Auckland in grip of housing crisisJENNY KEOWN
Last updated 12:38 21/10/2012
When you see feverish media headlines featuring the word "crisis" the more cynical among us tend to think 'yeah, right'. But in the case of the so- called Auckland housing crisis, there's more behind it than a desire by journalists to grab your attention whatever way they can.
This is not just any crisis. This one is a like a highly infectious disease that has already begun to choke the life out of that most hallowed of many Kiwi dreams - home ownership.
There are naysayers such as Prime Minister John Key and Auckland Mayor Len Brown who campaigned on the slogan of Auckland being the world's most livable city, But those who agree there is a serious housing problem include economists, other Auckland councillors, the Productivity Commission, and academics.
Why a crisis? Because the staggering housing shortage isn't keeping pace with Auckland's rapidly growing population, with natural growth fuelled by new migrants and expatriates returning home. The latest population forecasts from Statistics New Zealand show Auckland's population of just under 1.5 million is expected to rise by half a million in the next 20 years. By 2031, the Auckland region is likely to be home to 38 per cent of New Zealand's population.
By best estimates the city is about 10,000 houses shy of what it needs and it's only likely to worsen. According to the Salvation Army, under current trends over the next 20 years Auckland will be short of 90,000 houses - more houses than were destroyed in the Christchurch earthquake.
High demand plus sluggish response from property developers and builders due to problems getting funding, equals inflated house prices. While it's nothing new for Auckland house prices to be well above the national average, more concerning is how high they have risen above the growth in people's incomes.
The median house price was $505,500 in August this year, up from $453,000 a year ago - a rise of 11.6 per cent, according to the Roost home loan affordability index. In contrast, the median weekly take home pay for a typical buyer only rose 2.7 per cent over the same period, from $820.43 to $842.39.
It means your average house is becoming unaffordable for many Auckland families, even when both adults work.
But owning a home is ingrained in the Kiwi psyche; it's the thing you do to get financial security. You only to have watched even one episode of the reality home renovation show The Block to see the lengths desperate young couples are willing to go to get a leg up into home ownership.
Some argue the crisis is just in a couple of Auckland's more well-to- do suburbs - the likes of those within the Auckland Grammar zone and poncy parts of Ponsonby.
Don't Generation Y and X just need to reset their lifestyle expectations and buy an ex-state house further out of the city, in the traditionally working class western suburb of Henderson or something? Or start off with a tiny apartment in the city?
As with most problems, the answer is just not that simple.
A central Auckland mortgage broker, who didn't wish to be named, says there are still first- home buyers who refuse to hunt for properties out of their preferred location in the central city suburbs. But most buyers that have reached "the pain threshold" and willing to look in more bog- standard suburbs are still struggling to find something affordable that isn't in need of a major overhaul.
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Supply and demand dictates prices in any market. With increased demand and a shortage of listings, Auckland house prices have risen overall and dramatically so in some suburbs.
In the traditionally working class western suburb of Henderson, the average asking house prices rose from $378,737 in July 2008 to 424,984 in July this year - a rise of 12 per cent, according to Trade Me. In the far eastern suburb of Howick, prices shot up 25 per cent over the same period, from $576,429 to $725,714. In Grey Lynn, prices rose 19 per cent from $532,417 to $634,059.
It is worth bearing in mind that this data is only based on listings that supplied an asking price.
L J Hooker agent Murray Biddick has been in the business for 24 years and has never seen a situation like the current one.
Most properties where he works in the eastern suburb of Howick were being sold at auction within three weeks for "very good prices", he said.
Another agent working in the western suburb of Henderson says there has been a noticeable spill over in price increases from the central suburbs to the west in recent months.
Most homes, including entry- level properties, were being auctioned and first-home buyers on tight finance were finding this daunting.
"There is a preparedness from buyers to pay the extra and immigrants, Chinese in particular, have a budget that seems to be exceeding born and bred Westies," he says.
South Auckland has a shortage of decent brick and tile homes in the entry-level $350,000 to $400,000 range, says Manurewa Ray White manager Sue Douglas.
Banks' liberal lending critieria and low interest rates are undoubtedly fuelling demand. One broker says he's seeing more people on good incomes, with good savings and little to no external debt.
However, the widening gap between the haves and the have- nots in terms of affording a house, is becoming more apparent, he says.
"You've got to have a combined or single annual income of at least $100,000 with no external debt to have a chance of buying in this market."
The home ownership rate fell to just under 64 per cent in 2006, and is projected to be as low as 58.3 per cent in 2016, according to the Centre for Housing Research.
The decline was greatest in the 20-40 year age group.
University of Auckland professor Jenny Dixon says younger householders are likely to be raising children and will make up the productive population over the next 40 years.
