Increased productivity key to affordable homes, says developer

Chris Seel is in charge of building billionaire Alexander Abramov's $40m mansion at Helena Bay. Photo / Greg Bowker

Chris Seel, developer, mechanical engineer and accountant, is in charge of building the country's most expensive new house, the $40 million-plus Helena Bay mansion for Russian billionaire Alexander Abramov.

This is his third large house in the Bay of Islands region and while mansions are his niche rather than affordable new housing, he says he has studied with great interest the country's high house prices.

"My logic is that it is hard to see how house prices could drop significantly and that Government and councils can really do little to encourage this.

"House prices are determined by supply and demand and the cost of new housing. If you accept that New Zealand's population will keep growing, then house prices in main centres will be mainly influenced by the replacement cost of an existing house or the total cost of a new house," says Seel, who lived in London, New York and Moscow where he worked in finance.

"If you look at the cost components of a new house, you see that it is largely made up of land prices, materials, labour, compliance and profit. The materials are essentially commodities driven by worldwide prices such as steel, timber and concrete and those can't be easily influenced - a little like milk, the international market sets the price.

"It is unlikely that we will see any significant drop in labour costs or rates. Compliance costs are growing. Profit margins are not fat, maybe there is some room for compression but we are talking maybe 1 to 2 per cent of the total cost," Seel says.

That just leaves the bare land component which the Building Research Association of NZ has calculated is a quarter of the cost.

"Let's assume that by freeing up massive amounts of land that land prices reduce by a giant 50 per cent - this is extremely unlikely and would equate to only saving 12.5 per cent of the total cost," he said.

So something else must be going on and Seel has twigged on to average house prices being around five times the average annual income.

Only one solution appears clear to him: "It follows the only genuine way to address housing affordability is to raise the average income which is achieved not by simply raising the minimum wage, but by making the nation wealthier through productivity increases, innovation - oh, and also through foreign investment."