Future Equity: Dunedin Housing

Ōtepoti Dunedin, like many cities across the motu and overseas, has a housing issue. The issue unfairly affects some and not others, it is not uniquely a Dunedin issue, but does take on local nuances which require local solutions. Some go further to say that what we have is not a housing crisis, but a human rights crisis. Te Kahui Tika Tangata, the Human Rights Commission, identifies with the inequities present in the Aotearoa Housing System and have aligned their inquiry into the Right to a Decent Home with the United Nations outline of seven housing principles, which include habitability; affordability; accessibility; access to services, facilities, and infrastructure; access to location; respect for cultural diversity; and security of tenure.

Further reviewing habitability, accessibility, tenure security and affordability alone, shows Dunedin is far from an equitable housing system, which requires widespread action to achieve and then maintain over years and decades to come.

To meet requirements of housing habitability, we can expect that houses should be warm, dry, and healthy. However, considering that prior to legislation change in 1978 fewer than 20% of houses had ceiling and wall insulation, alongside a significant amount of existing housing stock built prior to this date in Dunedin, and only a recent regulation change to previously very low standards of insulation, we can expect most households will be experiencing cold and damp living environments. These conditions tend to affect Maori and Pacifica ethnicities disproportionally and result in a burdened public health system, with Asthma New Zealand claiming 87% of its patients are living in housing unfit for human habitation and almost 20% of hospital admissions of young children with acute respiratory problems being linked to damp and mouldy living conditions.

Accessible housing is housing which meets all people's needs without discrimination. Accessibility includes affordability, which is discussed further on, however, is more commonly aligned to principles of Universal Design.

In 2017 less than 1% of all housing stock was Universally designed with 24% of the population in 2014 being disabled and an ageing population who struggle to age in place. In Dunedin, the population above 65 is the only group projected to significantly increase with other age brackets either stabilised or gradually declining, evidencing both an immediate and growing need for housing and cities which are accessible to all.

Security of Tenure is defined by the ability for people to ‘put down roots’, integrating into communities, and having the choice of whether to stay or move – whether owning or renting a home. This has the benefit of enhancing wellbeing, and practically making day to day life easier through access to basic necessities such as work and education which enable economic contribution. Due to the options for accessing housing available in Aotearoa, security of tenure is significantly worse for those unable to own their own home, with renters moving home an average of 5.9 times between 2013 and 2018 and owners moving 0.7 times in the same period and with homeownership rates declining, tenure security will continue to destabilise communities until further options are presented in the market from tenure diversity to policy.

Affordability can be measured in several ways, the most common is via Overburden Rates due to their relative ease of understanding and usefulness in comparison across regions. An overburden rate is the measurement of gross household income against the cost of accessing a house – whether renting or by mortgage repayments. A widely accepted measurement for determining affordability is whether household costs are 30% or less of household income after tax. This measurement also exposes the imbalance in wage inflation with housing cost inflation when looking at both metrics change over time. Dunedin mean household income inflation has seen a 38% increase over a decade from March 2013, whereas house value and rental price averages have seen increases of 117% and 68% respectively over the same period. The direction of this trend is not unique to Dunedin, as with other localities, it shows a widening gap between the cost of accessing housing, and the ability to pay for it, setting a grim financial future for many. This is further evidenced in the increase in numbers on the housing waitlist, which is believed to be an underrepresentation of housing strain within our communities.

When looking at the overburden rate in relation to the current mean household income in Dunedin of $101,010/annum gross, on a weekly basis a household would pay around $480 for tax, $577 for rents or debt repayments in addition to repairs and maintenance, insurance, rates, and utilities. Leaving $865 for all of life's other necessities (food, education, travel, medical bills, etc.)

However, when considering the cost of buying a home and current mortgage rates it clearly shows a picture of the average household being overburdened. Modelling mortgage repayments at 7.39% over the next 30 years results in $808 /week in debt repayments alone. With utilities, maintenance and repairs, insurances, and rates equating to around $278 /week. This equates to 57% of average household income, leaving $346/week to cover life's necessities. Kantar, Rabobank, and KiwiHarvest undertook a food waste survey in 2023 which captured an average household cost for food in New Zealand at $238/week. Based on these figures, the average household in Dunedin would have $108/week for health, transport costs, education, emergencies, etc. A very squeezed household budget, leaving no wiggle room for unforeseen costs. This financial hardship drives households to turn off heating, tighten their grocery spend, and/or avoid necessary services as going to the dentist, further straining the health and wellbeing of our communities. It’s important to keep in mind that this is not the lower socioeconomic condition, but the average.

The renting market has different metrics, and different challenges. The average market rental in Dunedin is $675/week for a 3-bedroom house, which assumes rates and maintenance costs are included in the rental price. This would leave $675 /week for life's necessities after utilities and insurances. The picture appears a lot better with the costs to access this average rental house at 42% of average household income after tax. However, when considering security of tenure, this household may find itself out of a house, and having shifting economics around transit costs, as well as utilities, education, and work.

