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Location affordability in New Zealand cities – is greenfield growth really affordable?

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.

Auckland map 1 Rent share Auckland map 2 HT share

(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.

Auckland H_T distance chart

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.

House prices vs rents: the effects of inflation

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

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:

Inflation and mortgage rates

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:

Rodney graph 1

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.

Rodney graph 2

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”.

Next batch of special housing areas announced

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

Grey Lynn Stragetic Area

2. Otahuhu Coast

Up to 1000 new dwellings over 635.9 ha

Otahuhu Coast Stragetic Area

3. Flat Bush

4470 dwellings over 490.5 ha

Flat Bush Stragetic Area

4. Northcote Rd

700 Dwellings over 62 ha

Northcote Stragetic Area

5. Albany

360 dwellings over 105 ha

Albany Stragetic Area

6. Takanini

1770 dwellings over 251.8 ha

Takanini Stragetic Area

7. New Lynn

1588 dwellings over 284.9 ha

New Lynn Stragetic Area

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.

Tranche 3 Map

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.

Burns Lane Kumeu SHA

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.

Affordable Lifestyles in Auckland

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.

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: Titirangi

Affordable Lifestyle Choice #1: 2 Cars in Titirangi (source: affordability.org.nz)

Affordable Lifestyle Choice #2: Freemans Bay

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.

Transport costs & housing affordability: part 2

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.

rent-proportion-incomePerhaps 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.

annual-commuting-costEven 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.

transport-increases-costsThis 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).

transport-increases-costs-addFUZThe 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.

 

 

Appetite for development growing

It seems there’s been a flurry of news about intensification and development over the last week or so. We’ve had Len Brown trying to kick start progress on the CRL at the same time as Precinct Properties redevelop the Downtown Shopping Centre, we’ve had the news that resource consent has been issued for a massive tower to go up on the long empty site that bounds Elliot St, Victoria St and Albert St and that will be right next to the proposed Aotea Station.

Now we’ve had news that the long fought over plans to build apartments on top of the Milford Shopping Centre. The Herald reports:

Milford Shopping Centre’s development boss has welcomed an Environment Court decision allowing apartment towers to rise around the property on Auckland’s North Shore up to 12 levels high.

Campbell Barbour, New Zealand Retail Property Group general manager, said he was still reviewing the decision but said he was satisfied with it. “It signals there’s an understanding that the site is appropriate for the buildings and for intensification so it’s a long way from where this all started – that it was not appropriate,” he said.

“It creates an opportunity for the development of apartment living on the Milford site which can reflect the superb locational attributes,” he said, adding that it also supported the view that good, taller buildings would help resolve the city’s housing supply crisis.

Auckland Council officials said the company had not got as much height as it had wanted but a good compromise had been reached.

The decision on the scheme allows the towers on land now used for carparking at the shopping hub.

I’ve always liked the general idea behind the proposed Milford development as it not only makes better use of the large area the mall covers but putting more people in to the area is bound to help other local amenities more viable and the area more liveable for others. The reduction in height from what the developers were initially wanting from ~17 storeys to 12 storeys doesn’t seem too bad and it sounds like the developer is ok with it so it is likely to go ahead. From memory the plan was only for the buildings in the middle to be high with others closer to the edge of the site lower.

This is one of the images the developers were showing on the website from before this announcement so the height obviously will need to come down by a few levels.

Milford Stage 3

Also in the Herald yesterday was this article about how the councils caving to a few very vocal scaremongers is going to have some potentially big impacts on the ability to build more affordable housing.

Community housing providers say the latest draft planning rules would make affordable housing impossible in 85 per cent of Auckland.

Auckland Community Housing Network chairman Peter Jeffries says Auckland councillors dealt “a disastrous blow” to young couples seeking their first house by caving in to an intense campaign by existing homeowners against high-density housing in almost all suburban areas.

The current proposed Unitary Plan, approved a month before last October’s council elections, imposes a minimum of at least 200sq m of land per dwelling in all except 15 per cent of the Auckland urban area – the 5 per cent zoned for terraced housing and apartments, and 10 per cent in a three-storey “mixed housing urban” zone around suburban centres and main transport routes.

