NZ Property Market Outlook 2021. Part 2/3

Supply, Local Body Rules

The land shortage is a complex issue. Most councils appear to be recovering from the leaky-homes era, and not willing to take on new risk in terms of fast tracking housing development. The current building pace will not have a softening impact on price rises.

In a less restrictive environment these strategies could increase the supply of dwellings:

• Garage conversions: Growing in popularity, converting a garage into an additional residence could quickly add more accommodation to existing stock.
  

• Splitting large houses into townhouses: Can require inter-tenancy walls among other things, but could be more easily  facilitated through a common ownership or shared license to occupy framework. This approach could suit those wanting to downsize, as well as first home buyers.
• Converting commercial sites to residential and mixed zoning: Repurposing prime land such as car yards into residential could reflect dealers adopting the Tesla model of direct delivery. If dealers could realise the value of their lots as residential many might consider it. There are commercial properties that could become hybrid with residential options. We are currently marketing a residential development with ground floor commercial offices, on a Newlands site that was previously a timber yard. Market demand for this development is strong.
  

Funding New Developments

Councils could potentially borrow (with a government guarantee) at low interest rates. New developments provide new rating revenue but large development contributions (council funded projects) increase the price of new construction and constrain private sector developments. If a council-approved developer had the option to borrow at an extra low interest rate for their project that could encourage production.

Reduce Construction Risk for Buyers

New-builds would be more desirable if the risks to purchasers were reduced around these issues:

• Sunset clauses, to prevent vendors wriggling out of a deal to resell for greater profit.
• Incorporated developers
• Warranties and insurance
• Deposit handling
  

To overcome these challenges, a dedicated Government backed construction insurance product could be offered to developers and purchasers, with premiums paid on settlement.