The war over Auckland land supply hots up

ScreenHunter_01 Jan. 29 08.11

By Leith van Onselen

The war over Auckland land supply has continued this week, with the new Minister for Housing, Dr Nick Smith, uping the ante on his promise to smash Auckland’s urban growth boundary (called the “Metropolitan Urban Limit” or MUL).

Regular readers might recall that the Auckland City Council had moved to shift the city’s highly restrictive MUL into a new “Rural Urban Boundary” (RUB) that would effectively ban development outside of the rural-urban line and limit the area in which development could take place. Under the plan, the Council would target 60% of development within the current urban area and 40% in greenfield development within the RUB.

Auckland’s constraints on land supply were slammed last year by the New Zealand Productivity Commission, whose report into housing affordability cited 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, as well as significantly inflated land and housing costs.

As noted previously, there should be no urgency to restrict the urban footprint of Auckland given that it is such a small city by global 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).

Further, nearly all of all Auckland’s regional rural land is unproductive as it is held as lifestyle blocks which are in effect super low density urban residential lots appropriate for subdivision. In fact, the number of lifestyle blocks has exploded across New Zealand, increasing by around 75,000 to 175,000 over the past 13 years, and now consume roughly 873,000 hectares (8,730 sq km) of land, compared with only around 180,000 hectares (1,800 sq km) of land used for urban uses.

Yet despite Auckland’s small urban footprint, its mayor, Len Brown, continues to push for consolidation, putting him at loggerheads with the new Minister for Housing. Earlier this month it was revealed that Mr Brown had wrongly claimed that Auckland had 15,000 sites ready for development “right now”, only to later concede that there were only 2,000 lots available, a pitiful amount in a city of 1.5 million.

Ultimately, Auckland’s intensification efforts, whereby 60% of homes are to be built on brownfield (pre-existing) sites is bound to fail. Not only does such development tend to face stiff NIMBY opposition, but the sheer high cost of existing housing means that buying it, demolishing the buildings already on it, and buildings new ones, cannot be done at a price that buyers can afford.

Dr Smith last week told Radio NZ that Auckland’s MUL was a stranglehold that needs to be broken if houses are to be made affordable for families in the city, whilst also noting that the Auckland Council needs to double land supply in order to meet its own development targets. And in an interview with Radio NZ yesterday, Dr Smith noted that he would be meet with the Auckland Council on Monday to argue the case for freeing-up land supply across the Greater Auckland area, whilst once again inferring that the Government could intervene if the Council refuses to deliver sufficient land for housing.

The fate of Auckland first home buyers, and those seeking affordable housing, rests in Dr Smith’s hands.

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Unconventional Economist
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Comments

  1. “….the sheer high cost of existing property means that buying it, demolishing the buildings already on it, and building new ones, cannot be done at a price that buyers can afford…..”

    Absolutely, the analytical proof is HERE:

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

    That is exactly the kind of analysis that needs to be done everywhere there are “Plans” of the kind that Auckland is pursuing. “Jasmax Consultants” did a superb job. It needs to be emulated all over the world, not buried.

    The bloodymindedness of Auckland’s mayor Len Brown and his supporters make one suspect that what we are dealing with here is a new religion. It is as if the conditions of unreason in the West prior to “the enlightenment” have made a comeback.

    • Len Brown and his cronies say they have a mandate and also have public support for their plans. The following is how this is achieved all over the world by smart-growth politicians and advocates.

      You ask the following questions in a poll:

      Do you support a more compact city?

      Do you support more investment in public transport?

      Of course most people answer “yes” and “yes”. Their psychology is working like this: of course a more compact city and more public transport is better for ME, because a whole lot more people will use public transport and leave the roads clearer for ME.

      The whole thing changes if the following questions are asked – which is what Nick Smith and the National Government should get done if they had the necessary smarts:

      Do you support apartment blocks in your street and over your back fence?

      Do you expect your children/grandchildren to bring up their families in apartment blocks instead of the conditions in which YOU were brought up?

      Will YOU stop using your car and use the new CBD rail loop?

