The big issue for the Queenstown Lakes District Council this year has been ‘‘affordable'' housing - or, more correctly, the lack of it. Otago Daily Times Wanaka bureau chief Mark Price asks Wanaka's Willowridge Developments Ltd property developer Allan Dippie for ideas on what more the council can do to help.
How do you regard all the talk about "affordable'' housing?
We are seeing increased affordability issues in both Wanaka and Queenstown as both towns respond to some pretty steady growth and that has seen large increases particularly in the cost of rental accommodation. The problem is the lag in supply. We are probably in that lag at present in Wanaka but we will catch up. There are more developers and more development projects than ever.
What is the difference between an average home and an "affordable home''?
A good measure of unaffordability is when more than 30% of a household income is required to service a mortgage on a home, given that home has been purchased with a reasonable deposit or equity. An average home or rental in Queenstown or Wanaka is now not affordable for an increasing amount of the people who wish to live in these towns.
This is why Cromwell, Hawea and Luggate are better options for a lot of people. I recently read a councillor comment that people are being forced into these areas. What a silly comment. People are wisely choosing such towns as they increasingly offer the lifestyle they prefer and can comfortably afford.
How big a part does the cost of land play in the affordability of a home?
Typically, sections in places such as Wanaka have been approximately 30% of a home's finished cost. In some cases that has risen to 50% in some areas and, of course, it can be even more than that at the very top end.
What is much more important is the entry level land cost in real dollar terms. In Wanaka and surrounding areas, it has risen but there are still entry level sections at reasonable prices and this will further improve in the future although some sections will probably be a lot smaller than people are used to.
Both the council and companies such as Willowridge will have to get their heads around this downsizing issue.
What are the costs of developing a section?
The land cost, the holding cost, the consenting costs, the design, survey and legal costs, the construction costs, the utility costs, the development contributions to council and the selling costs.
Interestingly, most of what people are paying for when they buy a section is what you can't look at, as it is under the ground in terms of infrastructure and its connection to wider infrastructure.
What proportion of the section cost is a result of government or local government charges, and to what degree are the charges necessary?
Fortunately, most of our costs are under control. Unfortunately, the costs we don't have control of are the consenting and council costs and these have risen very sharply in recent years, especially in the lakes district.
In fact, it's now costing us 30% more to prepare and consent even the smallest of applications due to the increased processing costs and what has become a consultant-dependent mentality the local council suffers from due to its perceived need to isolate any risk to itself.
It does this by ordering up a never-ending procession of consultants which it hires on our behalf and our cost to come up with more expensive ways of doing things.
Then they insist that that consultant is checked by another peer consultant. Sometimes, the peer reviewer needs reviewed and on it goes. The worst thing about it is the peer reviewer must find a problem with the first consultant to justify their fee.
The other problem is the council's own internal fee structure. The more complex it makes a consent to process, the more it can charge us because it charges hourly rates.
They can charge what they like and some of the charges are eye-watering.
What proportion of the section cost is a result of the development contribution?
There is a real problem with development contributions in respect of affordability. For a section in Queenstown or Wanaka, the development contribution is in many cases a relatively small percentage of the overall section cost.
However, in places like Hawea, which has one of the most expensive development contributions in the district, more than Wanaka in fact, it's a very significant percentage of that section's cost, so it hits those people who can least afford it the hardest.
New developments create new demands on council services, so is it not fair enough to charge a development contribution?
Absolutely. That said, councils have in the past not been made to account for the quantum and the calculations that make up these components.
We are challenging the council to look very carefully at its calculations and assumptions. Another big problem that has emerged, particularly over the last several years, is council collecting development contributions but failing to spend them on the services upgrade that they have been collected for.
If you are living in parts of Wanaka with less water pressure than you used to have, this is a symptom of that.
Should there be different council charges for sections identified for affordable homes?
I think it can be argued that a multimillion-dollar mansion with six bathrooms and 10 bedrooms uses a lot more services than an affordable three-bedroom entry level home.
At present, as long as those two homes have the same number of kitchens, then they pay the same development contribution. In fact, in the case of Wanaka compared to Hawea, the expensive home pays less.
This is a fundamental flaw in council affordable housing ambitions and something we have been pointing out for quite a few years.
If the council reduced its costs, would not developers simply pocket the savings?
Yes, in some cases the market would rule. However, some developers in both Queenstown and Wanaka have developments across a range of residential sectors and they particularly understand the need to provide for affordable options if our community is to stay vibrant and balanced.
Willowridge has a very successful track record at providing affordable housing and a large percentage of the housing options we will provide over the next 10 years will be affordable.
We have a good model in place, have a system to construct sections efficiently and land resources to do that as well. What we need is council to help us and other developers to achieve those goals.
They are, in fact, the goals it wants to see achieved, so working closely together to enable this will be important. It's got to come from the top down, however, and we are not seeing that.
By reducing section prices, do you not just cater for speculators who will buy cheap and on-sell at market rates?
Yes, that could be the case. However, developers in both Queenstown and Wanaka are doing a fair bit to curb this. For example, we always limit sections to one buyer per section. The deputy mayor recently and correctly noted that in terms of Wanaka it's not a land availability issue.
There is a lot of zoned land available within the town boundary.
Our own calculations suggest that a capacity of 3771 sections that are not yet completed or developed currently exist in Wanaka and that is across a broad range of price categories.
It's the time lag that's the issue.
If the council decided to encourage affordable development and have a happy attitude towards it, then that time lag could be significantly reduced. The council's role is simple - to work proactively with developers to facilitate a variety of housing options to meet demand.
Developers would get on and do what they are good at doing and the council would be rewarded with less affordability issues in the district and also a larger rating base. A win-win result all around.
Mr Dippie's answers have been edited for length.
