The NZ Initiative's Eric Crampton says improving housing affordability is a key step the Government can take to reduce child poverty

By Eric Crampton*

In last week’s column, New Zealand Initiative Executive Director Oliver Hartwich urged National to tackle the ‘big ticket’ problems as he now has the political capital to do it, with RMA reform at the top of the list.

While Oliver noted the contrast between policies that are electorally popular and those that are right for the country in the long term, when it comes to RMA reform, I’m really not sure that reform comes at the expense of National’s chances in 2017. I rather expect the opposite.

Prime Minister John Key signalled last week that child poverty is to be one of his priorities for the coming term. Too many children in New Zealand grow up in families with very little disposable income. Poverty has traditionally been an issue captured by the political left, with demands for more redistribution to solve the problem. Inequality too has captured a fair bit of attention, despite strong evidence that income inequality has not really changed much since a rise in the late 1980s and early 1990s: the trend has been flat for two decades.

Even more surprisingly, data from the Ministry of Social Development shows that real household income growth in the lowest deciles has been very strong, both from 1994 to 2013, and from 2004 to 2013. The poorest decile in 2013 has real household income 40% higher than the poorest decile in 1994. And from 2004 through 2013, real household income growth was strongest for the lowest four deciles than for the richest six deciles.

So why has poverty, and especially child poverty, seemed so much more pressing?

The Ministry of Social Development data, cited above, measures real household incomes before housing costs. And housing costs have been rising. MSD reports that 23% of children aged 0-17 live in the poorest quintile of households (the bottom 20%): they’re slightly over-represented, when disposable household income is counted before housing costs. But when we take incomes after housing costs, 27% of children live in the poorest quintile: high housing costs disproportionately affect poorer children. Forty-two percent of households in the poorest quintile spend more than 30% of their income on housing; only 9% of the richest quintile do.

While child poverty is lower than it was in the early 1990s (even after housing costs) and child poverty rates are now back to levels comparable to those prior to the Great Financial Crisis, they remain substantially higher than they were in the 1980s. Housing costs substantially affect disposable incomes at the bottom of the distribution.

Housing unaffordability is consequently a substantial part of New Zealand’s child poverty problem. When poor households have to spend 30%, 40%, or even 50% of their incomes on housing, there simply is not much left to pay for anything else. And so spots of bad luck, like a car breakdown or an unexpected expense, can quickly become major issues.

Labour, to its credit, recognised that housing is an important part of the problem: they would not have promised to build 100,000 houses otherwise. But in the absence of changes to Council consenting practices or the RMA, the government would have had an interesting time in making it happen. The underlying problem, regulatory constraints against building up and against building out, would do as much to block a government building programme as they do to block developers’ attempts to do the same. And if Labour had intended on legislating its way around the problem by granting itself expedited consenting procedures, surely the better solution would be to provide that regulator concession to the private sector as well.

When land supply, both expansion at the city fringes and land zoned for increased density, is constrained by regulation, the price of zoned land rises. When sections cost hundreds of thousands of dollars, developers earn margin by building houses for the top end of the market. A developer would be throwing money away by putting lower cost houses on expensive land when plenty of high income households are willing to pay a higher premium. Regulatory constraints disproportionally reduce the supply of affordable housing.

RMA reform, then, is an important part of addressing our real problems with child poverty. It is hardly a silver-bullet, but unless housing is fixed, other solutions simply do not work as well. If there are fewer houses than there are households, enhancing income transfers or accommodation supplements results in households competing more strenuously for existing rental properties, bidding prices up. Landlords may like it, but it doesn’t do as much to help the poor as we might like.

Further, when housing is tight, it’s harder for poor workers to relocate to where jobs are. And, when the RMA makes it difficult for employers to start up new businesses, whether it be a new aggregates quarry, a mine, or even an IKEA, there are fewer jobs for workers to move to in the first place. RMA reform then can both boost before-housing-costs incomes, by improving employment and wages, and after-housing-costs incomes, by allowing the construction of more houses.

And so National can do well by doing good, but only if they move quickly. Houses take time to build. RMA reform, in the first year of the current term, could see new houses built before the next election. And, consequently happy electoral returns for National in 2017. But it will take some speed.

