$un$hine has a value

July 12, 2017

It comes as no surprise to me that sunshine has a value:

It is a truth commonly acknowledged that a house that gets more exposure to sunlight is more attractive, especially in ‘temperate’ climates like New Zealand’s. Until now, however, the value of that sunshine has not been calculated.

A study released today by Motu Economic and Public Policy Research Trust is the first research anywhere in the world to specifically evaluate the value buyers place on the sunshine hours received by different property.

“We found that each additional hour of direct sunlight exposure for a house per day, on average across the year, adds 2.4% to a dwelling’s market value,” said Arthur Grimes, Senior Fellow at Motu and co-author of the study.

“We know that sun is important when choosing a house. At present the impact of a building that is designed in a way that will shade its neighbour is controlled by often inflexible regulations that specify building parameters,” said Dr Grimes.

“This research is designed to put a value on sunlight, so that the change can be priced, potentially enabling compensation for affected owners and better valuation of development sites.”

The research looked at houses sold in in Wellington between 2008 and 2014. Wellington was chosen as the city is small and its local economy and housing market were stable over the study period.

“Perhaps the most important attribute of Wellington for our analysis, however, is its geographical topography and how it has intensified. It is not difficult to find houses that, while located in the same neighbourhood, have very different exposure to direct sunlight due to the effects of hills, valleys and nearby buildings,” said Dr Grimes.

 The research used REINZ data and allowed for number of bedrooms, total floor area, the decade when the house was built, access to off-street parking and the date of sale. The researchers then used fine-resolution topographical models from Wellington City Council to determine how much sun a given property received throughout each day of the year, assuming a clear sky.

“For places other than Wellington, the value of sunshine hours may be higher or lower depending on factors such as climate, topography, city size and incomes. Nevertheless, our approach can be replicated in studies for other cities to help price the value of sunlight in those settings,” said Dr Grimes.

Example: Developers are considering building a new multi-storey development that will block three hours of direct sunlight exposure per day (on average across the year) to two houses, each valued at $1 million. The resulting loss in value to the house owners is in the order of $144,000 ($1,000,000 x 2.4% x 3 x 2). Instead of regulating building heights or the site envelope for the new development, the developer could be required to reimburse each house owner $72,000. In return, the developer would be otherwise unrestricted (for sunlight purposes) in the nature of development. If the development cannot bear the $144,000 then the efficient outcome is that the development does not proceed. Conversely, if the development can bear that sum, then the socially optimal outcome is for the development to occur and, from an equity perspective, the neighbours are compensated for their loss of sunlight exposure.

I don’t think anyone could afford to pay enough for me to agree to losing some sunshine.

I was a tomato in a former life. I love the warmth and light and nothing beats the natural sort from the sun.

If I could, I’d pay more for a house with all day sun and pay to protect it.

A sunnier house costs less to heat but it’s not just the financial benefit.

A warmer house is healthier.

Where I live, it’s more important to be warm in winter than cool in summer and there’s a psychological boost from the sun.

Sunshine definitely has a value, but for me it’s a long way above a dollar one.

 

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Million $ madness

September 8, 2016

Friends took us to an open home on Waiheke Island.

When they told us the price it was expected to sell for my farmer said,”How many stock units could you run on it?”

At the time we were buying a few hundred acres on our farm boundary for less than that house on a quarter acre section.

That was a few years ago. It seemed mad then and it’s got worse.

The average Auckland house now costs $1 million the price of the average house in Queenstown isn’t far behind and the rush to buy is spreading.

I walked past a real estate agent in Oamaru on Tuesday. Three quarters of the posters had  sold stickers across them. Of those still on the market, one house was had an asking price of $200 and something thousand, a couple were selling for $300 and something thousand and the rest were $400,000 plus.

Houses aren’t assets for most people. Unlike productive land they usually cost more than the owners can make from them.