Mr Jeffries said that at current Auckland land values of around $1000 a sq m, home-buyers anywhere else would face land costs of at least $200,000 plus building costs of up to $160,000 for a one-bedroom unit or $200,000 for two bedrooms.

“Affordability is thrown out the window,” he said.

Mr Jeffries’ Community of Refuge Trust recently built eight one-bedroom flats in two new two-storey houses on a 1000sq m site next to the commercial area in Otahuhu.

That worked out at 125sq m of land per dwelling including pocket gardens and a shared barbecue area. It cost only $240,000 a dwelling including the land, enabling the units to rent at only $250 a week.

The example used shows quite well the impact on house prices that intensification can have. Sure it isn’t the mythical quarter acre section but then not everyone wants that and what’s more not everyone has the time or money to be able to maintain a section that size. Further not everyone wants to have to spend huge amounts of money on transport from far flung suburbs.

This is one of the key reasons it’s so important to put a submission in for the Unitary Plan and the deadline being next Friday (I need to get on to mine).

Lastly there also been news that Precinct Properties are also the front runner to build the Innovation Precinct at Wynyard Quarter.

Listed landlord Precinct Properties has just announced a big lift in bottom-line profit and that it is in exclusive negotiations to develop an exclusive part of Auckland’s waterfront.

Precinct has just announced that it made $39.5 million net profit after tax in the six months to December 31, up 67 per cent on the previous $23.6 million.

But Scott Pritchard, Precinct chief executive, also said the company was now in talks to work on one of the country’s largest urban regeneration projects on 1.1ha of land where about 46,000 sq m of floors space could be developed.

Precinct’s involvement in the Wynyard Quarter had not previously been disclosed but Pritchard said the company was working with Auckland Tourism Events and Economic Development (ATEED) which has plans for a multi-building “innovation precinct”.

Precinct could become the development partner for the commercial offices within the quarter’s Innovation Precinct, he said.

The innovation precinct is just one part of a massive redevelopment Waterfront Auckland are currently working on with a neighbouring section also under negotiation that will include a number of apartments. They’re also working on a new hotel for the area.

Wynard Innovation Precinct map

Here’s some images of what the development could end up looking like (and if it does it would be a very very neat place).

Wynyard Central

Wynyard Central 2

Wynyard Central 3

Wynyard Central 4

Including travel costs changes housing affordability

When it comes to the debate around sprawl, intensification and housing affordability one of the most persistent arguments for opening up more greenfield land is that land costs at the edge of town are much cheaper and therefore opening it up for development can help in making houses more affordable. We’ve long argued that the looking at the costs of housing alone is only telling one part of the story and that we really should also be taking transport costs into account.

An article in the herald yesterday highlighted that a study on exactly that based on Auckland that had just been published (you’ll need to purchase the paper to be able to read it). The herald writes about it.

Migrating to the outer suburbs may not be the affordable dream many Aucklanders believe, according to a new study which lays bare the true cost of commuting.

Researchers have for the first time created a detailed picture of housing affordability in New Zealand’s largest city when commuting costs are factored in, with surprising results.

One calculation showed that the most affordable homes could even be found in some inner areas of the city.

“When you take into account that people in outlying areas are so much more dependent on automobiles than people in inner-city neighbourhoods, transport costs should play a role in what locations we consider to be affordable or not,” study co-author Kerry Mattingly said.

and

The researchers created two separate income-based indicators to measure combined commuting and housing affordability across different suburbs of Auckland.

This stands in stark contrast to measures considering housing costs in isolation, which show affordability generally improves with distance from the centre of the city.

One of the indicators, which they said presented a more accurate picture of how affordable an area would be for a typical family to live in, found the most affordable areas were found in the lower central, inner-west and inner-south of Auckland.

Areas close to employment hubs appeared relatively more affordable using the measure due to modest expenditure on commuting.

In some peripheral areas, average annual commuting costs could be five times the amount shouldered by those living in many central Auckland neighbourhoods.

