Auckland housing crisis an instrument of poor policy

By Leith van Onselen

I wrote last year about the ridiculous housing policy being employed in Auckland, whereby the Auckland Council was seeking to tighten the city’s already highly restrictive urban growth boundary (called the “Metropolitan Urban Limit” or MUL) into an even tighter “Rural Urban Boundary” that would effectively ban development outside of the rural-urban line and limit the area in which development could take place. The plan also set a target that 75% of all development over the next 30 years – 400,000 dwellings to accommodate an additional 1 million people – would take place within the existing built-up area (i.e. “brownfield development”), meaning that Auckland would predominantly need to build up rather than out.

Auckland is a small city by international standards. Sydney, for instance, is nearly 1,700 square kilometres in size – three times larger than Auckland, which is only 530 square kilometres. Melbourne, which is nearly 2,100 square kilometres in size is nearly four times as large as Auckland, whereas Los Angeles at 4,300 square kilometres is nearly eight times the size of Auckland (see below google maps images).

The point is, there is no urgency to restrict the growth of Auckland. Further, nearly all of all Auckland’s regional rural land is unproductive as it is held as life style blocks which are in effect super low density urban residential lots appropriate for subdivision.

The supply-side squeeze from the pre-existing MUL, combined with rising demand, has already pushed Auckland’s median house price to nearly $550,000 according to the Real Estate Institute of New Zealand – well above the national median of $385,000 (see below chart), and there is the risk that the ongoing tightening of supply could exacerbate the situation, depriving an entire generation of affordable housing.

Industry insiders also seem highly sceptical about whether the Council’s goal of building 400,000 dwellings over the next 30-year is achievable, given that pre-existing home owners (NIMBYs) are highly likely to resist change:

Former McConnell Property CEO Martin Udale tells Orsman that 50,000 to 80,000 houses would have to be demolished in Auckland to create the space needed to build 300,000 of those 400,000 homes in higher density developments within the city boundaries.

Mr Udale, who now heads Essentia Consulting Group, said one of the biggest risks for the unitary plan was holding political leaders’ feet to the fire. “We can’t allow the politicians to hide behind community nimbyism and the cave dwellers,” he said. The unitary plan had to make widespread infill development easy with provision for height – “this town has a phobia about height”.

Moreover, there are doubts that the NZ construction industry is even in the position to build the homes required under the Auckland Council’s plan, as well as whether the Council would provide the necessary housing-related infrastructure:

Todd Property, owned by Wellington-based Todd Corporation, manages the development of major subdivisions in Auckland, including the Long Bay community on the North Shore, Stonefields at the base of Mt Wellington and Ormiston in South Auckland.

He told a Property Council conference that these projects had orders for 5,000 houses within the next eight to 10 years, which represented just five per cent of the council’s projected required housing supply.

”This is despite us being one of the largest providers. The matter of scale is the biggest issue facing Auckland,” said Donnelly.

The housing development industry needed to shift from its cottage size to something larger in scale, he said…

He questioned whether developers should trust Auckland Council to deliver infrastructure for large scale housing developments, given the council’s failure in this area…

The council’s 30-year unitary plan anticipates between 55 and 60 per cent of houses being attached rather than stand-alone, compared to 20 per cent over the past 10 years.

But Donnelly doesn’t believe the market would deliver this sort of housing because it required operators with major scale. As it stood, the greatest demand in the market was for three to four bedroom houses and he doubted the mass market’s appetite for smaller dwellings.

Consumer preferences don’t necessarily reflect changing demographic trends such as the ageing population and the change in family structures, he said…

Auckland Council’s chief executive Doug McKay… conceded a lot of the region’s intensified development to date had been ”rubbish” under the current development regime and the council wanted to do better with any future infill housing.

I hope for New Zealand’s sake that sanity prevails and the Auckland Council’s restrictive urban planning policies are thrown out and replaced with a more responsive market-oriented planning system. Otherwise, the cycle of unaffordable housing will continue, locking generations of New Zealanders into sub-standard living arrangements and depriving them of economic opportunity.

