How do we know if we can provide Affordable Housing?

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. 

https://www.interest.co.nz/users/ryan-greenaway-mcgrevy