How 'special' are Special Housing Areas?

Three months ago I went and had a look at a Special Housing Area (SHA) that had been set up not too far away from us in Browns Bay (if you're not au fait with the whole SHA thing and the Housing Accord, you'll find Auckland Council's guide handy).

As I said then, I came away thinking that calling it an "area" was pushing the ordinary meaning of the word: it was actually one site, at 4 Bute Road. I wasn't convinced there was much "special" about it, either. Lots of other mixed retail/residential blocks had already been developed along Bute Road, and giving accelerated planning permission to something that would likely have sailed through in any event didn't seem to me to be much of a nudge towards faster housing supply. In any event, 4 Bute Road didn't seem to have benefitted much: nothing was happening on site.

Over the weekend I went back to have a look and see how things have progressed since then. And the answer is, they haven't. The big tree next door has had a good summer, but that's it.

All of which is a bit odd, as the supposedly fast-tracked SHA site is still sitting there, while further along Bute Road, non-SHA developments are coming along fine. Here's a big new five-storey one, for example, at 1/23 Bute Road.

So I went to have a look at another local SHA, at 586 and 588 East Coast Road. This is an earlier one: it was part of a batch that were designated SHAs in September 2014, whereas 4 Bute Road got the nod in August 2015. Here's what it looks like: it's the bungalow with the grey roof in the centre of the picture, plus the house with the orange roof behind the pine tree.

Again, this is stretching "area" a bit, but I suppose two average-sized sections make an "area" of some sort. Whether it needed or benefitted from "special" designation is anyone's guess. It's true that there aren't other apartment blocks in the immediate vicinity, so maybe the developer would have been attracted by faster-track consent (under the SHA process) for a 39-apartment development, instead of some more protracted bunfight. But on the other hand there's already a 2-storey business park thingie next door (you can see the edge of it in the left hand side of the photo), so putting in a smallish apartment block wouldn't be that much of a planning consent hill to climb.

In any event, nothing's happened on this site, either, though to be fair the original SHA announcement in September 2014 talked of a timeframe of "the next 24 to 36 months", and said "There is an intention to have the residential housing project completed in the early part of 2017".

Where all this leaves me is this. I'd like to believe that "Special Housing Areas" greased the wheels of the housing planning process, and either accelerated or increased new construction, or both. That would  be a great outcome on one of our largest national infrastructural challenges: skyrocketting Auckland house prices, as we know, have had ramifications all over the place.

But how will anyone definitively know? At one level, it's not that hard to create an anecdotal trail (as I've just done) of slow SHA development and as-fast or faster non-SHA development, and to convince yourself that they've had no impact on supply at all, or even held it up. It's possible, for example, that the central quid pro quo of, broadly, faster planning consent in exchange for inclusion of some "affordable" units within the development, never took off enough to make any difference.

But for a policy this important, I'd like to think there'll be some more sophisticated analysis of whether it's working. Granted, MBIE and Auckland Council have, between them, come up with a series of informative monitoring reports: you'll find the latest one, covering the period October 2104 to September 2015, the second year of the Housing Accord, here. It's got lots of useful data, such as this graph (on p15) of what's happened to housing consents since the Housing Accord kicked in.

The problem, for me, is that the data, while useful, don't really answer the question, did the SHAs make a difference? We don't know how much of this recent consenting and development would have happened in any event - in fact, while consenting has picked up substantially in the Housing Accord era, it hasn't yet consistently reached the levels that Auckland managed without Accords and SHAs in 2002-04 (and in a smaller Auckland back then, too). So I'm hoping that someone - an economic consultant with an interest in housing, maybe? - will be asked to turn their minds to a proper 'with and without' exercise: matching a bunch of otherwise similar SHA and non-SHA areas, and checking to see if the SHA ones outperformed in speed or quantity.

Incidentally, the monitoring report mentioned, in passing, a couple of truly appalling facts about the slowness of the normal planning process. It was giving some case study examples (on pp6-9) of where SHA planning processes have got things moving faster: it said, for example (p9) that "Within two years of the start of the Accord, homes are being delivered in SHAs like Weymouth and Northern Tamaki and sections delivered in special housing areas like Whenuapai Village".

Jolly good: but the report also noted that these were "processes that would normally have taken 4 or more years", and earlier (p6) it said that "Under the Resource Management Act 1991...the rezoning of brownfield sites to enable more intensive development can take between 2 and 6 years".The Second World War took six years. I don't think a planning consent needs to.

A visit to a Special Housing Area

A while back, I saw that a Special Housing Area (SHA) had been set up quite close to us, in Browns Bay. So I went and had a nosey, as you do.

It wasn't what I'd expected, from a number of perspectives. I'd had at the back of my mind that SHAs would be reasonably substantial sites - it's rather implicit in the term 'area', you'd think - so I was somewhat surprised that the SHA consisted of a single, small to medium sized commercial building at 4 Bute Road (pictured below).

