NZ’s English ramps-up housing supply-side attack

ScreenHunter_1577 Mar. 07 13.22

By Leith van Onselen

After last week taking 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, New Zealand’s Deputy Prime Minister and Finance Minister, Bill English, has today attacked town planners for restricting the growth of housing supply, arguing they would be blamed if the latest surge in demand from migration created another house price boom that inflated the exchange rate and interest rates. From

“Unfortunately, our planning rules and attitudes within councils and to some extent government have restricted the supply of new houses that can be built in response to this new demand”…

“Rapid increases in house prices are damaging for the economy because it puts pressure through a high exchange rate on our export sector”…

“That’s a challenge for government – because it puts pressure on government to fund the affordability gap for households that can’t afford rising mortgages – and it’s unfair on individuals who are trying to enter the housing market”…

…if we’re going to avoid significant ongoing increases in house prices and therefore even higher interest rates, we need councils to make more positive decisions for more housing supply”.

As noted last time, Mr English has been a driving force behind the National Government’s attempts to free-up New Zealand’s constipated planning system, also penning the introduction to the 2013 Demographia Housing Affordability Survey, in which English outlined in detail the barriers to affordable housing in New Zealand.

Australia could seriously do will someone of Mr English’s caliber in Australia, where instead of constructive engagement, all we have gotten from Treasurer Joe Hockey and Prime Minister Abbott are ringing endorsements of Australia’s housing quango, which pumps demand and chokes supply.

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  1. “…and to some extent government…” To some extent, Bill!!! YOU, as Government, are the one in tandem with your colleague Gerry Brownlee that oversaw the price increases in land and buildings after the Christchurch earthquake that saw those who had lost everything, or there abouts, have to pay MORE to re-establish their lives. Why? Because to have done otherwise; to have freed up adequate parts of tens of thousands of hectares of land, the masses of it to the north, west and south of Christchurch, would have meant a general drop in New Zealand property prices. YOU, Bill, put the interests of yourself, your colleagues and established property owners above the interest of the displaced. “And to some extent government” Give me a break! Not ‘some’, Bill “To the FULL extent, Bill – The FULL extent” YOU could have done differently, as only a national Government could, but you didn’t. An today we have the mess that is the New Zealand property market. It WILL end badly, Bill. And it could have been all so different. ( as Hugh Pavletich, for one, has beaten himself black and blue in the face for years, trying to tell you) All the tinkering about by you, now, and the RBNZ won’t change where the market is off to. YOU are too late.

      • If you believe that, Leith, then the cause is lost. The Government enacted Powers of Emergency after the earthquake struck. Troops in the streets, all sorts of stuff – because they could, and they did. They could also have enacted a land relocation programme. Something as simple as a swap-a-section scheme to replace the land that those affected could re-build their lives on. But they didn’t. They made them compete into an even more constrained nation-wide market; to fight like dogs for whatever land/housing was available or generously released. If you truly believe that because Auckland Council is controlled by a Left Wing council rather than the Right Wing national Government, that Bill English has had his hands tied behind his back all this time, then I’m astonished.

      • There has been disagreement within the ranks of the National Party on this issue.

        Had Don Brash become PM in 2005 – he nearly did – he would have fixed this issue early in his first term. He has always been one of the clearest people in the world on it.

        Hugh Pavletich was convinced that National was geared up to attend to this just as definitely in 2008.

        Instead, we got another round of inquiries and kicking of cans down the road.

        I think Janet is justified in everything she says of the Key government, but Bill English deserves credit as having been on the right side all along, but sidelined.

        He had a go at leading the National Party into a general election in 2002, and it was a massacre. I think this was a shame – Bill does not deserve the knee-jerk antipathy he gets from women voters especially.

        But since then, Bill has been limited in the clout has has within the ranks. National owes its “popularity” to its extremely personable leader John Key. Key is a master tactician who aims to capture swinging voters by actually selling out traditional conservative principles altogether – the anti smacking law, pandering to the Maori grievance industry, pandering to looney Greens over mining and logging, passing an ETS, remaining out of ANZUS, etc etc. Avoiding confrontation with the NIMBYs and the vested interests in the housing bubble is all part of the game.

