Te Awa Lakes: Housing Economics

5 April 2018 Attn: Paul Radich Development Planner, Te Awa Lakes Development Perry Group Via email: [email protected] CC: [email protected] Te Awa Lakes: Housing Economics Dear Paul, This letter aims to provide ongoing assessment in relation to demand for Qualifying Developments, and also comments on local demand for residential housing in the proposed Te Awa Lakes Special Housing Area. Updating RCG’s Housing Commentary We summarise the key points from RCG’s Assessment of Economic Effects report for Te Awa Lakes below. 1 We have updated these points with more recent data where available: • Net migration into New Zealand remains at near-record levels of around 70,000 a year. • Auckland is still not keeping pace with its own housing shortage, i.e. ‘supply’ of new homes is not matching ‘demand’ from population growth. • Auckland is likely to keep losing people to neighbouring regions such as the Waikato, especially when there is housing pressure (as is currently the case). • Auckland’s house price boom began in 2012 and spread to Hamilton by 2015. In both cities, and most other parts of New Zealand, prices have flattened out in 2017-18. • The average house value in Hamilton is now $548,000, compared with $363,000 four years ago. 2 • Building consents in Hamilton, Waikato and Waipa remain at near-record levels, but have plateaued. 1 http://www.hamilton.govt.nz/our-council/council- publications/districtplans/ODP/Documents/Te%20Awa%20Lakes%20Private%20Plan%20Chan ge/Appendix_6_Assessment_of_Economic_Effects.PDF 2 Data from https://www.qv.co.nz/property-trends/residential-house-values , for Feb 2018 compared with Feb 2014 RCG | CONSTRUCTIVE THINKING. DELIVERED LETTER | TE AWA LAKES 111 RCG LIMITED, REGISTERED ARCHITECTS WITH THE NZRAB SINCE 1989 APRIL 2018 RCG REALTY LTD, LICENSED UNDER THE REAL ESTATE AGENTS ACT 2008 • Consents have also levelled off in Auckland, Tauranga and for New Zealand as a whole, suggesting that NZ’s construction sector is reaching capacity constraints and will struggle to scale up further. Hamilton City Council: “Hamilton’s Housing Market and Economy” A February 2018 report published by Hamilton City Council provides a number of metrics on housing demand and supply in Hamilton. 3 These metrics include information on sale prices for ‘new’ homes – defined as those built after 2010 – compared with prices for ‘old’ homes. This shows that: • The median sale price for a ‘new’ house is $727,500, 33% higher than the price for an ‘old’ house of $545,000; • The median sale price for a ‘new’ apartment/ flat/ unit is $447,000, 13% higher than the price for an ‘old’ apartment/ flat/ unit of $395,000; • Only 32% of ‘new’ homes are sold for less than $600,000, compared with 69% of ‘old’ homes; • The main price bracket for ‘new’ homes is $600,000-$700,000 (25% of new homes), followed by $700,000-$800,000 (16% of new homes). 3 www.hamiltoninvest.co.nz/wp-content/uploads/2018/03/Hamilton-Growth-Indicator- Report-Residential-Feb2018-web.pdf RCG | CONSTRUCTIVE THINKING. DELIVERED LETTER | TE AWA LAKES 2 APRIL 2018 22 RCG LIMITED, REGISTERED ARCHITECTS WITH THE NZRAB SINCE 1989 RCG REALTY LTD, LICENSED UNDER THE REAL ESTATE AGENTS ACT 2008 We expect that most ‘new’ homes in the lower price brackets above, especially those under $600,000, are apartments/ flats/ units. This Council report does not comment on the Hamilton Housing Accord. However, the Accord set a target for 1,300 dwelling and section consents in 2017, 1,400 in 2018, and 1,500 in 2019.4 Based on a conversation with Stafford Hodgson at the Council, the 2017 target was achieved or almost achieved. However, the 2018 and 2019 targets look even more challenging, and will require further growth in consenting activity, to record levels over the next few years. Hamilton Suburb Pricing • QV’s website shows median home values for 40+ suburbs across Hamilton. 5 • Their data shows that house values are highest in northeast Hamilton (median values range from $628,000 in Chedworth to $741,000 in Huntington), and some urban fringe suburbs (Grandview Heights, Western Heights, Riverlea, Tamahere). • In the case of northeast Hamilton, the high house values are likely to reflect larger and more modern homes. • Suburbs close to the Waikato River or Hamilton Lake also seem to have higher values (Hamilton Lake, Beerescourt, Riverlea). • The combination of new housing and river amenity seems to be very attractive. A previous issue of the council’s “Hamilton’s Housing Market and Economy” report shows that Sylvester had the highest house prices in Hamilton. 6 • In larger cities like Auckland, a clear ‘urban land price gradient’ has emerged where land close to the city centre is more valuable. In Hamilton, this trend may be competing with other land price factors, e.g. quiet locations with semi-rural amenity, or areas of newer and better quality housing. • Econometric research for Auckland has found that, outside of the denser isthmus, “the optimal distance from any amenity is basically as close as possible”. 