Monday, 9 July 2012

GUEST POST: Cut-price sections for #EQNZ red-zone residents

"Cut-price" sections are being released in Christchurch for residents of red zones. Where in Christchurch? Rolleston. How many sections? Eighteen. What price is cut-price? $113,000 to $139,000. Still, let’s not be churlish.

Hugh Pavletich of Cantabrians Unite responds:

_hugh-pavletich-smlTHE TEAM INVOLVED WITH the Canterbury Cooperative Land Trust is to be applauded for bringing sections to market for Red-Zoners in Rolleston for between $113,000 to $139,000. This is is not as good as things could be, but it is an extremely helpful step in the right direction.

There is still massive scope to lower prices further, but only when the serious structural and infrastructure issues in Christchurch are effectively dealt with by the Authorities at both central and local level.

Back in early 2010, well before the earthquakes, I set out the whopping differences of new-home costs between an affordable North American housing market  such as Houston, where housing costs 2.9 times household incomes, and, Christchurch—where the multiple between housing and income is a "severely unaffordable" 6.3.

There’s a a huge difference in building costs. On the fringes of the affordable US housing markets, starter-housing stock has an ALL UP build price of around $US600 per square metre. Compare that to here in Christchurch, where we enjoy a staggering build-cost of $NZ2,500 per square metre  and beyond.

Our residential development / construction sector is a shambles.

In her lead article this week’s Listener, Rebecca Macfie illustrates just how woeful our residential development & construction costs are in comparison with those in Australia. Yet Australia is not even in the same ballpark for cost efficiency as the United States.

TO OFFER RED-ZONE RESIDENTS sections at the $113,000 to $139,000 quoted in The Press, the Canterbury Cooperative Land Trust has taken the approach of attempting to wipe out developer margins—while no doubt allowing within this pricing a risk/costs overrun contingency. No doubt there will be further "savings" to end purchasers if, in the final wash, costs are controlled and the contingency is not required.

The Trust is being somewhat generous in suggesting the savings are quite as much as 40%. After all, this is South Rolleston. Lets just call it novice developer enthusiasm! In having said that, all involved (for little if any personal financial reward in most cases) are playing a hugely important role: first, in bringing better priced sections to market; and second, in illustrating to the wider public just how this is possible.

This is, however, a “one-off” deal. The major impediments to allowing affordable sections at and below $50,000 are not addressed at all by the Trust’s initiative: first,  the urgent need to eliminate the artificial fringe scarcity values created by planners strangling land supply; and second, the need to finance new infrastructure appropriately. (These points were covered in more detail in my article "Christchurch: The way forward.")

IT’S NOT ROCKET SCIENCE. New housing construction internationally today is a very formulaic business, and has been ever since the creation of the modern production construction industry by Bill and Alfred Levitt following World War Two.  Professor Peter Bacon Hales of the Art History Department of the University of Illinois at Chicago outlines this remarkable history—the "democratization of prosperity" if you like.

The truly remarkable Levitts supplied new starter homes for $US8,000 to single-earner  young families (yes....single-earner) earning an average of just $US3,800 a year—that means starter homes selling at just 2.1 times annual household earnings, with a mortgage load of only 18% of the family’s annual gross income!

Our young people today deserve these same opportunities. Buying a house should be as easy as buying a car (although the former is of course more expensive and financed over a longer period).

The major reason this was allowed in Levittown—because even then in the States planners were out there arguing against what the Levitts were doing—was because the Authorities in the end were too frightened to deny affordable housing to soldiers returning from World War Two. They didn't want a repeat of the civil unrest that occurred with returning veterans following World War One, which in Europe helped usher in Mussolini and worse. Indeed, when politicians and planners got in the road, Levitt often called the Veterans Association in for support.

You would think there would be abundant political pressure around Christchurch to similarly focus attention!

ON THE FRONT PAGE of my archival website I offer a clear definition of an Affordable Housing Market:

For metropolitan areas to rate as 'affordable' and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer
Demographia Survey Schedules for guidance).
The critically important Development Ratios for this new fringe starter housing, should be 17 - 23% serviced lot section cost, with the balance being the actual housing construction cost.
Ideally, to ensure maximum stability and optimal medium and long term performance of the residential construction sector through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7.

So even with the commendable numbers at which the Canterbury Cooperative Land Trust is offering these sections—and I do applaud them for what they are trying to do—we are still a million miles from where fringe sections should be priced.

Recovery Minister Hon Gerry Brownlee is well aware of all this too, as he chaired Parliament’s Commerce Committee Inquiry into Affordable Housing Inquiry back through 2007/08.

He knows it, but he’s not prepared to do anything about it.

Hugh Pavletich
Coordinator, Cantabrians Unite


  1. Christchurch will not shift South, Rolleston is awful, Christchurch is shifting North towards the sun.

  2. Paul Scott - the best measure for consenting / building intensity od the build or consent rate per 1000 population per annum. Mays Sats NZ numbers - Selwyn 15 / 1000, Waimak 37 / 1000 and the Clueless City Council 3.7 / 1000. Call it the flight to affordability - or at least more affordable than Christchurch.

    i have covered many other points within the comments stream on the Cantabrians Unite facebook page.

    Hugh Pavletich

  3. philip meguire12 Jul 2012, 06:32:00

    It should be possible to buy a new 3 bedroom house on a 700m2 section for 200K or less. This is especially true in Christchurch, surrounded on two sides by the largest expanse of flat land in New Zealand.

    Every substantial city in Australia and New Zealand has very expensive housing, because of Council regulations that make the creation of a greenfields suburb very costly and time consuming. Council planner-nannies are trying to force us to adopt lifestyles we would never freely adopt. Those who took out their mortgages last century, or who live in mortgage-free houses, or who earn commissions based on the size of the mortgage applications they approve, are doing well. The rest of us have become serfs in thrall to mortgage lenders.

    A spectre haunts New Zealand officialdom: the spectre of inexpensive new housing and of a fall in the price of existing housing. We have become like the proverbial monkey with his hand in the box, who cannot let the banana go. If prices do not fall by at least 20%, most of the next generation will be unable to live as well as we Baby Boomers have.


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