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Planning
Committee
28 November
2017
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National
Policy Statement on Urban Development Capacity initial assessment results
File No.: CP2017/24289
Purpose
1. To
receive the preliminary high-level results of the housing demand capacity
assessment required under the National Policy Statement on Urban Development
Capacity.
Executive
summary
2. The
National Policy Statement on Urban Development Capacity (NPS-UDC) became
operative in 2016. The policy requires the council to undertake a housing and
business development capacity assessment (the assessment) by 31 December 2017.
3. The
assessment is a key part of council’s evidence base. It informs the
future development strategy and the feasibility targets which are to be
included in the Unitary Plan. These requirements need to be completed by 31
December 2018.
4. Overall
housing demand is assessed to be between 350,000 (Statistics NZ medium
population forecast) and 410,000 (Statistics NZ high population forecast)
households from 2016 to 2046:
· Plan-enabled
capacity in residential zones in the urban area ranges between 120,000 (infill)
and 1.07 million (redevelopment).
· Feasible
development capacity in the urban areas is 140,000 residential dwellings
· Feasible
development capacity in the future urban areas is 146,000 residential dwellings
· When
including rural capacity of around 20,000 (not modelled) and redevelopment of
Housing New Zealand land of around 30,000 (still being confirmed), total
assumed feasible development capacity is around 336,000 throughout the region
5. The
enabled feasible capacity for dwelling supply, as modelled for the 2016 draft
Unitary Plan recommended by the Independent Hearings Panel, was for
approximately 422,000 – being 270,000 (modelled) in brownfield existing
urban areas and 130,000 (assumed feasible) in future urban areas, with the
remainder being potential Housing NZ developments and future dwelling growth in
rural-zoned areas. The new modelling shows, principally due to rising
construction costs and flat to declining sales prices, that the brownfield
enabled feasible capacity of 270,000 has since reduced to 140,000; and that the
future urban feasible enabled capacity has changed slightly as it is now
modelled, from 130,000 to 146,000 dwellings.
6. The
Statistics New Zealand medium population forecast is being used for all council
planning purposes. On that basis, the preliminary assessed demand is around
14,000 more than the feasible development capacity in 2046. Or demand is around
66,000 more in 2046 when the NPS-UDC’s required 15 per cent long-term
margin is added.
7. Further
analysis is being undertaken which will be included in the final assessment
report that will be put to government prior to Dec 31st this year, via the
proposed delegated authority outlined in the recommendations.
8. The
business development capacity assessment is being done externally and results
are not yet finalised.
9. Note
that the feasibility models will be refined and rerun in early 2018. This will
form the basis of council’s response required under the NPS-UDC.
10. This
is a snapshot of development capacity at a moment in time and is the first
assessment under the national policy statement. It is important not to
assume trends or patterns based on one assessment alone.
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Recommendation/s
That the Planning Committee:
a) receive
the preliminary high-level findings of the housing development capacity
assessment.
b) delegate
responsibility for signing off the finalised housing and business development
capacity assessment to the chair of the Planning Committee and Deputy Mayor,
before 31 December 2017.
c) note
that the feasibility models will be re-run in early 2018 to produce a final
assessment which will form the basis of council’s response required
under the National Policy Statement on Urban Development Capacity.
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Comments
11. National
Policy Statements are a legislative tool in the Resource Management Act
1991. They are a means for central government to prescribe objectives and
policies for matters of national significance which all local authorities must
implement within their planning framework.
12. To qualify
for national direction, a topic must involve one of the following:
· significant
national-level benefits, costs or values
· significant
benefits of having a consistent approach across the country
· technical
complexity that makes it more efficient and effective to address the issues at
the national level.
13. The
NPS-UDC came into effect in December 2016. Its purpose is to enable urban
environments to grow and change in response to the changing needs of
communities and to provide enough space for their populations to live and work.
14. The
NPS-UDC has four objectives. These are:
· outcomes
from planning decisions
· evidence
and monitoring to support planning decisions
· responsive
planning and coordinated planning evidence
· decision-making.
15. Each
objective has an associated set of policies.
16. The
evidence and monitoring objective requires a robustly developed, comprehensive
and frequently updated evidence base to inform planning decisions. The evidence
base has two components; the assessment, and the monitoring and reporting of
indicators.
17. An
assessment is required at least every three years. The first assessment
requires completion by 31 December 2017. In relation to housing, the assessment
must estimate the demand for dwellings - including the demand for different
types of dwellings, locations and price points - and the supply of development
capacity to meet that demand, in the short, medium and long-terms.
