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Residential Capacity

Results, Methodology and Assumptions


Produced by Topic 013 Urban Growth Expert Conferencing Group,
At the request of the Auckland Unitary Plan Independent Hearings Panel

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Residential Capacity (Report of the 013EG, Round 3)

Expert Conferencing Group (Urban Growth 013) Round 3 Participants


Role

Name

Provided Evidence on behalf of Topic 013


Party/Submitter (from Company):

Facilitator

Members

Observers

*Alternates

Mr David Hill
Reagan Solomon*

IHP
Auckland Council (RIMU)

Kyle Balderston
Dr Doug Fairgray
Murray Cameron
Patrick Fontein
Adam Thompson
David Gibbs
Dr Richard Burton
Robert Philpott
Phil Osborne
Fraser Colegrave /
Steve Hoskins*

Auckland Council (RIMU)


Auckland Council (Market Economics)
Auckland Council (S&IS)
Patrick Fontein (SD4)
Property Council (Urbecon)
NZIA/Generation Zero (Construkt)
Auckland 2040
Party (McDermott Miller)
Housing NZ (Property Economics)
Party (Insight Economics)

Sarah Holdem
David Hermans

MfE
MBIE

Indicated with a *, these persons attended in place of the primary

member when absent.

This is the third round of Expert Conferencing ordered by the IHP involving this broader group.
Auckland Council staff involved in the process would like to thank all of the participants in the
group (and their clients) for being so generous with their time and expertise, and Mr David Hill for
his facilitation.
Expert conferencings purpose is not to reach consensus on all matters but to narrow the areas of
disagreement. It is fair to say that there remain areas of disagreement both large and small, that
are articulated in the body of this report.
After three intensive rounds of conferencing the group maintains the view that the feasibility model
is a good decision support tool.

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Residential Capacity (Report of the 013EG, Round 3)

ii

Executive Summary
The Auckland Unitary Plan Independent Hearings Panel (IHP) in its memo of 5 November 2015
(Enclosed in full at Appendix 1) requested the 013 Expert Group reconvene to:

.. to develop and agree a revised method to estimate supply that is capable of


accommodating the changes to density rules as proposed by the Council and its
forthcoming proposed changes to the spatial application of residential zones.

The estimates of supply are to be based on the Councils proposed zone rules as
presented to the Panel in Topic 059/60/62/63 and as modified in its closing comments on
those Topics, and using the spatial application of those zones that are proposed by Council
for the 081 Topic.
The Panel requests that the output from this work include:

An estimate of demand for residential capacity (expressed as dwelling


numbers) throughout the Auckland region, for the period to 2026 and to
2041.

An estimate of overall supply of residential capacity (in tabular form along


the lines provided by Dr Fairgray on 28 October) and a breakdown of that
supply in terms of each type of zone (e.g. Centres, THAB, MHU, Mixed Use,
etc.).

An estimate of the years of supply that would be enabled and available if


the Plan is made operative in 2016, and at 2026, and the trend in that metric
in the intervening years.

Presentation of supply in the form of heat maps or similar (e.g. as at 2026


and 2041) to enable easy visualisation of the spatial spread of supply.

A supporting document that sets out the method used to estimate demand
and supply, with any significant diverging views and their implications for the
estimates recorded in an appendix (along the lines of the approach used in
the July report)

The Panel intends to use the outputs from this work to assess the extent to which the
proposed Plan would be adequate to meet forecast demand for residential capacity for the
period to 2026, and to 2041.
The Panel requests the above outputs be provided to the Panel by 26 January 2016 (which
is when the Council evidence on Topic 081 is due).

This report summarises the findings of the 013 Expert Group, including divergent views.

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Residential Capacity (Report of the 013EG, Round 3)

iii

Table of Contents
Executive Summary ........................................................................................................................ iii
Table of Contents........................................................................................................................... iv
1.0

Introduction .......................................................................................................................... 1

1.

Why .................................................................................................................................. 1

1.2

Scope ............................................................................................................................... 1

1.3

Outputs ............................................................................................................................. 2

1.4

Project limitations.............................................................................................................. 2

2.0

Residential Demand ............................................................................................................. 4

3.0

Residential Supply.............................................................................................................. 11

4.0

How Residential Supply and Demand have been estimated ............................................... 25

5.0

Areas of agreement and disagreement47

Appendix A:

Panel request for demand and supply estimates ................................................. 48

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Residential Capacity (Report of the 013EG, Round 3)

iv

1.0 Introduction
1.1 Purpose
Consideration of the ability of the planning system to provide for Aucklands projected population
growth needs via enabling sufficient capacity that is both commercially viable is a key concern to
many. The IHP has directed a group of experts to examine housing supply and demand issues (as
per their Memo dated November 5th, 2015). This report outlines the findings of this work to date.
The modelling undertaken by the expert group (E.G. hereafter) is assessing whether the zoning
being assessed, enables a commercially prudent development market to deliver the quantum and
type of housing at a price that meets the expected needs of present and future Aucklanders?
Making these assessments requires assumptions to be made about:
-

How the zoning patterns might translate into allowable development opportunities
(enabled capacity);
How those enabled development opportunities might translate into actual
developments (feasible capacity);
The quantum of demand expected over time (population growth and make-up)
How prices of existing dwellings and the costs to develop new ones vary over time;
The ability to pay (incomes) of current and future households (enabling a comparison
to be made between feasible capacity and anticipated demand) along with some
limited consideration of assumed household preferences in terms of type and price;
The implication of properties being developed to partial capacity in reflection of
developers preferences abilities.

1.2 Scope
The instructions of the IHP, indicated that the E.G. report should include supply outputs from the
Councils final position on the spatial zoning pattern (to be presented in Topic 081) and revised rule
position (established in closing legal submissions in the relevant Residential, Business and Rural
Provisions hearings).
Given Councils decision on out of scope matters, the 081 spatial zoning patterns has not been
modelled. The results included in this report, including the analysis of supply and demand
interactions by Adam Thompson and Doug Fairgray utilise ACDCv3 run 3.6 which references the
PAUP spatial zone and the ACAP residential provision. A further run 3.7, which addresses an
issue with the Apartment typology, has occurred. The results of that modelling is included in the
evidence of Doug Fairgray and Kyle Balderston however due to time and resourcing constraints it
is not incorporated these into this report. That said this report covers key methodologies for
determining supply, demand and how this has been developed by the E.G. It also includes key
areas of agreement and disagreement amongst E.G. members.

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Feasible Residential Capacity

The rules and spatial data patterns modelled are shown in


Table 1 below.
Table 1: Modelling Parameters

THIS REPORT

INPUT DATA TYPE

PAUP (As notified)

Spatial Zoning Pattern (incl Precints and Overlays)


Residential Rules (incl modelled precincts and

ACAP (059-063 Closing Legal Submissions Track

Overlays)
Business Rules (incl Precincts and Overlays)

Change Version)
PAUP (as notified)

This report provides a description of the process utilised in development of the method by which
supply may be determined.

1.3 Outputs
Outputs of the groups work takes several forms including;
-

The establishment of methods to estimate supply of feasible development from


enabled development, to estimate dwelling demand from population based forecasts
and to compare supply and demand.

Tabular and spatial outputs of the feasible development model.

The qualitative analysis contained within this report (about the modelling itself but
also what the modelling and analysis might mean regarding the balance between
supply and demand);

Assessment of demand for housing

Assessment of the likely overall capacity and demand outcomes

1.4 Project assumptions and limitations


The modelling work is based on a series of key assumptions. Firstly it is assumed that the planning
systems remains in place, unaltered for the analysis period. This is a necessary assumption to
make as we cannot predict future planning systems however it is clear that planning is never static
and changes to Aucklands planning framework will occur in the future.
All modelling is a necessary simplification of the real world, using reasonable assumptions about
human behaviour and observed phenomenon. Typically this involves utilising the average
response or behaviour and accordingly results represent the average outcome this approach
necessary precludes the wide range of potential outcomes either side of the average.
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Both supply and demand are generated exogenously, that is from external sources without
reference to the other. The approach to supply and demand is to effectively assume that demand
is fixed, via a high level population projection, and that supply must be generated that matches
demand, such that the demand fits into the city that the plan facilitates. However, supply and
demand are interdependent and interrelated in complex ways. This is alluded to in the detailed
commentary, but has not been modelled as an interactive system over the full period of analysis.
A number of potentially relevant constraining factors have not been considered. The model is
largely urban focussed, and tests development feasibility on the basis of average costs and
prices1, and presumes that sufficient infrastructure capacity exists (or will exist) to service what is
zone enabled and feasible some members have highlighted that in their experience, this is not
always the case and infrastructure limitations have precluded otherwise feasible developments.

There is disagreement amongst some E.G. members on the sale price information used in the model. The nature of issue is described
in more detail in section 5.

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Feasible Residential Capacity

2.0 Residential Demand


The Panel requests that the output from this work include:

2.1

An estimate of demand for residential capacity (expressed as dwelling numbers)


throughout the Auckland region, for the period to 2026 and to 2041.

Population projections

The E.G. is in general agreement that Statistics New Zealand (SNZ) population and household
projections for the Auckland Region are the most appropriate basis for determining long term
underlying demand for residential capacity (see table 1). The group is of the view that the SNZ
Medium and High population projections form the lower and upper bounds of the expected future
housing demand. The E.G. notes that Auckland Plan has been designed around enabling the
successful accommodation of a high growth which has the benefit of facilitating a high, medium or
low growth outcomes with minimum downsides2. If a lower than high growth rate eventuates, the
development market will simply not utilise the capacity enabled (as the demand does not exist),
and the process of additional supply being enabled will assist in reducing constraint related price
increases irrespective of growth rates.
The planning system must as a first principle, demonstrate that the accommodation of the
exogenous unconstrained projections is reasonably able to be accommodated. The planning
framework can mould the spatial distribution of projected growth (towards locations most suitable
and away from locations less suitable) but should not seek to limit it3. The projections should be
taken as an indication of the scale and rate of change that might occur without constraint.
The overall demand from population projections is largely taken as a given. It is the supply side
(based on the planning system that controls the type and amount of housing) that is adjustable.
However, supply and demand are dynamic and will adjust or shift in response to various factors.
There is no real deviation from the E.G. general position on this as articulated by Professor
Bedford in the first report of this group on population projections, other than to note, that
projections are not inevitable; if Auckland does not provide all the necessary conditions to
accommodate this growth (both attractiveness and affordability) then it may not occur in the way
projected4.

The main potential downside is making uncertainty explicit for infrastructure and service providers however this is largely a when not
if issue as a fixation on a single figure simply hides the uncertainty already implicit in a single number a medium projection is just a
slower than high growth rate, the high figure (usually) being achieved slightly later.
3

The SNZ projections are themselves based on assumptions about the relative attractiveness of Auckland relative to elsewhere in New
Zealand and assumptions about its demographic makeup these assumptions are not immutable and the planning system, in the long
run can have an influence on these factors, but not without serious implications. Therefore accommodation of the projected population
as a given but with some flexibility in terms of location, typology and built form (which will influence relative attractiveness, amenity and
affordability as well as relationships with transport and employment) are within the RMAs sustainable management framework are the
options available to the planning system.
4

Statistics New Zealand have on their website technical material outlining how their population projections for the nation and region are
produced.