Even if the value of properties is increasing, the owner only realises the gain when they sell and if they are able to buy somewhere else to live which costs less.

So why do we have this million dollar madness?

Demand has outpaced supply.

Solving that requires reducing demand and/or increasing supply.

Capital Gains Taxes haven’t stopped steep price rises elsewhere and Eric Crampton cautions that it’s too early to tell if Vancouver’s tax on foreign buyers has worked and anyone telling you otherwise is trying to sell you something.

If buying a house for eye-popping sums, is silly, what about the $1.35m paid for Colin McCahon’s painting The Canoe Tainui?

The artwork was owned by the late Tim and Sherrah Francis, and was on the market for the first time in 50 years as part of a sale of their extensive private collection last night.

They bought the painting in 1969 for $500 and took it with them on their diplomatic postings around the world. . . 

Paying so much for it now might look like million dollar madness.

But only time will tell if it’s a good investment and that might not be what motivated the buyer anyway. Not everyone who can afford fine art is looking to make money from it, sometimes the beauty of the buy is enough in the eye of the purchaser.

 

 

 

 


Price crashes and higher taxes don’t build houses

August 2, 2016

Green co-leader Metiria Turei’s suggestion of dropping house prices by 50% was described by Prime Minister John Key as ‘barking mad’.

It would make some houses less unaffordable but it wouldn’t build more houses which is the only way to solve the problem of too few houses for the number of people wanting to rent or buy.

Crashing prices, no matter how slowly it was done, would reduce existing homeowners’ equity.

That would only be a paper loss for people who had a low or no mortgage. They’d still have their homes they just wouldn’t be worth as much.

For people with large mortgages, whether they borrowed to buy their home, set up a business or to buy other things, a price crash could leave them with no equity at all, or worse still owing more than the value of what they owned.

If they were forced to sell their houses those properties would be more affordable for some people but the sellers would have nothing with which to buy another house. All that would be have been achieved would be previous owners losing to new owners with major damage to the economy and no increase in the supply of housing.

Greens are also keen on a capital gains tax.

I’m not opposed to that in principle, as long as it was comprehensive and other taxes were lowered so the net tax take remained much the same.

But capital gains taxes don’t build houses and in other countries which have them they have done nothing to make houses more affordable.

Meanwhile schools in Auckland are finding it difficult to recruit teachers.

A survey of Auckland’s primary schools paints a picture of severe teacher shortages across the city and at every school decile level.

The struggle to recruit teachers is being described as “a nightmare” by principals who blame it largely on the high cost of housing in the city. . . 

In a statement, the Ministry of Education told RNZ News that it met regularly with Auckland’s principals to respond to their concerns about teacher supply.

A range of potential solutions were being explored, but in the meantime the ministry was working to smooth the way for overseas teachers to work in New Zealand and helping schools which had hard to fill vacancies.

Diane Manners has talked through possible solution with ministry officials said they would help, but only around the edges.

She wanted greater urgency in dealing with the problem, especially with a growing population that will mean more children needing more teachers. . . 

One solution that won’t work is to get an Auckland differential in the pay scale.

Teachers are paid the same wherever they teach. Paying Auckland teachers more would help those who already own a house but it won’t increase the housing supply. What it will do is give teachers more to spend and therefore, like any other measure which increases buying power without addressing supply, further inflate prices.

The housing problem is simply one of supply and demand.

The solution is equally simple – increase supply and/or lower demand.

The easiest way to do that is to build more houses and for some people living in areas of high demand and low supply to move to areas where demand is lower and supply is higher.

That will get supply and demand back into kilter without the collateral damage which crashing prices and increasing taxes would inflict.

P.S.

A Cromwell man has come up with an affordable, albeit compact, answer to more affordable homes:

They are warm, quiet, easily moveable and cost a fraction of a regular house to buy and Cromwell’s master of small spaces, Darryl Taylor, reckons his tiny shipping container homes could help solve Central Otago’s temporary accommodation woes. 

