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John Key says continued Auckland house price rises could make the RBNZ force up interest rates for all New Zealanders

Posted in News Updated

Prime Minister John Key has weighed in to the arm wrestle between the Government and the Auckland Council over housing, warning that a continued surge in house prices in the country's largest city could force the Reserve Bank to hike interest rates.

"If there's really fast rising prices in Auckland that puts pressure on the Reserve Bank Governor and that's likely to lead to interest rates going up and all New Zealanders pay for that," Key said on TVNZ's Breakfast programme this morning.

His comments came ahead of a meeting tonight between Housing Minister Nick Smith and Auckland Mayor Len Brown.

Earlier this month Smith went on the attack against the Auckland Council  first talking about "smashing the metropolitan limit" to allow more affordable housing and then releasing an official report from the Ministry of Business, Innovation and Employment that he said showed it was essential that more land was made available to improve housing supply and affordability in Auckland.

Smith's report release came came just two days before the Auckland Council released its Unitary Plan, while Deputy Mayor Penny Hulse told interest.co.nz Aucklanders want planned and progressive development, not a smashing of the city's metropolitan urban limit as sought by the central government, to meet the SuperCity's housing and population growth demands.

Last week Smith appeared to take on a more conciliatory tone as he said that he would be meeting with Auckland Mayor Len Brown today and that he was striving to take the heat out of the Auckland housing market.

February house price information released by the Real Estate Institute earlier this month showed that the Auckland market is getting particularly heated, with the media price up 14.3% on a year ago.

Key attempted to play down the tension between the central government and its largest local government authority, while Smith was also more conciliatory in a televised interview yesterday, describing the relationship between government and council as "constructive tension".

Key said that what was happening was "normal".

'It's not a full-on massive scrap'

"It's not a full-on massive scrap. It's just a bit of a disagreement at the margins. But we are working our way through it."

"Auckland wants to bring in its Unitary Plan and do it straight away, so no rights of appeal or input from Aucklanders. Essentially the Government is saying 'well, the normal time frame, which is 10 years is too long and so here is an option, we'll do it over two to three years.' There'll be a hearing panel that can hear objections from people and input and we'll go from there," Key said.

The Auckland Council was saying that it wanted to intensify housing within the current metropolitan limits and" just go straight up".

"We are saying you need to go up and out."

If the Government just "clicked our fingers" and let the Unitary Plan come into effect in September. "my understanding is it is still subject to notifiable consents so I don't think it absolutely speeds everything up. As consultation goes on people will disagree," Key said.

You would get people saying "actually I don't want 10 storey buildings in my suburb. You will have that and you will have a lot of that".

"...It is assuming that the Council has got everything right it is not just housing. It assuming it has got its cultural locations it's sporting locations, its growth nodes all in the right place. And I reckon for the most part they will have done it really well. "

Spreading out and going up

Key said he agreed with the Council that things needed speeding up "and we are working on ways to make that happen for residential housing. I think it has got to be a combination of spreading out a bit and going up. It won't just be intensification". 

Meanwhile, Nick Smith told TVNZ's Q&A programme yesterday there was a lot more agreement between the Auckland Council and the government "than what some might have you believe".

"We both agree that Auckland needs a lot more houses. 25,000 is the agreed shortage. Both the Council and the Government believe there's about 20,000, 30,000 shortage of houses in Auckland right now."

Smith said the lessons of the past needed to be learned. "The old Auckland Regional Council in 1999 set a plan for Auckland, and they said that 70% of the new houses in Auckland are going to be the intensified ones – you know, the apartments, the townhouses. Yet in reality what's occurred over the last decade is the opposite – 70% of it’s been new greenfield. They haven’t met those targets of those additional apartments and townhouses, and as a consequence, we’ve neither provided the greenfield or the brownfield development and house prices have gone through the roof.

"You need to get the right balance so that houses in cities like Auckland, the ambition of Auckland being liveable, absolutely – but also affordable. And the history is one of quite unaffordable."

Land supply not only issue

Smith said the question of land supply was an important issue but not the only one. "The Productivity Commission said that the price of building materials in New Zealand is about 30% higher than what it is in Australia. Well, that’s not good enough, and that is why the government’s doing a piece of work in that area as well. Where we do hold the view is that land supply is not the only issue around housing affordability, but it’s a very important one. The Productivity Commissioner has said that. Motu research has said that. If we look at all the international experience, it shows that, and that is why there's this...Yeah, there’s a bit of constructive tension between the government and council."

