Building Battle: Fees drive up prices

Developer Peter Macleod is building 56 apartments on Murphys Road in Flat Bush, South Auckland. Photo / Dean Purcell.

This week the Business Herald takes an industry-focused look at the cost issues around housing New Zealanders. Do we have a crisis? How bad is it, what caused it, political responses and possible solutions

Peter Macleod is putting up a big housing project in South Auckland: 56 units in two blocks at 353 Murphys Rd, Flat Bush.

He paid $1.8 million for the site but isn't too happy about a further $800,000 paid to Auckland Council and Watercare Services.

"It's ridiculous," he says of these fees which he claims have driven off many other developers and been a major contributor to the housing affordability crisis.

Macleod, a developer and investor, plans to rent out all units in two blocks in the area where he says housing affordability continues to deteriorate because of steep fees, red tape and what he sees as an environmental obsession.

"Most of Auckland's developers or builders have given up construction or gone overseas. I worked out of PlaceMakers Takanini in the 1990s and early 2000s and most of those builders have now gone. Green initiatives have killed housing and crippled our poor."

Macleod, of the Norwood Trust, backs the Productivity Commission's Housing Affordability Inquiry which found "significant" infrastructure costs were part of the problem. Fees of $40,000 could be charged to develop just one section, the commission said, identifying a growing number of people forced to rent long-term.

Housing is most New Zealanders' biggest expenditure, made up of most household assets and debt. Our houses are worth $625 billion and banks have loaned about $171 billion on them, according to the commission. So any swings and volatility have a big impact on our lives, the expectations of our young people and our economy.

The Green Party's Russel Norman says house prices are rising at four times the rate of inflation and twice as fast as wages.

Statistics NZ has identified low levels of new house building for some years and Auckland and Christchurch are hardest-hit by steep price rises.

The commission found land prices, building and labour costs and regulation contributed to the overall problem.

About 15,000 houses are built annually now, down on the 30,000-plus around 2007.

Rodney Dickens, an economist of Orewa's Strategic Risk Analysis, blames surging section prices which have driven the cost of new housing outside the reach of too many would-be new home owners, and especially younger and/or lower-income households.

"Excessive section prices are making the New Zealand economy uncompetitive. High section prices are a travesty given our very low population density and are contributing to undesirable housing conditions for lots of hard-working Kiwis.

"But why did the average section price increase four times more than the average income between 1992 and 2012? Not double. Not three times more."

Section prices have outstripped new dwelling costs since 1992.

Dickens blames councils for chasing smart growth policies which ringfence cities and drive the price of land in the boundaries up because it becomes a scarce resource.

But he also cites high infrastructure costs, too much bureaucracy and holdups which cost developers while they hold land.

Jonathan Ling, Fletcher Building's chief executive who leaves at the end of September, has also blamed land supply and planning rules as being the main culprits behind expensive houses. But New Zealanders' obsession with having a unique home is also to blame for high prices and he wants more factory-made houses.

Macleod wants more land freed up for development, another commission recommendation.

"When we built homes in Mangere in 1995, the value of the land was $30,000 a section. That same land is now worth a staggering $180,000 a section, or six times as much in 16 years. Over that same period, the average wage rose just 36 per cent. That is just not fair for South Auckland's poor to have to deal with."