NZ housing hits political hot button

By Leith van Onselen

The release of the 9th Annual Demographia International Housing Affordability Survey on Monday appears to have caused a political storm in New Zealand. This year’s Survey was particularly controversial in New Zealand for two reasons.

Not only did it show deteriorating housing affordability, as measured by a worsening of New Zealand’s ‘median multiple’ (median house price divided by gross annual median household income), but the foreword of the Survey was written by none other than New Zealand’s Finance Minister, Bill English, who had some stern words to say about the state of housing affordability in New Zealand, brought about largely by the strangulation of supply:

“Housing affordability is an important focus for the New Zealand Government . Last year’s New Zealand Productivity Commission report on housing affordability, relying in part on Demographia affordability data, showed a substantial worsening in housing affordability in New Zealand in the last thirty years…

In its response to the Productivity Commission, the Government agreed with the Commission’s analysis that supply side factors explain the deterioration in New Zealand’s housing affordability.

The Government’s response to the Commission’s report concentrated on land supply, infrastructure provision, costs and delays due to regulatory processes, and improving construction sector productivity…

It costs too much and takes too long to build a house in New Zealand. Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand. When demand shocks occur, as they did in the mid-2000s in New Zealand and around the world, much of that shock translates to higher prices rather than more houses. It simply takes too long to make new land available for development.

We may be seeing the beginning of a repeat of the mid-2000s demand shock. As interest rates stay below historic norms, expectations are shifting that these rates are here to stay. As a result, demand for real assets has increased, observed in booming equities markets in 2012. Demand for real estate is also increasing, with the median house price in Auckland recently exceeding the highs of 2007.

Costs of other housing inputs contribute to New Zealand’s affordability problem. Building materials cost more in New Zealand than neighbouring Australia. The structure of infrastructure financing, and the timing levies are to be paid, raises the market price for housing. Appeals under the Resource. Management Act, New Zealand’s land use regulation, can hold up developments and city planning for a decade or more in some cases. Time is money because development is risky…

Certainly, the affordability situation in New Zealand has, once again, started to deteriorate, with house prices in New Zealand’s two major markets – Auckland and Christchurch – rising strongly over the past two years (see next chart).

In late 2009, the Reserve Bank of New Zealand dropped the official cash rate to just 2.5%, where it has remained ever since. In turn, the discount variable mortgage rate has fallen to just 5.45%, which has fueled a sharp rise in mortgage finance commitments and house prices (see below charts)

At the same time as credit demand has been rising, the supply situation in New Zealand has also deteriorated. The February 2011 Canterbury earthquakes wiped‑out more than 10,000 homes in Christchurch, New Zealand’s second largest city, adding to the already tight housing supply.

Meanwhile, in New Zealand’s largest city – Auckland – the Council has moved 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 (see here and here for details).

The Productivity Commission’s Final Report into housing affordability, released last year, was scathing of land-use planning in New Zealand, citing a body of evidence showing that strict policies of urban containment and slow development approval times had adversely affected the rate of new home construction and housing affordability in New Zealand.

In particular, the Productivity Commission’s Report noted that the land value of housing had risen significantly, particularly in Auckland, with land-use constraints a key driver of this escalation (see next chart).

Moreover, the Productivity Commission report showed that the cost of new housing blocks had escalated in real terms, particularly in Auckland:

And that the land price escalation has occurred at the same time as the number of sections sold has plummeted:

The release of the Demographia Survey on Monday appears to have brought New Zealand’s housing affordability problems into the limelight.

Yesterday, in response to the study, the New Zealand Prime Minister announced a reshuffle of Cabinet, assigning Nick Smith to housing in an attempt to improve affordability. The Government has also threatened to take planning control from local councils if they do not improve the supply situation, with the Auckland Council, in particular, in its sites.

For its part, the Auckland Council is holding firm to its Plan to tighten the city’s growth boundary, stating that it doesn’t “agree with the unplanned wholesale release of land which is going to cost the ratepayers a fortune to service”.

Meanwhile, the Opposition Labour Party has promissed to build 100,000 basic homes for first-home buyers, focusing on Auckland, over 10 years, in order to relieve the supply situation and improve affordability.

It looks like housing affordability is, once again, gearing up as a hot political issue in New Zealand.

 

64 Responses to “ “NZ housing hits political hot button”

  1. Pfh007 says:

    Unfortunately, here in Australia too many have bought into the myth that if they think housing is expensive they are either wrong or morally suspect or indolent or spendthrift etc.

