Archive | Affordability

Auckland still near top of Demographia’s international unaffordability table

Auckland comes in at 6th least affordable city internationally in Demographia’s 13th international survey of housing affordability in 9 countries, out today.

New Zealand markets with median multiple (last year in brackets), median price, median household income and their rankings – international affordability, major market ranking (Auckland only) and NZ ranking:

Auckland: 10.0 (9.7), $830,800, $83,000, rankings 401, 89, 8
Christchurch: 5.9 (6.1), $435,300, $73,900, 350, 5
Dunedin: 5.4 (5.2), $322,000, $59,700, 323, 2
Hamilton-Waikato: 6.2 (5.1), $444,900, $72,100, 356, 6
Napier-Hastings: 5.7 (5.0), $340,500, $59,300, 342, 3
Palmerston North-Manawatu: 4.7 (4.1), $255,800, $54,900, 275, 1
Tauranga-Western Bay of Plenty: 9.7 (8.1), $591,900, $61,200, 398, 7
Wellington: 5.8 (5.2), $463,700, $79,600, 348, 4
Median market: 5.9 (5.2)

The survey, by Wendell Cox of Demographia in the US and Hugh Pavletich of Performance Urban Planning in Christchurch, is based on data at September.

Auckland’s median multiple (median house price divided by median household income) of 10.0 put it behind Hong Kong on 18.2, Sydney 12.2, Vancouver 11.8, Santa Cruz, California 11.6, and Santa Barbara, California, 11.3. Melbourne was 10th on 9.5.

The authors said Auckland’s housing affordability had deteriorated from a median multiple of 5.9 in the first survey in 2004. Auckland was the 4th least affordable among the 92 major housing markets, following only Hong Kong, Sydney & Vancouver, and has been severely unaffordable in all 13 Demographia surveys.

Australia

Demographia has rated all of Australia’s 5 major housing markets as severely unaffordable in every one of its surveys, and did so again: “Overall, Australia’s 54 housing markets have a severely unaffordable median multiple of 5.5. 4 housing markets are affordable, 3 are moderately unaffordable, 14 are seriously unaffordable and 33 are severely unaffordable.”

International

Last year’s survey covered 367 metropolitan markets in 9 countries (Australia, Canada, China – Hong Kong, Ireland, Japan, New Zealand, Singapore, the UK & the US), and introduced the qualification of “middle-income housing affordability”. This year’s survey covers 406 metropolitan housing markets in the same countries, including 92 major markets of 1 million-plus population & 5 megacities.

The authors explained the qualification: “Middle-income housing affordability is different from low-income affordable housing, which often relies on public subsidies. Even so, low-income housing costs and the demand for social housing are generally driven up by the failure to maintain middle-income housing affordability.”

Demographia rates a median multiple of 3.0 & under as affordable, 3.1-4 moderately unaffordable, 4.1-5 seriously unaffordable, 5.1 up severely unaffordable. This median multiple is derived from median house price divided by median household income.

The Demographia survey doesn’t adjust the median multiples to reflect differences in house types, housing characteristics & lot size. For example, the average size of housing, particularly new housing, is abnormally small by New World standards in the UK & Hong Kong.

The authors wrote that, “in many housing markets, house prices have skyrocketed compared to household incomes. The most severe house price increases have been limited to housing markets where urban containment policy (or its equivalent) have been implemented.

“Generally, urban containment policy draws a development limit around the urban area and seriously limits or even prohibits greenfield development of housing tracts on the urban fringe. Consistent with the basics of economics, this is associated with higher land prices and, in consequence higher house prices….

“In effect, governments implementing urban containment policy choose pursuit of a particular urban form at the expense of a better standard of living and less poverty.”

People over places

The authors commented on what constitutes “best cities” & “most liveable cities”, international comparisons frequently made, with Auckland often one of the prime contenders.

The authors said these surveys were aimed at the high end of the market and virtually never evaluated housing affordability. “Yet, the media often mischaracterises the findings as relevant to the majority of households. In fact, a city cannot be liveable, nor can it be a best city, to households that cannot afford to live there. Households need adequate housing.”

They compared Dallas-Fort Worth, where housing affordability was far better than in Toronto, which was rated as the “best city” by the Economist: “In addition to better housing affordability, traffic congestion was better and incomes were higher. This is despite the fact that Toronto employs the most favoured urban strategies, which Dallas-Fort Worth does not.

“Another comparison shows that Kansas City has better middle-income outcomes than all of the Economist’s top 10 (for which data was available) in housing affordability & traffic congestion, and higher incomes than all but 3.”

While “excessive housing regulation has been identified as having significantly reduced economic growth in the US and inequality internationally,” the Demographia authors commented: “It has complicated the inflation-controlling role of central reserve banks.”

To keep housing affordable “requires avoiding urban planning policies associated with artificially raising house prices, specifically urban containment. Failing that, housing affordability is likely to worsen further.”

Links:
2017 survey
Demographia (Wendell Cox)
Performance Urban Planning (Hugh Pavletich)

Earlier stories:
22 January 2016: Updated: The urban boundary case, and hard versus soft edge
13 January 2016: Auckland home values rise 22.5% in year, but only 0.2% in December
11 January 2016: Urban boundary & zones under the spotlight
8 November 2015: Twyford talks ideas which unitary plan & council funding review likely to resolve
2 October 2015: Council economist lists potential housing price solutions
30 September 2015: English sets out his housing rationale
11 May 2015: Australian affordability report a 40-recommendation failure
6 May 2015: Hobsonville Pt affordable brackets raised $50-65,000
23 January 2015: Building cost research a onesided analysis
19 January 2015: Auckland worsens on Demographia’s affordability rating

Attribution: Demographia survey.

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Australian response to high housing costs

News.com.au ran a story on Friday about a Sydney building firm which has introduced a range of low-cost options for first-homebuyers designed to cut the cost of a house by over $A100,000.

Thrive Homes, a division of Rawson Group, says its houses cost $A185,000 to build, compared to $A260-300,000 for a typical standard build.

One difference is that Thrive mastered the CDC (complying development certificate) process, issued by private certifiers instead of councils, and assessed against state government rather than local council codes.

The alternative, using councils’ development application process, allows for customisation & reworking, takes about 8 weeks and ends up costing more in time & changes.

Thrive general manager Patrick Eather said Thrive offered predesigned houses, with a range of internal options that were already calculated & costed, that were generally under 220m² and designed to fit on small sections.

Ho also remarked that New South Wales should join the West & South Australian state governments in supporting low-deposit loans for first-homebuyers.

Links: Thrive Homes

News, Sydney, 13 January 2017: Low-cost builder targets first home buyers

Attribution: News Ltd.

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Tracking ideas Sun27Sep16 – sprawl v compact, inclusionary housing, infrastructure funding, related pieces, Making NZ

Sprawl v compact research stops short
Inclusionary housing another debate that’s international
Infrastructure funding options
Related pieces
Making NZ a home for planning thinkpieces

Tracking ideas is a Bob Dey Property Report section devoted to ideas on property questions such as urban strategies & design, many from overseas but with relevance to Auckland.

This page today flits between foreign, mostly American, information and Auckland. I’ve listed a large number of links to work through – it’s a library piece, not a quick read. And I’ve mentioned a couple of points which may be true in the US but don’t apply in Auckland because circumstances here have changed.

Sprawl v compact research stops short

In another round of the sprawl v compact argument, US analyst Issi Romem produced an article a fortnight ago that’s already been taken by some notable news outlets as something approaching gospel.

Some of what I’ve read among the many links below leaves me mystified about the writer’s point, some of the complicated analysis requires more digestion, here & there I’ve spotted contributions worth taking further.

The first mystery, for me, is how Dr Romem’s figures (down to 2 percentage points) on housing development over the last 3 decades can point to a sensible way forward in times which have started to change very quickly.

An inappropriate template

The US – and New Zealand followed, though to a less extravagant extent – launched into suburban development in the 1950s, pushed along by the availability of cars for general consumption. That doesn’t mean the development of those suburbs was a perfect mechanism for housing fast-growing populations, or that in an isthmus-centred place like Auckland the carpetlaying grid template would be appropriate.

One side of the argument now is that central intensification should be used to provide a larger proportion of housing, that this will be cheaper than sprawl on the fringes of the region. On the other side, proponents of extending the urban footprint say this will provide cheaper land and thereby cheaper housing.

How you count the numbers, and which numbers, makes a big difference. Do you include a travel component, or not? Does it measure cbd to wherever, or some to more local workplaces? How many cars does a household have?

Housing comparisons undefined

All the research, and all the comments, refers to housing, houses, apartments…. You, the reader, can only guess at what kind of economic units are being referred to. At the start of the 1980s, the standard New Zealand house (used in Master Builders statistics) was 93m² (1000ft²). Standard houses now are more likely to be over 200m², perhaps over 300m² including garage, with indoor-outdoor flow to make it hard to assess actual, practical size.