18. The
short, medium and long-terms are defined as 3, 10 and 30 years respectively. A
margin is to be added to the feasible development capacity amount. This is in
recognition that not all that is feasible is built (the margin is 20 per cent
in the short and medium term and 15 per cent in the long term).
19. The
assessment is to enable decision makers to make well-informed planning
decisions.
20. However,
doing the assessment and interpreting is a complex task that is still evolving,
including the development of guidance from central government.
Requirements and responses
21. If
the assessment indicates insufficient development capacity in the short, medium
or long term, providing further development capacity and enabling development
is required.
22. This
could include reviewing the consenting process or initiating plan changes to increase feasible
development capacity.
23. Minimum
targets for feasible residential development capacity must be included in the
regional policy statement section of council’s Unitary Plan by 31
December 2018.
24. A future development strategy that uses the results of the
assessment is required by 31 December 2018. Demand must be met with a minimum
15 per cent buffer. The strategy must therefore identify:
· the
broad location, timing and sequencing of future development capacity over the
long term in future urban environments
· intensification
opportunities within existing urban environments.
25. The
Auckland Plan is currently being refreshed. It incorporates a development
strategy. This will be the council’s future development strategy as
required by the NPS-UDC.
Demand assessment
26. Statistics
New Zealand’s most recent population projections are the starting point
for demand. Council must calculate future housing demand which includes:
· the
total number of dwellings required to meet projected household growth and
projected visitor accommodation growth
· demand
for different types of dwellings
· demand
for different locations within the urban environment
· demand
for different price points.
Capacity assessment
Independent Hearings Panel
modelling
27. Modelling
undertaken for the Independent Hearings Panel (IHP) as part of the Unitary Plan
hearings process concluded that the recommended Unitary Plan enabled
approximately 1 million additional residential units, of which 422,000 were
commercially feasible.
28. Urban
locations were modelled using a feasibility model. The final IHP result also
replaced feasible capacity from the feasibility model with Housing New
Zealand’s development objectives (~39,000 residential units).
29. For the
IHP’s purposes, greenfield and rural sites and Housing New Zealand land
was assumed to be feasible but not modelled.
NPS-UDC modelling
30. Development
capacity is the basis of supply. There are two aspects to this. The first is
plan-enabled capacity which must include an analysis of:
· the
cumulative effect of all zoning, objectives, policies, rules and overlays and
existing designations in plans
· the
actual and likely availability of development infrastructure and other
infrastructure in the short, medium and long term.
31. The
second aspect of supply is feasible development capacity. This involves
analysing:
· Plan-enabled
supply to determine which developments are commercially viable considering
current costs, revenues and yields
· the
rate of take up of development capacity, observed over the past 10 years and
estimated for the future
· the
market’s response to planning decisions.
32. Plan-enabled
capacity has been calculated using council’s Capacity for Growth Model.
33. Feasible
capacity for existing urban areas has been calculated using the ACDC model.
This model was developed as part of the Unitary Plan Hearings IHP process in
collaboration with property and planning experts.
34. Feasible
capacity for the Future Urban Land Supply Strategy (FULSS) areas was calculated
in two stages:
· stage
one involved testing the commercial feasibility of creating sections in the
FULSS
· stage
two involved testing the commercial feasibility of developing residential units
on those sections.
35. Feasible
capacity was calculated in two different sets of locations – urban
residential zones (urban) and future urban zones (as per the FULSS).
36. In
the urban area the ACDC model was used. This is largely the same model as
developed at the request of and used for the IHP Feasibility Assessments by the
Urban Growth Expert Group.
37. However,
a number of assumptions have been updated to reflect current (as at
‘mid’ 2017) costs and prices from the ‘mid’ 2016 values
used for the IHP.
38. The
changes made have been developed in conjunction with members of the Property
Council and include per m2 build costs from Ryder Level Bucknell. The key
changes are:
· build costs per m2
have increased, particularly for higher density developments and higher end
locations. This cost-centre includes materials and labour. The increase
reflects construction sector constraints
· professional
fees e.g. design and project management, have increased for higher densities /
larger projects
· funding
costs have generally increased; both interest rates payable and the
contingencies required (increasing overall costs and the interest payable)
particularly for larger and more complex projects
· the
2016/17 Development Contributions Policy and WaterCare’s Infrastructure
Growth Charges are now included. A universal growth charge was used in previous
models.
