House costs surge

Darren Brown is critical of Watercare's cost structure. Photo / Michael Craig

Developers say extra expenses and delays are slowing progress

Government moves to improve housing affordability are hamstrung by council and infrastructure costs associated with building, property developers say.

The measures, made public this week, include increasing land supply for new housing, introducing a six-month time limit on councils processing medium-sized consents, and measures to reduce delays and the costs of Resource Management Act processes.

But developers say those moves do not deal with some of the hidden costs that make it uneconomic to build cheaper housing.

Auckland Property Investors Association president David Whitburn said councils needed to take a serious look at themselves. In Auckland between 2002 and 2005, more than 12,000 residential building consents were issued each year.

Since 2005, when council development contributions were introduced, that has fallen sharply. Since 2009, barely 4000 have been issued each year.

Development contributions are fees collected for community and network infrastructure when new houses are built. The Auckland Council estimates they represent about 8 per cent of the cost of development.

Whitburn said some of the fall in consents was the property cycle in action, but developers had previously been able to rely on pre-sales to fund developments. Now council development contributions, Watercare infrastructure charges and the cost of utility connections made that impossible.

Whitburn said it now cost an average of $90,000 to subdivide an Auckland section. Developers who did so would want to build large, expensive properties to make the cost worthwhile.

He suggested the development contributions should be levied on to rates charges.

An Auckland Council spokeswoman said the council did not believe general ratepayers should be required to pay for assets that did not directly benefit them.

Darren Brown, who is developing the 500-apartment Sugar Tree in Nelson St, agreed there were significant costs involved, in particular the Watercare growth infrastructure charge, which has increased by 100 per cent over the past two years. "That has to be passed on to the buyer."

He said Watercare had signalled 12 per cent growth in infrastructure charges, year-on-year, for the foreseeable future.

The Watercare infrastructure charge for the July 2012 to June 2013 year is $6900, plus GST, per unit.

Any dwelling under 65sqm is charged two-thirds that amount.

Brown said it was a concern that smaller properties, such as CBD apartments, were paying the same as big homes in greenfields locations. "This certainly doesn't encourage more affordable, intensive housing developments in established residential areas.

"It means that those people buying cheaper, more-affordable apartments in the CBD are subsidising those people who are buying larger, more expensive homes in the suburbs.

"It also means that developers have an incentive to build much larger properties rather than smaller, more affordable properties as the percentage cost of the Watercare subsidy versus the value of the end product is considerably less."

A Watercare spokesman said the charge was necessary. "If developers who create new demand on services do not pay for the growth then the costs have to be funded by all Watercare customers through higher water and wastewater charges."

Property investment adviser Olly Newland said when GST was taken into account, a third of the cost of a development was tax.

"Developers tear their hair out."