The answer lies in freeing up land by offering better living solutions for Baby Boomers
There seems to be a misconception about how we achieve affordable housing in Auckland. This being that you simply find a bit of land, limit construction costs as much as possible and in doing so, you’ll get the magical sales number of $550,000 to $650,000.
That’s actually not how it happens.
Developers aren’t going to build affordable housing for a low-profit margin. The risk is too high, given how long it takes to bring a project to market and the associated uncertainty around construction and finance costs.
To provide affordable housing you’re not only battling rising land and construction costs but also the cost of consultants, Council fees and compounding interest – all of which reduce your bottom line.
The reality is when you factor in the above there aren’t many places in Auckland where you can build a housing product that can be sold for $550,000 to $650,000 – and still, make a profit.
So, when the Government says it’s going to build affordable homes – like the Northcote Development in Auckland – they’re not likely to be doing it through the conventional development process that the majority of developers follow.
The Northcote Development is a development occurring on existing crown-owned land and land that is not being purchased by the Government at market rates. This allows the Government to reduce the cost of the houses to an affordable level, as their profit margin is not impacted by high land values.
The Government’s affordable housing initiatives will not put Developers out of business
Some developers have expressed a concern that the Government’s affordable housing partners HLC are going to put them out of business. They’re not. HLC runs an interesting model which is effective for creating more government-funded social housing in the short-term.
This model is an anomaly though and isn’t an effective way to bring down the overall cost of housing in the long-term.
The free market is not dictated or run by the Government. It may try to come up with solutions to influence the market like it has with the affordable housing model but these aren’t sustainable in the long-term because they can’t be rolled out efficiently.
The only way – in my opinion – that we can solve Auckland’s affordable housing issue at scale, is through the release of more land.
I’m not talking about freeing up land out in Rodney or Pukekohe and creating large-scale greenfield developments. That doesn’t create affordable housing because you end up with significant infrastructure costs. These get passed onto the end buyer and chew into the developer’s bottom line.
We need to use our existing land resources and increase the density within the existing urban areas.
We all know that moving into higher density housing is going to assist housing affordability but how do we do this?
Freeing up land for more housing by offering better living solutions for Baby Boomers
One of the land-release strategies that we’ve identified and used successfully at The Development Collective is to move Baby Boomers from their freehold, large land parcels in inner-Auckland, into housing typologies they’re happy to retire in.
That’s essentially downsizing baby boomers into well-designed developments that are established on smaller land parcels.
Many Baby Boomers and retirees don’t want to live on a large section. The kids have left home. They’re more likely to want to live in a smaller terraced or duplex house in the same neighbourhood with access to a wide range of amenities. A home that’s low maintenance, architecturally designed, has lift access, a two-car garage and three bedrooms, so the kids can come home when they need to.
If we can create products that Baby Boomers actually want to move into, thereby releasing their large land parcel to allow for more infill housing, there’ll be an increase in housing supply. This will result in a long-term change in land values and have an influence on the market.
Increasing supply will impact the value of land in an area because you’re basically adding ten houses to a site that previously had one. If that happens enough, the effects will be exponential and this will start to allow affordable housing to be created.
…And the role of the developer in making this happen is more important than ever.