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I will sell you a house for $288k - What's wrong with our housing supply, in the words of a supplier.

When did building a house become so inefficient? As the owner of a small property development business, I’ve subdivided land, and built houses to sell for under $400,000, so I’ve seen who is making all the money from the people who buy these “low cost” houses. It’s not me.

I live in a 90sm cottage built in 1914. An inquiry at local council will produce an old building plan – hand drawn across two A3 sized pages. This was enough for a builder to construct a house which still stands 100 years later.

Fast forward to today. Council expects house plans to explain a level of detail which easily spreads across twenty-something A3 pages, plus tests, measurements, product specs and reports which I can usually print (yes – printing is compulsory) across 200 double-sided A4 pages.

Ok – maybe all this is necessary to ensure only quality housing stock is produced. We wouldn’t want another leaky home crisis after all, but this is the part I just don’t get….

My draughtsman will create these plans and compile the required information for about $3,000. Engineers will design foundation plans for $450 and a soil test might cost another $500. But the Council, just to check this work, and give me permission to build, will charge me as much as $5,000. It’s hard to name another industry which will charge more to check something than it would to create it in the first place.

It gets much worse. Let’s look at some rough fees you might expect from Council for a $400,000 house built in the city. 

Resource Consent $1,800

Building Consent $5,000

Subdivision Consent $2,200

Inspections $1,500

Contributions $22,000

Total $32,500

Plus our national government’s cut….

GST $52,174

Let’s be fair though – there are some legitimate costs to cover within these fees, and it’s hard to quantify how much is wasted on pointless admin and bureaucracy.

It’s not all spent by our governments. 

Here’s some more numbers to consider for building that same $400,000 house.

Scaffolding and safety nets  (compulsory since 2013) $4,000

Legal fees for subdivision $2,000

Legal fees for purchase of land $1,800

Legal fees for sale of  house $1,800

Agents fees  $12,000

Planning & Surveying fees $4,000

Insurance $2,000

Total $27,600

So there you have it. Make this $112,274 go away and I’ll sell you a house for $288,000.

Let’s be realistic though. If housing supply is the problem, I’ll propose a solution.

Most of the costs I mentioned are fixed, regardless of the house size or value (gst being the exception), so their impacts feel far more severe to the average first home buyer, and make building these cheaper homes far less appealing to a developer.

If our local and national governments could make developing these houses more affordable, I could surely make buying them more affordable, and increase supply.

This article was originally published in 2016 by Property Investors Club and is brought to you now for Throwback Thursday.

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