The study highlights that there’s no point in just building a heap more housing out on the urban fringe as that alone won’t make housing more affordable primarily due to people having to drive further. To me this result is completely unsurprising and shows we need to be much smarter about how we develop out city if affordability is something that people are actually concerned about.

Amazingly I have seen some people suggest that without having read it, the study is flawed because it focuses only on people travelling to the CBD however actually reading through the paper shows that this completely false. Using the 2006 census data the researchers looked at individual area units within Auckland, where the people within them were travelling to for work and what mode they used. That means someone travelling to the CBD is treated exactly the same as someone travelling to a different part of Auckland.

Yet despite how detailed the researchers have been there are a still factors that haven’t been taken into account that would likely further impact on affordability. For example parking costs aren’t taken into account and the calculations only take into account the distance travelled, not the time travelled. Both of these are likely to further favour areas where there good PT, walking and cycling connections.

Here’s one of the maps showing housing affordability compared to median income however once again you’ll need to buy the paper to see all of them.

Housing Affordability and Transport costs

Lastly

“If you just look at housing costs alone, outlying areas appear really affordable and it initially seems to make sense to say, hey, let’s open up greenfield sites on the urban periphery and develop here,” Mr Mattingly said. “But when you include these broader costs, they are not as affordable as they seem.”

He said the results went against the traditional notion of “drive ’til you qualify”.

When wider social impacts such as increased pollution were taken into account, low-density, urban-fringe expansion was even less ideal, he said.

While increasing the supply of housing may well help to lower the cost of housing, Mr Mattingly said it was the way in which supply was improved that was important.

“In particular, the location and density of residential development will have strong implications for associated transportation costs, combined housing and transport affordability, and long-term environmental sustainability.”

Policy-makers needed to consider the relationship between housing and transport, and strike a balance between an adequate supply of land for development and intensification.

It’s certainly an interesting paper and something I’ve wanted to see more data on for a while so thank to the authors for doing this. The timing is also good being just before the unitary plan submissions close.

First Special Housing Areas announced.

Yesterday the council and government announced the first batch of special housing areas (SHAs). For those that don’t remember the special housing areas came about as part of the housing accord the government agreed with the council a few months back. In the selected areas the recently notified unitary plan comes into effect straight away and the council will have a fast tracked consenting process. The special housing areas were one of the reasons why the council needed to get the unitary plan notified as soon as possible as if they had put it off, the government was likely to step in and open up land themselves. Here is the press release.

6,000 homes in first batch of Special Housing Areas

Housing Minister Dr Nick Smith and Auckland Mayor Len Brown today announced the first batch of Special Housing Areas that will progressively bring to market 6,000 new homes across the city under the Auckland Housing Accord.

“Land supply is the most critical issue we must address to improve housing supply and affordability in Auckland. This first batch of Special Housing Areas will bring 6,000 sections onto the market and is a significant step towards the Auckland Housing Accord’s target of consenting for 39,000 new homes over three years,” Dr Smith says.

The locations for the 10 Special Housing Areas, in addition to the Weymouth community housing project of 282 homes announced last week, are:

  • Addison, Papakura, 500 homes, 32 hectares
  • Alexander Crescent, East Tāmaki, 148 homes, 8.1 hectares
  • Anselmi Ridge, Pukekohe, 64 homes, 6.8 hectares
  • Flat Bush Murphys Road, East Tāmaki, 275 homes, 37.8 hectares
  • Flat Bush School Road, East Tāmaki, 300 homes, 7 hectares
  • Hobsonville Catalina Precinct and Marine Industry precinct, 1,200 homes, 28.2 hectares
  • Huapai Triangle, Kumeu, 2,000 homes, 65.1 hectares
  • McWhirter Block, West Harbour, 166 homes, 10.1 hectares
  • Orakei, Auckland City, 75 homes, 0.8 hectares
  • Wesley College, Pukekohe, 1,000 homes, 277.7 hectares

Dr Smith and Mayor Brown made the announcement at the Huapai Triangle Special Housing Area in Kumeu, which has the capacity to accommodate 2,000 new homes.

