The results for the first full year of the Housing Accord between the government and Auckland Council have just been released.
It’s a politically charged topic – witness the government talking it up (“First year Auckland Housing Accord target exceeded“), and Phil Twyford from Labour rather unfairly talking it down (“Fourth housing report confirms failure“).
The Housing Accord is ultimately about increasing the number of new homes being built in Auckland. It’s open to debate how much success it’s had in its first year, but it’s also laid the groundwork for future growth.
The story so far – by the numbers
Overall, “11,060 new sections and dwellings have been achieved in the first year – more than 20 per cent above the target of 9000″. That’s perhaps a little exaggerated, as we’re actually talking about consents or approvals for those new sections and dwellings – they haven’t necessarily been built. And, as I’ve pointed out previously, the target is actually lower than the 9,975 sections and dwellings achieved in the year before the Accord came into effect.
Still, 11,060 sections and dwellings is a lift. It’s not enough of a lift (the targets for year 2 and 3 are 13,000 and 17,000 respectively, so lifting by 4,000 a year), and there’s probably some double counting compared to the previous year,* but it’s a start.
A lot of the attention has focused on Special Housing Areas, but these haven’t really translated into consents yet. That will take a bit longer, partly because it hasn’t been long since most of them were approved, and partly because they often have to go through an extra stage – getting rezoned via a plan change, before they can be subdivided. I imagine they’ll make a much bigger difference to the numbers in year two.
Behind the rhetoric, what we’re actually left with is an increase in planned construction activity (subdivision consents to create new sections, and building consents to create new homes), much of which is simply due to a recovering construction sector. And we’re still not building enough homes, especially with migration running at record levels.
I’ve shown the number of annualised building consents in Auckland below – note the very low figures in 2009-2011, and the upturn which has been underway since then.
The story so far – making the process easier
That’s not to say the Accord has been a failure. The remarks I’ve heard from people across the property industry have been quite positive. I went to the Property Council’s Residential Development Summit last month, and the Accord was given a thumbs up by a range of people. Developers are keen on the “one stop shop” where stakeholders such as Auckland Transport, NZTA, Watercare and the council consents team are all available to talk through the issues, and the consent process has been streamlined. Perhaps these are things that the council should have gotten going itself anyway, but maybe it needed a nudge from the government.
Planning applications are made under the Proposed Unitary Plan rules, and that was only possible with a law change from government. We’ve been a bit annoyed about the relative lack of “intensification” Special Housing Areas, compared to the “greenfields” ones. However, the council did say in its Auckland Plan that it wanted to have a ready supply of land for housing, and the SHAs are needed to create that supply. Besides, the Unitary Plan rules often aren’t much better than the existing rules when you’re trying to create apartments than terraces – which we’ve also criticised – so many developers wouldn’t bother.
The next step
It’s going to be tricky to ramp up construction fast enough to meet the Accord’s year 2 and 3 goals, and to actually convert the consents into built homes. An article last month suggested that building consents are unlikely to come close to the targets, based on forecasting work done for the MBIE, and that the targets might be revised downwards.
* More on the double counting, since I haven’t seen this discussed elsewhere. Within the year, the report doesn’t double count, so a piece of land gets counted when it is given subdivision consent but isn’t counted again when it’s given building consent. However, some of the building consents granted in this last year will have been given subdivision consent the year before the accord, so it’s not possible to compare the 9,975 to the 11,060.
The MBIE will address this for years 2 and 3, i.e. they won’t double count between the years of the accord.
Looking at just building consents, though, it is possible to compare the numbers over time. Those consents have risen 30% in the last year, which is pretty substantial – from 5,648 to 7,366.
As explained in my last post, Australia is currently in the middle of a major apartment boom. Of course, the picture changes depending on which city you look at. The following graph shows the share of attached dwellings for the “large Australian cities” – the ones which are bigger than Auckland, at 1.9 to 4.7 million people:
Sydney has been building mainly attached dwellings for the last 12 years – 60% to 70% of all dwelling approvals. There’s a lot less of this activity in Perth, where the share of attached dwellings is around 25%, without much change in the trend in the last twelve years. However, Melbourne and Brisbane have seen a real lift over that time, from around 30% of approvals in 2002 to 55% now.
Here’s the share of attached dwellings for what I’ve called the “small Australian cities” – state capitals which are smaller than Auckland, at 132,000 to 1.3 million people (and note Australia has many other cities in this size range which I haven’t looked at):
These percentages fluctuate quite widely, but note the high share of attached dwellings in Canberra (the size of Christchurch or Wellington) and Darwin (the size of Tauranga).
The figures above are for “Greater Capital City Statistical Areas”, which are defined very broadly, and include a large amount of rural land and smaller settlements as well as the main urban area. This tends to bring down the share of attached dwellings, since you’re more likely to get apartments in central Sydney than Campbelltown. In terms of land area, the GCCSAs range from 170,000 to 326,000 hectares for the “small cities” and 642,000 to 1.6 million hectares for the “large cities”.
