The Housing Shareholders Advisory Group has released their work titled Home and Housed and are to be congratulated for a job well done. Clearly, they have done excellent research and have given the Government a strong case for urgent restructuring in the social housing sector.
The 19 recommendations, if they are actioned by the Government, will form a strong structural base for change but much more will need to be done.
In particular, in paragraph 8.1 – Overview of the Business Case, the freeing up of capital in various forms through restructuring provides the potential for new house builds of 2000 – 2500 homes within five years assuming an average cost of $350,000 per unit.
Assuming an average occupancy of 2.5 people the maximum number of additional people being housed is only 7,500 at a time when there is already a waiting list and more than 50000 households with affordability issues. Worse still, these numbers are expected to increase in the short term as unemployment increases, the economy stands still and the population ages.
Interestingly, the research did clearly identify the nub of the problem.
Traditionally and ideally for housing to be affordable, the cost of housing should not exceed 30% of household gross income. This criteria can vary a little depending the level of income, the numbers of dependents, other debt levels etc for a particular household but overall it is a reliable ratio.
That is the nub of the problem. Everyone talks about providing affordable housing but few understand what that really means.
The Government’s current criteria for affordable housing is a sq m cost of less than $1250 sq m and a total build cost of less than $250,000. That would be fine is it weren’t for the fact that there are land, design and local body costs to take into account as well. These add at least another $150,000 so the present target for affordable housing is actually more like $400,000.
For the month of June 2009 Auckland Regional Council (ARC) reported average weekly earnings per household of $913. ARC also reported that the overall average of income committed to housing is 31.7% and for those paying rent it is 45.8%.
Assuming mortgage interest rates around 6.5 % and affordable weekly housing costs averaging at least $274 per week (30% of $913) for a household, the cap for home affordability is $219,200. In other words this in the maximum price an average family could comfortably afford to pay for a home.
This is way below the figure of $350,000+ which is assumed to be affordable. It also needs to be noted that these calculations assume interest rates at or below 6.5%. Any increase will reduce the affordable total. In a nutshell, affordable housing as it currently stands is an impossible dream for a large number of households.
However, the nub of the problem also offers the solution. By using a top down approach its possible to work from what people can afford to find a solution. Clearly if we are talking affordable we have to set a total cost no higher than $219,000. Surprisingly such a target is achievable, though it may require some assistance at Government level to persuade Councils to co-operate in the planning process.
You can read it here – Affordable Housing Solution