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The social yield on property – do well, but do good

Written by Nic Greene, Habitat for Humanity (Central North Island) on March 2nd, 2018.      0 comments

By Nic Greene, general manager, Habitat for Humanity (Central North Island). Originally published in Waikato Times.

Headlines this week revealed that central Government has made a push for 40 per cent of homes in Hamilton’s special housing areas to be eligible for KiwiBuild – that is, deemed to be affordable.

In its submission during the Hamilton special housing area (SHA) policy consultation process, Habitat for Humanity (Central North Island) advocated for the mandatory inclusion of affordability. We maintain SHAs should clearly have ‘special’ aspects - beyond boosting housing supply - that warrant the benefits developers will receive.

Land value is linked to its use-limits and return potential. So, land zoned for residential use has a higher value than industrial or rural land in the current market. Hence if a piece of commercial land was rezoned via an SHA approval to residential use – there’s a tidy gain for the land-banker. In the case of an SHA where rezoning is made easier, then the cost savings created through this abbreviated SHA process should be passed on and reflected in the final house price.

I was disappointed that Hamilton City Council didn’t include affordability of at least 20 per cent, or give special dispensation to community housing providers, when it approved its SHA policy last year, but we are heartened to see this criteria resurrected.

Relative affordability
Affordability needs to be contextualised to the people who you’re housing, not to the development as a whole. Saying that one house is going to be a bit cheaper than another (creating relative affordability) is not affordable by definition.
According to the Real Estate Institute of New Zealand, Hamilton’s median house price as at January 2018 is $500,000, and median household income was $84,888. Habitat uses an international ratio of five-times household income to determine house price affordability. This would give an ‘affordable’ Hamilton house price of $421,000 for the average first home buyer.

But even this is beyond many – that is, house prices would still be prohibitive for anyone who is even slightly below average.

Mixed tenure communities
Setting a percentage of 40 per cent affordable within a new SHA subdivision is a step in the right direction. But given the chance, Habitat would take that one step further.

A mixed tenure community is one in which a range of people are able to find themselves in accommodation that fits their needs, both physical and financial. It provides secure tenure and pathways to independence, with plenty of international evidence to say it works.

We’re suggesting Hamilton make it feasible for developers to build mixed tenure communities which contain not just actually affordable properties for first home buyers, but other property options for those on lower incomes. This includes the elderly and people with extreme housing needs - and affordable rentals for those in between.

A social yield – do well, but do good
Habitat is watching a few areas with interest. One is the criteria as to who can purchase the affordable properties which result from KiwiBuild and SHAs.

What we don’t want is investors buying those properties in an open market. If investors were eligible to buy the affordable homes, then there should be a subsequent affordable rent restriction imposed, and rules introduced to ensure security of tenure. This introduces the concept of a ‘social yield’, as opposed to a ‘market yield’.

A market yield is rate of income return over the cost (profit) associated with an investment property, usually expressed as a percentage.

A social yield asks investors to reduce the profits and have a lower expectation of return. What we’re saying here is ‘do well, but do good’. We recognise this requires both a change in attitude towards investment, and some upfront subsidy that reduces the capital cost in the first place.

Given the commercial gain that SHAs will provide, affordability should be assured.

Hamilton is ready
My conversations with developers and builders over recent months indicate the climate is very warm for the idea of a social yield, or at least a percentage of social yield in any development.

A commitment to social yield would have impact on both tenants and homeowners. The government’s Housing Stocktake released this month shows t the increase in rent prices in Claudelands over five years outstrips every other sample suburb in the country, except Manurewa. Yes, home ownership is a platform for a family’s success, but for some families, home ownership may never be in reach and they will rent a home for life.

Housing affordability need not be a political issue, it is a social one, and something that the sector can begin to influence right now, with smart use of SHA development.
 
Habitat For Humanity Central North Island
 

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