NZ Labour ups the ante on housing reform

By Leith van Onselen

NZ Labour continues to apply pressure to the Government over housing affordability.

Labour leader Andrew Little recently delivered a rousing speech on housing policy, which shamed the National Government’s inaction and provided a comprehensive road map of its own, encompassing both demand-side and supply-side measures.

New Zealand’s shadow minister for housing, Labor’s Phil Twyford, has also been active on the policy front, recently explaining the deleterious impacts of Auckland’s Rural Urban Boundary (RUB) and calling for its abolition (see here and here).

Earlier this month, Twyford delivered another excellent speech, not just calling for the elimination of the RUB, but also freeing-up density restrictions and creating a new mechanism for financing infrastructure – infrastructure bonds – that will be repaid over the lifetime of the asset through a targeted rate on the properties in a new development:

New Part 6 Amendment to Resource Management Act 1991

PHIL TWYFORD (Labour—Te Atatū): I am speaking to proposed Part 6, which mandates that the Minister must, within 6 months of the commencement of this part, prepare a new national policy statement under the Resource Management Act (RMA) on urban growth. This is very important because if there is a root cause of the current housing crisis that bedevils New Zealand, that root cause lies in the highly restrictive planning regime and the way that we finance infrastructure, which has the effect of choking off the supply of new land for development. It drives up urban land costs and triggers a chain reaction of speculation and land banking that has seen our largest city now have some of the most unaffordable housing in the Western World.

This amendment in the name of the Hon David Parker sets out an alternative, smarter approach to managing urban growth, which we believe goes right to the heart of the root causes of the dysfunctional urban land markets that are at the heart of the problem that we have with our housing in New Zealand. What happens is that the planning rules choke off the supply of new land. They create an artificial scarcity of land and they drive up the cost of urban land that is able to be developed. That acts as a magnet for land bankers and speculators, who rush in. They buy land around the urban growth boundary in the knowledge that in time that boundary will shift and the value of that land will go up. By the very nature of having a boundary like that, with urban land on one side and future urban land on the other, you get this massive differential in land values—sometimes up to 10 times. Urban land that is able to be developed can be up to 10 times the cost of rural land on the other side of the boundary. That differential is an irresistible magnet for speculators.

What we have seen in Auckland over the last 20 years is land bankers pocketing windfall gains of thousands of percent. There are thousands of percent of windfall gains for land bankers who have just bought up paddocks in the knowledge that they will surely, eventually, be rezoned for urban development as the city expands. Who pays that cost? It is future homeowners, because the cost of that land banking—the inflation of land values—just simply gets loaded into the price tag of new homes in new developments. It drives up the price of housing, it makes housing less affordable for first-home buyers in particular, but, most importantly, the marginal cost of land on the fringes of the city gets capitalised into property values right across the market. So it has an extraordinary inflationary impact on house prices across the entire market. We could hardly design a system that was worse at protecting affordable housing.

The lesson, I think, from the last 20 years in New Zealand is that we must make room for growth. Auckland is expecting another million people to call that city home in the next 30-odd years. If we do not make room for that growth, if we put in place restrictive rules that stop the city growing up and stop it growing out, only one thing will happen: we will drive prices up and we will deny our children and our grandchildren the opportunity to ever own their own homes in the city. What David Parker’s amendment does is it proposes a whole new alternative and a smarter way to manage growth. If we look at proposed clause 12(2)(a), it proposes a national policy statement on urban growth that must include a “prohibition on the use of urban growth boundaries within a district plan where official statistics predict there will be population growth.

But it is not enough just to do away with the boundary; we must do other things. We must, for example—as we say in proposed clause 12(2)(b)—use more intensive spatial planning to set out over space and time what should happen, what developments should be allowed to happen in the identified growth corridors. We must acquire land for transport and other infrastructure corridors and networks. We must, for example, set aside areas of special value—environmental or cultural value—that are not appropriate for development. Most importantly, we must deal with infrastructure and utility costs, which add massive expense to new developments, and we must ensure that those costs are properly internalised in new developments.

