapore or Shanghai or Tokyo or Seattle,” he says.
If a lack of office space in the city centre is driving economic growth and productive firms to locate in other cities instead of Melbourne, restricting the size of buildings in the Melbourne city centre will almost worsen the problem, not improve it.
What do you think of the news from Australian cities?
Caution: this post contains references to John Farnham.
I was updating the Development Tracker recently, and added another one to the list – 9 Farnham Street. It hasn’t made it off the starting blocks yet, despite a couple of attempts.
In 2008, and perhaps for some time before that, 9 Farnham Street was being advertised for a five-storey building, with three floors of office and two penthouse apartments:
Source: Google Streetview
The sign was still up in 2009, but sometime after that it was taken down. The GFC put a dampener on new development in a lot of places.
In April 2013, resource consent was granted for 14 apartments, but – shockingly – only 10 carparks. This raised the ire of some local residents, who had their story told in the Herald on 1st April, 2014, the best day of the year for airing public grievances. They decided that they were not gonna sit in silence, and nor were they gonna live with fear.
The three local residents were able to bolster their group with two elected representatives, who help to add gravitas to the obligatory photo of everyone standing in front of the site looking concerned, although sadly only one person out of five had their arms crossed.
A Parnell group is upset about approval for a big new apartment building, saying office workers’ cars already clog their street.
Farnham St residents Jill Tonks, Rosa Volz and Paul O’Connor are angry that a six-storey 14-unit block with only 10 carparks has been permitted to go ahead at 9 Farnham St after Auckland Council approved it on a non-notified basis.
Councillor Mike Lee and Waitemata Local Board member Christopher Dempsey are also concerned.
The article doesn’t specifically say what has the elected representatives “concerned” – maybe the non-notification, maybe the lack of parking, maybe the idea that anyone could put up a building on this pristine site. I’ll simply note that Mike Lee has frequently taken issue with plans or policies for new housing (to be fair, so have many other local representatives, although not to the same extent. Hopefully in the post-Unitary Plan era, we can start to move past this).
Anyway, if it’s the lack of parking that has Mike concerned, I hope that there is much more to concern him in the future. I see the number of new developments being marketed with few (or even no) carparks per unit as a positive sign, and I mean this in the nicest, wanting-to-make-society-as-well-off-as-possible kind of way.
Unfortunately, nothing has quite happened with this development yet. It seems like the apartments were on sale from Nov 2014 – Jul 2015, and were then taken back off the market (the real estate ad says the building has 18 carparks, funnily enough).
The proposed building which was marketed over 2014-2015.
The site changed hands in March this year, and no action since.
Unfortunately, the nature of our local democracy means that if you’re an existing resident with a strong current attachment to the area, you’re the voice. The potential residents – who, I should point out, are all someone’s daughter, all someone’s son – don’t get much chance to say whether they’d like to live there.
While looking at Auckland Transport’s website I found they’d uploaded a number of plans relating to the City Rail Link (the same place I saw the K Rd image from this morning’s post). One of the documents showed the plans for Albert St after the CRL has been completed. The image below shows the section between Victoria St and Wellesley St and highlights what I think is a major issue, the pedestrian environment.
As you can see the future NDG development like the existing Crowne Plaza next to it have large Porte Cochere’s sucking vehicles off the street potentially at speed and all in an area where there is likely to be a lot of pedestrians following the opening of the CRL. The NDG one is made worse by also being the access to the service lane that currently exists. It appears the pedestrians who are in the area might be restricted to some narrow footpaths.
It probably would have been better just to have required that both porte cochere’s be joined up and made into a lane with some activation between that and the street rather than what has been proposed.
If you can’t remember, this is what the NDG building is meant to look like
And here’s a close up of the vehicle entrance – although I guess the people who made the rendering weren’t so focused on the detail of things like the traffic direction
We haven’t heard anything about what’s happening on the NDG development so as much as I want to see that parking crater filled in, in some ways I hope it doesn’t go ahead and the next plan for the site can improve this situation.
Recently Google updated their satellite images for some large parts of Auckland – generally the urban area greater than about 10km from the city centre. Based on some of the detail in the images my guess is they’re from about May this year.
One thing that struck me about them was it became quite visible where the city was growing on its fringes due to lots of golden brown areas from where top soil had been removed to enable developments to occur. These are just some high level images but if you zoom in you can often see infrastructure like road networks under construction and in some cases houses being built too.
Developments at Orewa, Millwater, on the Whangaparaoa Peninsula and at Long Bay can clearly be seen
The West has developments at Huapai, Riverhead, Whenuapai, Hobsonville, Westgate, Massey and Swanson visible
The most obvious thing from the South/East are the developments around Ormiston.
If you’re not one of the avid followers of the RCG Development Tracker – “Trackies”, as they like to be known* – you might have missed a few tweaks I made last month.