Old sausage-block flats were small, commonly under 80m², and a high proportion of apartments built in the last 20 years will also measure less than that. But, in recent times, terraces, townhouses, cross-leases, standalones on small sections and a smattering of apartments will exceed 200m².

Section sizes have been shrinking for 20 years. From 809m² (one-5th of an acre, far more common than the ‘quarter-acre paradise’, 1012m²), sections now can be down at 200m².

In Auckland, now, the Government is a key participant in redeveloping at Hobsonville Point, in the Glen Innes-Tamaki area and at Northcote. The Government-owned Housing NZ is still contesting unitary plan decisions limiting what it can do on many other sites where it’s aggregated land, wants to reposition old housing or wants to do a mix of upgrade & new.

In most of the American research, apartments or other intensified housing in the city centre are compared to development on the distant suburban fringe, with no indication of how close they are to being alternative options, and no calculation of commute costs.

Commuting from Faraway

In Auckland, we have a 20km stretch through Dairy Flat, between the ridge above the Albany basin & Silverdale, and very large areas between Karaka, Pukekohe and west to the coast likely to be developed for housing. You can bet it won’t be turned over to housing at the US standard of 4 houses/acre gross (10/ha) – more likely a mix of standalones on sub-400m² sections, terraces and, a novelty, suburban apartment blocks.

Where will these residents work? Shop? How will they get there? Do we create new communities – or faraway dormitory suburbs? Will the commute be made easy first, or wait for an economic number of travellers to buy at Faraway?

What kind of local jobs will be there? Rodney District Council, in its last years before the super-city was created in 2010, envisaged an innovation zone of business & education as well as housing north-west of Silverdale, a strategy that would increase jobs & education and reduce the commute. That kind of thinking needs to be revived.

Completion of the Auckland unitary plan enables the course of infrastructure provision to be more clearly defined (the appeals still to be determined shouldn’t drastically alter this), but there will still be questionmarks over how much more intensive development might be put in train in the inner suburbs.

Back to Dr Romem

Today’s Ideas page traverses ideas on infrastructure funding, inclusionary zoning as a way of introducing some more affordable housing, and city shape (focusing on Auckland being linear, having satellites, or concentrated around nodes).

This journey over the weekend has taken me to a wide range of views on transport, land use, access – starting with American, returning to New Zealand via international links (Wendell Cox, co-author of the Demographia studies with Hugh Pavletich of Christchurch; and housing & urban development thinker Phil Hayward of Lower Hutt, whose comments appear in a couple of the international & local threads).

At my first stop, Dr Issi Romem’s Can US cities compensate for curbing sprawl by growing denser? offered 4 central points:

  • The link between housing production and outward expansion is unmistakable: cities that expand more produce proportionally more new housing
  • Throughout the country, housing production is skewed towards low density areas
  • Densification has slowed down across the board, and especially in expensive cities, undermining their ability to compensate for less outward expansion
  • Unless they enact fundamental changes that allow for substantially more densification, cities confronting growth pressure face a tradeoff between accommodating growth through outward expansion, or accepting the social implications of failing to build enough new housing.

While Dr Romem’s research shows his first point appears true historically in the US, in Auckland at least that may be much less so in the last 5 years. On his second point, land price & ease of development are the crucial factors. Auckland has a short history of apartment building (though a long history of much less intensive sausage-block flats), and it’s come in bursts. Building consents are now approaching the 2004 level, but the price range is limited – almost entirely above what’s deemed “affordable”.

Romem says less outward means less overall

Dr Romem is the chief economist at BuildZoom, a San Francisco website aimed at matching clients to construction contractors. He was previously an economist at OnPoint Analytics, earned his PhD in economics at Berkeley, and consulted for the Bay Area Council Economic Institute on matters involving transport, real estate & the regional economy.

In this report, he found that, when cities change their pace of outward expansion, their rate of housing production tends to change accordingly.

“Both expensive & expansive cities are economically vibrant and face pressure to grow, but whereas expansive cities like Atlanta, Houston & Phoenix continually provide ample new housing at affordable prices, expensive cities like San Francisco, New York & San Diego do not. Since the 1970s, expensive cities have failed to produce enough new homes to keep real housing costs steady, and as a result they have curbed their population growth and sent real housing prices on a long-run upward spiral.”

He saw 2 key reasons for housing production to correspond so closely with outward expansion:

  • Undeveloped & low density areas produce a disproportionately large share of cities’ new housing. Restricting the flow of undeveloped land “into” a city chokes off subsequent rounds of densification, because low density areas add new housing more readily than denser ones, and
  • Cities which curb their outward expansion are also likely to curb densification within the existing footprint, eg, through more restrictive land use policy.

“Housing production’s skew towards low density areas is important, because it is consistent with the notion that a greater inflow of undeveloped land helps cities produce more housing, through both initial development & subsequent rounds of densification. For reasons explained earlier, eg, with respect to vacant lots, such densification is easier in low density areas. Crucially, expansive cities’ namesake outward expansion keeps low density areas more plentiful there than in expensive cities. In contrast, expensive cities have limited their inflow of undeveloped land by curbing their outward expansion, thereby choking off the initial development of new areas as well as subsequent rounds of densification.”

Densification has slowed down across the board, but much more so in expensive cities

Dr Romem said an important development of recent decades was the increasing paucity of densification: “During the first post-war decades, it was fairly common for areas to grow more dense through construction on vacant lots, and in particular through the replacement of older structures with new ones containing more dwellings. The data show that densification has grown far less common over time, especially in the expensive cities.”

He said the results were similar for areas first developed before World War II.

“Aside from the slowdown in densification, the numbers also tell us that in the US today, substantial densification is the exception. Just 3.8% of areas adding over 1 home/acre (4/ha) and just 0.95% adding over 2 homes/acre over the span of a decade is not very much, and the fraction of areas that cross the 4- & 10-home/acre (16- & 40/ha) thresholds each decade is also exceedingly small. In fact, the vast majority of the developed area of US cities maintains a fixed level of density that doesn’t usually change much over time….

“By curbing their outward expansion, expensive cities have stemmed their subsequent supply of low density areas that are flush with opportunities for further development. A sizable share of densification occurs through infill – not the kind of infill for which planners reserve the term, but simply construction on vacant land scattered within developed areas. The best land is used first, and as densification progresses the remaining lots are fewer and increasingly more challenging to build on, until redevelopment ultimately becomes the only alternative.

“Expansive cities maintain a robust supply of fresh land that is in the early phases of the progression. In contrast, expensive cities’ reduced rate of outward expansion means that most of their land is farther along in the progression, and as a result it is getting harder for them to densify. It is no coincidence that builders today report an unprecedented shortage of vacant lots that is most pronounced in the West & the North-east, where expensive cities cluster.”

Dr Romem’s assessments may also have been true in New Zealand, Auckland in particular, but the intensification trend is strong at the moment. Building consent figures over the last 2 years show intensive housing (apartments, retirement village units, townhouses & suburban units) showed 29.4% of consents nationally were for such intensive development in the July 2015 year, falling to 28.5% of a bigger total (up from 7600 of 25,700 to 8300 of 29,000) in the July 2016 year. I don’t have the breakdown for each market segment for Auckland alone.

Auckland apartment pricing has risen since the market bottomed in 2011. The market in standalone homes has skyrocketed in that period, but the 2 markets differ in their foreign input. Overseas investors have strongly influenced recent house prices, but have had a much longer association with the apartment market, which has relied on marketing overseas in this boom & the last one to get projects started.

The path forward

Dr Romem saw 3 paths forward in the US:

  • Cities that expand with gusto will maintain housing at more affordable levels, but this will further entrench the ills associated with sprawl; today’s expansive cities are already on this path
  • Avoiding expansion, and maintaining the status quo with respect to densification, will divert population growth towards more accommodating cities and render housing increasingly unaffordable for a growing share of the population; it will unequivocally change the social character of these cities, while keeping their physical facade intact, and
  • Enacting fundamental changes to land use policy that prompt far more substantial densification than any US city has undergone to date; expensive cities would have to embrace redevelopment; if new transport infrastructure connects undeveloped areas to the city, or functionally tethers existing nearby cities to it, then such infrastructure amounts to a catalyst for expansion.

Cox says research supports stance against ‘forced density’

Wendell Cox, principal of Demographia, wrote the book War on the dream: How anti-sprawl policy threatens the quality of life 10 years ago. In an article on the New Geography website on Wednesday, The incompatibility of forced density & housing affordability, he said Dr Romem’s research “supports the conclusion that anti-sprawl policy (urban containment policy) is incompatible with housing affordability. He quoted Dr Romem’s finding: “Cities that have curbed their expansion have – with limited exception – failed to compensate with densification. As a result they have produced far less housing than they would otherwise, with severe national implications for housing affordability, geographic mobility & access to opportunity, all of which are keenly felt today as we approach the top of housing cycle.”