      IF most OTHER respondents answered “no” to the above questions, does this make you re-think your “support” for a compact city and the CBD rail loop “investment”?

      I simply cannot understand why politicians with the sense to withstand the smart growth nonsense, never seem to have the smarts to win the political battle. Even now, I think Nick Smith and colleagues have truth, reason and right on their side, but the hearts and minds of Dorklanders are still far too much with their Dear Leader Len Jong Brown.

  2. Take this for what it is – talk. But at least it’s hitting the MSM now. Let there be no doubt in any Auckalnders/New Zealanders minds that when the inevitable implosion of residential property prices happens,politicians of all colours will be able to say ” But we told you so….” with a straight face.

    • What most frightens off politicians from trying to reform things like Nick Smith is trying to, (and the NSW govt for that matter) is that the fall in house prices and the following pain for some, will be blamed on them and their policies. It will be very hard to convince people that the fall would have come anyway eventually and the damage would have been a lot worse had the prices continued to bubble.

      What needs to happen is a genuine construction boom with valuable capital going into structures and not sunk, dead, into inflated land “values”. This genuine economic stimulus would ameliorate some of the damage done to “equity” by falling house prices.

      I have for a long time posed the following question. What is the difference for households with high mortgage debt, paying it off for the next 20 years, whether the prices of houses have fallen or risen since they took on their debt?

      Sure, they might be in “negative equity” for a while. But why would the banks foreclose en mass on such people? Is this is the banking sector’s interest?

      And is the heavily-indebted household’s chances of continuing to meet their repayments for 20 years improved or not, under the alternative scenarios of long economic stagnation a la Luton, Liverpool and Birmingham with their inflated land costs; or a construction led revival and newly recovered urban economic efficiencies via lower land costs?

      A bit of inflation will also help “inflate away the debt”. There are really two major problems with monetary policy continuing to target “low inflation”. Firstly, many goods and services are becoming cheaper over time relative to incomes anyway, due to economic progress and competition. And conveniently, the “monetary expansion” that IS happening, is happening in things that are omitted from CPI measures – like house prices.

      We have HAD high inflation anyway – the books have been cooked, that is all. Housing has been deliberately, almost criminally, jettisoned from CPI measuring over the last couple of decades. It is almost as if some malignant force has been behind everything to do with the last couple of decades epidemic of house price bubbles. Monetary policy, CPI measurements, Basle Rules, Urban Growth Containment, FHB subsidies and other political demand-side muddling, “Too Big To Fail”……

  3. Agree with the sentiment of the article, but it would be more appropriate to compare Auckland with other cities of similar size – such as Brisbane or Perth. Then we could see the relative footprints for similar populations.

    Comparing to LA is pretty meaningless when it has 10x the population..

  4. I was in Auckland last week and I have to say it hasn’t changed a hell of a lot since I was kid.

    There has been some development in the main city area and reinvigorating of the city foreshore in the CBD but not a hell of a lot of it.

    There are still large suburban area’s with one shitty post war box house sitting on half an acre of land. I looked at this and how much people are paying for a basic life necessity, shelter, and couldn’t help but think that the council is damaging the people and the country’s culture. Aucklander’s are having to work too hard to pay for a place to live in a city with poor urban infill.

    The ACC and the Government of NZ has seriously dropped the ball in the care of the people.

    • I always say the urban planners should target the areas that “should” be intensified, and it should be illegal for them to impose a UGB until they have established that NIMBYism will not be allowed to stymie the needed intensification.

      Imposing the UGB first and then not getting the intensification anyway is so bad for housing affordability, it is a betrayal of the young, and a social justice scandal.

      In fact not doing a UGB at all, would make the land at the locations targeted for intensification so much more affordable for whatever is done on it. Anyone who has had anything to do with redevelopment in an affordable US city would recognise this. China-Bob shared his observations re Dallas, TX, on this forum yesterday.

      Check out the “Fine Grain Analysis” on the Auckland Plan that I link to above. Akl’s land is so expensive, it is an obstacle even to newly-built apartments being affordable.