Note: for background on the Auckland housing market, see my previous post: Auckland embrases unaffordable housing.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

 

 

45 Responses to “ “Auckland housing crisis an instrument of poor policy”

  1. dumpling says:

    Mod: double comment

    • dumpling says:

      UE, do you know if the ATO taxes foreign depositors (those without tax file numbers) at the highest marginal tax rate?

      • runalltheway says:

        Hi Dumpling,
        Non-resident investors are normally subject to a withholding tax, the normal rates are:
        Interest 10%
        Franked dividends 0%
        Unfranked dividends 30%

        Obviously there are lots of exceptions to these general rules.

        They aren’t normally taxed at the highest marginal rate.

      • dumpling says:

        Thanks a lot.

        Since you seem to know a lot, may I ask you another question?

        Do the foreign banks / institutions pay tax to ATO on the profits made from the Australian banks’ offshore funding? If so, at which rate?

      • runalltheway says:

        It depends on how the Australian bank issues the debt.

        My understanding is that if it is issued from a foreign branch of the Australian bank, then the interest paid to investors on that debt is not subject to Australian withholding tax.

        But if the debt is issued from the Australian head branch, then the interest payments will be subject to withholding tax.

      • dumpling says:

        Thanks

  2. bskerr2 says:

    This is a true crime, the poor having to pay more for rent or a house while cashed up students and skilled migrants pore into the country pushing up prices. At the same time this is happening it cuts wage equality because locals find they have to compete with an endless supply of cheap labor. This means they have less money and they have to get hooked into the cycle of debt which is what the few at the top want. I dependency which is just about impossible to break for many. Councils may see a possible crash or massive slow down in property so they maybe doing this to ensure it does not happen.

    I think people who rent should just stop renting, make it a real Christmas, on the 25th of December if the masses stop paying rent there is not a dam thing anyone could do about it. It would also push those investors who took the right of shelter away from the poor to struggle to pay their mortgage debts.

    • aj. says:

      It is getting to the point where some level of activism should be expected. Action against those who sole contribution to society is that they have had access to cheaper capital to make a passive investment in a social necesity should be reasonably expected.

      Those owning pre-existing residential property as an investment are essentially parasites in a system that is encouraging rent-seeking (literally!)behaviour. There is absolutely no social benefit for financialising existing residential housing.

      I’m not so single minded that I don’t recognise some level of planning regulation removal is required. But i don’t agree that just laying loose the dogs of development is the answer to this
      problem. We will cover the place in concrete before the speculative bubble bursts.

      Surely the answer is to get speculators and investors out of the existing residential property market.

      • PhilBest says:

        Who do you think are the vested interests supporting growth-constraint urban planning? It is perfectly rational for large property investors to devote far more efforts to promoting constraint and funding advocacy and activism, than there is incentive for anyone to argue for liberalisation. The profits made by developers of new suburbs in a competitive market are slim and honest, and a return on actually doing something. It is scandalous that it is the advocates of constraint who smear their opponents as serving vested interests, when all the obscene “unearned”, zero-sum wealth transfers that occur under THEIR preferred system are literally thousands of times as great.

      • aj. says:

        It’s guys like me that don’t want my suburb which actually has a couple of trees left (although they are disappearing fast), turned into a developers backyard where the endless wave of cheap speculative money will go mindlessly rushing towards anything that even sounds like ‘house’. (lets face it you can raise a hundred mil just by mentioning that you saw a mouse in some suburbs).

        I’ve not met a development company that won’t turn land to units or town-houses as soon as possible – the only conspiracy here is that half of our suburbs are now owned by parasitic passive residential property investors.

        As i’ve said before we don’t have a land shortage we have a surfeit of speculators.

