NZ leaders put OZ elites to shame on housing


By Leith van Onselen

New Zealand continues to leave Australia for dead when it comes to housing policy.

Unlike the Reserve Bank of Australia (RBA) and the Australian Prudential Regulatory Authority (APRA), which continue to hose down concerns about risks building in the Australian housing market, New Zealand’s central bank and prudential regulator, the Reserve Bank of New Zealand (RBNZ), took the bold move last year of implementing macro-prudential curbs on riskier mortgage lending in a bid to cool house prices. So far, the intervention has worked, with the percentage of high loan-to-value ratio mortgages plummeting and New Zealand house prices softening.

And whereas the RBA has played-down the structural factors pushing-up Australian house prices, the RBNZ has issued numerous stern public warnings to policy makers that they must address housing affordability front-on via reforms to its constipated planning and land-use systems, which have made New Zealand housing supply unresponsive and helped to push-up prices, in the process increasing speculative activity and panic buying from those affraid of “missing-out”.

The pull-back in credit to higher risk borrowers from the RBNZ’s macro-prudential curbs, as well as the ongoing “moral suasion” about the dire need for policy reform, has thrown weight behind the New Zealand National Government’s push to liberalise the supply-side of its housing market.

New Zealand Deputy Prime Minister and Finance Minister, Bill English – a known reformer – wrote the introduction to the 2013 Demographia Housing Affordability Survey, whereby he noted:

“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.”

Could anyone imagine an Australian politician making such statements?

And the New Zealand National Government has embarked on a long-term reform process aimed at freeing-up land/housing supply, as explained in detail here.

Yesterday, Mr English took the fight to Auckland’s entrenched anti-sprawl “NIMBYs” (Not In My Backyard) and “BANANAs” (Build Absolutely Nothing Anywhere Near Anyone) groups in a speech at an Auckland Chamber of Commerce and Massey University luncheon, where he argued that the city must grow up and out if it is to accommodate its rising population and provide affordable housing options. He also argued that expensive housing risks crippling the New Zealand economy. From

“With respect to so-called urban sprawl, I think that’s a nonsense. If you’re against urban sprawl and that means lower to middle income Kiwis can’t buy a house and you can’t build an apartment in the middle of Auckland for less than NZ$600,000, then that’s too high a price to pay. And if it means driving up house prices in a way that wrecks the economy then that’s too high a price to pay,” he said.

“Funnily enough the people who are most worried about urban sprawl live in the middle of the city. They don’t get to see it. How much time to they really spend out the end of the Western motorway or Botany? None actually. They think you should be able to walk to the countryside. Well…welcome to Gore. If you’re really mad, that’s where you should go. But they don’t. They stay in Auckland Central,” he said to laughter from the audience.

“What’s actually happened is that the local authorities were keen for a denser city, but the inhabitants weren’t, so they’ve jettisoned a fair bit of the densification aspect,” he said.

“So if Auckland wants to grow now, it has to grow out because you don’t want it to grow up. Now that’s a fair choice, but please don’t stop it from growing out as well, otherwise we’ll get another few years of 15% house price growth and you get a real mess when it crashes,” he said, adding the special housing areas agreed under the Housing Accord with the Auckland Council “do spread the city because the planning rules don’t let you do anything else”…

“We’re indifferent as a government as to whether you grow up or out. But you said don’t grow up, so we expect to help you grow out.”

English said people making planning decisions in Auckland, Wellington and Christchurch needed to understand they were making decisions about New Zealand’s largest asset class, where the decisions they make affect the whole economy, not just your neighbourhood.

“Of course there’s tension there, but we are pretty determined to turn ourselves into an affordable housing market,” he said.

“There’s no obvious reason why little old New Zealand should be one of the most expensive housing markets in the developed world. It really puts pressure on our households. It’s one of the reasons why we have interest free student loans, working for families, subsidised early childhood care and savings are low,” he said.

High mortgage costs were a reason why the Government provided payments supplementing incomes costing billions, “and a lot of that is driven by planning decisions in this city.”

