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Presentation to IHP

Update of Capacity Modelling

Kyle Balderston & Doug Fairgray


for Auckland Council for Topic 081
4 March 2016

Overview
Prepared in response to IHP Memo (5 November 2015)
Key elements sought in Memo:
a revised method to estimate supply that is capable of accommodating the
changes to density rules as proposed by the Council and its forthcoming
proposed changes to the spatial application of residential zones.
An estimate of demand for residential capacity (expressed as dwelling
numbers) throughout the Auckland region, for the period to 2026 and to 2041.
An estimate of overall supply of residential capacity (in tabular form) and a
breakdown of that supply in terms of each type of zone (e.g. Centres, THAB,
MHU, Mixed Use, etc.).
Presentation of supply in the form of heat maps or similar (e.g. as at 2026
and 2041) to enable easy visualisation of the spatial spread of supply.
if possible in the time allowed, the estimates of supply be compiled as
forecasts, in order for the Panel to be in position to compare supply forecasts
with the demand forecasts.

Panel advised it seeks to use the outputs from this work to assess the
extent to which the proposed Plan would be adequate to meet forecast
demand for residential capacity for the period to 2026, and to 2041.

Contents
1. ACDC Model (purpose, rationale, outputs)
2. Estimates of supply (model outputs,
adjustments, supply from other sources)
3. Estimates of Demand (household growth, plus
catch-up of shortfall)
4. Nature of Demand (household types, incomes,
demand by dwelling price)
5. Findings to date

Kyle Balderston
ACDC Model

ACDC Model
Purpose:
a revised method to estimate supply that is capable of
accommodating the changes to density rules as
proposed by the Council and its forthcoming proposed
changes to the spatial application of residential zones
a filter on plan enabled capacity that indicates, under
current conditions, which of those regulatory enabled
opportunities might be commercially viable.
Results indicate a higher probability of development
(than sites that are not feasible) and show the location
and nature of opportunities unlocked by the plan

Development
that is enabled

Development
that occurs

Not all of what is enabled, happens, but most of what happens, is enabled.
Planning cant make things happen but is generally a prerequisite, due to the time -cost of
consenting and plan alignment with infrastructure provision.
A small portion of what happens is not enabled.

Probabilistic Filtering
All Sites
Tested

Sites with
Plan
enabled
Capacity
(CfGS)

Sites with
Commercially
Feasible &
Plan enabled
Capacity
(ACDC)

Sites with
commercially
realisable potential
that is
not plan enabled or
not in model

Sites that
actually get
developed in
timeframe
that feasibility
applies to

But what about time?


Time in model only covers development site purchase (@ June 2014
Valuations) to Sale of completed developments 18 months later (sale
prices and price ceilings calibrated to sales Mid 2014-2015).
Future feasibility not calculated and may be different due to changes in
relativity between purchase price, sale price, improvements, construction
costs, supply from other developments, demand
(Model could do a future feasibility if in/deflation applied to components
of model and sites assumed to be developed over that period are
excluded)
Consideration of the future therefore requires a consideration wider
economic processes that can be reasonably considered to occur over the
time period being investigated. This may require adjustment of the
starting point to represent a more normal land & house price inflation
situation.

Development Profit Margin (%) vs


Required Profit Margin (%)

Development Costs Vs Expected Sale Price and Profit ($)


$4,000,000
25%
$3,500,000
20%

$3,000,000

% Margin

$2,500,000
$2,000,000
$1,500,000
$1,000,000

15%

10%

5%

$500,000

2050

2048

2046

2044

2042

2040

2038

2036

2034

2032

2030

2028

2024

2022

2020

2018

2016

2014

2026

Year
Infrastructure Costs
Other Costs
Construction Costs
Existing Improvement Value
Land Value

2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050

0%

$0

Starting Year Values


Total Construction Costs
Land Value
Improvement Value
Other Costs
Infrastructure Costs
Overall Development Cost
Expected Sale Price
Profit ($) (Costs less Sales Revenue)
Profit % ($Profit/$Revenue)

Minimum Required Profit:


20.0%
Earliest Year Development achieves
Required Profit

Year
Profit Margin % ($Profit/$Revenue)
Minimum Required Profit Margin %

$
$
$
$
$
$
$
$

2014
425,154.00
455,000.00
120,000.00
80,000.00
50,000.00
1,130,154.00
1,220,000.00

$
$
$
$
$
$
$

89,846.00
$
7.4%

2014
No Go

2044
770,107.62
1,277,091.14
82,030.42
144,908.93
90,568.08
2,364,706.18
3,004,690.29
639,984.11
21.3%

2044
Go
2040

Completed & in model

Not done in model


(see DF Demand vs Supply)

Feasible Development Model

Existing Costs and Prices


Model

Future Costs and Prices


Model
(ROI)

Current Costs and


Sale Prices

Expected Rates of
Inflation in Costs
and Sale Prices

Capacity for
Growth Model
(Enabled
development and
base parcel data)

Model Evolution
V1 PAUP inputs, 64k (013 E.G. Report)
V1 ACAP inputs, 181k (apply exact same 013 E.G.

