By Adam Dudding
Despite recent dips in price, houses are horribly out of reach for many would-be homeowners. So why are new homes still getting bigger and more expensive? Adam Dudding reports.
IN THE South Auckland suburb of Mangere Bridge, there's a family of six squished into a two-bedroom house – but don't shed a tear for them. Michael O'Sullivan, his partner Melissa Schollum and their four young children are perfectly happy with the living space that O'Sullivan, a partner in Auckland architect firm Bull/O'Sullivan, designed and built.
The four young children share a bedroom (which inevitably has bunks), the parents get the other, and they all enjoy the intricately finished wood surfaces and strokeably beautiful custom-made fittings in the light-filled kitchen and living room.
This 112m2 house, which O'Sullivan completed in 2008 with materials that cost $152,000 (though that's not counting the many hours he and friends put into actually building it), is more than ample for his family, he says, although that will change as the kids grow.
"In five years' time it'll be different – but now it's lovely."
Yet O'Sullivan's demonstration that small can be beautiful, even for a family home, has him swimming firmly against the tide. Over the past half-century, New Zealanders' expectations for their house have ballooned – we are addicted to our square metres, and each decade our appetite grows.
In 1976, the average new house in New Zealand had a floor area of 121m2 – by 1986 it was 134m2, by 1996 175m2 and by 2006 209m2. Never mind the fact that the average household size is predicted to fall to 2.4 people by 2031 – we want more and more rooms for fewer and fewer people.
Yet at the same time that we're building houses bigger, our ability to actually buy them is going down the ensuite toilet.
In 1949, the average house cost 2.1. times the average annual salary and by 1989 that ratio was around 4.2. By last year, the figure was an eye-watering 8.37. In simple terms this tells you what any person in their 20s with a hankering to buy a house in a major New Zealand city already knows: they're quite simply unaffordable unless you've got helpful parents, a ridiculously well-paid job, or a willingness to live a very long way from where you work.
Recent headlines about falling house prices and relatively low interest rates give cold comfort. Despite a small downward nudge in national median house prices since their 2007 peak ($352,000 in November 2007; $349,000 in July 2010), and despite loan interest rates hitting historic lows in the wake of the global financial crisis, the ability of New Zealanders to get a foothold in the housing market is still dire.
So why are we still building giant houses with five bedrooms and two sitting rooms?
Wally Camenzind has had half a century to observe our house-shopping habits. A white-haired 67-year-old who faintly resembles Anthony Hopkins, he's been in property development since he left school and joined a family firm 50 years ago.
Last week Camenzind, development manager for a residential arm of construction giant Fletcher, showed the Sunday Star-Times around the streets and showhomes of the new Stonefields subdivision taking shape in what used to be the Winstone's quarry near the wealthy Auckland suburb of Remuera.
The development will eventually be a maze of tightly packed terraces and villas in a narrow palette of greyish-greens, putty browns and beiges – new owners are covenanted not to change the colour of their house.
Some streets are already occupied. The remainder form a time-lapse photograph of an assembly-line suburb: from empty lot and concrete slab to timber frame and shiny new house, complete with its encircling strip of fresh topsoil and saplings. When complete, this new 'burb will have a primary school, numerous little parks, landscaped wetlands and stands of shops.
But someone has nicked the back lawns and fed steroids to the houses. The four and five-bedroom two-storey villas, which start at $739,000, have a floorspace of between 216m2 and 260m2, on sections of 350m2 (that's about a third of the size of the classic Kiwi quarter-acre, which is 1012m2). Even the terraced houses are huge – 225m2 over two storeys and selling for $690,000 or more.
It's not an entirely fair comparison because Stonefields isn't aimed at first-time buyers, but consider those dimensions alongside the standard 98m2 three-bedroom state houses that were thrown up by the thousands between the 1930s and the 1980s by New Zealand governments concerned by the gross undersupply of quality housing.
A bedroom in a 1940s state house takes up less room than the ensuites in the Stonefields villa; the 1940s living room and kitchen combined could squash into the 2010 two-car garage.
By the 1960s, when Camenzind started in the business, houses still hadn't grown much and extras weren't included. "The garage came later. People would spend their weekends getting the section laid out and finished – putting down the paths and drives; putting up fences with their neighbours. It could take years before it was all done." These days, says Camenzind, buyers expect everything to be finished before they move in.
But from the 1970s on, houses just kept on getting bigger. And not just the new ones. According to the building research body Branz, each year Kiwis tack 3000 new bedrooms on to their homes, as well as 3000 new bathrooms, 1750 ensuites and 7500 garages.
We need all this room, says Camenzind, because the way we live has changed.
"Often, one of the rooms is used as an office. People are looking for an ensuite off the master bedroom. When the TV came into the home you ended up having two living spaces – the formal lounge and the separate family room."
There are other factors behind the drive to have homes with four, five, even six rooms – children are leaving home later than they did just a couple of decades ago, and the elderly are living longer and either hanging on to the family home or moving in with their children in granny flats or spare rooms.
When Auckland University architecture lecturer Bill McKay was an undergraduate in the 1970s, he and his mates could all go flatting, because the costs for study and accommodation were covered. The majority of the students he now teaches are still living at home.
McKay adds that fashion has also had a huge impact: New Zealanders have been apeing the lifestyles and aspirations they see in magazines, on TV shows and in movies, especially from the US. Where else did we develop our tastes over the decades for rumpus rooms and patios, ensuites and pergolas?
THERE IS, perhaps, another way to look at the ever-growing Kiwi house though. Mabye they're not all that big now – they just used to be small.