Taylor does admit it requires a mental leap in many people’s thinking to see a big metal box as a desirable home but following much research and experimentation, he says his converted containers are as comfortable to live in as a regular house. . . 

The containers have a “warrant-of-fitness” and are all still cargo-worthy. . . 

Some people wanted new, others liked the rustic look, Taylor said.  Built inside a warehouse, they are issued with a code of compliance from the Central Otago District Council before they go on site.

Considerable research and trial and error had gone into fitting the units out so some details would remain trade secrets, Taylor says.  He had consulted experts in engineering and other fields to help perfect the conversions, particularly in relation to ventilation. Bernice is in charge of painting the units and the pair continue to fine-tuning the finishings.

“We can now fit out a twenty footer in around six weeks and they go out the door fully code compliant. There is no condensation, they’re all double-glazed, insulated and ventilated.  They actually exceed council requirements but you do still need a building consent for your foundations.”

Ship containers were already watertight, bulletproof and resistant to earthquakes and extreme weather.  Inside Taylor added sound-deadening insulation, wooden lining, tiny bedrooms, kitchens and bathrooms of all specifications.  Drop-down decking using an electric winch could be added, or normal decking built on, once the container was in place. . . 

Taylor says he sells the 6m containers for about $42,000 fully converted for small-space living.  

A 12m would cost closer to $75,000 and two this size can be bolted together to form a four bedroom home. . . 


$1b housing help

July 4, 2016

The government has announced a $1 billion Housing Infrastructure Fund to accelerate the supply of new housing where it’s needed most, Finance Minister Bill English and Building and Housing Minister Dr Nick Smith say.

The contestable fund will be open to applications from councils in the highest growth areas – currently Christchurch, Queenstown, Tauranga, Hamilton and Auckland.

Mr English says the Housing Infrastructure Fund will help bring forward the new roads and water infrastructure needed for new housing where financing is a constraint.

“The Government will invest up front to ensure the infrastructure is in place. But councils will have to repay the investment or buy back the assets once houses have been built and development contributions paid.”

Dr Smith says the fund will be available only for substantial new infrastructure investments that support more new housing, not to replace existing infrastructure.

“To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available. Ideally, they will have agreements with developers on these issues.

“Funding may also have other conditions attached, such as faster processing of resource consents. All of this will require close collaboration between central and local government.”

Mr English says infrastructure, and its financing in particular, is one of the three key constraints to building more houses – alongside land supply and consenting requirements.

“Councils have strict debt limits which means some lack the headroom to invest in infrastructure now and then wait for future development contributions to recover the costs. The fund will help provide more infrastructure sooner by aligning the cost to councils with the timing of revenue from development contributions.”

Depending on the number and timing of applications, it will require the Government to temporarily borrow up to $1 billion, which will increase net debt until it is repaid.

Dr Smith says the Government is also considering establishing Urban Development Authorities (UDAs) to help further speed up the supply of new housing.

UDAs have streamlined powers to override barriers to large-scale development, including potentially taking responsibility for planning and consenting and other powers.

“These changes are just the latest steps in the Government’s ongoing, comprehensive programme to increase the supply and affordability of housing,” Dr Smith says.

“They will complement the work of the Housing Accords and Special Housing Areas, our social housing build, our emergency housing programme, the expanded HomeStart Scheme for first home buyers, the development of surplus Crown land, the National Policy Statement, RMA reform and the extra tax measures we took last year.

“We are making good progress in facilitating increased investment in housing with a record $11.4 billion of residential building work underway this year. This initiative to support councils with infrastructure provision is the next logical step in this programme.”

The housing shortage is a result of supply outstripping demand.

It takes time to build new houses and it also requires new infrastructure. The costs for developing that is incurred long before councils start collecting enough in rates to fund it.

This new fund will enable councils to borrow the money needed for new infrastructure – roads, water and sewerage – and gives them 10 years to repay it by which the increased rate-take from the new houses will enable them to do.

