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The only way to get affordable homes

by Guy Marriage
There is a huge misconception amongst some people that building more densely in the inner city will automatically mean more affordable housing. The simple answer is: No, it won’t. The only way to get affordable housing is to legislate that a proportion of any new housing constructed includes affordable homes.

This is the law in many larger overseas cities – effectively, the obscene sales prices of the richlister’s apartments subsidises more affordable prices aimed at the people at the lower end of the market.

So that is the real issue – which party running for Government will commit to legislation forcing developers to have a proportion of their projects to be marketed at a truly “affordable” rate?

And there is the big question – what exactly is “affordable”?

My reckoning is that this means that a person on an average wage should be able to pay the mortgage. That’s currently about $67,000 per annum, and getting a mortgage means that banks will comfortably loan 3.5 times that. That puts a house price at only $234,000 plus a deposit so we are probably talking about new affordable housing being a max of $250,000 each for one bedroom housing. And a minimum of 40m2 for a one bedroom house means that the developer needs to build that for $6,250 per m2 – just at the edge of possible.

Jacinda – Grant – want to put your hand up for this?

15 comments:

  1. k, 15. October 2020, 9:46

    I agree with the spirit of your post, but I think your “affordable” price of $250k is way too low. Firstly, most first home buyers are couples with both people earning. At current interest rates and the amount first home buyers are saving for deposits ($50k-$100k common, especially with KiwiSaver & welcome home loan grants etc), $400k-$500k would be what I would expect affordable apartments to be priced at.

     
  2. Guy M, 15. October 2020, 10:14

    k – life is not all couples. Yes, couples can afford more, but if you aim at that, then the bar is set only at the level that a couple can afford. The world needs to stop discriminating against single people – and against poor people. $400-$500k is affordable for middle class people, and to find a $400k house these days is almost impossible within 100km of Wellington – but that’s not what I am talking about. I’m advocating that an affordable solution needs to be found for those who earn just the average wage, as an average person. To bring hope back into our housing, we need to have solutions based on real life examples. And our real life situation is that for the average wage to be at $67,000 per annum, that means there is a massive amount of people who fit into that category, or below.

    Kiwisaver is an interesting example – and not that much of a solution either. You’ll note that in the example I used above, I factored in a decent chunk of deposit: $16,000. While that could come from Kiwisaver, it actually takes many years for the average Kiwisaver depositor to save up that much, especially in these zero-inflation days. There’s not much compound interest going around at present.

     
  3. Conor, 15. October 2020, 12:46

    Who has this misconception Guy? I (and others) think that zoning for more homes in more parts of the city is one step towards making homes more affordable. Most of the arguments seem to be about suburban development, not inner city development.

    Fundamentally our planning should make it much simpler to build your exemplar 40sqm home (or larger) outside the cbd.

     
  4. greenwelly, 15. October 2020, 16:18

    Building more densely in the inner city will mean more affordable housing… BUT the affordable housing might not be in the inner city or even in Wellington. Increasing supply in of itself means to slightly help balance the scales in favour of the buyer for many more sale transactions.
    The problem is that each new dwelling is only one single drop.. what is needed is a continued heavy downpour that will wash out the current undersupply tilting the scales against purchasers.

     
  5. michael, 15. October 2020, 17:31

    Building more densely in the inner-city will not necessarily mean more affordable housing as costs associated with earthquake strengthening for high-rise buildings are very expensive. And on top of that, insurance costs are now exorbitant, and that’s assuming you can even get insurance! And without insurance – you cannot get a loan from the bank.

     
  6. TrevorH, 16. October 2020, 7:59

    Nope, the only way to bring the cost of housing down is to free up more land, undertake mass consenting and reduce the price of materials by promoting greater competition. It should also be made easier than it is for prefabricated units to be produced off-site in factories around the main centres. Financing for basic infrastructure costs such as roading and sewerage should not have to be borne by the developer but shared and recouped by local and central government.

     
  7. Guy M, 16. October 2020, 11:48

    Trevor H – yes, that’s the present viewpoint. Only problem is, we’ve all been saying that for the past 20 years and the opposite has happened. Time for some fresh thinking.

    Supply chain: Fletcher’s own most of it and are not going away. No incentive for them to bring housing costs down.

    Prefab: Great idea, but not many NZ companies doing it as yet. But yes, we’re working on it.

    Freeing up more land: in Wellington, where would that be? Build on the Town Belt? Zealandia? Nope, thought not. Kapiti? Porirua? Transmission Gully? The more we build out there, the worse our traffic issues become. So therefore, the WCC are encouraging more density.

    There is no simple answer.

     
  8. michael, 16. October 2020, 12:31

    Guy we haven’t been faced with the insurance problem over the last 20 years, that only occurred after the last big earthquake and shows no signs of becoming realistic. Therefore it has to be a major consideration unless the government can do something about it. There are people living in smaller apartment buildings now where they are paying over $20,000/year each apartment for insurance, and are struggling to afford it. My insurance costs have risen over 500% in the last 3 years and on top of that we will be faced with massive rates increases over the next few years as well.

