NZ minister vows to smash growth boundary

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By Leith van Onselen

I have written previously how in New Zealand’s largest city – Auckland – the Council had 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.

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 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).

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

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

These facts have not been lost on the new Minister for Housing, Dr Nick Smith, who has vowed to break the “stranglehold” of Auckland Council’s policy of containing urban sprawl, a policy which Dr Smith claims is “killing the dreams of Aucklanders” by driving up house prices. From the New Zealand Herald:

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In his first major interview on how he plans to tackle the housing affordability issue handed to him in January’s Cabinet reshuffle, [Dr Smith] said his focus would be on opening up land supply because land prices were the biggest factor putting home ownership out of reach of many Aucklanders.

“There’s no question in my mind that we have to break through the stranglehold that the existing legal metropolitan urban limit has on land supply,” he said…

“When we are looking at growth in Auckland of 2 per cent a year, we are going to need sections at the rate of 12,000 a year,” he said. “The metropolitan urban limit is a stranglehold on land that is killing the dreams of Aucklanders wanting to own their home and we have to work with the council to find the tools to increase that land supply and bring section prices back.”

He said the council’s plan to contain 60 to 70 per cent of new housing within the current built-up area would fail due to “community angst over intensification”…

He said changes to the Resource Management Act signalled in a discussion paper last week could be a game-changer by requiring councils to provide adequate land supply for 10 years of growth in demand.

As expected, the intransigent Mayor of Auckland, Len Brown, has hit back with faulty logic and incorrect examples in order to support the Council’s plans to restrict Auckland’s urban footprint:

Auckland Mayor Len Brown hit back last night, saying Dr Smith was advocating a flawed Los Angeles model of “suburban sprawl and unbridled land availability”.

“I’m pretty disappointed in the minister’s positioning, and I am disappointed because it reflects a philosophy or view of city development, and particularly development of our city, that goes back to the forties and fifties,” he said…

Mr Brown said Aucklanders had already agreed on the city’s “compact footprint” through developing the first Auckland Plan, and Dr Smith should stop debating it.

He said the plan was based on “a model that is developing truly internationally competitive cities with strong economic bases to them and that give rise to outstanding transport operations within a more compact framework”.

“Have a look at Melbourne,” he said. “Have a look at Hong Kong. Have a look at London. All of those cities, by and large, are operating off what is regarded as best practice.”

He said there were other ways to make houses more affordable, such as “home start” loans for first home buyers that used to exist in New Zealand and still existed in Australia.

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Brown’s comparison with Los Angeles is laughable, given that California was one of the first states in the US to implement “smart growth” (urban consolidation) policies, which came into effect from the 1960s. Los Angeles is also the most densly populated urbanised area in the US.

Brown has also demonstrated his ignorance in arguing that Melbourne and the UK operate “world’s best practice” when it comes to urbanisation, and in comparing Auckland – a city of just 1.5 million people in a country that is less than 1.5% urbanised against Hong Kong, which has a population of over 7 million people (versus New Zealand’s 4.5 million) on a land mass that is 1/240th the size of New Zealand.

Finally, arguing that first home buyer subsidies are the path to housing affordability in New Zealand is the stuff of knuckle heads, and would only fuel further price appreciation as long as supply is strangled.

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I sincerely hope Len Brown and his supporters get rolled on this issue. The fate of New Zealand first home buyers rests, in part, on the government’s ability to better balance land supply with housing demand.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.