    When will people wake up that the high price of housing is due to failed public policies and this can change if they demand change from their elected representatives.

    Write to your local member, local state and federal today.

    • Gunnamatta says:

      Unfortunately, here in Australia too many have bought into the myth that if they think housing is expensive they are either wrong or morally suspect or indolent or spendthrift etc.

      When will people wake up that the high price of housing is due to failed public policies and this can change if they demand change from their elected representatives.

      +1

      Unfortunately I am not sure writing to members is likely to be of much use. Local councils are invariably bought out, the state governments are addicted to real estate stamp duty, and the Federal Libor government lives in a parallel universe and hands housing blame to states.

      But good to see the Kiwis are getting serious about it.

      • emess says:

        Nah, they are talking about starting to worry about getting serious about it.

        That might sound a bit facetious. However, the truth of it is in the fact that while there is a lot of huffing and puffing around high level (and very important) issues, when it gets down to the serious nitty gritty of how to address those issues, there is almost no discussion at all.

        For example, servicing costs of land. Too high? Well, who is going to accept a lesser standard of infrastructure so as to bring that down? It can be done. No hard wired telecom – wireless only and too bad about the speed. Accept a bit higher frequency of back yard inundation from storms. Basic footpaths. Narrow roads. Water supply sized small so that it does not provide for fire hydrants. Cheaper sewage systems, but with a few ‘oops’ moments now and then. Forget any recycling of water via third mains. No parks. Overhead power lines, nothing underground. Developers would love all of those – and the land would be cheaper and quicker to market. (Note that in almost all jurisdictions infrastructure in subdivisions is designed by private engineering consultants, for private sector developers, by private sector contractors, so don’t think it isn’t as cheap as it possibly could be at the standard levels set).

        Guess what? Even if initial purchasers agree to the conditions, eventually local government and utility providers are pressured to upgrade. (Think of the campaigns to put power underground, and the outrage when something burns down and the water supply was inadequate, or there are floods and it’s the damn engineers’ fault). No wonder local government and utilities dig their heels in and insist on high standard infrastructure when they damn well know that if it is not provided up front, they will be expected to pick up the tab…with money they don’t have, and won’t be allowed to borrow.

        It is issues like these that are dismissed with a hand wave as being details that really are the stumbling blocks to any solution to the problem. (And infrastructure is just an example. Releasing land contains just as many thorny problems which cannot be overcome with a hand wave).

        If and when I see these issues being publicly debated, and solutions proposed by policy makers – then I’ll believe they are serious. Until then, all puff and wind.

      • Gunnamatta says:

        I accept all that mate, its just that it is more puff and wind than would make it to the surface in Australia

      • “Basic footpaths. Narrow roads… No parks.”

        Sounds like current new housing developments. The ones developed pre-1990 were far superior quality than the tightly packed crap built now.

      • emess says:

        There is a long way to go to reduce costs – if that is what people really wanted. Trouble is, that people really want to have high quality infrastructure, but get someone else to pay for it.

        Something important I forgot though. In the Australian context here’s a nasty trick that most people don’t know about, and it adds 30% to the cost of power, water and telecom infrastructure.

        The usual process is that a developer provides the infrastructure to the standard required. This is gifted to the utility provider (ie zero cost). The utility provider then operates, maintains and replaces that infrastructure as required.

        However, here is the trick. The gifted infrastructure is income to the utility provider according to the ATO. So the Federal Government gets 30% of the cost of the infrastructure via the tax system. Niiice. Of course if it is a State owned GBO which pays this tax, it gets funnelled back to the State.

        Not sure what the situation in NZ is, but these tax guys talk to each other across the ditch, and I would be shocked if the NZ tax fellas did not know about this nice little earner. In fact, given how fiendishly clever and devious the Kiwis are, it would not surprise me if they didn’t invent it and the ATO copied it.

      • The Claw says:

        Basic footpaths. Narrow roads. Water supply sized small so that it does not provide for fire hydrants.

        No need to fear this. Decades ago govt in Australia provided adequate infrastructure while charging low taxes on the working man (women didn’t need to work).

        No need to fear. In Texas and similar adequate infrastructure is being provided without houses costing a fortune.

