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Opinion: All parties seem at least prepared to try to build 39,000 new houses in Auckland during the next three years

Posted in Opinion

So, let building commence.

Auckland now has its Housing Accord.

All that’s needed is for completion of the targeted 39,000 houses in the next three years. A piece of cake, he said, with tongue firmly in cheek.

Housing Minister Nick Smith is to be congratulated for the dogged persistence that will see the Housing Accords and Special Housing Areas Act come into force a mere four months after being introduced into Parliament. In Parliamentary terms, legislation clearing all the hurdles in that sort of time frame can be seen as break-neck speed.

Whether the sheer pace involved means there will be problems down the track remains to be seen. Unintended consequences are always a risk with any legislation. But when the new law has been assembled as quickly as this one then the risks are surely that much greater.

The early noises coming out of the Auckland Council following the passing of the legislation have been encouraging.

There seems a genuine will to get on with the job and start opening up land for development. The council’s talking about having had 70 or 80 inquiries about undertaking developments, while the Government’s shooting for perhaps 5000 sections made available by Christmas.

The stakes are quite high for both the council and the Government.

Housing affordability looks likely to be a strong election issue. Young people wanting to buy first homes but not being able to are a very bad look for a Government and could have disastrous electoral consequences.

It is therefore very much in the Government’s interest to see as many young people as possible getting their own nest.

Strong incentive

The other potential bad ramification for the Government would be if everybody’s interest rates – by which I mean everybody throughout the country - start going up because Auckland’s house prices are going crazy. So, again, the Government’s got a strong incentive to do what it can to check particularly the Auckland housing market.

The council, meanwhile is under notice.

The most contentious part of the new legislation was the “over-ride” powers whereby the Government could in certain circumstances simply take over the council’s role of designating “special housing areas” and approving developments.

Despite strenuous efforts by the Auckland Council and Local Government New Zealand the “over-ride” provisions have been retained – the one softener being the introduction of “dispute resolution” processes.

The Auckland Council was therefore in the interesting position whereby if it had turned around and decided not to sign its housing accord with the Government, the Government could have rolled the tanks into Auckland and taken over the development planning and approval process.

It is therefore very much in the council’s interest to do its damnedest to get somewhere near that 39,000 target in the next three years and then send the Government on its way, letting the hopefully by-then fully operative new Auckland Unitary Plan take over the Auckland planning and development requirements.

Encouragement?

Few casual observers would give the council much chance of meeting that target. Statistics New Zealand figures arguably, however, do give some encouragement that the target might with extreme effort be met. In the three years from 2002 to 2004 the Auckland region approved building consents for 35,600 dwellings.

However, in the three year period preceding 2002 the Auckland region had seen more than 27,000 new dwellings consented, so the region had been, if you will, building up to the peak figures achieved during the previous housing boom.

The council and the Government are by comparison trying to achieve the targeted 39,000 in three years from a virtual standing start.

In the past three calendar years the total number of building consents for the Auckland region was a touch under 12,000.

So building activity is starting from a very low base now compared with in 2002 levels and its difficult to see how Auckland's activity is really going to be ramped up without the Government and or the council offering some types of incentives to developers.

Auckland Mayor Len Cook said this week that since 2007 the city had seen its number of construction companies shrink from 1200 to 300.

The Christchurch distraction

As if that’s not bad enough there is the not small matter of the enormous rebuild taking place in Christchurch, which is sucking up vast resources.

If the Auckland Council and Government really do try to keep the pressure on to achieve that 39,000 figure then the competition that will occur for both labour and materials is likely to be seriously inflationary.

That poses two potential problems; first, that the cost of the houses is higher than expected and second, that the Reserve Bank will start leaning heavily on interest rates making it more expensive to borrow money.

While increasing the housing supply in Auckland should theoretically reduce upward pressure on houses, the inflationary pressures stemming from the big build itself could offset that.

What this would therefore do to the aspirations of having affordable houses as part of the 39,000 is a moot point.

But all anybody can do now is to see how many houses can be produced as part of this accord and see if that really does make a positive difference.

A mistake

I personally still think it’s a mistake to believe that lack of supply is the beginning and ending of Auckland’s problem – even while accepting that the building of new houses in recent years has slipped to very low levels.

I simply don't think it is just a supply problem - I think there are demand issues as well.

Ultimately a government (accepting that it’s extremely unlikely to be this one) will probably need to do something that focuses on the New Zealand love affair with property as a primary form of investment. Whether that be capital gains tax or whatever, I certainly think that New Zealand needs the proverbial level playing field for investment options – so that housing is not the first, second, third and last choice for investment money.

But as things stand probably everybody needs to hope that the Auckland Housing Accord does make a positive difference.

The spectre remains of a country that will in future have higher interest rates and inflation than it should have, largely because people are fighting over houses in the largest city.

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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15 Comments

‘Unintended consequences are

‘Unintended consequences are always a risk with any legislation’; to the ignorant the consequences are always unintended.

This housing accord land has already been land banked and speculated on prior, in anticipation of a zoning change with the MUL and RUB. Therefore the housing accord is LIMITING the amount of land that was due to be released. Prices in real terms will increase.

