Apartment projects in freefall
The NZ Herald reported on 11 October that ‘thirty-five Auckland multi-unit residential developments have been cancelled in the last year’. This means thousands of planned apartments are not being built. It’s bad news for a city that’s already over 40,000 dwellings short. It also doesn’t bode well for the recently signed-off Auckland Council’s Unitary Plan, designed to facilitate intensification. The aim is to deliver an additional 422,000 new dwellings required by 2040 to accommodate the estimated population increase of one million residents.
It’s also tough on the first-home buyers and others who have bought off the plans and paid their ten per cent deposit. They are now out of pocket or have lost six-12 months’ traction in the property market. In a city in which housing prices increase 10-15 per cent per annum, this equates to a significant loss for a first-home buyer.
People buying an apartment off plans need to become more savvy. They need to check that their deposit will be lodged in an independent trust account, ideally a solicitor’s or a real estate company’s trust account, unavailable for disbursement until construction is completed. Buyers also need to check if their developer has proven experience in building multi-unit developments in New Zealand. Not all do, I assure you.
So why are so many developments falling over? The reasons are obvious.
- Skyrocketing costs of building materials.
- Construction labour costs have increased.
- A serious shortage of tradespeople.
- The Australian trading banks operating in New Zealand have tightened their lending criteria for apartment developers.
- The Chinese government is restricting capital outflow, causing Chinese investors/developers here to go quiet.
And I also blame the Auckland Council with its incompetent, slow and expensive building and resource consent processes. They currently struggle to process 10,000 consents per year.
Developers regularly complain to me that it can take two years to gain the required Council consents. During that time they are paying for holding finance, and the cost of building and materials continues to escalate.
Complying with Council regulations is adding at least 10-15% additional cost to every building project.
Political agendas across the board include provision for affordable housing. But you can’t expect developers to operate at a loss to provide social housing. That’s the government’s responsibility, not the role of private business.
A big percentage of building developments in Auckland is controlled by Chinese parent company investors. They lack the experience building in New Zealand conditions. They import containers of their own inferior products. I can’t be the only one who has heard the stories of mesh and reinforcing rods from building sites installed to obtain building inspector sign-off then ripped out before the inspector has driven down the road and concrete poured without the mesh and requisite rods. This is the tip of the iceberg. This cutting corners approach is creating a ticking time bomb to match or exceed the leaky building fiasco. Scary.
The Council doesn’t employ enough building inspectors who are expert and tough enough to stand up to developers with shoddy materials and practices. The Council needs to up its game. We’re not impressed.