      • PhilBest says:

        Developers are all paying so much for land under the conditions of growth containment planning, that every square foot not actually sold to a customer is significant; and the cost that has to be built into the selling price of the parcels actually sold, is significant. It really makes a huge difference in US cities with pretty much a free market in development, when the land has been bought for $10,000 to $50,000 per acre (the latter being really prime stuff). This is chicken feed in the context of the total cost of development and the cost of the buildings.

        Developers are keen to maximise the “amenity” of section sizes, road widths, public green space, and so on, because the value sacrificed can be more than recouped in the prices of the finished developed building/land parcels because of the amenity effect and the general “class” of the development. But in nations where the land is literally “racketeered” under planning quota schemes, the developer has usually had to pay hundreds of thousands of dollars per acre, and even millions. This is why sections are so darn expensive; most of the cost is actually “raw land”. In affordable US cities, a section for $30,000 to $50,000 (yes, not a typo) is almost all “cost of development”. The fact that the same section (actually, SMALLER, in most cases) in a growth-constrained city might be $300,000, is almost entirely due to the massive difference in the original purchase price of the land.

        And it really, really matters whether the developer can turn 50% of the land that he paid so much for, into finished product, or 60%; or 70%. Every 10% sacrificed to “social” use rather than saleable private use, forces up the cost price to the developer, of the saleable bits, by some tens of thousands of dollars per acre. This is the explanation why a developer would be desperate to keep unsaleable space in his development to a minimum, which is totally the opposite of what developers like to do if the land is as cheap as it should be.

        It would take too long to describe now, but “freedom to develop” is actually far more efficient in the long run, even if development occurs in a “splatter” pattern beyond the existing urban fringe, and infill later. “Planning” a contiguous “carpet” expansion of the city fringe, has numerous unintended consequences that are utterly destructive of efficiency and equity.

      • PhilBest says:

        It also helps in Texas and much of the USA, that the infrastructure is financed by local municipality bond issues, not lumped upfront into the price of the houses.

        Some people might argue that there is no difference whether the residents pay via their mortgages or via taxes over time; however, the difference is crucial to the whole issue of housing affordability. The price of new houses affects the price of old ones. First home buyers in a market where NEW houses have tens of thousands of dollars of fees lumped into the price, pay this or more, as a windfall gain to the seller, on ANY property they buy.

      • emess says:

        Decades ago, governments built it themselves, yes. But I am not going to get into the private vs public debate here. Nononono.

        Pfh007, private developers don’t have to competitively tender. One of the reasons Govt got out of the business. Competitive tendering government style is cruelly slow (but fair).

      • Pfh007 says:

        No doubt that people want all the bells and whistles. No real problem with that provided.

        1. The work is competitively tendered.

        2. The cost is recovered via higher rates over a 20 year period following the work.

        Why recovery via rates.

        1. Reduces the upfront cost

        2. Maintains the principle of users pays.

        3. Purchasers can elect for a higher level of service quality as they will know the higher rate payments that are a consequence.

        4. Purchasers who are less fussy can choose blocks of land with less services and lower ongoing rate commitments as a consequence. If they change their mind the services can be added and the rates increased to reflect it.

        I appreciate the point about earlier generations and earlier subdivisions getting everyone to pay but there remains merit in allowing the purchaser some control over their investments in services.

        Payment via rates rather than upfront means the purchaser can benefit from the lower borrowing costs of the sovereign. That is a reasonable expectation.

      • PhilBest says:

        Plus:

        The price of new houses affects the price of old ones. First home buyers in a market where NEW houses have tens of thousands of dollars of fees lumped into the price, pay this or more, as a windfall gain to the seller, on ANY property they buy.

      • vonZetty says:

        Emess that’s total BS. Have a look at the quality of infrastructure in Germany. I assure you is second to none and is everywhere from the biggest cities to a small village of 10 houses. Yes 10 houses together 6-10 km away from a bigger village have water mains, electricity, fibreoptic and the rubbish truck coming once a week. The road/roads going to that clump of 10 houses are in an impeccable condition. God help you if you have to use daily the freeways here. They are everything else but free! Travel in Germany on the Autobahn and there is nothing to pay! And there are 12,8oo kilometers of it. And curiously enough the price of housing didn’t go up in the last 30 years although the quality of infrastructure did and continue to do.

      • emess says:

        Hi, you need to look at how infrastructure is paid for in Europe though. For example, how much is a Kilolitre of water? It used to be that a typical European price per kilolitre was four or five times that of the price in Australia. I visited the Czech Republic last year, and it was three times the average cost in Australia per kilolitre. So while the gap is closing for sure, at those prices Australians would be expecting a nice mellow Gewuerztraminer pouring out of the tap.