It’s a little tricky to compare these areas to any New Zealand measurement – they’re probably in between the typical size of a territorial authority and a region – but the Auckland Region, stretching from Wellsford to Pukekohe, is 1.6 million hectares. The graph below compares the attached dwellings share for the Auckland region (in dark blue) to those for the large Australian cities:
So, we’re building a smaller share of attached dwellings than Brisbane, Melbourne or Sydney (which, to be fair, are all larger cities than Auckland), although it’s interesting that we outpaced Brisbane and Melbourne for much of the 2000s. The share of attached dwellings is also tracking up strongly, and I’d expect it to keep heading upwards in the short term at least.
In “absolute” terms, we’re approaching 3,000 building consents a year for attached dwellings – less than we managed during the 2000s boom, but still significant, and continuing to grow strongly.
The upshot of all this is that John Key was absolutely right when he said “If you’re a young person buying your first place in Sydney or Melbourne or Brisbane, in most instances you’ll be going into an apartment.” If you’re wanting to buy in a big city – especially if you’re a first home buyer with less of a deposit or a lower income – an apartment, terrace or flat can be a great option, and they’re a big proportion of what is being built.
It seems like the relationship between planning controls and housing affordability is not going to go away any time soon, with Deputy Prime Minister Bill English noting recently that he thinks planning rules are a major contributor to inequality.
Planning policies have probably increased inequality amongst New Zealanders more than any other policies through higher housing costs, Finance Minister Bill English says…
…Mr English used the briefing to again emphasise the Government’s focus on addressing housing issues which featured in Prime Minister John Key’s Cabinet reshuffle yesterday.
However, when asked about his comment suggesting inequality was increasing — something he and Mr Key have previously refused to acknowledge — he said what he meant was that rising housing costs due to land supply constraints had prevented inequality from abating.
Mr English said the Government would “persist with housing reforms to make housing more affordable for more New Zealanders particularly low income New Zealanders”.
The issue of ‘land supply’ is somewhat of a red herring, as we know from valuation data that prices are rising quickest in inner areas and unless Mr English plans on filling in half the Waitemata Harbour for housing, increasing land supply is unlikely to have much impact on the increasing desire of Aucklanders to live centrally. What that requires is simply more housing, which in these areas means more terraced houses, more apartments, more townhouses, more granny flats and so on.
Yet we also know from looking at many apartment buildings underway at the moment that they’re not cheap. Decently sized apartments in many of the buildings going up in Grey Lynn or Herne Bay (admittedly high end suburbs) are pushing the million dollar mark. We’ve also been able to build some pretty cheap low end apartments like can be seen in places like the Hobson/Nelson St corridor. While at a macro-level providing more high-end or low end housing will at some point provide an affordability benefit, it seems like Auckland is yet to figure out how to build large numbers of affordable apartments that aren’t crap and/or that might be suitable for families.
Of course we are not the only city to struggle with housing affordability. Most highly liveable cities have expensive housing, it’s a sign of their attractiveness as a place to live. However, it does seem in other places there is more progress in providing relatively affordable housing in areas which aren’t way out on the urban edge.
Let’s take Vancouver for example, which regularly publishes statistics about average house prices for different housing typologies. Vancouver has very expensive housing on average, for a number of similar reasons to Auckland (an attractive place to live, strong immigration, growing population etc.), but that doesn’t mean all housing in Vancouver is expensive:
The average price for a detached house in Vancouver is pushing close to a million Canadian dollars, which is huge. However, the average price for attached houses or apartments is way lower than this, showing that there is plenty of housing supply in Vancouver at much cheaper prices than the overall average. Furthermore, unlike Auckland, it’s pretty likely that these more affordable places aren’t way out in outer suburban areas requiring us to spend huge amounts of money on transport.
So how has Vancouver managed to generate a supply of fairly affordable apartments and other attached housing typologies? Well without digging into it too deeply, it seems that critically they’ve built heaps of them. Let’s look at how the composition of housing types in Vancouver has changed over the past 20 years:
The graphs are a little confusing as the vertical axis is total dwelling numbers rather than percentages, but you can see that in 2011 two thirds of dwellings in Vancouver were not single detached houses. There were over 350,000 apartments. It’s not 100% the same but this shows similar data for Auckland broken down by Single Dwellings, Attached dwellings (flats/units/townhouses/apartments/houses joined together) or other dwellings (motor camps, baches, dwellings as part of a business or shop etc.).
Next look at the comparison from Vancouver between new housing starts for apartments compared to detached dwellings:
Consistently it seems like 75-80% of new dwellings built in Vancouver in recent years have been apartments, terraced houses or other attached typologies. This ongoing supply seems to be holding prices for these typologies at reasonably affordable levels. Again by comparison for over the last year just 27% of new building consents were for apartments an attached dwelling type.