The Special Housing Areas have been recommended by Auckland Council and provisionally approved by Cabinet. They take legal effect once formally approved by the Governor-General by Order in Council, expected before the end of October. Applications for subdivisions will then be able to be considered by Council under the fast-tracked mechanisms in the legislation which requires approvals within six months for greenfield developments, compared to the current average of three years, and three months for brownfield developments, compared to the current average of one year.

“There will be requirements across the Special Housing Areas for a proportion of the completed homes to be in the more affordable range. This will vary from 100 per cent in some areas like Weymouth to a smaller proportion in others. The details of these requirements will be resolved with the processing of qualifying developments, as provided for under the Auckland Housing Accord,” Dr Smith says.

“Alongside freeing up land supply, we need to constrain the impact of development contributions on section prices, get better value for building materials, make efficiency improvements in building consents, and improve productivity in the construction industry. The Government is also helping Auckland home buyers by expanding the Welcome Home Loans and KiwiSaver First Home Deposit Subsidy schemes.

“This is the start of getting real momentum into Auckland’s residential construction following the enactment of the Housing Accords and Special Housing Areas legislation on 16 September and the adoption of the Auckland Accord on 3 October. I commend Auckland Council for the work they’ve put into bringing these first 11 Special Housing Areas forward. My expectation is to have many more approved by Christmas.”

There are a few surprises in there which I will go through shortly but at a regional level, here is the location of the SHA’s.

Special Housing Areas Oct 13

I’m going to work my way from North to South.

Huapai Triangle, Kumeu, 2,000 homes, 65.1 hectares

This one is one of the more interesting SHA’s. There is quite a bit of land around Kumeu that is already zoned for single housing but that is yet to be developed but instead of enabling that to happen easier, a section of land marked Future Urban has been selected. Possibly it’s due to the owners of the site wanting to develop already but straight away it seems to make a bit of a mockery of the Unitary Plan process by picking land that doesn’t even have any effective zoning.

2000 houses is actually quite a substantial amount and easily the biggest of the SHA’s announced today. Assuming that about 20% of the land will be needed for roads, parks etc, it suggests that each dwelling would be about 260m² which for the area is actually quite dense suggesting we will see a lot of tow/terraced house type dwellings going in here. Interestingly this one development will almost triple the size of the population in Huapai/Kumeu as based on the 2006 census there were only 690 dwellings in and around the township and that includes quite a few rural lifestyle and farm houses (due to large meshblocks). Hopefully this can be designed well and help turn Huapai/Kumeu into a neat satellite village – but it will take a lot more than just more houses to do that.

The biggest issue for this development is likely to be the impacts it puts on the transport system. I can already see the government announcing that instead of investing in the CRL they will start fast tracking an extension of the NW motorway. I can also see some suggesting that it will change the situation around what happens with the rail network and that we should now leave Waitakere open and extend rail services to Huapai. Personally I don’t think this changes that as it doesn’t change the fundamental issue with the rail network in that it is simply too indirect. It might be ok if thousands were going to Henderson and New Lynn but most people won’t be, instead they are more likely to be going to the CBD, the new centre at Westgate, Lincoln Rd or to the North Shore. Personally I still think the best solution is to put the North West busway in and extend it to Huapai with it happening before any motorway expansion. This is also what we have suggested in the Congestion Free Network.

Huapai Triangle

Hobsonville Catalina Precinct and Marine Industry precinct, 1,200 homes, 28.2 hectares and McWhirter Block, West Harbour, 166 homes, 10.1 hectares

Development at both of these places was already expected and in some cases underway so it isn’t surprising to see them get SHA status. For those not sure about the location of the McWhirter block, it is the section of green land just south of the existing Westgate centre. Hobsonville is primarily zoned Mixed Housing Urban while the McWhirter Block is a mix of Mixed Housing Urban and THAB

Orakei, Auckland City, 75 homes, 0.8 hectares

Again another one that is not surprising but it will be interesting to see how some of the neighbours react when they realise that this is the start of Iwi making much better use of its land by building affordable housing for its members. Based on the number of dwellings these are likely to be apartment developments (they are in the THAB zone too) and I would suggest the sites picked are just the first of many.