The Tracker does a good job of showing discrete, one-off projects, but it’s a little harder to represent major long-term developments. For example, Hobsonville Point is going through massive growth at the moment, and delivering something like 5,000 new homes by the time it’s finished.
What I used to do for places like Hobsonville Point or Stonefields was show some of the individual projects – apartment buildings, etc – but not the overall development. I’ve now added in the outlines of these areas to the Tracker map, and added brief descriptions. The tricky part, which I haven’t quite worked out yet, is how to best represent them in the Tracker tables. Currently they’re excluded for the most part, but watch this space.
Anyway, let’s talk about Stonefields. Looking at Stonefields today, you could be fooled into thinking it’s almost finished, but the reality is it’s not even halfway.
Stonefields in the RCG Development Tracker – yellow dots are apartment buildings
Most of the townhouses and terraces planned for Stonefields have now been built, but there are still around 1,500 apartments to come. So far, only 1,000 homes have been consented in Stonefields, and the master plan (below) envisages 2,500 in total.
The first homes were completed in 2007, but those were the ‘easy’ ones – along Ngahue Drive and Magma Crescent, at roughly the same level as the surrounding suburbs, opposite a golf course and in a traditional detached format.
The construction then moved into the quarry itself, not helped by the GFC and recession hitting in 2008 (the original developer, Landco, went into receivership and Todd Property Group took over). In those years, it was much easier to sell detached townhouses than terraces, so the townhouses were built first. In the last few years, there’s been a gradual shift towards building terraces and apartments.
The first apartment building (Saltus) was completed in 2013, two more followed in 2015, and another two are under construction at the moment. There will be quite a number still to come.
Stonefields School opened in 2011, and the Stonefields Market opened in 2014, although the SuperValue supermarket didn’t open until February 2016. The parks and landscaped areas around Stonefields were developed gradually, with the playground opening in September 2014 (although not without controversy).
Stonefields could take another five years to complete, and have a population of around 6,000 people – that’s double the current population of 3,000(ish), and as late as 2006 there was no one living there at all.
One issue with Stonefields is that it has quite poor transport connectivity – the only access routes are along College Rd. In the New Network, Stonefields will be served by the 725 bus linking it to the Panmure and Glen Innes train stations. However, the bus will only run every 20 minutes at peak times, and every 30 minutes at other times.
Hopefully, as Stonefields’ population keeps growing, it will support more frequent bus services…
* I just made this up.
Who benefits from enabling housing development? And who bears the costs of restricting it?
One common refrain is that reducing regulations to enable housing will deliver higher profits to developers, while disadvantaging existing homeowners, who must contend with more people living in the neighbourhood. Another view is that restricting housing supply primarily benefits existing homeowners, who earn (untaxed) capital gains, while disadvantaging people who don’t own homes.
Along with Fran O’Sullivan, Arthur Grimes, Bernard Hickey, and many other commentators, I tend to agree with the second viewpoint: The primary distributional impact of restrictions on housing supply is to benefit existing homeowners at the expense of future homeowners. In this post I will argue that 1) we face a choice between existing and future home owners and 2) profits from development pale in comparison to untaxed capital gains on property.
So if you’re concerned about rampant profiteering, then you should be in favour of enabling more housing development.
Profit, homeowners, and false dichotomies
Developers undoubtedly set out to make a profit. They are after all putting their own time and money into building something, which in the process exposes them to risks. In this context it seems reasonable that they get something in return, otherwise, why would they develop housing at all? Whether developers earn a reasonable profit then effectively comes down to competition, and the best way to encourage competition is to enable lots of people to be developers.
In general, the more we restrict and regulate the supply of housing, then we will get less supply and less competition.
Those who rally against developers making profits seem to ignore that most of Auckland’s existing housing stock resulted from profit-seeking developers. This includes many houses that are now protected for heritage reasons. So it’s not clear to me that simply because developers are look to make a profit today, that the resulting developments will not be valued.
It is certainly fair to say that developers will only able to make a profit from development if they build something that people are prepared to pay for today. This is another way of saying that developers must consider their customers , i.e. people who want somewhere to live. So it strikes me as a false dichotomy for people to argue that developers “put profit before people”: If developers didn’t meet the needs of at least ***some*** people, then they wouldn’t make a profit.
Instead, the main trade-off seems to be between existing and future homeowners. I think Arthur Grimes described the trade-off best when he said (source):
My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house.
In this quote Arthur observes that we primarily have a choice between existing homeowners and future homeowners. He doesn’t mention developers at all. So when councillors vote for regulations that restrict housing supply, they are effectively voting in favour of existing homeowners. This is fine, provided they are comfortable with adopting what I consider to be a typically conservative position. These councillors are, in effect, behaving like Tories; they are protecting those who already have wealth.
The effects of restricting supply: Dislocation and rampant profits
However, building new homes isn’t the only – or even the main – way to make a profit in Auckland’s current housing market. Due to restricted housing supply, we aren’t building enough homes to meet demand. As a result, prices have risen.