It also seems like Vancouver doesn’t have an irrational fear of building heights like Auckland, especially in its regional centres where major apartment developments seem to be proposed or occurring frequently – like this one:
While this scale clearly would only be appropriate in certain locations, it’s worth some consideration in areas along the rail network that will benefit a lot from City Rail Link and may not have typical heritage concerns – I’m thinking Morningside, Avondale, more at New Lynn, maybe Onehunga.
It seems that one lesson we can learn from Vancouver quite clearly is that if you build enough apartments it does seem like you can ensure they’re fairly affordable. Plus they’re likely to be within walking distance of rapid transit and a whole pile of key services. Sounds better than an “affordable” house out the back of Papakura or Silverdale where you need to drive 50km a day to do anything.
It’s no secret that Auckland has a problem with high-cost housing. House prices have risen significantly faster than average incomes in recent years. As a recent Treasury working paper (Skidmore, 2014) documented, Auckland’s house prices have quadrupled in the last generation, and rents have more than doubled.
This is widely acknowledged as a problem, but it’s important to understand that it’s not necessarily a problem for all Aucklanders. Another Treasury working paper (Law and Meehan, 2013) shows that young New Zealanders – singles and couples between 25 and 34 – are significantly less likely to own their own homes.
Most middle-aged and retired people are on the property ladder and thus able to benefit from capital gains from Auckland’s housing market. Rising prices are often positive for older people. But they’re not very good for the young, who don’t own property and, increasingly, find themselves shut out by rising prices.
To make matters worse for young Aucklanders, rising house prices are coupled with falling real incomes. We aren’t merely standing still – we’re rapidly falling behind.
The chart below shows real income growth for employed people by age group from Statistics NZ’s LEED data on median earnings of full quarter jobs, deflated by the consumer price index. Since the global financial crisis, real median wages for people under 35 have fallen. But people over 35 have done pretty well over the same time period:
Generational divergence in incomes
In short, Auckland seems to be developing a dangerous “two-speed” economy. Most middle-aged people can expect their wages to rise and the value of their houses to boom. Most young people are experiencing wages that are stagnating or falling while being shut out of the housing market by high prices.
This is the point at which older Aucklanders sometimes seem to shrug their shoulders and say, “so what – I’ve got it good.” But they shouldn’t be so complacent, because we don’t have to be here. If it becomes too hard to live in Auckland, young Aucklanders will leave. If we can get a better deal elsewhere – higher wages or cheaper housing – we can go there instead. And for many of us, this will mean leaving New Zealand.
Young New Zealanders are mobile. We’ve seen our friends and family abscond to Melbourne or Sydney, or go to London on OE and choose not to come back. We may have moved here from other places. While we want to be able to live in Auckland and participate in the city’s revitalisation, we’re keenly aware that we have options.
I’ve written before about how New Zealand has the opportunity to raise its living standards by investing in better cities. Well, the reverse is also true. Expensive housing and lower wages for the young is a recipe for long-term economic failure. If you’re middle-aged, this should worry you: We might not be around to pay your pensions and buy your expensive houses when you want to downsize. We’d like to stay and pay for your retirement – we really would! – but we need a pay rise and affordable housing options.
So what’s your plan to make Auckland affordable for young people?
The council is required to revalue every property every three years and the valuations are used in the setting of rates the council charges. The last revaluation was in 2011 which means a new one is due this year. The council have announced some early results and they present an interesting picture and show why home owning affordability is such an issue. Across the whole region property values are up by an average of 33% which is a massive increase over just three years. Here’s the press release:
Auckland’s three-yearly general property revaluation is well underway, with indicative data showing significant value movements across the region.
A report is going to Thursday’s Finance and Performance Committee:
Auckland Council’s Registered Valuer Peter McKay says: “At this stage we are looking at an upward movement for the Auckland region of an average 33% since the last revaluation in 2011, which is broadly in line with expectations.
“Local board areas with the largest movements – of over 40% – are Kaipatiki, Maungakiekie-Tamaki, Puketapapa and Whau, reflecting a general value increase in the more central suburbs.”
“Average movements within the remaining local boards (excluding the Hauraki Gulf islands) range between 22% and 44%, with the larger movements generally due to proximity to central Auckland, with lower increases found in outer suburban and rural areas.”
“Local value movements will vary due to the type of property, its quality and condition, zoning, views and other factors.”
Property owners receive their notices in the mail in mid-November 2014.
“It’s very important to remember that Auckland’s property revaluation doesn’t determine the total amount of rates collected by the council – rather it helps determine each ratepayer’s share of rates.
“The revaluation exercise is used by the council to determine the allocation of rates, and doesn’t affect the overall amount of rates collection.
“Capital value, or CV, used as the rating valuation, is the likely price the property would have sold for on 1 July 2014. Its new value will be used to help set rates for the three year rating period beginning next year, 1 July 2015.”
All councils are required by law to revalue every property in their region every three years. Over 525,000 properties are being revalued in Auckland.
Council’s team of experienced, qualified valuers work closely with independent organisation Quotable Value Ltd. Before valuations are finalised, they have to be approved by the Valuer-General, who’s responsible for authorising rating valuations for the Government across New Zealand.
and they’ve provided this map showing the average change by local board area.