Smith said that at the same time as he was meeting with Brown today there would also be a meeting of government and local government  officials.

"There's been a joint officials’ report that’s provided some really helpful data. We’ve just got more work to do. For instance, you know, if we look at the unitary plan, there are key parts of it that are a work in progress, where the council has said: 'Well, this is sort of where we’re going. We’ve got some more detail to do.' And the Government is saying: 'Hey, we need to see that detail because we need to be satisfied that this plan is going to deliver affordable housing'.

"... If the Government stood back and said: 'This is only Auckland’s business. We’re not going to do anything', then it would take between seven and 10 years for that Unitary Plan that the Council has done tremendous work on to become operative. Now, Auckland can't wait seven or 10 years. We’ve put a fast-track process in place that will enable that plan, which the Council is looking to notify in September, to come into effect probably in about three years."

Can't wait

But Smith said nobody could simply wait three years.  "We can't allow house prices to go up in Auckland by another 50 grand a house next year. We need to have a discussion about some of the short-term measures that are required to take the heat out of the housing market."

Smith said his relationship with Len Brown was "constructive, robust".

Actually, I really enjoy working with him."

Interviewed on the same programme, Brown said Smith was now taking a "much better conciliatory tone, actually. Very very good to see that".

"...I think the tone’s moderating to the extent that we can have a really good discussion about one general agreement around the plan – creating the world’s most liveable city, with the Auckland Plan, the rules from the Unitary Plan coming in behind it, delivering a quality, compact city."

Brown said he didn't want the Government to "butt out" when it came to Auckland planning.

A collaborative process

"This is a collaborative process. The central government have a key role to play here, and they’ve acknowledged that right through the process and working with us with the Auckland Plan, and also with the Unitary Plan over the last 12 months.

"...I see in Nick’s comments this morning a much greater determination to be collaborative around how we deliver the unitary plan and get homes built in this city with pace. And that’s the nature of councils and Auckland Council in its first iteration and government. You're not going to agree on everything. But what we are saying is that we’re established in particular to do this work – to build a great city, get the right plans and framework in place for our business community and our builders to get the job done, particularly coming out of a recession.

"It’s critical for the city and the nation. And so we believe that with the unitary plan, we’ve got the right set of rules to get the right balance and mix of homes built within the present urban framework and outside in what we call greenfields. So, you know, I think we have the right framework to have a great discussion with government, but we need pace to get those rules in place. So that’s the nub. And so on the basis that we agree the plan, and, you know, my hope is that the discussions over recent days have reflected a much higher level of 'yep, we’re going forward'.

Brown, however, indicated that the Council and the Government were still some way apart on the timing. With the council pushing for the September start for the plan and the Government looking at three years.

"So we’ve yet to conclude that debate. Now, it’s clear that the Government, I think, have a view on that. I want to continue to try and persuade them, on behalf of Aucklanders,that they view isn’t right."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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36 Comments

Smith says "Auckland wants to

Smith says
"Auckland wants to bring in its Unitary Plan and do it straight away, so no rights of appeal or input from Aucklanders.."
and also says...
"We are saying you need to go up and out"
So where does Smith see Aucklanders right of appeal to stop his solution of sprawling out?  AKL Council must be fuming about his incompetence.

I am sick of hearing about

I am sick of hearing about Auckland housing and roading problems,and how they are the power house of the NZ economy.Southland has 3% of NZ's population produces 18% of NZ's income and if you include Otago 9% of population producing 33%total.and what does this Auckland based National based Government do spend it on infastructure  on roading that can make the masses get to work 10 minutes quicker.Dumb!The faster you build road the more cars you get.

Out of interest where are you

Out of interest where are you getting these numbers from? When I look at the figures from the stats department the last time they did GDP on a regional basis Southland produced less than 5% of the GDP of NZ.
If your talking about using pure income earned from exports then your basically saying farmers and miners should dictate government policy?

