Housing price shock warning
Hamilton could be facing a triple crisis in the next 10 years around housing affordability, massive rates increases and high council debt.
This is because of flaws in how the Hamilton City Council calculates its growth and demand for housing, according to a new report by Auckland-based economic analysis company Urban Economics.
The report was commissioned by Hamilton property consultant Colin Jones who was concerned with HCC’s projections around housing demand and affordability within the city.
‘‘My concern has been and always will be affordable housing. However it is concerning the way inequity is increasing especially when it doesn’t have to be. My wife and I have taken the decision to try and change the system to achieve affordability so everyone who aspires to own their own home can achieve that dream,’’ he said.
He along with the Hamilton Residents and Ratepayers Association have called for an independent review into how Hamilton City Council calculates its projected growth and demand for housing.
The report claims that HCC’s projections of 11,950 more households in the next decade does not account for rising house costs, which slowed growth.
In the past 10 years, the house price to income multiple has risen from 6.8 to 9.3. Over the next ten years it is forecast to grow to
9.8. This translates to an increase in the median real house price from $585,0007 currently to
$715,000. This is higher than the current multiple in Auckland.
If house prices increase at the same rate during the next ten years that multiple is forecast to grow to 12.1 making for a median real house price leap from the current
$585,000 to $830,000. To meet the projected household growth, 40 per cent of the new households will come from infill housing, which would require upgrading existing infrastructure. The high costs required for this would see housing prices skyrocket. In contrast, greenfields infrastructure was faster and cheaper, the report said.
As prices rose, demand would decrease by 8-20 per cent, reducing the amount of estimated dwellings to 9600-11,000.
‘‘If HCC expects higher house
prices to support infill development, it should also expect fewer new dwellings to be built,’’ the report said.
Fewer dwellings meant a drop in development contributions to HCC revenue, resulting in a shortfall of $25-$121 million over the next 10 years. If HCC overestimates its revenue, it could pass its debt ceiling, causing it to lose its AA- credit rating, resulting in higher interest payments for HCC and higher rates for ratepayers.
However, in an emailed statement, Hamilton City Council chief executive Richard Briggs dismissed the report, saying it added nothing useful to the city’s growth discussions and contained ‘‘fundamental inaccuracies’’.
Briggs said he had ‘‘absolute confidence’’ in the Council’s data, projections and reporting. HCC’s growth and funding projections are continually updated, refined and reported publicly to the Council.
‘‘Just today the Council received a report on the city’s resilience to growth changes. The report clearly shows Hamilton is in good shape to respond to increases or decreases in our projected growth patterns. It’s built on facts and its assumptions are tested.’’
Briggs said the report’s figures for Hamilton’s housing affordability and income did not match current nationally published information.
‘‘Given these claims, and others, underpin the report’s conclusions it is difficult to see how the conclusions can have any value.’’
Briggs said the report was built around key errors. Its figures around housing affordability and income did not match current nationally-published information and that Jones has ignored information provided to by HCC around how its feasibility assessments were calculated.
Property Council of New Zealand’s Waikato branch chairman Brian Squair said the report was a well thought out critique of the council’s data and more transparency was needed on how it arrived at its figures.
‘‘Transparency is really important to the development community. When you are taking their money, you need to be really transparent about it.’’
When transparency was lacking, negative perceptions filled the information vacuum. They did not consult well with the property community early to know the consequences of ideas or policies, he said.
‘‘The accuracy and veracity of that needs to be established and I’m not clear that it is.’’
He said he had fielded a lot of queries and concerns from members and nonmembers of the council about forecasted costs and infrastructure projections. He said they had spoken and submitted ‘‘more than once’’ during the LTP process and amendment to developer contributions last year.
‘‘Their common response is – and I mean this with the greatest respect is – ‘we have started the conversation’.’’
Waikato Chamber of Commerce chief executive Chris Simpson said the report needed to be looked at in a big picture context with both property developers and local government pushing different points of view. He would not comment on the report itself, but said his main concern was what it meant for the city’s future productivity.
‘‘The solution is focusing on what we are as a city and what the future looks like over the next 100 years. The solution is the commercial and industrial sector that provides the jobs – which is the only reason why a city exists – being aligned.’’