Could anyone seriously imagine an Australian politician – let alone the Deputy Leader of the Government and Finance Minister (equivalent to the Treasurer in Australia) – making such statements? All we have gotten so far from Treasurer Joe Hockey and Prime Minister Abbott are ringing endorsements of Australia’s housing quango, which pumps demand and chokes supply.

As implied by English, urban sprawl is not the issue and focusing on it diverts attention from much more important policy matters. What matters is the standard of living and poverty reduction, which requires maximising discretionary incomes. That requires that the largest element of the household budget, housing, be affordable. It’s as simple as that.

Of course, building should not occur in sensitive areas, but these are not large enough to be impediments to sufficient land supply to maintain (or in the case of distorted markets like New Zealand and and Australia) the competitive
land supply.

International planning expert, Alain Bertaud, puts it very squarely in his new “Cities as Labor Markets” reports:

“Increasing mobility and affordability are the two main objectives of urban planning. These two objectives are directly related to the overall goal of maximizing the size of a city’s labor market, and therefore, its economic prosperity”.

New Zealand’s authorities understand these dynamics, whereas Australia’s remain with their heads in the sand.

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18 Responses to “ “NZ leaders put OZ elites to shame on housing”

  1. Janet says:

    The RBNZ has delivered New Zealand an economy with a problem in waiting. That’s all. There are two camps that have dug in – (1) those who cannot get in now if they do not have 20% deposit and frustration is well established . This group don’t see it as advantageous to them to be kept at bay from an overvalued market, but see it as discriminating against their birthright, and (2) those who have ‘the stuff’ who refuse to see that the RBNZ is serious about trying to correct the imbalance in the market. This latter group are absolutely certain; the certainty born of 40 years worth of experience, that prices will never be allowed to correct. The proof of eating the RBNZ pudding will come on that day that the market ‘cracks’ one way or the other, and whether they have the courage to stand firm. They haven’t muttered anything about the ‘temporary nature’ of the LVR restrictions recently. So maybe , there is hope. But if on that day of reckoning the RBNZ gives-way, and those that have the stuff are shown to be right, yet again, then all this posturing will be shown to be what it really is – fear of the underlying weakness of an economy 90% built on the back of property speculation. And all we will have done is delayed the inevitable for a worse time.

    • No mention of the National Government’s moves to liberalise supply?

      • Janet says:

        There’s liberalisation, and there’s ‘moving the boundaries’. The National Party’s call, initially led by Nick Smith ( Housing Minister) and now followed by Bill English (Treasurer), is to move the boundaries. Is it better than nothing? Not in my opinion, because it’s political rhetoric – there’s an election due in November. Not until all impediments to development go ( as you yourself advocate) will proper liberalisation occur. Let’s not forget that the governing National Party is led by John Key who openly suggested that ‘property price inflation helps people pay off their debts’ and that ‘no one would thank him if he devalued their property holdings’.

      • lloydie says:

        God bless the Kiwis. I might even move there one day, accents and all.

      • flyingfox says:

        I might even move there one day, accents and all.

        I’m seriously considering it.

      • Merk says:

        Same. Where are the best ethnic Aussie ghettos in NZ, Janet?

        (Do they have F*ck Off, We’re Full car stickers in NZ? If so, I’d love to have my own Australian “Too Late, We’re Here” sticker!)

    • Hugh Pavletich says:

      Janet … with the greatest respect you are being way too critical … and indeed wrong.

      All in all I think both RBNZ and the Government are doing a fine job … although of course I would like to see the latter move faster and more decisively.

      We are a democracy and it needs to be clearly understood that politicians can only act with the “consent of the governed” … which they have in New Zealand as the early December 2012 TV One Colmar Brunton Poll highlighted at clearly shows.

      Sound evolutionary change in a (understandable) muddled way is the only sustainable method of effective political change.

      The 1980′s style “ram it down their throats” is not the way to go, because it triggers an understandable reaction in due course, as happened with the Clark / Cullen Labour Government. This action / reaction process needs to be seen as part of the same package.

      It is far more effective and indeed wise to carry people along with the change process Janet. That is happening in New Zealand … and I am extremely heartened by it.

      It needs to be happening in Australia too … if only the Australian public would wise up to their elites taking them to the cleaners.