Journal accepts the sprawl argument

In the Wall Street Journal, Laura Kusisto wrote: “Building sprawling suburbs is better at making cities affordable than building tall towers, according to research released Wednesday. Environmentalists, urban planners & economists are pushing cities such as New York & San Francisco to build more housing to help combat rapidly rising rents and home prices that are crowding out the middle class.”

At CityLab, Richard Florida noted the expansive versus expensive comparison and said if most development was low density it would amount to sprawl even if the overall urban footprint didn’t increase, and asked: “Do we continue to try to sprawl our way to the American dream, or do we add the density that powers innovation & economic growth?”

A Planetizen report said Dr Romem’s research “shows that housing affordability increases with a region’s ability to build outwards, as opposed to upwards. Densification largely has not accompanied efforts to curb sprawl.”

The Planetizen take was that the research found “sprawl may be bad for the environment & liveability, increasing dependence on the automobile and making transit less practical, but in terms of housing affordability, it’s a winner”.

In comments on the Romem report, Phil Hayward of Lower Hutt wrote (in a much longer comment): “I believe that everywhere that intensification & redevelopment have been adopted as significant proportions of planned housing supply, the results have been the opposite of the anticipated ‘affordability’. Site values increase to incorporate ‘development potential’ as soon as any rezoning occurs, which increases the costs that developers need to sustain while at the same time reducing their margins. All the gain falls to the incumbent owners of sites. In many cases, the expected ‘supply’ does not materialise.”

Hard boundaries go as immigration spike continues

Auckland, as a region with urban boundaries for 20 years – and “hard” boundaries for most of that time, in that they weren’t easily changed without going through protracted litigation – has been the main host for 2 immigration spikes, in 2003-04 and the present one that began with the turnaround from net outflow to net inflow in January 2013.

The latest annual net inflow was 69,000, of whom 32,200 were destined for Auckland. Neither inflow has been matched by an adequate rise in housebuilding. Consents for new homes issued in the last 12 months, 29,000 nationally, 9600 in Auckland, would barely house the national inflow while the Auckland consents would be inadequate to house all the new migrants, let alone internal migration & natural increase.

That can be turned into an excuse, aided by slow consent processes. Auckland was also behind during the 2003-04 immigration spike, but builders worked to catch up

For the first of those migration spikes, Auckland’s policy statement on land use was in the hands of the now-gone regional council. For the second, it’s in the hands of the successor unitary council, and the spike has coincided with the 3 years it’s taken to get the council’s unitary plan from start to almost finished. The housing accord with the Government through that period has enabled a lift in consents, though still well short of demand, and a finalised unitary plan will make intensification easier in many areas.

The “forced density” Mr Cox writes of is not what we have in Auckland, although the Government is leading rebuilds & newbuilds in 3 suburbs – Hobsonville Point, Glen Innes-Tamaki & Northcote. 2 of those projects involve rejuvenating Housing NZ properties, with additional intensive housing, while Hobsonville Point is all new (except for repositioning of a couple of handfuls of former Defence Force houses) and is being built by private contractors.

Current consents for apartments are no longer just in the central city, and include a number of high-price projects – upward of $10,000/m² for some consented 2 years ago, higher than that for more recent projects.

Occupants of those, and of new retirement villages, will free up existing housing, much of it in city fringe suburbs. The question, then, is: Where is the supply for lower market levels?

The answer is that it’s not going to appear until land prices ease, interest rates rise, speculation diminishes and developers & designers adjust their sights.

Links:
Issi Romem, BuildZoom, 14 September 2016: Can US cities compensate for curbing sprawl by growing denser?
Wendell Cox, New Geography 21 September 2016: The incompatibility of forced density & housing affordability
Planetizen, 16 September 2016: If housing affordability is top concern, let metro regions sprawl
Wall Street Journal, 14 September 2016: What if urban sprawl is the only realistic way to create affordable cities?
Richard Florida, CityLab, 14 September 2016: The difficulties of density
Phil Hayward comment, 18 September 2016

Inclusionary housing another debate that’s international

Debates over housing affordability, inclusionary zoning, sprawl & urban boundaries are international and can often relate to what happens in Auckland.

Jamues Brasuell wrote on the Planetizen website this week that Portland, Oregon, was considering a new inclusionary zoning policy – ending a statewide ban – but some believed it would have the opposite effect to that intended.

The inclusionary zoning policy is up for debate following a decision by the state to repeal a statewide ban on inclusionary housing requirements. City Observatory columnist Joe Cortright, a panellist at an Urban Land Institute forum on it, suggested ending parking requirements instead, saying inclusionary zoning & weakened urban growth boundaries weren’t effective tools for reducing the price of housing.

Mr Cortright focused on the consequences of “bursting” Portland’s urban growth boundary, saying that possibility, combined with new inclusionary zoning, could make Portland’s affordability worse.

He argued 7 points:

  1. Affordability is about growing up, not out
  2. The market demand/affordability problem is in the urban core
  3. Adding more supply in the core is the key to addressing affordability
  4. Inclusionary zoning increases market prices
  5. Inclusionary zoning creates only token numbers of affordable units
  6. Inclusionary zoning requirements would encourage further sprawl. (Because inclusionary zoning is likely to apply only to housing built in Portland, but not in suburban jurisdictions, it will effectively be a way of penalising & disincentivising dense development in the city relative to housing on the periphery)
  7. If we want to make housing more affordable, let’s get rid of parking requirements. (Oregon actually does allow inclusionary zoning – for cars, in the form of parking requirements. Requiring parking reduces the amount of land that can be used to house people, and directly drives up the price of new homes & apartments. These costs get passed on to homebuyers & renters. Studies show that in urban centres, parking requirements drive up rents by something in the order of about $US200/month. If we want to increase affordability we ought to be getting rid of this kind of hidden housing tax).

Links:
Planetizen, 19 September 2016: Inclusionary zoning & unintended consequences
Planetizen, 4 February 2016: Cortright: Oregon legislation would make housing affordability worse
City Observatory, 3 February 2016: Bursting Portland’s urban growth boundary won’t make housing more affordable (and a number of counter points in the comments)

Infrastructure funding options

Only when it doesn’t work does anybody think about infrastructure, says Just Economics LLC director Rick Rybeck.

In an article for Revitalization News, Funding infrastructure to rebuild equitable, green prosperity, said divorcing payment from infrastructure from payment for it made it harder to understand how the money was spent.

People also didn’t understand that, when infrastructure was designed & implemented well, it often inflated the price of well-served land. Where does that lead? “The infrastructure we create to facilitate development pushes development away and is partly responsible for sprawl,” he said. User charges, including road user charges, could help focus the mind on cost.

Just Economics says on its website it helps communities harmonise economic incentives with public policy objectives to:

  • reduce blight by putting vacant & boarded-up properties back into use
  • enhance business & employment opportunities
  • fund transit & other public infrastructure
  • reduce parking & traffic congestion
  • enhance housing affordability
  • enhance the environment, and
  • reduce sprawl.

The company says it accomplishes these goals by helping communities re-engineer taxes, fees & regulations so:

  • incentives embedded in taxes, fees & regulations encourage the private sector to create jobs, affordable housing, transport efficiency & sustainable economic development
  • needed public revenues are obtained, and
  • government sustainability, efficiency & competitiveness are enhanced.

Related pieces

These articles led me to several related articles on various websites. Check them out:

Charles Marohn, Strong Towns, 19 September 2016: Infrastructure spending for dummies
Revitalization News, 15 July 2015: Funding infrastructure to rebuild equitable, green prosperity
Rick Rybeck, report for Washington DC Tax Revision Commission, 2013: Funding long-term infrastructure needs for growth, sustainability & equity
Just Economics LLC (Rick Rybeck)

Making NZ a home for planning thinkpieces

A group of professionals who want to raise the level of public debate & understanding about housing, infrastructure, cities & planning launched the Making NZ blogsite in July.

I’ve quoted some of them below about the launch & their reasoning, but Making NZ cracks a mention today because of links to a number of its contributors who’ve commented recently on topics above – notably intensification & affordability.

Blog editor Matthew Webster said the group of contributors saw affordable housing, economics, infrastructure & design as important components.

Phil Hayward, an independent researcher, writer & lobbyist on urban policy issues, said: “A lot of urban policy is based on plausible assumptions that actually are not supported by real-life experience anywhere. For example, changing zoning to allow more intense development is always forecasted to unleash far more supply of housing units than what actually ends up being built. This is mostly because these zoning changes cause land values to increase even faster than otherwise and, as Arthur Grimes pointed out in a 2010 paper, all the profit potential is captured in land values rather than in newly constructed buildings.

“We should learn from the decades of over-estimated housing supply by urban planners in the UK, and avoid a replay of their costly & now-irreversible blundering.”