  5. Hugh PavletichMEMBER

    The big shift in public opinion on housing affordability has occurred …

    As the bubble pricing of housing has pretty much plateaued generally on the Median Multiple measure, or gone in to the stratosphere, such as in Auckland, more and more people are becoming aware of the costs to themselves and their families in social and economic terms.

    There have now been 9 Annual Demographia International Housing Affordability Surveys as well ( http://www.demographia.com ) . These Surveys released early each year, have played a significant role in stimulating public discussion year after year on the housing affordability issue… since early 2005.

    There is now a greater recognition that normal housing markets do not exceed 3.0 times annual household incomes, requiring initial mortgage loads of about 2.5 times annual incomes.

    As these high bubble prices have persisted and the attraction of further inflation has faded, more of the older cohort are getting hammered by their kids for financial support, whacking the formers retirement savings.

    High multiple borrowing is not the fun it once was – without further inflation ( illusory wealth) on the horizon.

    So there are many factors at play here (the above just being some of them), that have shifted public opinion.

    Little wonder then, that in an important New Zealand Television One Colmar Brunton Poll 3 December 2012, found that 62% of all and a massive 75% of young New Zealanders are demanding the Government lower house prices and allow affordable housing to be built … GOVT SHOULD ACT TO LOWER HOUSE PRICES – POLL …

    http://tvnz.co.nz/national-news/govt-should-act-lower-house-prices-poll-5257810

    Indeed NZ Deputy Prime Minister Bill English noted this in a Video presentation soon after he announced the Governments policy late October (refer http://www.PerformanceUrbanPlanning.org to access).

    Mr English contributed the Introduction to this year’s Demographia Survey as well (following considerable internal deliberation), which has been followed soon after, with a raft of further announcements by the NZ Government.

    Both of New Zealand’s major political Parties are committed to supplying affordable housing – understandably – the current Government with the more market approach – the centre left Labour Opposition with a more State led approach.

    The current New Zealand Government is acutely aware that if it doesn’t deliver this year, it is toast come the next election at the end of 2014. The Labour Opposition will crucify them in the lead up to the election on this issue, should the current Government fail.

    One can be certain the New South Wales Government did its own polling too, as part of the process of developing its recently announced policies on these issues. This likely pretty much mirror the 3 December New Zealand TV One Colmar Brunton Poll.

    Other AustralianState Governments are likely doing the same thing.

    It would be politically naïve to think the NSW Government came out so strongly on this issue, without strong polling support.

    Politicians can be accused of many things … bravery not being one of them. Public opinion and polling results are a politicians “currency”.

    The big shift in public opinion has occurred – and politicians, interested in survival, are simply responding.

    Hugh Pavletich
    Co author – Annual Demographia International Housing Affordability Survey
    Former President – Property Council of New Zealand – Southern Division
    Former Fellow – Urban Development Institute of Australia
    http://www.cantabriansunite.co.nz/
    http://www.performanceurbanplanning.org/
    http://www.demographia.com/dhi.pdf
    Christchurch
    New Zealand

  6. Hugh PavletichMEMBER

    THE BRITISH HOUSING FIASCO … Some interesting comment from the UK on the British housing fiasco, following the Osborne Budget … they sure are idiots …

    Interesting to read that the concept of the standard multiplier is getting through in New Zealand: a big step on the road to sanity.

    A lot better that George Osborne’s fuelling of the housing madness again by offering government help to fund deposits for overpriced property. A failure of courage by him in his budged with an eye on the next election and unfavourable tidings for his Party. Rather than letting the market reach its proper level so that property becomes sensibly affordable ( 3 times household income!) he has likely undermined the recent moves in the right direction. There will be a price to pay….

    I was talking ………., about this and he said that at St. Paul’s where Osborne was a classmate, he was a chap who had no opinions of his own but always tried to follow the current trend. He has, no doubt, listened to his banker chums urging for someone else – ie the government – to take the risks while they hoard the cash for their bonuses.

    Hugh Pavletich