Why can’t NZ produce affordable houses?
This is a very common question. So, what exactly is stopping us from building affordable houses? The core issue is that there is a major gap between the demand and supply chain. When there is a lack of supply, the building materials become harder to get and therefore more expensive. EasyBuild director Mike Fox says “the delivery system is broken” and this is something that our government needs to fix.
The gap is there. We have been making solution and throwing them at the big ocean of fingers-crossed with hope to drive it.
The Elephant in the room reminds us, Shelter is a NEED. The elephant is then asked two critical questions:
1. Are there enough shelters?
2. Can we afford these shelters?
We are currently facing a NO for both 1. & 2. How can we achieve a YES for both 1. & 2.?
In the 1940s, the housing crisis was taken very seriously by the then New Zealand government. Mr Fox recalls “they took tracts of land, put in infrastructure, and built robust modular housing that created the homes and employment needed.” It does raise curiosity as to why the current government can’t do that?
It seems the government have got their hands tied up on this. Maybe they can see what needed to happen but cannot act on it. Maybe it is too much work to swing this around.
This is not the first time we have been begging the government. It has been for many years now. Still, nothing happens. Maybe the government is letting the private sector drive this train. As much as we want to, we cannot blame the government. The government is the only body that has the power to lead us to a YES for both 1. and 2.
So, what kind of house sells?
According to BRANZ, 58% of the new builds since 2014 are in the top 25% price range. This means the majority of the new builds are expensive larger homes and that is not what Kiwis are demanding. What kiwis need are smaller and affordable homes. It is helpful to know that the building footprint is one of the major factors in housing prices.
For those who are renting, the rent would likely increase due to pressure from less income of the home-owners. For those who are planning to purchase a house, house prices may not fall as expected. On the contrary, more people are looking into buying houses. This means the construction industry will need to work harder as it will be more competitive. “The irony of it all is that the best time to do a project is in a downturn,” says Mr Fox.
It is because the service level could increase, contractors and manufacturers could provide a fairer price instead of cranking up the prices.
What would the construction industry looks like?
As we all know, the outbreak of the novel Coronavirus has affected global finance, especially the tourism industry. The construction industry has also suffered because construction sites have to be closed during the lockdown. The pandemic also disrupted the material supply chain and delayed the process of distributions.
The builders are facing the new normal and will need to adhere to the new on-site protocols. This will affect productivity and efficiency on-site and it is likely to cost more. Therefore, it is not possible for low-cost housing to be built post-COVID-19 unless the government supports the industry with the supply rather than just providing funds to recover.
And the houses?
What we are seeing is house demand in a confined range, and are heavily subject to loan approval. That is, on average Lenders are only approving an average of $650-750K loan with a 15% deposit on a barely affordable repayment schedule under the current economic climate and pay grade.
Developers will be clicking their fingers and reaching for their calculators to work out their profit and risk margin on developing. Meaning, looking at how to avoid over-capitalizing.
Developers will need the support and confidence of your real estate buddy to ensure that they harvest their yield in 12 months. Should the people (government) be doing this as it a duty of care for its people? That is of course if there is a smooth sailing from land purchase, consenting and construction through to selling.
What would a $650K house look like? Would a $750K house look or perform $100K better? Or will it have 3x bedroom rather than the 2x bedrooms at $650K instead?
Would you have parking next to your house or you be in a shared parking lot? Will your house be a stand-alone with a white picket fence? Or will it be a terraced house unit or an apartment? How would these build environments perform?
These are the questions that need to be answered because it
seems as the location is the driving factor behind the price ranges.