Auckland land prices

July 31st, 2012 at 7:00 am by David Farrar

NZ Herald reports:

An environmentalist has accused Fletcher Building of being greedy and rebuffed its recipe for solving housing affordability problems.

Gary Taylor, the chairman of the Environmental Defence Society, criticised Fletcher for demanding the Government and Auckland Council expand urban limits to create more housing.

“Fletcher, with its market dominance, stands to make a fortune out of building more houses. But that won’t make housing more affordable. It will, however, contribute to Fletcher’s excessive profit-taking, which is a big part of the problem,” Taylor said.

In a column for the Herald’s Mood of the Boardroom publication last Thursday, Jonathan Ling, Fletcher’s chief executive, said central and local government must free up more land, particularly in Auckland, if the city is to grow and prosper.

But Taylor said it was an urban myth that more land brought cheaper houses.

“It won’t make any real dent on cost because raw land value – a greenfield site before it’s subdivided and developed – is only around 10 to 15 per cent of the total value of a new house and land package,” Taylor said, advocating instead the creation of a more competitive building supplies market, improving labour inputs, reducing development levies and consenting costs and tightening up on infrastructure spending.

I don’t think Taylor’s figures are supported by the facts. In Auckland the land is on average 60% of the house price, while elsewhere it is 40%. Land just inside the urban limit costs eight times as much as land just outside it.

Philip King, Fletcher’s investor relations manager, cited his company’s submission to the Productivity Commission and said land prices made up almost half the cost of new houses so it made sense to make more land available.

“Land price rises have outstripped other building costs by a factor of more than two to one over the past two decades. Construction materials have increased by around 70 per cent whereas section prices have gone up fourfold in nominal terms or threefold in CPI adjusted terms,” King said.

The Real Estate Institute and Statistics NZ found the biggest driver in the increase in has been land value appreciation, King said.

You know I think I’ll go with Stats NZ!

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23 Responses to “Auckland land prices”

  1. b1gdaddynz (279 comments) says:

    Taylor clearly isn’t one to let facts get in the way of making ill informed statements; It is clear that he has no idea about the building supplies industry and obviously hasn’t done any actual research on the subject. I work in this industry and it is extremely competitive especially at present with the small amount of work around (outside of Christchurch) everyone is cutting their margins to compete. In fact if it was any more competitive you would end up with companies going out of business and being left with a smaller number of merchants thus reducing competition.
    It also defies logic that cheaper land prices don’t equate to cheaper house prices especially for new builds. Let’s take the scenario of a house that costs $400,000 and say the section cost $120,000 if you can get the section for $80,000 already the house is down to $360,000. It’s not really rocket science is it?

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  2. peterwn (3,160 comments) says:

    There are two concepts of land value being mentioned here. I think Mr Taylor is referring to the value of ‘raw’ land, that is before any development, infrastructure, reserves contributions, etc. The 40% – 60% ‘land value’ of a house would appear to include these items. In improving housing affordability, the spotlight should go on these items. In particular some serious cost accounting should be done to ensure there is no double dipping – that is to ensure that a new home buyer is not making a ‘capital contribution’ then having to provide a ‘return’ on the same capital via rates or utility bills.

    When the old power boards and MED’s were corporatised, they carried significant assets that were paid as ‘capital contributions’ when land was subdivided and reticulated. There was no recognition given to this resulting in double dipping with respect to subdivisions developed after the 1970′s or so.

    An important knock-on effect of driving down the cost of new housing – it will weaken the value of the existing housing stock. One reason tht there is not much will to drive down the price of new houses it it would undermine the value of existing houses occupied by middle and higher income earners be they MP’s, councillors, trade union officials, bureaucrats, etc.

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  3. RRM (9,453 comments) says:

    a greenfield site before it’s subdivided and developed – is only around 10 to 15 per cent of the total value of a new house and land package,” Taylor said

    Yeeeeeeeess..

    And if you look at any existing house and land package, somewhere in the middle of Old Auckland Town, how much is the land, as a %age of the total value there, Mr Taylor?

    Keep exercising the grey matter, Gary… you’re soooo close to getting it!

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  4. CJPhoto (214 comments) says:

    Are they both correct. Does the raw land only cost 10-15% but once a develop has subdivided and put in services etc, does that take it up to 50%.

    How much does RMA and subdivision costs (ie council fees) increase that. What is the ‘profit margin’ to the developer in do this which I think is his issue. Hell it is hardly high risk given the number of new sections required.

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  5. hj (6,350 comments) says:

    “The Real Estate Institute and Statistics NZ found the biggest driver in the increase in house prices has been land value appreciation, King said.”
    ……..

