Less than 2 years after Auckland Council’s zone-changing unitary plan started to become operative, council chief economist David Norman concludes that it’s been a major cause of housing intensification.
On the other side of the equation – which most on the council worried about as it wrote a plan encouraging more brownfield redevelopment & less new greenfield development – the urban fringes have taken a lower share of new housing.
The third important factor in the change of housing impetus is that intensification has spread through suburbia.
And the fourth is that developers have paid close attention to transport routes, especially rapid transit stops.
Image above: Auckland Council chief economist David Norman presenting to the council planning committee meeting at the Orakei marae.
The map below: The red dots represent intensification points around the Auckland region and the purple patches represent intensification along rapid transit corridors.
Mr Norman released a report on the unitary plan’s impacts on residential development at Auckland Council’s planning committee meeting yesterday – held at the Orakei marae – and spent over an hour answering questions from the committee about it.
The one councillor who would certainly have questioned Mr Norman’s view was Dick Quax, who died of cancer at the end of May, aged 70, after long advocating the removal of the rural:urban boundary and questioning intensification as a housing solution. The election for his replacement closes on 13 September.
Yesterday’s quizzing of the economist was more about the detail, not about the politics of greenfield versus intensifying use of the existing urban footprint.
The unitary plan became largely operative in November 2016, and the council now expects it could be fully operative next year, once the remaining 13 appeals are settled.
The changing market shares
Mr Norman said in his report it took about 9 months to begin to see the plan affecting what & where new dwellings were consented.
“In the 10 months since new dwelling consents began to surge in August 2017, total dwellings consented are up 27% compared to a year earlier. Almost all of the growth in consents has been in brownfield (existing urban) areas, reversing the trend toward more greenfield development over the previous 7 years.
“More intensive typologies, specifically apartments & terraced/townhouses, have grown to account for 54% of all new dwellings consented, compared to 37% 2 years ago. A disproportionate share of this denser development is around the rapid transit network.
Mr Norman said his analysis “provides an antidote to the view that relaxing development restrictions on the fringes of the urban area is necessarily the best way to reduce the housing shortage. People by & large prefer to live closer to jobs, infrastructure that works, public transport, schools, shops & other amenities. As a result, developers are showing a preference for delivering development in brownfield areas.
“Land on the fringes is significantly cheaper. But once the lack &/or value of infrastructure and proximity to amenities is accounted for, the market is displaying a strong preference for brownfield development.”
The day most of the unitary plan became operative, it up-zoned thousands of brownfield (existing urban) properties.
“Altogether, the plan provided capacity for up to one million new dwellings although, at the time, only an estimated 422,000 were deemed to be commercially feasible for development. This feasible growth was anticipated to be spread across brown & greenfield areas in a roughly 2:1 ratio.”
The chief economist’s unit at the council had estimated an upturn in new residential building consents would begin around April or May 2017, but this didn’t start until August. Since then, growth has been strong.
However, Mr Norman said little information was available about the effects of the plan on development patterns: “This report provides information to support future discussions & decisions about important issues such as whether to remove or relax the rural:urban boundary.”
How does he know there’s been a change in development emphasis?
“Building consents for new dwellings grew remarkably steadily from 2012 through to April 2016. This pattern broke, and growth plateaued, 6 months before the plan became operative in part. Anecdote suggested that many investors had bought brownfield land in advance of the plan becoming operative and were waiting to lodge consents for more intensive development once the plan was operative.
“During the period from November 2016 to July 2017, the first few months of the plan being operative, consent growth was even weaker, against the backdrop of a housing shortage approaching 40,000 in Auckland at the time. The data indicates that this was because developers were still making plans for more intensive development.
“Residential construction began to surge in August 2017. The number of new dwellings consented in the 10 months to May 2018 is up 27% over the same 10 months the year before, and annual consents were only 5% below the all-time peak in June 2004. This annual total is despite a much tighter 2005 Building Code regulatory regime & building consent authorities’ response to the leaky buildings crisis.