It’s a good idea and while $1 billion is a very large amount of money, the cost to the taxpayer is the interest only because the fund is for loans not grants.


366 days of gratitude

June 3, 2016

For too long New Zealand houses weren’t built with insulation and double glazing.

The original bits of our home are more than 80 years old but several  alterations have made better use of the sun and provided better protection from the cold than the original building had.

The last involved fairly radical surgery with good insulation put under the floor, in the walls and roof. All new windows were double-glazed and the old ones retro-fitted.

Now that winter’s here I’m very grateful for all of that.


Move where the living is easier

May 24, 2016

The root of Auckland’s housing affordability problem is an imbalance between supply and demand.

Increasing supply takes time, reducing demand can happen faster, as fast as people move somewhere else where the living is easier as Liam Hehir has:

I am 30 years old, married and the father of two. Our family lives in a big villa on a large section in a quiet street.

Crime is low and the neighbours are nice. We are close enough to my office that the daily commute is rarely more than 20 minutes.

We’ve managed this despite not having wealthy parents, never winning Lotto and having sizeable student loans. And because I am the sole breadwinner, we actually earn less than the average household income.  

With a mortgage less than three times my annual salary, however, we are confident we can manage things on one income for a while. 

If you’ve read the papers lately, you might think this is quite the feat for a pair of millennials. As you will have heard (often and loudly), our cohort likes to think of itself as the hardest done by generation this side of the Black Death.  Some would go so far as to argue that the peasants of that era had a better shot at home ownership than we do.

What’s our secret? Well, it all comes down to one weird old tip: We choose not to live in Auckland. 

Instead, we have set up home in a small country village just outside of Palmerston North.

Don’t let too many people know about this, but there’s no law that says everyone has to live in Auckland.

You may be surprised to learn that Kiwis are pretty much free to live wherever they want. There’s actually nothing stopping young New Zealanders from buying houses in places like Palmerston North – or Invercargill, Whanganui, Timaru or Whangarei. . . 

People choose to live in or move to Auckland for many reasons, cheaper housing isn’t one of them. If they want a reasonable house for a reasonable price that’s not where they should be looking or living.

There are trade-offs. When you live in the provinces, you do not just go out for coffee at 10.30 on a Tuesday evening and expect places to be open. And while there are some very good bars and clubs, it is true that you don’t get the variation and choice on offer in the big city. 

But if you’re ready to be a homeowner, chances are that much of that is out of your system anyway.  . .

If you’ve mortgaged yourselves to the hilt you won’t have spare money for enjoying city attractions and life away from Auckland has other compensations. You won’t waste time and money on the stop-start crawl that is too-often part of driving there, for starters.

It also is true that if you buy in the provinces, your home is unlikely to appreciate in the manner of the inflationary Auckland market. But this is only a big problem if you see home ownership as an investment opportunity.

If you take the quaint view that a home is primarily a place to live (and that spending on it is consumption rather than speculation) then the slower market becomes less of a problem.

Here’s a second secret: there are forms of investment other than real estate. If you have a smaller mortgage, you can take the money you’ve saved and invest it in other things. And if you don’t know how to invest, you can ask a professional to do it. You can even get your bank to manage it for you.

There are even some people out there who say that a diverse set of investments is safer than pouring all your income into one property in the hopes that the market will continue to inflate forever and ever. 

Sounds crazy, right?

But what about work? If you’ve got a strong back, you should be able to find work in the provinces. 

Remember, these are the regions where farmers have literally have had to hire tens of thousands of migrants to fill jobs Kiwis don’t want to do. Of course, it might mean putting on hold your dreams of being a doghouse interior design consultant or owning a restaurant that specialises in artisan toast.

As the Discovery Channel’s Mike Rowe advises, “don’t pursue your passion, chase opportunity.”