        By this means, Key National clings to power because they gain the crucial 10% or so of voters from Labour, and their own core voters hold their noses and don’t stay at home or vote for a fringe right wing party.

        Janet is right that it is far too late for NZ to “reform” its way back to housing affordability now. Median multiples in Auckland are now around 9. The opportunities have been missed, and missed, and missed. The carnage when the crash comes will be all the bigger for it. Ireland’s median multiples were at their highest in Dublin at a mere 6.0, with all other cities ranging downwards from that; and look at the damage that happened there.

        Oh, I think National, primarily Bill English and Nick Smith, had a good go at trying to scare the horses with rhetoric in the hopes that specufestors would be scared into selling up their properties and land banks, thus causing a correction without any actual reform. But the specufestors obviously didn’t believe a word of it.

      • Phil, the question about Don Brash is whether he would have been able to get any of his reforms over the line, even if he had succeeded in the election. I remember he headed an inquiry a few years ago reporting on NZ’s productivity and basically came up with the same answers, being a reduction of our CAD, reallocating capital out of non-productive activities, such as property, toward more productive activities which generate a return and improve living standards etc, etc.

        Where is that report now? Probably collecting dust in some obscure government archives room. Unfortunately, politicians will go to the brink, or at least make it look that way, but always pull back.

        The vested interests may have the most sway but eventually the whole fiasco will sort itself out, action or no action.

      • Hugh PavletichMEMBER

        There are some interesting points both Mike and Phil raise

        The record will show National was committed to dealing with the housing issue in the lead-up to the 2008 election. I covered this within “Housing: Mr Key – Get on the programme” late 2012 …

        The reality was that the National-led Government didn’t feel it had sufficient internal and public support to get on to the issue following that election. That only came late 2011 and 2012, as the TV One Colmar Brunton poll illustrated later in the year.

        Through that t time the Government and the Labour Opposition set out their policies … the former more market led … the latter State led (100,000 affordable houses in 10 years).

        The critical factor is that politicians do not act until public opinion makes it clear they must (“bravery” in politics is rarely rewarded). In a representative democracy they are very much “parrots of public opinion”. And that’s exactly how it should work.

        It is correct Dr Don Brash’s excellent Productivity Paper got no political traction. Would he have been able to drive this housing issue within his own party and with the wider public out of the 2005 election ? In my considered view and with the greatest respect for Dr Brash (who I know well and very much admire), I don’t think so. Simply because his Party and the public had not moved far enough to allow it to happen.

        Hugh Pavletich

    • Another factor we should recognise is of course the number of MP’s that own investment properties. National MP’s would own the most, but Labour MP’s would be not far behind (Helen Clark owned several while PM) and even Green MP’s are implicated.

      It is sickening that the media are all over “conflicts of interest” on the part of MP’s, that are minor by comparison to THIS conflict of interest, which has seldom been mentioned and has instantly been allowed to die as an issue when it has.

      I suspect that media editors including those that control the “letters” section, own IP’s themselves, which results in a total dereliction of their “public watchdog” function.

  2. According to Dominick Stephens, Chief Economist for Westpac NZ, the macroprudential controls on high LVR lending implemented October 1 have resulted in a drop in sales, mainly concentrated in the lower-priced end of the market. He states “…overseas evidence suggests that the impact of such restrictions tends to peak after 3-6 months…” and hence “Our judgement remains that the impact on house price inflation will be modest” and “We expect that higher interest rates will be the main constraint on house price growth this year.”

    If he is right, what will the RBNZ do next?

    • This is exactly why Bill English is too late. Stephens is right. Only interest rate rises will constrain the property market – here and over in Australia – but their effect will be profound. 5 years worth of buyers have never seen interest rates rise, and everyone else with a mortgage has never seen them this low. The effect will be progressively painful. What speed the RBNZ proceeds at, now that it has acknowledged that rates do have to rise, will be a trick worth watching. Will the panic start when the gun is fired or will it be when the next shot rings out or the next one. Time will tell, but the result is not in doubt.

