Underlying land value

With a population set to hit six million by 2050, pressure to densify communities across the country is mounting, with a spill-over effect for some of our most productive plots of land.

Bayleys asks what happens when densification results in a scarcity of large land sites?

Recent reporting has seen New Zealand slated by the OECD as having the least affordable housing market for our lowest income families, and one of the most expensive housing markets relative to income. To combat this, a government-led emphasis on densification is poised to add welcome residential supply.

However, much of the most intense housing development has been centred around flat, fertile land on the outskirts of Auckland, Hamilton and Tauranga where land is cheaper and easier to develop.

LIFESTYLE PREFERENCE

More than 30 percent of Auckland’s most productive land classes have, or will be developed to create residential housing in the coming years, the strength of which has been demonstrated by huge development in areas surrounding the city’s southern boundary at Pukekohe and western fringes Kumeu and Riverhead.

At the same time, there has been a steady increase in the demand for lifestyle blocks which has seen on average 5,800 new blocks created every year since 1998 through large land tracts and farming stations being systematically divided and sold in smaller sections.

“Highly productive land is at risk of becoming unavailable for food production due to an overwhelming need for more housing,” says Raymond Mountfort, Bayleys general manager of lifestyle.

“This has the potential to impact the very small amount of land we rely on for production but also creates a scarcity of large land sites which ultimately drives the price upward.”

While the government has consulted on a National Policy Statement for Highly Productive Land that would direct local council to protect Auckland’s best soil, urban sprawl is projected to swallow 31,270 hectares over the next 35 years.

“A range of factors influence the price of housing and the land underneath it, though the supply of infrastructure-enabled land has been identified as a consistent constraint,” Mountfort says.

While only circa one percent of New Zealand’s total land area is currently used for urban dwellings, restrictive land use regulations continue to squeeze the availability of ready-to-build land.

This has resulted in decades of underdevelopment and a lack of viable housing for a growing population.

“With little land zoned for development, and an underinvestment in trunk infrastructure such as roading, water and services, competition for viable sites has increased, raising the price per square metre of land with development potential across all segments of the property sector,” Mountfort says.

“With little land zoned for development, and an underinvestment in trunk infrastructure such as roading, water and services, competition for viable sites has increased, raising the price per square metre of land with development potential across all segments of the property sector,”

Raymond Mountfort
Bayleys General Manager of Lifestyle

Large land sites with development potential command some of the highest prices, although these will be ultimately segmented and sold as smaller lots to provide a new generation with affordable housing.

As the supply of smaller lots increases, fed by the cutting up of bigger lots, the value of lifestyle-sized sections will continue to increase.

“Scarcity drives competition and with more affordable housing communities emerging across the country, especially the golden triangle between Auckland, Bay of Plenty and Waikato, we are seeing an embedded trend where large land sites increase steadily in value driven by demand,” says Mountfort.

“While we know New Zealanders need more affordable housing there is a real concern that this is taking place at the detriment of the country’s food basket and we welcome planning with foresight to ensure challenges like urban encroachment don’t irreversibly damage Kiwis’ capability as food producers,” he adds.

COASTAL EROSION

New Zealand’s planning systems have long been criticised as unresponsive to changes in demand for housing our growing population, however, coastal areas have a variety of other factors to contend with.

As an island nation with a love affair with the sea, 65 percent of New Zealanders are fortunate enough to live within five kilometres of the coast, with circa 30,000 waterfront properties commanding some of the highest residential prices.

However, climate change and the threat of rising sea levels have seen the Ministry for the Environment suggest local councils should be taking a risk-informed approach to land-use planning which could see less coastal land unlocked for development in the future.

“Increasing regulatory constraints and the government’s commitment to its climate change objectives may see fewer coastal properties developed over the coming years, with fewer available on the market for sale,” says Linda Greenslade, Bayleys branch manager of Mount Maunganui.

“Increasing regulatory constraints and the government’s commitment to its climate change objectives may see fewer coastal properties developed over the coming years, with fewer available on the market for sale,”

Linda Greenslade
Bayleys Branch Manager of Mount Maunganui

However, Greenslade notes properties are long-term assets whose value is derived from long-term benefits, and the lifestyle benefits plus the prestige of living near the water continue to see waterfront property values remain remarkably resilient.

She points to her office’s recent sale of 443 Oceanbeach Road in Mount Maunganui which set a regional record when it was sold by Bayleys residential salesperson Sharon Hall in May for $11 million.

With a total site coverage of just 40 percent and a large front yard with wrap-around greenspaces, the 838-square metre site is increasingly unique in the popular beachside community.

“The sellers cited the appeal of the beach and its waterfront position with views over the water to Motiti Island as key reasons for their original purchase,” Greenslade says.

Whilst rebuilding the property to high specifications, the ultimate sale value reflects a blend of the modern architectural design and underlying land value, the latter of which is of growing scarcity in high-demand areas.

“The huge boom in residential properties over recent years has seen more and more landowners realise the benefits of their large land sites, with urban tracts over 800 square meters increasingly subdivided and sold for profits.

“Since the pandemic, housing in Mount Maunganui has experienced significant value uplift driven by inter-region migration and a growing number of people looking to relocate to lifestyle locations.

“When the demand for residential land increases – underpinned by a shortage of housing for a growing population - land in more desirable locations attracts premium prices.

“These factors encourage developers to build more dwellings on the land to better their rate of return which has the offshoot of making remaining properties like the recent sale above more valuable due to the growing scarcity,” Greenslade explains.

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