Through my employer RCG, I’ve just put out a research piece giving 2017 as the first time that Auckland will build more attached homes (apartments, terraces) than detached houses.* This is one milestone, but really it’s just one of the ways in which Auckland is changing to become more city-shaped, as Patrick puts it. While the number and percentage of attached homes will bounce around, I believe that they’re increasingly important for Auckland’s growth, and in the long term they’ll make up at least 50% of the new homes we build.

That doesn’t mean that leafy suburbs will be razed wholesale, or that we’ll stop building detached houses, or that everyone will be forced to live in an apartment. According to the 2013 census, Auckland has:

  • 332,000 detached houses
  • 50,000 units in buildings with 1 storey
  • 43,000 units in buildings with 2-3 storeys
  • 16,000 apartments in buildings with 4+ storeys

Clearly, detached houses aren’t going anywhere – it’s just that they’ll be joined by more flats, terraces and apartments too. That means more housing choice.

AKL dwelling consents to Feb 2016

Housing choice is a good thing, but to bring it back to transport: Auckland needs better public and active transport so that it can handle more people, living closer together, without just getting more and more congested. The city needs transport choice as well as housing choice. We’ve often talked about Flat Bush as an area which has denser housing – including plenty of terraces and low-rise apartments – but which has very poor provision for public transport. That’s a recipe for traffic jams, long commutes and worse outcomes across the board. The new growth nodes in the future – Hobsonville, Massey, Takanini, Silverdale – need to avoid these mistakes.

The (Very) Big Picture

I try to get a bit ‘big picture’ with these posts, but I want to zoom out even further right now: let’s look at the overall New Zealand construction sector. At the moment, it’s as busy as it’s ever been. Statistics New Zealand measures the amount of “building work put in place” each quarter, showing how much construction is occurring. They say:

“For the December 2015 quarter compared with the September 2015 quarter, after price changes and seasonal variations are removed… total building activity rose 2.5 percent… the trend for all building work grew 1.8 percent, and is at its highest level since the series began in late 1989”.

There are regional differences – Canterbury construction will be tapering off in the next few years as the earthquake rebuild continues, and Auckland construction is booming. On the whole, though, the construction sector is pretty much flat out. Forecasts like the National Construction Pipeline Report, and the latest information on building consents, suggest that the outlook for the next few years is very busy too.

Growing industries are meant to be a “good news” story, and they are, and this means more jobs and more economic activity and all the rest. But it’s not without issues, because the construction industry relies on having a trained workforce, and it’s hard to keep growing the industry at 5% or 10% or 15% a year when construction is already a pretty big part of the economy and most of the people who know how to swing a hammer are already swinging.**

The graph below, from the Household Labour Force Survey, shows the number of people employed in construction at an all-time high:

Construction workers

Many builders are running at capacity already, and there are probably some specialist areas where it’s almost impossible to find builders to take on new projects – or at least, without paying through the nose. Peter’s looked at these issues in road construction previously, and I’ve heard that some Auckland apartment developers are struggling to find builders as well.

So, one issue with a very busy construction industry is that prices go up. Another worry is that there’s less focus on quality control, potentially resulting in buildings which aren’t up to scratch. It’s certainly something the industry, councils and government need to keep a close eye on.

Phew. So that’s the very big picture. It’s a good time to be a builder, but it’s going to be hard to find all the construction workers, tradesmen, consultants and other workers needed in the next few years, and hopefully the quality of the build isn’t compromised.

 

* Technically, we’re predicting 2017 to be the first year that more attached homes get building consent than detached houses. It will probably be 2018 or 2019 before Auckland completes more attached homes than detached houses.

** A hammer, that is.

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35 comments

  1. What about something crazy? We need more houses; how about major tax breaks for residential developments, maybe even create SEZs in Auckland and Chch with 0% tax on residential developments.

    1. What do you mean when you say “zero % tax”? I’m not a tax expert but I don’t think companies pay GST, so the only tax you could potentially waive is company tax on profits earned. And I’m not sure why we’d do that?!?

      I mean, I think houses are important but what’s the rationale for exempting them from tax rather than, say, another important good such as toilet paper?