      • PhilBest says:

        aj, the answer to keeping your trees and your suburban homes, is “zoning”. Like they have it in the US cities with lots of zoned large minimum lot sizes yet still affordable (median multiple 3) because the land is so dam cheap – thanks to freedom to convert land at the fringe.
        Make up your mind, which do you want? You can’t have growth containment and then blame the developers because THEY allegedly want to intensify your local suburb. It is the b—-y planners forcing them to do that.

      • aj. says:

        PB – as I’ve said before I think you and UE have a good case. Zoning is exactly it, and at the moment we keep ending up with every spare bit of land in our coastal regions turned to high density housing. This is a product of speculative debt – not utility.

        Haven’t we seen examples of economies that free up land use and rid themselves of the useless debt driven speculators in residential?

      • hamish says:

        I think these fears of “concreting over everything”, be it infill, or fringe development, are hugely overstated, or unfounded. At worst you’ll get a bit of overbuilding, but ultimately what gets built is determined by the number of customers. Builders won’t keep building just for the sake of it.

        If Auckland is going to grow by 1 million over the next 30 years, the existing population will just have to accept that some rural land will be converted into housing, and some existing low density suburbs will be re-developed into higher density areas. If they don’t like this, they should lobby for a change to immigration policy to prevent the population growing.

      • aj. says:

        Look at the Gold Coast. The strip from Bris to the GC was not filled because of utility, it was filled with speculative money.

        Opening up the land for development is a good thing, but it’s how it’s done and the carnage that can ensue from the naive view that the market does not fail is real and destructive.

        Aucklanders will need to think very hard if they don’t want their beautiful city destroyed to feed the rapacious greed of the white-shoes.

      • bskerr2 says:

        Good on you, I myself are sick of hearing GDP this, PMI that, and how governments need to cut back on something, or business lobby groups need erosion of regulations such as labor rights to ensure we remain competitive.

        Here is a fact, life for local citizens of Both NZ and AU has degraded over the last 10 years, more are in poverty, and more have been displaced by foreigners.

        There is so much that is wrong, and gov parties, does not matter what one don’t fix problems, if they did we would not have this poverty, wealth gap and stress of life.

        take a look at Melbourne, life got harder for locals, life got really good for foreigners, transport got swamped because of foreigners from the 3rd world because government didn’t keep pace with the needs of infrastructure.

        It may look in my posts that I am racist against foreigners but this would be a false claim considering my gf is Asian. I have no problem if wage equality is not eroded, if realestate is not constrained or strained, transport is not flooded.

        Both Australia and New Zealand used to be pretty good, and we use to have easy lives, and can I say there is nothing wrong with an easy life.

        Also, maybe we should not beatup to much on the unemployed as %50 of the money we pay them most likely goes into rent which goes into the hands of the wealthy. So, anyone that does not have a home and event those that do end up paying higher or more tax to cover this expense.

        Now we have gov eroding social services, detail care for example, its so important to have good teeth, its a bigger cost on all of us later on if that is not addressed. But what happens, CEO’s of large multinationals get bigger pay, and the poor get detail problems. As stupid as this sounds, that is what is happening.

        2 Million people in poverty in Australia, caused by rich people.

      • Rusty Penny says:

        You’re really chasing a red herring blaming foreigners.

        Unbridled free trade eventually has the stuff they want go to them, rather than them come to it.

        Wage issues can be controlled by legislation, and the harveter ruling is credited by many for preventing the post-WWII immigrant groups to Australia from forming any real enduring ghettos.

        But a high wage share and full employment was considered good policy then. No catering to the rent-seeker.

        Building further infrastructure is just a non-tradable manufacturing job, both our countries did it effortlessly in the 50′s and 60′s

        Our malaise is about appeasing the rent-seeker.

        How to distribute resources to those that do not want to work.

        They have accrued some assets because of no other virtue than chronology, and how that should be valued as to having them not work any more.

