Wednesday, June 13, 2012

Small fixes for Christchurch

Without a time machine, we can't go back and revisit Christchurch Council's complete and utter failure after the September 2010 earthquake to ease up on land supply constraints so that the market could have responded after the February quakes by supplying places for people to live. It is completely nuts that Christchurch property values are now above their pre-quake 2007 peak given the massive reduction in the amenity value of living in Christchurch; it reflects that demand wasn't cut by nearly as much as supply and that the combination of regulatory barriers to supply and real time-to-build problems have more people left homeless by the quakes who want houses than there are available houses in Christchurch.

What can we do in the interim, given the very real world constraints of:
  • Very limited Council capacity;
  • Very real infrastructure constraints that can put limits on extensive brownfield densification;
  • Time to build even if we moved right now to whatever the perfect zoning rules might be?
John Fountain, my colleague here at Canterbury, has been trying to help square the circle. How? John has a house in Governor's Bay that's larger than he needs. He wants to build a flat into the house. But it is against Council regulations to put in a flat. Christchurch Council has made it illegal for John, and people like him, to help to make more housing available quickly. Yes I am shouting. More people should be shouting. I'm surprised we haven't seen bricks going through planner windows. I'd certainly never condone such behaviour, but I'd understand.

Here's John, who's more typically Canadian in tone:
There are a few nice features of the new Christchurch City temporary accommodation scheme that permits the construction of an “accommodation unit”. An accommodation unit is  “a structure of no more than 150m² in gross floor area for the purpose of providing temporary residential accommodation. The unit may include facilities normally associated with residential accommodation such as a kitchen, living area, bathroom, toilet and bedrooms. Accommodation unit may also include a campervan or caravan.” There is a fast tracking system for getting pre construction advice and approval in 3 to 5 days  – for free. Of course all building consents need to be in place…but this isn’t necessarily a big hurdle for a well designed and well constructed unit.
The problem is that  “earthquake related” accommodation units are surrounded by a host of ancillary use constraints and regulations that strangle the (apparent)  intentions behind the scheme …: eg whatever faciltiies are constructed  must be temporary,  one-storey,  relocateable,  used only for accommodation by and for   households directly dislocated by the earthquake, and removed when their temporary need has dissipated or when CERA instructions say so or when CERA is disbanded four years away in April 2016.
John then slowly walks through how it's unlikely to be in any property owner's financial interest to build a flat into their existing property if it has to be pulled out four years later.

And, worse, the regulations require that the units accommodate specific persons who are earthquake-displaced. The thing about housing is that even if you accommodate somebody who isn't specifically earthquake-displaced, you're still making room for the displaced person to go where that newly accommodated person otherwise would have been. The first big tick-box on the Council consenting check-list requires you to indicate whether your flat would accommodate somebody whose house was destroyed, who's displaced because of reconstruction, who's displaced because of land remediation, or who's displaced because of risks posed by adjacent structures. You can't use it to accommodate somebody who's moved into town to run a big construction crane even though building something to accommodate that guy frees up a space for an earthquake-affected person elsewhere.

So John reckons he could, for about $110k of his own money, put in a 70 square meter 2-bedroom unit at his place that would rent out for about $300 per week. That makes sense if he can pay off the investment over a term longer than 4 years, and if he doesn't have to pre-specify, before he even builds the freaking thing, who'd live there and guarantee it would be an earthquake-affected person.

