By Gareth Vaughan
The Government's push to have more apartments, including shoebox apartments, built should be welcomed over time by a range of buyers including first home buyers, property investors and retirees, suggests John Bolton, founder of mortgage broker, lender and savings product provider Squirrel.
Speaking in a new episode of interest.co.nz's Of Interest podcast, Bolton, also a former banker who has dabbled in property development, says apartments, including small ones, offer people who otherwise couldn't afford to buy in Auckland the opportunity to do so. He gives the example of a recent client who wanted an Auckland CBD shoebox apartment.
"He was actually just over 50 and a first home buyer. He had about $150,000 in savings and an income of about 120,000 and he was just keen to get something. Now, the interesting thing for him is that we worked it out and he could pay it off before retirement and that was his goal. So he was looking to pay it off in about 15 years and the only way he was gonna be able to do that was with a shoebox apartment. He was really happy with that...He'd be a classic example, I guess, of the target market for someone that otherwise couldn't buy."
Investors will always look at it on a yield basis, Bolton notes.
"The numbers have to stack up. The attraction for investors historically with the shoebox apartments has been purely yield, straight yield play. They [can] get much better yields on them than a standard apartment."
Bolton also says there's a growing number of retirees struggling to find places to live.
"When we talk about shoebox apartments or just small living spaces, it could be some single level brick and tile units in the suburbs. It doesn't have to be a traditional high rise apartment with shoeboxes in it, you know, just little living spaces out in the suburbs, all on one level, which gives them easy access."
"It's a really important market, and I think it's a market that is going to come with a whole lot of issues in the future because rents are so high. Retirees on the pension simply cannot afford to rent houses or even townhouses. And multi level townhouses are not the right product for them. And so I think getting affordable solutions that cater to our growing retiree market, of whom an increasing proportion of them don't own property, or if they do, they need to downsize because they're taking mortgage debt into retirement. I think there's a real market there, and I think it's not the inner city shoebox that we're talking about. What we're starting to talk about is how do you cater to those communities, and then how do you build a property that's appropriate for them, that's affordable? And I can see that being out in the suburbs, I can see that being in the provinces. So I think there's an opportunity here to reshape the way that parts of our market are operating," says Bolton.
Last month Housing Minister Chris Bishop gave a speech outlining the Government’s plans for housing.
Included in Bishop’s speech was a pledge to remove the ability for councils to set rules or guidelines requiring balconies, or floor areas of apartments to be of a minimum size. This, Bishop says, will increase housing supply by enabling more homes to be built at cheaper prices.
Auckland Council's rules currently set the minimum net floor size for an apartments at 30 square metres, or 35 in the city centre. The latter can be reduced by five square metres if there's outdoor living space, a balcony, ground floor terrace or roof terrace. The smallest apartment allowed by Wellington City Council is 35 metres squared, and the city centre also has requirements for outdoor living space area with the smallest a minimum area of five metres squared and a minimum dimension of 1.8 metres.
In the podcast audio Bolton also talks about the size of deposits needed to get bank loans to buy different sorts of apartments, banks' apartment lending appetites and why they can be reluctant to lend for smaller apartments, apartment developers and pre-sales, construction costs for apartments and financing of new builds, locations for apartments and more.
*You can find all episodes of the Of Interest podcast here.
83 Comments
I lived in a 20sqm place in Tokyo for 3 years and had everything I needed. 35sqm would have been palatial.
Yes, but Aotearoa is not Tokyo. Even the infrastructure and planning of smaller Japanese cities (even towns) and the outer suburbs of the major metropolises make small living spaces quite manageable and even attractive. I've even seen shoebox apartments in small towns like in North Kyoto prefecture which is more or less rural. That would be far more livable than somewhere like Auckland because everything is accessible.
Auckland has dreadful amenities? Split that into areas. I've lived in London and New York and neither have anything that remotely compares with Wenderholm Regional Park. Nearer to the centre there are suburbs full of parks, good schools, access to beaches, pleasant old-fashioned shops. In a ring around the CBD there are rose gardens, the Domain, One Tree hill and a wide range of restaurants. The CBD - well admittedly it is a disaster. Compared to other cities the theatres are poor, the streets unsafe, the architecture bland.