      • vonZetty says:

        Emess water costs 2.13€ per cubic metre (1000 liters) in Saarbrücken in 2011. I believe in Australia is quite similar. Electricity 25c/Kwh,
        natural gas 5c/Kwh. So is 5 times cheaper to heat with natural gas than electricity. Those cents are eurocents though. So is very comparable with the Australian prices although cheaper for natural gas which is a paradox as Australia is one of the biggest NG producers.

    • Explorer says:

      I’ve written asking him to maintain the tightness of supply and protect my investments.

      This is in the interests of about 65% of Australians over the age of 30 who already own houses.

      It is very important to about 10% who have very little equity in their homes and would be trapped if house prices fell nominally by 20% over a few years.

      Of those under 30, some/many might see their position protected by the value of their parents housing and so be a bit ambivalent to house prices.

      I’m for the slow real melt with an undulating but essentially flat median price line.

      • Tarric says:

        I couldn’t care less about the value of my parents house and either do they, its shelter, its a roof over their heads not some sort of inter-generational wealth transfer mechanism.

        Is that what we really want for our society? Gen Y barracking on their parents deaths so they can finally begin their lives with enough capital to actually afford their own home.

        Almost everyone here on MB agrees that prices need to come down and we need to prevent further price bubbles.

        As someone in his mid-20′s I find the idea of making my generation the sacrificial lamb for the Australian housing market to be deplorable. People bought houses at the top of the bubble cycle too bad, they should pay for their mistakes not people of my generation just because it is politically convenient.

        Gen Y has no recourse, if the politicians and the vested interests have their way Gen Y will be paying for peoples bad decisions for decades to come. Not only that, if estimates are to be believed there will be no old age pension by the time someone in my age bracket retires, there simply wont be enough money in ths system to make it possible.

        So basically the boomers win, they get at least 20+ years of super, an old age pension and younger generations funding their retirement through high housing prices.

        Gen Y will be left with a stagnating economy, huge levels of government debt (due to a huge number of boomers coming on to the pension) and a country with little prospect for strong growth when the mining boom finally fades.

        /end rant

      • andrew_not_the_saint says:

        When China slows to a halt and the Aussie economy finally takes a big dive the housing will take a huge hit. Will it become more “affordable” when compared to income – that’s hard to say…

      • Rusty Penny says:

        Gen Y has no recourse

        This is the most horrid part of it.

        The only choice you can make prior to to exert your choice of ‘no’ as a consumer, to place downward pressure on prices.

        You have no other means in a free market.

        Then when a crash is meant to occur, the salvation you have been waiting for, a number of policy responses occur to ensure the price doesn’t fall.

        Your only recourse is prevented, and the cost borne by the taxpayer, including yourself.

      • Bubbley says:

        “Then when a crash is meant to occur, the salvation you have been waiting for, a number of policy responses occur to ensure the price doesn’t fall.”

        This is the depressing part. The part where Gen Y get screwed again.

      • Deo says:

        Gen Y has no recourse. This is the most horrid part of it.

        True +1

        How about the idea of “fiscal rebellion” by younger generation as their remedy / recourse.

        Fiscal rebellion is the life-style choice to ensure that one only pays minimum amount of taxes/duties to the morons in government. I do this by asking myself “do I want to pay GST on this ?” everytime I want to spend on something…and most of the times, I would not spend and increase my savings instead. If I have to spend, I’ll try my best to find cheapest option and this usually from overseas online shops – again the goals are saving cost and not paying GST.

      • Tarric says:

        Exactly, that is one of my biggest issues with the property market it isn’t a free market.

        As Peter Fraser said “The real estate market is as close to a free market as a bicycle is to a Ferrari.”

        The entire market is a joke, propped up by councils and government at both the state and Federal level. All to ensure their own vested interests that rely entirely on the ponzi of debt going to the moon.

        The Australian property market is the ultimate “too big to fail” and it wont be allowed to until every level of government and the RBA finally runs out ammo to prop up the market.

        Anecdotally I personally will not be buying until prices reach 3-4 times median household income. To those who say I’ll never buy, so what? I’ll either rent or perhaps go overseas and work from home.

        Many others in my age group share my aversion to property, now the “buy now or miss out forever” meme has died people are realising that buying property may not be a good idea while it still potentially drop further.

