Last week, Kainga Ora (Housing New Zealand) proudly showed off their new Auckland apartments; a property development of three three-bedroom and six two-bedroom apartments in the suburb of Meadowbank. The tone-deaf nature of the bureaucracy was exposed when the New Zealand Herald published their cost of $1.2 million dollars each. At a time when so many of us are doing it tough, giving a handful of beneficiaries the equivalent of a Lotto win is insulting.
The figure balloons to $1.7 million when land value is added, which is what the rest of us would have to pay. This is not beneficiary bashing: it is frustration at the lack of commonsense. The apartments’ 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 more people in better value locations.
Like most Kiwis, my foundation has a strong sense of community and a willingness to help people. I have had a moderately successful career in architecture and 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 I can, 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.
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.
I sold one unit to Indian immigrants. I am renting three units to Samoan sickness beneficiary, a Māori family of four with both parents working and a group of Asian 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 metre. 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 the financial cost of the mortgage over the construction time.
To be fair, developers are due a 10 per cent 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 Indian 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 five per cent return on capital. It is too low compared to property investor’s mortgage interest rates of seven per cent 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 per cent 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.
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 system are not only weak, they are rotten, and we are simply not getting good value for our building work.