I never thought I would ever write a defence of Auckland but thinking about it I wouldn't live elsewhere. I'll stay until our council try to 'improve' Wenderholm or the Wintergardens.
I've lived in a shoebox since my early 20s now mid 30s on and off. I have a cbd job and it's great to walk to work and not worry about how many beers I have on a Friday. Really great for single career focused people. No transportation costs as well. I own my apartment now and love it. Admittedly little apartments probably not good for families.
You have almost proved the point of why living in a shoebox is not something to aspire for, but is more a short-term sentence, that if you are good then you will be released (after 3 years) to live in society proper
Some people have no choice. Going forward that segment of society might increase dramatically.
They’re a great option for those in their twenties and prioritise location above all else, of which there is an abundant market. Not great if you have no friends, and nothing going on though. Different strokes.
What does it matter to you anyway? Nobody’s telling you to live in one.
Bolton's not wrong.
But we have a banking problem.
Banks don't really want you to ever repay the mortgage - that's how they make their money. Banks want you to borrow the maximum amount you can.
Ergo, they don't want buyers buying small dwellings and repaying a small mortgage quickly so they throw blockers like 'minimum floor sizes' to stop FHB getting onto the ladder while forcing FHB to rent (and pay their LL's tax deductible mortgage).
"Banks don't really want you to ever repay the mortgage"
That is plain wrong. If it was true, then banks are failing miserably. And besides almost all mortgages are table mortgages requiring principal and interest repayments regularly. If what you say is true, banks would push interest only loans. And they just don't. Almost all interest-only lending is to property investors, and I bet banks now regret doing that.
Evidence #1: Mortgage borrowers are repaying their loans 50% faster that the scheduled repayments in the loan contract (that is, repaying the regular fortnightly or monthly repayments 50% more than required). See RBNZ C35.
Evidence #2: Residential housing (not investor-owned) is worth $1.3 tln, but is only borrowed against to $354 bln. Data is both StatsNZ and RBNZ. If banks forced you to load up, they are failing if there is only a national 27% LVR.
Evidence #3: Most households repay their home loans in full well before the original scheduled term (30 years). Sure you can find anecdotes of some borrowers who don't. But there is almost no evidence this is more than a tiny fraction of the overall mortgage market.
Borrowers who never repay are certainly not wanted by any bank.
re ... "And besides almost all mortgages are table mortgages requiring principal and interest repayments regularly." ... Table mortgages are front-loaded with interest. I.e. in each repayment, the lender pays far, far more interest in the first years than principal. The reverse is true in the last years where the repayments are largely principal.
re ... "If what you say is true, banks would push interest only loans." ... Umm. No - they can't. They are regulated by the RBNZ who saw the risk of a growing number of interest only mortgages some time ago and stopped them growing what was a massively profitable part of their business.
re ... "Evidence #1: Mortgage borrowers are repaying their loans 50% faster ..." ... Who is choosing to do that? The bank or the borrower?
re ... "Evidence #2: Residential housing (not investor-owned) is worth $1.3 tln, but is only borrowed against to $354 bln" ... Who is choosing to do that? The bank or the borrower?
re ... "Evidence #3: Most households repay their home loans in full well before the original scheduled term (30 years). " ... Who is choosing to do that? The bank or the borrower?
Every business wants to make as much from their customers as possible.
David has shown how in reality, bank customers can and are still engaging their own agency.
The minimum floor area likely exists given the tenuous nature of small apartments to retain capital value.
What is your solution to your banking "problem"?
1. break the banking oligopoly
2. government support to build banking mutuals / non-profits to provide real competition
3. teach finance, investment and economics at intermediate school and above as a compulsory subject
4. substantial changes to taxation in NZ
5. banded company taxation like we have for PAYE.
