NZ’s housing minister talks the talk, but will he walk the walk?

By Leith van Onselen

In the lead-up to, and directly following, the September 2017 New Zealand general election, I heavily praised Labour’s housing spokesman, Phil Twyford, for promising to address both supply and demand distortions via negative gearing reform, banning foreign buyers of existing homes, tighter capital gains taxes, removal of urban growth boundaries, plus bond financing for infrastructure.

I also praised Labour’s plan to reduce immigration by around a third, which would help to relieve chronic housing and infrastructure pressures (especially around Auckland), as well as its plan to build 100,000 public houses over a decade (named ‘KiwiBuild’).

Since that time, I have grown increasingly frustrated by the apparent backsliding on a number of commitments.

Last year, Immigration Minister Ian Lees-Galloway played down immigration cuts by claiming there was no target for an overall reduction in numbers.

Housing Minister Phil Twyford also backslid on Labour’s commitment to remove urban growth boundaries by force-feeding intensification rather than focusing on the key issue of lowering lot values, and in turn land prices.

Twyford also backslid on the Government’s ‘KiwiBuild’ program to build 100,000 public houses, delaying the start date and changing the policy from “build” to “facilitate” the “delivery of 100,000 affordable dwellings”, as well as changing the definition of “affordable”.

Despite these apparent failings, Phil Twyford did give an excellent speech last month whereby he analyses three key problems in New Zealand’s housing system that need fixing:

There is a startling array of indicators that in housing and urban development are telling us we have a problem: severe housing unaffordability, falling home ownership, increased hardship and homelessness, ballooning household debt and increased intergenerational inequality…

In our view there are three big challenges that have to be addressed:

  1. A broken system for financing infrastructure
  2. A planning system based on urban containment
  3. The failure of governments until now, both local and central, to actively work with the private sector to enable urban growth and expansion.

Let me update you on progress we’ve made on each of these.

First, infrastructure funding and financing

I said before our infrastructure funding and financing system is broken.

Some of our high growth councils which provide most bulk infrastructure have tapped out their balance sheets.

And to a large extent local government politicians have been unable to convince their ratepayers to invest in growth, leaving a burgeoning infrastructure deficit for the next generation.
The unwillingness or inability to invest in the infrastructure to support development stops cities growing. When a city cannot grow in response to demand, a pressure cooker effect is created, which is what has given Auckland some of the most expensive urban land and housing in the world relative to local incomes…

What are we doing?

Our aim is to put in place a new system of funding and financing the infrastructure for urban growth that will turn on the tap for a limitless supply of investment finance for developers who are willing to take the commercial risk on a project.

We want to ensure that the costs of growth are properly allocated. So they fall on the beneficiaries of development.

And above all we want a system that is responsive to demand.

The intention is that we create a system where the viability of the project is the determinant of whether to proceed with a particular infrastructure project, and whether private capital can be accessed and utilised…

The second challenge I identified was a planning system based on urban containment.

That containment has acted to hobble vertical growth.

Height and density restrictions have stopped our cities growing up, preventing efficient land use, blocking the development of more affordable housing options like flats, terraces, town houses and apartments.

Environment Minister David Parker and I are working on national direction under the RMA that will set clear parameters for Council plan making to incentivise quality intensification.

The aim is to encourage density done well particularly around rapid transit interchanges and corridors.

It will also inject a significant increase in the quantum of development opportunities in the market.

That is vertical expansion. Now for the horizontal.

Our aim is to bring down urban land prices by flooding the market with development opportunities.

We want to break the current land market model which sees the planning system and infrastructure financing logjam create an artificial scarcity of land.

Incremental relaxation of the Urban Growth Boundary and zoning changes simply drip feed small amounts of new land, and new subsivisions, into a highly speculative market.

This is the land banking and speculation model that characterises the greater Auckland land market.

Instead of urban containment our policy is to develop a new planning approach based on the idea of Making Room for Growth.

We now have work underway to open up Auckland’s southern growth corridor, from the economic powerhouse of south Auckland down into the northern Waikato where Pokeno is living testament to the power of growth pressures to defeat urban containment.

Making Room for Growth replaces the Urban Growth Boundary with a more expansive approach to spatial planning.

It sets aside areas of special value, like growing soils or native bush or coastal strips; open spaces for future generations; acquires land for network infrastructure including road and rail and schools and hospitals; and then allows people to develop and build – as long as they can carry the true costs of growth, including infrastructure and including transport.

If we are not rigorous about internalising the true costs of growth, then we risk subsidising development in places where it shouldn’t happen, locking in long-run inefficiencies, and undermining the market for urban intensification in existing urban centres…

The third challenge I identified was the failure of governments until now, both local and central, to actively work with the private sector to enable urban growth and expansion…

Successive governments failed to provide national direction on urban growth, and left Councils to their own devices. Councils who by and large didn’t have the balance sheets or capability or appetite to be drivers of large scale development.

And central government simply didn’t see it as its job.

It is time for that to change. Our Government recognises our cities are failing.

The housing crisis is exacting a massive fiscal and human cost. Think about a generation of kids growing up in cars and garages, and with respiratory damage caused by cold damp sub-standard housing. And the $2 billion a year the taxpayer is spending on rent subsidies.