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Feasible Residential Capacity

2.2 Household projections


Population growth represents the net sum of future individuals, but people tend to group
themselves together in their living arrangements, reflecting various family, friendship or shared
residential arrangements (called households). These can be projected from the projected
population based on assumptions about demographics, family status, income and ethnicity, (all of
which may influence the propensity for individuals to be found in household types, based on past
observations) where each of those forecast households is simply presumed to represent demand
for a dwelling under unconstrained ideal conditions5.
Statistics New Zealand has released its updated household projections from the 2013 base, to
complement its previously released population projections. These are summarised in Table 2.
Table 2: Statistics NZ Population and Household Projections 2013-2041.
Population (000)
High
Medium
Low

2013

2016

2021

2026

2031

2041 2013-26 2026-41

2013-41

1,493

1,597
1,583
1,569

1,759
1,718
1,677

1,913
1,841
1,767

2,069
1,962
1,853

2,372
2,186
2,001

420
348
274

459
345
234

879
693
508

498

542
534
525

613
589
565

680
639
598

747
688
629

878
778
678

182
141
100

198
139
80

380
280
180

Source: Statistics NZ 2015

Households (000)
High
Medium
Low
Source: Statistics NZ 2015

The population numbers have previously been reported on6. The table above presents the updated
household projections, and the projected increase in household numbers to 2026 and 2041. The
latest SNZ projections use 5-yearly inter-censal periods from 2013 (ie 2013 to 2043). For
consistency with the previous projections, these have been interpolated to provide projections for
the periods previously reported (2016, 2021, 2026, 2031 and 2041). Note that the household
projections released by SNZ extend only to 2038, even though the population projections extend to
2043. In order to estimate the 2041 household numbers, the projected mean household size has
been extrapolated from 2038 to 2041, and applied to the 2041 population figures to estimate
household numbers.
The household projections show some difference from the previous estimates, as follows:
a. The base number for 2013 is 498,000 households, some 24,000 (4.6%) fewer than the
earlier projection base (522,000);
b. The medium projection shows fewer households by 2026 (639,000 compared with
669,000 previously), and less growth (141,000 households compared with 147,000). The
medium projection also shows fewer households by 2041 (778,000 compared with

5
6

Statistics New Zealand provide a detailed overview of their household projection methodology on their website.
Fairgray EIC Topic 059-063, Table 5.1, p38.

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820,000 previously), and less growth to 2041 (280,000 households compared with
298,000);
c. The high projection also shows fewer households by 2026 (680,000 compared with
704,000 previously), and fewer households by 2041 (878,000 compared with 902,000
previously). However, the net growth over the period is the same as previously
estimated; 182,000 from 2013 to 2016, and 380,000 more households to 2041.
In the context of the medium and long term planning for Auckland, the differences from the
previous estimates are relatively small. The projected growth by 2026 is only 6,000 households (4%, approximately -500 pa) fewer than previously in the medium projection, and 18,000 fewer (6%, approximately -650pa) by 2041. The projected increase is unchanged for the high projection.
In addition, the re-basing of the SNZ household projections captures to a degree the changes in
household formation and structure observed at the time of the 2013 Census. The final estimate of
498,000 households as at June 2013 compares with the Census night count of 466,800. The
difference between from Census night and June 30 estimate for 2013 (+6.7%) is broadly in line
with differences at earlier Censuses (1996 + 6.7%; 2001 +9.0%; 2006 +8.4%).
The final 2013 population figure is below the SNZ Low projection for 2013 (interpolated at
1,504,000 from the 2006 base projection series). The household total is also below the Low
household projection. Adjusting for the lower population outcome and the Low projected mean
household size (2.892), the difference is -18,270. That is, for the population size the expected
household count would be 516,270 rather than 498,000.
This difference is one broad indicator of the dwelling shortfall as at 2013, particularly the influence
of economic conditions on household numbers tight economic conditions and relatively high
housing costs generally likely to have a suppressing effect on household formation. This is picked
up in Section 4 (below).
2.2.1

Households by Type and Income

The SNZ household projections include estimates of each broad type of household, covering
couples without children, 2-parent and 1-parent families within the family category, together with
other multi-person households, and single persons. Aucklands household structure for 2013, and
projected to 2026 and 2041 in the medium and high projections, is shown in Figure 1. The figure is
most notable for the limited change apparent in household structure out to 2041. This confirms that
the main feature of household growth is the quantum of that growth, rather than changes in the
nature of households over the period.

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Figure 1: Auckland Households by Type 2013-2041

Source Statistics NZ 2015

SNZ does not provide projections of future household income levels. Estimates of household
numbers in each income band and by type of household have been sourced from Market
Economics Ltd household model. This model estimates numbers of households of each type and
in each age band (42 specific combinations), according to the projected demographics of the
resident population, using the SNZ series. The current (2013) income structure for each household
type is applied to the projected household numbers, on the basis that population and household
structures are closely related to household income levels. This provides a basis for estimating
future household numbers by type and income band.
The projected size and structure of the future household market are summarised in Tables 2 to 6.
These show for the medium and high growth futures the projected numbers of households as at
2026 and 2041, by main household type and income band. The use of household income
information7 is important as income is a key determinant of that households ability to pay for
housing income, together with its accumulated wealth, of which historically, a substantial portion is
its equity in a dwelling8). The ACDC Model provides detail on the expected cost of viable housing
(as well as its type and size) which is enabled by the Plan. This facilitates (relatively) simple
matching of demand - reflected by a households ability to pay - and potentially size - based on the
number and nature of household members.

Note that this approach is not integrated economic modelling the population growth and HH projections are exogenous and
assumed to be a given, just as the incomes of our projected HH are also taken as a given. We are effectively testing to see if the HH
projected by SNZ can indeed be accommodated by the planning system, rather than forecasting the implications of them not. HH
incomes are a function of the broader economic situation including the affordability of housing, and its relative supply in a situation
where house prices are rising fast this will have a positive effect on some households incomes driving increased consumption and so
on, but a negative effect on others. The key point is that these complex interrelationships and feedback loops are not considered in this
report, but is a potential area for further research.
8

This has largely been the situation in NZ, however as Mr Thompson notes, information from the US suggests this cannot always be
assumed to exist into the future.

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Feasible Residential Capacity

Table 3: Auckland Household Growth to 2026 by Type and Income (Medium)


INCOME BAND

Single
Person

Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL
Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL

22,220
6,780
4,040
2,550
2,000
37,600
15.7%
4.8%
2.9%
1.8%
1.4%
26.6%

Couple
5,260
9,500
5,670
7,380
12,590
40,400
3.7%
6.7%
4.0%
5.2%
8.9%
28.6%

Couple
Couple
with 1-2
with 3+ Chn
Chn
1,660
640
2,570
810
3,490
1,020
6,150
1,490
15,380
3,410
29,300
7,400
1.2%
0.5%
1.8%
0.6%
2.5%
0.7%
4.4%
1.1%
10.9%
2.4%
20.7%
5.2%

1 Parent
Family
3,940
3,460
2,300
2,290
1,890
13,900
2.8%
2.4%
1.6%
1.6%
1.3%
9.8%

MultiFamily
360
520
760
1,330
4,520
7,500
0.3%
0.4%
0.5%
0.9%
3.2%
5.3%

NonFamily
700
1,120
920
1,050
1,510
5,300
0.5%
0.8%
0.7%
0.7%
1.1%
3.8%

TOTAL
34,800
24,800
18,200
22,200
41,300
141,300
24.6%
17.6%
12.9%
15.7%
29.2%
100.0%

Market Economics Ltd 2016

Table 3 shows that projected household is somewhat skewed toward the lower income range
especially for single persons and couples (including older age groups) and also the higher income
range especially among couples and households with children. The middle income bands
account for proportionately lower shares of growth.
By household type, there is substantial growth in single persons (26.5% of the total), but
substantial shares of growth are by couples (28.6%) and families with children (36% in
combination). Nevertheless, there is growth across all household types and income ranges, again
reflecting the increase in quantum as distinct from changes in the structure of the household
sector.
Table 4: Auckland Household Growth to 2026 by Type and Income (High)
INCOME BAND

Single
Person

Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL
Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL

26,600
8,400
5,100
3,300
2,500
45,900
14.6%
4.6%
2.8%
1.8%
1.4%
25.2%

Couple
6,400
11,400
7,100
9,400
16,500
50,800
3.5%
6.3%
3.9%
5.2%
9.1%
27.9%

Couple
Couple
with 1-2
with 3+ Chn
Chn
2,200
900
3,500
1,100
4,800
1,300
8,300
2,000
20,900
4,700
39,700
10,000
1.2%
0.5%
1.9%
0.6%
2.6%
0.7%
4.6%
1.1%
11.5%
2.6%
21.8%
5.5%

1 Parent
Family
5,400
4,600
3,000
3,000
2,500
18,500
3.0%
2.5%
1.6%
1.6%
1.4%
10.2%

MultiFamily
500
700
1,000
1,800
5,900
9,900
0.3%
0.4%
0.5%
1.0%
3.2%
5.4%

NonFamily
1,000
1,400
1,200
1,400
2,200
7,200
0.5%
0.8%
0.7%
0.8%
1.2%
4.0%

TOTAL
43,000
31,100
23,500
29,200
55,200
182,000
23.6%
17.1%
12.9%
16.0%
30.3%
100.0%

Market Economics Ltd 2016

A similar pattern is evident in Table 4, albeit for the larger volume of growth assumed in the high
future. Figure 2 shows the overall structure of the Auckland household market in 2026 (medium
and high futures). This total structure is important because it relates directly to the overall structure
of demand for housing into the medium, including numbers of smaller and larger household types,
as well as income ranges.
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Figure 2: Structure of Auckland Household Market 2026 : Medium and High Growth

The longer term picture is similar to the medium term, albeit for a larger quantum of household
growth (Table 5). To 2041, single persons account for a slightly larger share of total growth, as do
couples, with slightly smaller shares for families with children. Nevertheless, there is limited change
in the structure of growth in the period beyond 2026.
Table 5: Auckland Household Growth to 2041 by Type and Income (Medium)
INCOME BAND

Single
Person

Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL
Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL

48,830
14,050
7,920
4,880
3,920
79,600
17.4%
5.0%
2.8%
1.7%
1.4%
28.4%

Couple
10,780
19,640
10,940
13,710
23,030
78,100
3.9%
7.0%
3.9%
4.9%
8.2%
27.9%

Couple
Couple
with 1-2
with 3+ Chn
Chn
3,150
1,210
4,780
1,480
6,480
1,870
11,420
2,850
29,960
7,100
55,800
14,500
1.1%
0.4%
1.7%
0.5%
2.3%
0.7%
4.1%
1.0%
10.7%
2.5%
19.9%
5.2%

1 Parent
Family
7,630
6,950
4,670
4,680
3,810
27,700
2.7%
2.5%
1.7%
1.7%
1.4%
9.9%

MultiFamily
670
940
1,450
2,470
8,370
13,900
0.2%
0.3%
0.5%
0.9%
3.0%
5.0%

NonFamily
1,500
2,290
1,820
2,010
2,740
10,400
0.5%
0.8%
0.7%
0.7%
1.0%
3.7%

TOTAL
73,800
50,100
35,200
42,000
78,900
280,000
26.4%
17.9%
12.6%
15.0%
28.2%
100.0%

Market Economics Ltd 2016

Table 6 shows a similar pattern for the high growth future out to 2041.

Table 6: Auckland Household Growth to 2041 by Type and Income (High)

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INCOME BAND
Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL
Q1 (<$30k)
Q2 ($30-50k)
Q3 ($50-70k)
Q4 ($70-100k)
Q5 ($100k +)
TOTAL

Single
Person

Couple

61,000
18,240
10,710
6,700
5,320
102,000
16.0%
4.8%
2.8%
1.8%
1.4%
26.8%

13,710
24,660
14,330
18,670
32,280
103,700
3.6%
6.5%
3.8%
4.9%
8.5%
27.3%

Couple
Couple
with 1-2
with 3+ Chn
Chn
4,540
1,760
6,830
2,160
9,300
2,720
16,440
4,170
42,960
10,240
80,100
21,100
1.2%
0.5%
1.8%
0.6%
2.4%
0.7%
4.3%
1.1%
11.3%
2.7%
21.1%
5.6%

1 Parent
Family
10,980
9,670
6,490
6,450
5,280
38,900
2.9%
2.5%
1.7%
1.7%
1.4%
10.2%

MultiFamily
960
1,330
2,020
3,460
11,780
19,600
0.3%
0.3%
0.5%
0.9%
3.1%
5.2%

NonFamily
2,260
3,110
2,570
2,920
4,180
15,000
0.6%
0.8%
0.7%
0.8%
1.1%
3.9%

TOTAL
95,200
66,000
48,100
58,800
112,000
380,100
25.0%
17.4%
12.7%
15.5%
29.5%
100.0%

Market Economics Ltd 2016

The net increase in households by type provides some guidance as to the nature of demand for
dwellings. As a generality, single person households and couples require less space than other
types of households. This often does not translate through to occupancy and/or ownership of
smaller dwellings, especially as many mature and older couples and single persons opt to remain
in their family homes. Nevertheless, some 28-30% of the projected net increase in households is
single persons and couples in the low and medium-low income brackets. By 2026, these segments
will account for about 20-22% of total demand.
There is also substantial growth in medium to high income single person and couple households.
These demand patterns are to a degree captured in the Housing Wed Choose research, which
indicates preference for detached dwellings (52%), attached dwellings (20%), low-medium rise
apartments (walk up) 19% and higher apartments (9%).
2.2.2

Dwelling shortfalls

The E.G. is of the view that the estimate of total dwellings demanded must include those unbuilt
dwellings which generate Aucklands housing shortfall. There are many anecdotal examples of the
negative effects of housing undersupply as well as less extreme effects including delays in
household formation and family starts. The exact size of the existing shortfall is difficult to
establish, as there are many methods to do so. However most of them compare the difference
between an unconstrained forecast, and the current situation the difference being the shortfall.
Mr Thompsons and Dr Fairgrays estimates of the shortfall are included in Section 4.