If the market doesn't support our alternative banks at scale, how does the government subsidising them make them any cheaper/attractive?
Financial education should be done by parents. But yes, everyone should know the basics. My wackadoo conspiratorial mind says our educational institutions aren't actually there to serve the students.
What element of taxation needs addressing in regards to the banks?
Banded company taxation? You need to pay tax on your profits. If you're not earning much, then you're not paying much. If you can't afford company taxes, probably you're not a company.
I feel the bigger issue for smaller businesses is the compliance requirements that often only a larger firm can justify. You can outsource parts as a smaller business, but that can get fairly expensive. More expensive than a few extra percent of income tax.
Risk? NZ cities suck compared to Europe.
Some of my woke mates are infatuated with the planning of Amsterdam and dream of urban NZ being like something out of the Netherlands.
While I understand the romanticism, the reality is that we don't have the same thinking and attitudes as the Dutch. They are vastly superior in terms of planning and innovation. And generally speaking, they're pragmatic, practical, and get sh*t done. There's a reason why the low-income areas of Amsterdam are far nicer and livable than what we offer.
F'more, the same woke mates think being able to ride a bicycle and buy nice things from quaint little shops nearby is something from heaven. Reality is that many of those quintessential European living environments are not necessarily affordable areas to live. NZers in general are quite naive.
Yes and that historical basis a key reason that our cities won’t be able to transform into Euro style cities. 90% of Auckland’s urban form in 2050 will be what we have today.
as I said in another comment, we can take some learnings from European city planning and development, but it’s a nonsense to think we can ever be truly like European cities
Many too were bombed flat in WW2. My city (Rotterdam) was flattened and before they even started the rebuild they dug the new metro using trench and fill rather than tunnelling. They also had a surplus of idle manpower that could be used to get work done. Best pay to have a man on a shovel then sitting idle. Still remember the demolition and rebuilding happening late in the 1950's. Many parks and social eminities were built using the available surplus manpower.
Yes, I can't help but laugh when in NZ they justify building bike lanes and show an artist's impression of people on a leisurely Sunday bike with the kids.
Roading of any type is first and foremost for work, ie help make the income that helps pay for the infrastructure they are using.
Here is how bikes are really used in The Netherlands. Evening rush hour in Amsterdam (youtube.com)
I’d suggest you try the rush hour bike path along the western motorway. It shows that when they actually build something decent (not just a few metres here and there) it does get used. And at a fraction of the cost of roads.
You can’t judge a piecemeal sporadic system as not working, much like if we had only ever built a handful of roads they wouldn’t be popular either.
You missed the point, that is exactly what lanes of any type need to be used like, but it's hardly a rush hour, more like 27 seconds.
Yes, I can't help but laugh when in NZ they justify building bike lanes and show an artist's impression of people on a leisurely Sunday bike with the kids.
Remember having an argument with some of these people when I pointed out that most freight and logistics in Japan relies on roads, despite having the most advanced rail network on the planet. Being NZers they only believe what they want to believe. JR Freight handles only about 5% of the total freight market.
Road vehicles are essential for delivering goods across the densely populated urban areas and remote regions. And the growth of e-commerce has further increased the demand for road freight services, as more goods are being transported directly to people's homes.
You can't really have a meaningful conversation about freight and logistics in Japan without including the roles ports play.
The maritime transport sector in Japan is vital for specific categories - chemicals and mining products. However, it operates within a broader context where road transport dominates overall freight movement.
Generally speaking the European culture and mindset is hugely different to NZ. They have a much more community minded culture, we have a much much individualistic one. These cultural differences make the idea of transplanting European city forms and approaches to NZ rather nonsensical.
That is not to say NZ can’t, or shouldn’t, try to take and adapt some of Europe’s ( and non-Europe’s) approaches to our cultural framework.
NZ has a culture of everyone wishing to live like it is still the 1970's with ever expanding roads, new sturdy houses made of native hardwood and affordable, and opportunity everywhere. Most are reluctant to embrace change either because 1./ they want the best of the best but aren't willing to pay for it 2./ they have a vested interest in the status quo or 3./ they have not experienced what life in other countries or cities is like and the benefits this can bring to lifestyle, costs etc.