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*Eric Crampton is Head of Research at the New Zealand Initiative. The NZ Initiative writes a weekly column for interest.co.nz. This is the second article in the series.

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169 Comments

I'll say it again: reform of the RMA starts in Epsom.

And so it should, after all, they are the only ones, pretty much, who voted to get rid of it altogether.
Would be a good experiment to see how it would go, I reckon

I'd love to hear some of the ideas for Epsom. High rises? And what about the school zones?

No, it starts at the fringe. I don't disagree that it should include Epsom; just that there is no evidence from anywhere in the world, that doing upzoning and building "up" actually makes housing more affordable when there is a growth boundary at the fringe. 
When there is a fringe boundary, housing is systemically unaffordable, end of story. Mandates on density merely determine what size the unaffordable housing will be. There is no city with a growth boundary and very low density mandates combined, where the housing is more expensive than a city with a growth boundary and no restrictions on building up and dense.
Boston, for example, has a median multiple of 6, the result of having de facto growth boundaries (actually "rural zoning") - but its average section size is 2/3 of an acre. There are plenty of UK cities with an average section size of 1/16 of an acre, and a median multiple of 6 or higher. 
The consequence of a boundary in Auckland has been that section sizes have fallen to below 1/10 of an acre on average, yet the average price of them has trebled. The longer this nonsense is persisted in, the higher density will get, without housing being any more affordable.
I would see it as quite possible to ultimately reach Hong Kong's densities and still have unaffordable housing - like Hong Kong, where the median multiple is around 16 - for an average of around 70 square metres per home, stacked up like Borg Cubes. 

Epsom are the ONLY electorate that have voted for no RMA the experiment can start where the people want it.
The answer is still too many people though, Phil, why else would sections be getting but down to a tenth of an acre

LOL, agree, fat chance.
regards

Too many people????? Compared to what?
Japan has 120 million people with about the same space as we have.
If everyone on the planet lived at the density of a low density US city, i.e. 1/3 Auckland's density, they would take up Southern USA, leaving the entire rest of the world for food production and resource extraction.
Cheshire et al at the LSE have calculated that if growth restraints were removed from UK cities, their urban footprints would grow 70%, even after decades of forcing people into battery-hen living conditions. This is because most urban land is not housing. Doubling "housing density" only reduces the urban footprint 7% because people also need public space and work space. 
The "too many people" - in New Zealand...!!!! - kind of excuse comes into the category of "whom the gods would destroy, first they make mad".

The world has too many people in it Phil, you need to understand this. The only reason we are destroying rain forest and seeing so many species heading toward the brink of extinction is because THERE ARE TOO MANY OF US. The reason fish stocks are falling and even collapsing so that we have to fish in areas we don't even live in, like the Antarctic is because THERE ARE TOO MANY OF US.
It doesn't matter how many you can cram into a square kilometre, a whole lot more land is needed somewhere else to provide food etc. Do you not see this The only madness is in not seeing this

Bear in mind that the destruction of rainforests is carried out to produce the global equivalent of caviare. If the fast food companies had to pay the true cost of their meats (i.e. all externalities properly accounted for) their burgers would be $20 not $2 and we would find overnight that the destruction would stop.
 
We are a long long long way from not being able to feed ourselves but we are currently making some poor choices about resource use.

Finally someone talking sense!  Its all very good trying to reduce carbon emissions etc but the best way to solve almost all the current problems is to cut the population growth rate.
Treasury's says the greatest poverty is the youngest kids in large families. Their idea to reduce WFF for older kids and pay more for younger kids makes no sense. The large families will get similar amounts (distributed differently) and there is an even bigger incentive to have more younger kids to increase the family income.  But the reason the younger kids are deprived is because the older ones cost more to keep!  The sensible solution is to reduce the amount given to younger kids and to incentivise smaller families by offering free sterilisation and long term contraception. There will be less kids living in poverty if there are less kids born in to poor families.