“There is significant evidence to suggest the sudden resurgence in consenting activity is the result of the plan beginning to work:
- Brownfield areas dominate consents growth: 90% of all growth in new dwellings consented in the 10 months to May 2018 (since the upturn began in August 2017) is in brownfield areas where the plan delivered the bulk of potential for greater development
- The trend toward green and away from brownfield growth has been reversed: The share of total new dwellings consented in brownfield areas in the 10 months since August 2017 has grown from 62% to 69%. This has reversed a trend of declining brownfield development as a share of building consents over the previous 7 years
- More intensive building typologies enabled by the plan are being adopted: Terraced houses & apartments were 54% of new dwellings consented in the 10 months to May 2018. In the 10 months to May 2016 (ie, the comparator 10-month period before the plan was passed), it was just 37%
- In the urban areas, the desired compact city is emerging: In the urban area, around 66% of new dwellings are multi-units, precisely what the plan aimed to deliver.
Further, Mr Norman said, “a disproportionately large number of dwellings are being consented in rapid transit network catchment areas – defined as living within 1500m of a train station or northern busway bus stop. This highlights that people value rapid transit access, and that development enabled by the plan is responding:
- The share of multi-unit dwellings consented in rapid transit network areas is 16 times higher than the catchment’s share of Auckland’s land area. The rapid transit network catchment covers only 2.6% of Auckland’s land area, but accounts for 42% of all multi-unit dwellings consented in the last 10 months
- 11% of standalone homes were consented in rapid transit network catchments. This is 4.3 times more than the catchment’s share of land area
- 81% of all dwellings consented in rapid transit network catchments in the last year were multi-unit, helping to deliver the intensification that characterises transit-oriented development
- Overall, 40% of all dwellings consented in the urban area were in the rapid transit network catchments, even though the catchments account for only a quarter of Auckland’s urban area.
Mr Norman said this analysis highlighted that people by & large prefer to live closer to jobs, infrastructure that works, public transport, schools, shops & other amenities. As a result, developers had revealed a preference for delivering development in brownfield areas.
“These findings provide evidence that counter the view that relaxing development restrictions on the fringes of the region, where few amenities exist, is the best way to reduce the housing shortfall. Land on the fringes is cheaper. But once the lack &/or value of infrastructure & geographic proximity to amenities is accounted for, the market is displaying a strong preference for brownfield development.”
Mr Norman said the central city was still the main target for developing apartments, but they were also becoming more common in the Albert-Eden ward and just across the harbour bridge in Takapuna & Devonport.
The exception was the Upper Harbour ward, where all 3 types of development were occurring. That ward includes Hobsonville, where all new housing is more intensive than the historical norms, including standalone homes.
Finally, there are changes in the south: “There are relatively large numbers of multi-unit dwellings being consented in the southern isthmus & southern local board areas. This suggests increased delivery of typologies in areas with larger Maori populations. Multi-unit developments are often cheaper on a per-unit basis than standalone housing, which may provide greater access to warm, dry modern housing for Maori in those areas.”
Another statistic, this one relating to the shortage of housing:
“In the period from April 2016-August 2017 we only saw 7.5% total growth in consents – 6%/year. What we’re seeing since then, in the 10 months to May 2018, is a 27% increase. Code compliance certificates are up 30% over that time period.
“We’re now generating code compliance certificates at a faster rate of increase than building consents, which means we’re catching up.”
Cllr John Watson said intensification was one side of the equation, the other was bringing the price down: “Prices haven’t come down, they’ve probably gone up.”
Mr Norman: “A number of things colluded. We saw loan:value restrictions on investors. Investors are actually still in the market, but it’s largescale investors. Recent date shows foreign investors are still involved.”
At the same time as constraints were introduced, prices peaked in Auckland: “These 3 factors show they have played a part in decreasing prices. You also face the construction capacity constraints, which mean the cost of construction is going up 6-7%/year. About 4-5 floors, the cost is $6-7000/m² against $2500/m² for a standalone home.
“What is encouraging is house prices have not continued to accelerate, and I think the unitary plan is an important factor in that.”
Mr Norman said one factor affecting the provision of new homes – the time it takes to build – was much different because of the switch to multi-units: “Typically it was 6-9 months, a multi-unit can be 18 months.”
The value of special housing areas
Cllr Wayne Walker questioned the brief era of special housing areas introduced by former housing minister Nick Smith: “It dramatically escalated the value of land, sold & onsold by people who weren’t really interested in building on it. It’s in a situation where it’s not generating any housing and has escalated the value of neighbouring land.”
Mr Norman: “My personal view is that we probably didn’t get as much development out of special housing areas as we thought we’d see. The intent was around accelerating resource consent applications, but if I were to do it again, I’d require them to build in a certain time.
