How homeowners can use their land better to upsize and make housing more affordable
The idea of co-housing is one that many people are talking about in Auckland as a way to combat the exorbitant property prices.
Co-housing is a model whereby a group of friends and/or family members pool resources to buy a plot of land. They then all live on the land (in one or more houses) and share facilities and spaces.
However, my belief is that while there are some benefits, this kind of co-housing model isn’t for everyone. This is because it is challenging to pool together sufficient resources from everyone to develop houses on a single plot of land.
Available land is in abundance in Auckland, unfortunately, though it is often difficult to acquire, under-utilised and tends to be occupied by existing dwellings. Combine this with red-tape hurdles and stringent bank requirements it makes this form of co-housing model even more challenging.
There is an alternative, untapped co-housing model which could easily be rolled out with minimal risk. This untapped option is not about numerous couples buying, building and living on one plot of land. It’s about existing landowners utilising unused space on their site and planning the project in a staged manner with minimal cost upfront to allow new homes to be built.
We’ve cracked a model that makes this approach perfectly feasible.
It allows family and friends to team up and purchase land to either:
- Get on the property ladder; or
- Stay in a nice area and upsize by only purchasing a small piece of land and not footing the bill for the entire site.
The model works like this:
A young couple has a 460m² property in Auckland. With a family slowly outgrowing their existing house, they need a bigger home. But the reality for most, including this couple, is that they’re in a position where they cannot afford to up-size their home and still have the luxury of living in the same area without significantly increasing their mortgage.
There really are only two options available to them:
- Sell up and move out of the area, to a more affordable location, often further from the city – not desirable; or
- Increase the size of their existing home which would increase their mortgage and add further household debt.
However, there is a third option available to them that is rarely ever used:
Join forces with an acquaintance, friend or family member and co-develop their existing plot of land.
Having undertaken extensive research and financial modelling on the various options, in my mind it is clear that option three is the most palatable and here’s why:
The couple could team up with a second purchaser who is looking to purchase property in the same location the couple currently live. But that purchaser cannot afford to purchase a full-sized property.
If the young couple sold half of their section to the second purchaser and together they pooled resources, they could theoretically develop two brand new architecturally designed homes on the site – each 200m² in size and both with double garaging.
How The Above Co-Development Model Works
Anyone looking to buy in Auckland or to upgrade their home in the same suburb could consider this model.
The landowner sells off a portion of their land to a development partner (in this case around 200m² of land).
Both the couple and the development partner then split the cost of the consenting process between them to design or leverage off equity and consent the two new homes. To secure the section all the development partner has to do is to provide a small deposit paid directly to the landowner (with the amount to be paid agreed privately between both parties and not involving banks).
The parties then formally agree to utilise the existing equity across the site to also help leverage and fund the construction of the two new architectural homes on the sections. Once complete, provided the development partner has sufficient finance secured, the development partner then settles on the house and land.
The end result is the couple that owned the site end up with a larger architectural home in the same location with minimal to no increase in their existing mortgage. The development partner also ends up with a brand new home in the area they desired for the price they anticipated spending, without having to:
- Raise significant deposits from the outset to secure the land upfront;
- Scramble at real estate auctions to secure their dream home; or
- Compromise by acquiring an existing home that may not meet their needs in a location they may not desire.
There is a lot of fear around building new homes but the reality is – if done right and you can get access to affordable land (in this case, a vacant part of someone’s site), then you have the ability to build your dream home at your own pace. This approach when compared to purchasing often ends up cheaper than acquiring an existing home and you end up with a much better product that meets your needs.