An interesting perception of

An interesting perception of the priorities and allegiances of the government. Here I was thinking the Nats only start considering Auckland when they can see an election on the horizon, and only then start considering how they can package their non contribution to the City in an appearance of doing something. Hence the recent Smith brain explosion.
Not including John Key (who I understand is a Cantabrian, resident in Auckland) there are 4 Aucklanders in a cabinet of 20. The 4 are McCully, Coleman, Bennett and Kaye; all arguably okay, but hardly influential in polcy making it woud seem.
There are 12 provincial cabinet members, including Southland's very own Bill English. One suspects therefore the provinces' interests are relatively well looked after.
To assist the discussion being less emotional, it would seem helpful if regional statistics were much clearer on incomes and tax receipts; government expenditure including welfare and infrastructure, as well as stats like crime (violent and otherwise) and unemployment. It is not always easy to find such breakdowns, which suggests someone is hiding something. 

Not just perceptions

Not just perceptions Stephen
When questioned about the distribution of fuel tax proceeds, Mr English acknowledged a large proportion of funding was channelled into the Auckland motorway scheme, but said he did not think Southlanders were missing out.
"I think our roads are in pretty good shape, really . . . We're about to have discussions with the [Southland] councils to do with the proportion of petrol tax they get back. They think they get a bit short-changed."
More funding would become available once the Auckland motorway was finished, and he hoped some of this could fix southern bottlenecks, such as the Kawerau Bridge.
http://www.stuff.co.nz/southland-times/news/8427780/Numbers-don-t-add-up...

CO, Interesting emotional

CO,
Interesting emotional piece, thanks, where Southlanders are clearly being fed by their media that somehow they are being hard done by.
As I've noted, the authorities seem to go out of their way to hide the actual spend details, but a quick look here, http://www.nzta.govt.nz/network/management/spending.html , suggests to me that maybe 10%-20% of fuel taxes are currently spent in greater Auckland, (and nearly all of that initiated by the previous government) and the rest elsewhere. Assume Aucklanders pay roughly a third of petrol and other taxes, and  the balance seems somewhat in favour of the provinces.
The Nats will clearly find whatever arguments or means possible to avoid any commitment to a proper metro train system in Auckland.
I don't believe Aucklanders really mind spending going elsewhere; they do mind if their priorities are ignored; especially as they are stuck in traffic.
 

The Reserve Bank is crazy to

The Reserve Bank is crazy to make the rest of New Zealand pay in higher interest rates with what is a Auckland supply problem. Nick Smith is correct. Fix the supply problem by building on existing fringe sites now. The high density within existing suburbs is going to encounter a lot of objections. I personally would object in Mt Eden where I live, where there are traditional villas. But I am happy to go infill in my Otahuhu investment property but my preference would be to push up but I can't push up because I still have to consider height to boundary as my site is only 695sqm. But the wierd thing is my Mt Roskill properties will go Single House from what was previously Res 6A. This would bugger up my development. Auckland Council would hear from my lawyers, I can guarantee.

Kimy, you've just given out

Kimy, you've just given out the recipe on how to create slump areas in our city.  You are quite happy for Otahuhu to be built up while maintaining your Mt Eden as a prestige leafy suburb.. 
Have you been to cities in South Africa or LA?  They started out exactly that idea and look what they got!

Indeed, the ultimate NIMBY.

Indeed, the ultimate NIMBY. Like all those Aucklanders who wanted more power generation and transmission for their expensive renovated homes and lifestyle as long as the power stations, sub stations and transmission towers were in someone elses back yard. ie someone poor who couldn't afford expensive lawyers.
 
Expect the same from the plan. Wealthy organise and injunct to force changes to the plan in their areas so the growing population is forced into high rise in "developing" areas that can't be seen from their homes or block the view.

And this is exactly what is

And this is exactly what is wrong with Auckland. It makes more economic sense to have higher density housing closer to the CBD.

So you still haven't actually

So you still haven't actually read the plan. You still think Mt Eden is slated for high density?
 
I almost feel sorry for Council - thousands of upset NIMBY's complaining loudly about a unitary plan they know nothing about.

Well done for sharing your

Well done for sharing your honest perspective Kimy.  I do echo other people's perspective on preventing sprawl is sensible and would encourage a look at the Unitary plan - it's by no means final or perfect but substantially more mature than Smith's suggestions.

Putting up interest rates

Putting up interest rates will cripple the New Zealand economy.
 
