The popularity of rural lifestyle blocks has surged since lockdown ended, but are they really good for the country? Phil Edmonds looks at the pros and cons.

Last month the Real Estate Institute of NZ reported the number of lifestyle block properties sold across the country was the highest ever in the three months ended August 2020. According to the agents on the ground, the demand is only likely to escalate along with the prices.

Naturally, farmers in the right place at the right time will be thinking seriously about how they might capitalise on this. But as with the recent experience of productive land being sold for forestry plantations, there’s an abundance of tension around balancing the rights of those taking land out of production for immediate economic gain, and the collective need to protect New Zealand’s most versatile, productive land for the purposes of growing food for export and being our economic saviour from Covid-19 calamity.

Lifestyle block development is nothing new, and nor is its attraction to both buyers and those in a position to sell it.

Concern about the unchecked expansion of this market has, however, set in particularly as interest has widened from the negative environmental consequences of development (the long-standing campaign to protect wetlands, for example) to the wider economic loss (calls to protect our productive natural assets).

It is alarming, but not unsurprising, to find that in the last 25 years NZ farmland has lost 17% (2.2 million hectares) of its total area. In 2018, the total area dedicated to farms was 13.7m ha, and has almost certainly diminished more since then.

A small part of that loss has gone into arable fodder crops and horticulture, but much more has been dedicated to housing NZ’s growing population – which between 1996 and 2013 increased 19% and has, of course, escalated further since.

A comprehensive Ministry for the Environment report on NZ land use based on census data up to 2017 starkly identified urban expansion as eating into NZ’s most versatile or “high class” land, ideal for many potential agricultural uses.

Delving deeper into understanding what form of development has taken place on those premium soils, the report noted the creation of lifestyle blocks on the fringes of urban areas pose a greater risk to the availability of high quality soil resources for the primary sector than does urban expansion.

As far back as 2013, lifestyle blocks had already occupied 10% of NZ’s high-class land, and in the Auckland region, 35% of the most versatile land.

The Government finally took note of the call to stop the country’s most productive land from slipping into urban development last year when Environment Minister David Parker announced that a nationwide National Policy Statement for Highly Productive Land would be introduced. While the consultation was held at the end of 2019, further development of the policy has been delayed due to MPI resources being redirected to the Covid-19 recovery.

That represents a welcome signal of change ahead. Meanwhile, the lifestyle block market is enduring what REINZ rural spokesperson Brian Peacocke refers to as “an adrenaline rush”.

The number of lifestyle block properties sold across the country reached 2512 for the third quarter this year, 556 more than in the same three months in 2019, representing a 28% uplift. Part of this this was put down to buyers catching up after the lockdown lull, but there is also an emerging sense that it represents a refreshed desire to live life in the country, particularly as technology is making working from home viable.

In its regular commentary on the market, REINZ suggested “Covid-19 has been a strong catalyst for many people to make the leap they’ve been talking about for years”.

While different regions have different lifestyle block profiles, the upward trend in sales has been more or less uniform across the country. Auckland (+190 sales) and Canterbury (+151 sales) have seen the biggest boom.

Waikato rural property agent, Bayleys’ Mike Fraser-Jones, says he’s seeing plenty of people from Auckland now considering lifestyle as an option, but there is interest from all areas, including the influx of New Zealanders returning from overseas looking at alternative options to city living. As a result, Fraser-Jones is confident the market will peak a lot higher than where it is now.

But the lifestyle market is not just about demand. Like other housing markets in recent years, much of the activity has been driven by supply factors, and Fraser-Jones notes that this is a big constraint.

“Demand is so far ahead of supply. The only thing holding up a really big burst is a shortage of properties.”

Peacocke agrees demand is robust but there may be more nuanced factors making an impression, along with changes to bank lending criteria. REINZ data shows that, until recently, lifestyle block property sales have been relatively stable (at least in the middle of the year) since they last peaked in 2016.

“Possible reasons why sales have not got back to where they were is tighter bank policies on lending where the rural lifestyle category differed from urban residential property. There are also wider cyclical reasons, based on the length of time people stay on lifestyle blocks. Families often face pressures to move closer to cities and towns once children grow up and require more frequent access to different amenities.”

So, what of supply. Farmers are of course the ones with the land to ultimately determine that. Who is well placed to capitalise?

To some extent it depends on what life stage farmers are at. For those nearing the end of their active farming lives and thinking about family succession, parcelling off some of the farm can be an attractive option to release capital to the next generation while not having a material effect on the farm’s economic proposition. There are also those who are similarly long established and now facing the prospect of extensive capital investment to improve their farm environmental performance. They may contemplate an opportunity to decommission their productive capacity by selling blocks, and in so doing allow them to stay on the farm. Other farmers may be in positions where an opportunity to reduce debt through a lifestyle block sale could make their existing farm operation more financially sustainable.