Orakei SHA

Alexander Crescent, East Tāmaki, 148 homes, 8.1 hectares

I think this site is also an Iwi one but the difference is the sites will be much bigger. The number (again 20% put aside for roads, open space etc.) suggests that site sizes will be about 430m². Currently has Special Purpose

Alexander Cres SHA

Flat Bush School Road, East Tāmaki, 300 homes, 7 hectares and Flat Bush Murphys Road, East Tāmaki, 275 homes, 37.8 hectares

Both of these sites are fairly close to what is meant to become the Flat Bush Town Centre, the Flat Bush School Rd site (on the left of the image) is zoned THAB and the numbers suggest sites will be just under 200m² which is similar to what we are seeing go in at Hobsonville. If that’s what happens here then the outcome might be ok – however the key will be in the design and how the development interacts with the town centre.

The Flat Bush Murphys road SHA has THAB zoning on the Northern, Western and Southern edges with mixed housing suburban covering the rest of the area. The numbers in the press release suggests that there would only be 275 dwellings on the site and that equals about 1100m² per section – absolutely massive and stupid with that zoning. It is possibly that this isn’t the full story though, a couple of reasons I think this could be, one is that it’s a typo and that it is meant to be 1275 homes (which would put average site sizes at 237m²) or two that the developer only intends building 275 dwellings in the three years of the housing accord but that more will eventually go in.

Flat Bush SHAs

Addison, Papakura, 500 homes, 32 hectares

This is another development that isn’t a surprise to see on the list. The numbers suggest site sizes of only 500m² but as with Flatbush the number might only be the amount intended to be built over the next few years. I’m pretty sure it is the same developer as the rest of Addison and there are some lots there less than 150m² so I can’t see them all of sudden changing dramatically what they are doing. The site is also near the Takanini station near where the developers want a Walters Rd Station.

Addison SHA

Wesley College, Pukekohe, 1,000 homes, 277.7 hectares

Like Huapai this is another interesting site as it is current zoned future urban and sites in between Drury and Pukekohe. Again I suspect it will eventually hold much more than 1,000 dwellings as the numbers otherwise suggest site sites of over 2,000m². One thing is it surely makes the need for electrification to Pukekohe even more urgent. As this is completely greenfields it will be crucial that the council are deeply involved with this to ensure we actually get an outcome that is not just a heap of houses with no amenities (wonder how much those will cost ratepayers). At this stage it really does appear to be a exactly the kind of thing that most people in the region were hoping wouldn’t keep happening and the only slightly redeeming feature is that it is at least on the rail network (that will have services).

You can see the scale of it in the image below wand the area is larger than all of the other SHAs combined

Weseley SHA

Anselmi Ridge, Pukekohe, 64 homes, 6.8 hectares

This is another classic sprawl development and some of it has already taken place. Further the zoning in the Unitary plan allows for up to mixed housing suburban on the site so really this SHA is just allowing for the development to happen a little bit faster. The large sections to the North, East and West of this development are also zoned MHS so it wouldn’t surprise me to see them become SHAs at some point in the future too.

Anselmi Ridge SHA

Weymouth

There was also an SHA announced for Weymouth last week. It is for 282 dwellings on 16 hectares of land which equates to about one dwelling per 450m² which is about the size for many single house type developments these days. Basically sounds like it will be a typical suburban housing development.

Weymouth SHA

Overall I’m a bit disappointed in the outcome so far. Most of the sites are within the existing urban boundaries and so would have been redeveloped at some stage however the thing that particularly disappoints me is the lack of sites for redevelopment. For example I had expected we would see some sections around Glen Innes and Panmure on the list as redevelopment is due to happen as part of the Tamaki Transformation project. Hopefully the redevelopment SHAs will come in the next batch which Nick Smith has said is due before Christmas, I’m not holding my breath though.

Sprawl and Housing Affordability

Whether or not having a ‘limit’ around the edge of Auckland (call it a MUL or a RUB of whatever) drives up the cost of housing is a fairly long-running debate. The argument in favour of this assumption is encapsulated by an opinion piece in the NZ Herald a week or so back by Don Brash:

At the moment, less than 1 per cent of New Zealand’s area is urbanised. We are one of the least densely populated countries in the world. The council has quite deliberately chosen to make land expensive.