      1. GST is levied on new houses. It generates considerably more tax than Council developer levies and charges. I have long thought that all those arbitrary and form inducing Councils charges should be dropped and Councils should get their locally generated construction GST. Of course Finance Ministers wouldn’t like that -they want free rein to pick and choose where to spend tax revenue or who to offer tax cuts to.

      2. I am not sure construction will fall off that much in Canterbury. My reading of residential consent numbers is that in the last building cycle -Canterbury was consenting something like 375 residences a month. Recently we have plateaued around the 400s to low 500s. So it might drift down a bit but commercial construction is still picking up -as anyone who has been down to Christchurch will tell you -we still have a city to build -the CBD in particular is nowhere near finished -or even half way.

        Oops this was meant to go at the bottom -not as a reply to Stu.

        1. Hi Brendon, appreciate your optimism about Christchurch and your comments on the city. As you will have seen, I’ve been tracking residential consents for Greater Christchurch (as opposed to the whole of Canterbury) and will probably have the graph back in for next month’s post.
          Consents are still at elevated levels but trending down, it’s hard to say what level they’ll stabilise at. Heading back to long-term averages seems like a reasonable guess, as you say.

          1. I think Canterbury figures are a reasonable proxy for Greater Christchurch. There will be some growth in towns like Timaru, Ashburton and smaller rural centres like Darfield -but not a lot -especially now with the dairy downturn.

            People have been talking about Christchurch’s construction labour force migrating north to Auckland for a year or so, since the residential build peaked but nothing dramatic has happened. I think like you said John -it is likely to be a slow drift down to the level of the last building cycle peak -when NZ had its last immigration influx.

            Also because of the earthquake recovery -Canterbury’s building capacity has increased and some of it is fixed in place -it cannot migrate, production capacity such as Concision’s panelised build factory. http://concision.co.nz/index.php

    2. Hang on, now you want to directly subsidize the private sector construction industry? Coming from the guy that cries foul when restaurants rent footpath space from the council to do business?!

      1. One approach might be KiwiBuild using private contractors
        If you build houses on a government contract, it’s tax free

        No different to the government paying Ford for police cars or Steyr for assault rifles

        1. Ford and Steyr both have to pay company tax on their profits, and so does any private contractor building homes for Housing New Zealand etc. You might argue that some overseas companies don’t pay enough tax in NZ due to structures which make them show artificially low profits, but that’s a different issue and not relevant to this discussion.
          I don’t support extra tax breaks for the construction industry, but if you were going to do them at all, why limit it to state housing? Why not extend it to other social housing? Or why not just apply an incentive across all housing?

          1. Yes but in this case there’s a social need for the housing
            Look I’d prefer fully nationalised builds but that’s unlikely
            Let’s find a way to keep the beloved free market while forcing developers to build more

          2. There is also a social need for employment, food, etc. Funny how you’re all anti private sector except when you want to subsidise the buggery out of it!

          3. I just said “I would prefer house building to be nationalised”
            That isn’t going to happen
            Next best option: government-directed building programmes using private sector enterprise

  2. Also, construction employment is more volatile than the overall economy. So a lot more tradies got laid off in 2010/11 than did in other parts of the economy. Could still be some slack capacity

    1. Good question to be asking, and yes the construction industry was certainly hit hard in the recession (although obviously rebounded after the Canterbury earthquakes). At this point, I think there’s a real shortage of skilled construction workers, and I’ve added another graph to the post to emphasise that. Construction employment reached 232,000 at the end of 2015, which is higher than it’s ever been and 35,000 higher than the previous peak at the end of 2006.

      1. I’m being offered $45/hour to go back to work. 5 years ago that was $25. 10 years ago that was $35.
        Not an ideal industry to be part of.

  3. While the number and percentage of attached homes will bounce around, I believe that they’re increasingly important for Auckland’s growth, and in the long term they’ll make up at least 50% of the new homes we build.

    Today the percentage is trending downwards, continuing the pervasive pattern of the past year. This indicates the strong structural price flaw in the current developmental planning of Auckland City. I believe that in the very short term attached homes will easily account for more than 50% of the new build after we correct the glaring price flaw. Thankfully there is an election this year.

    Many builders are running at capacity already, and there are probably some specialist areas where it’s almost impossible to find builders to take on new projects – or at least, without paying through the nose.