It would be very easy for Council to ease up on the current draconian regulations to let people permanently build self-contained flats into their existing properties. These would be dispersed around the city; you wouldn't expect to have large effects on trunk infrastructure. Council wouldn't have to spend anything - just get out of the way. Here's John again:
So…what do we conclude: willing buyers , willing seller but the transactions that would help alleviate accommodation shortages for the next few years are effectively stymied by inadequate regulations . Multiply this 1000 fold and you’ll see why “temporary”  inadequate approaches to zoning regulations – ones that don’t challenge the existing order – are a real bottleneck for dealing with rental accommodation shortages.
The plain fact is that the new  temporary accommodation orders, while well intentioned, simply avoid the underlying regulatory problems that limit the development of small scale private investments that could do plenty to alleviate our city’s accommodation problems. It’s just old wine in a new wineskin  – CERA and the city managers say we’ll facilitate something for you but then enclose it in a shrink wrap agreement that precludes it being used!
The temporary accommodation order itself would have been redundant had the zoning and development regulations been tweaked to permit residential activities to have secondary suites, as in Vancouver and many other Canadian municipalities – something that I am arguing in my other posts..
Here's John on how this kind of solution works in Vancouver. Here's more from John on secondary suites. Here's where John hit the kitchen "stumbling block" for developing a flat on his property.

Is there any plausible negative effect of allowing this kind of subdividing that outweighs the benefits? Why does Christchurch Council make it illegal for my colleague to help ease Christchurch's very real housing shortage? We have an earthquake-Czar who's supposed to be able to ride roughshod over Council stupidity to get things done. This is worth getting done. It would open up a pile of new rental properties that are currently in scarce supply, and it would do it faster than building new.

Every other city in the country should be looking hard at its existing set of regulations and weighing up just how much fragility they've built into their systems in case of sudden and devastating reductions in housing supply.

Update: See also John's post here that points to a City of Vancouver study on secondary suites.

4 comments:

  1. Your description of the terms and conditions to build light weight flats is alarming Eric.
    I think you and Hugh Pavletich should take sword in hands, gather followers and massacre entire Council with reality.
    No survivors please Eric.
    I dedided to be a price gouging landlord and we put our 3 bedroom place on trade me, along with about a thousand others.
    Price $390 with some service, logburner and wood, place for dog, and guess what very little interest.
    Our operating costs =$175 per week being $40 Rates, $35 insurance Repairs maintenance damage $40, wages $40 other $20
    return with down time = $350
    Profit $175
    2.5 per cent return on $350,000 home.
    The people, new tradespeople to Christchurch who did look, told me they had plenty of choice
    and started bargaining the price down and the service up. They told me landlords were chasing them.
    But they had so much choice they shagged us around, and we gave up.

    So we raised the stakes. Trade me Holiday homes, specifically for Earthquake refugees.
    Now we have to provide internet and power, and extra tv sets, and dryers and a bed here and a place for the dog,
    Where is the second bathroom they said.
    I went to Thailand. We advertised super listing. I will be booked about half the time, but for analysis I say two thirds..
    Costs now risen +Internet $30 week, +power $80 per week, agency fees $50 per week.
    Total costs $350per week ,
    Return $700 per week. Down time about 30% which means return $500 per week,
    Total profit is $150 per week same as before
    2% return on capital.

    There is no housing accommodation shortage, and I told this to Brownlee.
    The people that come to us are fussy beyond your dreams.
    What there is, is poverty,.
    People with no money can not pay rent at $350 plus.
    The only reason we are getting any clients at all is because insurance pay.

    ReplyDelete
    Replies
    1. It's the bottom end of the market that's really failing to be served. That isn't the market John would be hitting, and it's not the market you're hitting. But it is a market reasonably served by splitting out a flat.

      Delete
    2. The sword idea sounds good, provided you have it registered, then there is the issue of getting a consent for a public gathering.
      Also massacres are noisey affairs, thus are restricted between the hours of 10pm and 8am Mon-Fri or 11pm and 9am Sat&Sun. Also waste disposal of carcuses will need to be organised and a deposit on ancillary disposal fees paid.
      Good Luck

      Delete
  2. My flat (2 bedroom) is $195pw, the new house next door (3 bedroom) is being advertised at $490. It may be new but is it worth (in proportion) about double the price. Although I 'spose they can't get insurance on it, LOL.

    ReplyDelete

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