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Housing Affordability: are we solving the right problem?

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A number of conversations recently have led me to ask whether we are focusing our collective problem solving attention on the right part of the problem with regards to housing affordability.

Last month I wrote about several new building technologies and speculated as to the potential of technology and automation to improve productivity in the construction sector.  I’ve also previously touched on inefficiencies related to the often segmented, siloed work of different parties in property development and the need for a more joined up end-to-end development approach.

However, while they may help to bring down building costs over time, neither of these are likely to result in immediate improvements in the cost of new housing of the magnitude required to make it ‘affordable’.  And despite recent drops, and changes to tax settings, the price of existing housing stock remains high and continues to enjoy a significant advantage over other investment options for those who have existing equity to leverage.

Some councils are testing the idea of measures that would require developers to include a certain percentage of ‘affordable’ houses in new developments.  While well-intentioned, I’m sceptical as to whether this would result in desirable outcomes.  In the best case scenario such measures would only solve the affordability problem for the first purchaser, thereafter the market would again dictate the price.

Organisations such as Bridge Housing are implementing innovative models to make home ownership available to those on more modest incomes, while others are exploring co-housing concepts and Māori hapū are initiating papakāinga developments to house their whānau.

Rather than focusing on affordable owner-occupied housing, if the core issue is providing places for people to live, more consideration should be given to building appropriate rental housing.

The Property Council has been advocating for measures to enable more ‘Build-to-rent’ developments in NZ for some time and their website offers excellent background on the concept.

In a nutshell, build-to-rent refers to developments of reasonable scale built specifically for rental, professionally managed and typically owned by investors who have shares rather than individual unit titles.  For the landlord, provided certain criteria are met, build-to-rent properties are exempt from interest limitation rules and therefore eligible for interest deductibility, unlike other investment property.

For tenants there are a number of benefits.  To qualify for interest deductibility tenants must be offered a rental term of 10 years, so security of tenure is significantly better than a typical market rental.

Also, when the intention is for long-term rental, developers will generally build to meet the needs of occupiers, rather than to meet the market for sales.  This can mean more diversity of types and sizes of home, and also more focus on providing amenities such as shared lounges or outdoor areas, gyms, or on-site cafes.

Similarly, when long-term maintenance costs are a key consideration, it makes sense to invest in the quality of materials and worksmanship.

As build-to-rent properties are professionally managed, maintenance requests are dealt with quickly, rather than having to deal with private landlords who potentially don’t have the time, money or inclination to resolve issues appropriately.

Addressing housing supply and affordability is a complex challenge requiring a range of solutions.  We absolutely must find ways of building houses more affordably.  However, home ownership may not be a realistic goal for everyone, and we have a responsibility to make sure that everyone in NZ has access to safe, suitable, places to live.  Build-to-rent is another tool we can use.

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About Author

Phil MacKay

Phil Mackay is Business Devolpment Manger at Hamilton-based PAUA, Procuta Associates Urban + Architecture