Development planning consultant Phil McDermott said: “Transport policy in our largest & most troubled market aims to focus investment in already intensively developed urban areas, raising environmental & financial risks. It’s a double whammy for unaffordability. Existing urban areas with limited capacity for growth receive expensive improvements. While that will increase the desirability of living there for some of those that can afford the higher costs & inflated property values, it leaves many more stranded without access either to traditional suburban housing or to multi-unit dwellings of any quality.

“One key, in the case of Auckland, is to free up for development sufficient greenfields land so the land value/rent curve is at least stabilised from the fringe back into the inner city, allowing more affordable & better quality housing to be developed citywide.”

Links:
Andrew Atkin blog, Building Utopia, 12 June 2013: Auckland versus Los Angeles
Making NZ, for urban planning that works
Phil Hayward, Making NZ, 1 September 2016: The myth of affordable intensification
NZ Herald, 29 February 2016: Dushko Bogunovich & Matthew Bradbury: Curing Auckland’s growing pains
Peter Nunns, Transport Blog, 7 March 2016 (and a long line of comments): The linear city and other science fictions

Attribution: BuildZoom, New Geography, Planetizen, Wall St Journal, CityLab, City Observatory, Strong Towns, Revitalization News, Just Economics, Making NZ, Andrew Atkin, Phil Hayward, NZ Herald, Transport Blog

Regular leads: Planetizen.

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Little sets out 8 planks to remedy housing issues

Labour Party leader Andrew Little announced yesterday that Labour would, if elected next year, carry out 8 actions aimed at fixing the housing crisis.

They are:

  1. Build 100,000 affordable homes around the country
  2. Ban foreign speculators from buying existing homes
  3. Introduce an affordable housing authority, partnering with the private sector, to fast-track development in our cities
  4. Tax property speculators who flip houses within 5 years
  5. Help 5100 more Kiwis into emergency housing every year
  6. Make Housing NZ build more state houses & maintain them properly, rather than paying dividends & selling stock
  7. Require all rental homes to be warm, dry & safe to live in, and
  8. Abolish the urban growth boundary and allow Auckland to grow up & out.

Mr Little said: “The Kiwi dream of home ownership is slipping away and we’re facing the biggest housing crisis New Zealand has ever seen. This is a game-changing policy package to fix the housing crisis.

“Labour will establish an affordable housing authority to work with the private sector to cut through red tape and get new homes built fast. It will partner with private developers, councils & iwi to undertake major greenfields & revitalisation projects, building affordable homes with KiwiBuild & the private market. These homes will be part of great communities built around parks, shopping centres & transport links.”

The party would put all surplus urban Crown land under the control of the affordable housing authority for use in its development projects.

“Only a quarter of adults under 40 own their own home, compared to half in 1991. Too few houses are being built, which is helping to drive up prices beyond the reach of middle New Zealand, and too few of the houses that are built are affordably priced for new home buyers.

“In Auckland, despite more than 13,000 new houses being needed to keep up with population growth, just 9400 new houses were consented in the past year. The trend for new consents is falling when a dramatic increase is needed.

“The Government’s estimate that only 5% of new builds are priced in the lowest quartile means fewer than 500 affordable houses will be built in Auckland this year.

“There is no single body tasked with driving the construction of affordable homes. Most developments are smallscale & slowed down by long consenting periods. To ensure profitability, private developers focus on building large, expensive houses.

“At the same time, regional centres are crying out for redevelopment of rundown town centres & suburbs but there is no support from the Government to get this done.”

100,000 affordable homes

Mr Little said Labour’s KiwiBuild programme would build 100,000 high quality, affordable homes over 10 years, 50% of them in Auckland. Standalone houses in Auckland would cost $5-600,000, apartments & townhouses under $500,000. Outside Auckland, houses would range from $3-500,000.

Growing the building workforce

Increased house-building will require a larger workforce, but the Labour policy is aimed more widely than that: “Labour’s dole for apprenticeships policy will subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction. Labour’s policy of 3 years’ free post-school education will see tens of thousands more people study in all fields, including building & construction. KiwiBuild is projected to create 5000 new jobs at its peak.”

Remove barriers that are stopping Auckland growing up & out

“Up & out” has become a common cry, often without thought on what the “out” would achieve. The constraining urban boundaries were put in place to prevent sprawl into rural areas and to enable infrastructure to service new development most efficiently, and therefore more cheaply. Auckland’s old councils were at odds on urban growth – the outer councils were attracting more housing development but had trouble meeting the infrastructure programmes & costs, while the old Auckland City Council favoured intensification as a regional policy.

Mr Little said: “Labour will remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow, as well as stopping landbankers profiteering & holding up development. New developments, both in Auckland & the rest of New Zealand, will be funded through innovative infrastructure bonds.”

Crackdown on speculators

He said Labour would ban non-resident foreign buyers from buying existing New Zealand homes: “This will remove from the market foreign speculators who are pushing prices out of reach of first-homebuyers.”

Labour would extend the bright line test, requiring income tax to be paid on any gains from the sale of residential property, from the current 2 years to 5 years: “This will target speculators who buy houses with the aim of making a quick capital gain. Current exemptions from the bright line test will continue.”

Mr Little said Labour would consult on way to close the negative gearing loophole: “Negative gearing can be used by speculators to make taxpayers subsidise losses on their properties. This is effectively a subsidy for speculation.”

Focus Housing NZ on helping people, not making a profit

Labour will make Housing New Zealand into a public service rather than an SOE, and will substantially increase the number of state houses. Unlike the current government, Labour will not milk state housing for a dividend, and will end its programme of state house sales.

Links:
Establishing an affordable housing authority
KiwiBuild
Focus Housing NZ on helping people, not making a profit

Attribution: Party policy announcement.

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Fairgray works through the question: Who’s really the house price villain?

An historical perspective shows Auckland house prices might not be quite as far out of whack as is commonly thought.

Market Economics Ltd director Doug Fairgray presents that perspective in a column in his monthly newsletter, Is there an (urban) limit to apportioning blame?

Dr Fairgray produced the basis of Auckland Council evidence at the unitary plan hearings on many aspects of its proposal to introduce rural:urban boundaries around the region, replacing the old metropolitan urban limits, and on the availability of land to provide for housing growth over the next 30 years.

Dr Fairgray wrote in his newsletter that Prime Minister John Key, Finance Minister Bill English & Housing Minister Nick Smith had all blamed constrained land supply as the dominant influence causing high housing prices, and wanted the urban boundaries to go.

Labour housing spokesperson Phil Twyford also blamed these limits as the primary cause of Auckland’s housing supply & affordability issues.

The article below doesn’t contain all the graphic material which Dr Fairgray has posted on his newsletter. For a fuller understanding of his view, I recommend visiting that as well (click the link at the foot of this article).

Dr Fairgray wrote:

Given the urgency to rein in growth in housing prices, there also seems to be some belief that removing urban limits will result in a significant price response in the short or medium term…. Important questions arising from this are to what extent Auckland’s urban limits are really to blame for the housing affordability crisis, and which other factors may have contributed to the current situation.

Urban economies & their housing markets are complex, and the experience of those familiar with their workings tells us that important issues like housing affordability seldom arise from one dominant cause. Even more rarely are they able to be solved by simple, one-dimensional solutions.

There is plenty of information around to offer a reasonable evidence base as to the various contributing factors to the current affordability problems, and how these have acted over that time to drive prices up, drive demand up and to limit supply.

First, what actual trends in dwelling prices & housing affordability are evident over the past 25 years or so, in Auckland & across the rest of New Zealand? Auckland housing prices have long been higher than the national average. In June 1990, the median in Auckland was around $145,000 or 29% above the national median. Through the 1990s, Auckland prices grew slightly faster than the national trend, and by 2000 the median was around $240,000, or 36% above the national median (according to REINZ figures).”

[Latest figures from the Real Estate Institute show the Auckland premium in May was 59%, down from 63% a year ago].

Dr Fairgray said the period from 2000-08 was important, leading up to the GFC (global financial crisis) of 2007-08: During this period there were substantial increases in dwelling prices throughout New Zealand, with prices more than doubling in dollar terms between June 2000 and the peak in December 2007. Interestingly, the increase in Auckland prices (110%) was the lowest of all regions in percentage terms leading up to the GFC – the national average was 122%. As a consequence, by December 2007 the Auckland median price – though by now $460,000 – was ‘only’ 30% (or $105,000) above the New Zealand median.

This period is important for several reasons. First, the rates of price increase were high nationally, at 11%/year between June 2000 & December 2007 (according to CoreLogic statistics). Prices rose far ahead of inflation, so the cost of housing increased substantially in real terms, throughout the country. Second, the price increases bore little relation to underlying population growth.