    The Savings Working Group (experts appointed by the government) blamed government policy and in particular high levels of immigration:

    “Among a raft of other recommendations aimed at boosting the country’s flagging savings rate, both nationally and at a household level, the Savings Working Group (SWG) suggests Government give the matter of immigration some “serious consideration.””

    “In its 160-page report to Finance Minister Bill English tabled this week in Wellington, the SWG suggests greater control of migration could be a means of reducing house prices and ramping up national savings.

    “In a country with a relatively low national savings rate, rapid population growth will put sustained upward pressure on real interest rates and, in turn, the real exchange rate, making it harder to achieve the per capita income gains that people (and the government) aspire to,” the report states.

    Group member Andrew Coleman, an economics lecturer and consultant, said despite obvious sensitivities the issue warranted attention amid what is shaping up to be a national debate on how to deal with New Zealand’s mounting foreign debt.

    “We’re not anti-immigration but we are saying it’s something we need to look at,” Colemand said. “If we are concerned about disruptive change caused by debt levels in response to natural outcomes of migration, then we want to make sure it is occurring at a rate that isn’t getting us into trouble,” he said.

    In its report , the SWG theorises that if net immigration flows were held at 1980- levels, the country’s net foreign liabilities could be 20% lower than its current rate of 85% debt to GDP.
    “This is a critical difference in terms of vulnerability and growth and arises because new residents require new capital stock immediately, which must be paid for…increasing the need for foreign borrowing.”
    http://www.interest.co.nz/kiwisaver/52140/migration-policy-linked-inflated-housing-prices-government-spending-and-low-savings

    80% of our population growth in the last couple of decades has been the net inflow of non NZ citizens

    “When a family falls on hard times, and has to devote lots of energy to stabilizing the
    situation, and then decides to have another child (whatever the other merits of the
    case) that will almost invariably worsen the family’s economic position. It is a folksy
    comparison and breaks down at some points, but NZ is in some respects that family:
    choosing to have lots more kids, as it were, just when were in a position to capitalize
    on the good positioning reforms put in place by successive governments in the late
    1980s and early 1990s. In that story, housing is more than a symptom but less than a
    cause.

    http://www.treasury.govt.nz/downloads/pdfs/mi-jarrett-comm.pdf

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  6. elscorcho (152 comments) says:

    What causes price rises?

    A mismatch between supply and demand

    Instead of going on about supply, why don’t we focus on demand?

    AUCKLAND IS ALREADY OVERCROWDED
    I drive to work before 6am and there are already cars on the motorway

    We don’t need more expansion. We need to stabilise Auckland’s population or even decrease it by 100-200k. Those people can be sent around the country to restore our regional economies.

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  7. hj (6,350 comments) says:

    PM says ‘no’
    Prime Minister John Key reiterated later a land tax and broader capital gains tax were still off the cards. Asked whether the implementation of one or the other could allow government to reduce income taxes to give people more income to spend, he replied:
    “At the risk of repeating myself from last year, we looked at a land tax, and land taxes, one, reduce the value of land in New Zealand, by definition, and it has an impact on every single homeowner in New Zealand.”
    http://www.interest.co.nz/news/52737/imf-recommends-govt-broaden-capital-gains-tax-base-and-introduce-land-tax-your-view

    Outraged developers in Queenstown have blasted a proposal before the Government suggesting radical changes to the tax system.

    Yesterday the Tax Working Group, a think tank set up to look at the tax system, published their findings.

    The report labels the tax system broken and recommends a range of changes including introducing a land tax on all properties and raising GST from 12.5 per cent to 15 per cent.
    http://www.stuff.co.nz/southland-times/news/3248188/Developers-slam-land-tax-proposal

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  8. Mr Nobody NZ (397 comments) says:

    I don’t think anybody would deny that Auckland can be an expensive place to purchase property or to build but in my opinion there is far to focus (and headlines) centred around the Central Auckland Suburbs such as the Heralds “Auckland house prices could double by 2022 – experts” from Sunday.

    There are still great buys out there and opportunities to build for example my wife and I are building less that 180m from the water, near a decile 9 public school. The land can be expensive however in our personal case is representing only 34% of the total build cost.

    The major difference is that we’re doing this in South Auckland vs Epsom or Remuera where to build the same house as we have planned the land value would skyrocket to the 60% mark.

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  9. hj (6,350 comments) says:

    Australian productivity commision found :

    concluded that any benefits from migration to Australia were captured by migrants and there were few or no discernible economic benefits to Australians.