        That, and only that, is why you’re exertion is enduring greater stress to provide you personal resources.

        and can I say there is nothing wrong with an easy life.

        I don’t think Theodore Roosevelt would agree with you.

        “Never throughout history has a man who lived a life of ease left a name worth remembering.”
        ― Theodore Roosevelt

        Then lookig at that, come to reflect of what sort of malaise we suffer, the cult of (the near universal belief of) individual exceptionalism.

        Baby boomers have dismantled all that was good before them, and we also have a horde of useful idiots bemoaning about our problems being down to ‘guvmint’ waste.

        This is an example what the generation that either fought or grew up during WWII gave us

        http://www.bbc.co.uk/news/science-environment-20033940

        and it is only possible via the full employment, keynesian environment we had.

        Then we had 100% of maths and science grads from MIT develop stuff.

        Today we have 60% of them work in finance, to clip tickets via increasingly more complex algorithms.

        But we did get a higher speed cable between London and NY for it !!!

      • bskerr2 says:

        I agree in part, not with all though, my wage equality was eroded in NZ because of two things, first manufacturing and services were exported offshore creating an ever smaller market of IT people, thus the competition forced wages down, second the mass immigration of cheap 3rd world labor which swamped an ever shrinking market made it even worse. I even know agencies who have told me entire companies just pull foreign grade students because they are cheap labor or import as many skilled migrants because they are cheaper than locals. So, don’t tell me that this is a red hearing. Government regulation is a joke, its lobbied by big business who always get their way. I only wish the older generations would hurry up and die to free up housing. I can’t stay this group of people.

      • Janet says:

        Chin up, bskerr2. There’s a heap of debt out in the NZ/Auckland property market that’s trapped and looking for a way out. Sure there’s a bit of motion at the bottom end, as eager ‘investors’ get in before what they see as the inevitable property price rises, but further up the tree, and not too far up? I’m not to sure there’s all that much happening, except people ‘hanging on’; and lower interest rates are allowing them to do just that. In the not too distant future they will have to sell (to move, or to split the assets in half, or a probate settlement – you get the idea) and even those properties that have no debt, actually do! It’s the debt required to buy those assets, and I’m not too sure there’s all that much available at that level. It’s pretty much, taped-out. And as the top stuff falls, it will impact the properties below them.

      • PhilBest says:

        Rusty Penny, I really like these comments:

        “…..Building further infrastructure is just a non-tradable manufacturing job, both our countries did it effortlessly in the 50′s and 60′s

        Our malaise is about appeasing the rent-seeker……”

        You either spread a bit of debt across society to keep expanding infrastructure, or you lumber several times as much debt onto your young, in return for nothing tangible whatsoever, just massively higher sticker prices on the bits of dirt they need to live on. And the rent-seeker is the gainer out of this fiscal child abuse.

  3. MattR says:

    Ahh councils, making life harder for all those they are supposedly there to represent.

    • Bubbley says:

      Another factor to this mess is all the people who moved to Auckland after the multiple quakes destroyed a major part of Christchurch.

      This will be putting huge strain on the rental market.

  4. harmindersingh says:

    Beyond the MUL issue, some other policies are also debatable so as to make intensification easier. Here’s a summary: http://transportblog.co.nz/2012/10/24/will-something-constructive-actually-be-done-about-housing-affordability/

    • PhilBest says:

      Constraining and rationing the supply of land for urban growth actually forces the price of all land up so much that the money that is needed for “redevelopment” at any density, is swallowed up in land costs.

      This has already been proven in analysis of the facts on the ground in Auckland, by Jasmax Consultants in THIS study:

      http://www.scribd.com/doc/78112799/Auckland-Council-FGA-Report-2011-12-22-Final-2

      • PhilBest says:

        “Removing obstacles to intensification” has NEVER worked anywhere, either. It is practically impossible in this day and age, to abolish NIMBY rights. But to whatever extent the obstacles and costs are reduced, all that happens is that the original vendor of the land can capture more of its value under the equilibrium in the market that is determined by supply and demand.

