Guest Post – Insiders guide to the housing industry

I have read with interest the recent WO post on the question of affordability of land as a comment in the so called “housing crisis” facing Auckland and can’t help but whole heartedly agree with it.

To clarify and qualify my background in this matter, I have run major group housing projects in Auckland for the last 25 years and currently have over $120m in residential projects under construction in the city.  I have done work with the NZHF in the past and have found them to be genuine people working hard to provide housing solutions for the true “battlers” in our community. They do not offer hand-outs, they expect their clients to work for and to value their homes and they provide homes that give them a genuine leg up in what is a very tough market.  They offer a very nice home, though far from flash and not in the best parts of town. Waimahia Landing, is a nice name, but it is Clendon, which is hardly Parnell.  

In terms of the land component in the total build cost of a new home, the number that I have worked around over my time in the industry is around 50-55%. This has seldom varied in all that time. When I started in the industry land was around $50k for 600m single dwelling site with sale prices of around $120k. Interestingly, these homes, built on a re-claimed swamp in 1994  are now fetching around $1.2m. I look to today and the homes that I am currently building (albeit on 400m sites) are being sold for $1.2- $1.3m. The land component is around $550-$600k. The equation is very similar and it has been maintained at a level consistently over my time in the industry. We are a small country without getting into an argument about the RMA as a cause for this, the comparative number in (most) of the US is 10-15% and this is pretty similar over most of the larger countries with a surplus of land available for new home building.  .

Land banking was invented in Auckland when the likes of the late Hugh Green brought farms on the fringe of Auckland nearly 50 years ago, some of this land is only now being turned into houses, these land-bankers were patient and were happy to keep the land as farms for years, knowing that historically they would bring a return, though I am sure they never thought the returns would be in the tens of millions, when they paid their beads and blankets for the land.

Speculation is now rife in the market, stories of ‘Asian land bankers”  are true, but in fact it is seldom just Asians responsible for it. The mad rush for building has made everyone a potential land banker. I know of a family who brought a large house on 2000sqm of land for $2m about 10 years ago, they are now looking at options on whether to develop it or sell it, they will get $8m for it, easily. The reason? It can fit 9 dwellings on it without a resource consent, with a resource consent maybe double that. Everyone of those properties will sell for up to $2m. In the past you need 100 acres to be a land banker, now if you have a big section, you can flick it for a good number, retire to Tauranga and get away from the Auckland traffic.

The other half of the equation is build cost. Take it from me, my company makes a profit, but we are not profiteers, we employ hundreds of people and try wherever possible to buy and source local materials that offer durability (and warranties) for our clients. Cost of building is very high in NZ, we are a miniscule market by world standards we simply do not have the volume to drive down costs in a major way. Look across a development in the United States, you will see a thousand roofs, all in the same colour, that is called economy of scale. So in NZ, try and get a typical kiwi to buy a house identical to his neighbour…try it. For those building materials that are imported, we are thousands of miles away from where the products are made, those miles when combined with our small market and huge variety on the homes we build drive cost of inputs up.

Following the leaky home crisis actions were taken to “prevent this systemic national disaster” from ever happening again, while the jury is out on this, compliance cost has significantly lifted the cost of building. Then there is the council…don’t get me started. A building consent that used to be $1500 now starts at $10,000, water connections and “future network charges” are nearly the same amount. Retention tanks, detention tanks, that’s another $5000.  Health and safety is a great thing and I never want to injure an employee, but the cost of scaffolding, nets and bean bags will add a minimum of $10,000 to a job. Engineers (who we never used in the past) charge at $350 and hour, Geotech engineers are similar, soil testing for contamination is a minimum of $2000 a site. It all adds up.

In 1958 my parents built their home in a provincial town. My dad built it himself, he was not a builder. He  did it on the weekends with family help and he poured love into every single piece of timber that went into it. That house is still standing. It cost 2000 pounds, house and land. The section component was 51%.

Everything changes, nothing changes

 

-Anonymous


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As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

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