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New minor dwelling changes a boost for investors

New minor dwelling changes a boost for investors

The government’s plans to allow property owners to build unconsented “granny flats” on suburban or rural sections will rapidly increase housing stock, writes Sally Lindsay.

By: Sally Lindsay

24 June 2024

Housing Minister Chris Bishop has announced the release of a MBIE discussion document around “granny flats” as part of NZ First’s coalition agreement with National, aimed at making it easier to build minor dwellings.

Under these changes, property owners can build small dwellings of up to 60m2 on existing properties without going through a costly and time-consuming consent process.

This has great potential for investors with large sections who wish to grow their portfolio via the addition of a minor dwelling, but who were put off by council compliance costs and red tape.

Unmet demand

The MBIE document shows that in 2018 just under 20 per cent of houses had two bedrooms, with six per cent having one bedroom. In contrast, more than half of households had one or two people.

Mark Squire, head of sales at Keith Hay Homes, sees this reflected across their eight branches, with the demand for smaller dwellings increasing.

“We have definitely experienced more demand for smaller homes in the past couple years, with families adding units for teenagers, elderly family members or first home buyers who are struggling to afford new homes or investors wanting to create additional income on their properties.”

Costly of housing

Compliance for consenting and building are part of what drives housing costs. Squire says if the changes go through, removal of the need for council consent will save money.

“There could be cost saving if this does get passed next year. It can vary from region to region but could be up to $20,000, depending on the consents and contributions you may not have to pay.”

It will also allow investors to build on land formerly deemed too small for potential development with smaller units.

“If investors are looking to add extra dwellings to their portfolio [the new rules] would allow some of them to add a dwelling where a standard minor dwelling unit could not fit.”

Speeding up the process

Homes consented in the June 2022 quarter took, on average, more than 16 months to reach their final inspection, up from more than 14 months in the June 2021 quarter, and a further two months to receive a code compliance certificate.

MBIE says this has an impact on the number of small houses being built. “If costs and processes were less, more smaller houses will likely be built. If more are built, unmet demand will decline and the cost of housing is likely to decrease,” the discussion document says.

Companies such as Keith Hay Homes have been building small homes for a long time, but it can be difficult getting around council rules and red tape for the standard housing companies.

Keith Hay Homes are transportable, which already saves time for customers with consented plans pre-built in the yard (which shortens the build timeframe).

The new plan will circumvent these and make it easier for site consents, but not at the expense of quality.

“There will be safeguards to ensure these homes continue to meet New Zealanders’ expectations for building performance and quality, and appropriately manage environmental effects. We want these to be safe, healthy and durable homes,” the minister says.

More affordable

Bishop says the government wants to make housing “more affordable for New Zealanders”.

“Average house prices to the average household income are too high by any objective measure. They are severely unaffordable by international standards.”

He adds house price falls should not necessarily send a shiver up the spines of homeowners fearful of price drops.

“The flipside of house prices falling for people who own homes is they become more affordable for people who don’t own homes. There is a whole generation of young New Zealanders who have been locked out of the housing market because average house prices are too high.

“If we’re going to be a property-owning democracy, which [we] used to be, we need to make housing more affordable.”

Options for investors

Squire says there has been a lot of interest in the proposed changes but notes it’s still in the consultation stage. If the changes do go ahead, he says Keith Hay Homes has options investors could be interested in.

“We have a variety of houses that we can offer already with standard plans,” he says. “We have got dwellings that start from the 30m2–50m2, as well as the standard MDU (minor dwelling units) from 60m2& 65m2.”

What are the changes?

The changes come in two segments.

The first is issuing a National Environmental Standard (NES) under the Resource Management Act, requiring all councils to permit a granny flat on sites in rural and residential zones without resource consent. This means that so long as the flats meet certain conditions, they will not require a resource consent.

The flats will need to comply with “permitted standards” such as maximum building coverage and minimum permeable surface requirements needed to manage stormwater runoff and flooding risks.

There are a range of options for requiring a setback – one is requiring no minimum setback, maximising the space someone can potentially build on. Using an NES to achieve this means the rules can come into force quickly.

The second leg proposes a new schedule to the Building Act to allow “simple standalone houses” up to 60 square metres. The government is consulting on the kinds of “conditions and criteria” these homes meet to be exempt from a building consent.