Because of this manifest failure we are consciously inserting central government into urban development – to work alongside local government, the private sector and the community – to create an environment that supports growth…

I talked about the land banking and speculative economy, and the pressure cooker that has given us some of the most obscenely expensive housing in the world.

These moves are designed to change that.

If we free up height and density restrictions in the city. And we allow the city to grow on the fringes as long as development internalises the true costs of growth. And if we recognise that Auckland is already a linear city and we facilitate a growth corridor to Hamilton.

If we do these things we can truly flood the market with development opportunities. We can break the land banking economy, and drive down the cost of urban land.

We can achieve more competitive urban land markets. And industry that is more focused on development and building places of enduring value instead of land banking and speculation.

That is the pathway to more affordable housing, and a systemic fix of the crisis that has caused so much hardship, and sucked so much of our national wealth into residential property instead of the productive economy.

Phil Twyford genuinely understands the issues and has made all the right noises. Now it’s time for action.

The proof of the pudding is in the eating.

[email protected]

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

    • I christened him Promises Phil at the time of the election campaign.

      I wish I wasn’t right predicting inaction, but I keep being proven so. 🙁

    • He’s had 18 months, mate. If he was going to crash NZ housing, he would’ve done it by now.

    • They’ve been kept busy avoiding gun laws for 17 months, and a very very busy past month implementing brave gun laws.

  1. kiwikarynMEMBER

    When National wanted to reform the RMA, Labour blocked them. I wouldnt be holding my breath waiting for them to do an about face on the subject. It will be like Kiwibuild – all talk, no action.
    As for Kiwibuild its turned into welfare for corporate developers. Any stock the developer can’t sell, they hand over to Kiwibuild. And if it still doesnt sell, then the Govt is obliged to buy it from them. So what you get is a 2 bedroom Kiwibuild home on the market for $459k when the 3 bedroom non-Kiwibuild home next door sold for $422k a few months ago.
    https://www.stuff.co.nz/national/111235617/canterbury-kiwibuild-house-was-on-market-last-year-and-did-not-sell
    https://www.qv.co.nz/property/9-te-rito-street-marshland-christchurch-8083/2981542
    Its nothing more than a huge taxpayer rip off, disguised as dogooder social policy.

  2. “Our aim is to bring down urban land prices by flooding the market with development opportunities.”
    Kiwibuld was a start. Was it too ambitious? More than likely, but it was an ambitious start after 9 years of neglect; 9 years of selling off the social housing stock that had been in situ for 50 years and less. and it will no doubt end up being different to what Twyford, Labour and we all anticipated – but that’s how change often happens! Unexpectedly.
    I wish Twyford all the best, and if he fails, let not it be because he gave up on his ideas.

    • That “flood” reminds me a lot of the legendary “trickle down” in economics.

      Generally non-existent in practice. If it happens, it happens by accident, certainly not on purpose.

      • Explain why urban land rents trended downwards steadily for decades, home ownership was democratized, the rentier/renter class divided was ended, urban crowding was ended, homes got bigger and better on average, and a median multiple of 3 was the norm – after the automobile went mass-market. Explain what did this, if it actually wasn’t automobility and the expansion of urban footprints, which tended to double every seven years for several decades.

      • Yes mate, I know.

        But that was then.

        This is now and I’m talking about now. I can’t see NZ going back to allowing/creating a situation of plentiful land on the outskirts of cities to replicate what happened in previous decades.

    • The residential development / building sector is revving up … as the February Stats NZ Building Consents illustrate …

      New dwelling consents are particularly strong in Auckland led by growth in apartments | interest.co.nz

      https://www.interest.co.nz/property/98879/new-dwelling-consents-are-particularly-strong-auckland-led-growth-apartments
      .
      .
      It is important to recognise that Minister Twyford with his government are responding to public and media pressure.

      The IPSOS Issues surveys illustrate this.

      There has been an extremely lengthy public conversation on these issues … check … http://www.PerformanceUrbanPlanning.org .

  3. DominicMEMBER

    There’s more chance of Stevie Wonder winning Dancing with the Stars than there is of this [email protected] doing anything meaningful or positive on the issue. Just another pollie with a promise. All talk, no trousers.

      • I can’t help being reminded of the way “Carpool Karaoke” with Stevie Wonder started…. The camera is on James Corden in the passenger seat, looking across to the as-yet unseen driver, and saying, “are you sure you’re OK to drive….”/

    • ErmingtonPlumbing

      Hey!,…. what’s wrong with Stevie Wonders dancing style?
      He has very similar moves to me on the dance floor.

  4. Jumping jack flash

    Lol,

    Once again the government forgets about the diabolical valuation system that enables infinite debt, and how it will work against them in their quest for “affordability”. They also forget about the ravenous packs of NIMBYs, most of whom have debt-soaked houses that will be suddenly valued lower when a heap of public housing is plonked next door. They’re not going to like that, and neither will the banks.

    Its certainly an uphill battle for the good minister. Redefining affordability is a sly move, worthy of Howard.

    Here’s another idea: Perhaps the government should sweeten the deal by paying the neighbours the loss of capital gain as a lump sum. That would probably help a fair bit.