method to new enabled opportunities from density rule changes)

V2 ACAP Inputs, 108 144k (PF/AT quick review

results in imposition of price ceilings to remove sales of large


expensive dwellings in low value areas (as per supplied LUTs) +
some minor adjustments)

V3.6 ACAP Inputs, 198-256k (9 developments per site,

calibrated dwelling size and prices to to Price ceilings/sales records,


accidentally impose PF noted corrections for houses and terraces to
apartments)

V3.7 ACAP Inputs, 224-308k (as per 3.6 but recorrected apartments)

Headline Totals

ACAP based Results are arguably more noticeable for their similarity than
differences
PAUP to ACAP rules have IMO made a more significant difference than iterations to
model (as should be expected), however Model v3 is much better than v1 and v2.
V2 to V3 iteration change results from 9:1 difference in developments tested and
better sizing houses to ceilings.

Spatial results (Capacity)


V1 PAUP

V1 ACAP

V2 HPC

V3.7 Max
Return

Much as per the Totals, spatial Results are arguably more noticeable for their
similarity than differences.
Consistency of spatial distribution of both clusters of potential and areas where
limited development appears possible under the regulatory and commercial
ACAP rule change increases concentration of opportunity for small scale
developments (density relaxation) but not location. Only spatial zone changes will
alter spatial distribution of opportunities.

Sales Location (Value) and feasible


developments

Land Value to Floorspace Price

Denser developments are able to moderate the cost of new floorspace on expensive land (compared to
less dense developments) but are more expensive on lower value land. The simple best fit curve slope
and relative position are a function of regulation, and model assumptions.

V3 Results super summary


How much quite a lot
Where donut with a candle in the middle
What price good range, limited cheaper
dwellings (role of inputs? Test very small
typologies?)
What size good range, mostly larger (but
closely linked to price)

What else can we use model to


investigate?
High level spatial form how does PAUP align to:

AP development strategy?
Councils stated rezoning principles?
Infrastructure capacity & planning
etc.

Location based assessments (e.g. # or % of development within x


distance of y features, or within area z)
Quick assessments of relative capacity value of potential zone
change submissions (based on results from similar locations)
Slice and dice (highly atomistic geography and multiple criteria re
zone, price, size, type, land area etc.)
Economic assessments
Much more yet to be thought of.

Quick assessment example


The Zone-U-Lator

PAUP Average Residential Zone Density DATA ONLY.xlsx

Spatial Results (Heatmaps)


Feasible capacity relative density

Existing Relative dwelling density

Existing Relative dwelling density compared to change (capacity) in relative


density if all feasible developments were realised.

ACDC Model Further Evolution


perpetual beta new/more data/information requires
constant update
Perceptions and the relative importance of
consistency vs good enough vs chasing accuracy;
Development of suppressed Future component based
on exogenously input ROI assumptions;
Discussions with economic modellers re potential GEM
and/or spatial economic models (AMM) etc. (calculate
ROI dynamically );
Significant interest re application to NPS on Urban
Development
Group should be proud of what it has collectively
achieved under difficult circumstances.

Dr Doug Fairgray
Using the ACDC and other information
to consider overall development
capacity, over time

Dwelling Capacity utilising ACDC


Model captures a key commercial process
(residential development) at a single point in time
Process is influenced by economic conditions at
that point, and longer term economic trends
Use model outputs as snapshot of start point, but
seek to remove distortion due to specific /
unusual economic conditions hence adjustment
Important to interpret outputs carefully
ACDC a snap-shot model - does not allow for feedback
effects (as economic model would)
Base process relatively consistent over time, outputs
vary with circumstances and trend

Dwelling Capacity - Adjusted

Adjusted downward for effects of high dwelling price inflation to 2015


Allows some inflation effect (at long term mean)
Places greater weight on gains from intensification itself
Same method as in 059-063 and January 28 evidence

ACDC Range of Indicators

Dwelling typology
Dwelling price
Size
By location

Overall numbers are useful, but key importance is


ability to understand the characteristics and
implications of the new dwelling estate

Other Sources of Dwelling Capacity


Future Urban FULSS Report indicates 49-62,000
serviced capacity by 2026, 87-110,000 by late 2030s
Mid-point 55,000 by 2026, and 99,000 by late 2030s

Special Areas 14,000 by 2026, 28,000 by 2041


Rural zones 5,000 by 2026, 10,000 by 2041
HNZC (to be updated) from 19,000-29,000 estimate
Allow 10,000 by 2026, and 19,000 by 2041

SHAs additional capacity indicated, but not included

Dwelling Capacity to 2026 - Medium


Model outputs adjusted, mean of selections
Increase in feasible capacity over time (as per mean historic rates)
Add other sources to create full regional picture, over time
SOURCE OF CAPACITY
Residential Zones
Business Zones
Total Developable Capacity1
Increase in Feasible Capacity 2
Special Areas
Rural Areas
Housing NZ
Future Urban Zone
TOTAL

