By Peter Jeffries, Chief Executive of CORT Community Housing. Peter has been involved with CORT Community Housing since it began in 1987 and has been its chief executive since 2008.
As someone intimately involved in providing affordable housing in Auckland, I believe that low-rise, three-story housing, as proposed in the Auckland Unitary Plan, offers a last chance at housing Aucklanders can afford.
The organisation I represent, CORT Community Housing, has been providing affordable housing in Auckland for more than two decades. We know the business, and we have done our homework. Ensuring there is enough shelter for all is not just a question of urban aesthetic niceties, important as they are.
The real bite of the Auckland housing crisis is not the effect it has on home-owner statistics, although this is of major concern. It is the effect it has on rents and those on lower incomes in the city.
Half of Aucklanders rent
Nearly half of Auckland residents live in rental properties. The effect of the Unitary Plan on their lives is going to be significantly greater than it is on home owners. It is estimated that rents must increase by 30 per cent or more, over the next few years to ensure the significant housing supply needed to meet demand.
Rents are intrinsically linked to property values, and are based on the replacement cost of housing over the medium to long term. Over the past two-to-three years, rents have been rising at over twice the rate of inflation. In 2015, the average increase was 6.6 per cent (Barfoot & Thomson Jan 2016 Rent Report).
Rent increases had earlier been subdued due to investors willing to accept capital gains as part of their return on investment. However as the opportunity for ongoing capital gains decrease, investors will look to rent and yields to justify new investments resulting in significant rent increases.
CORT's recent experience in developing medium density, one- and two-bedroom housing in Auckland leads us to one conclusion vis-a-vis the Unitary Plan: three-storey apartments offer the greatest potential for affordable housing in Auckland.
Three storeys good
When building the homes our city so desperately needs, CORT estimates that three-storey apartments could sell for around $7500 to $8000 per square metre or $375,000 (50m2) for a one-bedroom, and $490,000 for a (65m2) two-bedroom apartment. These will be 20 per cent more affordable than high-rise apartments and other options available on the market.
In contrast, due to construction costs for this type of building, high-rise apartments (five storeys-plus) now sell for over $10,000 per sq. metre. This equates to over $500,000 for a one-bedroom (50m2) apartment, $650,000 for a modest (65 m2) two-bedroom apartment and over $900,000 for a three-bedroom (90 m2) apartment.
New housing built in the proposed Unitary Plan zones of Single House and Mixed Housing Suburban will have similar, if not higher, per square metre costs. Restrictive density rules in these zones more than offset any savings from lower construction costs.
The only exception to this is the last pockets of infill housing in the outer suburbs. However this land is in short supply and prices are increasing rapidly to eliminate any cost advantages.
Costs will be borne by renters
When Auckland’s escalating property prices finally stabilise, the real cost of escalating prices and living in one of the world’s most unaffordable cities will become apparent. That cost will not be borne by existing property owners, but rather those that rent.
Their future is years of escalating rental prices way above reasonable wage and income growth expectations. The negative effects which will be felt at a personal, family, neighbourhood and city prosperity level. The prospect of affordable housing in Auckland will still remain a pipe-dream for the city. But at the very least, the proposed Unitary Plan offers hope for a different future.