What’s most noticeable is the strong growth in values on the areas just outside the inner suburbs while the urban fringe and rural local boards are seeing much smaller average increases. This suggests people are moving as close to the city as they can currently afford and that would fit with other trends both locally and internationally we’ve seen over the last decade or so.
In addition the council have provided some notes about some of the influences in each local board area
Value growth in this central area is strong, particularly in the Grammar Schools zone with very strong demand for properties offering redevelopment potential.
Demand is strong across all housing types in this established and sought after residential area.
Demand is increasing in Pukekohe but is slightly more subdued in Waiuku. Remote areas and rural settlements are showing modest increases over 2011 levels in comparison to other areas. Development at Beachlands is continuing with a large volume of sections coming to market at present.
Great Barrier (-12%)
Value levels have declined since 2011 and sales volumes are low. There are a large number of properties available for sale and marketing periods of 12 months or more are common. Factors associated with remoteness and a decrease in demand for coastal properties is driving value levels.
The Proposed Unitary Plan is influencing buyer expectations particularly in areas identified for more intensive land use, such as Te Atatu Peninsula and Westgate. Demand is strong for housing in all areas. Ranui, Massey, Henderson and Glendene are seen as affordable options for first home buyers.
Hibiscus & Bays (29%)
A consolidating residential locality characterised by homes dating predominantly from the early 1980s through to more recently constructed houses of above average quality, to executive style. Growth areas include Orewa and Millwater where average lot sizes are smaller. Weathertightness issues are still a factor in the market with housing that is subject to known weather tightness issues selling close to or in some instances below the 2011 roll values.
The market has moved fairly consistently throughout, with strong growth in the area of Flat Bush driving value levels.
A diverse area including character homes with views south towards the Waitemata Harbour, with easy access to motorway connections at Northcote and Birkenhead through to the more affordable housing areas of Beachaven and Birkdale. This area is showing an above average increase, especially properties with further development potential.
Buyers are actively seeking larger sites with further development potential in this area pushing value increases. Otahuhu provides relatively central but affordable housing compared to the inner city. Mangere Bridge has seen some of the strongest growth in values across the region since 2011, which is in part attributed to the community feel of the village, enhancement of waterfront areas with views to the Manukau Harbour, and the continual development of State Highway 20.
The introduction of the LVR is linked to a lower increase in this area, which predominately comprises a market for first home buyers and investors.
Value growth has been strong as the area is seen to be relatively central. Transportation and roading including recent rail development in Onehunga and new rail station in Panmure, as well as AMETI in the east and SH20 to the west, are also drivers towards value increases.
These central suburbs have seen strong value growth; however growth has been weaker for high value coastal land and properties at the top end of the market ($4million-plus).
Buyers are looking to this area as being relatively central but affordable compared to the inner city. Demand is particularly strong within Papatoetoe for sites with development potential.
While the area provides a range of housing for first home buyers and is one of the most affordable areas of the region, Papakura value movements are more modest than other areas, with travel times of 30 minutes to the CBD off-peak.
Similar to Mangakiekie-Tamaki, housing in the Puketapapa area is seen as an attractive option for buyers looking to locate centrally and for generally less than $850,000. Transportation is improving as State Highway 20 development continues and the area is seen as more accessible than it was 10 years ago.
Generally residential values increases are modest in comparison to the central suburbs, and land values of coastal sites have increased a slower rate than inland property.
Upper Harbour (31%)
Housing with known weathertightness issues selling close to or in some instances below 2011 values are impacting on overall value movements. Significant development is occurring at Hobsonville, with overall section sizes being relatively small.
Value levels on Waiheke have seen smaller increases relative to the isthmus with land values generally only showing modest increases.
Waitakere Ranges (32%)
The overall demand is weaker than in central locations with accessibility issues and development difficulties, such as steep bush clad sites, which can impact on desirability and value levels.
Waitemata has two distinct markets – CBD apartments and secondly, traditional inner city housing areas such as Freeman’s Bay, Herne Bay, Ponsonby and Grey Lynn. Value movements for traditional housing areas is similar to Orakei and Albert/Eden, while average movements for CBD apartments is lower.
The Proposed Unitary Plan is influencing buyer expectations, particularly in areas identified for more intensive land use such as New Lynn. The extension of State Highway 20 and the Waterview connection has contributed to increased interest in the area, and significant value growth has occurred over the last three years
We’ll have to wait till November before the details are available for each individual property.
Several weeks ago I attended the annual New Zealand Association of Economists conference in Auckland. Geoff Cooper, Auckland Council’s Chief Economist, had organised several sessions on urban issues, and as a result there was a lot of excellent discussion of urban issues and Auckland’s housing market. You can see the full conference programme and some papers here.