‘While increasing the housing supply in Auckland should theoretically reduce upward pressure on houses’ – it is not more housing per se that is needed but more affordable housing. AND subsidising and/or cutting house sizes is not affordable housing.

‘I simply don't think it is just a supply problem’ – Agreed, the problem is they don’t understand how supply and demand works and therefore the consequences will be unintended.

The proof of the pudding is

The proof of the pudding is in the eating.........
 
TV3's 3rd Degree debate and vote last night on affordable housing had the usual Political nonsense. Little madam from the Greens made quite a spectacle of herself and still people voted for the policy on that side of the debate.  Interesting that the Winston, Greens and Labour could promote policy in favour of one group of people i.e. those who can't afford to get into home ownership and they showed absolutely no regard for those who have purchased at high prices and would have serious equity issues should housing prices ever drop significantly. There was very little mention of the effects on financial stabilty should prices drop which was disappointing but not entirely unexpected.
There were Xenophobic accusations made by the National Coalition side on the debate and no-one had the guts on either side to inform the public of the tax benefits that off-shore investors have over local investors.  I cannot remember if it was Dunne or Banks (I think it was Banks) who seriously confused the issue of off-shore investor who purchases a property for a family member who may be a resident here for education purposes.
 
At the moment regardless of what policies are implemented house prices are only going to go one way and that is up and up and up.

  • There is no income to house price ratio being targeted.
  • Ignorance by the general public on economics.
  • Political interferference being the norm so no internal free market as it is regulated beyond belief.
  • The expectation by majority of voters that Nanny State should be supreme.
  • Severe misunderstanding of taxation effects on prices and the economy. Hence the waffle on CGT.

Steven how many times did you text vote last night?
 

I don't believe that we need

I don't believe that we need 'affordable housing' - we just need more housing full stop. Even if they build 100,000 multi million dollar mansions, the rich would move into those, the middle class would move into the houses previously occupied by the rich, and the poor could buy all the left over houses cheap. There are plenty of houses in NZ that should be affordable (e.g. 2 bed ex state) that aren't just because of the shortage of supply.

Dale and David H on Nick

Dale and David H on Nick Smith denies continuing house price rises are inevitable; points to new Government initiatives article I wrote some comments about how I think supply and demand for housing interact and some ideas to improve the housing crisis.
Any comments?

I'm just bemused (being in

I'm just bemused (being in Chch) by Awkland - talk about NZ being the Social Lab-rat for Der Welt....
 
However, an Interesting correlation for your delectation.
 
Commercial vehicle sales are at an all-time high, IIRC.
 
Christchurch is just full of brand-new double-cab utes.  (I even thought about acquiring one meself, but being a Planning type - measure twice, cut once an' a'that - measured the garage first.  Won't fit.  Sob.)
 
Now, Correlation is not Causation (a phrase with Wide Significance), but, ya has to agree, the fact that building cost inflation in the rebuild is clipping along at a truly startling rate, has shurely got Something to do with the aforesaid proliferation of light commercials....or maybe it's Insurance Assessors - or summat.

NZ's population has gone from

NZ's population has gone from approx 3.5 mill 1992 to 4.5mill today. At what point is enough enough? 
But we are just staggering along trying to confront each crisis as it occurs (housing in Auk beng the issue of the day).  The underlying cause is too many people, the idea it relates to the RMA or other zoning issues is a red hearing.  Even if these operated in the World according to Hugh P, it is inevitable we will still reach the same point we are at now.

... I would estimate that

... I would estimate that at 16.2 million , enough is enough ...but I could be wrong on that , I don't think so , but it's a possibility ..... a small possibility ... but there ..... ...... ...... or meebee 9.7 million would be enough ....

ha ha ...yep and 12 mill of

ha ha ...yep and 12 mill of these on the Chathams! 

I remember a few years ago a

I remember a few years ago a figure of 5 mill being touted, well we are just about there, and we are calling for more. A neverending story. 5 mill about does it for me

My preferred

My preferred population figure for New Zealand would be one million, maybe a couple of hundred thousand less than that.
Think of how well off we would.  In the 1800s, with an even smaller population we managed to build ports, a nationwide rail network and started fine universities.   Now  --  we can't afford 3-4 km of rail around downtown Auckland

That will be because actual

That will be because actual people did it

Despite the increase in

Despite the increase in population I don't think there are anymore people actually doing real work ie: making or growing things.

You're kidding, right?

You're kidding, right? England is much smaller than NZ and they have 60+ million!  The good thing is that Auckland is receiving most of the growth - so if you are a person that likes to live near lots of people, live in Auckland. If not, live anywhere else. What's not to like?

Currently at Ruse on the

Currently at Ruse on the Danube Bulgarian side. No Asians or foreigners of any type here but then there is no capital gain to be had when every house has a fifty year maintenance deficit before you start.
Been to six countries so far and even in UK there is no concentration of new residents like Auckland has had to cope with.
This trip reinforces my view that we have to slow down or even stop  for while to let supply catch up with demand.

"Young people wanting to buy

"Young people wanting to buy first homes but not being able to are a very bad look for a Government and could have disastrous electoral consequences"
All the young people I know want to buy as near the city as possible, but the land that is being freed up is miles away. Young people want more density.