        Only 3 people I know in my age group have bought houses, 2 bought over priced homes out in the sticks over an hour away from the CBD for far too much money. The other one has to rent the other bedroom in their apartment to even get close to covering the enormous mortgage.

  2. csfn says:

    It will be fascinating to see if they can actually impact the supply side. Surely it will prove too much of a temptation for the political players to just finesse the demand side and then make a claim for addressing ‘housing affordability’.

  3. bp says:

    People are obsessed with housing supply – mostly lobbyist who wish to build more houses. The main spike in house prices in Aust was in 2000-2003 and at that time we were over-building relative to population growth. We have more unoccupied housing than ever, household sizes are declining (until very recently) , more spare bedrooms than ever. The problem is that people get excited by low interest rates and the lure of potential easy capital gains. New housing each year is about 150K, compared to a stock of 8.5M. Whether that new stock is 120 or 180 makes little difference on a year to year basis.

    • The Claw says:

      All of the nonsense you have just posted has been debunked many times.
      You clearly have sought any data that confirms your bias. What is your bias by the way?

      The truth is that very few people understand the role of housing supply. People are obsessed with price. Most think high price is good, but a growing number think high price is bad.

      • The Patrician says:

        Ok, let’s talk numbers Claw

        What do you say is the number of new dwellings p.a sufficient to meet demand?

        How do you calculate that number?

      • These kinds of arguments are meaningless. The best metric to look at is construction vs price. The fact that land/house prices have risen so strongly with zero overall pick-up in supply (and supply reductions in places like Sydney), means that the housing market is dysfunctional and the supply-side is stuffed.

        Even in Melbourne and the ACT, where construction has been strong recently, supply has risen far too late relative to prices, which indicates unresponsive supply.

        Looking at numbers in Sydney is particularly meaningless, given that a large number of people have emigrated from there in the search of more affordable housing elseweher (ABS population data confirms the migration outflow). Simply comparing construction vs population growth in Sydney ignores these dynamics altogether and paints a rosier picture than is really the case.

      • LandDeveloper says:

        Spot on UE. We start our “acquisition” cycle about 4-6 years before lots can be delivered on the ground. Not because we want to, but because it takes that long to acquire a site and go through the approval process to deliver a single lot. And you won’t believe how much that costs with absolutely no income from the land to cover the enormous upfront costs. So whilst I don’t advocate land-banking in principle, it is unfortunately one of the few ways to try to deliver “affordable” lots to the market.

      • The Patrician says:

        Leith, the last thing I want to do is paint a “rosier than reality” picture.

        I fear the issue is more complex than just unresponsive supply.

        I want to understand is why/how the price mechanism is broken. Constant new dwelling supply (~150kpa), falling sales and rising prices indicate something more complex than just unresponsive supply.
        In the context of the crazy “gifts and rebates” behaviour, DC raised the interesting issue the other day about “price anchoring”. The ability of developers to effectively “set and hold” prices is paralysing the market. More than just unresponsive supply, the market is suffering from unresponsive pricing.

        As long as housing credit is cheap and growing, and the tax structure encourages vacant possession with out penalty, this price floor will remain and we will continue to have some of the most overvalued housing/land in the world.

      • Make developers/land holders compete by improving competition and contestibility in the land market, and prices will fall. It works a treat in the open land markets of the US.

        Also, a broad-based land tax would help greatly, although these do not exist in the open land markets of the USA (they do have property taxes of varying rates).

      • The Patrician says:

        Leith,

        Lend Lease has 68,000 unsold lots
        Stockland has 87,000 unsold lots
        Australand has 21,000 unsold lots
        Mirvac has 29,000 unsold lots
        PEET has 34,000 unsold lots
        etc…

        What do you propose they will compete for, bigger stockpiles?

      • The Patrician says:

        Mr Developer,

        “We start our “acquisition” cycle about 4-6 years before lots can be delivered”

        So why do most big developers carry 10+yrs (and some up to 20-30yrs)of supply?

      • LandDeveloper says:

        Patrician
        Land banking is unfortunately forced upon the bigger developers precisely because development approvals take so long. The “10-years supply” or “30,000 lots” are held in undeveloped land-banks. Many are probably just options over farmland. Not sure if I answered your question but when looking beyond the “headline” numbers (which look fabulous in an annual report) the 30,000 lots aren’t necessarily deliverable tomorrow.

