Nick Smith wrong about affordability: Property Council

The Government’s prediction that Auckland housing will become affordable by 2020 is wrong, according to Phil Eaton, president of the Auckland branch of the Property Council and managing director of The Greenstone Group.

Mr Eaton said that given an 80 per cent increase in house prices in four years, which took everyone by surprise, as “changed the game”.

“So now house prices are less affordable, and without a supply shock, or without a demand shock, that will continue,” he told Q+A’s Jessica Mutch.

Mr Eaton also said the city didn’t have the resources, the builders, or the developers to bring the Unitary Plan recommendations to fruition as yet.

RAW DATA: Q+A transcript: Phil Eaton

Watch the interview here

JESSICA Thanks very much for that, Greg. Our biggest city could be in for a radical transformation if its council adopts this week’s unitary plan recommendations. The plan allows for more than 400,000 new dwellings in the next few decades, mainly by pushing the city up. How will that look? Well, expect to see more apartment buildings, more terraced housing, more townhouses instead of the classic Kiwi standalone on a big section. But the million-dollar question – will it work? I’m joined now by Phil Eaton, president of the Auckland branch of the Property Council and managing director of The Greenstone Group. Thank you very much for your time this morning.

PHIL Thanks, Jessica.

JESSICA I want to start off by asking you what will Auckland look like if these recommendations are picked up in the unitary plan?

PHIL Well, firstly, the point to make is they’re just recommendations. We’ve still got to get them through council. If we get them through council, then there’s a whole lot of other work that needs to fall into place. There’s a lot of infrastructure that needs to be put into place, the building industry needs to gear up, so it will take time for this plan, which is just a plan, to then be implemented.

JESSICA What’s the end game, though? Paint us a picture of what Auckland could look like with this.

PHIL Well, the end game is another half a million people in Auckland, firstly. So that’s a big change. Having said that, we have had significant population growth in the past. And we’ve also had significant changes in terms of our population with immigration. We’ve now got 25% Asian. I think it’s 26%, 27% Maori and Pacific Island. So the dynamics of Auckland has been changing. I think Auckland is a different city to what it was 25 years ago. And in another 25 years, we’ll see more of the same trends.

JESSICA In terms of in 25 years’ time, let’s say, and we’ve got more intense housing, how many years do you think it will take until homes in Auckland are affordable?

PHIL The bottom line is a very long time unless something changes. Based on the current trends in the market, in terms of supply, we’ve got about 6000 to 9000 consents being issued over the past, sort of, five or six years annually. We need to get up to 15,000 to bring effect to this unitary plan. That’s a big leap for the whole industry and for the whole market.

JESSICA When you say a very long time, are we talking a decade? Are we talking five years until we start seeing changes? What’s your prediction?

PHIL Look, it’ll be three to five years before you start seeing meaningful changes from this unitary plan. Post that, then you’ll start to see some very large projects coming to fruition. The Tamaki Regeneration Company – 2500 houses in their first charge of redevelopment. That sort of stuff will start coming through. We’ll see Hobsonville take off. We’ve got the Wynyard Quarter take off. These are big, big projects, some of them initiated by the government – in fact, two of them. Three of them - all three have been initiated by the government. So, you know, you’ve got big infrastructure’s gone in, and then the housing has followed that. So we need more of that type of thinking.

JESSICA Cos we’re going to need more than three, don’t we, if we’re going to build these 51 houses a day as laid out in the unitary plan?

PHIL Correct.

JESSICA Do you think we have the resources, do you think we have the builders, do you think we have the developers to do this?

PHIL Not yet. Not yet. You know, we’ve been caught in a boom-bust cycle. We’ve had a very protracted GFC, which depleted our resources in the construction and development market. We have been trying to build up over the past probably three years, but no one predicted the demand that we’re now going through. And no one predicted the house-price insanity – no politician, no developer, no economist. You know, four years ago, this wasn’t a conversation for topic. We knew things were changing, we knew we were growing, we knew we had ambitions, the Auckland plan was laid out, the government put in place the amalgamation for the city, the put in place the Independent Hearings Panel process, and so that thinking was there four or five years ago – six years ago – but, you know, now we need to implement it.

JESSICA You talk about it being insanity – when do you think we’ll start to become sane again? When do you think the prices are going to be affordable, if the unitary plan’s not going to kick in for another three to five years? How long until, after that, till a first-time buyer can go out and buy a home in Auckland.

PHIL That’s the million-dollar question. I think at the moment, demand and supply are driving it, so you’ve got to look at the two different facets separately. Demand is being driven by low interest rates and migration. And it’s domestic migration as well as international migration. The supply side is being, sort of, caught by, I suppose, like, say, the depleted resources that we’re trying to build up, and it’s going to take time. So unless something changes on the demand or supply side, some sort of shock, we’re not going to see significant change. What we’re seeing at the moment – coming back to the question – is we’ve got capacity constraints in the construction market and the development market. We don’t have enough players, we don’t have enough tradies, we don’t have enough materials, we’re going to tender for our clients with projects, and we’ll go to five builders; two will put their hand up, and they won’t tender – they’ll just say, ‘We’ll negotiate.’ So, you know, you order concrete in the market, you know, you’ve got a window in three weeks’ time; the concrete truck turns up, if you miss it, you go to the back of the queue.

JESSICA And what did it used to be a few years ago? Would it be instant, pretty much?

PHIL Days. Days. It takes six to nine months to get pre-cast concrete, which is one of the most preferred methods of construction, given our leaky building history.  

JESSICA So it’s all of this infrastructure that goes around with it. Nick Smith says by 2020, homes in Auckland will be affordable. In four years’ time. Do you think that’s a realistic statement? 

PHIL No. No. Look, I think what’s happened is there’s been a shift. We’ve had 80% increase in house prices in four years. It wasn’t forecast. It’s—you know, neither Labour nor National were predicting anything like that. No one saw it coming. So, you know, we can’t blame anyone for it, necessarily, but it’s changed the game. So now house prices are less affordable, and without a supply shock, or without a demand shock, that will continue.

JESSICA Because one of the things that’s been taken out of the Unitary Plan, taken off the table, is this idea of 10% of homes are affordable if you’re building more than 15 in a development. 

PHIL Yeah.

JESSICA With your developer hat on, what do you think of that?

PHIL Well, I like the independent hearing panel’s approach on this. What they’ve said is if you skew the price of housing by putting in these requirements, you’re increasing the price for everyone else, and it’s called transfer pricing.

JESSICA But does it make it more affordable for some people, though, if you’re forced as a developer—

PHIL For a select few. The independent hearings panel has said what is a better approach is to open up supply, and that creates it. So they’ve taken a much broader approach than the micro-approach of legislation to achieve it.

JESSICA Who do you think are the winners and the losers out of this proposal?

PHIL Look, this plan is a medium-term plan. It’s there for the next 25 years. Over the next 10 years, we will see change.  In fact, expectations will start to change, probably within one to two years, because people will see what can happen. We’re already seeing really great development happening in, like I say, the Wynyard Quarter and Hobsonville. Really great product coming on the market. We just need more of that. So I think what will happen is Auckland will win, but it will be in the medium term. There will be short-term pain before the gain. People will have a house, and it will be surrounded by other apartment zoning, and those apartments will slowly come on, but overtime, that will change, and people will—it will create churn, but pain for the gain, as I say. But, overtime, I think Auckland will win, and this is the sort of broad and bold thinking that Auckland needs in its plan to achieve at least more affordable housing than we’ve got now and to stop the house-price escalation. 

JESSICA We’ll leave it there. Thank you very much for being with us this morning.