What we are proposing here is a rigorous system for ensuring that the costs of that infrastructure are properly internalised so that the taxpayer and the ratepayer are not being asked to subsidise development in places where it might be extremely expensive to lay down that infrastructure—where it is uneconomic. Those are a few of the key principles in this amendment, which we believe is a much more permissive approach that will stop the planning regime choking off new land for development and driving up the cost of urban land. We believe that this policy will be one of the most essential reforms that we can make if we want to produce a more functional and more competitive urban land market.

I want to contrast this approach with the special housing areas and the track record of this Government in the last 8 years. Bill English and Nick Smith have spent a decade talking about this issue—blaming the RMA, blaming councils for restrictive planning rules that have driven up the cost of urban land—but they have done so little about it. You can barely credit the inconsistency, the gap, between the rhetoric and the reality of National on this issue over its last 8 years in Government. It has spent all of its time scapegoating councils and blaming the RMA, when it has done virtually nothing to tackle the root causes of the problem, which are the restrictive planning rules that stop the city growing up and growing out. Finally, what we have seen is Auckland Council, actually, which deserves credit for adopting a unitary plan that significantly up-zones the city and allows more density so that a better mix of housing options, hopefully with some better affordability, can be built in the city—and it has increased the amount of greenfield land available, to take out some of the extreme price pressures caused by the lack of new land for development.

But that is only an incremental step—what we need is a whole new approach, which is embodied in David Parker’s amendment. It would be a smarter approach to protecting the environment and to supporting the development of good urban form. I want to reassure people who are concerned that this might lead to unchecked sprawl that it is not designed to do that. We are advocating the freeing up of density in the city to allow more density to happen. The crucial factor here is that the costs of new development are properly internalised. That will tilt the playing field in favour of intensification in the city. That will take advantage of the sunk infrastructure assets that are already there. We are going to debate, later on, a new mechanism for financing infrastructure: infrastructure bonds that will be paid back over the lifetime of the asset through a targeted rate on the properties in a new development. You put those two factors together and you have got a whole new way of managing urban growth that will cut out the rotten heart of our planning system, which currently drives up urban land prices and acts as a magnet for speculators.

You could not get anything more different than this bold, courageous new approach to managing growth in contrast with the incremental, piecemeal tinkering of Nick Smith’s special housing areas, which have made virtually no difference to the supply of housing and certainly no difference to affordability.

Finally, a politician that actually understands housing.

As long as Auckland’s 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.

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), as well as proper infrastructure financing, is the key to lowering land costs and ensuring that housing becomes more affordable and the economy competitive.

Once again, we have a clear example of robust debate taking place in New Zealand that is in stark contrast to Australia. Over here, the issue of housing affordability received only minor acknowledgement by Labor during the Federal Election campaign, and zero acknowledgement by the Coalition (who astonishingly doesn’t even have a dedicated housing minister!).

So, while New Zealand’s politicians and policy makers are confronting the housing elephant head-on, Australia continues to all but ignore it.

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Comments

  1. Note Leith’s excellent Friday article …

    Population ponzi eats NZ economy – MacroBusiness

    http://www.macrobusiness.com.au/2016/09/population-ponzi-eats-nz-economy/

    … with extensive housing related comments on thread.

    There is a very deep consensus on these issuers in New Zealand now … further information on my archival website http://www.PerformanceUrbanPlanning.org .

    We DESPERATELY need to see effective and grounded advocacy emerge at States level in Australia.

    It was a tragedy in how the issue was derailed in Australia late 2007 … THE NEED FOR CLARITY …

    http://www.demographia.com/p-hia.pdf

    • “It was a tragedy in how the issue was derailed in… late 2007”
      If it’s possible for that to be an understatement, it is.
      I know Leith means well, as Bernard Hickey did until he was beaten into submission, but NOTHING is going to change. Labour for all its Opposition stances doesn’t want to upset the status quo either. What your quote reminds us all of is that we have lost the most irreplaceable of all commodities – time. In a finite lifespan, for many people….it’s too late for any change to make a meaningful positive difference. All that’s left are the negative consequences of that WILL now occur in one form or another. It’s just a matter of, to whom; when and how bad it continues/will be.

      • ResearchtimeMEMBER

        Seriously, this is a delusional piece… where is the reality in a lll this? Competition between landowners and developers!!! Which will be swallowed up by increased population growth via wealthy immigrants!

