Urban Auckland needs to intensify. No doubt about that. The question is where and how.
Is there some simple relationship that can help identify where redevelopment is likely to occur, for example where a step up from townhouses to apartments is likely to be feasible? Good urban planning says redevelopment and intensification should happen around town centres and transport hubs. In these places there is access to public transport and a range of amenities. Often town centres have some ‘ragged’ edges that can be redeveloped without intruding too strongly into neighbouring suburbs. But are town centres the natural place to intensify?
The Urban Development Capacity NPS is likely to kick off a whole lot of detailed feasibility testing of development. In Auckland, this testing has already got down to site-by-site GIS analysis. I keep on thinking there must be a simpler way to help determine appropriate zoning envelopes to provide for urban intensification than lots of detailed modelling.
The actual relationships that determine where intensification may feasibly occur are fairly straightforward. To produce a house, cost equals land price plus construction costs. Construction costs vary between a stand alone house and an apartment, but do not vary across space. What does vary across space is land values. As land values rise, then the land area per dwelling needs to reduce to keep houses relatively affordable - a house on a 800 sqm section on the edge of town should have a similar value to a houses on a 400m sqm section closer to town. At some point land gets so expensive that it makes sense to ‘go up’ - to replace land with capital. On a per square metre rate, construction costs are much higher for an apartment, so land values have to be quite high to makes it cheaper to build the apartment than a stand alone house.
For example, if we take a 1,000 sqm section and assume a land value of $500 per sqm, then the section has a value of $500,000. On that plot we might be able to build 4 dwellings or 12 apartment units. The dwellings have a land area of 250 sqm or $125,000 per lot. The apartments have a (nominal) share of the land area of 83 sqm, or $41,500 each. But the construction costs of the apartment will be higher - there is more floorspace and build costs on a per sqaure metre rate may be up to twice that of the stand alone house. Those higher construction costs are not off-set by the lower land costs per apartment unit, as the following table demonstrates.
Table 1
Component
|
Stand alone house
|
Apartment
|
Notes
|
Land Area (sqm)
|
1,000
|
1,000
| |
Land value ($) per sqm
|
$ 500.00
|
$ 500.00
| |
Land value
|
$ 500,000
|
$ 500,000
| |
Building coverage (%)
|
0.35
|
0.35
| |
Storeys
|
2
|
5
|
4 storeys plus basement
|
Floor area (sqm)
|
700
|
1750
| |
Costs to build ($ per sqm)
|
$ 2,200
|
$ 4,500
|
Assumes build costs, fees and charges and finance costs
|
Total cost of build
|
$ 1,540,000
|
$ 7,875,000
| |
Total cost (land plus build costs)
|
$ 2,040,000
|
$ 8,375,000
|
No allowance for developers profit
|
Average floor area per unit(sqm)
|
200.
|
150.
|
Gross area - includes garages, common areas in apartment
|
Number of units
|
3.5
|
11.7
| |
Average cost of units
|
$ 582,857
|
$ 717,857
|
In this case, you can’t build an apartment that is cheaper than a house.I have based the build costs on MBIE's development feasibility calculator.
If we adjust the land value so that it is much greater, say $2,000 per sqm, then the apartment becomes cheaper than the stand alone dwelling:
Table 2
Element
|
Stand alone house
|
Apartment
|
Land Area (sqm)
|
1,000
|
1,000
|
Land value ($ per sqm)
|
2,000
|
2,000
|
Land value
|
$ 2,000,000
|
$ 2,000,000
|
Building coverage
|
35%
|
35%
|
Storeys
|
2
|
5
|
Floor area (sqm)
|
700
|
1750
|
Costs to build $ per sqm
|
$ 2,,200
|
$ 4,500
|
Total cost of build
|
$ 1,540,000
|
$ 7,875,000
|
Total cost (land plus building)
|
$ 3,540,000
|
$ 9,875,000
|
Average floor area (sqm)
|
200
|
150
|
Units
|
3.5
|
11.7
|
Cost
|
$ 1,011,429
|
$ 846,429
|
While the apartment is not cheap, it is cheaper than the house.
If we hold build costs steady, at what land value does the apartment get cheaper than the house? Based on the above numbers, the following graph shows the crossover point is at about $1,100 per square metres. However we are comparing two different products - a stand alone house with a floor area of 200 sqm with its own garden and an apartment which may just have a balcony and be half the size in terms of actual living area. There is a theory that to make up for not having a garden and a smaller living area, people want to see a discount in price between the apartment and the dwelling. If the price is very similar, then why buy the apartment? Some may buy the apartment because it is easier to maintain, but if given a choice, then most people go for the space. Generally if the apartment is 10 or 15% cheaper than the house, then that may sound like a reasonable deal. If the discount is about 15%, then the land price needs to be more like $1,900 per sqm.
