“Events such as the America’s Cup have fuelled optimism, but they shouldn’t inform our development decisions – we should be planning for sustained growth, rather than short-term and one-off activities”
Planning for sustained growth – By Ashley Church
I’m often asked if I think the construction boom in Auckland will continue. The short answer is yes, but … and it’s a big but.
I have absolutely no doubt that Auckland has to continue to grow if it is to realise its potential as a truly world-class city. The trick is making sure we have the infrastructure to cope. And we don’t always get that right.
In my view, we really only have two choices. We either limit the growth, or we make sure we have the building blocks in place to support further expansion. Personally, I don’t think we want to slam on the handbrake, so that leaves us with ensuring we have the foundations to handle a growing population, meeting the demand for the bricks, mortar and human capital that go in to new businesses and houses, roads, pipes and everything else.
The problem is we’re not that good at getting things done in a hurry. At least the ‘super city’ has helped join some of the dots, but despite the hype, Auckland Council certainly hasn’t set the world on fire with the pace of change.
Sure, there’ve been some useful changes such as the court-contested Unitary Plan, and the long-term annual planning process which forces councils to think about the long game rather than what’s happening tomorrow. But the pace is glacial.
Central government too must take its fair share of the blame for the under-investment in infrastructure. To be fair, a large amount of public money is now being shovelled into Auckland for building and infrastructure projects, but that deficit has been many years in the making and we are only now beginning to wake up to it.
Other changes at the fringes are also helpful, such as the underwhelming tweaks to the Resource Management Act, and promises of more to come. But these sorts of ‘wins’ are too few, and none of them are any good unless they get real results.
Filling the gapsIronically, the people who can deliver real results – those actually involved in the property industry – are often left out of the equation. For instance, there’s been a recent debate about the level of migration to New Zealand. Unlike some people, I support migration because it generally fuels growth, fills the skills gap, and I believe it signals that New Zealand is a desirable place to live.
Putting aside my personal views though, the reality is that without the skilled people we need, Auckland, and New Zealand, won’t be able to grow as fast. The people just won’t be there. Sure, we can train them – but we need gaps filled tomorrow, not sometime in the future.
Of course it would be ideal if out-of-work New Zealanders stepped up to do these jobs, but they don’t, won’t and/or can’t. I’m pleased to see the government appears to be backtracking on an earlier pledge to cut migration, after a chorus of complaints from regional New Zealand.
However, the reality is that the biggest risk to Auckland’s continued growth would be a simultaneous downturn in any two or three of our strongly performing sectors, such as tourism, dairy, technology, education, or another primary industry. I don’t see this as likely, and believe we can cope with reduced economic activity in any one of these sectors. The broad-based nature of our current economic performance bodes well for ongoing strong performance.
Channelling foreign investmentWhen it comes to property, I’ve been very critical of bank changes such as loan-to-value ratios (LVRs) and foreign money rules. If the objective was to lock first-home buyers out of the market and slow the growth of house prices, it is mission accomplished – but I believe they’ve missed a trick.
Instead of putting up barriers to foreign investment, we need to be channelling it into new builds and new businesses. Yes, the majority of New Zealanders tell us in Property Institute polling they are suspicious of foreign investors when they buy a Kiwi-owned asset – but what if they had to build new?
To increase the supply of dwellings and business premises, you have to build more, not just say we don’t want your money. Homes that should be being built aren’t being built. This is compounding the problem which already existed prior to the imposition of credit measures. Yes, there’s an increase in building consents being issued, but not at anything like the numbers required to start making up the deficit.
In the commercial sector, oversupply is always a risk – but this doesn’t appear likely in the medium term. Auckland, Christchurch and Wellington are all currently going through significant renewal of their commercial stock, and this will eventually lead to redundancy (and repurposing) of commercial property at the bottom end – but the risks are manageable.
Development decisionsAlthough ‘confidence’ is a factor, the major barriers to the market reigniting are around limitations on credit. A 40% LVR on investors and tighter rationing by banks mean that it is now significantly more difficult to source funds – even for those with the confidence to do so.
Additionally, there’s a risk that recent media coverage of a slowdown in property price growth will act as a self-fulfilling prophecy and cement in a market slow-down.
Of course, events such as the America’s Cup have fuelled optimism, but they shouldn’t inform our development decisions – although, we obviously need infrastructure in place for the hosting.
However, overall, we should be planning for sustained growth based on annual visitor numbers rather than short-term and one-off activities. Building additional hotels which cater only to periodic peaks would be economically foolhardy and unsustainable.
Ashley Church is the chief executive of the Property Institute of New Zealand, representing valuers, property managers, property advisors and plant and machinery valuers nationwide propertyinstitute.nz