By Andrew Bydder, Hamilton City Councillor
Last week, Kainga Ora (Housing New Zealand) proudly showed off their new Auckland apartments, a property development of three, 3-bedroom, and six, 2-bedroom apartments in the suburb of Meadowbank. The tone-deaf nature of the bureaucracy was exposed when the New Zealand Herald published the cost of $1.2 million dollars each. At a time when so many of us are doing it tough, providing social housing at a cost equivalent to a Lotto win is insulting.
The figure balloons to $1.7 million when land value is added, which is what the rest of you and I have to pay. This is not beneficiary bashing, it is frustration at the lack of commonsense and inefficiency. The apartment location is Meadowbank, one of the country’s most expensive suburbs between Remuera and Mission Bay. I simply do not understand why beneficiaries would need to live there when Kainga Ora could help many more people in better value locations.
Like most kiwis, my foundation is a strong sense of community and a willingness to help people. I have had a moderately successful career in architecture, helping people achieve their dream homes within their limited budgets. I put my money where my mouth is and completed my own property developments. I financed the projects by mortgaging my home, got the consents, and hired all the tradies. I can swing a hammer, but the professionals will finish the job to a higher standard than me, and that is worth paying for. I sell some of the new houses, and keep some as rentals. I know the market demand, I know what it cost me, I know what profit margin I should charge, and I put a much lower price on each home because I want buyers and tenants to get ahead. In short, I do what the government should be doing.
Of course, the government should be doing this for much, much, lower cost. Kainga Ora has the advantages of large scale, lower borrowing costs, government security, bureaucratic short cuts such as issuing their own building consents, and a captive market. It should be able to beat me hands-down. But my latest development of four brand-new three-bedroom townhouses in Hamilton is valued at just $700,000 each. A million dollars less than the government system. What is going on?
I sold one unit to immigrants. I am renting three units to 1.) a sickness beneficiary, ii.) a family of four with both parents working, and iii.) a group of medical graduates, all thoroughly deserving of help.
I can share the figures with you. The houses are 107m2 each on 215m2 sections, so the owners/tenants get far more outdoor space and a proper garage compared to the Kainga Ora’s three-storey apartment block. The land was bought for $1.2 million, so $100,000 less per unit. The construction cost was $350,000 per unit, or roughly $3,300 per square meter. Hamilton Kainga Ora projects start at $4,500. I intend to hold on to the three rentals so I made sure there were no shortcuts taken and good-quality low-maintenance materials were used. Council fees totalled $25,000 per unit. Engineers, surveyors, and lawyers (unit titles) added $10,000. The remaining $15,000 per unit is not profit, it is financial cost of the mortgage over the construction time.
To be fair, developers are due a 10% profit margin and I did not charge my architectural time, so a true market comparison would be $800,000. But Kainga Ora should not be making a profit either.
The immigrant purchasers got a great deal at $100,000 below market and I am very happy for them. They work hard. The tenants are paying $680 per week, which is just below a 5% return on capital. It is too low compared to property investor’s mortgage interest rates of 7% but comparable to the interest I would receive on my money in the bank. So it is break-even for me and about $250 below market per week. Kainga Ora borrowed at about 4.5% over the same time so would be better off – if they could keep their costs down.
The simple fact is Kainga Ora has failed dismally. Its large size has not created large scale efficiencies. It is doing piecemeal projects across the country with added layers of bureaucracy, poor decision-making, and a lack of accountability. It needs a radical restructure and to be much more open to public scrutiny.
As for me, I am not planning on any more affordable housing developments. I wasn’t in it for profit, but the stress and frustration over council planning and paperwork delays saps the sense of reward. The last straw was a month-long delay and paying extra for a council building inspection of pipes that I had already paid to have approved and inspected by council engineers. The foundations of the entire system are not only weak, they are rotten, and we are simply not getting good value for our building work. Moreover, the people that need it most in society are being short changed and everyone of us as taxpayers are paying, and paying, and paying for it.
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