Wednesday, June 12, 2013

Q: Who do you need for an affordable city? A: Developers.

Whale Oil’s irregular correspondent Policy Parrot is worth following on so-called “planning and development issues” in Auckland Council.

Just yesterday, he pointed out that the allegedly “permissive” Unitary Auckland Plan is about to become anything but, with the heights and densities “permitted” by planners about to be scaled back, and the Council announcing that most (all?) new developments will be “notified”—meaning every new development will have to cross a lake of fire on a wooden boat to gain “permission?” to proceed.

And today, he’s pointing out that everything council is doing to achieve their “liveable city” is killing off the very people who are supposed to be building it: developers.

Auckland Council has bred a culture of hate towards property developers. Those cardigan wearing bohemians at Council love to hate developers. Everyone knows it and if one didn’t believe that then this Parrot advises them to apply for a Resource Consent and see what dreaded deathly hallow ensues.
   
Property Development is very difficult. For most property developers life is a hard slog where projects take long periods of time and income arrives sporadically in lumps. Financing projects is hairy and onerous. Risks are higher than Everest. Margins are low. Turnover even lower.
   
There is an urban myth about property developer margins which needs dispelling (and before readers say ‘cry me a river’). Mostly development margins sit between 12-25% on paper and typically half that by project completion. 

That’s if the developer is lucky.

Let’s make it clear – there are plenty of businesses in NZ of different ilk that produce more substantial margins and returns on capital or turnover than property development. Some of our listed companies run double digit margins every year. So development is not a golden sunrise…
    Auckland Council generally makes life difficult for developers, particularly where planning officers have a say in the design and outcomes of a development. Council does this fiddling though onerous planning rules that give rise to forensic analysis of consents, impose notification and community revolt (let’s not forget they hate developers too), forced changes to projects and forcing costs onto developers in return for consent approvals. This process hurts development substantially. The process can take a very long time and the consultancy costs sky rocket along with interest payments…
    There is no other industry in NZ subject to such detailed interference. Imagine a Governmental agency with discretion and a seat around the table deciding outcomes for Nike running shoes, Apple iPhones or Fonterra Milk products. It would be a scandalous proposition. Yet Auckland city pokes it’s fingers into development  [daily]...
    Not that this Parrot has a particular affinity for property developers and nor is this Parrot suggesting Polly Developer should be fed a nice easy cracker.
    This Parrot is saying that Auckland Council are stupid. They cannot see that the Auckland Plan and the Unitary Plan are meaningless visions without property developers. Len and his band of merry men shit all over the property development industry and yet they are utterly dependent upon them to deliver the goods.

He’s right, you know.

Except it’s not just developers they seem to hate. Because judging by those they’re hurting, it’s virtually everybody in Auckland.

[Hat tip Phil Hayward]

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