At the conference, I presented some new research on housing and transport costs in New Zealand’s main urban areas. My working paper, enticingly entitled Location Affordability in New Zealand Cities: An Intra-Urban and Comparative Perspective, can be read in full here (pdf). Before I discuss the results, I’d like to thank my employer, MRCagney, for giving me the time and the data to write the paper, along with several of my colleagues for help with the analysis, and Geoff Cooper for suggesting the topic and providing helpful feedback along the way.
The aim of the paper was to provide broader and more meaningful estimates of location affordability that take into account all costs faced by households. In my view, widely-reported sources such as Massey University’s Home Affordability Report have too narrow a focus, looking only at house prices. However, a range of research has found that transport costs vary between different locations depending upon a range of factors such as urban form, availability of transport, and accessibility to jobs and services. And transport costs are pretty large for many households!
I used two methods to provide a more comprehensive estimate of location affordability in Auckland, Wellington, and Canterbury. First, I used Census 2013 data to estimate household housing, car ownership, and commute spending at a detailed area level within each of the three regions. This allowed me to estimate variations in affordability between areas within individual regions. Second, I used household budget survey data to get a sense of how New Zealand cities stack up against other New World cities.
My main findings were as follows:
- First, rents (a proxy measure for housing costs) tended to fall with distance from the city centre. However, commute costs tended to rise with distance – meaning that outlying areas were less affordable for residents once all costs are included. This was consistent with previous work on location affordability in New Zealand and the United States.
- Second, international comparisons suggest that Auckland and Wellington have relatively high housing costs and that this may be driving some of the affordability findings. While this finding lines up with previous research that’s focused on house prices alone, it’s important to note that the location affordability estimates suggest that a focus on greenfields growth alone may not save households money.
- Third, while I didn’t identify any specific policy recommendations, I’d recommend that (a) policymakers should consider all location-related costs when attempting to address affordability for households and that (b) further research should focus on removing barriers to increasing the supply of dwellings in relatively accessible areas.
And now for some pictures.
These maps show two measures of location affordability within Auckland. The left-hand map shows estimated housing costs (i.e. rents) as a share of median household incomes at a detailed area level. Broadly speaking, this map shows that expected housing costs fall between 20% and 30% of household income in most of the city, although some areas are relatively less affordable.
The right-hand map, on the other hand, incorporates expected car ownership and commute costs. Overall location affordability is lower throughout the city. Expected housing and transport costs rise to 40-50% in areas of west and south Auckland, as well as the entire Whangaparoa Peninsula. The most affordable areas for their residents tend to be in Auckland’s inner isthmus suburbs.
(Click to enlarge)
I’ve also combined this data into a graph that presents location affordability by distance from Auckland’s city centre. The bottom (blue) line shows housing costs as a share of median household income, weighted across all area units within each 2-kilometre concentric circle radiating outwards from the city centre. It shows that, on average, households spend a similar share of their overall income on housing costs in both close-in and outlying suburbs.
The top (red) line shows that combined housing, car ownership, and commute costs increase as a share of household incomes with increasing distance from the city centre. On average, households that live further out of Auckland spend more on location-related costs, as lower lower rents are offset by added commute costs.
The results for Wellington and Christchurch were broadly similar – although with a few interesting differences related to their urban form and transport choices. However, as this is the Auckland Transport Blog, I’m going to suggest that you read the paper to see those results. It’s long, but it also presents a lot of new data on housing and transport costs in New Zealand.
As we all know, house prices have gone up massively over the last couple of decades, and much faster than inflation. On the other hand, rents haven’t gone up so quickly – lucky for the 35% of Kiwis (or 38% of Aucklanders) who don’t own the home they live in.
As someone with more than a passing interest in inflation, rents, yields and prices, I’ve thought for a long time that the growing gap between rents and house prices must have a lot to do with the switch from a high inflation environment to a low inflation one. It’s exactly what economic theory would predict. And luckily, another economist, Rodney Dickens, has come along and taken a look at it (hat tip to Bob Dey for the link).
First, some background. Up until the 80s, New Zealand often had very high inflation, as per the chart below:
Inflation was particularly high through the 1970s (oil prices sustained at much higher levels than ever before, plus the switch to a floating exchange rate, and various other factors besides) and the 1980s, except for a brief period in the 1980s where Muldoon thought price freezes were a good idea. The 1989 Reserve Bank of New Zealand Act put a new focus on inflation targeting, and it wasn’t long before inflation rates dropped to well below 5% a year, where we’ve been more or less ever since.
Unsurprisingly, mortgage rates tended to follow a similar pattern to inflation, although they didn’t fluctuate as much:
Floating mortgage rates topped out at more than 20% in the late 80s, and fell dramatically through the early 90s. They’ve stayed below 10% for most of the time since.
So, if you’re an investor in the 1970s, and inflation is at 15%, and you can borrow money at around 15% (or put it in the bank and earn at least 10%), what kind of return do you expect on your rental property? You might expect a yield, or return, of 20%, say. Flipping that around, the property value is five times the net rent you receive.