· electrical
and telecommunications per unit connections and site costs have increased. No
gas connections are assumed
· site
civil works costs (all physical works not included in build costs or demolition
fees) such as earthworks, have increased by 10 per cent
· the
cost of a development site (applied as a relativity to the 06/2014 valuation
data) has increased significantly for developable Terraced Housing and
Apartment Buildings and Mixed Use zoned sites in higher value areas, reflecting
their scarcity
· the
Operative in Part Auckland Unitary Plan rules and zonings (including precincts
and overlays) on a 2017 cadastral base are used for the input capacity.
39. The
net effect of these changes is input cost increases combined with flat sales
prices. This has an impact on project feasibility.
40. The
feasibility model is underpinned by a number of assumptions. The key
assumptions are:
· nine
different typologies are tested that comply with simplified density, bulk and
location rules
· a
developer purchasing the land, building and then selling the development within
18 months, returning a minimum of 20 per cent gross (pre-tax) return on costs
is assumed. The 20 per cent threshold is consistent with industry requirements
when demonstrating pre-start feasibility to prospective financiers
· an
‘average’ developer and development is assumed. Developers can, and
do, structure, development to account for different risks and opportunities.
However, these options are not modelled
· sales
prices are set by sales location, floor area and typology, reflecting
relativities to a ‘standard’ dwelling sale price. As a general
rule, apartments and terraces will sell at a $/m2 of floor area discount to a
house
· land
area is not explicitly considered but is implicit in the per m2 of
floorspace rates
· costs
vary by a number of model variables - e.g. floor area, typology, civil works -
to reflect the development process
· as
a general rule, apartments are more expensive to build (on a per m2
of floorspace) than terraces. Terraced are more expensive to build than houses.
41. The
feasibility model is not a forecast or projection of development. It is a
commercial filter on present plan-enabled opportunities, providing a
‘snapshot in time’ of the sites that would be most appealing to an
‘average’ percentage return[1]
motivated developer that wanted to commence a project today. The model does
however allow scenarios to be tested to understand what impacts policies might
have on feasibility.
42. FULSS
locations are the second area modelled, but this time using a two-step process.
43. Current
Future Urban Zone titles (i.e. land holdings as they currently are) are first
developed into sections for sale (step one). Sections that are commercially
feasible are then assessed for dwelling feasibility (step two).
44. They
key assumptions in the FULSS area feasibility model are:
· FULSS-related
infrastructure costs use the 2016/17 development contributions policy and
WaterCare Infrastructure Growth Charge.
· the
feasibility model assumes that existing land is bought, sections are created by
‘land developers’ and then sold for a profit at retail prices, to
‘dwelling developers’ who build and subsequently sell to
residents/investors. Both steps include a minimum required gross profit of 20
per cent for each developer.
· ‘Mixed
Housing Suburban’ is the assumed zoning framework for the baseline
· costs
such as earthworks, development contributions, and sales prices vary across
FULSS areas to reflect localised constraints.
Rural capacity and Housing New
Zealand developments
45. Rural
capacity is complex (transfers and incentives) and is subject to appeal. It is
not presently modelled for feasibility.
46. It
is anticipated that an agreed approach will be developed as part of the Unitary
Plan rural appeals process.
47. The assessment
results (feasible development capacity) do not yet include Housing New Zealand
developments. These will be included in the final assessment. The 2016 IHP
modelling added 39,000 dwellings that were assumed to be feasible to the total.
Capacity assessment results
48. Plan-enabled
development capacity for all residential zones in the urban area are
shown in the table below. The results exclude potential capacity in town
centres and business areas and Housing New Zealand developments.
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Plan enabled
capacity type by zone
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Vacant
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Vacant potential
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Infill
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Redevelopment
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Special
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Total Infill
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Total Redevelopment
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Large Lot
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107
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2700
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222
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3515
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62
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3091
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6384
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Mixed Housing Suburban
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5105
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23927
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10094
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373949
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2478
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41604
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405459
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Mixed Housing Urban
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5141
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19581
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10521
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284101
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4954
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40197
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313777
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Rural and Coastal
Settlement
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85
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950
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0
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674
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567
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1602
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2276
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Single House
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2114
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15129
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2099
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13793
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6701
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26043
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37737
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THAB
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4002
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508
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16
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303881
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2243
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6769
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310634
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Total
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16554
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62795
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22952
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979913
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17005
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119306
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1076267
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49. The
dwelling feasibility results for the FULSS areas are shown in the table below.
50. The baseline
result is consistent with the reporting of previous feasibility, representing
the highest percentage return outcome for both the land developer and the house
developer. The other scenarios are used to illustrate how changes to model
variables affect feasible dwelling capacity and potential house prices.
