The NZ Herald’s been running a series on Auckland’s housing affordability crisis. The articles thus far have ranged from thoughtful and thought-provoking to downright imbecilic – such as a mortgage broker’s suggestion that young people could afford homes if they gave up their Sky subscription. I think there’s a Tui ad for that.
Cancelling basic Sky subscription and banking savings can net you a $100k deposit for house.
Will only take 70 years, 4 months to achieve.
— Matt Nippert (@MattNippert) October 28, 2014
One of the best bits, however, is the interactive map of housing affordability that data journalist Caleb Tutty put together. Here it is in animated gif form:
— Harkanwal (@kamal_hothi) April 19, 2016
The map shows the share of properties sold within each suburb over the last year that you’d be able to afford, depending upon how much of a deposit you’d saved up.
For example, here’s what the affordability map looks like if you have $100,000 in the bank. Under current bank lending policies you can borrow 80% of the house value, meaning that your deposit will buy you a half-million dollar house. Observe how the vast majority of the city is coloured red, indicating that the majority of properties would be beyond your reach.
Incidentally, a $100,000 deposit is a prohibitively large sum for most young Aucklanders. According to Stats NZ data on incomes, in 2015 the median pre-tax weekly income for Aucklanders in their late 20s (25-29) was $729, or around $38,000 a year. Income taxes take about $5,700 of that sum, leaving $32,300 to provide for the necessities and save for a deposit. (On average, people in their early 30s earn a bit more – $901 per week – but that doesn’t close the gap.)
Consequently, the average young Aucklander would have to save something like one-third of their after-tax income for ten years in order to afford a deposit on a half-million dollar home. So in other words, if you’re young, you’re probably screwed no matter how thrifty or prudent you are… unless your parents are wealthy and generous.
However, there are some tentative bright spots in this rather disheartening picture. To illustrate, I’ve reduced the deposit to $70,000, which is still pretty onerous but not impossible for young people. That would allow you to buy a home worth $350,000. Here’s the map. Now the entire city is shaded a deeply unaffordable red. You can hardly buy anything anywhere. The isthmus is red. The North Shore is red. The Waitakeres are red. Manukau is red. You can’t even afford to live in Otara or Manurewa.
But if you zoom in closer, you’ll notice that there is still a solitary green patch of affordability in the middle. The majority of apartment sales in the city centre are still in your price range! You can afford 55% of the properties sold in the city centre or in neighbouring Grafton. (Manukau central is the next most affordable place – just under half of the dwellings sold there are cheaper than $350,000. But there are fewer homes there.)
Prices in the city centre aren’t necessarily cheap in an absolute sense – but it nonetheless offers many more options for a young buyer seeking to buy a starter home than anywhere else in Auckland.
Why is this?
It’s not because demand to live in the city centre is low. Its residential population has quadrupled since 2001 – a rate of increase that far outstrips the rest of the city. Today, there are more people living in the Auckland city centre than there are in Whanganui.
What sets the city centre apart isn’t low demand but high supply responsiveness: the city centre has stayed affordable because lot of apartments have been built there. This includes a mix of expensive apartments and small, affordable apartments to meet a range of different demands for space. Former All Blacks coach Graham Henry is moving into a luxury apartment in the Viaduct Harbour, while there are many students on low incomes living a bit further up the hill.
These maps show one simple thing: Building lots of apartments works. The one place in the city where we’ve allowed it to happen – the city centre – is now the most affordable place in the city.
There’s nothing that special about the city centre. It’s hardly the only place in the city where it’s physically possible or commercially feasible to build apartments. We could allow the same thing to happen in a lot of places, and reap the benefits.
This doesn’t mean a high-rise building on every street. It’s possible to build lots of apartments while keeping building heights to a quite human scale – three to seven storeys, say. This is the model that’s worked well in a lot of European cities. Like this new neighbourhood in Freiburg, Germany:
It’s also a model that allowed fast-growing New World cities to develop and prosper a century ago – as this excellent article from Bike Portland points out. This is the type of building that we used to build:
So what’s the holdup?