      • Gunnamatta says:

        Thanks Guys, this particular piece of this thread is a genuine (and as far as I can see honest) attempt to get to why we have such a dysfunctional real estate market.

        Thanks landdeveloper and patrician and of course UE.

      • The Patrician says:

        Mr Developer,
        I’m sure you didn’t answer my question. That’s ok, maybe you misunderstood it. We’ll try once more.

        If the “acquisition cycle” takes 4-6 yrs to delivery why does one of the biggest developers in the country need to carry 33yrs of supply?

      • LandDeveloper says:

        Patrician
        Ah, understand now. The 33 years supply quoted by the developer is likely quite disingenuous. It looks good in an annual report (the investors think “awesome, these guys are here for the long haul, and will make profits for years” etc etc). The reality is likely to be that the 33 years supply is a whole bunch of options over farmland in unzoned areas with unproven development models. The “real” supply i.e. supply that can actually be brought on with certainty is probably more likely under 10 years. This is land that is either zoned or soon to be zoned, with reasonable access to infrastructure or near-term infrastructure. It still takes years to bring on this sort of land, but there is at least certainty that this land can be developed. Not sure if I’m making sense as I’m mindful to keep it short.

      • The Patrician says:

        LD, surely you are not suggesting the board of Lend Lease have signed off on an annual report containing misleading statements?

        Now that would be a story.

      • LandDeveloper says:

        Disingenuous not dishonest. Nearly 12,000 of their “stock” is at one project in Townsville. Another 14,500 is in a “Staged acquisition” which is Developer-speak for Options. So there’s nearly 26,000 lots that aren’t exactly ready to be sold anytime soon.

      • The Patrician says:

        “Nearly 12,000 of their “stock” is at one project in Townsville”

        and that means they “aren’t exactly ready to be sold anytime soon”

        Why?

        Is there something preventing a sale of these lots in the next 4-6years?

      • The Claw says:

        Ok, let’s talk numbers Claw
        What do you say is the number of new dwellings p.a sufficient to meet demand?

        However many are needed to bring price down.

        How do you calculate that number?

        You don’t. I don’t. The central planners don’t. USSR tried central planning and it was a spectacular failure.

        You create a market with liberal land zoning and you allow the market to calculate the number required as it goes.

      • The Patrician says:

        “However many are needed to bring price down”

        Your statement assumes a functioning price mechanism.
        How do you reconcile constant new dwelling supply (~150kpa), falling sales and rising prices?

      • PhilBest says:

        Patrician:

        “….How do you reconcile constant new dwelling supply (~150kpa), falling sales and rising prices?…”

        A distorted market, with supply response lagging far too far behind demand. Leith is right; follow his links and see how it works in US cities that do not delay developers for years and that do not run a de facto racket in land supply with developers having to engage in a gladiatorial bidding war for land just to stay in business.

      • The Patrician says:

        Phil, You say “supply response lagging far too far behind demand”
        but supply is constant and no-one can tell me what demand is.
        You say you prove lagging supply by price increases.
        I say price increases with falling sales indicate price fixing and collusion not lagging supply.

  4. drsmithy says:

    Based on this and the multitude of previous posts on the subject, my takeaway is that we should speculate invest in Auckland real estate. :)

  5. bskerr2 says:

    The problem is foreign investment with little to no regulation, this jacks up the price and pushes citizens out of the market, you also have land supply issues, high immigration (NZ is the asshole into the western world with easy immigration policies) high numbers of foreign students and skilled migrant workers. All of these groups are often a lot more cashed up then locals. There maybe housing available but is it affordable, the answer for many is no, the low income earners of the country will never afford it.

    For me this is what creates social instability and rising crime, when access to things people should have access to are taken away. I have never understand why foreign investors have a right to realesatate over local citizens.

    I don’t know why people in tuff times just don’t go ahead and break the law and take matters into their own hands, there is no way in hell our maxed out jails in NZ can handle it if they did.

    • PhilBest says:

      “…..I don’t know why people in tuff times just don’t go ahead and break the law and take matters into their own hands, there is no way in hell our maxed out jails in NZ can handle it if they did….”

      I have been suggesting for years that young people should form a co-op, buy a farm somewhere outside the UGB, and build themselves some affordable housing on it. And defy the authorities to come out and tear it down and move them on.