Auckland had the strongest population growth (17.6%) but the lowest price growth (110%). Among the other regions, Southland had no population growth but dwelling prices increased by 208%, East Cape had population decline but a 176% increase in prices, and Canterbury had population growth of 11.8% with dwelling price growth of 167%. Clearly, substantial price increases occurred without significant population growth & associated need for urban expansion.

The dwelling price growth was driven by a number of factors, but major contributors – as identified by the Reserve Bank – were the relatively low cost of finance & the ease with which credit was available. Consumer confidence was high, it was easy for households to move upward in the housing market by simply increasing their indebtedness, sales volumes were high as the market gathered momentum and investors were attracted by the potential for good capital gains.”

What has driven recent upsurge?

The drop in confidence & building activity in the post-GFC period caused a considerable slowdown in Auckland’s new housing supply throughout the period from 2008 until 2014, which meant that the consenting & supply of new dwellings lagged well behind population growth. This gap in new dwelling supply has been an important contributor to the increase in prices since mid-2012.

However, since 2012 the difference in price growth is very marked between Auckland and the rest of the nation.

So what is driving this latest upsurge? Simply, the conditions which underpinned the price boom through the pre-GFC period have returned, but with greater effect. The principal drivers again include the ease of securing finance to purchase dwellings, stimulated by the strong competition among banks & financial institutions to increase their loan books, together with historically low interest rates making loans more affordable, and in particular the record levels of population growth in Auckland driven by record in-migration.

Investors are very active in the market, with returns from residential property being attractive compared with other investment options. While the residential construction sector has ramped up considerably, and numbers of new dwellings consented are growing steadily (9566 to March 2016 compared with 7940 a year earlier, and 6530 just 2 years earlier), pent-up demand & new demand continues to outpace the supply of new dwellings.

These key drivers are clearly recognised by the Reserve Bank, with Deputy Governor Grant Spencer noting in October 2013 that ‘the period of rapid price increases over the past 2 years has coincided with very low interest rates & easier bank credit. Banks have competed aggressively for mortgage business and this has contributed to a ramp up in housing demand, which has far exceeded the available supply…the supply of houses is an important determinant of house prices – but it is only one side of the story…. house price inflation has accelerated only over the past 2 years, over the same period that credit conditions became easier and population growth picked up with stronger net inward migration.’

The land supply question

Much of it seems to be based on the view that the rise in Auckland’s prices in the pre-GFC period was due to a shortage of land supply. And in this regard, a lot has been made of 2 simple ‘big-ticket’ numbers. One is the shift which meant that land value accounts for over 60% of Auckland residential property value, when historically land had been only 30-35% of a residential property’s total value (CV). The other has been the oft-quoted figure that land values inside the urban edge are 9 or 10 times those outside the edge, and the implication that the edge itself is responsible for the differential.

The Productivity Commission’s report into housing affordability attributed the increase in the land value component to a shortage of residential land in Auckland. However, that does not explain why dwelling price growth occurred across the whole country through the early 2000s, driven especially by easy credit & high consumer confidence. This price growth was very far ahead of population growth, in every region including Auckland, and occurred in regions where land supply to accommodate population growth was not an issue.

Also highly relevant is that a feature of the New Zealand local government structure sees each local authority requiring a general property revaluation every 3 years, during which the valuation service responsible (in most cases, QVNZ) has to examine the current property prices, as well as property trends & a range of other influences. That revaluation means each (residential) property is assigned a land value & an improvement value which is consistent with sale prices in the locality.

These changes were not unique to New Zealand. What happened in this country was part of a global pattern. Strong increases in housing prices were evident during this period in many western economies, notable examples being the UK, Australia, Canada & Ireland.

Post-gfc

Following the GFC, there was a modest correction in housing prices throughout New Zealand, with Auckland prices dropping 10% by March 2009. Activity in the housing market was far below the pre-GFC level, with sales volumes low and consumer confidence down. With the drop in values, many house owners just sat tight, opting to ride out the decrease in property values by doing nothing, and waiting in the hope that values would increase again. Low confidence was reflected in low demand for dwellings, including new builds. However, this was not simply an Auckland issue – between 2007 & 2010 (June years), the number of new consents tumbled by 46% in Auckland, and by 37% across the rest of New Zealand.

The Auckland residential construction sector underwent major contraction, with total employment (including working proprietors) dropping by 21% by 2010, and total employee numbers dropping by 28%, according to Statistics NZ. The sector did not return to its pre-GFC size until 2014, although total employment grew by 18% to 2015.

Dwelling prices

However, the post-GFC slowdown in price growth did not last. Between June 2012 & June 2015 Auckland prices rose by 52%, far ahead of the national change. The latest REINZ figures indicate further growth of more than 12% in the year to April 2016, which suggests the total increase since 2012 will be around 65%. Auckland is now showing both high rates of increase in dwelling prices, and considerably higher rates than the rest of New Zealand, and that difference has accelerated during 2014 & 2015.

One consequence is that Auckland dwelling prices have very obviously broken away from the trends in the rest of the country. Apart from the mid-1990s, throughout the period until mid-2011, Auckland price growth was not markedly ahead of the rest of the country. Auckland’s price growth rates were higher but were not strongly out of kilter.

Population growth & in-migration

Interestingly, this Reserve Bank assessment was made in late 2013, before the current in-migration wave had really started. Rates of in-migration have a strong effect on Auckland’s dwelling prices, particularly because a substantial share of migrants locate in Auckland, whether New Zealanders returning from overseas, or citizens of other countries. This is no surprise, because population growth drives demand for more dwellings. However, while growth from natural increase is steady & quite predictable, in-migration can generate considerable extra demand within a short time frame. Figure 4 below shows the very strong coincidence between the patterns of dwelling price growth in Auckland since the early 1990s, and the levels of in-migration to Auckland.

It is also no surprise that the record levels of in-migration to Auckland seen since 2013 will have contributed strongly to the growth in dwelling prices. Over the period from 2006 to 2013, population growth was around 19,000 annually, mainly from natural increase. However, since 2013 Auckland’s annual population growth has more than doubled, and the latest migration statistics indicate that growth to June 2016 will be greater again. That means Auckland’s annual population growth over the 2014-16 period will be about 2.25 times that seen in the previous 7 years, with about 22,000 more people each year seeking somewhere to live.

Auckland’s net inflow is very predominantly citizens of other countries, and the latest Statistics NZ figures show there is still a net outflow of New Zealand citizens from Auckland. Consequently, over the 3 years to March 2016, the Auckland region had a net migration gain of 72,052, made up of a net gain of 86,207 citizens of other countries, and a net loss of 14,155 New Zealand citizens (predominantly moving to Australia). This shows quite clearly that Auckland’s migration gain is due not to New Zealanders returning from Australia, but to citizens of other countries who wish to live here.

Until 2013, the population increase translated to 7000 additional dwellings annually (at 2.75/household). However, the current levels of population growth translate to around 15,000 dwellings annually. This major jump in demand has come on top of the post-GFC construction slowdown – which was itself compounded by a deal of ‘wait & see’ around the formation of the new Auckland Council – meaning that by 2013 Auckland already had a housing shortfall in the order of 14,000 dwellings.

Given the strong causal connection between population growth & demand for housing, it is not a huge leap to make the link between the record levels of in-migration and the on-going very strong growth in dwelling prices. An MBIE briefing to senior ministers (including Mr English & Dr Smith) on housing affordability in 2014 identified a number of ‘options with a likely impact in less than 2 years include – Change migration settings [because]…Net inflows (particularly unexpected inflows) have large effects on house prices, as supply severely lags demand.’ The likely impact of reducing migration was identified as a ‘…reduction on demand, depending on scale of migration reduction’ which would be ‘…likely to particularly affect Auckland.’

All of which raises the critical question of why central government’s focus is so strongly, and very predominantly, on land supply & the price of land as the cause of the dwelling supply shortfall & the affordability crisis, and on the removal of urban limits as a primary solution.

Land supply

Much of it seems to be based on the view that the rise in Auckland’s prices in the pre-GFC period was due to a shortage of land supply. And in this regard, a lot has been made of 2 simple ‘big-ticket’ numbers. One is the shift which meant that land value accounts for over 60% of Auckland residential property value, when historically land had been only 30-35% of a residential property’s total value (CV). The other has been the oft-quoted figure that land values inside the urban edge are 9 or 10 times those outside the edge, and the implication that the edge itself is responsible for the differential.

The Productivity Commission’s report into housing affordability attributed the increase in the land value component to a shortage of residential land in Auckland. However, that does not explain why dwelling price growth occurred across the whole country through the early 2000s, driven especially by easy credit & high consumer confidence. This price growth was very far ahead of population growth, in every region including Auckland, and occurred in regions where land supply to accommodate population growth was not an issue.

Also highly relevant is that a feature of the New Zealand local government structure sees each local authority requiring a general property revaluation every 3 years, during which the valuation service responsible (in most cases, QVNZ) has to examine the current property prices, as well as property trends & a range of other influences. That revaluation means each (residential) property is assigned a land value and an improvement value which is consistent with sale prices in the locality.

