The rise of the townhouse

Responding to demand, Auckland has seen an increase in the number of new houses being built. Auckland Council has issued record numbers of residential building consents over the past few years. Over 21,700 consents were issued in the 12 months to July 2022 — a new high, supported by ultra-low interest rates through 2020 and 2021.

Most of this growth has come from multiunit dwellings, such as townhouses and apartments. As a share of all residential building consents, multi-unit dwellings have increased from 20% in 2010, in the wake of the Global Financial Crisis, to a high of 75% in the 12 months to July 2022. The picture is similar in other main centres, with multi-unit dwellings accounting for most building consents in Wellington (74%) and Christchurch (64%) in the 12 months to July 2022.

Townhouses now the dominant share of residential consents

Townhouses — also known as terraced houses — are now the most common type of dwelling being consented. Townhouses began to outnumber consents issued for standalone houses in late 2020. In the 12 months to July 2022, they accounted for 12,700 or 58% of residential building consents issued in Auckland, followed by standalone houses at 5,500 or 25%, apartments at 2,800 or 12%, and retirement village units at 720 or 3%.

Upzoning has enabled supply to be more responsive to demand

The increase in residential consents, and the shift to more townhouses, have been noticeable since the Auckland Unitary Plan became operational in late 2016. The Plan allows for denser types of housing in many areas across Auckland — a change in planning rules referred to as upzoning.

Upzoning increases the number of development opportunities by enabling more intensive development of sites and more efficient land use. In turn, this enables the housing supply to be more responsive to changing demand patterns. While upzoning increases the value of underdeveloped sites relative to their potential, new multi-unit dwellings tend to be lower in price than a standalone house, as land costs can be spread over more dwellings.

Recent Research conducted by the University of Auckland has found that the Auckland Unitary Plan led to a material increase in residential building consents from 2017 to 2021, beyond what would have plausibly occurred in its absence. The additional dwellings are estimated at 26,900, or approximately 5% of the housing stock at the time the Plan became operational. For context, there were approximately 76,000 consents issued in Auckland from 2017 to 2021. The surge helped respond to some pent-up demand following a period of an undersupply of new dwellings.

Some households prefer to trade-off space for an accessible location

People have different housing preferences, which can change over a household's lifecycle. Land value patterns indicate that most households prefer a location that offers proximity to employment, transport links, and amenities such as shops, parks or schools. In seeking to optimise their location, some households may prefer to trade-off space and opt for a townhouse or apartment that consumes less land and offers a price point that suits their budget. A responsive housing supply can meet those preferences, with a variety of housing options in places of relatively high demand.

The trend toward multi-unit dwellings likely to continue

The Resource Management (Enabling Housing Supply and Other Matters) Amendment Act, passed in December 2021, requires local authorities in the largest and fastest-growing urban centres — Auckland, Hamilton, Tauranga, Wellington and Christchurch — to enable more intensification. This means allowing for higher density — at least six storeys — in areas of highest demand. Those areas are the walkable catchments around city centres, town centres and near rapid transit stops (train lines and busways). Medium density, such as townhouses, is being enabled almost everywhere else.

Intensification may mean change for some streets and neighbourhoods, particularly in higher-demand areas close to city centres, town centres and rapid transit stops. While this may be welcomed by residents seeking housing options in locations of preference, some existing residents may find the change unsettling. However, there are benefits to society from providing more housing in high-demand locations.

More density can mean more local services — such as retail, hospitality and public transport services — become viable. Importantly, less restrictive land use rules should reduce upward pressure on house prices over time.

This will give younger people a better chance to form new households — their own home in a location that offers accessibility to the things they value. A housing market that responds to demand in this way offers us a better chance of retaining our young people and attracting talented people from elsewhere.

Urbanisation is megatrend 8 in REINZ’s Megatrends report. Increasing urbanisation in New Zealand is expected — particularly in Auckland, which will likely continue to attract people from rural or outer suburbs, and to a lesser extent, other cities.

The ability to offer improved housing choice, diversity and equity in cities that caters to different price brackets and ages enables people to stay in one area longer. It also opens up more properties transacting, with empty-nesters able to remain in their community but free up the family home for the next generation.

To learn more about the urbanisation megatrend and its implications for New Zealand real estate head to the report section of www.blog.reinz.co.nz/reports-1/megatrends-report-2022.

Gary Blick, Chief Economist, Auckland Council