      • Janet, I think the RBNZ knows this as well, hence their intro of LVR restrictions. They know it’s going to be painful this time around and so have acted to both reduce the amount of low equity mortgage holders (along with bank exposure) that will be affected plus prolong the need to raise rates as long as possible. Add to that their growing concerns about the imbalances in China.

      • Janet – I’ll declare an interest here. I am responsible for my company’s credit risk appetite in Aus and NZ. Last year I advised our board that the RBNZ MP controls would likely have a muted effect on house prices (given supply side constraints, population growth et al) and that, given the historically low interest rates prevailing, there was considerable downside risk.

        My main concern is not that higher interest rates will dampen demand and thus house prices, but that if the rates go too high affordability will become an issue and we will start to see higher defaults and forced property sales.

        And the real nightmare scenario for me is if higher interest rates coincide with an uplift in unemployment……

      • Bingo! Mander. High interest rates and higher unemployment. All we need is unexpected global turmoil and ‘nightmare scenario’ won’t adequately describe what happens to the New Zealand property market…..

      • I have always said that the RBNZ should ultimately be thanked by all the young people they locked out of the housing market with their LVR restrictions, because those young people would all have been bankrupted in the coming interest rate rises.

      • Janet it is such a shame that the ones with the power to have kept a lid on all of this price madness are in my opinion based on there actions guilty of nothing but unadulterated short term greed and to hell with everyone else,..there is an old Chinese saying, ” don’t listen to what Man say, watch what man do”.

      • Like Hugh I am from Christchurch. What is happening in Christchurch is as Janet tells it, The National party are not putting the necessary measures to rebuild Christchurch it grieves me to say. If you want to understand the hypocrisy of the party look into Christchurch’s CBD rebuild. The government at considerable expense bought up a ‘frame’ around the business district that has the same function as a greenbelt. It drives up the CDB property prices. Of course the obvious happened and the CBD ‘sprawled’ outside of the government controlled CBD rebuild area. In particular Addington an area with 100 year old working class cottages now have 5 story legal firm neighbours.

        I remember Hugh writing articles in the local paper “The Press” ten years or more ago advising about the foolishness of artificial scarcity in the supply of residential land. He was right then and he is right now. Hugh takes a simple approach to the problem and to his great credit this has allowed him through the Demographia surveys to expose the problem.

        I believe Hugh has not been able to gather the necessary support for change because he has not addressed the wider issues. A cultural/ ideological battle that goes back at least 70 years and potentially 140 years.

        Read the comment and Chris Harris paper in this link

        My reply in response to this comment further down the comment stream highlights the problem of urban planning in NZ.

        “Urban planning has been a political football since the 1940s and probably earlier. Did the left wing politicians favour public provision of urban plans because it created enclaves that would vote for them or because it was efficient and the same could be said of right wing politicians favouring motorways and private developments.

        Going further back Vogelism started because it abolished provincialism in 1876. Vogel who was effectively the PM needed to redirect settlers going to the planned settlements of the South Island and he needed the gold tax revenues from Otago. He used the money and new settlers to swamp Maori in North Island that were undefeated by the Maori wars. Read James Belich’s history books in particular “Making People”.

        So in NZ urban planning is a central government football when in other countries, especially the Northern European countries many here admire, urban planning, including the important ability to choose and fund transport infrastructure is a local government matter.”

        I would be interested in what you think from your Australian perspective on this.

      • Hugh PavletichMEMBER

        Brendon … many thanks for your comments.

        Here is an illustration of what I have written over the years on Christchurch matters …

        Christchurch: The Way Forward | Scoop News

        Christchurch: the political shambles | The National Business Review

        My comments back to MB (when they are fished out of the WordPress Spam Box) will illustrate that I’m discussing housing matters at a national level here.

        Brendon may like to consider where the housing issue is politically in NZ in comparison to say Australia and California for example … and why.

        Hugh Pavletich

      • Hugh PavletichMEMBER

        As a resident of Christchurch, one of the most depressing aspects of writing on the earthquake recovery management, is the difficulty in trying to find where a sound decision has been made.

