Anatomy of an Auckland housing disaster

By Leith van Onselen

Back in March, New Zealand’s Productivity Commission (PC) has released a report entitled “Urban planning – moving beyond the wheel spin”, which basically concluded that Auckland’s housing system is under siege from the combination of rapid population growth butting heads with a dysfunctional planning system, which is unable to cope with the population influx:

“Auckland, home to a third of New Zealand’s people, has been and is still experiencing extremely fast population growth. Aucklanders, armed with the system’s planning tools, have struggled to respond to this pressure either by providing greater density in central parts or by expanding outwards at the city’s boundaries,” it says.

“While some specific interests have benefited, the resulting scarcity has driven a protracted land and house price spiral that has been socially and economically harmful. It has now adversely affected many parts of New Zealand and many New Zealanders.”

Restrictive land-use regulation including policies preventing intensification of historic suburbs surrounding the city centre, poor transport links, and, most of all, funding constraints, have all played a part.

Earlier this week, a Government-commissioned report was released which found that a whopping 56% of the cost of Auckland houses may be due to land use regulations. From Interest.co.nz:

“Relative to a world with no land use regulation, regulation could be responsible for 15% to 56% of the cost of an average dwelling across a range of New Zealand cities,” the report says.

“In Auckland, land use regulation could be responsible for 56%, or $530,000 of the cost of an average home”…

“Most of our cities cannot build quickly enough to respond to increasing demand for housing, so land prices have gone up, as have housing prices across our cities,” the report says.

“Local geography is likely to play a role, but even in New Zealand cities with plenty of flat land, prices are higher than might be expected in a well-functioning market.

“There could be benefits from land use regulation, but these would need to be large and increasing over time to justify the status quo,” the report says…

Auckland’s average dwelling value was an insane $1,045,000 as at May 2017, having increased by 9% over the past year and by 91% since the pre-GFC peak:

Auckland dwelling supply has also failed miserably to keep pace with the National Government’s mass immigration program.

Over the past year, Auckland added an insane 44,500 people:

Driven by a 35,772 increase in net overseas migration:

By contrast, Auckland’s dwelling construction continues to slow, with just 885 dwelling consents issued in May and 10,379 issued over the year, with a downward trend clearly evident:

Recent population projections from Statistics New Zealand estimated that Auckland’s population will rise between 56% (medium growth scenario) and 75% (high growth scenario) between 2013 and 2043:

Driven by mass immigration:

Auckland will continue to be New Zealand’s fastest growing region. Among regions, Auckland is projected to receive over half New Zealand’s net migration, and account for over half the country’s growth in the period to 2043…

After spending years complaining about the Auckland Council’s restrictions on land development, the National Government recently thwarted legislation that would have removed Auckland’s urban growth boundary and freed up density controls. As noted by Bernard Hickey of Newsroom in April:

One curious coda to the RMA debate that concluded last week was that the Opposition parties plus ACT and United Future all voted again during the third reading debate for amendments that would have abolished Rural Urban Growth Boundaries and allowed the financing of infrastructure bonds paid for with targeted rates.

The amendments were defeated by National and the Maori Party.

The irony of a Government that has railed against restrictions on land development by councils voting against removing those restrictions should be noted. And also that the proposal for infrastructure bonds was backed by the right-leaning New Zealand Initiative and voted for by the Greens and Labour. Strange times indeed.

Clearly engineering population growth into a supply-restricted market is a recipe for disaster.

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