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.