If you had the opportunity to live in a good-quality home with a $50,000 returnable down-payment, guaranteed low monthly rent and security for you and your family would you support moving away from the traditional NZ housing model, which may promise greater capital gains?
Jasmax Principal James Whetter believes the answer, for many kiwis, could be yes. James recently returned from a City Makers Guild study trip to Europe looking at successful alternative housing development models in Europe. He met with developers, funders, architects, government groups, tenants and owners in three recognised ‘best-in-class’ cities where quality affordable housing is being delivered at significant scale.
James visited various housing initiatives in Berlin, Zurich and Vienna. Vienna has just been voted this year’s most liveable city. Its residents also have some of the lowest housing costs in Europe. The alternative housing models in these cities differ from New Zealand on various fronts. Their innovation is driven on multiple factors – the funding structure, policy levers, building typologies, social innovation and ownership structures.
In Berlin, the Baugruppen model is powered by the people, where a group of aligned people join forces to act as developer and drive costs down. Vienna has a top down, policy driven model with extremely successful outcomes, and Zurich was all about the cooperatives.
James presented a talk, ‘Alternative Housing Models For The Betterment Of All,’ sharing his findings and giving his perspective at Jasmax as the second of our three-part Urbanism Series. The talk looked at how our communities and the development sector can work with public authorities to enable new models of development to deliver equitable, affordable and socially sustainable housing in New Zealand.
These are the three cities which were studied and James’s key takeaways:
This citizen-led housing model started in Berlin in the wake of the wall coming down in 1989. Berlin had an oversupply of poor quality housing, and a strong squatter movement. The Baugruppen projects emerged with likeminded people seeking better quality housing and a way of living which is more connected with neighbours and community. This model typically works with a group of individuals forming; they then become the developer and take on the risk. They bring their own equity to the project though still relying on banks for the bulk of the costs. In the absence of developer margins, high-cost second tier finance, and real estate fees, they are able to deliver apartments for around 20% below market. Importantly, because the final owners are on board at the start, they have some input into the design, and are also able to reduce cost through good design. Baugruppen members end up with privately owned apartment and typically there will be a degree of shared common space – gardens, workshops, function rooms, etc. These projects supposedly account for 10-15% of new housing projects in Berlin.
Vienna: The role of Governance
In Vienna, governance is key to their affordable housing model. At government level they see ‘housing as a human right’ which drives policy decisions. The Viennese government (they are their own state) uses various mechanisms to direct public and private capital into building quality, affordable housing. Not-for-profit and limited-profit developers, as well as cooperatives, have access to significant subsidies (up to 35% of construction cost), low interest loans, and favourable lease terms on public land. These projects are delivered at scale. As a result, 62% of Viennese live in housing which has been subsidised in some form.
They use the Cost-Rent model. A resident makes a returnable down payment which can be used as equity in the project, then weekly rent. The rent is structured to pay back the construction cost over 25 years minimum. Rent never increases and residents typically have a perpetual lease – i.e. forever!
The outcome? Seriously low rents, significant common amenity spaces, a strong community and rental surety. But no capital gains. Are we ready for that?
Viennese spend, on average, only 20% of household income on housing costs. Because there is so much good quality affordable rental stock, speculation in the private market has been moderated, which has kept a lid on rising land and housing costs.
Zurich has a 100-year history of cooperatives. Similar to the Vienna cooperatives though without the subsidies, members pay a nominal fee (say $1500) to join a cooperative. To buy the right to live in a cooperative apartment, members purchase shares which are effectively a returnable down payment. This may be $50k for a one-bed apartment depending on the level of quality. They then pay a low weekly rent using a Cost-Rent system similar to Vienna. Again, residents enjoy perpetual leases, and rents that never increase. And again, residents do not benefit from capital gains. However, their housing costs are so low that significant capital is freed up for residents to invest productively in society or as they see fit.
The architectural, social and environmental quality of these projects is high. Cooperatives account for 20% of all of Zurich’s housing stock and they are increasing rapidly in response to rising land cost in Zurich.
What about NZ?
Can we apply any of this in a New Zealand context to shift the dial towards affordability? Culturally New Zealand, along with Australia, the US and others are heavily focused on home ownership and the reliance on housing as our primary form of private wealth generation. That system is embedded in our psyche despite the fact more than 40% of our housing is rental stock and many people will never own a house.
The Berlin style Baugruppen projects are a private ownership model and hence most closely aligned. Forms of these projects are already starting to happen here, such as the Cohaus project in Grey Lynn, Auckland. There appears to be an appetite for more.
What about cooperatives? At first, it feels like a big jump for New Zealanders to consider cooperate housing (though there are one or two which have been around for years). But New Zealand actually has a long history of cooperatives in other sectors, namely horticulture and agriculture, including some of our biggest companies. Without doubt it will require a significant mind-shift for kiwis to pivot from the pursuit of home ownership towards a housing cooperative model. However, the current pressure on housing costs and lack of tenure security has provided an environment where these alternative models might just thrive.
The final installment in the Urbanism Series talks, ‘Urban Transport, The Way Back Home’, will be presented in September by Peter Engstrom and Chris Jack.The first was, ‘Challenging the NZ Planning System’. Read James’ roundup on that here.