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Feasible Residential Capacity

10

3.0 Residential Commercially Feasible Supply


The Panel requests that the output from this work include:

An estimate of overall supply of residential capacity (in tabular form along the lines
provided by Dr Fairgray on 28 October) and a breakdown of that supply in terms of
each type of zone (e.g. Centres, THAB, MHU, Mixed Use, etc.).

An estimate of the years of supply that would be enabled and available if the Plan is
made operative in 2016, and at 2026, and the trend in that metric in the intervening
years.

Presentation of supply in the form of heat maps or similar (e.g. as at 2026 and 2041)
to enable easy visualisation of the spatial spread of supply.

Notes on the Panels Request:


-

3.1.1

The majority of supply determination (in the urban area) is an output from the ACDC
Model;
The supply information reported here is from ACDCv3.6 and not ACDCv3.7;
Supply and demand has not been matched spatially over time, only in aggregate
(regionally). Regional supply (as at today) can be mapped;
years of supply requires two main assumptions that supply is fixed (i.e. the PAUP
never changes) and demand occurs at the initially projected rate irrespective of supply.

Feasible Capacity is Unconstrained Supply

As for the population projections, supply from the ACDC Model is unconstrained by the realities of
supply and demand interactions. The ACDC model assesses each site individually, without
knowledge or concern for the results from other assessments, and costs and price assumptions
(implicitly incorporating current supply and demand interactions) calculates feasibility.
In effect individual site assessment are undertaken for commercial feasibility however when
considered as a whole there may be implications for costs and prices if all of the supply indicated
were to be realised. The interactions of unconstrained supply and demand are considered in
Section 4.
3.1.2

Further Development of the Feasibility Model (ACDC Version 3)

Previous work by the 013 E.G worked on methods to determine supply, essentially filtering the
enabled capacity from the Capacity for Growth Study Model (CfGS) via a further Auckland
Development Capacity Model (ACDC) that has attempted to replicate commercial development
decisions about how much the enabled development would cost to build, and how much it might
sell for. If the difference between costs and price is sufficiently positive, the enabled capacity is
considered feasible. Each round of conferencing has further iterated and refined this process
making direct comparisons between the outputs of different model versions difficult. Each version
of the model is however fully functional and different outputs from those model versions are
______________________________________________________________________________________
Feasible Residential Capacity

11

comparable between themselves (e.g. Version 2 outputs are directly comparable with Version 2
but not version 1 or 3)
Residential Supply is largely calculated in a three step process.
1. Firstly, the proposed zoning, precincts and overlay rules, spatial locations, and cadastral
pattern is fed into the Capacity for Growth Study (CfGS) model which (based on manual
interpretation of how all this fits together) calculates the plan enabled capacity and
provides much of the necessary base data for the next stage.
2. Secondly, the results of the CfGS are fed into the Auckland Council Development Capacity
(ACDC) model which calculates if these enabled opportunities are commercially feasible.
3. Lastly, as the CfGS does not calculate capacity on all sites in the region9, and the ACDC
model either excludes some sites10 or assesses them as normal when they are not11,
some manual accounting must be made to provide a picture of the overall supply of
residential capacity from publically available sources or estimates.
The E.G. has spent considerable time refining the ACDC model. The model is now at Version 3
which determines commercially feasible supply. The next section outlines the main changes made
to the ACDCv3 Model from ACDCv2.
3.1.2.1 Description of major changes made to model
The key changes made to Version 3 from Version 2 are summarised below:

A range of development typologies is tested on every site these are small,


medium and large sized, houses, terraces and apartments, (9 in total) tested as
both infill and redevelopment (as appropriate, resulting in up to 18 developments
per site) this compares with both previous model versions (1 and 2) where a only
single optimised development was tested as infill or redevelopment;

The scale of the typologies tested are controlled by the most binding of the sites
zone controls and practicality i.e. 6 storey apartments are not tested in the SHZ,
rather 2 storey big house developments with a dwelling up and downstairs (as the
zone controls are binding). Conversely, in the THAB zone and above, House
typologies are limited to 3 storeys and need at least 200m2 of land, even though the
height limits and density controls are more enabling (in this case practicability is
binding, going taller or smaller would push the effective development typology

9 Rural capacity, expected supply from the Future Urban Zone, and various un-modelled precincts and special areas in particular.
10

Housing New Zealand, and sites zoned for residential use but currently used for activities such as churches, schools and cemeteries
including undesignated uses.
11

SHAs are in the ACDC model but are developed and tested as if the SHA does not exist resulting in results considerably lower than
what the SHAs are either delivering or expected to deliver based on developers reports. The difference in result is largely due to scale
treating the SHA as a single development site (as is the practice in the SHAs) or as individual sites (as per the modelling)

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Feasible Residential Capacity

12

towards a terrace or apartment with different cost, price and yield characteristics
which are already tested in those typologies).

Input dwelling floor areas have been calibrated to the ceiling prices to ensure the
sale price of the dwellings are at or below the ceiling prices (i.e. all tested
developments are sellable);

Ceiling prices and sizes, and the sales location category have been reviewed
against a range of data sources and have been confirmed as reasonable;

From these development options that are feasible (if any), a single development is
chosen to report a range of scenarios are possible depending on the choosing
method applied (e.g. a focus on profitability gives a different mix to a focus on
affordability) providing a feasible supply range, better enabling consideration of
demand and demonstrating the flexibility within the enabled supply.

The amendments made to the model have generally improved the reliability and utility of its
outputs. However it has also introduced significant added complexity and detail to the input
assumptions calculations and output data.
3.1.2.2 Why test multiple developments per site?
A number of members questioned if testing per site single development option was appropriate,
when, under the PAUP, a range of development opportunities were enabled (i.e. on sites enabling
4 storey apartments it is still possible to build single storey houses, or two storey terraces, which
may be more profitable than the maximum outcome). E.G. members also queried whether the
single optimised development tested was truly optimised, and the testing of a range of sizes
would also be an improvement enabling the model to find the sweet spot rather than relying on
experience and professional judgement. E.G. members also advocated that a very wide range of
development be tested in very fine size/price increments to enable the production of a dataset that
represented the very lowest cost feasible dwelling possible per site12 to better appreciate the Plans
ability to deliver affordable dwellings.
These concerns have been taken into account and balanced against practical concerns of coming
up with the multiple assumptions required for multiple developments and dealing with the resulting
data outputs has resulted in the development of the approach developed.
The agreed approach is to now test a range of dwelling typologies (House, Terrace and
Apartments) at a range of different sizes (small, medium and large) resulting in a minimum of 9
different developments in total, all within (at least as far as possible) the twin limits set by the
relevant zoning parameters and practicality. This may result in none or many of those
development options being feasible. It also provides for a wider range of potential outcomes across
sites, neighbourhoods and the region as a whole.

12

See Adam Thompson and Patrick Fontein Re:ACDC15 Model Commissioning and Application, 12.10.2015 memo to IHP.

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Feasible Residential Capacity

13

3.1.2.2.1 Zone Controls vs Practicality


Once the determination was made to apply a multiple development approach, it was realised that
establishing the limits on development under each different development scenario would be
required. This is because apartments can be established at far higher densities than houses, and
small houses can be established at greater densities than large ones, but various rules would
preclude high densities from being achieved particularly in lower density zones.
This was resolved by establishing practical limits for the intensity for each typology in each zone,
alongside the various zoning limits, and the model develops only up to the most restrictive of the
twin limitations. The effect of this can be illustrated from the (pre-feasibility testing) modelling of the
modelling of medium houses, terraces and apartments density (average site area per dwelling by
zone) as shown in 3 below:
Figure 3: Average Land Area per Dwelling from unfiltered Capacity recalculations in ACDCv3

As can be seen, in the zones where density is binding, all typologies have the same density (zone
rules are binding, especially on the more intensive typologies, terrace and apartments). In the more
enabling zones, practicality binds on the lower density typologies (houses and terraces) as they
reach their practical limits. The effect of dwelling floor area on the average amount of land
required to accommodate them is also discernible particularly for houses in the MHS and
Apartments in THAB for quite different reasons.
In MHS, the combination of building coverage and storeys (along with outdoor space and parking
expectations) serve to require more land to fit in more floorspace. In THAB, the building envelope
is also the controlling factor, but the amount of apartments that can fit in the envelope is more a
function of their size (while still being limited by design criteria but to a lesser degree).
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Feasible Residential Capacity

14

3.1.2.2.2 Typology Definitions


Some debate was had regarding the testing of apartments and terraces in zones such as Single
House, Large Lot and Rural and Coastal, where the rules are considered to be designed to
preclude such developments. While it may certainly be the intention of the zoning to preclude the
intensive or high rise form that these typologies are usually associated with, the definition of the
typologies (being varying forms of physical (de)attachment) could potentially be realised within the
low density constraints of the zoning under certain circumstances, and provided the site has
sufficient room for establishment of more than a single house, an attached arrangement may be
possible, at least in theory.
However, in most instances in these lower density zones, the differentiation is relatively nominal as

capacity values are low (1 maybe two dwellings per site)

capacity values are common to all typologies (as density controls are binding in these
zones you can only have 1 dwelling per <zone set minimum land area per dwelling>
irrespective of built form)

the build costs are greater than for an equivalent house and sale prices are lower than an
equivalent house

result in only rare instances where the typology is feasible at all, and is never more
profitable than a house.

Table 7 below outlines the possible combinations and outlines the definitions further:
Table 7: Typology Definition Matrix (Text)
May
Definition

Typology

Attached

Share
Walls

May
Share
Floor/
Ceiling

Detached Not attached to any other dwelling,


House

direct access to separate ground level outdoor

No

No

No

Yes

Yes

No

Yes

Yes

Yes

space.
Horizontally attached to at least one other
Terrace

dwelling, direct access to separate ground level


outdoor space.

Vertically attached to at least one other


Apartment

dwelling, may not have direct access to


ground level or Table 2: Typology Definition
Matrix (Text)
outdoor space

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15

Figure 4: Development Typology Matrix (Visual)

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Feasible Residential Capacity

16

3.1.2.2.3 Second Dwelling Conversions


The modelling of dwellings in the CfGS and ACDC Models does not consider the potential for
additional dwellings to be created via second dwelling conversions which is explicitly enabled in all
residentially zoned sites with an existing dwelling excepting THAB. By our definition these
converted dwellings would become Terrace or Apartment typologies (as the second dwelling must
adjoin the primary dwelling).
A significant amount of further work would be required to establish the costs of conversion (which
would depend on many factors including the age and form of the existing structure and how the
conversion might be undertaken) and as the dwellings are not able to be legally separated, cannot
be sold in the same way as is presently considered by the ACDC model, requiring a consideration
of the difference in sale price and/or rental yield from a single dwelling, and the rent (or increased
sale price, based on retail yield) from a converted dwelling.
Due to the wide range of potential solutions to a conversion problem (only a minimum size for
each dwelling is specified, and may involve the addition of completely new floorspace, not
necessarily subdivision of existing floorspace) in any given specific existing dwelling situation, the
wide variety of existing dwelling forms and structural details, this results in a very wide variability of
potential costs of conversion and variation in potential returns. This practical issue compounded by
the highly personalised decision making process for owner occupiers to add (usually) rental
accommodation to their dwelling would make any modelling relatively indicative.
This is an area for further work, but the potential for dwelling conversions to act in contradictory
ways to both potentially preclude comprehensive (re)development by way of increased
improvement value and/or return to existing owners form the existing improvements, and
conversely enable a significant source of additional affordable dwelling supply, should be noted.
3.1.2.3 Calibration of Price Ceilings and Sales Locations
One of the key issues raised early on was the issue of whether the initial assumptions, largely
developed for ACDCv2 were appropriate. In ACDCv2 Sales locations (10 categories of location)
were established on the basis on sales information from Auckland Councils Sales Record Audit
File, of recent standalone dwellings average price within a 2013 CAU geography. A range of other
factorings, and size data was also established on the basis of the sale location classifications.
In setting up ACDCv3, data was purchased from CoreLogic to review and update these Sales
Location Classifications and the further refinements for each dwelling typology as initially proposed
by Mr Fontein.
In summary the initial assumptions proposed by Mr Fontein were found to be reasonable with the
exception of the suggested floor area of some developments, which if sold for the $/m2 rate (which
was confirmed as generally consistent with the data) would exceed the (confirmed) retail price for
that typology in that location. The Sales Location categories remain as per ACDCv1 and V2.
Using the set ceiling prices multiplied by a factor (e.g. if the standard dwelling is $800k, and our
typology is a large terrace that sells for 70% of that (or $560,000), the largest possible dwelling of

