"Just what things cost": A Critique of Professor Hazeltine's article
Recently Professor Tim Hazeltine wrote an Opinion piece in the New Zealand Herald on the Metropolitan Urban Limit and his opinion that it contributes to Auckland's liveability. The affordability of housing was mentioned too. The Professor's article quoted some estimates, which seem accurate in the Auckland land market, of land prices. While mentioning the lack of an MUL in Christchurch, he concluded that the cost of the land is just what it costs in New Zealand.
Back in 2013 I was provided by a land developer what it actually costs in Auckland to bring a section to market - ready for the application for building consent to the Council. I thought to take Professor Hazeltine's land costs and feed it into the model. While the land developer's figures are 3 years old already, it is unlikely that costs will have decreased in that time.
Costs to bring Raw Land to the Serviced Section market
The Developer example above uses land that came to market in Auckland's eastern suburbs around 4 or so years ago. Now, it is true that there is a lot of work needed to get a section to market, as can be seen in the table above. The line item construction typically includes earthworks, roads, SS, SW, pump station, ICMP pond, landscaping, power, phone, road network improvement, and street lighting. If we are to look at the proportion of these costs, and allocate them to three categories: Government, land cost, financial and design/construction, the pie chart looks like this.
Categorized Costs to bring raw land to market: East Auckland circa 2012
However, Local Government drives some of the design and construction fees during the Resource Consent process, so it is simplistic to divide the pie with these sharp demarcation lines. Now, when we take Professor Hazeltine's figures into account, and disregarding the Port of Auckland example because that is beyond all possibility from a financial perspective, the following pie chart assumes a section size of 500 square meters, exactly as the same model above.
Categorized Costs to bring raw land to market: Inner Suburbs using Professor Hazeltine's Article
It is important to be aware of these two examples, as there is a continuum from cheaper land costs through to expensive land costs. The cheaper land costs highlights the impact that dealing with Government, the requirements they impose to get Resource Consent and Title issued, and the financial mode we use for development in New Zealand.
To systematically reform that system, first we need to allow land development as of right, or, allow development upon simple application to the Council for the purpose of updating their records and issuing the plan change within a statutorily guaranteed time period, say 20 working days. The Council may complain that they will loose control over how a city develops and also ask questions around how the supporting infrastructure will be funded. The first issue simply should not be in their domain for two reasons:
The land does not belong to them.
They are not elected representatives and therefore bring to the table the professional skills needed for development, not the public decision making role.
Of course, land development can be a concern of the wider community, but decision making process can only be within the elected members of Local Government. They remain accountable to the voters who can make the change in policy by electing someone else or by the usual lobbying that any citizen can and does engage in. Apart from a few self-appointed experts, most people are relaxed about land use. I for one do not want to interfere in what you would like to see built, as long as the reverse applies, and it is all done at an affordable price for each type of density.
On the question of the supporting infrastructure, solutions are already on the table in the public sphere. As I am sure some readers will know, all of the development costs are front loaded into the section price, and the buyer pays for all of it. If we share all of the costs over the new sub-division, there will be no reduction in the cost, but if the developer is able to charge the section buyer (and subsequent owners) over the lifetime of the asset the cost to build that asset, then the repayment will be lower. Additionally, in a healthy economy with a reputable Governance model, lenders will be more willing to make the capital available. The infrastructure can be designed to last 50 or even 100 years. If we took the example above where the section buyer has to pay $95,000 each, the table below compares the debt servicing cost (1) between the section buyer servicing it versus the developer levying the section owner.
It does pre-suppose a lower interest rate, but that is entirely feasible because the current 10 year bond rate that the New Zealand Government can borrow at is 2.25%.
However, the same developer said that with higher density housing, the cost tends to increase because of noise considerations, and more complex waste water and sewage infrastructure needed to handle the volume. It is well known that apartments can cost up to $10,000 per square meter for similar, and other, reasons. Also for consideration is the additional load on existing water infrastructure that may need to be retrofitted. As that is not a frequent occurrence in Auckland's development (even though it has changed in recent years) my conversation with a contact at Watercare was that they were less certain on how to plan for residential development at higher densities on the scale envisioned in the Unitary Plan. Therefore, this uncertainty will be reflected in higher costs. It will not be cheap.
However, I believe we need to look further afield to benchmark all these supposed costs against other cities. In Warren Buffet's home town - Omaha - in the state of Nebraska with a population of almost 1 million, serviced sections are on the market at prices indicated below.
Serviced quarter-acre sections in Omaha, Nebraska at $50k or less
Here in Auckland we are paying upwards of $500,000 for a serviced section at least, and often more, whereas in Omaha they are paying one tenth of that. Let that 90% discount sink in for a moment and then ask yourself, have we been ripped off? This makes me skeptical that we really have the best procurement model possible, the best land zoning practices when it comes to land supply and the best infrastructure financing to go with it. I believe that we have too much meddling in the market by Local Government and way too much speculation in land due to its artificial scarceness. Here in New Zealand we can have this quality of life, at an affordable price if we just say to all levels of Government that we have had enough, for the people who can't afford a home now and for the next generation. Question your Councillor and Mayoral candidates on these facts and ask them if they have the policy framework and competence to deliver what already exists elsewhere. If they walk off like Len Brown did to me during 2013 Local Body elections when I questioned him on these matters, make sure you publicize it in your social networks. Without the pressure of people involved in Local and Central politics, we will never make progress.
(1) Furey, Edward "Loan Repayment Calculator" From http://www.CalculatorSoup.com - Online Calculator Resource.