        I am disgusted at the resilience of the completely fraudulent assumptions on which urban growth constraint policies are based. There are a few specialist academics who are being ignored, especially British academics who have had the “Town and Country Planning System” to study as a working model since 1947.

        It is just plain ridiculous that “smart growth” is such a global fad, promoted on the basis of shallow assumptions, when the unintended consequences and socio-economic damage from pretty much the same ideas under different labels, are there for all to see, in Britain. Who wants NZ cities to be Newcastle, Liverpool, Birmingham and Sheffield? London is not an option as a model, unless you can knock it off its perch as the world’s pre-eminent centre of “global capital” (guess why the UK Government are such strong opponents of international financial transactions taxes?). Many people were shocked to see on TV, the conditions that Susan Boyle lived in – well, hel-loooooo, welcome to what 60 years of “smart growth” type policies do to housing and socio-economic opportunity.

        The cost of externalities from “sprawl” is much-hyped, but the alternative of growth-constraint planning, imposes far higher direct financial costs via inflated costs of housing, and these are shared inequitably with non-home-owners bearing the brunt of the wealth transfer.

        There is also no example anywhere in the world, of a city that constrains urban growth, that has “affordable” housing no matter how much denser it is. The cost relative to incomes is typically double, even as the density of new developments doubles, trebles, quadruples and whatever. The average in the UK is now 17 housing units per acre, with each of these being double the cost of a typical McMansion on a whole acre in a US affordable-city fringe development.

      • MattR says:

        Good comment, informative.

      • Rusty Penny says:

        “Removing obstacles to intensification” has NEVER worked anywhere, either

        That’s actually intuitive.

        Intensifiaction, vs fringe land… is just goods of different utility.

        Regulation the is solely written for one, will automatically impact the other… it’s simple arbitrage.

        Another gem right there Phil.

      • PhilBest says:

        Thanks guys, Matt and Rusty, I appreciate the encouragement.

    • PhilBest says:

      Worse still, are the kind of capital gains anticipated by whoever the cabal of land owners are, who Len Brown is trying to gift with a monopoly on a large part of Auckland’s future provision for population growth, in the form of land alongside commuter rail routes, to be filled with maximum intensity apartments.

      This whole racket infuriates me, look at this:

      http://tvnz.co.nz/close-up/shoebox-living-and-you-get-your-rent-3379779

      Are things not already bad enough when young people have to pay $220 to $300 PER WEEK for an “apartment” of 22 to 30 square meters? Sheesh, Hong Kong and Manhattan are better than this.

      All this sort of “planning” achieves, is the extremely high prices of the “model” the planning is based on, even if local incomes are far lower than those in the “model” such as Manhattan and HK. This is “physical determinism” gone mad; worse, it is “cargo cultism”.

      Primitive tribesmen in Papua New Guinea saw white demi-gods construction an airstrip in the jungle, followed by which magic, shiny, noisy birds descended from the sky and unloaded food and supplies of other goodies. So the tribesmen spent some time building replicas of the airstrip so the magic birds would visit again, elsewhere.

      This is literally how stupid the assumption made by urban planners is, that if you force your local workforces to live and travel like people in Manhattan, you will end up like Manhattan economically and socially as well – when you have plenty of evidence from MOST cities, most of the time, who have practiced urban growth constraint planning, that all you do is kill off the local economy, throw people out of work and entrench welfarism, reduce productivity and income growth, increase inequality and reduce “opportunity”.

      • MattR says:

        Exactly right. Attributing New York’s success to it’s urban layout/development is like attributing Manchester United’s success in the premier league to it’s brand recognition and uniform colour.

      • PhilBest says:

        Love the analogy. I also sometimes say it is like attributing George Clooney’s success to his tailor and hairdresser.

  5. reusachtige says:

    Like Sydney, surely Auckland has stupid unproductive national parks around it that could be developed! Allocating land to parks justs makes development more costly!