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Feasible Residential Capacity

17

the typology was able to be calculated. Only those that were above the ceiling price were adjusted,
the other initial size settings provided by Mr Fontein were maintained.
The calculation is shown below, using an example of a terrace assuming a Sale Location Ceiling
Price of a standard standalone dwelling of $800,000, a typology sale price factor of 0.7, and at a
sale price per m2 rate of $3000m, then the maximum floor area the terrace can be to come in at or
below our factored ceiling is ~186m as shown below:
Maximum Saleable Floor area = ROUNDDOWN((800000*0.7)/3000=186.66),0)
Some pertinent examples of the calibration process are shown below, where the LUT input
parameters were being compared to data from long run building consent information averaged by
inferred building type and sales location.
Figure x illustrates the relationship between observed attached (equivalent of Terrace and
Apartments) development size and the averaged size range in the LUTs. Size increases slowly as
the location value increases (with some fluctuations in observed values due to low numbers, but
LUT values are well aligned with the general trend).
Figure 5: Attached (Terrace and Apartment) input sizes vs Building Consents

.
Figure illustrates the relationship between observed Detached (aligns to House) development size
and the average size range in the LUTs. The relationship between dwelling size and location value
is much stronger in the observed data than for attached, perhaps reflecting the volume of data
points but also the much stronger relationship in the detached house typology between land and
floorspace value due to the limited amount of floorspace able to be generated per unit of land are
under the House form (c.f. attached developments that are able to use less land per unit allowing
more smaller dwellings to be feasibly sold to recover the initial land cost). Interestingly, the
observed data suggests the detached dwelling size to be much larger than the LUT inputs were
able to be set to, due to the influence of the Ceiling Factors. However the sales data and the $m

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Feasible Residential Capacity

18

information from that confirmed that houses of the average consented size could not be sold below
the price ceilings we set, and so the input dwelling size was reduced accordingly.
Figure 6: Detached (House) input sizes vs Building Consents

3.1.2.4 Choosing between multiple viable developments.


As section 3.1.2.2 states ACDCv3 tests a range of development opportunities on the modelled
sites. The model now outputs numbers reflecting that each site now has at least nine slightly
different chances to pass the feasibility test, all of which are under the price ceiling, instead of just
a single optimised one which may be excluded post-run due to being priced above the ceiling.
As the decision to develop can be taken only once (once developed the land is unavailable for
redevelopment until the improvements depreciate to replacement value again, which would
generally be beyond our forecast horizon), a single development must be chosen from those sites
where more than a single option is viable.
There are a number of potential approaches that could be taken to this issue:

Single criteria focus (Kyle Balderston has taken this approach, focusing on information in
the supply data to determine a scenario, using multiple single criteria scenarios to
determine a potential range)

Multiple weighted criteria (Doug Fairgray has developed this approach, effectively
advancing on the single criteria approach using data in the to produce a single parcel
output taking account of more than one criteria different weightings would produce
different scenarios, and therefore a potential range)

Multiple weighted criteria including demand (Adam Thompson has advocated for this
approach, effectively applying a multiple weighted criteria approach also accounting for
information not in the supply data, i.e. demand).

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19

3.1.2.5 How the Model Works (description of the FME Workbenches)


The ACDCv3 Model is made up of 3 main workbenches as well as a number of preparatory
components.
Stage 0: CfGS and ACDC Input Converter
Stage 1: Feasibility Calculator
Stage 2: Filtering and Exclusions
Stage 3: Chooser.
3.1.2.5.1 CfGS and ACDC Input Converter
This is a prerequisite to running the ACDC Model. The CfGS provides the model with the base
information on capacity and is also combined with various other input data sources in the ACDC
Inputs Converter to provide the detailed base parcel data needed.
3.1.2.5.2 Stage 1: Feasibility Calculator
This component is essentially the evolved portion of the model, and is very similar to ACDCv2. The
key difference is that the model now clones each parcel, with each close being tested for a
different development typology. A considerable amount of further work has been undertaken to
ensure that the LUTs and calculation steps account for the variation in developments for each
clone/typology. This component takes approximately 10 hours of run time.
3.1.2.5.3 Stage 2: Filtering
This component is almost unchanged from ACDCv2 and effectively removes valid parcels that are
deemed to be unreportable post feasibility calculations for a variety of reasons including:
-

Site is used for a use deemed immutable and capacity even if feasible is
considered unreportable (e.g. infrastructure, schools, churches, etc.)
Site is within Housing New Zealand ownership and targeted for redevelopment
(capacity on these sites is accounted for in total supply by addition of HNZ
redevelopment targets)
Designations deemed to preclude development13 (e.g. includes Ministry of
Education, etc., but excludes airport noise designations and road widening).

This component also tags excluded parcels with a primary reason and consumes and filters
parcels excluded from the Stage 1 component (reasons include a lack of capacity to test (i.e. CfGS
identified site as having potential of 0), a lack of necessary data required to make calculations (e.g.
missing valuation information) or a variety of other issues.

13

Refer CfGS Methodology and Assumptions report

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Feasible Residential Capacity

20

3.1.2.5.4 Stage 3: Chooser


This step is optional and runs a single criteria focused selection from all feasible development
available per parcel. This provides a single development option per parcel depending on the
choosing scenario, and converts the closed outputs into a format consistent with previous model
versions.
3.1.3

Feasible Dwelling Supply (ACDC version 3 Results)

For the information contained in this section, the 5 different individual criteria developed by Kyle
Balderston which in combination produce a range have been utilised.
The selection is only from those developments that are viable (and below the ceiling), these
developments are ranked according to the criteria and the top (or bottom) ranked development
chosen for that site on sites with zero or one viable developments that is the top ranked
development for all scenarios. The criteria are designed to answer the question Of the Feasible
Development options on the site (within the range tested) which is the scenario that delivers the
<criteria name>:
-

Maximum % Return: This is the output which is most consistent with the actor
based approach to the modelling to date. While this is arguably the most likely
(or developers first choice) development other factors may need to be
considered14 including demand, and the nature of the developer;

Lowest Project Cost: This represents the lowest capital outlay for the
developer which may be an important consideration especially for small firms or
individuals which dominate the construction industry;

Largest Dwellings: Size of dwelling affects possible dwelling yield (by


decreasing it, also making this scenario the least number of dwellings scenario)
and also impacts on costs and sale price. It is often anecdotally suggested, that
big houses are the most profitable (as price increases faster than build costs),
and the outputs of this scenario are closely aligned with the maximum return
scenario correlating with that view;

Maximum number of Dwellings: This scenario focusses on supply of dwelling


units from each development, focussing on maximum supply of dwelling units;

Cheapest Dwellings: This scenario focusses on identifying the development


that produces the lowest priced dwelling units, focussed on the affordability of
dwellings to the end purchaser Mr Thompson identified this as a key
consideration in his earlier evidence.

14

Such as the required capital outlay (as per the Lowest Project Costs scenario), or an alternative approach based on gross or net
dollar return, which may be an applicable approach for some self-financed or small scale developers.

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Feasible Residential Capacity

21

Version 2 (High Price Ceiling): This is included as a cross check and to


illustrate the variability in model outputs due to variations in input assumptions.

3.1.3.1 High Level Results (TABLES)


3.1.3.1.1 High level Results from ACDCv3.6 using PAUP zoning and ACAP Rules
The outputs using just single criteria indicate a range of currently viable capacity estimates, from
197,706 if the criterion is to select the largest dwelling, through to 255,881 dwellings if the sole
criterion is to maximise the number of dwellings (Table 4)15.
Table 8: High Level Results
Choosing Scenario
(ACDCv3.6)
Cheapest Dwellings
Largest Dwellings
Lowest Project Cost
Maximum percentage return
Maximum number of dwellings
ACDC Version 2 (HPC)

Total Feasible
Capacity (n)
248,836
197,706
222,212
209,931
255,881
144,165

$
$
$
$
$
$

Average Sale
Average
Price ($)
Floorspace (m)
814,054
128.2
985,356
176.5
861,307
136.7
974,559
174.6
825,429
132.3
850,475
119.7

3.1.3.1.2 Detailed Results from ACDCv3.6 using PAUP zoning and ACAP Rules
These outputs can be disaggregated to examine different typologies by different criteria. The
possible mix of dwellings includes ranges from very few apartments, a small share of terraces and
a dominance of houses (highest return and largest dwellings criteria), to a somewhat more even
mix across the typologies. The lowest priced dwellings criterion has a 7% apartments, 11%
terraces and 83% houses mix (Table 5), while the maximum number of dwellings criterion shows
8% apartments, 18% terraces and 74% houses.

15

As noted earlier in this report ACDCv3.7 has been run which address how the Apartment typology. This is described in Kyle

Balderstons evidence along with the modelling results.

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22

Table 9: Dwellings by Typology


Dwelling Typology

Lowest Price
Dwellings

Lowest
Project Cost

Share %

Large Apartments
3,105
Medium Apartments
6,978
Small Apartments
6,593
Total Apartments
16,676
Large Terraces
14,973
Medium Terraces
6,718
Small Terraces
4,883
Total Terraces
26,574
Large Houses
69,269
Medium Houses
90,589
Small Houses
45,728
Total Houses
205,586
TOTAL ALL DWELLINGS
248,836
Source: ACDC15 Model 22-1-16

1.2%
2.8%
2.6%
6.7%
6.0%
2.7%
2.0%
10.7%
27.8%
36.4%
18.4%
82.6%
100.0%

1,855
2,219
36
4,110
10,217
4,939
485
15,641
80,952
78,040
43,469
202,461
222,212

Share %
0.8%
1.0%
0.0%
1.8%
4.6%
2.2%
0.2%
7.0%
36.4%
35.1%
19.6%
91.1%
100.0%

SELECTION
Maximum
Highest %
Number of
Share %
Return
Dwellings
5,850
2.3%
1,835
7,011
2.7%
18
6,499
2.5%
19,360
7.6%
1,853
24,567
9.6%
19,472
16,486
6.4%
32
4,679
1.8%
45,732
17.9%
19,504
79,025
30.9%
185,139
89,606
35.0%
3,435
22,158
8.7%
190,789
74.6%
188,574
255,881
100.0%
209,931

Share %
0.9%
0.0%
0.0%
0.9%
9.3%
0.0%
0.0%
9.3%
88.2%
1.6%
0.0%
89.8%
100.0%

Largest
Dwellings
772
772
12,654
15
12,669
183,946
319
184,265
197,706

Share %
0.4%
0.0%
0.0%
0.4%
6.4%
0.0%
0.0%
6.4%
93.0%
0.2%
0.0%
93.2%
100.0%

A wide range of outcomes is also possible in terms of dwelling prices. Table 6 shows the indicated
dwellings in each price band. Clear contrasts are evident. If lowest price was the sole criterion for
development, then around 15.4% of new dwellings would be in the under $500,000 band, and
29.5% in the under $600,000 band. Similarly, the lowest project cost criterion and maximum
number of dwellings would see 24-26% of new dwellings in the under $600,000 band.
In contrast, the highest return criterion and the largest dwelling criterion would both see very few
dwellings under $600,000, with development focussed in the $700-$1,100,000 price bands.
Table 10: Dwellings by Price Band
SELECTION
Dwelling Price
($000)
<$400K
$400-500K
$500-600K
$600-700K
$700-800K
$800-900K
$900-1000K
$1000-1100K
$1100-1200K
$1200-1300K
$1300-1400K
$1400-1500K
$1500-1600K
$1600-1700K
$1700-1800K
$1800-1900K
$1900-2000K
$2000K +
TOTAL