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Scenario
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Sections Model scenario
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Dwellings Model Scenario
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Feasibility Threshold
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Zoning
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Feasible dwellings (000’s)
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Average Sale Price ($M)
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Baseline FULSS
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Max % Profit
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>=20%
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MHS
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146
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1.50
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Baseline w/ Reduced profit
threshold
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Max % Profit
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>=15%
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MHS
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192
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1.40
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Baseline w/ Reduced profit
threshold
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Max % Profit
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>10%
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MHS
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288
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1.21
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‘Restricted
Zoning’
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Largest Feasible
Sections
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>=20%
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Single House
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73
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1.83
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‘Enabling
Zoning’
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Max % Profit
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>=20%
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MHU
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375
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1.15
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‘Cooling
Market’ (Sales Locations as per Urban ACDC model)
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Max % Profit
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>=20%
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MHS
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14
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1.12
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51. The
feasibility results for the residential and business zones (urban area) are
shown in the table below:
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Scenario
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Feasibility threshold
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Feasible dwellings (000’s)
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Average Sale Price ($M)
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Baseline urban area
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>=20%
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140
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1.22
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Baseline w/ Reduced profit threshold
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>=15%
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209
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1.22
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Baseline w/ Reduced profit
threshold
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>10%
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291
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1.21
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In
conclusion
52. The
scenarios highlight the potential for development to proceed using a
‘non-average’ developer. They also highlight how sensitive the
model outputs are to changes in assumptions. The scenarios serve as a reminder
that feasibility is, primarily, not a function solely of the planning
system.
53. The
feasibility models only consider current prices and costs faced by a
theoretical developer, testing the feasibility of providing plan-enabled
developments on the sites tested into that market.
54. The
models do not consider demand (other than implicitly in present prices) or the
actions of other developers.
55. The
consideration of demand will alter the outcomes from what is best for the
developer (as shown) to the results of a balancing between what is demanded and
what can be supplied that meets this demand.
56. That
is, if dwelling prices are too high for households’ ability to pay (or
borrow), or the location or typology does not suit, then the mix of
developments that will eventuate will vary. For example, it is unlikely that
all 374,000 terrace houses and apartments that are feasible in the
‘enabling zoning’ scenario will be demanded, given the nature of
many of the tested locations and the potential alternatives. Even if demand
matched the results of the feasibility models, the prices and costs faced by
developers over time will vary from the current situation.
57. Addressing
the demand side requires further modelling, which is well advanced, but is
pending the final feasibility assessment to be able to be completed.
Consideration
Local
board views and implications
58. This is a
modelling and data collection/analysis process which, in itself, has no impact
on local boards or their communities. The plan-enabled and feasible
capacity modelling results can be reported by local boards as can the demand
and supply matching.
Māori
impact statement
59. This is a
modelling and data collection/analysis process which, in itself, has no impact
on iwi or mana whenua.
60. Iwi-owned
land was modelled through applicable planning provisions however, it is
understood that iwi development intentions may be different from that modelled.
61. Confirmation
of known iwi development intentions is currently being sought. The final
assessment will replace council’s analysis of land being developed by iwi
authorities (including their commercial arms) where confirmed, and will become
publicly available information as part of that assessment.
Implementation
62. Council
will have to include the feasible residential development
capacity targets in the Regional Policy Statement, based on the final
assessment, by 31 December 2018.
63. Further work
to finalise the housing development capacity assessment is required. It needs
to:
· review
the results of the feasibility modelling, including agreeing finalised costs
and price information
· complete
the demand and supply matching process against those results
· incorporate
consideration of supply and demand for business capacity, some of which will
overlap with residential (mainly office demands in town centres of which there
is significant capacity for both)
· complete
the final assessment.
64. The
business development capacity assessment underway will be finalised and will be
subject to recommendation b).
65. The
feasibility models will be re-run in early 2018 to produce a final assessment.
This will form the basis of council’s response required under the NPS-UDC.
However, these initial results suggest that sufficient feasible development
capacity exists in the short and medium terms, but probably not in the long
term.
66. The results
of the preliminary assessment were used to inform the development strategy in
the Auckland Plan. Changes may be made to the development strategy prior to its
finalisation in June 2018.
Attachments
There are no attachments for
this report.
Signatories
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Author
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Regan Solomon - Acting Manager, Research &
Evaluation Unit
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Authorisers
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Jacques Victor - GM Auckland Plan Strategy and
Research
Jim Quinn - Chief of Strategy
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