Earlier this month I wrote a piece asking Where is Australia’s housing minister?, which questioned why the Coalition Government – under both Tony Abbott and Malcolm Turnbull – did not include a Minister for Housing and why the pressing issue of housing affordability has received next to no attention from the two major political parties.
The situation in Australia contrasts starkly with across the pond where housing policy been front-and-centre of policy debate.
In the lead-up to last year’s New Zealand election, there was a dedicated debate on housing policy that was aired on Prime Time in the weeks leading-up to the poll.
New Zealand also has a dedicated housing minister, National’s Nick Smith, who has embarked on policy reforms to housing aimed at boosting supply, and has set an ambitious target to improve the affordability of New Zealand housing back to its long-run average of four times household incomes from around seven times currently.
New Zealand’s shadow minister for housing, Labor’s Phil Twyford, is even more impressive, delivering brilliant sermons on how unaffordable housing is destroying the New Zealand economy, increasing inequality, and damaging the younger generations (see here and here). Twyford has also called for reform to the way that housing-related infrastructure is funded, so that its cost is not lumped onto the initial purchase price of a new home.
Yesterday, Mr Twyford teamed up with The New Zealand Initiative’s Dr Oliver Hartwich, penning a fantastic opinion piece in the New Zealand Herald outlining the problems with New Zealand’s housing system and proposing solutions to improve affordability:
In our view, there are three issues to be addressed.
First, urban growth boundaries driving up section costs. Second, anti-density restrictions stopping affordable housing. Third, the expensive and inefficient way we fund infrastructure.
Let’s go through these one by one.
When you consider that land inside Auckland’s urban boundary now costs around 10 times more than land outside, it is hard to dispute that the city’s urban growth boundary has driven up land prices.
In essence, the boundary around the city has created an artificial scarcity of land. It is an open invitation to land bankers to speculate on rising prices.
It is also discouraging developers from building affordable homes. It makes no business sense to build affordable homes on expensive land.
And while Auckland cannot grow out, it is also prevented from growing up or growing denser.
Restrictions on density and height are yet another way to choke off the supply of affordable housing.
More density allows you to build more affordable homes in places people want to live…
The final problem that needs to be addressed is the way we fund infrastructure. It is expensive and inefficient, adding huge dollars to the cost of new housing.
Currently the cost of drainage, roads and power in a new subdivision are financed by the developer… This front-loads tens of thousands of dollars onto the price tag of new homes and means that long-term infrastructure is effectively paid off via their mortgages.
We propose three modest ideas:
•Instead of using urban growth boundaries, empower communities to protect places that are of special character and value to them.
•Free up density and height controls and rely more on high urban design standards including requirements for open and green space, to allow more affordable housing in the city. Let the market discover where and how people want to live.
•Take developers out of the business of financing new infrastructure. Instead, spread the cost over the assets’ lifetime, either by issuing local government bonds or establishing Community Development Districts.
Rising house prices are making us poorer as a nation. They force people to spend an ever larger proportion of their incomes on housing, and it ties up vast amounts of the nation’s wealth in housing instead of investing it in businesses that create jobs and exports.
It is a risk to financial stability, and a driver of growing economic and social inequality.
As I noted last time, the vigorous debate around housing in New Zealand is a damning indictment on Australia’s politicians and institutions.
Regardless of whether you agree with the individual policy prescriptions in New Zealand, at least the issue of housing is being vigorously debated at the highest levels of the New Zealand political system. This is the polar opposite of Australia, where housing policy is avoided altogether by both major parties.
The contrast is just as stark when it comes to Australia’s regulators. Whereas the Reserve Bank of New Zealand (RBNZ) has for several years attempted to actively manage housing risks via macro-prudential controls, and has consistently issued public warnings about excesses in the housing market, the Reserve Bank of Australia (RBA) and the Australian Prudential Regulatory Authority (APRA) consistently talked-down housing risks before reluctantly implementing mild macro-prudential curbs only recently, long after the horse had bolted.
