The competing bids for votes over Auckland’s housing shortage are now clear: Labour wants to build 50,000 affordable houses over the next decade and the Government is planning to build around 7,200.
The Government’s Crown Building Project announced by Amy Adams on Tuesday was in many ways an extension of what it is already doing, but was also a definite and major ramping up of house building in a city with a housing shortage of at least 40,000. The Government described it as the biggest redevelopment and construction project seen since the 1950s. It would use the model pioneered at Hobsonville Point by the state-owned HLC (the former Hobsonville Land Company) and more than quintuple its scale across Auckland.
Adams announced the Government would build 34,211 new houses on Government land in Auckland over the next decade, although the net new addition to Auckland’s housing stock would be more like 25,936 because the land already has 8,275 old state houses on it that will have to be demolished. Of those net additions, Housing New Zealand will add 5,265 to its stock of state houses and the rest (20,671) will be what the Government describes as “affordable/market built.”
Adams told Newsroom around 35 percent of these 20,671 homes to be sold in the open market as “market/affordable” would be classified as affordable, and she later said affordable meant a home costing less than $650,000.
“Across the programme we’re looking for 20 to 50 percent of it being affordable and the exact combination is negotiated on a project by project basis,” she said.
The model the Government is using is the one employed by HLC at Hobsonville Point. It has masterplanned the former air and naval base to be a mix of some standalone houses, including renovated naval houses, some medium density town house developments and some apartments. It has worked closely with developers to plan the way the different types of houses work together, and has planned and paid for the infrastructure needed for up to 5,000 homes.
“HLC will be doing the bulk of it. HLC are a fully owned subsidiary of Housing New Zealand and they are the company that are going to be doing most of this work because they’re the company that has got the experience having done the Hobsonville project and that is the arm through which Housing New Zealand will be broadly delivering it,” Adams said.
HLC works with developers and builders such as AV Jennings and Fletcher Building to design developments with around 20 percent of houses being in the affordable range from $350,000 to $650,000. The rest are often larger terraces and homes sold for closer to $1 million and the profits from those sales have kept the overall cost of the project down.
Adams said the Government wanted to follow the Hobsonville model, which is also being used on Housing NZ land at Northcote and Mt Roskill, to keep the cost of the programme affordable for the Government, and because mixed communities worked better in the long run.
Why not all affordable?
“You can do that (build 100% affordable), but it drives down the value of those parts of the development, which then drives up the extent which they have to be subsidised,” she said.
Adams said the programme would cost $2.23 billion in the first phase of the project over the next four years. This would be funded from Housing NZ’s balance sheet and through $1.1 billion worth of borrowing by Housing NZ itself. The second phase of the project would be funded from development profits and rental returns.
Labour’s Kiwibuild policy, which was announced in 2012, is focused on building 100 percent affordable medium density homes on both Government land and private land. The standalone homes would cost $500,000 to $600,000, while apartments and terraced houses would be sold for under $500,000. Labour would start the programme with a $2 billion capital injection, with the capital eventually repaid from the proceeds of house sales.
Adams said Labour’s proposal was not realistic.
“What Labour has to be challenged on is they’re promising to do of this and they’re just not going to be costing anything,” she said.
“You could do the thing fully affordable, but that would significantly ramp up the amount of Crown funding required, and while we’ve done our numbers and tested and costed of all of that. Labour hasn’t,” she said.
“It’s pretty easy to talk about these things as costless options. The decision we have to make is around the overall viability of the project.”
Adams also challenged whether Labour’s all-affordable developments would work as communities.
“You also have to think about the community cohesion at the end of it. Best practice for urban design is that a mix of first home buyers, more established buyers and social housing creates the right blend of communities, and that’s the approach we’ve followed,” she said.
Who keeps the profits?
Adams said the Government would ensure developer margins and profits from the sale of homes were controlled, and if there were any unforseen profits from the sale of land and houses then the Government would share in the profits. She cited the agreements already used in housing developments in Christchurch and in the Crown Land Programme in Auckland.
“Housing New Zealand will be engaging builders to build the social houses that they will retain, and where they’re doing market/affordable blocks they’ll enter into a number of development agreements with particular companies for each of those sites, as they have done in Hobsonville. There’s quite strict conditions about what they have to do in what timeframe and with what production,” she said.
Developers and builders needed the incentives to be involved, she said.
“This is the blend that both meets market needs – because you’ve got to have a project that developers want to build and to be attractive to the developers to come in to do it, there has to be a mix of market and affordable – and that affects the overall viability and funding of the project,” she said.
Land was not simply sold to developers before the houses were built and sold.
“When we sell the land it’s not a straight sale and purchase. There’s all sorts of mechanisms in there so the developers make an agreed margin on the development and no more than that. And if there’s a profit over and above those margins, then the Crown shares in those profits as well.”
‘Wished they’d taken it all’
Labour Leader Andrew Little was dismissive of the Government’s policy and said it was too little, too late and inadequate to the task of dealing with Auckland’s housing shortage.
“I really wished they’d just stolen our policy and called it theirs. That would be more flattering. This is an embarrassment,” Little told reporters in Wellington.
“I can understand why they held this policy over until Bill English was out of the country. This is not a serious response to the housing crisis we’ve got at the moment,” he said.
“For a city like Auckland that is 40,000 houses short of what it needs at the moment, to then say we’ll fiddle around with 26,000 houses over 10 years and we won’t say who’s going to be able to buy them, is not a credible response.”
Little said developers and the Government would have small margins to keep costs lower than the Government’s plan. Labour’s Kiwibuild policy would also use prefabicated building techniques and bulk procurement of building materials to keep costs down.