"Walk into any architect-designed house of the 60s and 70s," says McKay, "and you're amazed at how tiny it is. The whole scale is different – the ceiling is lower, the windows are smaller; it feels like a dolls' house."
There are good reasons for that small scale, says Andrew Coleman, of Wellington's Motu research institute. The 1970s was a period of strong downward pressure on house sizes.
A housing boom from 1973 to 1975 drove the Kirk Labour government to effectively ration labour and materials by making anyone who wanted to build a house bigger than 140m2 wait 18 months for a permit. Meanwhile the government was giving cheap (but small) loans to families and low-income workers and skewing lending rules to favour new homes over second-hand. The result was a flood of people with limited funds wanting to build homes – inevitably, those houses were pretty small. By the 80s, those rules were canned, and in the 90s, mortgage interest rates were lower than they'd been for ages. Kiwis could finally spread their wings a little.
HOWEVER GOOD our reasons for wanting big houses (and let's not forget the sheer social status that a big house confers), nothing changes the fact that houses are so much less affordable than they used to be. So shouldn't new houses be shrinking, so all those miserable souls locked out of the housing market have got a fair chance to batter down the door?
Paradoxically, the truth is almost the exact opposite. Houses like the ones built in Stonefields by Fletcher Residential aren't getting more expensive because we want them bigger – in part, they're getting bigger because the land under them has become so expensive that it's not worth a developer's while to build something small and cheap. "The developers do numbers on the back of an envelope," McKay says, "and if the numbers don't add up they won't do it. You estimate all your costs, look at what things are selling for, and if there's not a margin, it's pointless."
It means a developer should spend at least as much on the building as they do on the land, and perhaps up to twice as much. (See box, below left.)
In other words, the insane inflation of land prices in recent decades – itself driven by a mysterious cocktail of factors including population growth, immigration, rising land development costs plus a huge wodge of speculative market irrationality – has made it much less rational to build cheap houses. Those feckless young househunters might look fussy but they're not demanding a mansion; many of them can only dream of having the means to pick up a two-room dump miles away from anywhere.
Camenzind says the four and five-bedroom properties that now dominate the new-house market may be enough to satisfy the Kiwi appetite for size and that the growth may, in fact, be peaking. After all, how much more space do we need? "Houses have now got the extra room for office or spare bedroom, they've got the family room, the two living spaces; the double garage with internal access; the automatic garage doors and the heated towel rails."
He believes eventually something will give on the affordability front. The yearning of young buyers to get on the housing ladder will drive us to build more cheaper houses – "and we might have more of a range for all market segments, including first-time buyers".
If that means a little more restraint in how we use space, that would suit Michael O'Sullivan. Four kids to a bedroom in his Mangere Bridge home is about the limit, he reckons, and he'd certainly consider building on a bit more space if it becomes necessary. But he still scratches his head at developers "who build disproportionately large houses and market them as being an acceptable way of life in today's society". He believes Stonefields is "appalling" and would rather see a focus on intensive housing alongside communal land, given that "the romantic ideal of the pivoting swinging clothes line in the back lawn is a memory that's fast fading".
"There will always be people who will want the biggest house in the neighbourhood. But it must be contrasted with those people who prefer good design over obesity."
How buying a house in the city became an (almost) impossible dream
Kate, a young Auckland professional who is saving to buy her first home early next year, knows she's lucky. Sure, she and her partner have given up takeaway coffees and take sandwiches to work; they pad out their budget mince with lentils and share a crappy old car. All their furniture is second-hand freebies and she doesn't get on the plane home to visit her folks as often as she'd like.
But even with the scrimping and two good fulltime jobs earning more than $60,000 each, modest student loan debts and no children, Kate reckons she and her partner would have had little hope without a $35,000 leg-up from parents and an inheritance to help with the $50,000 deposit they hope to have ready by March. They will be looking at properties around the $350,000 mark – enough to get a small two-bedroom place with a bit of a garden in a relatively cheap suburb such as Avondale. They calculate the mortgage payments shouldn't be too far off the $400-a-week they currently pay for a small unit in Mt Albert. Kate says that until recently she's avoided even thinking about house-buying as it all seemed too hard.
But at 27, after living in 12 or 13 rental properties in three different cities, she had a growing desire to put down roots. A place where they can "bash a wall down if we want to and mow the lawns". The couple was also spurred on when their current landlord tried (but failed) to make them move out. But without that parental help, she'd have been like most of her peers, who've just given up.
In 1949, the average house cost 2.1 times the average annual salary. Now the ratio is more than eight years' salary – for more and more would-be owners, even getting on the property ladder is an impossible dream.
For Kate, a big house is not even on the radar. "We would happily live in a pokey little cottage at the moment. If we had kids I think I would go insane though." The prospect of buying is "really scary", partly because of all the media stories about mortgagee sales and mortgage stress (when too much of your income is devoted to your mortage repayments). "At the same time, lots of our friends and people in our situation are renting and happy to rent. It's become so hard to buy, that it's now a big signal that you're really settling down."
Why soaraway land prices make it harder to build cheap houses
BUILD CHEAP AND LOSE: Imagine you are a developer-builder, planning to build a tiny house on land worth $1 million. If you spend $150,000 on the building, you can probably take a 15% margin – $22,500. If the finished home sells for $1.17m (and it may not!) you've made a 2% return on the pretty risky investment of $1.15m.
BUILD EXPENSIVE: Run the same equations but spend $1m on the building, thus making your 15% cut $150,000. Sell the result for $2.15m (or more if you can), and the return is 7% on a $2m investment. Much better. NB: These are very coarse estimates that ignore a range of costs and risks