Are you an accidental land banker?

Your home might be your castle, but in your local council’s eyes, it may be worth practically nothing.

OneRoof Valocity data show that for 43 suburbs around the country, the value of their land is over 80 percent of their CV – meaning house and improvements are barely valued.

In Oriental Bay, Wellington, and Auckland suburbs of Onetangi, Oneroa, Mt Roskill, Kingsland, Westmere, Pt Chev, Three Kings, Pt England, Ponsonby, Mt Albert houses are worth only 16 to 17 percent of the property’s value, on average. For some 180 suburbs, all in Auckland, the house value is under 30 percent of value.

In Oriental Bay a couple of properties - both older cottages on relatively flat sections the houses were valued at zero, the land at $8500 to $9882 per sq m.

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Auckland suburbs like Ponsonby, Freemans Bay or Grey Lynn the smaller plots with high land values - from $5,439 per sq m to $3211 per sq m – have upzone potential. Emerging suburbs quickly intensifying around transport hubs also have very high land to CV ratios: Mount Roskill ($1509 per sq m), Three Kings ($1880 per sq m), Point England ($1,342 per sq m) or Hillsborough ($1,493 per sq m).

Valocity’s director of valuation innovation, James Wilson, explains: “High land value means that this piece of land is better utilised as something else, based on the ‘highest and best’ use of the land.”

But, cautions Property Council chief executive Leonie Freeman, just because a property has the opportunity to put on more units – on paper – doesn’t mean it is feasible to do so.

“Timing is everything,” Freeman says. “Don’t forget that the Auckland Unitary Plan is a 30 year plan. The plan is to create those homes, but it’s a big cultural shift to take people along. We are going through a transition where still half the new housing is stand-alone versus multi-unit.“

She also points out two big changes that the plan brought to Auckland: medium and high density moving beyond just the city centre and into the suburbs; and residential development in areas that were previously only commercial or retail, now becoming mixed use.

And sometimes the existing house might be the highest and best use of land. “The culture is that people still want to build a house,” she says.

David Norman, Auckland Council’s chief economist, calls these property owners “accidental land bankers”, people who are just happy to keep living in a house and neighbourhood, not interested in cashing up their newly valuable property.

Norman, who is on record as saying that slow uptake of the most intensive development in the city, terrace housing and apartment buildings (THAB) is a wasted opportunity, also understands why mum and dad property owners – or even large scale developers – aren’t redeveloping valuable land more efficiently.

He found that nearly half (48 percent) of new dwelling building consents found that were builds of under four dwellings, and that the average number of dwellings per consents is 1.2

“That’s literally mum and dad throwing something on the back of their section,” he says. The bigger developments, which although only seven percent of consents, represent 52 percent of dwellings, an average 16 dwellings per consent.

Norman is encouraged by this trend of small-scale intensification. Known in urban design circles as the missing middle or hidden density, these dwellings help fill in more housing in established suburbs without changing the feel of the neighbourhood that has the amenities that people want – views or jobs, restaurants or shops, school zones.

Owners simply don’t have the appetite for the expensive, stressful and complicated work re-developing and building takes. Others just don’t have the finance to do it, finding banks less than thrilled to fund bowling a perfectly good asset for the risky and time consuming project of replacing it with multiple units.

And an individual property, while it is in an area with a blanket up-zone, may not be fit for redevelopment – its true value is only what a buyer/developer is prepared to pay for it.

“Council modelling at the time of the plan, including existing urban and town centres re-zoned to mixed use, calculated a potential 2 million more housing stock,” Norman says. “But that doesn’t mean what is commercially feasible at a particular point in time. Those numbers are changing all the time as costs change, prices of materials, product specs. The market decides what you can do with that land.”

Paul Winstanley, who heads JLL’s research and consultancy, concurs. He cautions that looking at land value alone can be misleading, as those calculations are based on a relatively small amount of land being available.

“Logically, when you buy a house, you don’t value by square metre,” he says. “You look at the total price people will pay for the total property, you don’t separate out land is worth X, the house is worth Y. Residential property is such an emotional asset class, you buy because you want to live there, because of how it makes you feel.”

He also points out that every piece of land has its own unique topography, drainage, access, some is brownfield, some is greenfield. More importantly, the demographic make-up of the area, and, increasingly, its connectedness by public transport to the economic necessities drive pricing.

It’s the same story around New Zealand. Dunedin real estate principal Joe Nidd says that the city’s geography is making land in the city more valuable than the house it sits on, although land values only exceed improvements in the suburbs North Dunedin and Maori Hill.

“There’s a real scarcity of land for greenfield development, because we’re hemmed in by hills,” he says. “Suddenly there’s an appeal of the section, bowling an older house. Density is starting to appeal here, say to downsizing baby-boomers who want to stay in the most sought-after parts of the city.”

But will every property realise its paper land value? Developers’ take on a property’s worth may ignore the quality of the improvements, or discount the land because it is too steeply sloping, or difficult to access, that the neighbouring buildings aren’t going to work in their favour.

Glen Innes Barfoot & Thompson agent Sam Bowen is currently marketing a property in the rapidly changing Fenchurch St neighbourhood in Glen Innes, where the land value is 80 percent of the 695 sq m property’s $840,000 CV. Bowen says that growth is attributed to the unlocking of the area by the Tamaki Regeneration increasing density. That was originally for social housing, but is now heading up to around 70 percent private, he says. Design guidelines ensure that the houses are ‘blind tenure’, that is, you wouldn’t know from looking at them which properties are social, which are private.

But just because a section is up-zoned on paper, Bowen says it may not meet the criteria of the 20 or so private and public developers he knows working in the area.

“You know straight away when you see a site,” he says. “You will know what the profit is in it, just by looking at the contour, the size, the width. Can you get a driveway in? What’s been developed around it already?

“If there’s nothing else there, you’re the first, developers aren’t so keen on that uncertainty. They don’t like not knowing what’s going to be developed around, or whether it’s going to be five years before anyone else does anything. You don’t want to be the first one on the street.”

Wilson concurs. “In theory, the value of the land goes up. But if there have been no sales yet in a newly up-zoned area, then you do have to wait for sales evidence.

“In Auckland we see that the improvement value doesn’t reflect the actual house on the site, that the CV is aligned with the market value of the land. In the rest of the country, the utility value is with the house too.”

But that’s not always the case, particularly in high end suburbs, where the appeal of a desirable character home is more than the development potential of the site.

Freeman concludes “We have a shifted to [thinking about] creating a community, with better master planning, it’s all about that mixed use, with all the amenities and facilities for more people, building thriving communities.”