The OCR increase will allow the banks to raise not only domestic residential mortgage rates but also increase all commercial overdraft interest rates also.
Many businesses are still in survival mode, increasing the commercial overdraft rate will send them over the edge.
Instead of all NZ having an interest rate rise would it not be better to deal with the Auckland House Crisis as that, an  "Auckland Housing Crisis" , putting up interset rates wont increase the supply of house construction wont help adjust the zoning issue either.
Reach for a different tool, taxing the life out of the rest of New Zealand isnt going to assist. 
and Taxman Lets face facts Farming is the Export backbone of the New Zealand economy, no debate.

Interest rates do need to

Interest rates do need to reflect risk.

Couldn't agree more.  You

Couldn't agree more.  You should also mention the inevitable increase in the NZD that would follow a interest rate hike, if the higher borrowing costs didn't kill the export sector the higher dollar will. 
 
The problem in Auckland is supply, any change to interest rates, LVR ratios or tax would decrease affordability.  We all know that Auckland cannot be allowed to continue sprawling so it has to be up. 

The price of land is just one

The price of land is just one big item in building new homes. The Government needs to think how they are going to lower the cost of building materials - which are going up every day. The Auckland cost problem is region wide. The building material costs the same to build in a new Franklin suburb as it does North, West and East in urban Auckland. The bickering between Smith and Brown on land is only a sideshow!
 

Agreed.  I personally would

Agreed.  I personally would like to see the Govt and Council working together for some sustainable solution rather than childish bickering ("My housing plan is better for Auckland than your housing plan").

Any savers out there who want

Any savers out there who want to bemoan that John Key is governing for borrowers?

Gareth, if savers make such

Gareth, if savers make such an impact on the economy with high interest rates then I would say it is good, but the reality is, we are a highly indebted country, therefore higher interest rates is like cutting your nose off to spite your face. Or shooting yourself in the foot because you have an itch.

Employers & Manufacturers

Employers & Manufacturers Association wants Auckland's Unitary Plan rushed through. Here's a statement from its CEO Kim Campbell.
The government’s proposal not to ratify Auckland’s Unitary Plan until 2016/17 will load big costs onto Auckland’s ratepayers, and hold back Auckland’s growth, the Employers and Manufacturers Association says.
​“Business wants Auckland’s Unitary Plan to come into effect (be ratified) this year, not in three years’ time,” said Kim Campbell, EMA’s chief executive.
“We understand why Environment Minister Amy Adams wants three years consultation over the myriad of rules and regulations the plan will introduce, but frankly we can’t afford the delay, or the costs of doing this.
“The delay will mean uncertainty for business over the next three years, but on top of that the costs to Auckland new home owners and ratepayers will be unnecessarily inflated.
“The costs will result from Auckland Council having to manage seven different consent processes under the city’s seven former legacy councils - while introducing the new future looking, single unified process.
“This is simply too much to ask.
“It will add a significant cost to the building of new homes just when we need them to be cheaper.
“The requirement to consult over the Unitary Plan for another three years is included in changes to the Resource Management Act currently before Parliament – it has to be stopped in its tracks.
“The issue is the elephant in the room as Mayor Len Brown and Housing Minister Nick Smith discuss today how government and council are to work together on housing.
“Business is all for speeding up the development of greenfields and brownfields land so there are more options for affordable housing.”

Look at the map for the new

Look at the map for the new unitary plan. All the suburbs surrounding the CBD (Ponsonby, Parnell, Mt Eden) are zoned single house. If the council really wanted to densify, then the the density should increase the closer you get to the centre.

heritage in those areas

heritage in those areas

How many uninsulated wooden

How many uninsulated wooden sheds do you need in Auckland?
 
My point being that if the council was serious about increasing density, the place they should be doing it is around the centre. It seems density is only good for the poor people.

Ahh no, getting rid of

Ahh no, getting rid of heritage areas is the fast track to ghettos.
 

This is the problem. Everyone

This is the problem. Everyone wants to live in a suburb like Ponsonby in their own detached house with garden. And they don't want everyone else to live there too.

can someone please help

can someone please help me,I'm confused. Key seems to be talking down giving the Plan immediate effect from notification in September. But then Nick Smith says:
  But Smith said nobody could simply wait three years.  "We can't allow house prices to go up in Auckland by another 50 grand a house next year. We need to have a discussion about some of the short-term measures that are required to take the heat out of the housing market."
 
 

I couldn't agree more. 

I couldn't agree more. 

They (both Nick and John)

They (both Nick and John) send mixed messages on this issue of when the plan might have effect on a daily basis. Their statements are a moving feast.
 