OK, so now it’s the 2000s. Let’s put aside thoughts of capital gain for now – assume you just want a fair return on your money. You can borrow it at 8%, and put it in the bank at maybe 5% or so. Property seems like a fairly safe investment, so perhaps you’d be happy with 6% return. That means your property value is now nearly 17 times the net rent.
Of course, we wouldn’t expect the runup in asset values to happen just for property. We’d expect it for all types of income-producing asset – shares, capital goods, human capital. You’ll see it as a drop in yields for these assets, as for Rodney’s graph below, which shows yields both for residential property and for government bonds:
As Rodney says:
“CPI inflation has been consistently lower since the early-1990s. In the first house price boom after 1990 – between 1994 and 1996 – rental price inflation increased much as had been the case earlier. But it would seem that by the time of the 2002 pickup in house price inflation the low inflation environment had taken over. It would appear that landlords began to struggle to justify or achieve higher rental inflation in an environment of sustained low general inflation.
This new, inflation-constrained behaviour is reflected in CPI and rental inflation living in similar ballparks since after the government interventions resulted in rental inflation turning temporarily negative in 2001. The result was that the relationship between house price and rental inflation largely broke down”.
He goes one step further, and looks at an issue closely related to housing affordability, as Stu has written before. Here’s Rodney on the issue:
This can also be viewed from the perspective of rents compared to incomes. This is another means by which lower general inflation, including lower income growth, will put a ceiling on rental inflation. The [chart below] compares the ratio of the national average house price to the average annual gross income (black line) with the ratio of the average national annual gross rent to the average annual gross income (blue line).
Prior to 2000 the two ratios largely moved in synchrony while since then the rent/income ratio has fallen and the house price/income ratio has skyrocketed.
I quite like the way Stu puts it: housing is a commodity like anything else, and “you don’t measure the affordability of cookies based on the cost of buying the cookie factory”.
Yesterday the council (and Nick Smith) announced the third and largest group of Special Housing Areas (SHAs) – the locations where the council will fast tract resource consents in a bid to get more dwellings built. In addition the SHAs also pick up the planning rules currently proposed in the Unitary Plan. Here’s the first part of the press release:
A third tranche of 41 Special Housing Areas (SHAs) that would yield 18,000 new homes across Auckland was today announced by Housing Minister Dr Nick Smith and Auckland Mayor Len Brown.
“The Auckland Housing Accord is continuing to gain momentum in enabling thousands more sections to be developed and thousands more homes to be built. The first tranche in October provided for 11 Special Housing Areas and 6000 homes, and the second a further 11 SHAs and 9500 homes. This third tranche brings the total to 63 Special Housing Areas and 33,500 homes and is the scale we need to address the section and house shortage in Auckland,” Dr Smith says.
“This latest batch of Special Housing Areas includes seven strategic areas that have been identified by the council as having good transport links and access to other infrastructure. These are larger areas where we don’t yet have developers with proposals, but where we are signalling to the market that we want to encourage growth,” Mr Brown says.
“In addition, many of the Special Housing Areas announced today are significantly larger than those in the first two tranches, and include 34 direct requests from private landowners or developers as well as extensions to three existing Special Housing Areas. I have every expectation of rapid development of these sites into new homes and sections.
“The housing market continues to be hugely challenging in Auckland, particularly for first-home buyers. However, through our partnership with central government we are making strong progress to deliver more housing choices sooner for Aucklanders.
“The work we are doing will help to bring forward more new affordable homes, but we also need to see further action on the cost of building materials, labour shortages and support for first-time buyers.”