There are several historic and recent causes to the affordability of housing in Aotearoa. In 2020, a UN Special rapporteur for housing, Leilani Farha visited New Zealand to investigate the country's condition of housing. It was Farha’s view that there is a housing crisis, and the main cause of it was the shift of social housing onto the private sector and a speculative housing market which seeks profits over adequate and affordable housing supply.

Looking beyond the effects of those who aggressively seek to turn a profit on the housing market, the system is inherently set up to treat housing as an asset class. When most people need to access a mortgage to purchase a house on a freehold title, it builds an uncomfortable relationship between debt liability and a desire for the increasing value of the housing market to avoid a dreaded negative equity scenario, where the market value of your property falls below the remaining balance of a mortgage. This is further explained at a systemic level by Dr Elham Bahmanteymouri in her concept of a ‘commodification of the problem’ where scarcity of affordable housing plays a role in inflating asset value, Bahmanteymouri goes on to describe this as a hegemonic condition represented in ‘Surplus Value’ and ‘Surplus Enjoyment’. This position suggests that the market or system is flawed in that no property investor/developer will ever supply enough housing to meet demand, due to the destabilising nature this would have on asset value and further the relationship this has with debt. The trajectory is worsening as evidenced by this analysis and seen in statistical trends. Further to this, it is not simply just the house which rises in value, it is the dirt it sits on which also massively escalates based on infrastructure and planning policy constraints. This is simply evidenced by the difference between the value of property in the centre of cities vs properties on the outskirts which have similar types of houses (age, condition, size, etc.). More broadly, supply and demand are out of balance when comparing growth in population and new dwellings which further inflates housing prices.

To attempt to respond to this dilemma there are several solutions including policies, subsidies, and supply models which exist. In Aotearoa, models of supply are typically characterised as a binary of private market (either rental or ownership) and social/community housing, when compared to global economies, these limited options reveal the immaturity of our housing system and the levers which can be pulled to attempt to rebalance it. When looking further abroad, there are a variety of development models which sit along a housing continuum and seek more equitable and sustainable outcomes in a variety of ways utilising alternative governance, ownership and management solutions. Alternative models to what are commonly seen in Aotearoa exist overseas, or a beginning to gain traction locally including cooperatives, cohousing, Papakāinga, and Community Land Trusts (CLTs). Community Land Trusts are non-profit organisations that manage land on behalf of a community. This allows residents to buy homes on the land in a leasehold arrangement. Importantly, the land is held in trust, ensuring that housing remains affordable over time because rising land prices don't affect the cost of the home itself. It’s for this reason that Community Land Trusts are the focus of this text.

It’s important to note that Community Land Trust models, and other alternative models, are not meant to be a replacement for the traditional market supply of housing where people build equity through housing assets. Rather, the model is meant to sit in parallel, offering an easing to the pressures of the market by providing a diversity of options that are cost controlled into the future, building community resilience through sustainable housing infrastructure. Community Land Trusts can be assessed against the same four principles of the UN’s seven which define a Decent Home.

Supply and upkeep of the habitable standard of a home within the land trusts portfolio can be met through a variety of ways. In new developments, the land trust can ensure quality through acquiring land suitable for housing which makes simple environmental design solutions. It can also make sure policy is built into the organisational structure of the trust to pursue best practice building solutions, ensuring healthy, warm, dry, energy efficient homes, with minimum spatial requirements. There are several standards available to adhere to which enable these outcomes. When considering existing housing, the trust can embark on renovation and upgrade programmes, and require residents to participate in maintenance initiatives as a part of their agreement to access the properties. As such, building a strong educational component to the Trust's relationship with its community, encouraging self-management and custodianship.

Similarly, accessibility can be met through making best practice design a policy, utilising Universal Design standards such as Lifemark Homes Design Standards. Achieving a more fit-for-purpose outcome in housing can come from both an understanding of the demand of a local area coupled with working in partnership with residents to establish a needs-based assessment on a project-by-project basis.

The remaining two principles – tenure security, and affordability – are really where Community Land Trusts excel. By separating land ownership from housing, CLTs ensure homeowners have a secure place to live, even if they face financial difficulties. The leasehold model removes the capital cost associated with land and establishes a very long-term leasehold arrangement. By example, the Kāinga Tuatahi Papakāinga model by Ngāti Whātua Ōrākei have a 150-year leasehold arrangement. This approach has an emphasis on long term community resilience and supporting residents' choice to build a connection with their neighbourhoods.

There are many levers which can be pulled to enable affordable housing through a Community Land Trust. When compared to the cost to deliver an average new 3-bedroom home on the outskirts of Dunedin with current market suppliers, a purchaser is looking at around $980,000 to buy a house and land package. The graph below breaks this figure down, and while it may be shuffled about depending on how the land developer internalises its operations, in essence, it provides a rough guide for comparison.

