If increased charges are in, we're out: Hamilton developer

Yeoman Homes is considering leaving Hamilton after a proposal the Hamilton City Council will increase developers charges.

Andrew Yeoman has been building houses in Hamilton for 17 years, but that could change.

If development charges increase as Hamilton City Council proposes, they'll eat up his margins. He'd look to take his business elsewhere.

He's not the only developer saying that, either. In many cases, council's suggested changes would add tens of thousands of dollars to development contributions.

Council says that's to ensure growth pays for itself. Developers say development will just stop.

Yeoman is managing director of Yeoman Homes and said the possibility of higher Hamilton charges has got him looking at Auckland and Tauranga.

He's all but stopped buying land in Hamilton, planning for the company to finish the 12 months of home builds left to do in the city.

He doesn't want to move, but Hamilton wouldn't make financial sense.

"We're not talking one or two thousand dollars [extra in charges] here," he said.

Part of council's proposal is to vary residential charges based on the number of bedrooms as an indication of the extra demand on city networks.

Yeoman is a fan of charging by the hectare, arguing it's more efficient to have more homes using the same infrastructure.

He'd also like to see council retain a rule introduced in 2013/14, which effectively wipes the charges for CBD developments.

Developers need more time to take advantage of it to revitalise the city centre, Yeoman said, because property isn't a quick-turnaround business.

Hamilton Central Business Association general manager Vanessa Williams agrees. Dropping the rule could stop some old buildings from being redeveloped.

"I don't expect the remission to be in place forever, but the whole purpose behind it was to actually create a vibrant CBD and it's not completed," she said.

gridlocked hamilton road
Property developers say they can't afford to keep doing what they're doing if the increased development contributions Hamilton City Council is proposing go ahead.
For Hamilton Mayor Andrew King, debate boils down to a single question.

"Is it right for general ratepayers to be subsidising development contributions? I don't believe that's right.

"Developers have to pay their way and [council is] not allowed to charge any more than what the real costs are ... there's no hidden agenda or process here."

New developments increase pressure on citywide networks such as sewerage, he said, and if the charges aren't right, then the ratepayers pay.

However, he emphasised that council has yet to make a final decision and could decide not to increase the charges.

Developer John Kenel is waiting to see what happens.

"Doubling the development contributions just from one day to the next at a time when we have a dire shortage of housing, that I just don't understand," the Assured Property founder said.

He recently paid $65,200 in development contributions for six townhouses in Cameron Road, Hamilton East.

His planner calculates that he would have paid $117,785 under the new policy - about $8800 more each house.

That would bump up house prices, he said, because developers are a business which needs a profit margin, and banks won't lend for construction if it doesn't add up.

This graph shows the movement in development contributions if Hamilton City Council's proposed policy goes ahead. It's from an Insight Economics report prepared for Hamilton City Council.
Like Yeoman, Kenel would look elsewhere if he couldn't make it work in Hamilton, not that he wants to.

And Jennian Homes founder Ian Patton, 63, is getting frustrated with a increasingly complicated processes and looking to get out of developing.

"There's a hell of a lot of risk being a developer. It's getting so hard that I don't think anyone's going to do it any more."

Tainui Group Holdings, another regular residential developer in Hamilton, declined ot comment, saying it would provide feedback to council through formal channels.

Property Council head of advocacy Matt Paterson agreed the proposal would make new homes more expensive and could slow or stop developments.

"We've certainly heard both a number of commercial and residential developers suggest they might be better off developing elsewhere."

Certain parts of Hamilton, such as Rotokauri, would have higher charges than other areas and could lose out on development, he said.
A potential "marked reduction" in Rotokauri development is flagged in an Insight Economics report on council's website.
Overall, significantly increased charges "could have a material impact on the rates of future development, particularly for non-residential", it says.

But the main reason behind the proposed increases is expensive work to deal with growth, it says.

Councillors will hear verbal submissions on the proposed development contributions policy on May 15 and 16.


From Stuff.co.nz