It suggests they are talking to some major player(s) who, like the government, want development activities to happen quickly but there are either some activities excluded (that they want in) or included (that they want out). 
 
It is extremely curious. The way it seems to be playing out implies Key, Nick and co. had no idea what the proposed Unitary Plan was going to look like until AC released its public draft.  Rubbish. This cannot be the case.  If nothing else they would have had to have NZTA fully involved - and Dangerfield would have been briefing the executive on a regular basis.
 
Or it could be that central government wants some legislation allowing it to take more control - and that ability would be thwarted should the plan be given effect immediately.
 
Whatever, in my opinion the MUL smashing excuse is a ruse.
 
Just guessing however!

  Message to Key and Brown

 
Message to Key and Brown and Wheeler too.
Deal with the Auckland housing situation as a DEMAND problem and not a SUPPLY problem. Where are the homeless sleeping on the streets. Yes rents are too high but so are the numbers of renters who should be buyers. So:
1. Kick out the overseas speculators and a few local ones too.
2. Make investment in existing property less attractive while making investing in new builds more attractive.
3. And cut immigration until the position stabilises.
Inaction just stuffs it up further. Those at the top seem to love having tunnel vision and offerng weasel words.

BBIII - Those are very

BBIII - Those are very sensible, practical and easily implemented solutions to this problem.  Therefore there is no chance that they will be utilised.

These "simple solutions" have

These "simple solutions" have been kicking around for at least 4 yearts now.

Can anyone point to any acknowlegment by those with the power to do something.
It just seems to blow hot and cold and then disappear.
Is the immigration tap that sacroscant?
What is the problem?
Surely there is at least one responsible MP who can provide a status report
 
(a) We are not aware of that as a solution, therefore
(b) We are not considering it, or
(c) It's too politically sensitive to do it, because
(d) It's a sacred cow, and
(e) It has been discussed, decided and shelved
 
Oops, we forgot to advise the hoi poloi

I was reading not so long

I was reading not so long back about the English laws that used to prevail around land ownership. People were so transient that when the census was taken if you lived on a bit of land your were taken to be the lawful owner, or something along those lines. I have a faint memory of the issue being discussed back in the 80's that if you found an empty house and squatted in it then the owner couldn't readily kick you out. I think squatting went back to the old law. 
 
So I wonder if common law could be applied here? If you find an empty house simply move in. That might sort out the absentee owners real quick.

Under the old deed system we

Under the old deed system we used to have, ownership had to be proven by a long unbroken set of deeds. Therefore ultimately possesion became the deciding factor. Our current system is a Torrens system which is immediate indefeasibility of title. The registered title is not void by fraud or ommission or error by prior owners. So possession did not become the deciding factor in ownership since the introduction of the Torrens system, the registered title establishes ownership. Ultimately all land except Maori land is owned by the crown. We just own the estate, which is anything above ground. Anything below ground still belongs to the crown or to Maori.

Thanks for that. Food for

Thanks for that. Food for thought, although I am not sure it would help an absentee landlord if they were not aware of the fact.

Actually there is a serious

Actually there is a serious homeless issue in Auckland. Try walking along Queen St. They are everywhere.
I concur, we need to ensure that all foreigners buying into Aukcland requires to submit a OIA approval. Local investors? Well kinda hard to restrict their purchases. Can't deny New Zealanders the right to own property in Auckland.
You are right. We need to reinstate building depreciation. Who wants to invest in new buildings these days. It is better to just repair and take a tax deduction in the year incurred. Keep all repairs below $500 and get a immediate tax write off in the year incurred.
Cut immigration? No that is not going to help. Net migration is running negative which means we are losing more people than we are taking in. Perhaps restrict new migrants to living just along the southern motorway in any town from Auckland to Hamilton and run a reliable railway from Auckland to Hamilton.
 

Christchurch house prices

Christchurch house prices have escalated also and yet the report in the Press last week had plenty of sections coming on stream.
Having been actively hunting around the open homes for the last few weeks reveals some interesting information. The East side of the city has 3 to 4 empty houses out of every 5 that I have viewed. These are reparable homes under the $100k and all had insurance policies available.  All houses I have viewed are suitable for living in now.
 
There are a number of lifestyle blocks on the market as well with houses sitting empty.
I have to question whether the housing market has other unidentified issues happening as well.
I think NZ needs to be questioning the antics of the Real Estate industry.