So, can anyone tell me that NZ got into such a state that in the space of 2 weeks of an election we suddenly have child poverty.
According to so many people before hand and I would include Key among them, we never had any.
Scar-ree

There have been reports from Philiipa Howden-Chapman and colleagues in the Health system going back years, that the connection between household income and child health outcomes, is "housing".
But they are only interested, like good lefties, in the government fixing the problem with taxpayer's money; not with RMA reform and letting the market do for housing what it does with food and clothing.  

Phil have you been sleeping for a while, the whole free market thing has proved to be bunkum, while clothing might have gotten cheaper, wages for most have in reality gotten lower, so that people are now forced to buy what you call cheap clothing which is exactly that cheap any more for far too many. Now its no longer an economical thing to make your own or alter and mend so we end up with heaps more wastage and skills lost.
Once clothing manufacture was a way for people in THIS country to have jobs.
Some RMA reforms will be good, but we will still need regulation.

The free market has "failed" - compared to what????
Actually, Professor Elizabeth Warren became so famous for her presentations on "The Coming Collapse of the Middle Class", she got elected to the US Senate. And she says in her presentations that much to her own surprise: households have in the long term tended to spend significantly less on food, clothing, apppliances, and pretty much everything where the free market has been allowed to let rip.
You are spouting dangerous, demagogic nonsense. 
Saying "the free market has failed" because of certain things that have happened recently, is like saying the whole theory of aerofoil lift is bunkum because planes crash. How about working out what actually goes wrong, usually with complex human input, rather than trying to fight realities that are as immutable as the force of gravity?

Thats just it, its "right wing" and not "right".
 
regards

Is what the free market has done for food and clothing, "not right"?

is what happened to the employees in NZ's clthing industry "right"?

That is a very hard Q.  So when I came here NZ had huge tariffs on shoes, a pair of trainers, $180NZ and of questionable quality when similar better quality in the UK were 25sterling...(= 50~70 dollarsNZ).
So the Q is do we have shoes at $70 that way most ppl can now afford to put shoes on their feet, or do we protect the jobs of a few thousand un-/semi-skilled workers but have ppl who cant afford to buy shoes?   Sure those un-skilled now need jobs, but some work cannot be outsourced overseas.
I dont see there is an easy answer to this, but I would think a whizz kid economist should be able to draw up a peer reviewed model to show which is best for our economy overall. 
Now outside of that we try and buy good quality NZ made gear (made and not designed) where we/I can and I buy NZ food / produce first always.
regards

Yeah but the reality is that in the main it is false economy as how long does that clothing last.
Trouble is that all this cheap stuff is becoming increasingly less cheap as people's earnings are not keeping pace

Good comment, Steven.
The economic anecdote told by a classical economist, was a restriction on windows back in the 1800's, to maintain employment in the candle-making sector.
Do you really help yourself by forbidding yourself to get something as close to "free" as possible?
 
I suggest, on good authority, that the NZ economy is a heck of a lot more competitive now that it has a small but valuable and growing high-tech exports sector, rather than a whole lot of cottage industry jobs making absurdly overpriced basic commodities in a protected market. This differs only in scale, from Bangladesh, where they have successfully preserved their cottage industry jobs with protections - great for their economy and society, huh?
And it is incoherent to claim that incomes have not kept up with Warehouse shoe prices, and claim that things would be better if we still had 50 shoe "manufacturers" in NZ with an average of 6 staff each. As IF the shoe prices would be lower and incomes higher......!!!!!

The problm with the 'free market' is that the bulk of the true costs associated with production are socialised, while the profits are nearly entirely privatised.
 
So I'm with raegun - free markets have failed to deliver an society which is good for all, in the long run.
 
http://www.phibetaiota.net/2011/04/graphic-true-cost-of-a-cotton-t-shirt/

That is globalisation...
regards
 

Biggest crock of brown stuff we've ever been sold, and I wonder how many free marketeers quiver at the prospect of a one world government because that is where THAT is leading, mark my words
I wonder if we will get any say as to who gets to do the governing

It would really, really help if Statists stopped being useful idiots for the big crony capitalists, especially in urban planning. I have been noticing on study after study on "smart growth" and "land conservation", there is often fine print "support from the Rockefeller Foundation is gratefully acknowledged" (the Tides Foundation, George Soros' organisation, is also frequently featured). 

