John Bolton: Who might be attracted to shoebox apartments and why

Of Interest

The Government's push to have more apartments, including shoebox apartments, built should be welcomed over time by a range of buyers including first home buyers, property investors and retirees, suggests John Bolton, founder of mortgage broker, lender and savings product provider Squirrel.

Speaking in a new episode of interest.co.nz's Of Interest podcast, Bolton, also a former banker who has dabbled in property development, says apartments, including small ones, offer people who otherwise couldn't afford to buy in Auckland the opportunity to do so. He gives the example of a recent client who wanted an Auckland CBD shoebox apartment.

"He was actually just over 50 and a first home buyer. He had about $150,000 in savings and an income of about 120,000 and he was just keen to get something. Now, the interesting thing for him is that we worked it out and he could pay it off before retirement and that was his goal. So he was looking to pay it off in about 15 years and the only way he was gonna be able to do that was with a shoebox apartment. He was really happy with that...He'd be a classic example, I guess, of the target market for someone that otherwise couldn't buy."

Investors will always look at it on a yield basis, Bolton notes.

"The numbers have to stack up. The attraction for investors historically with the shoebox apartments has been purely yield, straight yield play. They [can] get much better yields on them than a standard apartment."

Bolton also says there's a growing number of retirees struggling to find places to live.

"When we talk about shoebox apartments or just small living spaces, it could be some single level brick and tile units in the suburbs. It doesn't have to be a traditional high rise apartment with shoeboxes in it, you know, just little living spaces out in the suburbs, all on one level, which gives them easy access."

"It's a really important market, and I think it's a market that is going to come with a whole lot of issues in the future because rents are so high. Retirees on the pension simply cannot afford to rent houses or even townhouses. And multi level townhouses are not the right product for them. And so I think getting affordable solutions that cater to our growing retiree market, of whom an increasing proportion of them don't own property, or if they do, they need to downsize because they're taking mortgage debt into retirement. I think there's a real market there, and I think it's not the inner city shoebox that we're talking about. What we're starting to talk about is how do you cater to those communities, and then how do you build a property that's appropriate for them, that's affordable? And I can see that being out in the suburbs, I can see that being in the provinces. So I think there's an opportunity here to reshape the way that parts of our market are operating," says Bolton.

Last month Housing Minister Chris Bishop gave a speech outlining the Government’s plans for housing.

Included in Bishop’s speech was a pledge to remove the ability for councils to set rules or guidelines requiring balconies, or floor areas of apartments to be of a minimum size. This, Bishop says, will increase housing supply by enabling more homes to be built at cheaper prices.

Auckland Council's rules currently set the minimum net floor size for an apartments at 30 square metres, or 35 in the city centre. The latter can be reduced by five square metres if there's outdoor living space, a balcony, ground floor terrace or roof terrace. The smallest apartment allowed by Wellington City Council is 35 metres squared, and the city centre also has requirements for outdoor living space area with the smallest a minimum area of five metres squared and a minimum dimension of 1.8 metres.

In the podcast audio Bolton also talks about the size of deposits needed to get bank loans to buy different sorts of apartments, banks' apartment lending appetites and why they can be reluctant to lend for smaller apartments, apartment developers and pre-sales, construction costs for apartments and financing of new builds, locations for apartments and more.

*You can find all episodes of the Of Interest podcast here.