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How To Profit From The New Plan

The Super City’s new Unitary Plan provides interesting reading for Auckland property owners. Could you be an “accidental investor”? Hamish Firth from Mt Hobson Group tells all.

By: Hamish Firth

1 August 2018

The Auckland Unitary Plan (AUP) is Auckland’s new district plan. It is the “Bible” for land use and development over the entire Auckland region. It sets out what can go where, how high things can be built, and how the frontage needs to look, amongst other things.

When Auckland was amalgamated as the Super City, it presented the need for a “super district plan”, thus the birth of the AUP. If you have a property in North Shore in a certain zone, the rules are the same for a property also in this zone in Pukekohe. There is now consistency across the board. Of course we are still seeing differences in the way officers interpret the rules, but we now only have one manager to whom we complain to.

Why Is It So Special

The AUP is unlike any district plan in New Zealand. Unlike many cities and towns throughout New Zealand which still pound the “one house per certain square metre” drum, the AUP has done away with restricting density.

In terms of use and development the zones in the Auckland Unitary Plan have more or less been split into residential, rural and business zones.

The Residential Zones

Single House, Mixed Housing Suburban, Mixed Housing Urban and Terraced Housing and Apartments (THAB); these are the new main residential zones under the AUP. As they suggest, the single house zone permits one house per 600m2 site but you can now also have a minor housing unit. Whereas, a THAB zoned property could have a 16m high apartment building on it. A site in the mixed housing suburban and urban zone can now have three units as a permitted activity (that is: no need for resource consent for density). And subject to resource consent, you could add more units by meeting bulk, location and urban design controls. What is most exciting for property investors about all these “up-zones” is that previously lots of properties within these zones were restricted by density and height. So there are lots of opportunities for change.

While these changes sound fundamental and large it doesn’t mean that Auckland will suddenly become a slum city filled with boxy apartments. Coupled with the increase in density, are design controls that ensure new developments are functional and fit for purpose. The residential zones have been positioned in such a way that the sites with the most potential are located on main roads, in close proximity to town centres or public transport hubs. These sites will be THAB sites which allow up to five-level developments. Well located corner sites are sought after as they give the opportunity for two road frontages for outlook.

Sites that were previously zoned for lower density which now allow for apartments may result in big new apartments looking a little out of place, but this is the future. If you imagine how a THAB area will look in 15 years, the single house will be the minority. Essentially, our new plan allows us to better accommodate far more people than it previously did. Apartments that look a bit out of place are going to become the new normal.

Real Life Examples

We are now seeing sites being consented and developed under the AUP. Examples start from three-unit sites in the suburb of Pt Chevalier to more terrace house projects in St Johns onto five-level residential apartment buildings in Greenlane. Each of the proposals has been designed within the bulk and location controls of the AUP. All of them have gone from a single house on a site to multiples giving different options on how people want to live.

The Commercial Zones

These include zones such as Neighbourhood, Local, Town and Metropolitan Centre, Light and Heavy Industry and most excitingly Mixed Use Zone. All of which provide important typology for our cities. Under the AUP these business zones have also had their fair injection of development potential. The restriction on gross floor area (GFA) outside of the CBD has been removed. This has truly opened up the potential of each site, which was previously limited to the amount of floor space that could be built. In addition in appropriate areas height limits have been increased to 32m. These two measures have in some cases quadrupled the development potential on these sites.

However, possibly one of the most positive business zones for property investors is the Mixed Use Zone. As the name “mixed use” implies this building doesn’t just have to be offices or shops, it can be a combination of shops, apartments, offices, childcare centres or all of the above. As is the case for many sites, these properties were previously zoned as lower density sites. Mixed Use sites with public service connections, on flat land can now have five storeys built. They are also allowed to be “zero lot” or built boundary to boundary.

The Challenges

As previously mentioned, there is meant to be consistency across the board in terms of administration and interpretations of the plan. Unfortunately, however, things are not always so easy when bureaucracy and the “human element” are concerned. The only consistency of the planning administration of Auckland Council is their inconsistency; which makes our job very interesting at best, and tiring at worst. This uncertainty around the way the rules are applied can occasionally become very costly, so it is something that is important to consider.

It is also noted that nowhere is it legally mandated that the Council should help solve or improve the housing shortage or availability. In many cases we find that each internal department wants what is best from their perspective, and are not always looking at the bigger picture as to processing more housing consents in a timely manner.

Accidental Developer

The good news is many land owners in Auckland will by default be sitting on development sites; some have been substantially up zoned in terms of use, height and density. We call these land owners “accidental developers”. These people contact us daily as to the development potential of their sites and most are pleasantly surprised at the outcome. The leap from home owner to developer, however, is not as easy as ABC. Consenting a site is not just about getting a set of plans to the Council and asking for approval. Development is complex and involves a matrix of decisions and inputs.

Development contributions often catch people out, with the average new Auckland dwelling required to pay $34,000 plus GST to the Council and Watercare. These fees will never go down. Then there is tax – while we are no experts on this, the laws have been changed and the spotlight put on capital gains tax. There is almost surety that if you profit from development you may pay tax on that profit. Having sound knowledge of tax, profit and structures along with a good accountant will ensure that before you start you know what you may be liable for at the end.

The biggest barrier to property development in Auckland has now been removed. The rule book now allows you to build more dwellings per site. From a property investment perspective this means that if you own a property you may find yourself an accidental developer. You may own a site as a rental; however, now given the implementation of the Auckland Unitary Plan it may be beneficial to consider your options around development. Maybe you want to keep your existing rental and add extras on the back for further rental options. The best advice I can give is to understand your property to the nth degree in case you’ve accidentally become a developer.

Keep It Simple

The Unitary Plan has opened up opportunities for canny Auckland investors, but according to Barry Walker from Keith Hay Homes, just because you can develop, it doesn’t mean you should.

“The sums have to add up. You might have an 800m2 section in Manurewa that due to zone changes may allow for the development of four terrace houses, but this will cost you about $2.5 million. And given that lending restrictions are extremely tight at the moment, this isn’t going to be possible for many investors.”

Less ambitious projects may be the best option for many. Properties that have been rezoned as mixed housing suburban (for example) can now have an additional dwelling added without Council consent. And this doesn’t have to be a million-dollar proposition.

“You could build a 65m2, two-bedroom dwelling on a section that has been zoned as mixed housing suburban for between $250,000 and $350,000. Or a three-bedroom, two-bathroom home for between $370,000 and $430,000,” says Walker.

As three-bedroom homes are selling for an average of $950,000 in places like Howick, this would equate to nearly $500,000 in profit.

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