It would be even more useful if the free marketeers would stop trying to use stupid scare tatics such as "statist" and begin the understand that we actually HAVE to do something if we wish to have a reasonable sort of place to live in. It sounds as bad as John Key constantly using the phrase "hard left" for the same reason.
There ARE other ideas and real concerns beyond what free market can ever deliver or even want to deliver for that matter.
And the Rockerfellers and co are NOT the only people who have to get their heads around the things we have to do, and do soon. We are in very different times

sorry...with the drop in income (and high interest and taxation) it is proving very difficult to get a hold on the market.  even enough of a corner to hold.   and then even if it's achieved I think the public and Gareth will push for their land tax which will punish those with social good holdings far, far more than those who happily pass on costs.

What the free market has had an effect on can hardly be called food. The real stuff, fresh produce etc is not so cheap. In fact the proper stuff is out of reach for too many and the old free market relies on that to enrich those hideous corporations that turn food into poison
Mechanization is ok too except it just enriches a very few.
I wonder what your precious free market would look like if, all around the world, all workers were paid a proper wage. The free market relies on exploitation so no the free market is not necessarily right.
 

Compulsory wage increases = price increases. It is zero sum.
You need to stop thinking in terms of "money units" and start thinking in terms of actual production of actual stuff, and how this is increased and how it is shared out; whether prices/wages are going up or down is a pointless distraction. 

I suppose that would depend on which side of the money unit you are on, wouldn't it? Increasing production = more growth, more growth = more people and I am afraid we are at peak people. Remember since 1970 the wildlife population has approximately halved. You may be happy to live in a world without other species, but I am damned if I am.
 

Raegun in my opinion the term 'free market' like the term 'free trade' is spin. A free trade agreement is just a trade deal and the negotiation is on what rules will apply. The free market doesn't exist in isolation -it is not free. Markets are social constructs requiring many instititions to police it. Those instititions should promote competition so society is not exposed to the abusive power imbalances that you detail here and below with the buyouts of the flour mills. Phil is right that workers need to look at the costs (especially of necessities) not just income. This is what the early trade unionists did as I detail below.

Correct. I have always had the view that there is no such thing as a free market as true competition does not exist. Too much influence from one party or another.
Once someone accepts there is no such thing, you then have to think about the best way for NZ to go forward - basically, do what is right for the furure of the country.
 

Yes this is where the neoliberals went wrong with beliefs like 'there is no society' -Thatcher and 'the government is part of the problem not the solution' -Ragean.
 
But society, democracy and government cannot be seperated from the market. The trick is finding the best way forward with respect to institutions that support the market in a way that benefits the wider community not a narrow band of elites.
 
Raegun has the opinion that the leaky building saga was the start of housing madness. There could be some validity in that argument. Certainly leaky buildings happened at the height of neoliberal madness when politicians and regulators had a 'hands off' the 'market knows best' approach.

Good old Thather, eh? No society, then set about tearing it to bits to prove her point.
Of course leaky buildings had a huge contributing factor to the housing problem it decimated the building industry (and yes I know decimated is the wrong word, it was more like dessicated)

"So why has poverty, and especially child poverty, seemed so much more pressing?"
Both the hard left (Internet party) Green's (and Labour?) used this as a point to campaign on.  JK wants t be seen at the centre of the political spectrum, so needs to be seen to be dealing with issues that seem to concern NZers.
I think its a strategy for JK to win a 4th term, take away and own any platform that the left can campain on effectively.
regards

I certainly hope so, and I wish Key et al had had the spine to do real RMA reform in 2008. The Akl median multiple hovered at around 6 from 2007 to 2009, actually moving down a little. Letting it take off again after that, to the current levels, (like 9 now) was disgraceful incompetence.
Here are some Demographia Median Multiples that should be of deep concern:
 
2007:
Cork 4.7
Dublin City/County 5.4
Dublin Exurbs 5.0
Galway 4.6
Limerick 3.5
Waterford 4.1
 
2008:
Cork 5.4
Dublin 6.0
Galway 5.6
Limerick 4.3
Waterford 4.9
 
2009:
Cork 3.6
Dublin 4.7
Galway 3.2
Limerick 4.2
Waterford 3.7
Hmmmmm, how much bigger mess can a burst bubble cause in a country with median multiples around 50% higher than Ireland's hit?