      Hugh Pavletich

    • Strange Economics says:

      Only the “haves” get to vote in the local council elections, who now control property supply in inner Melbourne. They’ve voted for no new houses with planning restrictions. Nice Nimby lifestyle if you have it. The “have nots” can only vote in the council in the outer suburbs. Does the state govt want to upset the innner liberal electorates? No. At least the Victorian state govt builds millions of high rise apartments (for export to China) where no-one votes (central melbourne) and new houses on the fringes. But the inner area – completed constipated. We rent there, but buying is unaffordable, and the investors are getting 3 % yields – with lovely negative gearing !

  2. jimbo says:

    ‘Could anyone imagine an Australian politician making such statements?’

    One better, we had a Reserve Bank Governor who made such statements. Then his contract came up for renewal…..

    • PhilBest says:

      NZ had a Reserve Bank Governor who was talking like this in 1996, really before the problems ramped up; he was very accurate in his predictions.

      He actually resigned to get into politics because he was sick of the politicians taking no notice. It is a darn shame he didn’t become PM in 2005, he came close. Is he had achieved this, I think he would have sorted the planning issues out in his first term.

  3. Ino says:

    HEY! I got an idea for the elites in Oz – If you can’t grow up, and you can’t grow out, what about (suspense music) Dun-dun-dunnnnnnn(/suspense music) grow down?!

    Imagine 10,20, hell – make it 100 stories deep, under ground! No one sees them above ground, and you really don’t lose any views in the densification process because you never had any. And those who had them – they don’t lose them!

    See? Win win win … winning!

    Right – I’ll go and shoot myself now!

    • Merk says:

      “you really don’t lose any views in the densification process because you never had any”

      Lawl. Hearty lawl.

  4. Hugh Pavletich says:

    Leith … excellent …

    Read too what Alain Betaud, former Principal Urban Planner with the World Bank had to say within the Introduction to this years 10th Annual Demographia International Housing Affordability Survey …

    … and too … the cracker article by David Chaston yesterday on Interest Co NZ … How cheap money and expensive Councils have affected affordability in Auckland and Wellington zones …

    I have commented extensively below the article.

    Hugh Pavletich

  5. Hugh Pavletich says:

    The housing issue went badly off the rails mid 2007 in Australia …. thanks to the Housing Industry Association breaking ranks with other industry associations …. as I wrote at the time with “The Need For Clarity” …

    It’s well past time the HIA woke up.

    Hugh Pavletich

  6. Explorer says:

    I wait to see how many first home buyers on good incomes can’t buy a house for a few years more. Probably very few as their well off families will assist them with aditional security.

    The people who get screwed in the short term are those who bought with small deposits but good incomes and who now see their houses falling in value and wiping out their equity.

    The low income earners with renting parents remain completely stuffed.

    There is also the chance that now that prices are seen to be falling even those who could buy don’t while they wait for prices to fall further until the prices are justified by a close to cash flow postive return from rent.

    Interesting times ahead for NZ housing owners, especially the First Home Buyers or highly geared investors who bought in the 12 months before these measures were introduced.

    • Ino says:

      Ah – I was wondering when this old chestnut would be trotted out again.

      When will you people understand that in a situation where the supply is elastic – there is no dichotomy between those who aspire to buy and those who already have bought?

      The problem arises when you have to change the systems from a highly restrictive one to a more relaxed one – and viceversa. Such is the case now.

      As to the infestors who lose money based on their flawed assumptions I say: “Suck it! you screwed up” In any other situation – you’d have to own up to your mistaken assumptions, but noooo… RE is different!

      Here, read this and draw your own conclusions:

      • V says:

        How dare those evil miners take guaranteed rent away from rent seeking property investors!

        Of course I bet the property investors won’t dob themselves in for taking the rental returns out of the town.

  7. mark_naber says:

    It wouldn’t be the Australian way. God no, real productivity goodness me. Don’t you know house prices double every 7-10 years. Just leverage up and retire rich, after all, all the Boomer pollies and RBA members have all done that. They can’t let our ponzi stagnate!

    Seriously though, NZ didn’t go far enough. Investors should be forced to have much lower LVR’s on investment properties.