  6. Janet says:

    Perhaps it’s all part of a bigger plan? Christchurch needs re-building, and that’s going to happen at some stage in the next 1-2 years ( assuming the daily earthgquakes stop!). So how do we attract people into or back to the ‘new’ city? Easy! Make ‘elsewhere’ either unbearable to live in (I’ve just left Auckland for that very reason) or cheaper to set up business in. It will probably be a combination of both. The trick will be to quit Auckland whilst there are still buyers there to be had. (in both senses of the word!)

  7. nqdave says:

    “400,000 dwellings to accommodate an additional 1 million people”

    I think the questions are being asked here are missing the big picture.

    For what reason, and with what goal, is the Auckland population projected to increase by this amount? Where are these people supposedly going to come from and what industries will drive employment for this the population growth in a way that actually enhances the overall quality of life in the area?

    The same questions aren’t asked anywhere near enough where I currently am in SEQ, which is a forecast for Auckland.

    • Janet says:

      Those in Auckland don’t need real work, nqdave! As long as property prices rise, they can make enough to live off by withdrawing equity from their property holdings. The more people that join in the better! Property always goes up, so who needs real work.Just a visionary Council, and a pliable population(sarcasm,off)

      • Jumping jack flash says:

        I’m sure that is exactly what they hope will happen.

        Import money.. ahem.. people, to join in the ponzi.

      • Jon says:

        I am sure that is actually the plan.
        According to our ‘leaders’, a country with zero population growth is bound to self-implode (ignore industrious countries such as Germany and Japan) because GDP is not increasing parallel with unproductive debt.
        It would take some clever co-ordination to actually have a functioning economy with a static number of workers. Easier to just import ca$hed-up foreigners and water-cannon locals with equity-mate loans to bid up the cost of second-hand property.
        All good, for increasing GDP!

  8. mander says:

    Surely intensification is the wrong way to go about lowering the cost of housing?

    The Whitlam government introduced an admirable plan of decentralisation, whereby big employers and government departments were “encouraged” (using various means) to relocate to suitable towns and suburbs outside of the capital cities. I seem to recall places like Albury/Wodonga, Dubbo, Bathurst et al being slated for these new locations, along with fringe metropolitan locations such as Campbelltown and Parramatta in Sydney. The therory was that where the jobs go, people will follow, thus stimulating the local economy in those “growth areas” and providing the workers with access to more affordable housing. I seem to recall that this plan was watered down or abandoned by successive Federal regimes but I can’t see why it would not work today given the necessary political will.

    • nqdave says:

      There’s a thousand not-so-good reasons why this hasn’t, and probably won’t happen. They’re called senior public servants.

      They’re also part of the same group of people that stand to benefit most from further increases in house prices.

      • PhilBest says:

        Mander and nqdave, you both said something important.

        Decentralisation actually is a more efficient urban form anyway. I have posted long comments about this before. Intensification is just plain fraudulent, it is all pain for no gain, even the alleged gains do not occur.

        Yes, bureaucratic empire building is one corner of an “iron triangle” at work here. The other 2 are “green” ideology, and vested interests in the property investment sector.

    • Janet says:

      And what better place in New Zealand to enact that policy than Christchurch. What’s the point of re-building the place if it’s not going to be a source of Government ‘encouragement’!

    • hamish says:

      There was good suggestion on an ABC radio program a year or two ago on how you might actually achieve some decentralisation. It was based around the observation that most US states have seperate economic & political capitals, whereas in Australia (aside from Canberra) they are in the same city. In the US this means there are at least two major population centres in each state, unlike here.

      The suggestion was that we should move each states political capital into a regional town, and that would take population pressure off the existing major city.

  9. rp1 says:

    Young people can vote with their feet.

  10. Willy2 says:

    How many policy makers in Auckland have (financial) ties to the real estate market in that same Auckland ?