NZ Labour has hit out the “Unitary Plan” for Auckland’s housing market (explained last week) after modelling revealed that just 15% of new homes would be priced under $800,000, and fewer than 2% would be priced under $600,000. From Stuff.co.nz:
Labour leader Andrew Little said Government support for the plan’s housing provisions showed it was “more out of touch than anyone expected”.
“National just doesn’t get it. People need affordable homes to live in”…
“Nick Smith has got the idea from an economics text book that if you just build loads of expensive homes then naturally the price of all homes will come down. He needs to come and live in the real world.”
The biggest problem that I see with the “Unitary Plan” is that it has maintained Auckland’s Rural Urban Boundary (RUB) – albeit expanded it by 30% – leaving incentives in place for developers to continue cornering the land market, drip feeding supply, and maintaining high prices.
As explained last week, the only thing that keeps any market competitive is the continual freedom of entry into it by new players. Remove this ability, say via a growth boundary, and the market ceases to function properly allowing players to “corner supply”, such as via land banking, as is currently the case throughout New Zealand, Australia and other markets running such urban containment policies.
As long as the RUB remains in place, incentives to “land bank” and speculate will remain.
By contrast, removing the RUB altogether would increase competition among both developers and land owners, thereby driving down the cost of land/housing. The existence of high levels of competition would, in turn, make land banking particularly risky, as another nearby owner would always have the opportunity to move to the market ahead of the land banking developer.
Make no mistake, I am not advocating “open slather” development. If land needs to be preserved for environmental or social reasons, by all means the Government should do so. But it should not prevent an adjacent landowner or a landowner further afield from developing their land merely because it sits on the wrong side of an arbitrary barrier, such as the RUB.
Subject to minimum standards being met, there should be nothing to stop a rural landowner from using their land how they see fit, whether it be for commercial use or subdivision into urban lots. Moreover, there should be nothing stopping a visionary capitalist from building a whole new city, attracting employees and businesses to it with very low land costs, as has occurred with the award winning Woodlands development near Houston, Texas, but would be next to impossible in New Zealand or Australia.
Open competition underpinned by the right to develop (subject to minimum standards being met), is the key to lowering land costs and ensuring that housing becomes more affordable and the economy competitive.