Rising land values

The revaluations prepared in Auckland in the pre-GFC period had to be in line with the major growth in dwelling prices. A property’s capital value (CV) has just 2 component parts, the land value (LV) & the improvement value (IV). An important feature was that prices – and therefore values – had risen dramatically, but the replacement cost of existing improvements on residential properties had increased much more slowly. Since the CV must approximate the sale price, and there was limited underlying growth in the value of existing improvements, then the only other component to account for the increase in CV must be the land value. As a consequence, there were considerable increases recorded in residential land value for all of the territorial authorities in Auckland as the revaluations rolled out during this period.

This suggests that the Auckland-wide increase in the land value component of capital value was driven quite strongly by the overall increase in the values of existing residential properties, rather than necessarily arising as a direct consequence of a shortfall in residential land supply.

That does not mean that the supply of land for new dwellings did not have some effect. The study into Auckland’s residential land supply for the Department of Building & Housing identified how urban limits have effect on both supply & development responses, though it also concluded that “….conventional density housing is projected to be exhausted by 2023. In Auckland City, North Shore & Manukau, conventional density land supply is projected to be exhausted between 2015 & 2016, or in 7-8 years’ time.” However, the fact that there was 7-8 years’ conventional capacity remaining by 2008 indicates that land supply was one of a number of influences on the Auckland market. Consent numbers had declined considerably after 2004, the decline coinciding with a sharp drop in consumer confidence in 2005 – confidence generally being a good lead indicator of housing development trends – as well as a slowdown in net in-migration, and a slowing in dwelling price rises at that time. Hence, there is considerable evidence that a shortfall in residential land supply in Auckland was not the sole, or even the primary driver of the growth in dwelling prices, or of the shift in the structure of residential property values which saw the land component exceed the improvement component from the mid-2000s.

Also in direct contrast with the view that ‘the price of land is the primary problem’ is the research undertaken for MBIE – and contained in the November 2014 ministers’ briefing alongside the advice on migration policy. This identified in relation to Housing Accords & Special Housing Aras Act/land supply that ‘if land prices fall by 1%/quarter, the NZ regional housing model forecasts that house prices will only be 0.2% lower after 5 years’. Simply, their research showed that a drop of 19% in land price could be expected to lead to a drop of just 0.2% in house prices.

Abolishing urban limits?

Finally, setting aside for the moment the question of whether land supply & land price is the key villain in the housing market drama, the obvious question is how effective the ‘solution’ of abolishing urban limits could be, especially in the short to medium term. Identifying land for urbanisation and getting it serviced, developed & released to the market is not a short-term solution to housing prices – it does not happen overnight. Any effect which the removal of urban limits might have on land prices would take a considerable time to flow through, first to raw land prices, and subsequently to dwelling prices.

Moreover, the proposed Auckland unitary plan already would provide for new urbanisation over a very large area of land (12,000ha+ of future urban zone). It is not clear how signalling that yet more land can be urbanised is expected to reduce the cost of land, when that land already identified will take quite a few years to service & develop, and require very large expenditure on infrastructure. It is difficult to see how allowing more land to be identified as potentially urban would have any material effect on housing prices – just as the research for MBIE showed – and particularly how it could offset the much, much stronger influences of migration growth & easy access to finance.

The Auckland urban economy needs its future form & efficiency to be guided by solid evidence – not shaped by migration policy.

Link:
Market Economics memo June 2016

Attribution: Market Economics newsletter.

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Tracking ideas M20June16 – Sprawl & infrastructure, tiny house rules

Sprawl not the problem, infrastructure is
Affordability versus rules

Tracking ideas is a Bob Dey Property Report section devoted to ideas on property questions such as urban strategies & design, many from overseas but with relevance to Auckland.

Sprawl not the problem, infrastructure is

Charles Marohn, founder of the Strong Towns organisation in the US, writes about ever-topical subjects such as sprawl & intensification without the dogmatic approach of many American protagonists.

He wrote about the term ‘sprawl’ a couple of months ago, got drawn into a debate on definitions and came out the other side still saying sprawl wasn’t the problem he was trying to solve.

The problem is the development of infrastructure which can’t be sustained long-term. It will be fine for a couple of decades, and then the repairs come due – at great cost. One of those is roads, another is underground pipework.

We have the same issues here, and the stentorian monologues of recent weeks – of politicians saying ‘This is what you will do, or else’ – ensure that we will suffer those problems. In small towns we already do. With an ageing population, a proportionately shrinking workforce, changing imperatives.

Will the newcomers – the next generation, immigrants – want to pay to dig up & replace old pipes if they can get new ones more cheaply without the dig?

‘Inter-generational equity’ is a term I became acutely aware of as it was bandied about a decade or so ago, and I cringed. Now it’s in the handbook. It supposedly meant passing some of the cost of developing infrastructure on to future generations who would benefit from it.

What it really meant was handing large debt & tired or obsolete assets to your grandchildren.

Back to Mr Marohn: “I’ve repeatedly made the claim that Texas 2016 is essentially California 1986. Texans pride themselves on having a high growth, dynamic economy, free of legacy costs & burdensome regulations….just like California did a generation ago.

“California got started on the suburban experiment 3 decades ahead of Texas (thanks to a more forgiving climate) and has arrived at the logical destination 3 decades earlier. The Lone Star state need only look west for a preview of coming attractions.”

Detroit the story of America

Detroit is the town where they made the cars that enabled suburbs everywhere to sprawl into the sunset, and it’s now hit hard times. Mr Marohn again: “The auto-centric style of development undermined the resiliency of the city, tearing down social, political & financial strength that had made Detroit one of the world’s greatest cities. Once this strength was undermined, once Detroit became a fragile city, it was only a matter of time.

Detroit is the story of America: hard won, incremental gains replaced with an illusion of wealth ultimately sustained by a mountain of debt.

Dallas story familiar

On Dallas, Mr Marohn’s sub-headings will tell you a familiar story:

  1. Rising revenues
  2. High debt levels
  3. Persistent structural deficits
  4. Dissatisfied population

Auckland Council & the entities it controls have an abundance of critics of their performance. We all have our gripes, and a council survey out this week shows we’re very much at the ‘dissatisfied population’ stage.

The question, for Mr Marohn, was this: “How can Dallas be growing robustly, have relatively high tax rates and yet have persistent & large budget deficits? It’s not wasteful government. It’s not incompetence. It’s not right-wing crazies starving the government beast. The problem is that growth on the top line is not turning into growth of the bottom line. For each dollar of revenue the city is receiving, it is taking on far more than a dollar of liability & expense. In the second life cycle of the growth Ponzi scheme, that can be covered up with debt (done that) but, ultimately, the lack of financial productivity starts to produce recurring, structural deficits that have no obvious cause and no apparent solution.”

Links:
Strong Towns, 15 June 2016: Dallas, a budget soap opera
Strong Towns, 7 June 2016: We are all Detroit
Strong Towns, 20 April 2016: The sprawl conversation
Strong Towns, 18 April 2016: Sprawl is not the problem
Strong Towns, tag: The suburban experiment
Charlie LeDuff: Detroit, an American autopsy (published 2013)
Strong Towns, 10 December 2015: America’s suburban experiment

Affordability versus rules

Housing affordability is an issue around the world. This San Francisco take on it, by Johnny Sanphillippo, sets out many of the barriers you might face here:

“Many years ago when I was infinitely younger & a lot poorer I rented a little 9ft x 18ft (about 3m x 6m, so 18m²) backyard cottage behind an old Victorian in San Francisco. Today you might call it a Tiny House or Micro Flat. But back then it was just a 1930s potting shed that had been fitted with a toilet, shower & kitchenette. I was incredibly happy there.

“The space was exactly what I needed, the rent was low, and I didn’t need roommates to make ends meet. The landlord was also happy to have rental income to augment his pension as he aged. This was ‘affordable housing’ that was entirely supplied by the private sector without government subsidies. Yet every aspect of this little backyard cottage is completely illegal under today’s zoning & building codes.”

Link:
Johnny Sanphillippo, Strong Towns, 16 June 2016: Affordable housing that might have been

Attribution: Strong Towns

Regular leads: Planetizen

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Maori & Pacific home ownership falls far more than the overall decline

Maori & Pacific Islanders have taken a far bigger hit in home ownership over the last 30 years than the rest of the population, Statistics NZ said yesterday.

The overall decline in ownership was 15.3%, but for Maori it was 20% and Pacific people 34.8%. In some bigger North Island cities the declines were even larger.

Statistics NZ said home ownership peaked nationally in 1991: “Three-quarters of all people in households lived in an owner-occupied dwelling. At the time, around half of Maori & Pacific people lived in an owner-occupied dwelling.

