• Rachel Rose: Knock 'em down -- social cost of our substandard housing

    24 February at 15:04 from atlas

    RUNDOWN: Some properties need to be knocked down to make way for modern, healthier homes. By: Rachel Rose

    Anyone who's needed to hire a tradie in the past few months in Whanganui knows very well there is a building boom happening.

    It's very hard to get a quote, let along a job done — and you can expect to wait months.
    Builder Jamie O'Leary reckons we might run short of land to build new houses on, according to the Chronicle front page story last Monday.

    But there's plenty of land to build on in Whanganui. The catch is these sections already have houses on them — houses that are so rundown and at the end of their life that they need to be bowled to make way for modern, healthier homes.

    But that's rarely happening because the market is providing incentives to keep them standing.

    Land is relatively very cheap in Whanganui. A year ago, it was being valued as low as $5 per square metre, and up to $142 in the fancier parts of town. Now the range is more like $16 to $291, according to Diana Davey, chairwoman of the Property Institute of New Zealand, Whanganui.

    That compares to $1279 to $1739 per square metre in Mt Roskill, the Auckland equivalent of Springvale. Or as much as $4297 per square metre in Remuera ... in case you were wondering.

    Even Whanganui's worst houses are still being valued as worth something by Quotable Value (QV) and that is a barrier to plans to buy, bowl and build.

    As for who's buying old, worn-out houses, industry sources agree the buyers fall into two camps — investors, of course, but also owner-occupiers with a sentimental attachment to both the character of old homes and the great Kiwi "do-up" dream.

    This makes for a fickle market, says Diana, because owner-occupiers will pay more for the same home than an investor.

    Whanganui's heritage buildings are a beautiful feature of our town and, like many, I think a grand old villa is a beauty to behold. But they cost a fortune to maintain well and they will never be easy (or even possible) to keep warm and dry.

    And there are many houses here that are old and not beautiful. They were never grand houses, their character is minimal and everything about them is worn out, from the piles to the roof, and the weatherboards in between.

    There are some investors who look past all that, concerned only about the numbers, in particular what is called the "gross yield" (eg: I buy a property for $180,000 and rent — not including expenses — is X% of $150K).

    Whanganui can still yield very strong returns compared to other parts of the country. Our rents are relatively cheap but our houses are even cheaper.

    That brings a lot of investors from out of town, including from Australia. One Australian investor currently has five offers on Whanganui properties through just one real estate agency.

    I've been both tenant and landlord and I don't buy into the gross stereotypes of either. I know there's a range of behaviours and motivations and some stinkers on both sides.

    Certainly I do despise slum landlords who are profiting at the expense of desperate tenants without better options. Instead of providing adequate state housing, for 10 years neo-liberal governments have relied on the market to provide accommodation for the most vulnerable. And what's that achieved? Accommodation supplement payments going straight into the pockets of landlords.

    I was surprised to learn from industry sources that it's the local landlords who are more likely to not keep up with maintenance on their rentals. Perhaps the out-of-towners are more professional and know that small problems left unfixed turn into large problems and that budgeting a certain amount for maintenance and improvements each year is a necessary expense item.

    I was also surprised to hear from Diana that some investors do weigh up demolishing the old houses they buy ... and discouraged by the reasons they mostly don't.

    While a full refurbishment will cost between $1000 and $1300 per square metre, a new build will run between $1700 and $2200. Combine that with the tax benefits (repairs are tax deductible, improvements are not) and she says it's a "no-brainer" to keep with the old.

    But in this scenario, the landlord gets multiple benefits (rental income, rental appeal, property value and tax write-offs all increase), while the hidden costs are borne by others. The costs to society (and taxpayers) of substandard housing are enormous, as researchers like Professor Philippa Howden-Chapman have doggedly documented at length.

    Diana says that while 10 years ago some Auckland investors were buying old homes in Whanganui and doing nothing to improve them, she's seeing a change.

    "It's not just the new entrants from Australia and Auckland, I've seen more social responsibility from everyone. People are making money, they're more confident, they're willing to spend money," she says.

    She estimates 20 per cent of her work as a valuer is coming from investors spending a significant amount on upgrading their rentals.

    Meanwhile, why is it that a responsible landlord can spend thousands on high-end double glazing and not see that translate at all to a higher property valuation?

    I began by blaming valuers but, as is so often the case, the answers aren't simple or singular. More on this in my next column.

    *Rachel Rose is a Whanganui-based writer with a particular interest in building science. More information, plus sources, can be found at