    NZ Productivity Commission Compromised:

    Productivity Commision:
    We recommend that you:
    a agree to the inquiry selection process set out in Appendix 1
    Agree/disagree
    b agree that Commission’s second tranche of inquiries be selected on the degree that
    they:
    are relatively uncontroversial given the desire to establish broad political support for the Commission*

    • utilise the Commission’s unique position as an independent agency with high
    quality analytical ability and community engagement approaches
    • support the establishment of the Commission by developing its capability,
    capacity and reputation, and
    • have the potential to improve productivity and support the overall well-being of
    New Zealanders.
    http://www.treasury.govt.nz/publications/informationreleases/productivitycommission/pdfs/t2011-2000.pdf

    *National Labour and the Greens are pro immigration so it can be ignored.

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  10. KiwiGreg (3,176 comments) says:

    @ elscorcho you have been reassigned to Invercargill please leave Auckland immediately. No you dont have time to pack.

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  11. elscorcho (152 comments) says:

    I was born here, Greg.
    We simply redirect immigrants.

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  12. tom hunter (4,413 comments) says:

    It will, however, contribute to Fletcher’s excessive profit-taking, which is a big part of the problem,”

    It might help to provide a numerical definition of “excessive profit-taking” – right after he also says (in a scoffing tone), “Of course I’m not a communist”.

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  13. Richard29 (377 comments) says:

    Opening up more land is one factor but I think there is a risk of seeing it as a silver bullet which it is not. There are also a lot of hidden costs (for the taxpayer) in opening up new land in terms of extending roading, services etc compared to increasing density.

    I read a very persuasive article a while back in the Listener which pointed out the massive level of expensive ‘one of a kind’ housing in New Zealand relative to other countries where standardised houses are mass produced and built. In terms of materials, planning and council costs, building efficiencies etc we should be building a lot more standardised properties. Local government has a key role to play there in streamlining approval costs for identical builds.

    Another key factor that will screw up the Auckland plan for mostly (70%) high density housing is bank lending policies. Because of the volatility of the smaller apartment market and the ups and downs of property values relative to land values banks typically require 20% deposit for a home but up to 50% deposit for an apartment. With an average house price in Auckland of circa $500k that is the difference between $100k or $250 deposit (or several years of saving for a first home buyer). This is lunacy – I don’t know a single first home buyer who could afford a deposit on a decent apartment and I don’t know many average home owners with more than 50% equity who would switch to an apartment at that stage. There is an inherent conflict between an apartment market which (through lending criteria) is massively biased towards rentals and New Zealand culture (like most) which is pro home ownership. Most apartments that are being built are either very high end properties for established home owners with lots of equity or cheap and crappy investor rentals targetting students and low income individuals. There is little quality in the middle of the market.
    The council has set an objective for a high degree of new property to be high density but doesn’t have a policy framework to support this. As such a large pool of first home buyers and average working families are competing for a dwindling supply of ‘home and land’ properties. But they are struggling to compete with a large pool of investors bidding up the prices and enjoying the tax free capital gains. A land tax (rather than cap gains tax) would probably help the situation – it would move a big chunk of the investment capital to where it can be more productive – creating high quality, high density properties on existing land – allowing developers and investors to keep new capital value they create and incentivising them to minimise the land footprint they are occupying. In addition the council and possibly central government should look at how they can regulate to change the bank’s massive bias towards land which is driving endless expansion.

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  14. Paulus (2,501 comments) says:

    Why give one time unionist Taylor breath.
    He is a leading anything objectionist – good for the left left wing GreenAgainstAnything (known as the GAA) Party.

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  15. thedavincimode (6,532 comments) says:

    The man with the face of a deflated blowfish raises the prospect that he has a brain smaller than that of a deflated blowfish.

    elscorcho

    You mean like: “Hello, I’ve been sent from Auckland to help out. What seems to be the problem?”

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  16. Joseph Carpenter (210 comments) says:

    He’s wrong, it is mainly land costs. But there is a problem with the building supply industry in NZ, what I find staggering is that NZ produced Pinex (CHH) sawn timber and ply is approx 5-8% cheaper (adjusted for current exchange rate) in Sydney than it is in Wellington! And thats XGST – it’s even worse for the end consumer because G is only 10% in Oz and 15% here. Also seldom mentioned is the huge distortionary effect of GST – because a new built house will have to cop a 15% GST component but an equivalent existing house bears nothing. In fact the Government/Local Authority makes more in tax/levies than the total profits of the land developer, builder, subcontractors and supply companies combined on a typical new house. Rather than trying to exempt “fresh food” from GST why not make new housing GST exempt or rebated back to the owner on their income tax at say a third per year for three years.