It boils down to a culture about the self, and has, over the last 50-60years degraded the more religious [no loss there], yet utilitarian culture of yesteryear. We are coming to a point where the reality of our society being based on a flawed premise of exponential growth of both humans and consumption, is fundamentally wrong and self-destructive in the long term. Soon enough, either by force or by sheer need, society will have to think of the needs of the many, and implicate widespread cultural and systemic change to ease the burden on the next generation, and the next again.
There's some truth in it, but the issue is net yield not gross yield - these kind of investments compete with higher dividend stocks and bonds - which have almost no cost of ownership. On paper they look competitive, in reality the depeciation, cost, time, stress, and inconvenience of physical ownership make a financial markets based dividend portfolio 3 to 4 X better cashflow (even when geared across a whole portfolio). If you add in the volatility in market valuation, they're horrible.
Beyond the points made in the comments already (basically that dense living can be both enjoyable and has many positive externalities in terms of overall impact on a city) there is also the more obvious point: do you know what sucks even more than a "shoebox" apartment? Sleeping in a car or a tent.
'It's not the inner city shoebox that we're talking about.'
Yes, they are called caravan parks.
This is such a nothing article.
If we get rid of the non-value added costs in the system, then you will be able to buy those shoeboxes for a lot less, or for the same price as what you pay today, buy a bigger apartment.
Also, notice that the word shoebox used to be a derogatory term, but this article is almost using it with pride.
Oh, how far we are falling.
Falling or growing? As the population of a city increases, the style of accommodation tends to change. If you don’t like that there are plenty of cities in NZ that won’t require shoe box appartments.
I wonder where we’d be right now had we never allowed planning laws? I can’t imagine we’d have worse living conditions.
Paying at least 13 to 1/2 more than you need to for whatever size house you live in, at any density, is failing and falling.
But we are falling in price terms closer to the bottom, and with the right policy changes, the housing of any typography will remain more affordable.
Just the two of us live now on two hectares with a big house. And a barn just as big.
But there are times in my life when 30m3 in a multistory would have been ideal.
What's the alternative for some people. A room in a rotting rental sharing with 4 strangers. Mind you that can work out well.
The point I want to make is we need a variety. Different folk need different things. And sometimes the same folk need different things at different times.
100% KH.
My friend's mother recently passed. His father cannot face going back to their beautiful lifestyle property to rot on his own in loneliness and despair. They are selling up and he's moving to a small manageable apartment close to the family and grandkids and where he doesn't need to drive to get to things like the doctor, supermarket, cafes.
Most people only really need a big house for a small part of their life when their kids are still at home. People should have the choice to move between different styles of living while still staying in the same suburb where there social connections are.
Hopefully the mistakes of Auckland CBD in the 1990s can be learned from. Back then, a raft of smaller-than shoebox apartments were hastily built on the back of a foreign student bubble that was noisily popped by the Asian Financial Crisis. Owner-occupiers were an afterthought.
With some clever design, small apartments can be cheap & cheerful instead of cheap & nasty.
Need to get over ourselves and accept that we can’t all have our 500sqm section close to the City. This makes owning a property a possibility for many who are simply unable to buy today and we also have to think about a sustainable housing model for generations to come.
I listened to the podcast.
If your idea is to provide affordable housing for FHB I don't like it.
What if banks don't see security in lending for these shoebox apartments?
Then investors will buy these and rent them to people.
I think this will only drive up the value of stand alone properties in the long term.
If your idea is to provide affordable housing for FHB I don't like it.
Genuine question: Is this by chance because it would potentially scupper the prospect of large untaxed capital gains on housing of which you hope to achieve?
Stand alone housing will hold value long term as more and more places get granny flats on, and more apartments go up. The best thing for NZ is a large scale shift away from the pursuit of amassing large property portfolios, and towards endeavours to add value to NZ exports.
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