As to whether there’s any limit to who can participate in that, Fraser-Jones is confident there’s opportunities for all. Contrary to popular thinking, not everyone looking at lifestyle block options wants to be close to town boundaries.

“I’m seeing people who are happy to be stuck in the back of beyond. There is still huge demand at the bottom end of the market, where properties are not as close to amenities. Prices reflect that, and the lower prices obviously have an appeal.”

Strongest demand is for those properties with a better balance between living at a slower pace, having peace and quiet in a country environment, but at the same time being within reach of schools and amenities including decent internet access, which those moving out of town consider more essential.

‘I’m seeing people who are happy to be stuck in the back of beyond. There is still huge demand at the bottom end of the market, where properties are not as close to amenities. Prices reflect that, and the lower prices obviously have an appeal.’

On the face of it, the high demand does look favourable for those considering slicing a hectare or two off their farms for a nice windfall.

But if it sounds simple, it’s less likely to be the case indefinitely. There are plenty of signs that non-market influences will disrupt the supply and demand dynamic – not least councils playing catch up with regulatory oversight.

While the Government’s intention to act on restricting the development of high-class land has shaded the potential for farmers with elite soils cashing in, councils are looking far more closely at long-term environmental hazards and, in some instances, disruptions to rural character that could easily hinder the development of much more than just very productive land.

Flood risk, coastal erosion and storm surges might not be on the radar of developers, but they certainly are on the minds of councils now, particularly those that have had to cope with paying off the effects of 1-in-100-year weather events. Repurposing land can have implications on a council’s financial ability to deal with the aftermath of an event and they’re increasingly taking a conservative view on such risks. This is not just on land that might be considered prone to hazards.

Fraser-Jones believes councils are becoming over cautious. He fully supports tighter controls on chopping up good productive farms but loosening the reins on poorer quality land that may be marginally productive would help alleviate the acceleration in demand.

Councils have also belatedly become far more mindful of planning ahead rather than facing the cost of retrofitting infrastructure needs like flood protection and maintenance of water quality, which as a result has effectively curbed the “free-for-all”.

Developments in North Canterbury have provided a good example of this where the Waimakariri District Council has set out to manage the demand for lifestyle block properties and the quality of supply through its Rural Residential Development Strategy.

As part of its long-term planning, the council has anticipated steady growth in the number of additional households it expects to accommodate and is expecting an increase of nearly 400 new rural residential homes over the next 10 years. It wants to manage the demand for semi-rural living efficiently by identifying “clustered” locations for development, which helps manage the balance of rural land for primary production and rural character purposes.

Fraser-Jones agrees on this score, even though it forms an impediment to some farmers realising the potential value of their land.

“You don’t want pock-marked farms everywhere, which can damage the residual value of farms in a given area. Lifestyle blocks collected in a corner are going to be preferable to their being dotted all along a road.”

In implementing this strategy the Waimakariri District Council has enabled lifestyle block growth, but constrained it by excluding locations from development deemed to be “within high flood hazard areas, not connected to existing residential nodes or small settlements, or not able to connect to the network scheme for wastewater.”

With all that in mind, is there any sense of a consensus among farmers on lifestyle block development?

Just as with the recent increase in farmland being sold for forestry plantations, reactions from farmers to the prospect of more infiltration of lifestyle blocks on the landscape will inevitably be mixed. What is good for one farmer may not be so for his or her neighbours. As for farming communities at the centre of land change away from productive use, any adverse views might be tempered if the land remains well looked after and maintained.

North Canterbury Federated Farmers president Cameron Henderson has seen the Waimakariri lifestyle block expansion emerge around him. He says the developments in the region to date have come from the break-up of productive land, but there is less concern among farmers if the land continues to be cared for.

“What we don’t want is farming’s reputation damaged, especially by the sight of skinny, underfed-looking animals in a paddock, for example, or untidy looking blocks. If these blocks are managed well, farmers are not concerned. But if the new owners are not from the land and are not used to seeking advice from consultants on farm management practices, for example, it can be a recipe for unfavourable outcomes.”

Unlike the impact of forestry plantations, however, there is certainly an upside for rural communities with the added commercial facilities and amenities they attract. Cameron says the Mandeville shopping area in the Waimakariri District wouldn’t have been built without the lifestyle block development there. Schools are also revived with a greater concentration of people in rural areas.

“Mandeville represents an example of lifestyle blocks having a positive impact, and it would be good to recognise what has worked well there and understand how it can be replicated in terms of farm size and community facilities.

“If there’s more consideration around what the benefits are, it will make lifestyle block subdivision successful rather than just ‘I’ve got a farm, I’m going to chop it up into four-hectare blocks and sell to the highest bidder’. It’s too crude to continue with that mentality.”