Building homes fit for the 21st century
A potential strategy for a residential property course correction that protects the core values Kiwis value highly - fairness and aspiring for the safety and security of our future generations.
New Zealand is in the midst of a housing crisis. While inflation has put a temporary pause on price growth, the past 10 years have seen a runaway market. Homes have become less affordable and inequality both within and between generations has increased. We also know there’s no silver bullet, but there are many parts to a potential strategy for course-correction, believes Jonathan Manns, Senior Director and Head of Strategic Consultancy at JLL NZ.
New Zealand’s population has grown. In 1955, the population was just over two million - now there’s over five million and growth is forecast to continue.
Increased demand for housing has created an upwards pressure on prices, not only of homes but also land, while historically low interest rates have fuelled this growth even further. Over the last 20 years, New Zealand has experienced faster growth in real house prices than any other OECD country. We can’t have economically productive and inclusive cities without access to genuinely affordable housing.
We’ve built 30 percent of the country’s homes in the past 20 years, but this has not been enough to meet demand or to address the challenge of affordability.
New Zealanders have long held a suburban mentality, aspiring to the quarter-acre-section. However, it’s an inherently unsustainable model of growth.
A more modern vision is needed, based on a compact city model. Successful cities are dense, interconnected and human-scale. This means a shift in housing supply towards apartments, arranged around public transport corridors to facilitate travel beyond the local level. These should form part of mixed-use communities, as per the ‘15 minute city’ concept, where residents can achieve most daily tasks within walking or cycling distance of their homes.
The situation today
The reality is that there’s little incentive for many people to quickly or significantly increase the number of homes in places of highest demand, because the home-owning majority do not wish to see prices fall. Nor will it have escaped Treasury economists that our fragile economic growth is underpinned by household expenditure, which accounts for 58 percent of gross domestic product.
We must nonetheless act on housing provision. Decreasing homeownership and widening inequality has significant social and economic implications. The housing crisis is a key component of the widening gap between rich and poor. Moreover, the effects ripple through time. Inheritance and the ‘bank of Mum and Dad’ mean parents’ wealth helps define the options available to future generations.
So what can we do?
We live in a time of profound demographic, technological and environmental change. It’s important that we rise to these challenges in a way that protects core Kiwi values of fairness and aspiration for future generations. So what might some of those small victories look like?
Build the cities we need
High-density development remains very geographically constrained. Apartments comprised only 19 percent of new consents in 2020 and constitute only a very small component of overall supply.
New Zealand needs more townhouses, terraced housing and most importantly apartments. Whilst recent policy changes are a step in the right direction, future reforms should be clearly focused on high-density, transit-oriented development that encourages densification in popular locations where a larger population can be justified. We need greater support for density where it counts.
Successful cities are dense, interconnected and human-scale.
Support SME builders
New Zealand’s house-building industry is heavily oriented towards small and medium-sized enterprise (SME) builders. We must explore every avenue to ensure they are supported in terms of access to labour, materials and finance.
Finance is most often overlooked as the key to ensuring they can bring forward new developments. A Government Accelerator Bank could act as a broker to raise awareness of products on the market: linking firms with the best options, reducing the cost of finance and helping unlock opportunities to deliver that might otherwise be stuck.
Offer shared ownership products
The government should support first-home buyers’ access to the market through shared ownership products, particularly within its own schemes.
The shared ownership model enables first-home buyers to purchase a stake in a new-build property, paying typically around a quarter of the price at open market value. This makes both the deposit and mortgage repayments more manageable, while enabling the buyer to benefit from any capital gains.
Over time, buyers have the ability to acquire the remaining 75 percent from the developer if they wish. A reduced rent is payable on the balance and the buyer can purchase the remaining amount at the open market value over time. This has already been trialled successfully in New Zealand by Tāmaki Regeneration Company, sign-posting how the model might be taken forward.
Create a government-owned, build-to-rent fund
Build-to-rent (BTR) has been shown elsewhere in the world to be an institutional-grade investment asset with reliable and stable income over the long-term. The government should use its own land and finance to develop a BTR portfolio at scale. This should focus on the delivery of larger-scale apartment schemes, comprising in excess of 300 homes per development, which would be held in perpetuity to be rented on the market.
Explore modular construction
The housing market in New Zealand has long faced challenges around quality when it comes to delivering warm and dry homes. Our location in the South Pacific also leaves us highly exposed to the supply and availability of labour. A clear opportunity to address both of these issues is modular construction. Whilst homes are traditionally assembled on-site, modular homes are factory-made. This brings huge advantages.
New Zealand needs more townhouses, terraced housing and most importantly apartments. We need greater support for density where it counts.
The consequences of not acting to address New Zealand’s housing crisis are dire but, whilst the challenge may be significant, it’s far from insurmountable. With creativity, leadership and investment it’s perfectly possible to build homes and cities which are resilient to change, affordable to all and fit for the 21st century. Key to this will be proactive engagement and a long-term focus on quality, efficiency and variety across the entire house building process.