$650,000 for a Kiwibuild is simply unaffordable for many New Zealanders
Stephen Selwood looks at what's needed to get build prices down.
In 1991, almost three quarters of Aucklanders owned their own home. If we were to deliver homes which three quarters of Aucklanders can afford, they would need to cost $300,000. This is what a truly affordable home is in Auckland.
The Government's trademark KiwiBuild programme has kicked off, and with around 40,000 registrations of interest so far, it is clear it is delivering to an underlying need for more affordable housing in New Zealand.
Almost 25,000 of these registrations have been in Auckland, which highlights how much pent-up demand there is in one of the world's least affordable cities.
However, we also know we are 50,000 homes short of what we need to house the Auckland population. That's not a guesstimate, but a well-conceived assessment from the Auckland Council.
Surely a KiwiBuild home is better than living in a garage or with Mum and Dad forever — why haven't these other 25,000 households put up their hand (not to mention more of the 200,000 households in Auckland who are renting)?
The answer is, of course, that at $650,000, KiwiBuild homes are not yet affordable.
The council has shown that a family would together have to earn $118,300 to afford the $40k per annum mortgage repayments on such a home.
Only 40 per cent of Auckland households earn this much and most of them own their own home. So we have to do better. How much better? In 1991, almost three quarters of Aucklanders owned their own home. If we were to deliver homes which three quarters of Aucklanders can afford, they would need to cost $300,000.
This is what a truly affordable home is in Auckland.
How on earth do we do that?
It's easier than you might think.
Let's break down a home into its three core components: the building itself, the infrastructure (including consenting) and the land.
Starting with the building, it currently costs around $2000/sq m to build a simple standalone home in Auckland. Apartments are more, say from $2500-$4000/sq m depending on how complex.
That means a moderate 150sq m standalone home or a not-very-family-friendly 100sq m apartment will max out the $300,000 limit of the bottom quartile.
So build costs have to come down.
KiwiBuild will be a big asset in this regard. The scale at which KiwiBuild is being delivered is already attracting investment in off-site manufacturing, standardisation and much greater building efficiency.
Our target should be $1200sq m, which would bring us more into line with overseas.
This means our 150sq m home will cost $180,000, giving us $120,000 for infrastructure and land.
Looking at land, KiwiBuild is interesting because the Government is targeting much redevelopment on Crown land, which is very difficult to value.
But we also know the Crown is buying from the market at market prices, which we can value.
To buy an old "quarter acre" section in Auckland — 1000sq m — today costs a million bucks. Obviously more if it's in Remuera and less it it's in Papakura, but that's a good approximation for the areas which are priorities for KiwiBuild.
If four homes replace the one, more or less as planned, the land costs $250,000 per dwelling. This is double the $120,000 available for our affordable home.
If we instead assume 10 units replace the one, land costs $100,000 per unit, improving affordability.
But there are now two problems. Putting 10 units on 1000sq m will be complex and consenting and construction costs will increase. Instead of $1200sq m to build, we're probably back to $2000sq m(and the rest).
This means the dwelling size has to shrink, which in turn drives up the per-metre cost to build. It also means things like car parking won't be available, so homes need excellent public transport.
However, public transport of this quality is only available in very central areas where land costs much, much more than 1000sq m.
This all kills the maths on a $300,000 aspiration before we even get to the second problem — which is that the more dwellings there are, the more infrastructure you need.
As a very rough estimate, about $100,000 per unit is needed for infrastructure and consenting a new home in Auckland.
So is the dream of actually affordable housing in Auckland dead then?
Thankfully not. As demonstrated by the Houston, Texas home in the picture, a $300,000 home is more than feasible — but we do have to change how Auckland grows.
Affordable housing must be targeted on greenfield land, not expensive brownfield land.
Unzoned greenfield land around Auckland costs around $25,000 for a 500sq m section — a tenth of a 250sq m section in a KiwiBuild priority area.
That's one major advantage.
The other is that greenfield infrastructure costs six to nine times less than brownfield infrastructure.
Nimby objections, difficult consent conditions, traffic control, noise concerns, digging up concrete, avoiding other infrastructure and many more factors make retrofitting new developments in brownfield areas horrendously expensive.
Further, if we do what the folk in Houston do, we'd remove infrastructure obligations from Auckland Council and transfer them to a separate public entity.
That entity would roll out core water and roads by borrowing on its own balance sheet and repay debt with a long term rate.
Homes could cost up to $100,000 less, though rates would be higher.
At $25,000 for land, $100,000 for infrastructure and $1200sq m to build, we can build homes for a $300,000 cost.
If we wrap the infrastructure costs into a long-term repayment, we're on track to have homes sold on the market for this amount.
This is what Aucklanders need, it's time we made it happen.
● Stephen Selwood is Chief Executive of Infrastructure New Zealand