Ah yes, the now National has won by "owning" the middle ground of NZ politics the right wing extremists come out demanding National lurch to the far right because they have the numbers / mandate to do so. 
Burst, sure and building lots of a good can also collapse the bubble pricing, over-supply will do it every time.  We have a tiger by the tail.
Sure NZ is in a x2 bubble, but when you have a confidence ponzi scheme crazy things happen.
The first thing is, do we have a real housing shortage or not. If like Chch rents were increasing (substantially) then you could say, yes.  Since this isnt the case and we see an unknown number of foreign buyers here plus lots of speculators trying to make a fast buck (rinse and repeat for other capitals around the world)  the demand may well not be genuine.
The LVR effect is a case in point, the market is now effectively flat across NZ with just a few spots being insane.  So really it just doesnt add up.
regards
 

For the zillionth time:
A bubble involves prices and NOT rents. Always, period, end of story.
Inflation in prices and not rents, is evidence OF a bubble. If both are moving in tandem, it is not a bubble.
There is a limit to what people can pay in rent. Landlord's can't just put up the rent to keep up with house prices. House prices are something people save for and borrow for. Rents are something people pay out of cash flow NOW.
In any case, most landlords obtained their properties well before prices rose, and are making a commercial return with which they are happy. The existence of a potential capital gain is reason for them to hang in with low paying tenants or even no tenants at all. In fact the mad speculator doesn't look at anything but capital gains, tenants are too much hassle.

applies to auckland, theory is good for rest of country, but prices not rising elsewhere

Ireland had/has ghost estates though, especially in the commuter belt, but also further afield around the othe 'centres' of Galway and Cork.
Auckland does not have whole estates lying empty, with nobody to buy them.

New Zealand does have poverty.  But New Zealanders of all levels are being milked for cash by the setup.  Local and national government costs, suck money out of the pocket of all the citizens, and those on lower incomes are pushed past reason.
Petrol, finance and Electricity are cosy monopolies, with huge cash flows heading where ?
Look at Auckland Airport.  An essential local and national utility.  Why would we allow such a natural monopoly to charge at an rate that produces any profit.
It's time we ran the place in the interests of the citizens.  

.. telecoms, food, building supplies. A nation of duopoly/monopoly. A leg of New Zealand lamb is more expensive here than in the UK! We have a problem!

Yes, they are. Not sure implementing essentially Socialist policies would change that, however. NZ needs more competition to deflate prices. 

Until someone can build electricity generation capacity and sell it direct to the locals, we have not even TRIED the free market in energy.
The horizontally integrated model with a chole-point "wholesale market" that we have is NOT a free market at all. 
In our housing market, we have a similar choke-point "wholesale market" where the developers have to compete for a limited supply of land controlled by an oilgopoly.

We were doing that at CentralPower  (Manawatu, Wairarapa).  I was part of the group doing the work, researching and market research into alternative energy sources and community level generation.

Government and Electrocorp decided it wanted to have a retail/wholesale/generator market with a contract and spot pricing market.  In public statement this was to allow "cheaper market forces"... in reality it just lets the market makers harvest middle man profits.

In the end we were shut down, better returns were available by selling to the corporates and using the returns to act as a Trust fund for local projects.

The way "extractive economic rent" in housing works, when urban planners have enabled it, is that it rises to suck every spare bit of income out of household's budgets. If you can cut back on food, you will pay more for housing. If electricity prices are reduced, house prices and rents will rise. And so on. Income increases will also push up house prices and rents. It is nonsense to advocate compulsory pay rises as a solution under these conditions. 
Virtually every economist in the time of Karl Marx understood this, the debate was never about whether this was true or not, it was about the solutions. Marx said nationalisation, Henry George said to tax land. Alfred Marshall said to increase its de facto supply with transport infrastructure. The famous urban planner Ebenezer Howard started off a Marxist but was persuaded otherwise by Marshall. Howard devoted his entire career to "Garden Cities", and it has been conveniently forgotten now that part of the whole point, was to build them on rural land, at rural land prices that would then be passed on to the buyers of housing (with sensible charges for development costs of course, but none of this immoral gouging that our urban planners have re-enabled). 
http://www.nzherald.co.nz/anne-gibson/news/article.cfm?a_id=39&objectid=...
 

and banking

Property and banking are the two biggies involved in the racket that has made housing unaffordable.