Lowest
Lowest
Lowest
Maximum Maximum
Largest
Lowest
Highest % Highest % Largest
Price
Price
Project Cost Number of Number of
Dwellings
Project Cost
Return Return % Dwellings
Dwellings Dwellings %
%
Dwellings Dwellings %
%
2,279
36,195
34,963
47,437
42,512
23,329
21,497
13,850
5,867
5,659
7,757
1,269
2,408
1,575
438
376
1,074
351
248,836

0.9%
14.5%
14.1%
19.1%
17.1%
9.4%
8.6%
5.6%
2.4%
2.3%
3.1%
0.5%
1.0%
0.6%
0.2%
0.2%
0.4%
0.1%
100.0%

2,017
30,264
26,985
35,971
37,264
14,843
24,044
18,803
5,856
8,210
8,415
1,527
3,189
1,806
669
570
1,349
430
222,212

0.9%
13.6%
12.1%
16.2%
16.8%
6.7%
10.8%
8.5%
2.6%
3.7%
3.8%
0.7%
1.4%
0.8%
0.3%
0.3%
0.6%
0.2%
100.0%

1,932
23,589
38,910
50,721
46,523
25,375
23,795
15,599
6,299
5,919
9,117
1,206
2,683
1,671
455
430
1,271
386
255,881

0.8%
9.2%
15.2%
19.8%
18.2%
9.9%
9.3%
6.1%
2.5%
2.3%
3.6%
0.5%
1.0%
0.7%
0.2%
0.2%
0.5%
0.2%
100.0%

386
19,653
37,095
10,459
49,032
39,894
10,645
10,046
15,618
4,134
4,612
3,375
1,637
1,163
1,530
652
209,931

0.0%
0.0%
0.2%
9.4%
17.7%
5.0%
23.4%
19.0%
5.1%
4.8%
7.4%
2.0%
2.2%
1.6%
0.8%
0.6%
0.7%
0.3%
100.0%

386
17,592
34,505
9,262
46,923
38,716
8,489
10,133
13,119
3,841
5,626
2,873
1,597
1,393
1,655
1,596
197,706

0.0%
0.0%
0.2%
8.9%
17.5%
4.7%
23.7%
19.6%
4.3%
5.1%
6.6%
1.9%
2.8%
1.5%
0.8%
0.7%
0.8%
0.8%
100.0%

Source: ACDC15 Model 22-1-16

The results are useful for showing what is possible under the provisions of the PAUP. They depict
the bounds under different assumptions. For instance if development occurred solely based on the
% return to a developer, then the scenario implies a mix of predominantly large houses, and large
terraces, with a few medium houses, terraces and apartments. However, if development were
______________________________________________________________________________________
Feasible Residential Capacity

23

driven more by the number of dwellings, then a more diverse mix would ensue, with considerably
more medium and small houses, apartments and terrace houses.
Note that each set of figures is based as if a single criterion were the predominant guide on all
development which is viable. Development decisions typically take into account a variety of factors,
which include but are not limited to the return on investment, perceptions of the size of the market
for each typology, the location of the development opportunity, the circumstances of the developer,
and so on.
This suggests that the eventual outcome, if all of the capacity identified here as being currently
viable is developed, is likely to be an amalgam of the mixes shown. Certainly the results are not
near final, but they indicate the scale of development indicated as currently viable, and also reflect
the range of possible outcomes.

______________________________________________________________________________________
Feasible Residential Capacity

24

4.0 How Residential Supply and Demand have been estimated


The Panel requests that the output from this work include:

A supporting document that sets out the method used to estimate demand and supply, with
any significant diverging views and their implications for the estimates recorded in an
appendix (along the lines of the approach used in the July report)

4.1 Comparing Supply with Demand


Demand has been estimated using the approach outlined in Section 2. Supply has been estimated
using the ACDCv3 model as outlined in Section 3. This section outlines how the two may be
compared, contrasted, and potential influenced by the other.
As noted in Section 2 (Demand) and 3 (Supply) consideration of supply and demand in isolation
can be problematic the trade-offs between the range of options open to both suppliers and
consumers of housing are functions of the interactions between them.
While there has been insufficient time to develop a fully integrated model that would consider all of
the matters necessary to describe an outcome resulting from these trade-offs at a high level supply
of dwellings by price and type as estimated by the ACDCv3 under a range of scenarios can be
compared with demand from households for dwellings based on their incomes and needs
(converted to dwelling price and type) also based on a range of demand scenarios (largely
affecting quantum of houses rather than strong variations in incomes or household nature).
Household prices or types where demand from households for dwellings appears to be unsatisfied
by feasible supply may help to indicate potential regulatory (i.e. planning adjustments) or nonregulatory interventions (e.g. additional social housing requirements).
4.1.1

Methodology 1 (Adam Thompson)


Economics of Housing Demand

A population or household forecast does not in itself enable an estimate of demand for
dwellings. This is because the composition or size of households is influenced by the housing
market, in the sense that as the price of housing increases, household size also tends to increase.
The increase in dwelling size is evident in Auckland. By implication, the quantity of housing
demanded will be lower when dwellings prices are high (as fewer people will able to afford to buy
or rent) and higher when dwelling prices are low. This appears to be the case for Auckland. Table
below shows the change in household size and composition for Auckland.
The purpose of the table is to show the difference between the forecast household size and count,
and the actual household size and count. Statistics NZ forecast (2006 base) household size to
steadily decrease over the past decade, from 2.90 persons per dwelling in 2006 to 2.82 persons
per dwellings in 2015. This was due to a benign economic environment and changing
demographics, most notably the baby boomers entering retirement and changing from larger
families to couples and single households, and later family starts driving observed HH size
______________________________________________________________________________________
Feasible Residential Capacity

25

reductions in the period prior to the forecast, conditions that were (and still are) expected to
continue.
Under this forecast household size projection, given the actual population growth (from population
estimates), expected households should have increased from 473,450 in 2006 to 556,700 in 2015,
an increase of 83,250 households.
What actually occurred however was the opposite, household size increased steadily, from 2.90 in
2006 to 3.07 in 2015.
Under this forecast, given the actual population growth, Statistics NZ expected households to
increase from 473,450 in 2006 to 511,940 in 2015, an increase of 38,490 households. The final
row shows the difference between the expected household formation rate and the actual
household formation rate, which was -44.760 over this period.
Given that the external factor of high dwelling prices was not accounted for by Statistics NZ, this
suggests that if dwelling prices had not increased so rapidly, there would have been an additional
44,760 households formed, and therefore there would have been (ex ante) demand for an
additional 44,760 dwellings (or in other words, 44,760 households would have chosen to reside in
their own dwelling, rather than form larger households (e.g. complex households) if prices had
not increased so rapidly.
In terms of the economics of housing demand, it can be concluded that the demand for housing is
presently in dis-equilibrium and there is a deficit of approximately 45,000 dwellings (as every
household requires a dwelling). A report16 prepared by Statistics NZ estimates that 8% of
dwellings in Auckland are crowded. This largely confirms the findings outlined.
The PAUP should therefore be amended to provide for an additional 45,000 lower price dwellings
in order to meet this deficit. In my opinion meeting this deficit is required under the social and
economic welfare provisions of the RMA.
Table 11: Household Size and Formation Rates

Forecast Population (2006 Base)


Forecast Household Size (2006 Base)
Forecast Households (2006 Base)
Population Estimates
Actual Household Size
Actual Households
Difference Between Forecast and Actual
Households (Dwelling Deficit)
Source: Statistics NZ, Urban Economics

2006
1,371,000
2.90
472,760

2013
1,534,400
2.86
529,100

2014
1,557,600
2.84
544,620

2015
1,580,800
2.82
556,620

1,373,000
2.90
473,450

1,493,200
3.00
497,730

1,526,900
3.03
504,310

1,569,900
3.07
511,940

690

-31,370

-40,310

-44,680

16

Goodyear, R & Fabian, A (2014). Housing in Auckland: Trends in housing from the Census of Population and Dwellings 1991 to
2013.

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Feasible Residential Capacity

26

In terms of the economics of housing demand, it is generally accepted in the economic literature
that the price elasticity of demand for housing is in the order of -0.7%17 This means that a 1%
increase in the average price of dwellings results in a -0.7% demand for dwellings, as fewer
households can afford to own or rent a dwelling within the limits of their income, and are forced to
choose between moving to another City or to share a dwelling.
For Auckland this means that a 10% increase in the average price of dwellings results in a
decrease in annual demand (assuming 10,000 to 13,000 dwellings required) of approximately 700
1,000 dwellings. The foregoing is relevant to understanding the future demand for housing
because demand is significantly influenced by price, in the sense that, whilst population may be
increasing rapidly, if housing is very expensive relative to incomes, then fewer people will be able
to afford to own or rent their own dwellings, and will therefore either establish larger households, or
move to another city. This is clearly evident for Auckland in the foregoing table and indicates a
significant market failure (or more accurately government failure in regard to supply constraints).
When evaluating the demand for housing there is a need to decide between an ex ante and ex
post demand evaluation methodology. These are defined as follows:

Ex ante demand is the aggregate demand before consumers have interacted with the
marketplace.

Ex post is the aggregate demand after consumers have interacted with the marketplace.

The practical implication of the difference between and ex ante and ex post housing demand
evaluation methodology, is if ex post is chosen, then demand is assumed to be what is evident in
the current market, and therefore households that have significant equity, as a result of unusually
large price rises, will demand more expensive dwellings.
Conversely, if ex ante is chosen, then demand is assumed to be what households can afford to
spend on a dwelling based on their income and ability to service a mortgage.
Using an ex ante methodology maximises economic welfare because it does not benefit
households that have already interacted with the market (i.e. purchased a dwelling before prices
have significantly increased) and create a cost for those that have not already purchased and
would struggle to purchase (or rent) a property based on the current high prices.
An ex ante demand methodology would also reduce the risk of some households having significant
negative equity if prices drop. At present, 23% of households in the US18 have negative equity.

17

For example, the price elasticity of the demand for housing services in North America is estimated as negative 0.7 by Polinsky and
Ellwood (1979), and as negative 0.9 by Maisel, Burnham, and Austin (1971).
18

, George R. Carter III, U.S. Census Bureau, Housing Units with Negative Equity, 1997 to 2009

______________________________________________________________________________________
Feasible Residential Capacity

27

The five by 2030 objective that is to be included in the Auckland Plan indicates a median price of
$382,500. This is consistent with an ex ante demand evaluation methodology because it reflects
the ability to pay based on income rather than with large capital gains.
In order to estimate the overall demand for housing, in terms of price, I therefore consider that
income (ability to pay) of existing residents is the preferred approach.
The following Figure and Table 3 show the distribution of all existing dwellings by price in
Auckland (blue). It also estimates a possible overall price distribution if the five by 2030 objective
was achieved (yellow).
Figure 7: House Price Distribution Current vs Five by 2030

Additional low cost housing needed

Table 12 House Price Distribution Current vs Five by 2030


Percentage
Percentage
M edian Price
Current
M edian Price
Price Bracket ($,000's)
"Five by 2030"
M edian Price
"Five by 2030"
Scenario
Scenario
Scenario
$0-$99
150
0%
390
0%
$100-$199
370
0%
19,850
6%
$200-$299
3,170
1%
80,940
24%
$300-$399
20,120
6%
77,060
23%
$400-$499
38,320
12%
59,660
18%
Sub-Total less than $500
62,130
19%
237,900
72%
$500-$599
44,270
13%
36,020
11%
$600-$699
40,030
12%
18,320
6%
$700-$799
39,470
12%
12,100
4%
$800-$899
29,820
9%
7,850
2%
$900-$999
27,460
8%
4,860
1%
______________________________________________________________________________________
$1,000+Residential Capacity 89,460
27%
15,600
5%
Feasible
28
Total
332,640
100%
332,640
100%
Source: Auckland Council, Urban Economics
Current
M edian Price
Scenario

The main implication of this is that under the current price scenario only 19% of dwellings are
priced under $500,000, whereas under the five by 2030 scenario requires 72% of dwellings to be
priced under $500,000. The ACDC15 maximum percentage return results show that only 1% of
net additional dwellings can be built for less than $600,000. This indicates that the urban portion of
the city will, under this scenario assessing the PAUP, will not enable enough low cost dwellings to
achieve the regional five by 2030 objective or equilibrium demand, which are broadly equivalent.