“Between 1986-2013, the proportion of New Zealand’s population living in dwellings not owned by the household increased from around one-quarter to over one-third of the population (24.8% to 36.3%) – up 46.4%. As home-ownership rates have declined, Maori & Pacific people have also been increasingly living in properties rented from private landlords, businesses or a trust, rather than from other sources.”

Report author Rosemary Goodyear said the research showed the proportion of Maori living in private rentals had increased by 88.3% since 1986, compared to a 42.7% increase for the total population.

“The falls in home ownership did not just occur in our largest cities. For Maori, falls were close to 40% in the Whangarei, southern Auckland, Tauranga, Rotorua & Hastings urban areas.

The decline in home-ownership rates for all Pacific people in Auckland was similar, down over 40% in western & southern Auckland.

Dr Goodyear said her report aimed to provide extra information around changes in home ownership and give agencies working with Maori & Pacific people the information they need: “We hope this information will be useful to policymakers wanting to draft policy around home ownership & renting. Evidence shows us that people living in rented dwellings tend to experience more problems with housing quality and this can affect people’s health & well-being.”

Links:
Changes in home-ownership patterns 1986–2013: Focus on Maori & Pacific people
Maori & Pacific peoples’ home-ownership falls over 25% in cities

Attribution: Statistics NZ release.

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International search for affordable housing idea launched as FIABCI announces awards

Affordable housing isn’t just a big issue in Auckland or New Zealand, it’s international. FIABCI, the International Real Estate Federation, launched a global competition – The city we need is affordable – at its annual congress in Panama City this week.

FIABCI also announced its 2016 award winners overnight – among them, the only apartment tower design in Singapore by acclaimed architect Zaha Hadid, who died on 31 March.

FIABCI world president Danielle Grossenbacher said the affordable housing competition, closing on 30 June, would be focused on identifying & sharing best formulas & practices related to affordable housing: “In the next 35 years, according to United Nations statistics, the world population might increase by up to 2 billion. The number of people living in urban settings will nearly double since such environments offer employment, innovation, public transport & cultural opportunities.

“Up to now, affordable housing initiatives have been mainly undertaken by governments & urban authorities through subsidies, tax incentives, rezoning & allocation of extra air-rights.

“Our objective is to get the private sector involved to significantly expand activities & projects in this field and to substantially increase the supply of moderately priced housing for rent and for sale for people working & living in cities.

“As the leading international organisation representing the global real estate community, and with its special non-government organisation consultative status at the United Nations, FIABCI is uniquely positioned to bring together major urban stakeholders.”

She said the competition aim was to seek:

  • Financing formulasattractive and rewarding for investors
  • Newconstruction methods, materials, design & technological innovations reducing the time & cost of construction without sacrificing quality
  • Smartly plannedsustainable communities, practical for an urban workforce
  • Successful affordable developments with creative new components such as urban farming, work/live environments
  • Effectivepublic/private partnership formulas.

The international organisation wants industry experts to take an active role in the campaign by submitting innovative & successful realisations.

The best solutions will be showcased at FIABCI’s urban campaign event in Quito, Ecuador, on 18 October 18, during the United Nations Habitat III conference. The conference, from 17-20 October, will develop a 20-year urbanisation strategy, called the new urban agenda, seeking urban solutions, initiatives, best practices, social policies, legislation & models.

The FIABCI awards

FIABCI announced its 2016 award winners overnight. The prix d’excellence recognises development projects “that best embody excellence in all real estate disciplines involved in their creation and illustrates the FIABCI ideal of providing society with the optimal solution to its property needs”.

Entries were evaluated on concept, architecture, engineering, profitability, marketing results, environmental impact & benefit to society. Ms Grossenbacher said the entries “set a global standard for premier leadership, innovation, sustainability & long-term planning”.

There were 16 gold & 13 silver awards:

Environmental (rehabilitation/ conservation): Gold, Southern Tainan sub-central district park, Tainan, Taiwan, by Tainan City Government, Taiwan; silver, He Xing Mine & Chiu Pi Stream, Taipei, Taiwan, by Taipei City Government, Taiwan

Heritage (restoration/ conservation): Gold, Giraud Gallery, Moscow, Russia by KR Properties, Russia; silver, Bikini Berlin, Germany, by Bayerische Hausbau GmbH & Co KG, Germany

Hotel: Gold, SEA Towers, aparthotel, St Batumi, Georgia, by ORBI Group, Georgia; silver, WOLO Bukit Bintang, Kuala Lumpur, Malaysia, by Mammoth Empire Holdings, Malaysia

Industrial: Gold, Central Taiwan Innovation Campus, Nantou City, Taiwan, by Ministry of Economic Affairs of Taiwan; silver, West Park BizCentral, Singapore, by Soilbuild Group Holdings Ltd, Singapore

Masterplan: Gold, Ferencvaros, Budapest, Hungary, by Local Government of Ferencvaros, Hungary; silver, Senibong Cove, Johor, Malaysia, by Front Concept, Malaysia

Office: Gold, DBS Bank Tower, Jakarta, Indonesia by PT Ciputra Property Tbk, Indonesia; silver, Menara Shell, Kuala Lumpur, Malaysia, by MRCB, Malaysia

Public infrastructure /amenities: Gold, Kaohsiung Main Public Library, Kaohsiung, Taiwan, by Kaohsiung City Government, Taiwan; silver, UWC Dilijan College, Armenia, by RD Group, Russia

Purpose-built: Gold, Ciputra Artpreneur, Jakarta, Indonesia, by PT Ciputra Property TBK, Jakarta, Indonesia; silver, Discovery walk on Orchard, Singapore, by Far East Organisation, Singapore

Residential (highrise): Gold, d’Leedon, Singapore, by CapitaLand Ltd, Singapore, and Silversea, Singapore, by Far East Organisation, Singapore; silver, 28 Mont’ Kiara, Kuala Lumpur, Malaysia, by UEM Sunrise Bhd, Malaysia

Residential (midrise): Gold, Dedaun, Kuala Lumpur, Malaysia, by Selangor Dredging Bhd, Malaysia; silver, Waterfront Osterbek, Hamburg, Germany, by Garbers Partner, Germany

Residential (lowrise): Gold, The Mansions, Kuala Lumpur, Malaysia, by Perdana ParkCity Sdn Bhd, Malaysia; silver, Prestige Silver Oak, Bangalore, India, by Prestige Estate Project Ltd, India

Resort: Gold, Batu Batu Resort, Johor, Malaysia, by Batu Batu Resort Sdn Bhd, Malaysia

Retail: Gold, Discovery walk on Orchard, Singapore, by Far East Organisation, Singapore; silver, Summarecon Mal Serpong, Tangerang, Indonesia, by KSO Summarecon Serpong, Indonesia

Sustainable development: Gold, Solaris, Singapore by Soilbuild Group Holdings Ltd., Singapore, and SP Setia Corporate Headquarters, Selangor, Malaysia by SP Setia Berhad, Malaysia; silver, 100 residence passive house, Budapest, Hungary, by local government of 13th district of Budapest, Hungary.

D’Leedon in Singapore a Hadid design

The winning highrise residential entry, d’Leedon, Singapore, by CapitaLand Ltd, is a tribute to internationally renowned Pritzker architecture prize winner Zaha Hadid, who died in a Miami hospital on 31 March, aged 65, while she was being treated for bronchitis.

D’Leedon was the only condominium she designed in Singapore.

The project’s 7 36-storey towers in district 10 are near the Farrer Road rapid transit station, top schools and popular lifestyle hubs such as Dempsey Hill, Holland Village & Orchard Road. Its recreational facilities include 2 50m lap pools, dipping pools, jacuzzis, a water gym, a children’s wet play pool, eco-pond, reflecting pools, 3 party houses, barbecue areas, tennis courts, 2 clubhouses with reading rooms, games rooms, karaoke rooms, golf simulator rooms & screening rooms, spa pavilions, gymnasium, outdoor event spaces, retail areas & restaurants. The 1703 apartments have been offered on 99-year leasehold tenure.

Links: FIABCI competition
CapitaLand, d’Leedon

Attribution: FIABCI releases, CapitaLand.

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NZ housing crisis – another factor to consider?

By Peter Ward

In anything in life, there is a trade-off between risk & reward.

Most people understand this in all the things they do… until they get involved in property and then most people seem to silo the equation. They seem to believe that the rules that apply to everything else in economics don’t apply when it comes to property. You see Government officials, economists, lawyers, accountants & the like demonstrating their lack of knowledge on a daily basis.

An example of the lack of understanding that pervades our society, a recent piece of proposed legislation used the term “registered valuation” when there is no such thing. Valuers are registered, not the valuation, and one assumes the proposed law went through many sets of eyes and such a fundamental mistake was not picked up because those reviewing it believed the term was valid.