To be fair to Auckland Council, this must be an unusually small SHA. Their guidelines for approving SHAs say (at point 5) that "The council has a preference for SHAs with a yield of at least 50 dwellings", and this one just scrapes in. The Council's SHA web page says that "The site at 4 Bute Road, Browns Bay will be developed for retail at ground level with four levels of apartments above, comprising 54 residential units plus accompanying car parking".

And if you're wondering how you get 54 apartments onto the former site of a not very large New World supermarket, the answer is that they'll be - I don't know the best real-estatese to use here, but "snug" might do. As the webpage says, "The residential units are a mix of one-bedroom (77m2) inclusive of balconies and two-bedrooms (88m2) inclusive of balconies".

I've got no problem with any of this. If people want to buy fairly small apartments, why not? And as the Council web page says, apparently people do: "The proposed scheme has been developed in close liaison with local real estate agents who have identified significant demand, particularly from older residents seeking to downsize and remain in the suburb". While I still think "area" is pushing the ordinary meaning of words a bit, let's park that.

But it also got me thinking about the meaning of "Special". From a land use point of view, there's nothing in the least bit "special" about 4 Bute Road. The area around it has already got lots of multi-storey mixed retail/residential apartment blocks. Here are two of them, also on Bute Road.

I'd have thought the planning approval discussion at the Council would have gone something along the following lines.

Trev: "Hey, Kev - you know Bute Road?"
Kev:  "Yep".
Trev: "Is that the one with all them apartment blocks?"
Kev:  "Yep".
Trev (picks up rubber stamp): [Thunk]

So I don't know whether this site was ever going to be a goer under the SHA regime, where developers get faster-track approval in exchange (in particular) for including a component of "affordable" housing (section 6 of the guidelines has the definitions of "affordable"). Personally, if the social objective was solely a faster build, I think I'd have preferred a simple, "accelerated consent" process without side conditions, but I can also see the planners' wanting to get a social quid pro quo. But I'm not sure any of this applies to 4 Bute Road: the developer, I'd imagine, would have figured on getting planning approval fairly readily, given the past approval of several projects just like it, and without giving up any potentially expensive concessions.

Not that its being an SHA, or not being an SHA, seems to have made any material difference either way. The site's been vacant for some considerable time, and (I drove past a few moments ago) is still vacant, with no signs of imminent activity. Don't know why: if I had to guess, I'd say it's because the Auckland construction market is at or beyond full capacity, and projects are just going to have to take their turn in the development queue. But in any event, I don't think I'd be proposing 4 Bute Road as a poster child for the SHA initiative.

How's the other property market doing?

The latest global commercial property survey from the Royal Institution of Chartered Surveyors in the UK came out recently, and it said some interesting things about our commercial property market - the market that gets trampled in the reef fish rush to cover the residential property market. You can download the latest, March, report for yourself from the RICS site (head for the 'Knowledge' section), though there's a (free) registration process to get at it.

Here's the most dramatic result.

When you combine the demand from tenants with the demand from investors, we have the strongest commercial property market in the world right now. It's become fashionable to mock our 'rock star' status, and it's true we're probably past the peak growth rate of the current business cycle, but every now and then it's worth noting that by international standards we're still doing pretty well. For example - and I'm not knocking Australia, we need its economy to be a strong export market for us - you can clearly see what the current sub-par rate of growth in Oz has been doing to tenant demand there.

Another reaction might be that we're doing rather too well for financial stability comfort, especially as overexuberant commercial property markets tend to be near the front of the queue in financial crises. Here's another RICS chart.

It doesn't look to me that rent and capital gains expectations in our property market have got out of hand. They're fairly strong, but we're in the middle of the better performing pack, rather than at an extreme. That said, as the RICS commentary noted, "more respondents in the majority of markets now believe that commercial property in their locality can be categorised as either expensive or very expensive rather than cheap", a consequence of the global hunt for residual pockets of yield in a world of ultra-low interest rates on bank deposits and bonds.

An alternative way of getting to the same conclusion, that our commercial property market is on the expensive side but not at silly levels, is to compare the dividend yield on our listed property securities to those overseas. The yield on the FTSE EPRA/NAREIT Global Real Estate Index (which you can find here) is currently 3.27%: our yields haven't fallen so low. A representative selection: Kiwi Property 5.25%, Precinct Properties 5.92%, Property For Industry 5.77%.

I really like these RICS reports (I know, I've said it before). We don't have a lot of other info on what can be one of the more important moving parts in the cycle: they fill a real gap:

There is another property market...

There's any amount of coverage of the residential property market, but much less of the commercial property market, even though it's an important sector in itself and has also tended to act as one of the transmission channel in financial crises, including the GFC. There are also very few, if any, official statistics on what's happening in the sector, and what private sector coverage there is has to be chased down in a variety of places, which is why I've previously posted a DIY guide to finding some data and decent commentary.

Given that there's been a bit of fuss about New Zealand's house prices being the highest, or amongst the highest, in the OECD relative to incomes or rents, I thought I'd have a look and see how our commercial property market is faring. Is it also mad hot by current global standards?