      BTW when something like this has been tried in the UK, the people involved do indeed end up in court and the buildings demolished. The fact that public opinion over there never swings around in support of affordable building on affordable land, shows how far gone things are in Pommy-land. But I bet Kiwis sense of “a fair go” would be outraged.

      It is a total mystery to me why the people making fat capital gains on greenfields land at the expense of housing affordability, have escaped any sort of political demonisation, while businesses who actually produce useful goods and services and employ people have long been the target of class-warfare rhetoric from the Left. I suppose the problem is that economically illiterate lefty politicians never see the connection between “planning” – which is an article of faith to them – and supply distortions and “unearned increments”. Goodness knows I have tried to educate a few of them – what a HOPELESS task…..

  6. Hugh Pavletich says:

    NEW ZEALAND GOVT MEANS BUSINESS ON AFFORDABLE HOUSING…

    N.Z Television 3 News reports (videos) …

    John Key announces Cabinet reshuffle – Politics – Video – 3 News

    http://www.3news.co.nz/John-Key-announces-Cabinet-reshuffle/tabid/370/articleID/283961/Default.aspx

    and second story with video. Hugh Pavletich, Co-author of the Demographia International Housing Affordability Survey interviewed…

    Nick Smith tasked with affordable housing – Story – Business – 3 News

    http://www.3news.co.nz/Nick-Smith-tasked-with-affordable-housing/tabid/421/articleID/284030/Default.aspx

    Hugh Pavletich
    Co author – Demographia Housing Survey
    Cantabrians Unite – Facebook
    Performance Urban Planning
    http://www.performanceurbanplanning.org/

  7. Hugh Pavletich says:

    Thank you Leith for a superb article.

  8. PhilBest says:

    “….For its part, the Auckland Council is holding firm to its Plan to tighten the city’s growth boundary, stating that it doesn’t “agree with the unplanned wholesale release of land which is going to cost the ratepayers a fortune to service”…..”

    What a pack of lying swine the Akl Council’s utopian crypto-totalitarian planners are. They gouge developers through every orifice for the servicing of the land they develop, it is a net boost to the Council coffers and an artificial subsidy of local taxation.

    The hidden reason they prefer “intensification” to greenfields development EVEN THOUGH greenfields developers make a net contribution to the Council’s coffers, is that they STILL gouge developers through every orifice when they do “intensification”, on the pretext that the existing infrastructure “needs expansion because of the intensification”.

    The argument we hear all the time from the advocates of growth containment, to the effect that “we need to better utilise existing infrastructure”, is an argument made in very bad faith. Developers are STILL gouged when they do this kind of development…..!!!!!!

    The Council loves this rather than greenfields development because they are DOUBLE DIPPING. The infrastructure that is already there, has for decades had taxes paid to allegedly fund it, including maintenance and upgrading. But the Council likes to get a windfall source of funds from developers of intensification projects, so they can spend the TAXES on “other things”.

    Developers need to stop just “paying the man” and mount a serious legal challenge to this rort. If any developers from Auckland who are up against the Council are reading this, go and see the lawyer Russell Bartlett.

    • LandDeveloper says:

      Yep, developers get gouged…except that the costs have to be passed on to the home buyer. So the home buyer ultimately gets gouged by these moron-staffed councils.
      As “emess” above pointed out, the costs to develop these days is far beyond what it cost in the 1990s and earlier. Aside from the extra costs in providing better infrastructure (despite what UE thinks), one of the “growth” costs that we are seeing is Compliance Costs. They are becoming simply outrageous…environmental offsets, carbon offsets, drilling test bores to allow the drilling of test bores (no typo there), water monitoring, dust monitoring, noise monitoring, indigenous monitoring, compliance audits, pre-and-post baseline reporting….the list goes on. That’s why a lot of the smaller players can’t stay in the game. And that’s why its so important to have sufficient scale (land banks) to amortise these costs over.

      • I agree with eveything you have written, except that housing-related infrastructure is better nowadays. Take a drive around the hovels being built on Melbourne’s fringe (e.g. Point Cook and Melton) and you will see lots of eaveless houses packed onto tiny blocks with narrow streets, no footpaths (and no room to park cars on the street), minimal, if any trees, and bugger all open space.

      • LandDeveloper says:

        Yep, fair enough about the eaves on houses etc. I was more referring to “infrastructure” (roads, sewers, services) rather than the built-form (houses, apartments etc). We are land developers (we don’t build the houses and apartments etc), so yep, your point about poor housing I agree with. Nevertheless, the infrastructure in the ground is better than its ever been – better class of materials, safer working practices, etc. All of which cost lots more than before.