7 Although we are not aware of similar research for Hamilton, we expect that households would indeed value proximity to parks, water bodies, transport links, jobs etc. 4 To avoid double counting, sections are only counted additionally if they do not (yet) have a dwelling consented on them. 5 https://www.qv.co.nz/suburb/huntington-hamilton-8687/sold 6 http://www.hamilton.govt.nz/our- city/economicdevelopment/Documents/Hamilton%20Growth%20Indicator%20Report%20- %20Residential%20-%20June%202017%20-%20FINAL.pdf 7 https://www.aucklandcouncil.govt.nz/about-auckland-council/business-in- auckland/docsoccasionalpapers/location-size-and-quality-march-2018.pdf RCG | CONSTRUCTIVE THINKING. DELIVERED LETTER | TE AWA LAKES 3 APRIL 2018 33 RCG LIMITED, REGISTERED ARCHITECTS WITH THE NZRAB SINCE 1989 RCG REALTY LTD, LICENSED UNDER THE REAL ESTATE AGENTS ACT 2008 Pricing and Affordability • Housing affordability is a major policy concern, as evidenced in the Housing Affordability Measure developed by MBIE, and the National Policy Statement on Urban Development Capacity. • Improving housing affordability is also one of the aims of the Hamilton Housing Accord signed with the previous government, and the much more ambitious Kiwibuild programme planned by the current government. • Interest.co.nz reports Hamilton as having a median household income of $84,557, with current median house prices at $520,000 as at February 2018. 8 • This gives a ‘median multiple’ of house prices to income at 6.15, although this has fluctuated between 5.92 and 6.71 over the last three months depending on the median house price for a given month. • This means that it would take the median household 6.15 years to pay off the median house, if it was able to spend its entire (pre-tax) income on it. • Hamilton has consistently been one of the more expensive cities in New Zealand on this measure, above the ‘NZ total’ average, and with Auckland and Tauranga the only cities that are consistently more expensive. • Households are very attuned to the price of housing – after all, housing is the largest expense for most households. • Commitments to affordability, such as those proposed under the Hamilton SHA programme, will mean that developers must provide a proportion of lower-priced homes, in a segment of the market which is not well served at present. This should be supported. Access to Employment • The CBD is the largest employment centre in Hamilton, with 20,000 employees. 9 Te Rapa has a similar number of jobs, albeit spread out over a wider area. • The other major employment nodes are Frankton (10,700 jobs) and Hamilton Lake (8,600). • Geographically, the ‘median job’ in Hamilton City is located roughly where the new Hamilton Community Corrections facility is, i.e. in the northwest of the CBD. 10 • Te Awa Lakes is relatively distant from the CBD, but only slightly further than new subdivisions in Flagstaff or Rototuna North, and along a reasonably linear route along Te Rapa Rd. • Te Awa Lakes also has good access to jobs in Te Rapa. 16,800 of Hamilton’s 87,400 jobs are located in the Te Rapa area unit as defined by Stats NZ, with another 4,060 nearby in Rotokauri, Burbush, Horotiu, or Te Rapa North. 8 https://www.interest.co.nz/property/house-price-income-multiples 9 Business demography statistics as at February 2017, Stats NZ 10 RCG analysis of 2013 census meshblock employment data RCG | CONSTRUCTIVE THINKING. DELIVERED LETTER | TE AWA LAKES 4 APRIL 2018 44 RCG LIMITED, REGISTERED ARCHITECTS WITH THE NZRAB SINCE 1989 RCG REALTY LTD, LICENSED UNDER THE REAL ESTATE AGENTS ACT 2008 • Employment is likely to keep growing in the future, particularly in the Burbush area unit, which includes those parts of Te Rapa between the railway line and the expressway (aka Te Rapa Gateway). • As noted above, 87,400 jobs are located in Hamilton City. This compares to 17,400 in the entire Waikato District, and 18,200 in Waipa. • As such, Te Awa Lakes has better access to jobs than almost anywhere in these two surrounding districts, including the main towns of Cambridge and Te Awamutu. • It has similar levels of accessibility to jobs as Flagstaff or Rototuna North. However, Te Awa Lakes is more remote from the CBD than the Peacocke growth node. Conclusions • Te Awa Lakes has good access to jobs compared with other Hamilton greenfield nodes, and better access than most parts of the Waikato or Waipa districts. • Te Awa Lakes is adjacent to the Waikato River, a key amenity for Hamilton and one which city residents attach an economic value to. • Based on Hamilton City Council analysis, only 32% of new homes in Hamilton are sold for less than $600,000.

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