I have talked many times about how the way we measure the market is totally flawed and at odds as to how we measure everything else. So this is a major issue that will never go away, and resolving the so-called housing crisis won’t happen until the people who have the power to make changes start to understand urban land economics.

At present they don’t want to listen to experts in the field because that will entail them having to accept they know less than they purport and that is a dent to the ego.

One thing that affects prices which is rarely mentioned, and that is the transfer of the risk the buyers used to accept and take on board, to the vendor.

If you de-risk the transaction from the buyer’s point of view, then this affects the value of the transaction.

This means an upward movement in price. Hence, consumer legislation comes with a cost to the buyer.

So politicians have contributed to house price increases by enacting legislation which they believe is in buyers’ interests. My bet is that they don’t understand that and also I bet some of the aforementioned groups won’t admit that this is true.

But they will readily understand that, for example in an insurance contract, the more risk the insured (buyer of insurance) take on, the lower the price – eg, the higher the excess, the lower the premium.

Legislation such as the Real Estate Agents’ Act, whilst conferring rights to both sides of a transaction, generally favours the buyer and, in doing so, lifts the price.

The question is, how do you quantify the worth of those rights?  A starting point may be mortgagee sales.  A buyer has very few rights and buys on an as is/where is basis.  Readers will be aware of stories where a buyer has purchased at mortgagee auction and unsecured creditor tradespeople remove fixtures & fittings before settlement. But it is not just this risk the buyer takes on, many other risks have the effect of lowering the price.  If it is argued that consumer legislation has little effect on prices, then the above example shows that this is not the case.

The effect is somewhere in between the price that a property under mortgagee sale fetches and the price received under today’s laws and the terms & warranties that are found in the Auckland District Law Society agreement for sale & purchase.

To assess what effect legislation would have, a valuer would look carefully at the risks and, based upon evidence, ascribe a value to each one.

The unspoken comment is that politicians, due to ignorance, make legislation that does not have the desired effect.

This particular scenario is not mentioned as a cause of house price rises and it should be.

I am not advocating the removal of consumer rights but, when you are measuring price changes over time, this is an adjustment that needs to be made in order to make valid comparisons and it needs to be recognised as one factor in house price rises.

This column comes from Peter Ward, currently in Kiribati as a land valuation advisor through Volunteer Service Abroad. Mr Ward owns Ward Real Estate Ltd & Wellington Realty Ltd. His career stretches back through valuation, real estate sales & management over nearly 40 years.

Attribution: Peter Ward newsletter.

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Tracking ideas W16Mar16 – affordability, strong towns, Walmart syndrome

Affordability solutions in France & US
Strong towns, and the Walmart syndrome
First, the competition, running in towns all over the US this month
Second, the Walmart syndrome

Tracking ideas is a Bob Dey Property Report section devoted to ideas on property questions such as urban strategies & design, many from overseas but with relevance to Auckland.

Affordability solutions in France & US

Affordability: “It is by no means obvious that the default answer of ‘build it’ is the right one.”

Writer Alan Mallach, a fellow at the US National Housing Institute and senior fellow at the US Centre for Community Progress – “the only national non-profit organisation solely dedicated to building a future in which entrenched, systemic blight no longer exists” – has written many works on housing & planning.

In a Rooflines article, Using the wrong tools to build affordable housing, he said he spent a few weeks in France 8 years ago, talking to developers, non-profits & public officials about how they moved away from the social nightmare of the 1950-70s public housing projects on the outskirts of major cities: “Now, when French developers build subdivisions or condo projects, non-profit housing corporations enter into turnkey contracts with the developer to buy blocs of apartments or houses, up to a maximum of 50%, of the units in the development. Based on those contracts, the non-profits apply for a package of government loans, grants & tax breaks so they can both buy the units and make sure they remain affordable. When the projects are completed, the non-profit buys the units and operates them as affordable rental housing.”

The Government also offered combinations of tax incentives & 0% second mortgages to enable moderate-income families to buy homes in the same developments. “The point is that developers do what they do best, which is to build housing, and the housing programmes take it from there. As a result, a lot of French housing developments contain a mix of both market-rate & subsidised rental units, and both market-rate & subsidised owner-occupied units.”

Another lesson: In the US, “most everyone in the housing industry knows that many market developers create a decent product for a lot less than low-income housing tax credit (LIHTC) projects going up in the same area….

“If one could use LIHTC funds simply to buy blocs of units from developers, or buy existing homes on the private market and turn them into long-term affordable rental housing, we might end up creating a lot more affordable housing than under the current system. We would save millions in construction costs, transaction costs, and in the costs of keeping projects alive for year after year while putting together ever more complicated subsidy layering schemes, and dramatically reduce the multi-year lag from when a project is first conceived to when the first tenants move in.”

Links:
Rooflines, 1 March 2016: Using the wrong tools to build affordable housing
US Centre for Community Progress

Strong towns, and the Walmart syndrome

2 articles now from the US Strong Towns website, the first on a competition – at this point down to a 16 draw like it’s being played at Wimbledon – between US towns, fighting out their ability to rise to strong town principles.

The other is superficially about the retail giant Walmart, which has muscled into towns but has recently closed many outlets. We have the same syndrome here – large retailers who “need” to build outside the main retail area (on cheaper land) and proceed to decimate the established centre.

First, the competition, running in towns all over the US this month: It’s about showcasing towns that are doing their best to be strong, that have the building blocks in place to be strong towns today & in the future.

It dropped down to the final 16 on Monday, gets cut to the last 8 on Friday and will see the winner crowned on 1 April. Winners will receive “eternal fame & glory”, plus signed copies of Strong Towns’ upcoming book, Thoughts on building strong towns, Volume II, and a certificate.

The strength test:

  1. Take a photo of your main street at midday. Does the picture show more people than cars?
  2. If there were a revolution in your town, would people instinctively know where to gather to participate?
  3. Imagine your favourite street in town didn’t exist. Could it be built today if the construction had to follow your local rules?
  4. Is an owner of a single family home able to get permission to add a small rental unit onto their property without any real hassle?
  5. If your largest employer left town, are you confident the city would survive?
  6. Is it safe for children to walk or bike to school & many of their other activities without adult supervision?
  7. Are there neighbourhoods where 3 generations of a family could reasonably find a place to live, all within walking distance of each other?
  8. If you wanted to eat only locally produced food for a month, could you?
  9. Before building or accepting new infrastructure, does the local government clearly identify how future generations will afford to maintain it?
  10. Does the city government spend no more than 10% of its locally generated revenue on debt service? [Auckland has a 12% ceiling]

Links:
Strongest town
Strong Towns strength test

Second, the Walmart syndrome

I wrote above that this is superficially about the retail giant Walmart, which announced in January it was closing 269 stores – 154 in the US, including 102 of the Walmart Express format opened as a test in 2011, 60 in Brazil, 55 elsewhere in Latin America.

In a Strong Towns article, the organisation’s founder & president, Charles Marohn, wrote: “Walmart builds cheap buildings in order to sell Americans cheap stuff. This model is harming small towns across America.”

He opened his article saying lots of people had predicted the demise of Walmart: “Mostly it is wishful thinking; people who dislike Walmart are inclined to think it has no future, despite signs that it does. I don’t think Walmart is going away any more than I believe American cities, along with state governments, are going to suddenly stop propping it up. Yet it’s fascinating to watch their really fragile business model fraying on the edges.”

Focus on the words “propping it up” and think, in Auckland terms, of the different structures for parking in the city centre & malls, councils’ centres policies designed to combat retailers setting up on cheaper land just outside a town or suburban centre, the pull of the mall and the belated response of creating business improvement districts.

In Sydney now, mixed developments of apartments above retail & office are being built. In New Zealand, residential uses remain separated from commercial. At St Lukes, Westfield/Scentre wants to turn the mall into a more mixed centre, but residential is still excluded, and it will still essentially be a mall as an island in a parking lake – 2000 more parking spaces, up to 3500.

In a 2012 article on Planetizen, The smart math of mixed-use development, Joe Minicozzi documented the breaks available to fringe large-format projects and compared the returns to the public purse: “In basic terms, we’ve created tax breaks to construct disposable buildings, and there’s nothing smart about that kind of growth.”

Mr Marohn quoted a smalltown example from Oriental, North Carolina, where Walmart opened its doors 2 years ago. The Town ‘n Country grocery, a fixture in the town for 44 years, closed its doors last October – and Walmart announced the closure of its business in January.

He followed up: “Walmart buildings are designed to last 15-20 years. Simply, the city’s commitment to maintain the necessary infrastructure extends generations beyond that, let alone the cost of policing & other needed services. If cities did the math on these kind of developments, not another one would ever be built.”

Links:
Strong Towns, 8 March 2016: The Walmart trophy
Planetizen, 23 January 2012: The smart math of mixed-use development

Attribution: Rooflines, Strong Towns, Planetizen

Regular leads: Planetizen

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