How to make land zoning pay for a housing crisis fix
One of New Zealand’s biggest problems at present is its lack of affordable housing. Rocketing house prices are taking even modest houses further and further from the reach of average families.
No one seems to have an answer to the problem and despite lots of promises by local and central government and much discussion, you could be fooled into thinking there are no solutions. But maybe there are.
One of New Zealand’s most progressive city councils found a solution that promised affordable supply, and had the courage to implement the change required.
Today, that Council’s housing trust has 1-bedroom apartments for sale at $200,000 with a 5% deposit and 2-bedroom apartments from $300,000. Imagine living in an area where you could buy a brand new apartment with a $10,000 deposit, and in a location most of us can only dream of. It sounds too good to be true, but read on to find out how it was achieved using Inclusionary Zoning, a powerful tool that can help us redress the huge imbalance between those who own a house and those who do not.
Basically, Inclusionary Zoning involves a community payment from land owners/developers who benefit from a zoning change that causes a substantial increase in their property’s value.
The community payment (usually in the form of land) is then used to build affordable housing on, for those who need help to get into their first home.
Here’s a real-world example. Farm land around the Waikato is generally worth around $4 to $6 per square metre.
However, land zoned residential and suitable for housing is generally worth around 100 times more – $400 to $600 per square metre. An owner or developer who has rural land rezoned or ‘up-zoned’ to ‘residential’, can make massive windfall profits.
With Inclusionary Zoning, they then pass some of the profit on for community use by providing some land ‘for free’ for community developments.
The beauty of the process is that housing can then generally be offered at cost – minus the land value, which has been given to the housing provider. The land itself remains in community ownership in perpetuity.
Because some providers offer shared equity and shared ownership models and therefore carry some of the house price burden too, these properties can help families into home ownership at below the cost of construction.
A city council that receives such a payment in land via Inclusionary Zoning passes the land on to a Land or Housing Trust, charged with helping people into their first homes.
Hamilton City Council has recently helped to create a Lands Trust (The Waikato Community Lands Trust), funded them with a $2m grant and charged them with the responsibility of helping the Waikato’s many housing providers to build affordable housing.
At a seminar last Friday, a group of speakers explained how Inclusionary Zoning could work in the Waikato. Julie Scott, Executive Officer of the Queenstown Lakes Community Housing Trust, outlined how their housing trust had around 150 houses and apartments under construction/in the pipeline, with a goal to build 1000 houses over a 10-year period. Most of their funds have come from the Queenstown Lakes District Council’s decision to implement Inclusionary Zoning 13 years ago.
The Trust has nearly $50 million of land coming to it over the next several years via inclusionary zoning agreements. In addition to building houses, the Queenstown Trust now has around 30 rental properties, which it offers at 80% and less of fair market rent.
Many other councils around New Zealand are starting to explore the power and equity provided by Inclusionary Zoning.
While Queenstown has been the first to adopt it, we are likely to see more councils do so, especially if government takes up this challenge in the short term and ensures the law is fit for purpose to support this real solution to the housing crisis.
-Peter Southwick is an investor and occasional property developer who has spent his entire working life in the property industry. He has recently spent 5 years as a Trustee with the Queenstown Lakes Community Housing Trust and has was earlier this year appointed as a Trustee with the newly formed Waikato Community Lands Trust.