And the consequences of that decision are disastrous, socially and economically.

It’s disastrous socially because for most low and middle-income families, buying a house in Auckland is now not even remotely possible, and for those families who do make the attempt, it almost inevitably means both parents working outside the home. Most low and middle-income families can’t even make the attempt, and often live in over-crowded, poor quality rental accommodation.

At the moment, the median house price in Auckland is some seven times the median household income. It should be about three times, as it was 20 years ago and is now in many of the fast-growing cities in, for example, the United States.

Why is it possible to buy 500sq m sections on the outskirts of Houston for $40,000, whereas 400sq m sections on the outskirts of Auckland cost $400,000? The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.

SPRAWL_02

We’ve recently discussed the question of whether or not sprawl is a good idea, and I think that’s largely a separate debate to this one. What’s particularly worth testing here is the question of whether opening up large amounts of greenfield land will improve housing affordability or not. The Auckland Housing Accord and its accompanying (although rather contradictory) legislation means that we may well be testing this question in the relatively near future – but recent evidence suggests that standalone housing built on the urban periphery is generally very expensive. Let’s take a look at what was noted in a Central Government report on housing and affordability  recently:So standalone houses on the urban periphery generally aren’t that cheap to build, whereas most higher density housing types are comparatively affordable to construct on a per unit basis. And it seems that the availability of affordable housing units is very much linked to the number of higher density units being built:Now one of the reasons why recent standalone houses might be so expensive is because there’s (apparently) not a lot of greenfield land going around – which means that it’s fairly scarce and therefore high value. Expensive land means that a developer needs to put a big house on the site (or two or three smaller ones, which is generally banned through planning rules) in order to make a profit. So maybe opening up more greenfield land could lower the price of that land (more supply leading to lower prices at a set level of demand) and therefore result in it being “economically sensible” to build cheaper standalone dwellings on that greenfield land.

An interesting question then, however, is “how much extra greenfield land would be needed to make a difference?” Plus, perhaps, also a question around whether there really is a shortage of greenfield land being supplied. Let’s refer once again to the Central Government report, this time in relation to land supply:land-supply
The key ‘takeaway’ point from the above slide is that only a small proportion of land which is zoned for development and served with infrastructure has actually taken the next step to being developed. As “boosting housing supply” requires a lot of extra houses to actually end up being built, we find ourselves with two further questions:

  1. If we want to go from around 2,000 sections being “ready to go” (i.e. subdivided) up to around say 10,000 – does that mean we need five times as much land zoned and serviced as we have now? In other words, is the market always going to drip-feed the subdividing of zoned and serviced land into sections, no matters how much land is available?
  2. Do we instead need to focus on what’s holding up the 15,000 sections worth of land that is zoned and serviced from actually being split up into subdivided sections and eliminate those barriers?

Option 1 may well lead to achieving the desired amount of increasing housing supply, but at a truly staggering cost to ratepayers and taxpayers in the form of new roads, new schools, new water pipes, new wastewater pipes and so on. Furthermore, if it’s only around 13% of zoned and serviced land which is actually going to be split up for development to occur on it, then we’re going to be building an absolutely vast amount of roads, pipes, schools and all the rest which are totally surplus to requirements – at least in the short term.

Undoubtedly this post raises far more questions than it has answers, which is unsurprising. There just doesn’t appear to be much evidence that the best way to improve housing affordability is by building more houses on the edge of the city. Or that it’s a lack of zoned and serviced land which is holding up the release of new greenfield sections onto the market. Or that increasing the supply of land zoned for greenfield development will actually do anything – especially not in the short or medium term, to improve housing affordability.

It’s all a bunch of questions, a bunch of very expensive questions if the Auckland Housing Accord does decide to open up greenfield land in the vague hope of improving housing affordability.

parking lot_01

Government to override their Housing Accord with the Council

Last week the Government announced it had reached a housing accord with the Auckland Council in a bid to get more houses built and ease issues over housing affordability.