        Illogical rhetoric – with the stupidity suggesting that urban sprawl will be the answer…

      • ResearchtimeMEMBER

        Or maybe we can use a bit more glib – like “more MP” – or “cut NG”…

        The analysis on this situation is both galling, and becoming increasingly dishonest!

        MB was set up to expose the obvious truth, now they follow the lie. Paid political hacks… that may sound a bit harsh, buts the truth. Its just immigration with money, into a relatively small poor developed nation, and the inhabitants are being pushed out. Nationals know it, Labour knows it… and yet it still happens – WHY????

      • “MB was set up to expose the obvious truth, now they follow the lie. Paid political hacks…”

        You have gone too far now, Mr Idiot. Nobody has pushed harder against the population ponzi (both in Aus and NZ) than me. We are on nobody’s payroll. Stop spreading lies.

      • ResearchtimeMEMBER

        I am totally against urban sprawl, and sufficient infrastructure fixes population growth. Neither are solutions in question here. You have entirely missed my point!

        What is in question is allowing a wealthy sector of society to supplant others. its merely a short-term economic solution creating social disfunction later on. A government out of touch of economic theory – and actively operates against its own Reserve Bank.

  2. labour getting no traction. Cult of Key winning 4th term easily. After 6 terms Key will retire handing the reins to Richie McCaw – who has his own movie in this sad little country.

      • ResearchtimeMEMBER

        Says a man who hasn’t lived anywhere else… plus 50m people live in the UK in an area the size of Tasmania (if you minus the green belts) or Victoria if you don’t!!!

        Do you really understand what is happening? Really??? or dos copious amounts of posting say it all?

        I personally think you have no idea whats going on…

  3. … JOHN KEY’S (UNNECESSARY) NORTGAGE SLAVERY PROGRAMME …

    The great half-billion KiwiSaver home withdrawal | Rob Stock | Suinday Star Times

    http://www.stuff.co.nz/business/84281136/the-halfbillion-kiwisaver-home-withdrawal

    … extract …

    … The other problem is whether we are creating a future retirement problem for young home-buyers being forced to take out enormous mortgages, which many are predicted not to have paid off by the age of 65.

    Housing campaigner Hugh Pavletich said: “All it (the KiwiSaver first home withdrawal) is doing is enticing young people to even more severely excessive debt. That’s what really saddens me. It is conning them into excessive mortgage slavery.”

    “We should not be spending any more than three times our household incomes on a house with a debt loading of no more than two and a half times our household incomes,” he said. “Anything above (about … corrected) that is essentially wasted money.” …

    • NIGEL LATTA: NO MAGIC BULLET TO THE HOUSING CRISIS … FAIRFAX – STUFF NZ

      http://www.stuff.co.nz/entertainment/tv-radio/84036183/nigel-latta-no-magic-bullet-for-housing-crisis

      … screened TVNZ Tuesday evening 8.30pm …

      ‘AFFORDING A HOME’

      https://www.tvnz.co.nz/content/tvnz/ondemand/shows/n/nigel-latta.html

      https://www.tvnz.co.nz/ondemand/the-hard-stuff-with-nigel-latta/09-08-2016/series-2-episode-5

      … Nigel Latta explains …

      OPINION: I recently went back to the house I grew up in: a pretty modest brick place on Arthur St, Oamaru.

      Out in the yard, the current owners had a surprise for me. It was a tiny name, scratched in the cement foundations of a fence post.

      The name was Nigel Latta. When I took a stick to the wet concrete back in 1970, I was putting my name on the place I called home.

      That house on Arthur St felt stable and secure. Although we moved away when I was seven, I probably thought I’d live there forever. I didn’t know a single family who rented their house.

      These days, too many kids don’t have the sense of stability I enjoyed. They don’t get to lay claim to their home like I did. That’s because their parents don’t own the house they’re living in; they’ve been locked out of an overheated housing market.

      Arthur St was my parents’ first house, and they bought it for about $8000 in the mid-60s. That was about three times what my dad earned in a year, which by international standards is classed as affordable.

      These days, the average New Zealand house costs about six times the average household’s income of $84,000. That’s classed as severely unaffordable.

