2017 will be the Year of the Terrace.
Terraced homes, built in rows: neighbours on either side, but not or above or below. They’re relatively cheap to build, and they’re within the reach of many small/ medium-sized building firms, ones which have traditionally concentrated on detached houses.
Of course, Auckland is building many kinds of housing – from detached McMansions right through to compact apartments. But terraces are a nice middle ground for many people, and this year they’ll be built in all corners of Auckland, and in many of the more central parts as well.
Which corners? For starters, Orewa, Silverdale, Whangaparaoa, Long Bay, Albany, Hobsonville, Massey, Sunnyvale, New Lynn, Mt Wellington, Flat Bush, Mangere Bridge, Takanini, and Papakura. As a rough guide, terraces will get built anywhere in the city where they’re allowed, and where the land values aren’t too high.
In high land value areas, people will probably hold off and try to build apartments instead. This may be a bit of a waiting game depending on the area. The high value areas include the central suburbs, much of the North Shore, etc. Many of these suburbs have already had their share of ‘intensification’, with sausage flats and back sections subdivided over the last 50 years or so. In these areas, it’s only apartments which will give a big enough leap in value for them to get further intensified.
Many of those apartments will be low-rise, maybe 2-3 storeys. They’re not much more complicated than terraces, so a lot of builders could start to look at them as well – and the Unitary Plan gives more flexibility around where they can be built. 2018 could be their year, but terraces have had a head start.
The RCG Development Tracker shows hundreds of apartment and terrace projects across Auckland. Big ones and small ones, private and public, and many Special Housing Areas. Enough to house many thousands of Aucklanders, if we could just get them all built.
So let’s check out the growth trend for terraces:
In Auckland, we’re now at near-record levels for terrace consents. Over 2,000 homes per year being approved, with a strong upward trend. Contrast that to apartments – which hit 2,000 a year but have eased back – and retirement village units, which have also eased back.
All of these “attached” dwellings combined add up to 4,443 homes approved in the last year, still less than the 5,694 detached houses approved. I’ve previously claimed that 2017 will be the first time Auckland approves more “attached” homes than detached ones – that prediction will succeed or fail based on how terraces do this year.
Here’s the other graph that makes terraces a winner in 2017:
The average house now costs almost $450,000 to build (just the construction cost, not any of the other costs. Tell that to the next person who mentions Demographia). Most of the homes we build in NZ are detached houses: over the last 25 years costs have tended to increase smoothly, although there’s a sharper trend at the moment with builders under pressure.
There aren’t that many apartments built, so the line is a lot jerkier based on individual developments having an influence. Very few were consented from at least 2008-2013, so don’t pay too much attention to that part of the graph. The real kicker, though, is the huge cost increase in the last year or so: the average apartment now costs more to build than the average new house!
I put this down to the small number of builders who can handle apartment construction – mainly big commercial firms, most of who are very busy, not just with apartments but with offices, the Christchurch rebuild and all the rest. If any Australian builders are reading this, they’ll be looking at the graph and wondering how soon they can set up an office in Auckland. Hopefully some are, we desperately need the competition. Apartments should be much cheaper to build than they are at the moment.
Retirement villages are in the same boat, and up to almost $400,000 per unit. Of course, most of these units are apartments – Auckland’s retirement villages have started to build upwards in a big way.
Terraces have had a much smoother cost curve, like houses. They’ve avoided the huge cost inflation of apartments in the last year, and the average terrace now costs about $230,000 to build.
There’s a lot of other costs that go into new homes besides just the construction – but at the moment, terraces have a big cost advantage. Add that to the fact they use a lot less land, and you can see why developers all over Auckland are trying to get into terraces.