When compared with a 3-bedroom house delivered through a Community Land Trust, the first item of reduction is due to the not–for-profit nature of the entity. It would be prudent for the trust to hold a small percentage of capital to recycle into furthering its purpose through additional housing, so reducing this from 4% to 1% would save around $30,000. With the market model, it’s speculative and based on assumptions of what a market needs. As a result, the requirement for sales and marketing is necessary to reach an audience of potential buyers. Within a CLT, the housing delivery is based on a needs assessment and a housing waitlist, and as such, there is no requirement to market the property, this results in the price being reduced to around 0.5%, or $5,000, to cover the cost of a conveyancer to transfer the title. Construction costs can be broadly attributed to the quantity, the quality, the material and product selection, the simplicity of construction and mode of delivery. Without wanting to reduce quality with ambitions of an above New Zealand Building Code standard house, we can instead relook at the quantity of house being provided. The same average 3-bedroom house used to generate the private market example includes a double garage, has significant areas of hallway, and walk in wardrobes, totalling around 160m2, a good quality 3-bedroom home on a single level can be achieved in 110-120m2 through sensible planning.  Additionally, pursuing simple construction methodologies alongside building partners to ensure system understanding, economy, and efficiency is key to a successful project and process. These approaches could bring costs down between 10-20%, for the purposes of this exercise, 12% has been assumed at around $120,000 reduction in price.

While regulatory costs largely go unchanged, Consultant costs can be reduced using standardised plans which take on a geographic focus, resulting in work only needing to be done to site the projects, potentially reducing costs to around $15,000 or 1.5% of the original market house. As aforementioned, the leasehold tenure results in a removal of the capital costs associated with the land. This model assumes that the land has been donated to the trust, and a small margin is shown to represent the cost of leasing associated with the model at 0.01%. Adding those resulting costs up and applying GST you get a compounding reduction in cost at around $62,500. Finally, the finance accessed to deliver this decent home can be sourced from Impact Investment Funds instead of Bank Debt to benefit from below market rates of interest. With a lower interest rate, alongside an expedited construction programme using off-site manufacturing, the housing delivery may result in around $20,000 of finance costs.

This delivery model shows a near 50% reduction in cost. At current market interest rates, this house still doesn’t meet 30% overburden tests, which would require the price to sit at around $335,000, but it is a drastically different picture than the original house we started with at $980,000 and does become accessible to a larger portion of society.

What it points out is the fact that housing delivery which is affordable cannot be achieved without some sort of subsidy somewhere along the way. Depending on the model of tenure, there are currently some ways to achieve this, either through shared equity schemes, income related rental subsidies, government housing delivery funds, or inclusionary zoning. Inclusionary zoning is a mechanism where local regulation requires new market developers to contribute a percentage of new development in the form of land, finance, or housing supply for affordable outcomes. Additionally, the example here is a standalone house on the outskirts of Dunedin. There are benefits in medium to higher density housing where an economy of scale plays a factor in bringing down build and infrastructure costs and shares them across a larger number of properties. Adding the mortgage costs for a purchaser to access these homes, we can see the true lifecycle cost has a gap which is further exacerbated.

Returning to the context of wage inflation as compared to housing price inflation, 38% and 117% respectively in the Dunedin area, it’s hard to see how wage growth will keep up with market housing prices into the future, based on historic trends. This is where a control of land cost inflation is important to the model of a Community Land Trust, where instead of it being uncontrolled and able to increase at excessive rates, it is anchored to something more gradual, such as the Consumer Price Index (CPI). We see a smaller margin of growth imbalance when comparing wage inflation to CPI inflation, 4.1% and 5.6% in the year ending September 2023. This shows the potential to utilise a mechanism which controls capital gains, giving hope that a housing model anchored to CPI provides a significantly more attainable notion of affordability in perpetuity. Shifting what some may consider an aspirational goal of a decent home towards a reality the majority can live in.

This is all possible in Aotearoa New Zealand and is already beginning with examples such as the Waikato Community Lands Trust, and as of 2023, The Ōtepoti Futures Trust in Dunedin. Community Land Trusts often go beyond the delivery of housing to also provide community and commercial development which respond to the needs of the city they reside in. They play a crucial role in equitable city making to provide access to basic amenities, building thriving neighbourhoods which are defined through participation of the communities they serve, ensuring a respect for cultural diversity, and inclusion, while providing fit-for-purpose outcomes. A key aspect of their function is to take private gain out of the economics of property development and replace it with community gain.

The Ōtepoti Futures Trust has recently begun on its own journey toward a more equitable city in Dunedin. In establishing the trust, evidence of the willingness and support from locals toward its purpose and goals was seen through the Otago Pioneer Women's Memorial Association act of gifting its Hall on Moray Place to the trust for ongoing custodianship. This generosity showcases the possibility of people driving the change within their own communities and gives hope that an increase of housing options, and community assets, is all possible and able to be driven by the specific needs and aspirations of people and place. The health and wellbeing — in the broadest sense of the term — of our communities depends on just institutions such as this.

Check out the Ōtepoti Futures Trust and its first development project at www.futurestrust.co.nz

Check out the full text with citations here.