    Well let’s pay through the nose, drop $300,000 off the median cost of land by solving Auckland’s massive structural flaw. Then we can pay an additional $150,000 on the build and still have created economic savings for Auckland.

    1. We need to accept that, land cost aside, cheaper housing means less bespoke, smaller (back to the past sizes) housing. Individually designed and built houses with multiple bathrooms, offices, double (or more) garaging, guest rooms, butlers pantrys etc all adds cost.

      1. No reason why some of those things can’t be part of a standardised plan. In reality this is not where the savings are… it is the costs of materials, land, wages and compliance that drive our high prices. I have seen large (400m2+) very nice houses built in the US with all of those extras and things like central heating (and BASEMENTS) built for US$300,000 (NZ$435,000) plus land (1500sqm) of US$100,000 (NZ$144,000) so total NZ$579,000 for MUCH more house (pretty much double what we get here – at higher quality – higher spec – high ceilings, central heating, basement etc) on a larger piece of land in a city of 2 million.

    2. Hi Angus, the percentage is actually trending upwards, not downwards. I’ll show the data in a future post, along with Australian cities for comparison.
      I’m not sure what “massive structural flaw” you’re alluding to. There are inefficiencies and issues everywhere, so it’d be helpful if you can let me know which one you’re thinking of here. Even if we solved all the issues, though, I still can’t see home prices dropping by $300,000. They’d certainly drop, just not that much.

      1. Your graph appears to show in Mar-15 that 52% of consents were for single dwellings and they are now 55%.

        Land prices are much higher in Auckland than comparative cities – this is the structural flaw.

        1. Actually there are two major structural flaws to the Auckland market – the land cost is too high or the apartment market price is too low.

        2. The data actually shows single houses at 58.3% for the year to March 2015, and 55.8% for the year to February 2016. So the share is falling, although I’m predicting it to fall further.
          However, the last eight months or so has been quite flat – single houses mostly staying at 56% to 57%. That’s mainly due to a sluggish retirement village sector, and it’s really the apartments and terraces I’m more focused on.

          1. That is good news.

            BTW – I tend to focus more on apartments which I think present the best, most observable, proxy for value in a housing market. My shtick is comparing value to identifiable costs and using this to explain the differences in profitability between different construction markets. I find it difficult when comparing other places to NZ to account for terraces, because Australia and Canada typically just seem to call these houses.

            Finally, I am perhaps about to be deleted from the comments section. So before that happens – please let me congratulate you on the great work you are providing with these raw data posts.

      2. What inefficiencies and issues to you see as contributing to higher prices? I’m currently in the market to rent or buy an apartment. I’d love to buy but it’s shocking how expensive apartments have gotten recently. A two bedroom apartment just over 50 square metres in the Daisy (which is covered by a SHA) is over $500,000 which seems excessively high. Renting just seems so much more cost effective but I’d really like a little more control over my housing than renting provides.

          1. No pets! I have to say Stu I’d have thought an urbanist like you would appreciate the need for our apartments to be pet-friendly (like they are in the US and Europe).

            Just charge a larger bond for pets. And don’t allow anything that weighs more than 7kg.

          2. It’s likely to be a building rule. Body corporates can be ruled by mini-Trumps at times. My Dad was looking at buying a place on Oriental Parade that actually banned people from playing music or watching TV after 10:00 pm because there were a number of retirees on the body corporate who went to bed then.

      3. I certainly wouldn’t predict lowering housing prices to the extent we lower land prices. The majority of the land costs reduction would be reallocated into hiring builders to build stuff. Overall cost would not fall a whole lot.

    3. Angus, you make the same point in every thread, even if it’s not relevant to the topic of the post. This violates user guideline 8i (no “obsessive arguing in a thread or threads”) and detracts from the quality of discussion. You’ve been warned about this before – unless you restrain your comments to be more relevant (or talk about something different for a change) we will delete them.

  4. Lowering land prices might reduce the incentive for developers to build the biggest house they can fit on the section. For example, if you’ve paid $450,000 for a 450m2 section in Swanson, then you’d want to build a house for about the same cost, and sell it for about $1m to make a reasonable profit. With building costs in the $2,000-$3,000 range, that requires a 150-250m2 house…

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