Inside MUL Outside MUL


148,000
54,000
202,000
89,000
10,000
10,000
311,000

16,000
4,000
20,000
4,000
4,000
5,000
55,000
88,000

TOTAL
164,000
58,000
222,000
93,000
14,000
5,000
10,000
55,000
399,000

1: Currently viable ACDC15 v3.7 Model, adjusted downward for price inflation 2014 to 2015
2: From Fairgray EIC on Topic 059-063 EIC Tables 4.4, 6.1, 6.2, 6.4 and 6.5

Dwelling Capacity to 2026 - Low

Model outputs - lowest 3 selections, then factored down, and


Lesser increase in feasible capacity over time
18% (-58,000) lower than medium estimate
Low end of range from other sources
SOURCE OF CAPACITY

Inside MUL Outside MUL

Low Estimate
Total Developable Capacity1
Increase in Feasible Capacity
Special Areas
Rural Areas
Housing NZ
Future Urban Zone
TOTAL

TOTAL

175,000

18,000

193,000

61,000
10,000
8,000
254,000

3,000
4,000
5,000
49,000
79,000

64,000
14,000
5,000
8,000
49,000
333,000

1: Currently viable ACDC15 v3.7 Model, adjusted downward for price inflation 2014 to 2015
2: From Fairgray EIC on Topic 059-063 EIC Tables 4.4, 6.1, 6.2, 6.4 and 6.5

Demand for Dwellings


Demand based on households = dwellings (1:1)

Projected household growth by StatisticsNZ (2015)


Substantial growth in both Medium and High projections..
..plus dwelling shortfall (2013)
Additional dwellings = growth plus shortfall

Housing Demand and Capacity to 2026


Table 5.7, examines margin of capacity over demand
Expressed as dwellings, % of demand and years of growth
Compares medium capacity and medium growth, through to low
capacity and high growth
Indicates reasonable margin to 2026 (low capacity and high growth)
SCENARIO
Medium Capacity
Medium Growth
70:30 Outcome
60:40 Outcome
High Growth
70:30 Outcome
60:40 Outcome
Low Capacity
Medium Growth
70:30 Outcome
60:40 Outcome
High Growth
70:30 Outcome
60:40 Outcome

Outside
Total
MUL
Surplus/Shortfall

Inside MUL

Inside MUL

Outside
MUL
Margin (%)

Total

Outside
Total
MUL
Margin (Years)

Inside MUL

202,000
218,000

42,000
26,000

244,000
244,000

185%
234%

91%
42%

157%
157%

24.1
30.5

11.9
5.5

20.5
20.5

174,000
193,000

29,000
10,000

203,000
203,000

127%
164%

49%
13%

104%
104%

16.5
21.3

6.4
1.7

13.5
13.5

146,000
162,000

33,000
17,000

179,000
179,000

134%
174%

72%
27%

115%
115%

17.4
22.7

9.3
3.6

15.0
15.0

118,000
137,000

20,000
1,000

138,000
138,000

86%
116%

34%
1%

70%
70%

11.2
15.1

4.4
0.2

9.2
9.2

High Level Comparison


Capacity through intensification plus other sources indicates that
capacity in total is greater than projected demand to 2026
Caveats
Forward-looking assessment has a range of uncertainties, especially
2026+
Longevity of strong in-migration growth is not known
Ability of construction sector to deliver
Effects of the SHAs
Differing views on the ACDC Model
Total capacity is only one part of the full picture
Nature of capacity, including prices
Location of capacity

Nature of Demand for Dwellings


Consider detail as well as the high-level outcome
Households have varying needs and ability to pay for
housing
Affordability is an important issue
Location affects affordability of living
Auckland market has not delivered lower cost dwellings
(for a variety of reasons)

Assessing Net Demand for Dwellings by


Price/Value Band
(Section 6 of EIC)
Identify key segments of market & projected growth
Estimates of demand by dwelling price band
Add in lower income hshlds not active in market
Allow for effect of market churn, affects dwelling
availability
Estimate net demand by price band

Demand for Dwellings by Price Band to 2016

Medium growth - demand throughout price spectrum


Particular demand in lower end of market - under $500,000
1,700 to 2,700 dwellings pa
Additional demand to catch up past shortfall (another 1,100 pa)

Demand for Dwellings by Price Band to 2016


High growth also has particular demand in lower end of market
2,600 to 3,800 dwellings pa
Additional demand to catch up past shortfall (another 1,100 pa)

Demand and Potential Supply


ACDC output allows comparison of feasible capacity with current
($2015) sales by price band
PAUP provisions suggest a price structure generally compatible
however, a substantial gap in the lower price bands

Some Implications
Gap apparent in dwelling lower price bands
Consistent with Aucklands recent history - dwelling
supply, market and sector structures
and with ACDC Model inputs (limited dwelling
options in <$400K range)
New supply from both intensification and other
locations (FUZ, Special Areas, etc)
However, high reliance on churn, retained affordability,
and social housing provisions to provide for demand in
low end of market
Location / geographic distribution not yet assessed

End
Questions?