        What should have been roughly a $NZ15 billion series of events will be $40+ billion … because of a long history of of severely dysfunctional local governance and urban planning.

        REMARKABLY …. since the first earthquake events 4 September 2010 … some 3 1/2 years ago now … there STILL has been no national / local leadership on the blindingly obvious need to focus on de-risking our metros throughout the country.

        That’s the Great Inertia Sector of Government for you !

        Hugh Pavletich

  3. Hugh PavletichMEMBER

    Is the sun setting on the Christchurch rebuild? … John McCrone and Lois Cairns … The Press

    There is a very long history to this failed recovery, that is covered within (google search) Christchurch: The Way Forward and earlier articles hyperlinked within it.

    A recovery that will likely cost in excess of $40+ billion when it should have cost about $15 billion … refer 2011 article … Christchurch earthquakes: Council Stalled Recovery .

    In development / construction terms Christchurch was already on its knees at the time of the first earthquake events 4 September 2010 … some 3 1/2 years ago now … because its Council was seriously dysfunctional and the housing severely unaffordable ( refer ).

    Instead of dealing with the Council problems head on, the decision was made by Central Government to layer the City with even more bureaucracy. Little wonder the recovery has been a failure.

    The worst thing that happened to the Central Area was cordoning it off for 2 years. Many buildings were then demoed for economic reasons … not seismic … as business was driven out to the suburbs. The Council planners and CERA following with the idiotic Central Blueprint fantasy finished off the former Central Area. It was all just a bureaucratic hassle and not economic to develop there.

    Put bluntly … the bureaucrats don’t have a clue about development and commercial realities.

    Still … there has been no affordable good quality land released on the fringes of Christchurch, to ALLOW affordable housing to be built. The Authorities at both central and local level have been well aware of this massive problem for years.

    Talk about The Great Inertia Sector Of Government !

    Christchurch Mayor Lianne Dalziel with her team have a massive job ahead of them sorting out this governance and urban planning mess. The big question is … are they capable of doing it ?

    Hugh Pavletich

  4. They are blaming the urban planners for the demand caused by the immigration?

    Maybe they ought limit the immigration and the population Ponzi which is after all a political responsibility of the country’s national government, not the planners.

  5. Urban planners are definitely to blame. Foreign Immigration is just one of the many demand factors that contribute to the demand for housing. In the two big NZ housing markets of Auckland and Christchurch. Internal migration and earthquake damaged to housing is by far the bigger demand effect that cannot be ‘conveniently’ eliminated by restricting immigration.

    The question for NZ is how to elastically supply the infrastructure in particular transport that goes with elastically supplied housing. Phil and Hugh promote a motorway centric model, that is proven to work in the US. But it does come at the cost of 6 times NZ’s current motorway provision. See the graph here.

    The ‘left’ want public transport, walkable urban areas, bike centric transport options etc. Some of this is loony ‘liveability’ ‘sustainable’ planning economics of density for density sake. But some it comes from the liberal attitude of giving people a choice of what type of community they live in. I think to a certain extent ‘affordability’ and ‘liveability’ could be combined. With examples such as

    Central government in NZ has used transport funding to control local government planning decisions for at least the last 140 years.

    In a democracy voters should be given an informed choice of the options.

  6. Hugh PavletichMEMBER

    Housing affordability and urban mobility go hand-in-hand …

    Urban Planning 101 … Wendell Cox … New Geography

    Cities As Labour Markets … Alain Bertaud (pdf)

    2014 10th Annual Demographia International Housing Affordability Survey … Introduction by Alain Bertaud

    Alain Bertaud | The study of urban spatial structures

    Hugh Pavletich

  7. Hugh PavletichMEMBER

    New Zealand Housing …. Property Report: Sharon Zollner: The housing boom is on notice – Opinion – NZ Herald News

    Property Report: Sharon Zollner: The Property Boom Is On Notice

    … and Leith van Onselen of MacroBusiness Australia …

    NZ’s English ramps-up housing supply-side attack | | MacroBusiness

    Hugh Pavletich
    New Zealand