“What is different about what I’m talking about today [the widespread intensification], this is not land where you’ve had to get a private plan change request. This is a broad plan that affects the entire city, it immediately creates competition. Why should I pay this amount when I can get land cheaper 2 blocks over?
“What makes property valuable? You talk about the rural:urban boundary. I’ve seen very little evidence that accounts for land price differences inside & outside the rural:urban boundary. What we do know is that infrastructure makes it liveable [inside the boundary] and people pay for that.
“I’m far less convinced that we’ve been in a speculative bubble. We’ve had a huge increase in population and prices go up, helped by low interest rates. I think that is a factor.”
State of the construction sector
Mr Norman had some interesting observations on the calamity of the moment, the collapse of one apartment builder, Ebert Construction Ltd, into receivership and the questions being raised about the state of the vertical construction sector.
Mr Norman said he worked in the construction sector for several years, including 2 years as BRANZ (Building Research Association) senior economist, and built his own house. On the players in construction, he said: “These are businesses, like in every other sector, sometimes they make good choices, sometimes they don’t. It is not my view that it’s central government’s role to hold the hand of business.”
Taking a longer-term view, he said it shouldn’t be about keeping spending down, and the solution shouldn’t rest solely with the Government. The sector should use the spotlight on it as an opportunity to improve project management: “We are not talking about victims here.”
Nimby protests versus over-dominating structures
Cllr Chris Fletcher raised a specific issue which she suspected might be a more common anomaly in the unitary plan – the redevelopment of a former nurses’ home on Banff Avenue, Epsom, by new owner Housing NZ. She said the street had 40 bungalows, a church & a small church school. Understandably, she said, Housing NZ “are going to go for maximum yield”.
Cllr Fletcher said the neighbours would have been happy with 3-storey development, but Housing NZ intended to build to 5 storeys. Intensification was “a wonderful trend – but nor do I want to see it at any cost, and I want to see the continuing public support for the process.
“But if we have an anomaly, what is the route we take? I don’t believe it’s just nimbyism, they’re happy to see 3 storeys but not 5 storeys in a 3-storey street.”
This was a question for council plans & places general manager John Duguid, who thought the specific case was “probably long past the point where we can do anything. In other cases I certainly invite councillors & others to bring them to my notice and we can respond.”
When might prices fall?
Cllr Fa’anana Efeso Collins raised a question which is on the other side of the affordability equation from the clamour for an urgent increase in supply: “At what point – or what are the conditions – that will lead to a fall in house prices? Surely at some point there must be a fall in house prices.
Mr Norman: “Short of an economic meltdown that I am not forecasting, I do not see a reason why house prices should fall immediately or in the short term. I do think we will see 2 things. Firstly, why not a fall? The basics of supply & demand, we haven’t had the shortfall. You’ve got this floor propping up prices, that’s not going to disappear any time soon.
“The cost/m² is a lot higher in apartments. We are seeing a subtle change in typology. Over the last 5 years the average dwelling size has fallen from 210m² to 172m², a 38% reduction, and that’s because of the switch in typology.
“100m², we were able to do that before and live quite comfortably. A shortfall this size [which he estimated at about 45,000 homes], there is no incentive for anyone to build cheaper – why would you leave money on the table?”
Mr Norman’s second point was that a focus on building more expensive homes for greater profit ought to open up a market for different types of housing: “If the market would only deliver houses at $850-900,000, we’re potentially opening up a different type of housing – you don’t want a second living room, you just want to be warm & dry.”
Cllr Collins: “I accept the position but I think we have to accept there are people who will never attain that dream.”
Catering for large families
Cllr Desley Simpson asked what was being done to provide houses for large families, “given we are the biggest Polynesian city in the world.”
Mr Norman: “The way I estimate my housing shortfall is to calculate the number of residents in a household. Households are shrinking in Auckland and we’re seeing the number of people/household increasing, that’s because of our demographic input. So we’re very aware of the fact we are increasing housing and it affects some communities more than others.
“We’re also seeing it in terms of the typology. Our standalone homes are too large at an average 230m², but it is the way people are choosing to live.”
However, he had seen 5-6 bedroom houses where people were banding together to form bigger households.
Chief economist’s report to planning committee, 7 August 2018: 14, Impacts of the unitary plan on residential development
Live stream of David Norman at planning committee, 7 August 2018
Attribution: Norman report, committee meeting.