Subdividing: A balancing act
The skyrocketing cost of subdividing could put many new sections out of reach for the average buyer in Marlborough, but reducing the price of new properties has no easy fix.
While Marlborough’s population grows at a ‘‘medium’’ rate by national standards, the number of houses listed for sale last month was the lowest in 13 years, and real estate agents describe chaotic open homes as buyers compete.
New sections at Rose Manor in Springlands, Nikau Drive on Alabama Rd, and the next stage of Boulevard Park on Taylor are awaiting consent through the Marlborough District Council, and could add more than 200 new houses to the market in the next few years.
But real estate agents expect the new sections will be out of the price range of most buyers, with current subdivision sections in Blenheim selling for up to $310,000 – and that’s before a house is even built.
Rose Manor developer Greg Smith said the cost of subdividing had ‘‘gone through the roof’’ since his previous development in Marlborough a decade ago.
‘‘In comparison to when we did Nottinghill, the actual physical development costs have increased 147 per cent. Marlborough Lines upgrade levies are much more expensive, there’s soil testing, there’s a whole lot more compliance,’’ Smith said.
‘‘And the development contributions and zone levies we pay to the council, in nine years they have also increased 153 per cent.’’
Councils were able to charge developers a series of fees under the Local Government Act, to offset the cost of linking the development to council services, which would otherwise be shouldered by ratepayers.
Each town or area had its own levies for service installations, with Blenheim developments charged $5035 for water, $757 for stormwater and $8215 for wastewater per section.
New sections were also charged a $3790 community infrastructure levy, and a Reserve Contribution of 6 per cent of the land’s value up to a maximum of $14,950, Smith said. ‘‘Most of our sections will be paying the $14,950.’’
Reserve Contributions funded a set list of council assets such as parks and reserves, roads and footpaths, and pipes, pump stations and treatment plants.
Last year that account funded more than $2.5 million worth of improvements to playgrounds, car parks, walkways, gardens, as well as new skate park equipment in Picton, and the feasibility study into a 100-metre running track proposed for Athletic Park.
‘‘I don’t believe that developers or new section owners should be paying for the development of all these upgrades,’’ Smith said.
Ratepayers should pay at least part of those costs, as the main users of those assets, and then Reserve Contributions could be lowered, lowering the overall price of a new section, he said.
‘‘The cost today is huge. Once upon a time there used to be a rule of thumb with developing land – it used to be the land cost was a third, the development cost was a third and the profit was a third. Today those ratios have basically gone out the door. Land cost is probably one of the lesser costs of the overall development.’’
Rose Manor’s latest sections to arrive on the market had been selling for about $300,000. The few remaining Boulevard Park on Taylor and Omaka Landing sections were selling for more than $220,000.
Council chief executive Mark Wheeler said the cost of new housing should not be passed on to ratepayers.
‘‘It’s hard work being a developer, and there are risks involved ... but it shouldn’t be at the expense of ratepayers. We’ve had a strong policy on that and successive councils have stuck with that,’’ Wheeler said.
‘‘Developers will always want to keep their costs down and I understand that, that’s the commercial world. Our view is that there is still profitable returns to be made.’’
The council knew what sort of profit margins developers were getting from their own foray into property development with Boulevard Park on Taylor, he said. The council had owned the land for about three decades before deciding to subdivide, selling the first sections in 2012.
‘‘The infrastructure costs have been a lot more challenging. But someone’s got to meet that cost, and it shouldn’t be the general ratepayers,’’ Wheeler said.
‘‘We haven’t seen any developments fall over yet, they’re all still going. That indicates to me they’re making a profitable return.’’
Greg Smith said he believed profit margins were so low that fewer people were developing property. He knew a few personally who had given up on projects in the early stages, he said.
‘‘It makes it very, very difficult for small players to enter the market. If someone has a small block of land and they want to subdivide it’s not an easy process, and it’s an expensive process.’’
The council seemed to forget that the extra houses added by developers meant extra ratepayers, Smith said.
‘‘For our block of land with 185 lots, the council was probably collecting about $15,000 in rates from the property, but once the land is fully developed they’ll be collecting over $500,000 per year. When they set their fees, there’s no consideration for the increase in rates they will receive once a development is complete.’’
However, he understood the council was dealing with their own increased costs when it came to providing infrastructure, he said.
‘‘It’s a big issue, right across the country ... If the Government wants towns and cities to grow then maybe they need to be supporting some of that key infrastructure – maybe through loans or subsidies, the Government seems to be quite favourable to those.
‘‘We could have some initiatives where the population is growing quickly. I think places like Blenheim do miss out on some of that stuff.’’