Upscale boarding house is back
Changes to the traditional apartment model are evident on the city fringe. Photo / Supplied
Dramatic changes in the market over the last five years have impacted on commercial property in Auckland’s city fringe, says Barfoot and Thompson sales manager Cam Paterson.
The Unitary Plan and increasing cost of housing in the inner suburbs, have encouraged residential developers to target areas previously set aside for commercial use.
“The Unitary Plan has achieved its primary focus of increasing housing stock, for example, increased zoning potential and flexibility allows developments up to 72m in Newmarket; 27m in Grey Lynn and 18m for the majority of the previous Business 4 or Mixed Use zone. Other advantages (of residential development) include the lack of parking required in new developments.
“And while many residents are correctly concerned over the lack of car parking provided, which will result in suburban street becoming over-parked; the changes have significantly reduced the cost of new builds and made conversion of existing structures feasible, increasing the availability of development stock for housing.”
As Paterson sees it, the Unitary Plan plus housing shortages, have worked together to create a commercial market that actively considers “development potential and suitability”, as much as the previously paramount “yield, land and building rates”.
“This change has resulted some unlikely properties becoming candidates for development — projects which might have appeared improbable prospects under the old criteria.
“But when development potential, suitability, the value of the developed product, the timeframe and lease terms are considered, somehow these properties can now get snapped up as development sites.”
Paterson says Auckland is awash with construction projects, a down-side being shortages of both materials and workers — leading to increased costs.
“Housing shortage and cost was a major political argument in the general election; it will be interesting to see if the Government steps in to encourage the importation of materials, or to fund developments — as has been the case in Australia — when their financial markets tighten.
“The immediate policy of restricting immigration, thus reducing availability of skilled workers, appears contrary to the outcome required. And the long term solution of more apprenticeships will not reduce the current shortfall of skilled labour.
“We are already noticing several consented development sites coming on to the market as some developers get cold feet. They’re getting nervous over timeframes for funding availability, as banks have reached funding quotas.
“These funding restrictions will result in a state of flux, as necessary funds only become available as other developers complete their projects and settle. The outcome of this is banks carefully choosing projects with the least risk.”
Banks are more apt to scrutinise of the developer themselves — their track record and liquidity — and this will push smaller, less experienced developers from the market.
“As evidenced by the values of various development sites, the high quality offerings are always in strong demand,” says Paterson. “This is due to the values apartment can yield when compared to the relative similarity in building costs.
“Accordingly, sites likely to be developed in the midterm are of a smaller scale in the higher value locations, this will leave owners of many lesser consented developments looking for alternatives. Due to the financial restrictions of traditional apartment development, resulting from sell-down requirements, a likely solution is upscale boarding houses.”
Paterson says upscale boarding houses are multiple self-contained units, within one property held in one title and rented to residential tenants.
This model takes advantage of the housing shortage through rental, however is cheaper to develop, as it does not require Unit Titling and can work on sites which are unable to attract apartment buyers.
“The funding of this type of development is simpler as it does not require pre-sales to reach funding thresholds, projected cash flows are as reliable as the housing shortage and simple to assess.
“We have seen many larger scale accommodation facilities developed within the University precinct, the majority of these have been purchased by large foreign institutional buyers.
“Overseas it is commonplace for entire apartment buildings to be held by one owner and although this is still an immature market in Auckland, it is one that’s developing.
“We have noticed the demand for traditional boarding houses, with shared amenities, increase strongly in the last three years, especially those of larger scale”
Paterson says the result of continued development of the city fringe will be increased population density, resulting in the more vibrant inner city, reduced accommodation costs and increased public transport usage, all of which were general goals of the Unitary Plan.