Matching Demand with Supply


The Maximum Profit Scenario outputs from the ACDC15 model show that only a small number of
dwellings are likely to be built for less than $600,000 (only 386 dwellings or less than 1%). The
most useful outputs results are the maximum percentage return because this is the option that the
developer would in most cases choose. This is subject to there being a market demand in that
price point; sometimes a developer will choose a lower intensity development, such as a two lot
stand alone subdivision, rather than a more profitable and more intense development, such as a 6unit terrace development, because of either expertise or access to capital/finance. These model
outputs are summarised below.
Table 13: Maximum percentage profit by sale price ($,000) range feasible dwellings under the
PAUP
Scenario
Apartment Large
Apartment Medium
House Large
House Medium
Terrace Large
Terrace Medium
Total
Percentage of Total

$0-$499

$500$599

386

386

0%
0%
Source: Auckland Council ACDC 2015

$600$699

18,450
1,203

$700$799
1
35,814
1,280

$800$899

$900$999

18
8,465
461
1,515

47,358
304
1,370

$1,000- $1,500$2,000+
$1,499 $1,900
1,291
543

19,653

37,095

10,459

49,032

68,774
184
10,056
32
80,337

9%

18%

5%

23%

38%

Total

5,336
3
6,435

556

12,317

652

1,835
18
185,139
3,435
19,472
32
209,931

6%

0%

100%

96

Table 4 Maximum Percentage Return Scenario: Net Additional Feasible dwellings under PAUP

Dr Fairgray estimates that approximately 22% dwellings sold are for less than $500,000 based on
historic sales data. 14% of properties listed for sale on Trademe (at XXXX) are for less than
$500,000. This suggests that around 15-20% of dwellings in Auckland are available for less than
$500,000.
To achieve the five by 2030 objective or an efficient housing market requires a much higher
number of dwellings to be enabled for less than $500,000. The five by 2030 objective requires
around 72% to be in this lower price range. The estimated deficit suggests that there is an
immediate need for 45,000 dwellings for less than $500,000.
This does not appear to be achievable based on the ACDC15 model results.

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Feasible Residential Capacity

29

I would suggest that the PAUP should enable a minimum of 120,000 dwellings for less than
$500,000, to meet both the historic deficit and future demand growth over the next decade. This is
based on:

100% of the existing deficit of 45,000 dwellings.

50% of future (10 year) growth, including a five-year supply buffer.

Tenure
As a general comment, I do not believe that tenure is relevant to the question of supply and
demand, as some countries function well with a high rate of rental tenure. The objective should not
be to increase ownership per se, rather to provide a market that enables inexpensive housing.
4.1.2

Methodology 2 (Douglas Fairgray)

To examine the demand side of the housing equation, I have focussed on both the volume of
demand for housing in terms of dwelling numbers, and the structure of that demand in terms of
dwelling price that is, distribution of that demand across price points.
For this, I have drawn on the projected increase in household numbers over the period 2013-26
and 2013-41 for both medium and high population projections. It also takes account of the
estimated shortfall in dwellings as at Census 2013, which is relevant in terms of making provision
for all of Aucklands housing needs. This is on the basis that demand for housing is manifest as the
ownership and the rental of permanent private dwellings, with the PAUP approach to meeting the
requirements of the Auckland population based on one dwelling per household.
The purpose of this current analysis is to develop estimates of housing demand in Auckland to
2026 and 2041, in terms of total dwellings, and the price structure. This is to provide a suitable
basis for comparison with the dwelling supply side data.
4.1.3

Key Issues

Assessment of the price structure of housing demand is not a simple exercise, and a number of
factors need to be taken into account. There are several dynamics in the market, there are many
segments within the market to which specific price structures apply, and circumstances change
over time. Particular issues include:
a. The interface between the rental and owning components of the market, where dwelling
prices (especially) directly influence decisions to purchase or be tenants, and decisions on
household formation. Households circumstances and ability to be renters or owners vary
over time, especially as they progress through key life stages. This means that current or
historic levels of ownership (vs rental) do not necessarily reflect the future levels, or
represent aspirational levels. Over time, the general trend is for dwelling ownership rates to
be higher for older households which generally (but not solely) reflects a move to become
owners rather than renters.

______________________________________________________________________________________
Feasible Residential Capacity

30

b. The current price structures in the market do not necessarily fully represent the demand
from each segment. This is especially the case for first home buyers / (generally) younger
households who are not active in the market as buyers because they cannot afford to be. It
is reflected in the lower levels of dwelling ownership identified by the 2013 Census,
compared with previous Censuses, for these segments especially. In combination, these
two factors suggest that the current price structure (2015) as reflected by the numbers of
sales in each price/value band is truncated and understates demand in the lower value
ranges.
c. A third factor is on-going change by existing households, both owners and renters, as they
change dwellings over time.

Commonly referred to as the churn in the market, this

process includes (but is not limited to) owners of dwellings purchasing higher value
dwellings as they move through the life cycle especially in the 40-65 age groups. It also
includes households in the more mature age groups who purchase smaller and/or less
valuable dwellings later in life, including those who move into retirement villages 19 and the
like. This process means that there is regular availability of existing dwellings to be
purchased, for owner occupiers or for rental purposes.
d. Part of this process arises from a fourth factor, that over time some existing households will
pass on20.
e. Demand for housing for each segment in the market may be met from both new dwellings
and the existing housing stock. Simply, an increase in demand for (more) dwellings arising
from an increase in household numbers does not mean that new dwellings would be to
meet the needs of new households. Rather, the pattern is for new dwellings to be taken up
by existing households and new households, and the movement of existing households
through the housing stock as buyers, sellers and renters is an important catalyst for
existing dwellings to become available to new households. This is especially because new
households tend to be younger and more price sensitive than the average, while new
dwellings are more expensive than the average which means a common process is for
existing households to move into new dwellings, and thereby make available existing
dwellings to new households. This is particularly important when considering the needs of
new households it is not as simple as estimating the price structure relevant to new
households, and assuming that such a price structure should be applicable to new
dwellings.
f.

There is good information on the current price structures in Auckland, available from
CoreLogic sales records. This shows detail on sales (2014 and 2015) by dwelling typology,

19

The Retirement Village Association estimates demand as equivalent to 12% of the population aged 75 and over (2014).
Approximately 90% of residents are single persons.
20

While there are no detailed statistics on this, analysis of age-specific death rates in Auckland, and age-specific household structure
indicates a gross loss of around 2,500-2,800 households annually. This includes residents of retirement villages.

______________________________________________________________________________________
Feasible Residential Capacity

31

in each price band, by each main type of purchaser, and differentiated between new and
existing dwellings. However, this price structure information does not necessarily cover all
segments, notably those for whom ownership is not affordable.
g. The price structure which would apply to those households not currently purchasing
dwellings is obviously not known. Nevertheless, in order to understand the price structure, it
is important to recognise what is likely to apply in the lower price points, as well as what
currently applies across the balance of the market. That matter is considered further below.
4.1.4

Approach

The general approach I have applied is to identify the key segments of the housing market, and to
understand the price structure (distribution of dwelling prices/values) which applies to each
segment. A priori, changes in the size of these market segments will drive changes in the overall
structure of housing demand. This means projections of the household segments are able to
provide a base step to estimating the future structure of housing demand.
Key Market Segments
As a first step, I have identified the key household segments and their projected growth. While
detailed household segmentation is readily possible, the practical consideration is that the
available information on price structure is quite broad, and applies to all households currently
active as purchasers, with differentiation only as between first home buyers, investors and owneroccupiers and others. Thus, detailed information on dwelling ownership levels by household age,
type, size and income is available and has been used to understand ownerships patterns within the
Auckland population, and changes in those patterns over time. However, there is no reliable basis
on which to link patterns of ownership for each segment with specific dwelling price bands.
Accordingly, I have utilised broader segments for demand projections.
The SNZ population projections and associated household projections identify the net increase in
household numbers to 2026 and 2041. This amounts to between an additional 147,000 households
(medium projection) and 182,000 households (high projection) by 202621.
In relation to housing demand, this household growth is usefully disaggregated according to:
(a)

New households which form from within the Auckland resident population (about
65% of growth);

(b)

Households from in-migration, many of which are in established households


formed prior to moving to Auckland, and were dwelling owners prior to moving to
Auckland (about 35% of growth).

21

In gross terms, allowing for the passing of some existing households, the growth is in the order of 180,000 households (medium) to
218,000 households (high). This equates to gross addition of 13,000 households and gross loss of some 2,500 households (medium)
and gross addition of 15,500 households and gross loss of some 2,800 households (high).

______________________________________________________________________________________
Feasible Residential Capacity

32

It is also important to consider existing households in Auckland, since there will be changes over
time which affect their demand for housing.
To assess demand for housing, I have disaggregated the market according to six key segments:

A - Existing households who are dwelling owners

B - Existing households who are dwelling renters

C - New Auckland households (forming from within the resident population) who will
be dwelling owners

D New Auckland households who will be dwelling renters

E In-migrant households (from outside of Auckland) who will be dwelling owners

F - In-migrant households who will be dwelling renters

These segments in combination provide a sound basis for the projections, and estimating future
price structures. In particular, each segment has its own characteristics in terms of the distribution
of dwelling prices for which it is currently able or willing to pay. In selecting these segments, I
undertook detailed analysis of Census and projection data, especially around household formation
and dwelling ownerships rates across the period 1996 to 201322. That analysis was especially
useful to understand the changes over time, and the market segments which are not currently
represented in dwelling ownership, as a guide to developing an overall assessment of demand.
I have disaggregated the household projections into these segments, for the periods to 2026 and
2041. Table 4.4 shows the projected segments to 202623, for medium and high projections, and
Table 4.5 the projections to 2041. Key features include:
a.

Existing households (2013) make up the major share of the market throughout,
though slowly decreasing in number (-0.5%pa);

b.

The net annual increase of 10,100 households equates to a gross increase of


around 12,500-13,000 new households, comprising about 8,000 from within the
Auckland population, and some 4,700 as in-migrants (medium future).

c.

The high future would see a net increase of 13,000 households annually, and a
gross annual increase of 15,500 households;

d.

These households are the key components of growth, and are the basis for
projecting housing needs in gross terms;

22

The Census (2013) data provides detail on dwelling ownership and rental patterns by age (of head) and income of households. It also
provides detail on households progress through the formation and dwelling rental or purchase (including rental then purchase). It also
shows how these patterns changed between 1996 and 2013, and especially the decline in ownership and increase in renting over that
period. This is clearly income-specific with lower income households showing lower ownership rates.
23

Based on the StatisticsNZ household projections released December 2015.

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Feasible Residential Capacity

33

Table 14: Key Segments of Auckland Housing Market to 2026


SEGMENT

Medium Future
High Future
Annual
Total
Total 2026
Annual
Total
Total 2026
301,000 1,500 19,500
281,500 1,500 19,500
281,500
170,000 900 11,500
158,500 900 11,500
158,500
4,700
60,800
60,800
5,800
75,300
75,300
3,100
40,600
40,600
3,900
50,200
50,200
3,300
43,000
43,000
4,100
53,200
53,200
1,400
17,800
17,800
1,700
22,100
22,100
471,000
10,100
131,200
602,200
13,100
169,800
640,800
27,000
780
10,100
37,100
960
12,500
39,500
498,000
639,000
680,000
141,000
182,000
2013

A - Existing households (owners)


B- Existing households (renters)
C- New Auckland households (owners)
D- New Auckland households (renters)
E- In-migrant households (owners)
F- In-migrant households (renters)
TOTAL
Social Housing
TOTAL
Projected Change (2013-2026)

Table 15: Key Segments of Auckland Housing Market to 2041


SEGMENT
A - Existing households (owners)
B- Existing households (renters)
C- New Auckland households (owners)
D- New Auckland households (renters)
E- In-migrant households (owners)
F- In-migrant households (renters)
TOTAL
Social Housing
TOTAL
Projected Change (2013-2041)

Medium Future
High Future
Annual
Total
Total 2041
Annual
Total
Total 2041
301,000 1,600 44,900
256,100 1,600 44,900
256,100
170,000 900 25,900
144,100 900 25,900
144,100
4,500
124,700
124,700
5,700
160,100
160,100
3,000
83,200
83,200
3,800
106,700
106,700
3,200
88,200
88,200
4,000
113,100
113,100
1,300
36,600
36,600
1,700
47,000
47,000
471,000
9,500
261,900
732,900
12,700
356,100
827,100
27,000
600
18,100
45,100
850
23,900
50,900
498,000
778,000
878,000
280,000
380,000
2013

I note that my analysis is based on total demand for housing over the period, rather than just the
net growth in demand. This is important because the demand-supply relationship is not static, and
households change dwellings over time (see above as to churn in the market). The segments
also apply a breakdown between dwelling owners24, on the basis that the dwelling price structure
for owners may differ from that of renters, which is reflected as that of investors.
The next step in developing the projection is to apply relevant information on price structure to
each segment.
4.1.5

Structure of Demand

There is sound information on the price structure of housing demand, albeit not covering all of the
Auckland market. The CoreLogic datasets for sales in the Auckland market during 2014 (full
calendar year) and 2015 (January-September) provide detail on the structure of demand for the
owner segments. The data shows purchases in each price/value range by first home buyers
(11,604 or 21.4%), investors / multi-property owners (20,187 or 37.3%) and others - primarily those

24

This is based on analysis of the structure of demand (Census-based analysis of population structure, household formation, and
dwelling purchase patterns) which provides detail on this split.