      Our housing market is out of control. I could go on quoting figures at you, but unless you’ve been living in a hole (not as unlikely as it might have been), you’ll have some idea of the problem. It’s in the news almost every day.

      Auckland dominates a lot of this coverage, and for good reason: the average house price up here recently reached a, frankly, ridiculous $1 million. But it’s not just a problem for our biggest city.

      Wellington, Nelson, Hamilton, Christchurch, and Tauranga are also classed as severely unaffordable on a global scale, with prices ranging from five to six-and-a-half times the average household income.

      In my parents’ day, most people believed that if you worked hard you could own your own home. That’s just not true any more. Saving for a deposit and servicing a mortgage is getting beyond even households on moderate incomes in our urban areas. … read more via hyperlink above …

  4. … ALL NEW ZEALAND POLITICAL PARTIES …
    … GET RID OF URBAN BOUNDARIES ! …

    RECENTLY IN THE PARLIAMENT …

    … AN UNEXPECTED AND CONSTRUCTIVE HOUSING DEBATE

    … GET RID OF URBAN LIMITS !

    Housing debate forces cancellation of Parliament’s Question Time | Politics | Newshub
    … VIDEO …

    http://www.newshub.co.nz/politics/housing-debate-forces-cancellation-of-parliaments-question-time-2016090713

    WATCH THESE SPEECHES !

    Labours Phil Twyford …

    http://www.inthehouse.co.nz/video/45199

    ACTs David Seymour …

    http://www.inthehouse.co.nz/video/45116

    … with access to others via the above links as well.

    Politics at its best !

    • Sounds good, Hugh! But that’s all it is….sound.
      You, better than pretty much all, KNOW what’s going to happen to the New Zealand economy if open slather of redevelopment of land is allowed; land that can go from paddock to suburb once the maths tells it to. That kind of change will destroy the New Zealand economy now, in a way that 10 years ago it would have just been a sobering exercise.
      It’s too late, Hugh, for any positive change; the positive change that I had hoped for when Dr Bollard ramped interest rates up and ‘took away the punchbowl’. Sure a lot’s changed since then, but the underlying reason for Bollard’s actions remained.
      But, as they say ‘that’s all history now;’ and all that’s left for the future of New Zealand is….sell it! To anyone that can gather the Magic Money together and take the hard assets, houses and land included, away fro the future of our Nation. The game’s over, Hugh, and out ‘sophisticated’ Governing class don’t even realise that they’ve been played. They can bicker and debate into the long hours of every sitting day from now on, and it will make no difference, because to ‘make a difference’ will now destroy the economy.

      • Janet … cultural and attitudinal changes are the BIGGIES … politicians are merely parrots passing in the night … who’s political survival is dependent in large measure in how they read and process poll results (i.e. what the public is telling them).

        New Zealand politicians are heavily engaged with these issues, because the public … with an extremely energised media … is pressuring them to be.

        A few months ago I discussed these issues with RadioLives Heather du Plessis-Alan. I trust you find this interview helpful …

        Talking housing affordability across the globe with Hugh Pavletich – Audio Player – Audio – RadioLIVE

        http://www.radiolive.co.nz/Talking-housing-affordability-across-the-globe-with-Hugh-Pavletich/tabid/506/articleID/122978/Default.aspx

      • I don’t see what you see Hugh. What I do see is any number of people about me, a la Casablanca, exclaiming “Shocking. Shocking, I tell you….” and whatever changes they want to make to the economy, at every level, is fine – as long as it doesn’t affect them! And that’s what the politicians know and pander to. Therein lies the problem – getting change, with no change. It’s not going to happen! It can’t, in a way that it could have even 10 years ago. Debt has consumed the New Zealand economy, as it has everywhere else, and given that, I just do not see a way out. And you know what, Hugh? Neither do ‘they’! That’s why we are on the path we are on, because when there is no alternative, a man dying from thirst will drink seawater…..