Some of the jobs available out here in the regions might not always be pleasant or glamorous (I can attest from experience) but they are perfectly respectable. You might not start out on megabucks, but the cost of living is low. You have to start somewhere.

Some of those not so pleasant jobs pay well and there’s plenty of pleasant jobs in the provinces too.

Technology means you don’t necessarily have to live where your market is. Garrick Tremain, one of the country’s best cartoonists lives at the foot of Coronet Peak; a couple in rural North Otago make a very good living buying and selling furniture on-line; booming tourism has provided business opportunities in all sorts of formerly out-of-the-way places.

It’s not only small businesses that thrive out of Auckland. Toyota has its headquarters in Palmerston North and Ravensdown is based on the outskirts of Christchurch.

We are the descendants of enterprising people. In centuries past, our ancestors came to these islands by waka and sail, making sacrifices and taking risks along the way because they sensed the chance to make something for themselves in a new place. Many of their successors seem to be too timid or too entitled to venture south of the Bombay Hills. 

More fool them.

There is life, and very good living, out of our biggest city.

Those used to higher temperatures might find it a bit cool much further south, but they’ll be able to afford a warm, dry home and as much heating and as many layers of merino as they need with the money they’re not paying for an Auckland house.


Moving up, out and right out

May 19, 2016

At last, Labour appears to have caught up with National on one solution to Auckland’s housing problem:

The new position by the Labour opposition calling for an abolition of city limits has been welcomed by Building and Housing Minister Dr Nick Smith.

“This is a welcome repositioning by Labour. Tight city limits and not allowing intensification is at the core of Auckland’s housing problems. It is limiting new housing developments, driving up section and house prices and encouraging land banking.

“A broad political consensus that the policy around city limits needs to change is helpful to progressing the necessary reforms to increase housing supply and to make them more affordable.

“I was given the Housing portfolio in January 2013 and immediately identified Auckland Council’s metropolitan urban limits, set in 1993 when the population was half a million less than today, as a huge barrier to meeting housing needs both now and in the future. At that time Phil Twyford insisted having no boundaries ‘will mean uncontrolled sprawl from Pukekohe to Warkworth’.

“The Government’s housing programme has involved the systematic dismantling of Auckland’s metropolitan urban limit. I have used Special Housing Areas (SHAs) to override the limits in the short-term while fast-tracking with the independent hearings panel a new plan for Auckland with adequate housing supply.

“Both the laws for SHAs and the new Unitary Plan were opposed by Labour. The new Unitary Plan is only six weeks away from going to the council, and I’m confident it will provide a far more permissive approach to new housing because of the depth of analysis that has gone into the new plan.

“It would be counter-productive to ditch this work at this time with a simplistic approach of just abolishing city limits. We still need some rules to ensure new urban areas have appropriate infrastructure and services and that we make separate provision for industry from housing.

“We are making huge progress in growing supply. Only 10 new homes were being built each working day when National came to office but that has grown to 40. I will be keeping my foot hard on the accelerator until we achieve the needed rate of 50-60 per day.

“I welcome this change of tack by Labour on city limits because the next key step is gaining support for a more enabling plan for Auckland. I hope Mr Twyford and Labour will join me in encouraging the Auckland Council to support the new Unitary Plan in July, when the independent hearings panel reports back.”

Some political tragics might care whose idea it was to allow Auckland to move out but most other people just want the best solution to the imbalance between supply and demand – and that’s more houses.

Auckland has to move up and out and it would help if some people moved right out of the city to other regions where houses are far more affordable.

Strong family links and work will be keeping some people in Auckland but there are good livings and good living in other parts of the country.

All New Zealanders are either descended from immigrants or immigrates themselves. Many of our forbears made long and dangerous journeys to get a better life for themselves and their families; some came not just to a new land but a new language and culture, some new New Zealanders are still doing that.

What’s stopping at least some Aucklanders easing the housing problems in their city by making the much easier move to somewhere else in New Zealand?

 

 


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