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34

established owners who changed dwellings as owner-occupiers (22,386 or 41.3%). This is further
disaggregated as between new and existing dwellings, and by type of dwelling25.
The number of sales is consistent with national patterns as to the overall rate of sale (sales per
total dwelling estate) in the order of 6.5% pa. These price structures are shown in Table 16 and
Figure 8.
Table 16: Auckland Dwelling Purchases by Price Band 2014-2015
PRICE/VALUE BAND
<$400,000
$400,001-$500,000
$500,001-$600,000
$600,001-$700,000
$700,001-$800,000
$800,001-$900,000
$900,001-$1,000,000
$1,000,001-$1,250,000
$1,250,001-$1,500,000
$1,500,001-$1,750,000
$1,750,001-$2,000,000
$2,000,001 and Over
TOTAL

First
Owner
Home
Occupiers Investors
Buyers
and Other
8.8%
9.6%
13.4%
15.7%
9.6%
12.7%
18.4%
11.4%
13.1%
17.4%
12.9%
13.6%
12.5%
12.6%
11.8%
8.3%
10.9%
8.9%
6.1%
8.8%
6.6%
6.4%
11.5%
9.0%
3.3%
5.7%
4.7%
1.5%
3.0%
2.5%
0.7%
1.9%
1.5%
0.9%
2.2%
2.0%
100.0%
100.0%
100.0%

TOTAL
10.8%
12.0%
13.6%
14.1%
12.3%
9.6%
7.4%
9.5%
4.8%
2.5%
1.5%
1.9%
100.0%

Source: CoreLogic 2015

Figure 8: Auckland Dwelling Market Price Structures 2014 and 2015

Source: CoreLogic 2015

25

The Corelogic data tracks sales of residential properties. This is straightforward for existing dwellings. However, the data provided
does not capture situations where vacant land is purchased and a new dwelling subsequently built for the owner of the property, since a
dwelling sale has not taken place. For this reason, the data is likely to understate the sale of new dwellings.

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Figure 8 suggests that First Home Buyers are generally more active toward the lower end of the
market, as are Investors (owners of multiple residential properties), while owner-occupiers (and
others) who are not first home buyers are generally more toward the middle of the overall price
distribution. However, the figure shows there is considerable overlap among the purchaser types,
with the price structures most noticeable for their similarity rather than the difference.
These price structures are relevant to each segment as follows:
a. The market structure for the Owner-Occupier and Other group is applied here to
segment A - existing households who are dwelling owners.
b. The market structure for First Home Buyers is applied here to segment C new
Auckland households who are dwelling owners.
c. The market structure for all groups is applied here to segment E in-migrant
households who are dwelling owners.
d. The market structure for Investors/MPOs is applied to all renting segments (B, D
and F) on the basis that the investors will be seeking to rent out their properties.
4.1.6

Projected Demand

Together, the information on the size of the main segments, and the underlying prices structures
which relevant to these segments, provides an initial basis for projecting housing demand by
price point - out to 2026, and 2041.
However, as noted, that information on price structure is incomplete. Three obvious gaps are
apparent. First, there is no market structure information relating to those mainly lower income
households who aspire to be dwelling owners but cannot afford it26, and therefore are not active as
buyers in the market
Second, the numbers of renting vs owning households are also strongly affected by affordability.
This means that a projection which assumes that the current ownership-to-rental ratio will persist,
and that current market structures are appropriate to the whole of each segment, is unlikely to be
accurate. This does not mean that the current information on price structures is wrong the level
of sales in the Auckland market is consistent with long term national trends. However, it does mean
that the available price structures do not apply to all groups within each of the segments.
Third, there is very limited information on recent in-migrants to Auckland, especially their status as
to income, dwelling tenure and household type. This is problematic, particularly because there has
been very substantial in-migration in the last 2-3 years which post-dates the 2013 Census.
StatisticsNZ data shows a gross increase of some 134,500 persons in the three years ending
December 2015, and a net increase of some 63,900 persons (Figure 9). The annual net gain for

26

The change in dwelling ownership levels between Census 1996 and Census 2013 suggests that this shortfall has been in the order of
2,000 households per year. However, that is unlikely to reflect the trend since 2013, when dwelling prices have risen considerably, and
ownership rates are likely to have fallen further behind the historical levels.

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Auckland in the last 3 years has been more than three times the average over the 2000-2012
period. While there has been anecdotal evidence and considerable speculation, there is no
evidence on the extent to which the recent surge in in-migration has been associated with
purchase of dwellings. Irrespective, the implied substantial net increase in resident population has
undoubtedly pushed up demand for dwellings, and there is very limited information available as to
the nature of this additional demand.
Figure 9: Long Term & Permanent International Migration Auckland 1991-2015

Source:StatisticsNZ 2016

To address the gaps, it is necessary to have either information or estimates which can be applied
to all households in each segment, rather than only to those who can afford to be owners. There is
some guidance from the current distribution of sales in those lower price bands. However, those
represent purchases only by those active in the market. The availability of dwellings for sale is also
important, since one reason that some segments are not active as buyers is because dwellings in
the desired price range are not available that is, they may be active as buyers if there were
dwellings available to buy.
The criteria for affordable dwellings applied by Auckland Council are based on median income
estimates, where up to 30% of income goes to loan servicing. Currently, at a median household
income of $78,500, an affordable dwelling is in the range of $300,000 to $450,00027.
For present purposes, I have allowed for all affordable dwellings to be in the $300,000 to
$500,000 range. This range currently accounts for 22.9% of the Auckland market (6.4% of sales
are $350,000 or below, with 10.3% in the $350-450,000 band, and 6.45% in the $450-500,000
band).

27

The definition is based on between 80% and 120% of the median income, at current interest rates (approximately 5.1%). This will
vary as median income levels change, and interest rates change.

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I emphasise that this is indicative, until better information on a price structure for affordable
dwellings becomes available. Currently, information is being sought from CoreLogic into the
numbers of new dwellings in each price band in other urban markets across New Zealand, to
provide some basis for comparison with Auckland.
While it may be indicative, unless allowance is made for this part of the overall housing market, any
projections run the risk of simply reflecting the current pattern of sales - which the evidence clearly
suggests does not represent the total (ie satisfied plus unsatisfied) demand profile.
Accordingly, notwithstanding the uncertainties, I consider this distribution is very broadly
appropriate as an indicator of demand for affordable dwellings.
The directly related issue is to what proportion of overall demand the affordable price structure is
applicable.

4.1.7

Scenario Approach

Because the projected demand requires an estimated price structure, to be applied to some parts
of some segments, a scenario approach is appropriate. Scenarios may be used to illustrate a
range of potential outcomes in terms of numbers of dwellings required by price/value band. Use
of scenarios means a wide range of outcomes is possible, and it is important to take care with any
assumptions applied. Equally, it is important to understand the implications of change, and the
extent of change which is implied in specific outcomes.
I have considered four scenarios, as follows:
1. Status Quo current (2013) levels of dwelling ownership in the Auckland population will
also apply to growth (64% owner, 36% renter) made up of new Auckland households (60%
as owners) and in-migrant households (71% as owners). None of the growth is in the
affordable market structure, and all is based on the 2015 sales price patterns assumed to
apply to 2026. This is in effect a continuation of the most recent situation, and is included
especially to provide a basis for comparison.
2. Low-Medium Focus on Affordability this scenario allows for 10% of all growth
require affordable housing, including new Auckland households and in-migrants.
allowance is made also for the shortfall in dwellings (estimated at 14-18,000 as at 2013)
be made up through affordable dwellings, then that would increase the affordable share
17-19% of growth plus catch-up;

to
If
to
to

3. Medium Focus on Affordability this scenario allows for 15% of all growth to require
affordable housing, including new Auckland households and in-migrants. If allowance is
made also for the shortfall in dwellings to be made up through affordable dwellings, then
that would increase the affordable share to 23-25% of growth plus catch-up;
4. High Focus on Affordability this scenario allows for 20% of all growth to require
affordable housing, across new Auckland households and in-migrants. If allowance is made

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38

for the shortfall in dwellings to also be made up through affordable dwellings, then that
would increase the affordable share to 26-28% of growth plus catch-up.
4.1.8

Housing Shortfall 2013

Allowance needs to be made for the estimated shortfall in Aucklands dwelling supply. As noted
above, a number of estimates have been made as to the size of the shortfall. I have undertaken
comparative analyses for 1996, 2001 and 2006, using customised data prepared by StatisticsNZ.
It is important to consider both age structure and ethnicity, because both have substantial and
direct influence on household formation levels, and because Aucklands population structure differs
significantly in these aspects from the population of New Zealand as a whole. Table 4.8 shows that
in 2013, some 13% of Aucklands population were Pacifica people, and 21% identified as Asian
substantially higher shares than for the balance of New Zealand (Pacifica 3.4%, Asian 5.7%). In
Auckland, Maori account for a lower share of the population (10% compared with 15.5% in the rest
of the country, as did European and other groups (55.6% compared with 75.3% elsewhere).
Figure 10 shows how household formation rates (calculated as households formed per capita in
each age cohort) vary among ethnicities, with generally higher rates among European and Other
and Maori, and lower rates among Asian and Pacifica people.
Table 17: Ethnic Structure of Auckland Population 2013

Auckland
Population
Maori
Pacific
Asian
European & Other
TOTAL
Share %
Maori
Pacific
Asian
European & Other
TOTAL

Rest of New
Zealand

New
Zealand

149,490
199,520
313,770
830,420
1,493,200

457,770
101,300
169,560
2,220,300
2,948,930

607260
300820
483330
3050720
4,442,130

10.0%
13.4%
21.0%
55.6%
100.0%

15.5%
3.4%
5.7%
75.3%
100.0%

13.7%
6.8%
10.9%
68.7%
100.0%

Source: StatisticsNZ 2015

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39

Figure 10: National Household Formation Rates by Age and Ethnicity 2013

Source: Census 2013

In order to take these factors into account in estimating the housing shortfall in Auckland, I
calculated the expected number of households for Auckland in 2013, based on the Auckland
resident population, and the national household formation rates for each ethnicity. This takes into
account both differences in ethnicity and differences in age structure. I then summed the expected
households in each ethnicity, and compared the expected Auckland household count with the
Census count.
The expected count is 480,252 households, taking into account age and ethnicity. The Census
count was 466,797. This indicates a shortfall in households as a proxy for the shortfall in
dwellings - of some -13,455, or some -2.8%.
The final household estimate released by Statistics NZ is 498,000. Adjusting for this difference pro
rata would give an expected household count of 512,000. The final figures therefore indicate a
shortfall of -14,000.
I note the estimate developed by StatisticsNZ in 2014. Figure 11 below is reproduced from the
publication Housing Affordability: Outlook and Opportunities prepared for the Ministers meeting of
25 November 2014. It shows the StatisticsNZ estimate of the cumulative net housing supply
position for Auckland over the period 2000-2015, with a shortfall of -13,200 estimated for 2013, and
-20,787 for 2014. The methodology which was applied by StatisticsNZ is not detailed.

