As I have said in previous articles, a critical factor in dealing with the housing crisis – yes I think it is a crisis – is determining what we mean by “affordable” housing. This is very much a demand side question. However, the Government seems determined to deal with it from a supply side perspective only – presumably by simply costing what they consider to be a basic housing unit suitable for first home buyers. The problem with this is that it does not necessarily bear any relation to what first home buyers can afford, and of course, the supply side number keeps escalating as costs rise. This particularly applies in Auckland. The last I heard the cost of an “affordable” house had risen to about $650,000 and rising.
At last, I have come across a poll which has actually asked potential buyers what they consider to be an affordable price for a first home. This is the key and rather obvious demand side question. This particular poll came up with an answer of $350,000. Given that there may be a natural instinct to go slightly low, ie leave some “wiggle room”, it might be fair to escalate this to $400,000.
Whatever the best number to use there is a gap – or rather a gaping chasm – between the Governments cost for an “affordable” house and what the market (the potential buyers) are saying they can afford to pay.
If this gap is not bridged than one of two things will happen, or maybe both – either houses will remain unsold, or they will be sold only to those first home buyers at the upper end of the economic spectrum. This will in turn force young couples back into the rental market (which is also becoming rapidly unaffordable) or place additional pressure on social housing. Taken overall this is not a happy solution.
So how do we close the gap? I think there are two obvious options and no doubt there are others I haven’t thought of.
The first is to look at design solutions, the difference from what is happening at present being to design down to a cost target, rather than determining a design and then letting the costs fall out as they may. Maybe a design competition would be the way to go, to get solutions which may not yet have been envisaged with encouragement for architects to innovate and think outside of the box. Cost-cutting techniques such as prefabrication will undoubtedly play a part as well.
The second option – or maybe an option in addition to the first – is for the Government to come to the party in a more meaningful way than they have to date. One of the issues in affordability is the cost of land and the Government has already gone part way down this track by freeing up Government-owned land for development. Another option may be for the Government to step in as the major buyer of land for “affordable” housing and lease the land to the homeowners at an “affordable cost”, whatever that might be in particular locations. There would need to be buyback provisions and provisions covering the sale of the house by the first w owner. Another option might be the provision of deferred interest loans. However, I would draw the line at the provision of an outright grant.
These are just some initial thoughts. But one way or another I think the only way to solve the affordability problem is to bring the cost of buying a first house into line with the realities of affordability for first home buyers.
By Bas Walker
This is another of Bas Walker’s posts on GrownUps. Please look out for his articles, containing his Beachside Ponderings.