Rising prices has two primary effects. First, it squeezes low-income people out of the market. This is a well-documented phenomenon. As the California Legislative Analyst’s Office found in an analysis of the San Francisco Bay Area, suburbs that developed less housing experienced more displacement. Without new housing development, every new resident must displace an existing resident – a vicious dynamic that hits low-income households hardest:
A lack of housing supply is compounded by distortionary tax policies – principally our unwillingness to tax unearned capital gains on housing – with the result that house prices are going up at a fast clip. This provides an unearned, untaxed capital gains windfall for people who are lucky enough to own property.
Unearned capital gains, unlike developer profits, are a win-lose scenario. People who own houses win, as the value of their assets rise. But people who are renting or trying to buy a home lose to an equal extent, as they face higher and higher prices.
So how large are capital gains compared to developer profits, anyway?
In recent years, untaxed capital gains on residential property have been very large relative to developer profits. According to data from the Reserve Bank, untaxed capital gains on residential property exceeded $100 billion last year:
- In the first quarter of 2016, the total value of residential property in New Zealand was $905 billion
- One year earlier, the value of residential property was only $791 billion.
By comparison, according to Statistics NZ’s most recent (2014) Annual Enterprise Survey, which tracks industry performance, residential housing construction firms (ANZSIC E301) made gross, before-tax profits of a mere $570 million. Even if we add in “other construction services” (ANZSIC E321, E322, E323, E324, and E329), which includes land development firms as well as a whole bunch of other stuff, total residential development profits add up to no more than $2 billion a year, before tax. And developers pay taxes on those profits! For the visual learners out there, here’s the data in a chart:
In other words, the profits that developers earn are relatively insignificant compared to the unearned, untaxed capital gains that have accrued to property owners. I would argue that the latter are largely the result of regulations that restrict housing supply, and hence represent a transfer from future homeowners, and to a lesser degree developers, to existing homeowners.
So what’s the takeaway message from all this? Well, if Councillors like Mike Lee and Cathy Casey are concerned about profiteering in New Zealand society (and they say they are), then they should start pushing to enable more housing development in Auckland. Yes, developers may make slightly more money in the process, but this increase pales in comparison to the reduction in untaxed capital gains that would accrue to existing home-owners. If you’re concerned about people making unearned profits, then regulations that restrict housing supply and which drive up the prices of existing dwellings should be your primary target.
It’s been a while since our last update of Christchurch building consents – the number of new homes being approved by the various councils in the area.
Christchurch City has had a bit of an uptick in the last couple of months, whereas consent numbers in the surrounding districts (Selwyn and Waimakariri) have flattened off – for Selwyn, at least, still much higher than the historical average.
I’m surprised by the ongoing strength of the consent figures in Christchurch, not just for residential construction (i.e. homes) but also for non-residential (i.e. everything else). It seems like it might be a while longer until we get much movement of builders from the Garden City to Auckland.
Also, since a reader asked for it, here’s a comparison of the overall Canterbury region vs Auckland. This is based on the actual value of construction carried out each quarter (although it’s been seasonally adjusted to remove some of the noise).
So, although Canterbury has just over a third of Auckland’s population, in early 2014 it was carrying out about the same amount of building work. This was a truly massive redeployment of resources, more than $1 billion per quarter – see how it compares to Canterbury’s pre-earthquake level of activity.
Canterbury has dipped back a little from its peak, but based on the building consent data (which is a bit of a ‘forecast’ of future activity), it’s probably going to plateau for a while longer.
Auckland, on the other hand, has had sharp increases recently – the level of activity has just about doubled in the last five years (although this includes price increases).
Lastly, before we leave Christchurch, one of the long-delayed ‘anchor projects’ for the CBD is finally starting, with the Government deciding to go it alone on the Convention Centre after the preferred developer pulled out.
Given Auckland’s housing issues, I try to update the graph below each month. It shows the number of new homes being consented in Auckland each year.
It’s a little hard to see here, but the figures in the last couple of months have been pretty disappointing. The total number of consents has dropped back a little (from 9,566 a year to 9,434). Plus, the number of apartment consents has fallen back from close to 2,000 to around 1,500. The numbers are pretty volatile – a big building could have 100-200 apartments, so the timing of those makes a big impact. We’ve now had three months when almost no new apartments were granted consent.
Detached houses, though, have been on the rise. Any new homes are better than no new homes, so that’s something, but it’s the ‘denser’ housing that needs more effort.
In happier news, downtown Auckland is still buzzing even in the cold weather, and there’s plenty going on with the start on the CRL, demolishing the old Downtown centre, Wynyard Quarter work and more.
Lastly, I’d like to give a shoutout to the new Quay St cycleway, which is a great addition to the cycling network but also a neat ride in its own right.