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40

Figure 11: Statistics NZ Estimate of Housing Demand vs Supply in Auckland 2000-2014

I have also considered the regional level figures released by StatisticsNZ for 2013, against the
earlier population and household projections (2006 base) which pre-date the 2013-base
projections. As noted above, the final 2013 population figure is below the SNZ Low projection for
2013, which I have interpolated at 1,504,000 from the 2006-base projection series. Since the
population count is below the Low projection, then the relevant household projection and
household size figures (2.892), also derive from the StatisticsNZ Low series. Applying the Low
projected mean household size to the actual 2013 population shows an expected household count
of some 516,000. This means the actual household count of 498,000 is approximately -18,000
below that expected for that population size. While this is a quite broad brush approach, it
nevertheless offers another estimate of Aucklands dwelling shortfall as at 2013.
These three different methods offer estimates of dwelling shortfalls of -13,200 (-2.6%), -14,000 (2.7%) and -18,000 (-3.5%) as at mid-2013.

4.1.9

Net Dwelling Demand Population Change and Market Churn

The analysis of net additional demand for dwellings requires more that simple comparison of the
before (2013) and after (2026) situations in total, because it must take into consideration gross as
well as net changes in household numbers, and the way in which households interface with the
dwelling estate not just by owning or renting, but also by selling and purchasing dwellings, and
re-locating, over time.
Accordingly, estimates of housing demand require consideration of:

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41

1.

Existing households, currently and projected to 2026, allowing for gradual decrease in
their numbers over time (affecting availability of dwellings);

2.

Total demand from additional households (gross as well as net growth);

3.

The degree to which dwellings will be available to households over time, from both
the construction of new dwellings, and the sale of existing dwellings.

For this, I have estimated the gross additional demand for dwellings in each price/value band by
applying the price structures (% in each price/value band) to the projected household numbers in
each segment, and summing the results for all segments. I have then estimated expected
availability of existing dwellings in each price/value band, by taking into account the projected
decrease among existing households (assumed to be distributed pro rata across the existing
dwelling stock), and the statistics on churn or changes as existing households move among
different price/value bands within the dwelling estate. Net additional demand in each price/value
band is then gross demand, less expected availability, over the period to 2026.
The allowance for changes to occur within the housing market over time is very important. This is
the process by which households move within the dwelling estate, typically selling one dwelling
and purchasing another, or changing tenancies. Anecdotally, this process is primarily one where
households move from lower value dwellings to higher value dwellings over time, especially as
their equity may build, and as household incomes increase. This would indicate a net upward shift
across the dwelling estate over time that is, the general movement is upward in terms of dwelling
value, making lower value dwellings available.
There is also downward movement, as households may move to less expensive often smaller
dwellings as their needs change, especially in later life stages. Another driver of downward
movement is people purchasing lower value dwellings because of the opportunity to make
improvements and then benefit from capital gains on re-sale.
The direct consequence of this movement within the dwelling estate is that dwellings become
available to others in the market. This is a key process by which new households enter the market
as owners (rather than as renters). The changes in use of the dwelling estate over time directly
affect the availability of dwellings in each price band.
Until now, there has been very limited numerical information to quantify these patterns. For this
analysis, a customised dataset sourced from Corelogic has been used to identify the nature of
change within the dwelling market. This identifies the movements of 6,272 persons/households
who sold their only dwelling during 2015, and purchased another (replacement) dwelling, and
identifies the price band of the dwelling sold, as well as the price band of the dwelling purchased.
This provided an effective origin-destination matrix, to show into which price band the sellers from
each price band actually moved during 2015.
The data shows that for owners of dwellings in the lower price brackets, the movement is
predominantly upward to higher priced dwellings. Throughout the lower and middle price bands,
the upward movement is generally greater than the downward movement. However, for owners
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42

already established in the higher price bands, the likelihood of them moving down in the market to
a lower priced dwelling is progressively greater. This is shown clearly in Figure 12.
Figure 12: Structure of Movements within the Auckland Housing Market 2015

Nevertheless, the greater volume of dwellings in the price bands below $1,000,000 means that on
a market-wide basis, the net movement is generally upward, especially from dwellings in the lower
price bands. This is shown in Figure 13.
Figure 13: Actual Movements within the Auckland Housing Market 2015

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43

This information is very important to our understanding of the net changes in demand for dwellings
in each price band, and especially the extent to which the gross additional demand in the lower
price bands is likely to be met from the existing dwelling estate, as current owners move upward
(to higher price bands) within the market.
I have utilised this information from Corelogic to estimate the extent to which existing dwellings in
each price band are likely to be put up for sale over time, and thereby become available to those
seeking dwellings in the relevant (lower) price bands. The national average of some 6% of
dwellings being sold in any year suggests that some 78% of dwellings would become available
over the period 2013 to 2026 (ie 13 years x 6% each year). Allowing for some existing owners to
remain in place (about 22%), and applying the Corelogic data to estimate the destination (price
band) of sellers from each origin (price band), it is straightforward to estimate the net numbers of
dwellings in each price band which will not be taken up by existing households over the period28,
and which therefore become available for new households.
This is then compared with the projected demand in each price/value band to estimate the net
additional dwellings required in each price/value band. This does not include social housing.
Table 18 shows the estimated net additional dwelling demand in each price band to 2026 in the
medium growth future. Note that the total numbers concord with projected household growth 2013
to 2026 (141,000) excluding allowance for those requiring social housing (around 8,500).
Table 18: Net Additional Dwelling Demand by Price/Value Band Medium Growth to 2026
Low-Medium

Price/value Band ($000) Status Quo Affordability


Emphasis

<$400K
$400-500K
$500-600K
$600-700K
$700-800K
$800-900K
$900-1000K
$1000-1250K
$1250-1500K
>$1500K
TOTAL

1,100
8,300
11,100
12,300
19,900
21,000
15,800
19,100
10,300
13,400
132,300

9,000
13,400
9,000
10,100
17,800
19,300
14,400
17,400
9,500
12,400
132,300

Medium
Affordability
Emphasis

N of Dwellings
12,900
15,900
7,900
9,000
16,800
18,500
13,800
16,600
9,100
11,900
132,400

High
Affordability
Emphasis

16,900
18,200
6,700
7,700
15,800
17,700
13,200
15,900
8,700
11,600
132,400

Status Quo

0.8%
6.3%
8.4%
9.3%
15.0%
15.9%
11.9%
14.4%
7.8%
10.1%
100.0%

Low-Medium
Medium
High
Actual Sales
Affordability Affordability Affordability
2014-15
Emphasis
Emphasis
Emphasis

% of Dwellings
6.8%
9.7%
10.1%
12.0%
6.8%
6.0%
7.6%
6.8%
13.5%
12.7%
14.6%
14.0%
10.9%
10.4%
13.2%
12.5%
7.2%
6.9%
9.4%
9.0%
100.0%
100.0%

12.8%
13.7%
5.1%
5.8%
11.9%
13.4%
10.0%
12.0%
6.6%
8.8%
100.0%

10.8%
12.0%
13.6%
14.1%
12.3%
9.6%
7.4%
9.5%
4.8%
5.8%
100.0%

The projected totals in the bands under $500,000 range from 23,000 in the Low-Medium
Affordability scenario (17%, about 1,700 dwellings per year over 13 years) through nearly 29,000 in
the Medium scenario (22% or about 2,200 pa) to around 35,000 in the High scenario (27% or
about 2,700 pa).

28

Including allowance for the dwellings available as deceased estates

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44

Allowance for the 2013 shortfall to be offset during the period to 2026 adds some 14-18,000
dwellings to each of these projected totals, which equates to and some 1,100-1,400 dwellings
annually. This would mean a total requirement of 36-40,000 in the Low-Medium scenario (2,8003,200 pa), 43-47,000 in the Medium scenario (3,300-3,600 pa) and 49-53,000 in the High scenario
(3,800-4,100 pa).
Table 19 shows the estimated net additional dwelling demand in each price band to 2026 in the
high growth future. As previously, this excludes allowance for those requiring social housing.

Table 19: Gross Additional Dwelling Demand by Price/Value Band High Growth to 2026
Low-Medium

Price/value Band ($000) Status Quo Affordability


Emphasis

<$400K
$400-500K
$500-600K
$600-700K
$700-800K
$800-900K
$900-1000K
$1000-1250K
$1250-1500K
>$1500K
TOTAL

4,500
12,800
16,300
17,700
24,800
25,000
18,900
22,900
12,300
15,800
171,000

14,300
19,200
13,800
15,000
22,300
22,900
17,200
20,800
11,300
14,500
171,300

Medium
Affordability
Emphasis

N of Dwellings
19,700
22,600
12,800
13,900
20,800
21,500
16,100
19,400
10,600
13,600
171,000

High
Affordability
Emphasis

24,200
25,200
10,800
12,000
19,700
21,000
15,700
18,900
10,300
13,500
171,300

Status Quo

2.6%
7.5%
9.5%
10.4%
14.5%
14.6%
11.1%
13.4%
7.2%
9.2%
100.0%

Low-Medium
Medium
High
Actual Sales
Affordability Affordability Affordability
2014-15
Emphasis
Emphasis
Emphasis

% of Dwellings
8.3%
11.5%
11.2%
13.2%
8.1%
7.5%
8.8%
8.1%
13.0%
12.2%
13.4%
12.6%
10.0%
9.4%
12.1%
11.3%
6.6%
6.2%
8.5%
8.0%
100.0%
100.0%

14.1%
14.7%
6.3%
7.0%
11.5%
12.3%
9.2%
11.0%
6.0%
7.9%
100.0%

10.8%
12.0%
13.6%
14.1%
12.3%
9.6%
7.4%
9.5%
4.8%
5.8%
100.0%

The projected totals in the bands under $500,000 range from 33,000 in the Low-Medium
Affordability scenario (19.5%, about 2,600 dwellings per year over 13 years) through 42,000 in the
Medium scenario (25% or about 3,300 pa) to around 49,000 in the High scenario (29% or about
3,800 pa).
Allowance for the 2013 shortfall to be offset during the period to 2026 again adds some 1,1001,400 dwellings annually to these totals. This would mean a total requirement of 46-50,000 in the
Low-Medium scenario (3,600-3,900 pa), 56-59,000 in the Medium scenario (4,300-4,600 pa) and
62-65,000 in the High scenario (4,800-5,100 pa).
The Corelogic data on sales during 2014 and 2015 shows that while 22.6% of total sales were in
the under $500,000 bands, only 10% of new dwellings were priced at under $500,000. The paucity
of new dwellings in Auckland in the lower price bands is widely recognised and commented upon.
The projected demand for dwellings in the lower price bands shows that a substantial shift in the
overall price structure of dwelling supply toward a much higher share in the lower price ranges will be required to meet demand for housing in a more comprehensive manner.

4.1.10 Summary
These results indicate that to meet demand for affordable dwellings:

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in the medium growth scenario, 36,000 to 53,000 dwellings in the affordable price bands
are required in the period to 2026, including 14-18,000 to address the shortfall in supply;

in the high growth scenario, 46,000 to 65,000 dwellings in the affordable price bands are
required in the period to 2026, again including 14-18,000 to address the shortfall in supply.

Some of this requirement is likely to be met through the SHA process, and from the PAUPs
retained affordable dwellings provisions.

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5.0 Areas of agreement and disagreement


The E.G. agrees that the ACDC model is a useful tool to aid the decision making process. The
development and assessment of multiple typologies across modelled sites is a significant
improvement; developers have the ability to make a variety of choices when developing and the
typology testing reflects this. The model outputs are a function of the assumptions upon which it is
built
There remains a level of disagreement amongst the group about aspects of the model and/ or
modelling process. These disagreements include:
-

The challenge of dealing with inflation or deflation of model components and its
impact on feasibility. Future calculation of feasibility will have to make
assumptions about how the various model components change over time e.g. at
which rates do land and sale prices change. There is no agreed view on which
model components should change and at which rates.

013 member Adam Thompson has expressed a concern that the assessment of
commercial feasibility commences at an problematic starting point the model is
buying properties at mid 2014 values and selling developments 18 months later
at Patrick Fonteins (slightly adjusted) $m2 values (assumed time stamp of midlate 2015).

The size of the current housing shortfall is considered by all members to be


large however the method for determining the exact size of the shortfall has not
been agreed.

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Appendix A: Panel Further Request for Demand and Supply


Estimates (Residential Capacity)

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