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  17. dime (9,430 comments) says:

    It will, however, contribute to Fletcher’s excessive profit-taking, which is a big part of the problem,”

    Those bastards! Making money!

    Housing in this country is a debacle. I think (could be very wrong) a solution could be to open up a shit load of land. The goal being to feed the extra demand we have. So houses wont drop, but if we can keep them from going up too much in the next 20 years we are laughing.

    no politician is going to deflate the property market. it would fuck the middle class.

    if we can find a way of holding the market steady – so the investment properties dont go down but get paid off and they dont keep going up so fast we may end up okish.

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  18. backster (2,077 comments) says:

    It will, however, contribute to Fletcher’s excessive profit-taking, which is a big part of the problem,”

    Fletchers don’t make excessive profit. There share price has decreased by over 50% in the past year or so(though directors fees have increased by a similar amount) and their profitability hardly justifies the current price.

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  19. thedavincimode (6,532 comments) says:

    Joseph C

    There is no anomaly regarding house GST. Current housing stocks already reflect a GST charge unless of course they were pre-GST stocks. The fact that the introduction of GST didn’t involve a one-off GST charge on all goods in existence at that time doesn’t reflect an anomaly.

    Government’s “profit” on housing development is the same “profit” it makes on any other business activity: it’s called income tax and GST. Government collects that to do important stuff and unimportant stuff. I would prefer to have less tax collected than have spending on unimportant stuff reduced in order to spend the money on other unimportant stuff like paying for someone’s house through GST rebates or exemptions. Liebour might like your suggestion though, but in addition to and not instead of their stupid veges GST policy.

    In any event, history in this country shows that taxpayer subsidies eventually get capitalised into the value of assets and there are a number of examples in a real estate context. Things that make housing cheaper by distorting the effect of economic fundamentals increase demand and drive prices beyond levels of underlying affordability. For example, tax rorts on owner occupied homes had an effect on prices and so did WFF; both through increasing affordability and through the rental losses rort by WFF beneficiaries. Farm prices collapsed in the 80s when Muldoon’s statutory minimum prices were canned; reflecting that those subsidies were capitalised into farm values.

    As I understand the argument around Local Government charges, it is intended in part at least to reflect inter-generational equity considerations ie those who buy into new developments should bear some part of prior cost in respect of existing infrastructure (roads, sewage, water etc) that the new development infrastructure connects to. I have no idea how equitable that might be in practice, although I have my suspicions.

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  20. hj (6,350 comments) says:

    Fletcher Building is facing new threats from German, South African, Malaysian and other overseas businesses pouring cheaper products into here and Australia.

    Fletcher, with a market capitalisation of $4.2 billion, is under attack from firms undercutting prices by up to a third and aiming at Christchurch’s post-quake rebuild.

    Stephen Hudson, Macquarie Equities Research analyst, said new import-based competition had emerged in cement products, insulation, wallboard, laminates and steel categories
    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10800694

    Compare Batts to Knauf Earthwool bought on line
    http://www.earthwool.co.nz/BuildForNextGen/buy-insulation-online/

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  21. hj (6,350 comments) says:

    In a scene playing out in cities across the country seeking to crawl out of the recession by “streamlining” land use regulations to stoke development and the creation of new jobs, Seattle passed “complex legislation” that “eases parking requirements for new development, raises the threshold for environmental review to 200 residential units from 30, and eliminates a requirement for ground-floor retail space outside of busy shopping districts,” reports Lynn Thompson.
    http://seattletimes.com/html/localnews/2018756089_landuse24m.html

    A great majority of Americans — in fact, the highest level in six years of Saint Index surveys — oppose new development in their own community. 79 percent said their hometown is fine the way it is or already over-developed. Some 86 percent of suburban Americans do not want new development in their community. Asked, “What type of new development would you most like to see in your community?” the most common answer was “none.”
    http://saintindex.info/general-attitudes#nimbyattitudes

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  22. Nick K (1,068 comments) says:

    hj – why are you so afraid of people being able to afford their own home and why are you in favour of home ownership decreasing to 50% (currently) from 70% in 1990 (ish)? Why do you hate people so much that you don’t care if they live in a slum?

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  23. TIMOTHYHON (1 comment) says:

    hi

    Please see the background of John Key. His career is only “buy and sell” to make the money. So, he will not put any restriction for foreigner to buy the property and he will not impose any capital gain tax. He just let the market to adjust the property price. However, Aussie is more smarter than Kiwi. They already restrict the foreigner buyer to buy the properties. After implementing this policy, the prpoerty market in Aust clam down immediately.

    Please kick out John Key for his next election.

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