"The Auckland housing market is increasingly failing to meet the needs of its residents. This will hold serious implications for population and economic growth in the region and making Auckland a liveable, global competitive city," she says.
According to the Auckland Council, 28 per cent of Auckland households now pay more than 30 per cent of gross household income on housing, a proportion widely recognised as unaffordable.
The pain has hit the rental market as well.
Between 2002 and 2012, rents in Auckland were 34 per cent higher than the rest of the country, but kept pace with wage and salary growth, according to a Salvation Army report published in August.
However, from early this year Auckland rents starting rising faster than incomes, in response to the slow-down in new building and tightening housing markets in more affluent suburbs, the report said.
Productivity Commission chairman Murray Sherwin was one of the first to raise the red flag about Auckland's crisis in his recent report on housing affordability. Sherwin's key finding was that high population growth had fuelled the pressure on housing affordability in the region, the pool of renters had grown, and that the steep rise in real house prices over the 2000s had significantly reduced the likelihood of some households - particularly those in the $50,000 to $70,000 income range - from buying a property.
It pointed the blame largely at the Auckland Council's slow house consenting processes, high infrastructure charges and its "smart- growth model" of encouraging intensification in the city.
This had raised the price of land so much new homes tend to be at the higher-priced end rather than at the bottom end catering for first home buyers.
"The housing backlog is acknowledged by the council and government - so what are you going to do about it folks?" Sherwin asked.
Auckland Council's response came via deputy mayor Penny Hulse, who said there were plans to free up land on city limits. The Auckland Plan allows for up to 160,000 new houses to be built over the next 30 years outside the current urban limit, a city bigger than Hamilton, Dunedin, Palmerston North and Hastings combined.
"How can anyone think that is not large enough?" Hulse asked. Besides, Aucklanders don't want a sprawling city, she proclaimed. The council is also investigating ways to develop 280,000 new dwellings within existing boundaries.
Typically when you have high demand, property developers get busy and build new homes to sell to people. So why isn't that happening now?
The collapse of the finance companies, that provided substantial property development funding, didn't help. Developers had find it tough going getting the banks to fill the gap.
Long-time property developer John Sax says there is no magic bullet to fix the housing affordability issue in Auckland.
The material cost of housing is "disproportionately high by international standards and the country needs to increase competition and contestability of products," he says.
Residential property speculation, where builders build it and hope people will come to where they've built, is also unhelpful in terms of meeting supply and pricing, he says.
Sax's development company Southpark is planning an affordable housing development in Auckland in partnership with the council.
While he won't reveal its location,the development will provide multi-bedroom housing at a cost of between $350,000 and $550,000.
That's arguably an affordable price while still delivering the developer a healthy profit that allows him to stay in business.
Fellow property developer Mark Fraser, of the Hobsonville Land Company, says Kiwis mistake big for quality when it comes to houses.
Most new developments in Auckland were large and expensive homes. In one example, Stonefields in Mount Wellington, houses are selling for between $700,000 to $900,000.
Fraser argues Hobsonville, on the city's northwest fringe, is one of the few affordable areas but they're still out of the reach of many first-home buyers.
His company's range includes smaller 90sqm to 100sqm two- bedroom houses for around $400,000 to four-bedroom homes of around 200sqm to 220sqm for $800,000.
Fraser rejects those who blame a lack of land supply for pushing up development prices.
"It's not the cost of the raw land, but the cost of developing the land - including putting in roads and power, then the cost of the building on top of that."
According to Mayor Len Brown there is no crisis. He will admit to a housing shortage though.
Some of the analysis of Auckland's housing challenges were simplistic and didn't reflect on the way the city had responded to the ebb and flow of economic cycles in the past, he says.
The city needs to build between 8000 to 10,000 houses, units and apartments a year, but they needed to be quality, within reach of middle and modest income earners and not sprawling across the countryside, he said.
"When Auckland is humming, that is how many we build. It is going to take a while to wind up to that pace," says Brown.
There is currently provision for developing about 18,500 properties on greenfield land that could be built on today, which just goes to show, he claims, that the current urban limits were not the root cause of the unmet demand for housing. Instead he blames the difficult economic environment that led to a downturn in building activity which is yet to crank up again.
The council is drawing up a Unitary Plan that will allow it to develop partnerships with government, non-government organisations and the private sector on existing brownfield land.
It is also looking at speeding up the upfront assessment processes for building developments, and density bonuses as incentives for affordable housing developments.
But when it comes to whether council should take a leading role in actually building affordable homes itself, Brown says legacy councils had in fact sold the vast majority of council stock in Auckland. "As we look for savings to keep rates increases low for Auckland families, the council simply does not have enough money to build new council housing."
The answers will need to come from the private sector where supply and demand will dictate price.
Read more:
http://www.stuff.co.nz/auckland/local-news/7844917/Auckland-in-grip-of-housing-crisis 
