IFF only . . . a housing solution
Stuff reporter Dileepa Fonseka and his wife were surprised by the lower rent in Auckland when they moved from Wellington – so maybe we should be building up rather than out.
People were alarmed when my wife and I decided to move into a high-rise apartment sitting more than 25 storeys up from street level in central Auckland.
‘‘Isn’t that a bit too high?,’’ was the most common reaction.
The question wasn’t totally unjustified. If the fire alarms at our new apartment building went off nearly as often as at our previous apartment in Wellington, we would face a regular and punishing staircase descent of more than 25 floors any time our neighbours encountered a culinary misadventure.
Choosing a place to live involves tradeoffs between risks and rewards, and our willingness to take on this particular risk wasn’t simply because we made a calculation that Auckland apartment dwellers were less likely to burn their toast.
After all, money talks – and living in a central Auckland highrise was seriously cheap.
‘‘Cheap’’ is, of course, a relative term.
We moved up to Auckland from Wellington at the end of last year.
When we left Wellington, waitlists for some apartments were running into the triple-digit range even though the central city was experiencing something of a postapocalyptic crime wave and the borders were closed. All of this was after the big post Covid-19 lockdown rent spike came about.
But rents in Auckland’s CBD seemed to be plummeting. One place we viewed was a two-storey apartment with an upstairs room so large it looked more like an event space than a bedroom. Had this been in the capital, the apartment closet probably would have been rented out separately to a Wellington University student.
Agents say rents are down 20 per cent overall, but for many of the apartments we were looking at, the price drops were up to 40 per cent.
It’s easy to explain this phenomenon away as a result of demand being cut off because the borders are shut, but the reality is that increasingly people in Auckland just have more options because more housing is being built.
This is clear as you drive into the central city from the airport. Take roads through the suburbs rather than the motorway and you’ll see townhouses or mid-rise apartment blocks going up everywhere.
A younger generation seem to think greater housing intensification is the way out of the housing crisis, but there are two big impediments. For Auckland, one of them was removed in 2016 with the Super City’s unitary plan. The new National Policy Statement on Urban Development (NPS-UD) for councils nationwide is styled on this, which is one of the reasons why Christchurch City councillors are terrified it’ll be implemented.
The other impediment to intensification is something no person seems to have a comprehensive solution for: infrastructure. In theory, this should be easier to solve than the first problem.
An often under-rated solution is simply for councils to build or upgrade their existing infrastructure and then pay for it. This is not popular.
Councils also express horror at the operating expenditure which might accompany such an infrastructure splurge. They foresee a doomsday scenario where ratepayers are eventually forced to pay higher rates for the infrastructure they use.
The Government isn’t keen to pay, either.
National proposed a solution for it of $50,000 of taxpayer money for every new dwelling consented above the five-year historical consenting average for an area. Labour reminded everybody of its own plans, the detail of which will come out after a Cabinet decision in June.
The grand solution nobody talked about was one created last term: the Infrastructure Funding and Financing (IFF) Act, a piece of legislation which creates a way for both councils and Government to get someone else to pay for infrastructure.
The IFF allows the money for these infrastructure builds to be borrowed by another entity and recouped through a targeted rate across the population that benefits from it.
In other words, the cost of infrastructure is paid for by future residents of a development, likely first-home buyers, who suddenly see an extra targeted rate appear on their rates bill while people in the well-established suburb next door over get off scot-free.
For the past few months the IFF seemed to be a funding mechanism in search of a project. Last week a practical application for it popped out of the subterranean undergrowth of Wellington’s sewerage system in the form of fixing the city’s sludge issues.
Mostly, the IFF is designed to turn sprawl into mega sprawl. It is only really suitable for greenfield developments so large that the sticker price on the infrastructure for them exceeds $100 million.
The IFF doesn’t really work for developments less than this size because of the transaction costs involved in setting up the contracts and getting buyers of bonds to provide the debt funding.
It also doesn’t really work for infill developments on existing land because the council already owns the existing infrastructure in these areas. This makes it very difficult to delineate what new residents should pay for.
Yet coming up with some way of funding infrastructure upgrades on existing city land is surely one of the cheaper and faster ways to build the housing we need.
Last weekend a property developer in Wellington said he wanted to build a more intensive development on a central city site but was told the infrastructure wouldn’t hold it. I’ve heard similar gripes about Adelaide Rd (a part of Wellington even the NIMBYs want to densify) with developers saying they’ve long had plans to build apartment blocks along it, but have been told the infrastructure there won’t handle it, either.
Of course, building upwards can be scary for all involved. People fear leaks, they think you feel your apartment swing from side to side every time a wind blows through it.
But right now, at least where our cities are concerned, we’re more in danger of setting our housing ambitions too low than too high.
The Infrastructure Funding and Financing (IFF) Act creates a way for both councils and Government to get someone else to pay for infrastructure.