Apartments in particular are expensive to build, costing around $4,000 per square metre. When you add in the land and subdivision costs, it can end up costing more to build them than they can be sold for, particularly in suburban areas. Only small, inner city apartments, and apartments in some prime areas with affluent demographics, appear to be worthwhile for developers to build.Terrace houses are more cost-effective to build, at around $1800–$2,000 per square metre. However, the draft AUP prioritises apartments – 50% compared to 3–4% for terrace housing.
The upshot of this is that much of the land supply that is anticipated under THAB zoning is unlikely to yield dwellings. If the bulk of apartments won’t end up being built because they are not economically feasible, how will Auckland’s housing shortage be solved? The anticipated additional 750,000 to 1 million people over the next 30 years need somewhere to live. On top of this, we are starting off on the back foot, with an existing shortage of approximately 35,000 homes.
According to Auckland Councillor Dick Quax, it is estimated that under the current AUP model only 30% of the housing required to address Auckland’s shortage will be financially viable within the existing urban boundary. Clearly a re-think is needed.
If many THAB zones will not proceed as proposed under the draft AUP, Council will need to look for alternative zoning. One possibility is that the prospective Mixed Housing Urban and Suburban zones could be denser, and many properties currently earmarked to be Terrace Housing and Apartment Buildings could end up being zoned differently.
Another possibility is that land outside the current urban limits may end up being rezoned for more intensive development, or earlier development in the case of Future Urban zoning. Plainly speaking, the ‘slow release’ of future greenfields land for subdivision is looking very inflationary. The land is needed now.
While no one can tell you what exactly will happen, it is important to take all of this into consideration when making your property investment decisions.
To me, the opportunity to buy land that is being rezoned in Auckland (small or large lot) is an incredible, once-in-a-lifetime opportunity. Where else can you find a market with tight supply, epic demand, and vendors that are not necessarily pricing the implications of rezone into their property? I have purchased some great land-rich assets in the last couple of years in Auckland, and I’m still buying. While ‘average’ Auckland houses look expensive, houses with big back yards and rezone potential look very attractive to me, especially if you have the money to develop them once the proposed Auckland Unitary Plan rezone takes shape next October (2016). Well worth looking into if you have the time.
Check out one of my Property Investment Education workshops for more discussion.