Auckland housing - a crisis in the making

Transient

This was the quotable opening comment from Doug McKay, CEO of Auckland Council speaking yesterday at the NZ Property Council conference on Residential Development for Auckland.

Naturally the private sector for which the Property Council advocates and represents judged somewhat more critically, that Auckland housing is already in a crisis. A little bit of tension between private sector and public sector is nothing new and hardly unexpected. However having said that, the conference did demonstrate a fair degree of collaboration and respect for each other’s role in delivering the future vision for Auckland.

I was invited to attend the conference as a guest of the Property Council and as someone who would judge themselves as not much more informed that the average Aucklander, I came away from the conference with a mix of feelings.

Auckland has to change, it has to grow, it has to build and it has to get going fast!. The question is – is the progress fast enough? as one speaker commented in a some-what off-the-cuff remark “or central government may take charge to ensure the development gets done, as is happening in Christchurch” – this was taken as a sober consideration, with much substantive foundation support for this view from many attendees.

Anyway lets dissect this Auckland Housing Crisis. The numbers are a great way to start.

Auckland City’s Plan sets out the 30 year horizon, a timescale within which Auckland is expected to grow from the current 1,500,000 population to 2,500,000. That extra million people will require an extra 400,000 homes to be built. Roughly 300,000 of which will have to be built within the existing boundaries of what they now call the RUB (Rural Urban Boundary) – the remaining 100,000 will be built in what is currently greenfield areas, specifically to the South around Pukekohe, the West out to Whenuapai and Kumeu and to the North up towards Warkworth.

This scale of development is daunting, 13,000 dwellings a year for 30 years,  match that to current run rate of the consents of the past 5 years at around 4,500 a year, and you have some perspective on the crisis (looming or real) – oh and by the way the clock has started!

The good news or at least the motivational incentive to get going, is the economic value that this will contribute to the local and national economy – as estimated by Martin Udale of Essentia Consulting a direct construction benefit of at least $150 billion with a 3+ times multiplier adding up to a total of $500 - $600 billion.

These numbers are all great, but the big question which needs to be grappled with and was to some extent in the ensuing sessions, was what type of building, where and at what cost?

The valuable data presented by Alan McMahon of Colliers pointed to the trend of the likely owners / tenants of these new dwellings of the next decades. They will be 30somethings who want convenience. Convenience in location, lifestyle and maintenance – they have no aspiration for cutting grass or general DIY. They do want quality and private space. They do want more than a shoe box sized apartment but they do not want the current serviced supply of 4+bedrooms homes of 218+ m2 at a price point of c. $1m which according to Todd Properties is what has been selling-a-pace at Stonefields over the past year.

This trend to intensification of future dwellings will reflect the cultural change, which will see Auckland become a minority urban area for European origin kiwis within the next 5 years.

To find the space to build these incremental 300,000 dwellings will require demolition of existing housing stock to allow density levels of the current 15 dwellings to the hectare to rise to over 25 per hectare and upwards of 50 – 100 a hectare in the city centers with high rise apartments. The question that is then posed is how will this demolition and rebuilding be managed to maintain cultural heritage and also to ensure appropriate urban design to ensure there is cohesion of amenities and communities so that we don’t end up with bland enclaves of dormitory housing?

The other critical aspect of the crisis and one that continues to receive significant press is the question of affordability. Reduced dwelling size and intensification will go someway to reduce overall cost, but the constant cries over development contribution as opposed to apportioned future general rates for these new developments did not seem to have found any favour with the public sector who clearly feel that with the capital costs of maintaining and upgrading existing infrastructure the added capital burden of shouldering the development costs for new dwellings is something better borne by developers (or as was rightly pointed out – property buyers).

Given the scale of this massive challenge and given the focus that it is receiving matched to the fact that this was the first full day conference on residential development held by the Property Council in Auckland, there is comfort to be gained by witnessing the participation of the major development companies who are members of the Council. Their strong balance sheets, long term perspective and collective vision for a quality solution in partnership with the Council could just have us achieve this vision. There is a clear view that with the outlook for commercial property not as rosy then their collective focus to residential could address the issue and match their business cycle need.

As was stated early on in the day the watch word for the future of Auckland in the context of residential development is “Quality intensification” – however you define it. My hope is that is delivers vibrant communities, served by robust infrastructure, that attracts and retains the best and most creative talent to make this city one of the most livable in the world.