The most interesting part of the announcement was that the council included seven “strategic” SHA’s which basically appear to apply to an area rather than a specific set of sites proposed by a developer which is what the rest of the SHA’s are/have been. The seven strategic SHAs are:
1. The Gt North Rd ridge
Up to 1,000 new dwellings over 18.9 ha
2. Otahuhu Coast
Up to 1000 new dwellings over 635.9 ha
3. Flat Bush
4470 dwellings over 490.5 ha
4. Northcote Rd
700 Dwellings over 62 ha
360 dwellings over 105 ha
1770 dwellings over 251.8 ha
7. New Lynn
1588 dwellings over 284.9 ha
In addition are the individual site/developer SHAs are:
- 8 – Akepiro Street, Mount Eden – 18 dwellings
- 9 – Haverstock Road, Sandringham – 33 dwellings
- 10 – St Marks Road, Remuera – 63 dwellings
- 11 – Northcote Road, Takapuna – 263 dwellings (this is separate to the one above)
- 12 – Albany Highway, Albany – 112 dwellings
- 13 – Whenuapai Village, Whenuapai – 1500 dwellings
- 14 – Walmsley Road, Mangere – 1500 dwellings
- 15 – Oruarangi Road, Mangere – 520 dwellings
- 16 – Hulme Place, Henderson – 56 dwellings
- 17 – Wilsher Village, Henderson – 179 dwellings
- 18 – Fred Taylor Drive, Massey – 1000 dwellings
- 19 – Sandy Lane, Avondale – 28 dwellings
- 20 – Glendale Road, Glen Eden – 12 dwellings
- 21 – Crows Road, Swanson – 277 dwellings
- 22 – Kohimarama Road, Kohimarama – 132 dwellings
- 23 – Burns Lane, Kumeu – 247 dwellings
- 24- Rautawhiri Road, Helensville – 60 dwellings
- 25 – Asquith Avenue, Mt Albert – 10 dwellings
- 26 – Waterview cluster – 172 dwellings
- 27 – Mt Albert cluster – 31 dwellings
- 28 – Pt Chevalier Road, Pt Chevalier – 30 dwellings
- 29 – Jordan Avenue, Onehunga – 202 dwellings
- 30 – Tuata Street, One Tree Hill – 46 dwellings
- 31 – Meadowbank cluster – 36 dwellings
- 32 – Orakei cluster – 115 dwellings
- 33 – Mt Roskill cluster – 20 dwellings
- 34 – Bristol Road, Mt Roskill – 10 dwellings
- 35 – Bedford Street, Parnell – 132 dwellings
- 36 – Surrey Crescent, Grey Lynn – 28 dwellings
- 37 – Beach Haven cluster – 30 dwellings
- 38 – Massey cluster – 102 dwellings
- 39 – Coburg Street, Henderson – 24 dwellings
- 40- Denver Avenue, Henderson – 22 dwellings
- 41 – New Windsor cluster – 50 dwellings
The council is also extending three SHAs from the previous bunches being,
- Orakei, Ngati Whatua – extra 75 dwellings
- Wesley College – extra 50 dwellings
- Alexander Crescent – extra 30 dwellings
They are all shown in the map below and you can get the detailed maps for them here.
What’s striking about these is that while few in number, there are some fairly large sprawly developments that the council is agreeing to rubber stamp that make up about 50% of all SHA’s approved in the latest group. Developments that in some cases have appear to have absolutely no amenity associated and will result in typical car based sprawl. A good example of this is #23 which is in Kumeu and as there is no developed land anywhere near the site so the only option to get anywhere will be with a car.
In addition the other the development above there is already a heap of other planned developments in the North West including at Huapai, Westgate, Whenuapai and Hobsonville. All of these developments are going to put increasing pressure on an already congested SH16 corridor. This means there is a need for a Northwest busway now more than ever.
The really sad thing about all of this is the council has talked for so long about the need for a compact city but when it’s come time to actually put plans into action we once again have a SHA that has more greenfield development in it than brownfield (even if some of it is within previous urban boundaries). It sometimes seems like the council has simply ignored everything it has said and promised for the past 4 years in order to keep the government happy. In other words it seems more business as usual for Auckland.
One ingeresting announcement however is that the council will be holding a design competition in conjunction with Ockham Residential who has also built the Issac and Turing buildings amongst others.
“This competition will be open to an architect, or architectural practice that will compete to design and document a high-quality medium density residential housing development on the land. Architects will be offered the chance to propose medium density housing prototypes that illustrate the possibilities and advantages of urban living, in recognition of the excellent opportunity that the Accord offers to create more modern housing options in Auckland,” Mr Brown says.
The competition will open on 21 May with details soon to be posted on the NZIA website at www.nzia.co.nz.
Hopefully this will get both architects and developers interested in what kinds of quality urban developments can actually be built and spur them to do more.
Housing is considered affordable if it costs less than 30% of a household budget. Transportation is the second largest expense for families, but few consider these costs when choosing a place to live. Center for Neighborhood Technology
We’ve run a few posts lately discussing the topic of housing affordability and transportation costs. Of course you can’t separate the concept of housing affordability from transportation costs, since most people have to travel to work to pay for their housing.
The posts were based on recently published research from the University of Otago, by Kerry Mattingly and John Morrissey titled, “Housing and transport expenditure: Socio-spatial indicators of affordability in Auckland”. Their work included a series of maps that showed a significant transportation premium associated with living in the distant suburbs. While the maps they published did not assume everyone would be working in the cbd, the results of the research showed that households furthest away from the centre generally travel greater distances for work and therefore spend more of their income on housing AND transportation.
There was a robust discussion in the comments about how the data was not so useful since everyone’s situation is so different. This is where Alex Raichev and Saeid Adli come in. Using the methodology of Mattingly and Morrissey as a starting point, they developed a dynamic website called Affordable New Zealand that shows housing (rent) costs + transportation costs and allows users to identify housing and travel costs based on specific location of work.
They have included a number of factors which contribute to the overall cost of living such as parking and car ownership. The car ownership cost reflects the sunk cost of the car, even if the mode of travel chosen is public transport (or walking, cycling). Further travel costs for the car are determined by distance traveled to work. The public transport costs are estimated using the formula from Mattingly and Morrissey.
Here is a look at the results using Albany as the job location.
Where to live? Job in Albany.