      • Janet … are you aware of the shifting public attitudes ? …

        PM wouldn’t mind Auckland house prices dropping | Politics | Newshub
        … VIDEO …

        http://www.newshub.co.nz/politics/pm-wouldnt-mind-auckland-house-prices-dropping-2016090615

        A surprising admission from John Key – he says he wouldn’t mind Auckland house prices dropping. … read more via hyperlink above …

        UMR poll finds 60% of Aucklanders over 18 would prefer house prices fell a bit or dramatically; 63% of NZers want lower house prices; 55% of home owners would like lower prices; 85% of Aucklanders see housing crisis | interest.co.nz

        http://www.interest.co.nz/property/83203/umr-poll-finds-60-aucklanders-over-18-would-prefer-house-prices-fell-bit-or

        A recent BNZ poll mirrored the UMR poll above. Interest Co NZ reported on this recently, with the associated comments of its Chief Economist Tony Alexander.

  5. … CHINA HOUSING BUBBLE … WAY OUT OF CONTROL …

    SHANGHAI NEW HOME PRICES JUMP 5.2% IN AUGUST … SOUTH CHINA MORNING POST
    … google search title if blocked …

    http://www.scmp.com/property/hong-kong-china/article/2020554/shanghai-new-home-prices-jump-52pc-august-month-amid

    National Bureau of Statistics data shows broad-based acceleration in new home prices in August … read more via hyperlink above …

    China house price bubble explodes – MacroBusiness Australia
    … behind paywall …

    http://www.macrobusiness.com.au/2016/09/china-house-price-bubble-explodes/

    China;s Housing Gets Scarily Expensive … Bloomberg

    https://www.bloomberg.com/view/articles/2016-09-15/china-s-housing-gets-scarily-expensive

    • BIS flashes red alert for a banking crisis in China … Ambrose Evans Pritchard … UK Telegraph
      … google search title if blocked …

      http://www.telegraph.co.uk/business/2016/09/18/bis-flashes-red-alert-for-a-banking-crisis-in-china/

      China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog.

      A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.

      The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis. … read more via hyperlink above …

      • ESSENTIAL VIEWING …

        THE END OF CHINA INC … 101 EAST … AL JAZEERA / YOUTUBE

        https://www.youtube.com/watch?v=nGHmk4UeK_w

        There’s a magic formula to becoming a millionaire in China – borrow big to earn big.

        For years, individuals, state-owned companies and municipalities have taken massive loans to chase the Chinese dream.

        Now it’s payback time, but a severe economic slowdown means many are struggling to pay their debts.

        101 East asks, is this the end of China Inc?

  6. HOW HOUSTON REGULATES LAND USE … NOLAN GRAY … MARKET URBANISM

    h/t Tory Gattis
    http://houstonstrategies.blogspot.co.nz/
    &
    http://opportunityurbanism.org/

    http://marketurbanism.com/2016/09/19/how-houston-regulates-land-use/

    By Nolan Gray

    If you regularly read about cities, you might notice that Texas cities rarely seem to come up. We make cases for why Detroit is definitely coming back—just you wait! We come up with elaborate theories of how cities can become the next Silicon Valley. We spend hours coming up with a solution to New York City’s costumed panhandler problem. Yet the four urban behemoths of the Lone Star State—Houston, San Antonio, Dallas, and Austin—remain conspicuously absent from the conversation.

    Boy, has that changed. … read more via hyperlink above …

  7. Smith says Government looking at becoming a party to Unitary Plan appeals to combat any delays in bringing new housing supply to Auckland market | interest.co.nz

    http://www.interest.co.nz/property/83682/smith-says-government-looking-becoming-party-appeals-unitary-plan-combat-any-delays

    By Bernard Hickey

    Building and Housing Minister Nick Smith has flagged that the Government is considering taking legal action to counter any delays forced on Auckland’s Unitary Plan by the more-than-100 appeals lodged against the plan in the Environment and High Courts by residents groups, developers and corporates.

    The Auckland Council yesterday announced that over 100 appeals were lodged by the close of business on Friday and that some could affect the way the Plan operates. It was supposed to go live from the weekend and hopes for a surge in housing supply over the next 30 years rest on the plan being operable, given changes in the rules for building “out” and “up” are forecast to allow the building of up to 422,000 houses over the next 30 years under the Plan.

    Many of the appeals were from heavy hitters with significant legal budgets and years of experience in challenging planning legislation through the Environment and High Courts, including from Federated Farmers, Forest and Bird, Auckland 2040 and the Independent Maori Statutory Board. … read more via hyperlink above …