Auckland intensification and the banks

The NBR has exposed a major problem with Auckland’s Unitary Plan:  the banks won’t fund it.

Banks don’t like tiny apartments: a flaw in the Auckland unitary planAuckland’s unitary plan has done away with minimum sizes for apartments and wants to see greater housing density but the banks may stymie the building of small apartments by refusing to advance mortgages on them.

Previously, Auckland Council limited apartment size to no less than 40sq m after an outcry against the “shoe-boxes” being built in the inner city.

Some banks struggle to admit it but you could say they’re justified in not wanting to lend in what is a particularly volatile segment of the housing market.

Auckland-based Loan Market mortgage broker Bruce Patten says banks have always been wary about lending on apartments and don’t like very small ones at all.

“It’s probably one of the things in the unitary plan that I think they’ve made a bit of an error on in not consulting with the banks on whether they will lend on small apartments,” Mr Patten says.

“The reality is the banks don’t like them, they never have and I don’t see them changing their policy around that,” he says.

“Really, anything that’s less than 50sq m, or certainly the absolute bare minimum at 40sq m, I just don’t see the banks having any interest in lending on or taking as security.”

Oops.  So the only way that the poor can get ‘affordable’ apartment living will be if the council or central government act as social housing providers. 

After repeated questions on whether ANZ has a minimum size of apartment it will lend at, the bank continued to be evasive.“Lending decisions are based on a number of considerations of which size is only one,” was its final answer.

Similarly, ASB Bank wouldn’t specify a minimum size but it did say this: “The size of the apartment is a key consideration in our assessment as the value of smaller-sized apartments can sometimes be more volatile relative to larger apartments or other property types.”

Other banks were more forthright. BNZ didn’t rule out lending on small apartments altogether and, perhaps, highlighted the political sensitivities of the question.

“BNZ is committed to building our share in apartment lending, recognising the role they will play in housing intensification,” it says.

“In the case of smaller apartments, typically less than 50sq m, it’s about ensuring customers are aware of the increased risk if the market changes for these apartment types,” BNZ says.

“For this reason, we typically require a higher deposit than larger apartments – and ensure a realistic valuation is in place to reflect current conditions.”

Apartments are ridiculously overpriced.  You get absolutely no land, and you’ve got a shoe box with appliances and some furniture in it.  Yet they are easily sold for over $300,000 or higher.

Unlike in other countries, New Zealanders don’t regard apartments as a viable first home option.More owner-occupiers are starting to buy apartments but they tend to be “empty nesters,” Mr Patten says.

The design of apartments also needs to change so that they better meet the needs of families with children, including more park-like outside areas.

Given the difficulty in getting mortgages on smaller apartments, Mr Patten says it’s unlikely many developers will build more.

“One thing that the developers have certainly cottoned onto over the past five or six years is to make sure that they understand what the banks will lend on so that they’re able to sell their product,” he says.

“It’s all very well for them to bring this up with the unitary plan but I would think you will find the developers will be a bit more attuned to what the banks will do on the lending side of things first.”

This is the start of Auckland getting “high density slums”.  It will start off just fine, but as overseas experiences have shown, in the end these places become storage warehouses for those that are fighting to get ahead or those that have given up altogether.

The luxury apartments that have been built to date are not at all what high density housing apartments look like.

Had Auckland been allowed to expand organically, it would have had higher density where it needs it, spread out where it needs it, and have the infrastructure to support those developments.  As it is now, it may have “relaxed” the rules somewhat, but it continues to try and push people into areas where there isn’t the interest or infrastructure to support intensification.

And all that before the banks tell you they’re not interested in funding it.

 

– NBR


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