Building housing in Auckland

Dec 19, 2017 | News

As one of Auckland’s largesthousing developers and builders, Fletcher Living understands this issue all too well.

We know a lot of Aucklanders want to own their own homes, and we can see the impact that supply issues are having on affordability and the likelihood of these home ownership dreams being realised.

New Zealand used to have one of the highest levels of home ownership in the world. Now every second house in Auckland is rented.

But we also believe the dream of home ownership is not the only pathway to housing security, and whether it be through ownership, rent to buy, long-term rental or transitional ownership, the one thing people need is a house — and there are not enough being built.

For a developer like Fletcher Living to deliver more homes more quickly, we need to address four key challenges — land supply, infrastructure funding, consent times and home buyer preferences.

The biggest issue by far has always been land supply. It is incredibly difficult to build affordable housing when land costs what it does in Auckland.

Despite the belief by some that house prices have been driven up by the cost of building materials, the cost of land has, and continues to be, the largest and fastest appreciating cost in a home build.

Land makes up over 40 per cent of the price of an average new home — that is more than the cost of building materials and labour combined. It is also the fastest growing cost.

While labour and building materials have risen steadily and broadly in-line with inflation at approximately 2 per cent per annum, the cost of land has risen rapidly due to high demand and insufficient supply.

So the first thing we have to do is free up more land, which is adequately serviced by infrastructure, for developers to build on. This is where the Government can play a critical role.

If developers such as ourselves had a long-term view of the housing development pipeline and surety of land supply, we would be better equipped to scale up, invest and deliver on innovative solutions that can be delivered at pace, and, in time, lower cost.

As an example, for the past two years Fletcher Living has been working on an innovative home building solution utilising panelisation and we now have a solution that reduces build time significantly.

We build each wall and floor panel, with all the plumbing, electrical work, insulation, and plasterboard fitted, in an offsite manufacturing plant.

The quality is then signed off by the Council, the panels are transported to the site and the house is erected in 1-4 days.

At that point it’s weather-tight, and finishing only takes a further 5-8 weeks. The finishes are exactly the same as for a house that is built conventionally.

This is really exciting for a couple of reasons. First and foremost it speeds up build time, which gets more housing into the market more quickly.

But secondly, and also importantly, it is a local New Zealand solution — meaning our panelised homes would be built in Auckland for Aucklanders, providing local jobs, investment and ultimately a product built specifically for this market and to high quality standards.

At this stage we have only built a small number of panelised homes, because to scale up we need to invest in a permanent offsite manufacturing facility — and to do this we need a secure pipeline that will justify the capital investment. This is where partnerships can play a critical role in enabling innovation.

To illustrate the point, Fletcher Living bid for Phase 1 of the Tamaki Regeneration Project — if we are successful, this would enable us to deliver a panelised home manufacturing plant, because we would have long-term security over our pipeline.

This is how the public and private sector can work together to speed up housing development.

To carve up big regeneration sites into lots of smaller land parcels and not bring surety of that supply would inhibit our ability to invest in such an innovative solution.

The second challenge we have to address is infrastructure funding — because, at the end of the day, land is useless without the infrastructure needed to service it.

I was lucky enough to be a contributor to the Auckland Mayor’s Mayoral Housing Taskforce Report this year.

Currently Auckland Council’s ability to borrow to finance new transport and water infrastructure is limited by debt-to-revenue caps that are fast approaching. Innovative approaches are needed now.

So we welcomed the Government’s announcement that it plans to use infrastructure bonds financed by targeted rates to fund infrastructure.

However, funding should be sourced using Government borrowing rules, where the cost of the capital could be significantly less than that sourced by the private sector.

And we shouldn’t stop there — we should continue to think about new ways to build more infrastructure, and incentivise councils to consent more land for development.

Which brings me to our third challenge — building and resource consent times. Current delays to consents are well known, but what most people don’t understand is that for an average Auckland house price, a delay of a month in consenting costs the developer about $10,000. And the delays in certain areas are much more than a month.

As such, we are highly supportive of initiatives outlined in the mayor’s report to simplify resource and building consenting, including allowing larger builders to streamline consenting.

The Council should be commended for its work on Consenting Made Easy, but now it needs to deliver on it.

Our final challenge may be one of the harder nuts to crack, but it does impact housing supply. And that is home buyer preferences.

The reality is there is an unhelpful tension between the need to increase housing supply to meet demand, and existing preferences that favour larger land blocks and homes. Entry-level homes in the 1960s and 70s were no bigger than 110sq m — today’s current average is 190sq m.

Given standalone dwellings in the suburbs are strongly preferred, low and medium density continues to be the core product for Fletcher Living — because at the end of the day we need to build what people want to buy.

However, higher density housing, when part of a master-planned community, can provide very attractive places to live.

When I worked in the UK and was part of the redevelopment of London, we were able to deliver high density tenure blind housing that still provided plenty of open green spaces, cohesive communities and local amenities. And it wasn’t just for private home buyers.

It was for state housing, key worker housing, and open market housing, all in the one development. Which is important if we are to create the inclusive, open, diverse culture for which we all aspire.

It is possible, and we absolutely have to embrace new thinking here in New Zealand.

The challenges may seem plentiful, but positively there is no shortage of motivated people across the public, private and community sectors who are ready and willing to get it done. And we have a new Government that has put housing at the very core of its policy agenda.

The key to tackling this issue is getting all these people to work together effectively.

The scale of the issue requires a clear, long-term plan that identifies the next 10 years of housing development, with the infrastructure pipeline aligned to service it.

The plan also needs to clearly outline appropriate roles across each sector, which leverage the strengths of each and avoid duplication.

The Crown and local governments can set the vision and strategy and provide the regulatory framework to operate in. But ultimately, it is organisations such as ours who need the opportunity to get on with what we do best — designing and delivering new homes and communities.

KiwiBuild is a fantastic opportunity to achieve this. It is a galvanising initiative that can unite the home-building industry and provide a clear way forward. It also provides an opportunity to put in place new pathways to home ownership — to make sure new homes can be purchased by a broader range of people than ever before.

This could, and should, include initiatives such as rent to buy, shared ownership, long-term rent, shared appreciation and so on. It would be a big leg-up to first home buyers and would provide a new opportunity to people who would otherwise be unable to transition out of state housing.

It also provides more opportunities for key workers — who are desperately needed in Auckland — to live near their workplace, and not travel extensively to work each day.
So, just as the challenges are plentiful, so are the opportunities.

We are excited by the new Government’s ambition and we are ready to play our part in delivering the housing, and communities, that Auckland needs and deserves.

Four key challenges:

• Land supply
• Infrastructure funding
• Consent times
• Home buyer preferences

– Steve Evans is Chief Executive, Residential & Land Development at Fletcher Building

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