The short answer is, yes it is. Here are two graphs prepared by the UK's Royal Institution of Chartered Surveyors (RICS) as part of their most recent Global Commercial Property Monitor - if you want to read the whole thing, you'll need to register (free) here.

The top one shows rental and capital value expectations (on a 'net balance' basis) over the next year. And there we are, amongst the world's most bullish commercial property markets. Some of our neighbours up in the far north-east quadrant are special cases - rents and capital values are rising rapidly in Ireland and the UAE because they are now coming out of previously colossal property wipe-outs, and Japan's in the middle of enormous fiscal and monetary stimulus - and there's only one 'normal' country, if I can call it that, within cooee (the UK).

The second one plots an index of occupier demand for property (vertical axis) against an index of investor demand for property (horizontal). And again it's all systems go here in New Zealand. We're not so much on our own from this perspective. Yes, we've still got the UAE, Ireland and Japan as boisterous neighbours, and the UK again, but the US, Germany and arguably Singapore are in much the same sort of market as we are.

Should we be worried about this? Probably not. You'd expect us to be out somewhere on the north-eastern frontier in any event, since we're currently among the world's better performing developed economies, as these nice little graphics from the OECD show (we're green, the OECD area is blue, and you can play with them yourself here).

I might be more concerned if there was evidence of loose credit inflating a generalised bubble in financial assets (and if you were thinking along those lines, you'd note that the stock market has been reasonably lively, too). But with the latest numbers from the Reserve Bank showing private sector credit to residents growing at only 4.2% over the past year, which is barely keeping pace with nominal GDP, I'm not ready to press any panic buttons about this (nor about residential property prices, if it comes to that).

I'm not saying the good folk at Number 2 The Terrace can afford to junk all the material they collected since the GFC about financial asset booms and the proper role of monetary policy, but for now I'd say the commercial property sector is doing pretty much what you'd expect in economic conditions like these.

And now ladies and gentlemen, bring your hands together for...

...all those private sector organisations that produce economic statistics on the sectors and topics that the official statisticians can't or won't or shouldn't.

It's a win-win all round. The sponsors get various commercial payoffs - publicity, kudos, and credibility for being on top of their trade - and the users get information they wouldn't otherwise have. The banks are particularly good at it - the ANZ's monthly business confidence, consumer confidence (with Roy Morgan) and commodity price surveys are well nigh indispensable for understanding where the economy is at, as are the BNZ/Business NZ monthly indices of manufacturing and services, and there's some excellent non-bank stuff available, too, notably the NZIER's Quarterly Survey of Business Opinion.

In some areas of the economy private sector data is pretty much all we've got. Commercial property is probably the best example. It's an important sector, with (for example) strong links to the potential for financial instability (both our 1987 share market crash and our recent finance company collapses had important elements of unwise or excessive commercial property development). But you'll have your work cut out for you trying to find out anything much about it from official or semi-official statistics. That's no criticism of the official statisticians by the way: they can normally rely on the private sector to provide good data on financial and investment markets, as the participants have good incentives to make this information available to would-be customers. It would be a waste of scarce official statistical resources to have (say) a Statistics NZ index of share prices.

So, partly as a public thank you to the organisations involved, and partly as a handy guide to folks who might have an interest in what's happening in the commercial property sector and/or what it might be telling us about the wider economy, here's my list of useful places to go.

For the New Zealand market, first stop has to be Colliers research reports. You'll find vacancy rates, yields, sales volumes, commentary, and forecasts nationally, by region, and by sub-sector (office, industrial, retail). They also do a very good quarterly Property Investor Confidence Survey (available at the same location). The other essential is the Property Council of New Zealand/IPD Property Index, which goes a long-term series on the total return from holding property (and splits it into income and capital components), both nationally and for sub-sector. The easiest place to find it is at this page on the IPD website - go to the drop-down box on the right hand side where it says 'IPD Property Indices' and select New Zealand. For some reason the Property Council hasn't put the latest results on its own website for some time.

For Australia, again Colliers are very good, as are Jones Lang LaSalle. I particularly like their quarterly Retail Centre Managers' Survey, which gives you a terrific insight into what's going on in the retail trade (particularly important at the moment, when the key to the Aussie outlook is whether domestic demand will pick up enough to offset slowing resource project investment). The Aussie Property Council material is also good: again they do a commercial property index in association with IPD (see link above), and while some of their research is not free, you can get a good enough flavour of the guts of it from their media releases. The NAB economists also produce a formidably detailed quarterly commercial property survey.

For global property markets, the Royal Institution of Chartered Surveyors has a qualitative survey of the property markets, covering investor and occupier sentiment, rental and capital value expectations for the next quarter, and the supply of and demand for distressed property, for a very wide range of countries, with some commentary. To see the whole thing you'll need to register on-line with the Institution, but that's no hassle, and it's free. The Institution also breaks out the Oceania results, which means Australia and New Zealand: as you'll see if you download it, currently our commercial property market is doing rather better than Australia's, reflecting the different points our economies are at in their business cycles.