The legislation, to be introduced to Parliament as part of Budget 2013, will enable Special Housing Areas to be created by the Auckland Council with approval of Government. In these areas it will be possible to override restrictions on housing put in place by Auckland’s eight predecessor Councils, like the Metropolitan Urban Limit.

Qualifying developments in these Special Housing Areas will be able to be streamlined, providing they are consistent with Auckland’s Unitary Plan, once it is notified, expected in September this year. New greenfield developments of more than 50 dwellings will be able to be approved in six months as compared to the current average of three years and brownfield developments in three months as compared to the current average of one year. The streamlined process will not be available for high rise developments that will need to be considered under existing rules until the Unitary Plan has been finalised in 2016.

“This is a three year agreement to address these housing supply issues in the interim until Auckland Council’s Unitary Plan becomes fully operative and the Government’s Resource Management Act reforms for planning processes take effect.

“The Government respects in this Accord that it is for Auckland to decide where and how it wishes to grow. The Government is giving new powers for council to get some pace around new housing development and is agreeing on aspirational targets to ensure Auckland’s housing supply and affordability issues are addressed.

Overall the accord seemed straight forward enough and fairly sensible. At a high level the council would decide on a number of Special Housing Areas. Qualifying developments within these areas are able to use a fast tracked process to get consent and would have to comply with the rules in the Unitary Plan when it is formally notified later this year.

Housing Accord 1

To me the accord seemed fairly positive as it would make it quite easy for medium density developments – the kind that will likely be the majority of intensification that occurs – to happen in any brownfield areas selected. This was especially the case as a site only needs capacity for 5 dwellings to qualify. There was one issue though, while the council would be able to select the special housing areas, the government had to approve them. That leaves the question of what happened if the council and government couldn’t agree on where the special housing areas should be.

Today it seems we have our answer. Along with the budget, the government has introduced the legislation to enable the special housing areas to be designated. Nick Smith has also issued a press release about it which includes this.

“If an accord cannot be reached in an area of severe housing unaffordability, the Government can intervene by establishing special housing areas and issuing consents for developments.”

Budget 2013 includes $7.2 million over four years to help the Ministry of Business, Innovation and Employment fund the initiative.

The legislation will go through its first reading as part of Budget 2013 before being sent to a select committee for a shortened six-week timetable for urgent consideration and progress.

“This legislation is an immediate and short-term response to housing pressures in areas facing severe housing affordability problems,” Dr Smith says.

“This provides time for the Government’s substantive changes to resource management reforms and the subsequent council planning processes to bear fruit and address these land and housing supply issues in the longer term.”

In other words, if the council and government can’t come to an agreement on the locations for the special housing areas, the government will simply override the council and do what they want. It makes a complete mockery of the announcement that the government and council made last week. It turns out that this is not a case of both sides compromising but one of the government twisting the councils arm behind its back to get their way while also forcing the council to smile at the camera and pretend everything is good.

Len Brown has obviously also been surprised by this as he has already come out with the statement below.

Auckland Mayor Len Brown has welcomed the introduction of legislation for housing accords, but says he will be seeking clarification on a number of points to ensure the final legislation is consistent with the draft Auckland Housing Accord.

“There are clauses in the bill introduced today that appear to be inconsistent with the Auckland Housing Accord,” says Len Brown.

“My expectation is that the Select Committee process will provide an opportunity to clear up these inconsistencies.

“Clearly, in relation to the accord, the point of the legislation is to give effect to the agreements we reached.

“The accord still needs to be considered and agreed by the Auckland Council’s Governing Body. Before we can do this we need to be certain that the legislation is consistent with the agreements in the accord.

Len Brown said he would be writing to Housing Minister Nick Smith to raise questions about the consistency of the accord and the current bill.

The Housing Accord is an agreement between Auckland Mayor Len Brown and the Minister of Housing aimed at tackling issues of housing affordability and supply in Auckland.

It is subject to agreement by Auckland Council.

The streamlined consenting process outlined in the accord can only take effect once the council’s draft Unitary Plan is adopted for notification – expected to be September this year.

It would also be interesting to see how the government determine housing unaffordability, my guess would be the flawed Demographia study as it is something that the government have pointed to in the past.