Figure 1
Two key assumptions are the floor area of the house and the apartment, along with their respective build costs. These assumptions can be varied, and so the crossover point would also vary. Exactly what the numbers should be is likely to be a matter of some debate, I could imagine.
If the crossover point is close to $2,000 per square metre, then the area of the city that has these land values is actually quite small. It is really only the inner Isthmus area and the eastern seaboard. Two problems are immediately apparent: most of the inner Isthmus is covered by heritage suburbs, while most people will say don't build tall buildings along the coastline.
Could you make the point at which the apartment is more attractive relative to the house at a lower land value if you made the apartment building bigger and shrunk the size of the units? Well yes you can, but then you may need to accept a bigger discount between the house and the apartment. If we assume 45% site coverage for the apartment, a gross floor area of 120 sqm per unit, then at a land value of $1,000 per sqm, an apartment would be about 20% cheaper than the stand alone house.
Table 3
Stand alone house
|
Apartment
| |
Land Area (sqm)
|
1,000
|
1,000
|
Land value ($ per sqm)
|
$1,000
|
$1,000
|
Total land value
|
$ 1,000,000
|
$1,000,000
|
Building coverage
|
35%
|
45%
|
Storeys
|
2
|
5
|
Floor area
|
700
|
2,250
|
Costs to build per sqm
|
$ 2,200
|
$ 4,500
|
Cost of build
|
$ 1,540,000
|
$ 10,125,000
|
Total cost
|
$ 2,540,000
|
$ 11,125,000
|
Average floor area (sqm)
|
200
|
120
|
Number of units
|
4
|
19
|
Average cost of units
|
$ 725,714
|
$ 593,333
|
In this case you end up with quite a big building and more, smaller, units. Not a great mix. The units probably get harder to fit in and are more likely to be single aspect, reducing liveability.
And at some point you run into problems with car parking. Even with the first scenario of the 12 unit apartment, if there were 1 car park per unit, then 12 cars would occupy about 420 sqm of space. This is more than the 350 sqm of space within the 35% footprint of the basement level, so a couple of car parks need to be at ground level, or not provided for.
If you increase the number of units, then parking becomes a nightmare to fit in. Under the ‘larger box/smaller unit’ scenario, 19 car parks would occupy about 665 sqm of space. So at least half of the car parks may have to be on the ground, or in a much bigger basement. Either way, there is much less land for garden and landscaping. Car parking does not need to be provided, but most people want a car park (or want to use the space to stash the bike, kayak, golf clubs and camping gear).
The other problem is that it is hard to find large enough sites for apartment buildings. You also need to pay for the existing house on the land. But with high land values and an older housing stock, the value of improvements may be quite low. The $2,000 per sqm section may end up being a total of $2.2m - $200,000 for the house and $2m for the land.
The more likely option is that as land values rise the size of the section will shrink - go from a town house to a terrace type house. The following table estimates a terrace type product - 5 units . I have put up build costs a little.
Table 4
Terrace house
|
Apartment
| |
Land Area (sqm)
|
1,000
|
1,000
|
Land value per per sqm ($ per sqm)
|
1,500
|
1,500
|
Land value
|
$ 1,500,000
|
$ 1,500,000
|
Building coverage
|
35%
|
35%
|
Storeys
|
2
|
5
|
Floor area (sqm)
|
700
|
1750
|
Costs to build per sqm
|
$ 2,400
|
$ 4,500
|
Cost of build
|
$ 1,680,000
|
$ 7,875,000
|
Total cost
|
$ 3,180,000
|
$ 9,375,000
|
Average floor area (sqm)
|
150
|
130
|
Units
|
5
|
13
|
Cost
|
$ 681,429
|
$ 696,429
|
The end result of the above calculations is the classic density / land value gradient: urban density edges up as land values rise. As some point, density takes a sharp upward tack, once it becomes cheaper to build an apartment, compared to a town house.
Figure 2
In simple terms, you could say that there are three bands of density, set by land values and build costs. These are set out in Table 5. Should this be the rule of thumb to 'drive' zoning?
Table 5
Land Value per m2 (area median)
|
Development Type
|
Up to $1500 per m2
|
Two storey stand alone houses, town houses and infill type units
|
Between $1500 and $2000 per m2
|
Two or Three storey terrace or row houses on sites less than 200m2 per unit
|
Over $2,000 per m2
|
Four storey plus apartments
|