      • Mav says:

        LandDeveloper, off topic, but tangentially related.

        Can you tell us why land developers offer freebies and discounts on their land packages instead of reducing the “sticker” price? Is it because it will have an adverse effect on their land bank asset value?

      • LandDeveloper says:

        It’ll be hard to keep the post short as developers have different reasons. But a couple of points that “influence” the reason for this include:
        1. Discounts off sticker prices are booked as “cost of sales” (expenses), not a reduction in revenue. And many developers have operational authority to incur “costs” but require higher authority (board of directors, bank approval, etc) to reduce revenues. Incentives can brought on quickly to meet the market – price reductions usually cannot.
        2. Sales commissions and management fees are often calculated from the gross sale price rather than net sale price. Without mentioning names, some of the larger developer-syndicators get paid better when sticker prices are high.
        3. Banks. A whole topic in itself. But rest assured, banks are big drivers of reactionary incentives.
        Many other reasons too, but this is just an example of some influencing factors.

      • Mav says:

        Thanks LD. Much appreciated.

      • Gunnamatta says:

        +1 thanks

      • The Patrician says:

        Thanks for that.

        “banks are big drivers of reactionary incentives”

        Can you explain this further?

      • LandDeveloper says:

        Patrician
        The banks fund developers. When sales start to stagnate, the banks’ predictable move is to insist on price reductions (through incentives) to move stock. Banks don’t care too much about the developers margin, the banks just want their loan paid back. The bank can easily deal with a reduction in net revenue because they will still get paid back in full. So the incentive comes out of the developer’s margin (in effect) and doesn’t affect the funder. Please note of course, that this is a very generic comment. Don’t take it as gospel that this happens everywhere with every funder.

      • The Patrician says:

        Thanks LD

        So to clarify and without trying to overly generalise, do you say pressure from the banks are the main drivers behind the flood of recent (all most across the board) marketing of developer gifts and rebates?
        One of our regular commentators David Collyer argues that all the listed developers have reduced their debt levels post GFC are now only ~25% leveraged and not subject to pressure from funders. Do you disagree with this?

      • forty-niner says:

        Like everything, the cowboys spoil it for everyone.
        After having the 60′s home next door demolished in a hurry on a weekend (huge demolition machine, lots and lots of dust, house reduced to rubble in < 30 mins, with asbestos eaves not removed beforehand) I don't have much sympathy for those in the industry who whinge about OH&S regulations. Although the regulations failed to protect our neighbourhood that weekend, I'd prefer the regulations were in place.

        And building sites and NOISE ….. don't get me started.

  9. Brendon says:

    My guess is that the real political war re housing in New Zealand will start after Shearer is confirmed as leader of the Labour party. Some time in February the party has a statutory leadership challenge opportunity. After that the leader cannot be challenged until after the election.

    So in a month or so, the battlefield will be defined and the big guns will be rolled out.

    If the government panics and uses all its best arguments and policy reforms re housing before Shearer is confirmed the Labour party can replace him with someone else whose key policies is focused elsewhere.

  10. andrew_not_the_saint says:

    Meh… While shortage of housing is one of the problems, it’s nothing compared to the problem of massively entrenched FIRE industry interests. Real estate is one big gravy train for a lot of people – and now when they have even bigger fortunes they will definitely try to use it to influence the political process.

    Wake me up when politicians explicitly start discussing how to kill the “rentiers”, with some real measures such as land-tax and finance changes, none of this side-stepping half-arsed bullshit.

  11. Hugh Pavletich says:

    This encouraging report from Fairfax NZ / Stuff today needs to be read closely …Nick Smith: Package Needed To Solve Housing Issues… | Stuff.co.nz …

    http://www.stuff.co.nz/national/politics/8212709/Package-needed-to-solve-housing-issues

    …following an earlier one… Bill English Says Government Could Control Housing… | Stuff.co.nz

    http://www.stuff.co.nz/business/industries/8208317/Govt-could-run-housing-land-supply-English

    Further background information at Performance Urban Planning …

    http://www.performanceurbanplanning.org/

    There is enormous political pressure on the NZ Government to sort out the housing mess – otherwise they are political dog tucker. And they know it.

    Hugh Pavletich
    Co author
    Demographia Survey