Well duuuuuuuh anyone could have told you that!!
Unfortunately, there are so many vested interests in housing, from speculators to local councils to NIMBYs and various monopolies, all of which cover a broad political spectrum, so it's really hard to get momentum on this issue.
Incidently the hand-wringing action groups who push for more and more welfare around housing (WFF, accom suppliments etc) are making the situation worse. We need to deal with supply issues then stop the flow of money from the (rapidly disappearing) middle-class workers to the poor to the property-owning rich.

Hurray, another enlightened contributor to this forum, we need more of them. It tends to be swamped by the troll-stooges of the vested interests. 

Supply issues do need attending to, but not so that we can just keep importing more and more people, that has got to stop at some point and that might as well be now, while we have a catch up.
Anyone that wants to live in city of millions of people in a high rise on the 97th floor can go live somewhere else, I reckon.

NZ is 0.7% urbanised. 
Housing is only a small part of every urban area. Doubling housing density only reduces the urban footprint 7%. People need public space and work space. Double the people in a given area and you need a whole lot more schools in that area, and these take up space. And schools are just one aspect.
NZ could easily accommodate 30 million population with no growth boundaries at all, complete freedom of housing choice, and still be well under 10% urbanised. 
The thing that is important to avoid, is the absurd "exclusionary" large-section mandates that get imposed in some developments in the USA. But bear in mind that NZ already has lifestyle block zoning that is little less absurd than this. Our lifestyle blocks already cover more than the 0.7% of NZ that is actually urban. Allowing more freedom in between the 1/10 of an acre inside the UGB and the 10 acres+ outside it, would actually reduce land consumption overall. Most people actually do not want 1/4 acre any more. It is sickening that the planners repeatedly say this, and yet they can't trust the people to simply express this choice freely. 
In the US, the ridiculous large lot zonings are the result of legal precedents about "exclusion". The residents don't actually want 4 acres each; they want lower local taxes because there are no local schools required, because families are "priced out" - or they want the local school to not have any time-waster, disruptive students - achieved by pricing out loser families. The mandates have got larger and larger because land value steadily falls relative to income if it is allowed to, and the "pricing out" effect of compelling larger sections becomes weaker and weaker. Especially as the actual houses depreciate. 
By the way, literature from NZ in the 1800's as massive investment was being made in nationwide rail infrastructure, assumed a population level of 30 million by 1950. The unsustainability of the rail network is a consequence of this projection failing to materialise, and a result of total systemic change in transport in favour of roads. NZ needs to not repeat the mistake of heavy investment in sunset technologies.

30 million? Thank god I won't be around to have to put up with that. No Phil, that way is done, over, kaput

I wonder how much child poverty really exists ?
And how much of this  is parents who dont care less and expect the Schools to feed their kids ?
I have seen no quantitative Data or empreical evidence of such a widespread problem
I have some anecdotal evidence to share
I remember when my kids were small we  had neighbours who were both not working and I used to give their kids a ride to school with my kids. 
They did not eat breakfast and did not have lunch for school and when I asked where their parents were , I was told they were in bed .
Their house was rented by Housing New Zealand ( not owned by HNZ) and he once  boasted about how low their rent was ( I was cutting my berm one weekend when he came over to chat while drinikng a Woodstock  )
There was  enough money however for both of the adults  to smoke , run 2 cars (a Subaru and a Nissan in the driveway  along with empty Woodstock cans in the unkempt grass lawn)
So there was enough money for booze .
And Sky TV , although it got disconnected and he asked if he could come over to watch a Test Match one Satruday . He was surprised when I told him I did not have Sky and could  not afford it ( with a Mortgage and 3 young kids )
Is this a one-off case , or is it the norm?
Whatever the case , people have a duty to  get up and feed their kids , and give them food to take to school EVEN IF THEY ARE NOT WORKING .
 If they are working on a low wage ,  Working for Families is enough to buy food and groceries for each child in a working household on the minimum wage .
Then there is the Income Supplement for really poor households
Where is all this money going ?
Anyway they moved out when the Police arrested him on an assualt charge and the next mob moved in who were almost as bad

