How do we know if we can provide Affordable Housing?

August 20th 2018

Ryan Greenaway-McGrevey’s article examining the effectiveness of Auckland’s Unitary Plan asks, ‘how do we know if The Plan is ‘improving housing affordability’’, a very pertinent question. McGrevey uses an algorithm derived from an index developed in the US in the 1980s that looked at measuring the change in price of ‘single-family detached residences’ using the ‘repeat sales method’. One of the problems with applying the Case-Schiller Index, as it is called, to NZ is that it only measures changes in the same property (bone fide sales) over x amount of time, and excludes new builds. McGrevey’s results indicate that existing standalone homes tend to sell for more over a given period than high density developments. This approach may give a ‘long-game’ context for affordable housing under AUP if the intention is to keep ‘spreading’ out in a new modified kiwi acre, but it is very difficult to assess how new high-density development may address housing affordability without relevant data.

Investment Clients & Brokers ask me what the ROI is for different suburbs in fast -growing Hamilton, and I can reliably supply that information month by month from QV. The formula I use is;

ROI = % Capital Gain PA/2 years + % Gross Rental Return PA; this is free-market economics.

If we applied the same formula of ‘ROI’ to Affordable Housing and reverse engineered it, it might look something like this;

ROI (Affordable Housing) = % affordability (inflation adjusted + relative to income + serviceability) x % sustainability (inflation proofing + stringent inflation-linked capping); this is interventionist economics.

The biggest problem is that new developments are mainly developer-funded, and developer’s need their ROI to survive – or we have no more development. Affordable housing can only be achieved with state-funded or state-subsidised development that remains outside the influence of Capital Gain and Inflation, however this may be grossly inefficient and counter-productive.

I applaud McGrevey’s attempts to quantify how the AUP might work, and we urgently need more research as time is of the essence. The crisis is Now; as there is no such thing as ‘affordable housing’ in either Auckland or Hamilton. We need to know how to assess what might work, and we need to know very quickly.


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