Smaller sections and more town houses and apartments are back on the agenda in Auckland’s leafy suburbs. Geoff Cumming reports.

It's known in property circles as "the San Diego effect" - where housing becomes so unaffordable most workers can no longer afford to live in a city.

So they leave, or don't come in the first place. Businesses and institutions are unable to attract staff and the city loses its competitiveness. That's the path Auckland is heading down, says former developer Patrick Fonteyn.

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Resolving Auckland's crisis in supply and affordability, as the city's population continues to surge, will come down to two key drivers:

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• How the incoming rulebook, the Auckland unitary plan, shapes where housing development takes place, and what kind (whether standalone, terraced housing or apartments).

• Whether developers see a buck in it, and take the risk to secure and build on available land.

And the outlook? Well, it depends whether the glass is half-full or half-empty.

Property developers pushing for changes to the unitary plan say the glass is rapidly emptying. They claim that worse than the shortage of potential land for redevelopment in built-up areas is the shortage of sites which are economically viable to build on. The chorus from developers: the council is looking for intensification in all the wrong places.

The council argues there is plenty of potential room to increase density without destroying the values that make Auckland an attractive place to live - things like leafy house and garden suburbs, heritage character and views to volcanic cones.

But right now, the council is under enormous pressure - not just from developers but from the Government - to "stand up to the nimbys" and lower the hurdles to higher density development in existing residential areas.

Why is this an issue now?

The unitary plan hearings still have a year to run, but agreements are being forged through mediation and expert conferencing that will significantly change what Aucklanders thought they were in for when the plan was notified in September 2013.

Four key events in recent weeks make the council's best-laid plans seem rather fluid.

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• As the Herald's Bernard Orsman revealed on Monday, councillors voted secretly last month to ease density restrictions in two zones which cover swathes of residential Auckland - the mixed housing urban and mixed housing suburban zones. While heights remain limited to two or three storeys, site coverage will be more intense (e.g. four units allowed instead of two on an 800sq m site) under proposals now going through mediation.

• The plan hearings panel has advised the council to rethink two planning tools designed to help preserve the city's existing character. One is the "pre-1944 demolition control overlay", which means landowners need consent to demolish character villas, bungalows, shops and office buildings. This overlay covers much of the isthmus and older suburbs such as New Lynn, Otahuhu and Papatoetoe. The panel says it places unnecessary constraints on landowners and special character areas could be protected by a future plan change. The second is the volcanic viewshafts overlay, which preserves views of volcanic cones from some 90 vantage points around the city by restricting development heights.
The council is considering its position on both issues.

• A joint property sector-council study - ordered by the hearings panel - identifies a yawning gap between many of the areas earmarked by the council for intensification and the economics of actually building there. Though only made public this week, the "developable capacity" study was presented in May and is understood to have influenced the proposed density changes in the mixed housing zones.

Why does the unitary plan matter so much?

It sets the blueprint for how Auckland will grow and look, not just over the 10-year life of the plan but towards the target of accommodating up to one million more people in 400,000 new dwellings by 2041. The plan aims to achieve the council's "compact city" vision of fitting about 260,000 more dwellings into the current urban area with about 140,000 homes built outside the city limits.

The plan needs to find the right balance between intensification and sprawl. While appetites are growing for apartment living, terrace housing and the vitality that high density and "mixed" zonings can bring, many people still aspire to the separate house and garden lifestyle.

And many current homeowners fear impacts from growth on property values and their enjoyment of their neighbourhood. They are called nimbys by Cabinet ministers; but opposition could rebound on at least local politicians.

On the other hand, freeing up land on the outskirts brings higher infrastructure costs, timing problems, traffic gridlock and other downsides.

What does the new capacity study show?

The study by a panel of planning and property experts estimates 100,000 homes need to be built by 2025 and, to meet the compact city goal, around 65,000 should be within the current urban area. The plan allows for enough apartments (around 20,000) overall but falls well short of the estimated 80,000 standalone and terraced houses needed to satisfy demand.

Longer-term, the study significantly increases the "plan-enabled" capacity to potentially 565,000 more dwellings.

Haven't we been here before?