Another way to interrogate the data is to consider the pin drop as a housing choice and then the data reveals the relative affordability of accessing employment areas. Here is a comparative fictitious example of a young family with one parent working trying to decide between living in Titirangi or Freemans Bay. The Titirangi family has 2 cars and use 1 car to go to work paying $15 for parking. The Freemans Bay family has 1 car, but uses PT to get to work.
Affordable Lifestyle Choice #1: 2 Cars in Titirangi (source: affordability.org.nz)
Affordable Lifestyle Choice #2: 1 car + PT in Freemans Bay (source: affordability.org.nz)
The site is still under development. One idea is to expand the search criteria to suit a couple/household scenario with two unique job locations. Another improvement will be refining the data to provide a more accurate cost of public transport. Wellington and Canterbury versions are coming soon. The project is open source (Github), and if you have any comments about the project leave them below or contact Alex from the notes page.
Last week’s post about how considering transport costs is an important consideration when really understanding housing affordability has led to a fairly epic comments thread. This is perhaps because many sprawl advocates are so used to hammering the “sprawl is the only way to improve housing affordability” line that they feel quite threatened by a more comprehensive analysis of the situation.
To summarise many of the points made by blog authors within the comments thread:
- The research validly highlights that transport costs rise as you get further from the centre of Auckland and this counter-balances – to some extent – the higher housing prices experienced in some inner areas.
- We think it’s highly hypocritical for people to bang on about the need to remove urban limits while maintaining strong support for the majority of planning rules that limit development potential in already urbanised areas. Councillors such as Dick Quax and Cameron Brewer are particularly bad when it comes to this hypocrisy – surely height limits, building setback requirements, parking minimums, density controls and the like are just as much “social engineering” as urban limits.
- In places where sprawl has resulted in affordable housing (Texan cities are often given as the example) there has been huge (billions upon billions) spending on highways and other infrastructure to support that growth. Hardly the ‘market outcome’ that the proponents suggest.
We have supported urban limits in documents such as the Auckland Plan and the Unitary Plan. In fact we support stronger control over the release of greenfield land in the Unitary Plan compared to what’s currently proposed. The reasons for this are obviously multi-faceted but basically come down to the significant public cost of providing new areas with sufficient transport, water, wastewater, stormwater, schools, parks, medical facilities etc. With so much public investment required to make new development areas liveable, quality communities it’s critical for there to be a carefully staged plan of what areas will be developed when. Not having an urban limit makes this process extremely difficult and potentially undermines the efficiency of public investment because you often see “leap frog” development or a mismatch between where development happens and where public investment has occurred.
Putting that never-ending debate aside though and returning to the issue of how transport costs change our understanding of housing affordability, there are some additional maps in both the journal article referenced in our original post and in the thesis the article is based upon, which provide interesting further information. Please note that we have been asked by the thesis author Kerry Mattingly to not publish the thesis online.
The first interesting map looks at the proportion of household income that is spent on rent across different parts of Auckland. The author provides a number of reasons for using rent rather than mortgage repayments, which appear sound and supported by previous academic studies.
Perhaps what’s most interesting about this map is the lack of a clear pattern, with proportions being high in some areas (North Shore, southeast and parts of the isthmus) but low in other ‘patches’ – generally areas that appear to correspond to concentrations of Housing New Zealand property.
One map that does show a clear pattern is the mean annual commuter variable cost – which broadly tracks the amount of money each household annually spends on commuting.
Even though the methodology for preparing this map obviously didn’t assume everyone worked in the city centre, we still get a clear pattern that indicates the further you live from the city centre the more you spend on transport. Relatively employment-rich South Auckland sees lower commuting costs than employment poor west Auckland, but still generally not as low as the commuting costs for the inner isthmus.
The upshot of comparing these two maps is simply that when you add transport into the mix, the true ‘affordability’ of different areas changes quite significantly. That’s perhaps best illustrated in this third map – which shows how much (as a percentage of housing cost) transport adds onto the cost of living in a certain area.
This map is a little bit challenging to interpret initially, but basically it shows what proportion of housing cost would need to be added on to reflect the additional cost of commuting in that area. For most of the inner isthmus it’s less than a quarter of the housing cost that’s added on – so the housing costs make up most of the “combined housing and transport cost” that would be faced by someone living here. For areas further out – particularly it seems in the south (despite its relatively large number of jobs) – the proportion is much higher, often meaning that someone may need to add half again to the cost of housing to truly recognise the combined housing and transport cost of that area.
As a final point, I’ve overlaid (just roughly) the approximate location of land zoned future urban in the proposed Unitary Plan on top of the map above (excluding Warkworth as it was too far north to fit for me).
The concerning conclusion from the map above is that most of the land we’re proposing to urbanise over the coming years lies in areas where transport costs will be a huge added burden. In essence, even if the additional greenfield land does provide cheaper housing costs (and the high costs of Flat Bush give reasonable reason to be skeptical of that outcome), that ‘gain’ will probably be significantly undone by the high transport costs experienced by those living in these new parts of Auckland.