Affordable housing in Auckland now doable

Wednesday 21 March 2018

As a property lender, we believe a big part of our future will be backing affordable housing developments in Auckland thanks to the Unitary Plan which now makes them a lot more doable.

By The Landlord

By James Kellow

Since Auckland Council’s Unitary Plan was passed in 2016, our team at New Zealand Mortgages & Securities (NZMS) has been working with property development companies such as Solution Street Limited to deliver affordable houses for the likes of first-home buyers.

Traditionally the tight supply and cost of land in Auckland has been the barrier for developers delivering affordable homes in good areas and making a margin along the way.

Now that the Unitary Plan allows for greater intensification in many market attractive suburbs, the economics have suddenly got a whole lot better. We’re now starting to see the construction of quality smaller homes on smaller sections. This is a real paradigm shift for Auckland and it’s exciting to be part of it.

A few years ago, I would never have imagined we’d be involved in affordable housing projects all around Auckland - Panmure, Mangere, Glen Eden, Henderson, Manurewa, Mangere, Takapuna and Northcote - but we are.

I argue there’s not a housing shortage now. Anyone who can afford a house has one. Instead what we have is an affordability crisis, with a surplus of unaffordable houses but still a deficit of affordable ones. That’s the problem that now needs to be fixed.

Solution Street is selling solid weatherboard homes with a 10-year guarantee and a 6 Homestar rating, completely freehold and on their own sections from $519,000.

As well as the Unitary Plan enabling more land, and more permissive zoning ensuring a faster and less expensive consenting process, affordable house developments are also being achieved thanks to clever construction techniques, the use of relocatable houses, and an avoidance of sales commissions. 

The reality is affordable housing projects don’t appeal to every lender and developer, as the margins are normally very low. For non-bank lenders you have to be well capitalised to make it work and everyone has to cut their cloth.

NZMS is privately owned, has the advantage of assessing its own risk and investing its own capital, and so if a development has enough scale it can be well worth us being involved.

In recent years the biggest component of our lending portfolio comprised of first mortgages on land development and apartments. We’ve supported some massive subdivisions in areas like Glenbrook, Flat Bush, Pukekohe, and Warkworth, and some major apartment developments in both Auckland City and North Shore. 

With a lot of those projects complete and repayments now coming in, by mid-year we’ll be set to reinvest nearly $150m of capital from our current loan book of about $233m. However, our focus in narrowing. For us affordable housing and super high-end residential developments appeal the most, particularly in this cooling real estate market.

With so many developments in Auckland coming to fruition, NZMS is not alone in now wanting to recycle capital.

Banks are now actively looking for business and want to do some big deals again. We haven’t seen that for a while, but when you think about it a lot of apartments complexes and subdivisions are complete or close to it. The banks have now got hundreds of millions coming in to recycle and so there’s now a fight on for market share particularly in the space of medium-quality suburban residential developments which always have the greatest appeal to retail banks.

As well affordable housing work, we’re expecting less subdivision transactions in peripheral Auckland and more work in the “super high-end” apartment market in the city’s CBD.

While high-end residential developments can come with higher rewards, they also bring greater risk which never sits comfortably with banks and hence provides an opening to another market sector for lenders like NZMS.  

The city centre is where the high-end residential product needs to be and that’s where we will see more of it, particularly when you consider the CBD’s current transformation with the likes of the City Rail Link, the Commercial Bay development, SkyCity Convention Centre, the next America’s Cup village, North Wharf and the likes.

As we all know the unsustainable heat has come off the region’s real estate. This can largely be attributed to the previous Government opening up land by legislating Special Housing Areas as well as measures taken by the Reserve Bank namely its tougher loan-to-value ratios (LVRs).

The fact that the real estate market has been carefully managed to a somewhat more normalised and sustainable place, helps New Zealand’s overall economic outlook which remains relatively bright.

Much needed building activity is being delivered on many fronts, with housing affordability the biggest challenge remaining. For us as a key enabler, it’s great to now be supporting genuine solutions in this area.

James Kellow is the Director of New Zealand Mortgages & Securities - Auckland's largest non-bank property financer.

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