Yes. When the draft unitary plan was notified in March 2013, it sparked an outcry from suburbia. At that point, it allowed for a maximum of 681,000 new dwellings to be squeezed into residential areas and town centres. A politically-led backdown ahead of the council elections saw the intensification potential scaled back to 321,600 dwellings when the plan was notified in September 2013. The new agreed capacity of 565,000 suggests density and height restrictions will be further eased in places.

Are the predictions reliable?

The study also suggests developers do not believe building will stack up economically anytime soon in many of the areas earmarked by the council for intensification: particularly in areas with lower land values zoned for "terraced housing and apartments".

Modelling (completed before the council's density tweaks) suggests just 64,420 new dwellings would be viable under current market conditions - just 11 per cent of the revised capacity of 565,000.

Why the huge gap?

Panel member Fonteyn knows a bit about property economics - he was bankrupted in 2010 after his ambitious Kensington Gardens project in Orewa ran foul of New Zealand's lending sector meltdown and the Global Financial Crisis.

Fonteyn says the unitary plan zonings rely too much on apartment and terrace housing developments around town centres in suburbs with relatively modest land values - the likes of Henderson, Glen Eden, New Lynn, Glen Innes, Panmure, Mangere, Papatoetoe, Otahuhu, Manurewa and Papakura.

Apartment building costs are high on a per sq m basis and borrowing attracts a high risk premium - forcing the sale price up. There's not enough demand for apartments in these areas to make them economic, Fonteyn says.

To make this scale of building viable, the council needs to allow more medium and high rise buildings in higher value suburbs - particularly seaside suburbs such as Browns Bay, Milford and the Eastern Bays isthmus.

Wouldn't that spark another revolt?

Not necessarily, Fonteyn argues. Homeowners should bear in mind that this "upzoning" increases their property's market value. In other words, because developers can put more units on a site, they can pay more for the land. Slim consolation for those who like their neighbourhood as it is.

What about affordability?

If the plan enables more high density development to go ahead, developers say the cost per unit will fall and they will be able to build more affordable housing - smaller apartments and terraced houses. Urban Economics director Adam Thompson, whose feasibility model was used in the study, believes allowance for increased densities in the mixed housing zones could be a game changer, potentially allowing homes which would sell for around $400,000 in some areas.

Thompson says reducing minimum lot sizes - for instance, so four units can go on sites previously restricted to two - could spark huge developer interest.

"After 15 years of insufficient supply, we could move to having supply exceeding demand."

Without the changes, modelling predicted a shortfall of 50,000 terraced and standalone houses by 2025. If the changes proceed, an additional 75,000 dwellings will be commercially feasible in the mixed housing zones, Thompson says.

"First-home buyers would be able to go to Otahuhu and buy a small three-bedroom townhouse for about $350,000."

What does the council say?

Changes to the notified plan are all part of the process before it becomes "operative", say planning manager Penny Pirrit and unitary plan manager John Duguid.

"With the residential provisions, it became obvious [during hearings and mediation] that we had gone a bit overboard in the number of controls applied to residential development," Pirrit says. "[The modelling] found some of the density rules were working against housing choices."

And, if intensification continues to lag in established suburbs, there's capacity for 110,000 dwellings on the edge of the city limits.

Four units per property allowed in many suburbs

• The revised plan would allow more units to be built in the mixed-housing urban and mixed-housing suburban zones.

• Under proposed changes to the suburban zone, minimum lot sizes are reduced to 200sq m - meaning four units could go on 800sq m.

• In the urban zone, there would be no density limit but stronger design controls.

• Height limits remain at three storeys in the urban zone and two storeys in the suburban zone.

• Suburbs where these zonings are prevalent include: the East Coast Bays; Glenfield, Birkenhead, Beachhaven, Massey, West Harbour, Henderson, Te Atatu, New Lynn, Waterview, Pt Chevalier, parts of Mt Albert, Owairaka, Mr Roskill, Hillsborough, Royal Oak, Oranga, Epsom, Remuera, Orakei, Mission Bay, Kohimarama, St Heliers, Glen Innes, Panmure, parts of Mt Wellington, Mangere, Otahuhu, Papatoetoe, Otara, Manukau, Manurewa and Papakura.

Is your neighbourhood affected?

• Visit the Auckland Council website. Click on "view the maps".

• Click on "Layers" and scroll down to "Zones".

• Tick the "zones" box and "+" to open "unitary plan base zone" to reveal colour-coded zonings.

• Zoom in on the map to find the zoning for your neighbourhood.