     
  9. Julienz, 16. October 2020, 17:51

    @Guy M – I can’t really understand why Ohariu Valley is off the table. A lot of it is currently in lifestyle blocks which are just single houses with really big sections. Currently people are commuting from Upper Hutt to the CBD. Ohariu is a good deal closer and there is already a road of sorts. I know it means more cars, but maybe aiming for shorter trips rather than going carless is more realistic. Granted the motorway entrance heading into town at the south end of Johnsonville rather than the north is a bit of an obstacle. But on the plus side developing Ohariu Valley would provide an additional catchment for Johnsonville which might be enough to get some movement on redevelopment of the mall hopefully with apartments above.

    Other ideas I have had are some carrot and stick to get the universities (but mostly Victoria) to take responsibility for housing the huge influx of temporary residents they bring into the CBD each year. This would calm the rental market for young professionals seeking to live near their work in the CBD. And making it easier for people on larger lots in the outer suburbs to be able to add an accessible accessory unit to accommodate elderly family members could also help. I imagine some older residents might consider having their children move into the main home with the grandchildren, and granny or grandpa take the granny flat. Better utilisation of larger homes in the outer suburbs could relieve some pressure. There are a lot of empty bedrooms around, but not in the right places.

    I would also like us to take a breather on immigration until we can get the housing situation more under control.

     
  10. Guy M, 16. October 2020, 18:31

    Julienz – Ohariu only has one route in and out though, doesn’t it? A very skinny windy road? And then through an already crowded route in via Karori? I think it is an excellent suggestion (the locals there would no doubt kick up a fuss) but there needs to be a plan to solve the transport issue first.

     
  11. TrevorH, 16. October 2020, 20:10

    @ Guy M. Apartments in earthquake prone central Wellington have proven to be a terrible investment for many people faced with appalling costs to upgrade to meet ever-changing seismic code requirements. There is a huge amount of land along the Transmission Gully route and environs. Wellington CBD is in decline, we need to devolve functions to the perimeter and take advantage of 21st century technology.

     
  12. Julienz, 16. October 2020, 20:54

    @Guy M – There is a road from Ohariu Valley via Johnsonville and it borders Churton Park at the northern end. The road is narrow and winding and would need a bit of work but when you look at other streets in Wellington not impossible. It would also require a vision for Johnsonville as a true second centre with offices and apartments on the valley floor as well as retail. Such development is foreshadowed in the Spatial Plan. I can’t point to the exact place, but somewhere in all those Spatial Plan docs there is an indication that Ohariu Valley has potential for 28,000 houses which would go a long way to meeting current housing needs. Hazards seem to be less significant further north and it would be easier to upgrade three waters in this area than in some others.

    Those of us down the line from Johnsonville would love a vibrant town centre with a movie theatre and restaurants there rather than having to always go to the CBD. Having said that, there is a need for good design parameters for Johnsonville as to date it has been subjected to some pretty shonky infill and medium density housing. We need a clear steer on what Density Done Well actually looks like.

    If you look at this visualisation from Statistics New Zealand it is clear that a lot of our difficulty in Wellington arises from the fact that all the jobs are concentrated in the CBD. More so than any of the other cities in the set. If we are looking for a holistic regional solution rather than just keeping people within the bounds of Wellington City, then Trevor H makes a good point.

     
  13. claire, 19. October 2020, 10:25

    Ohariu is the answer to the housing problem in Wellington, whether for growth or affordability. It is near the Cbd, new roads could go in. Mixed housing could be developed from dense to larger stand alones to three story apartments. A fresh canvas. Apparently 28000 people could live there. That’s three suburbs.
    Make public transport free with express buses for all – this will take a lot of cars out of the mix if that is a problem.The new suburb could have some Government builds – a proportion of Kiwibuild, and rent to own, and progressive ownership. This is the answer WCC. the land is there please start to develop it.

     
  14. Julienz, 19. October 2020, 21:30

    In the original “Planning for Growth” round 1 consultation, 29% supported a new suburb in Ohariu Valley (41% if you add the neutrals). “(A) very large number (around 250) of respondents who opposed this scenario did not offer a reason; a large number (between 100 and 149) cited urban sprawl and its associated negative impacts on rural land, increased vehicle emissions, and congestion as the main reasons for opposition.” These comments seem relevant within the artificial boundary of Wellington City but and aren’t sprawl and emissions a regional issue? If we lock up Ohariu in lifestyle blocks, then people will move further away. It will be a hollow carbon zero victory for Wellington City as on the current model even more vehicles will be commuting from Porirua, the Hutt Valley, the Wairarapa and even Levin.

     
  15. AndyR, 20. October 2020, 20:25

    We have to carefully define affordable. Cheap is a shortcut to cold, cramped and energy intensive properties. Ignoring the obvious problems of space to build, as Guy says the construction and supply chains have a stranglehold on developments. But there are other factors in play for those on low incomes, with transport to work being a subtle but important one. We have ludicrously high per capita CO2 emissions in NZ, with a big part of this down to having to drive to work. And that’s expensive for those who earn the least. My point is that affordability is more than the price of a house, it’s intrinsically linked to proximity to work and running costs of the property. These are huge social issues and the solutions are not obvious.

     

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