Exactly.
Unfortunately the more you subsidise something, the more of it you will get. As long as we keep paying people to sit at home, drink, smoke and knock out kids the problem will be there. The challenge is breaking the cycle..

Breaking the cycle is easy. Give them vouchers linked to their identity that can only be redeemed for food & housing. Pretty soon sitting at home only smoking dope & watching TV will stop.
Want more? Then get a job.
 

Do you know of any instances where this has been tried, and what the result was?  

food stamps, ration books and self-reducing money (uses a punch tab to say how many times it is spent) have been used in less computerised times.  They work quite well but always upset the socialists because it creates segregation and hard-line socialists care about introducing segregation but see status quo problems as someone elses responsibility to solve.

It does create 3 problems:
(1) crime goes up, especially those who dislike being on dictated subsistance, they think that others have it better so they are entitled to more.

(2) it can be a trap, especially when the bean counters get involved and want to cut costs/supplies.  It becomes a trap because often people in those situations tend to have few marketable skills or disadvantages that prevent them entering the workplace...hence their lack of marketability in the workplace.  This means if they do get out they can normally only get bottom rung positons and returns...and in doing so they lose their means of support.

(2a) This ties into (1) because it is obvious to those with support and "undeclared income" that working for a living is a shmucks gambit.

(3) It is hard to pass the cost of such systems back to the suppliers, or even the funders.  It's one thing to give out food stamps...but unless the creators of food can accept the food stamps as trade tokens, then someone in the line has to subsidise the monetary value of food stamps.  And in no commodity food system does a food producer have low enough cost to do that subsidisation (due to pressure on commodity prices).

Very subtle article, Eric.  Well done.
 
There are, RMA reforms apart, two lines of action available to start to effect the needed changes.
1 - impose a UOMI calculation and reporting regime on Councils.  At present  (and quite apart from the injection by TLA's of direct cost into e.g. land subdivision via DC's and other levies) there is no measurement of the economic costs TLA's impose by the injection of Time into processes.  Most land development involves significant, early costs, and rather extended timeframes.  So, as a thought experiment, a land purchase of $10M on Day 1 of a seven-year process, at a commercial WACC of 10%, is going to double that single cost by the time the seven years are up.  Land $10M, interest on that another $10M.
 
TLA's are oblivious to this rather basic Time=Money equation.
 
It's time they were made to think it through, measure it, report it and (another delicious thought) be taxed on it.
 
2 - It is a truth universally acknowledged that a squiggle on a zoning map creates CG out of thin air for owners on the right side of said squiggle.  The Productivity Commission puts the ratio (measured a few clicks either side of a MUL/RUB) at 8 to 10 times.  So a rural raw land price of $50K/ha transmogrifies into $500K/ha.  
Cui bono?

  • The landowner on the urban side of the RUB.
  • Via revaluations, sales, hearsay and pure osmosis, every existing landowner in (in order) the vicinity, the suburb, the city gets an unearned CG kick on the land value alone.
  • The Council, via rates levied on the now increased values

Who pays?

  • FHB's
  • To the extent that value increases factor into rates and then rents, Renters

Who mostly comprises FHB's and renters?

  • the lower deciles.

 
So, a Re-distribution of said CG would seem to be in order.  But as a CGT on property-holders seems politically out of the question, complex, easily avoidable (e.g. by never selling), why not head to the Source of the CG:  the TLA map-spigglers?  

  • Tax away, from the Councils who create it, the CG their MUL's, RUB's and Zones create.  
  • Make it a Deemed value, using e.g. a Productivity Commish-style annual survey of current market rates to avoid the 'realised increment' loophole on a CGT.
  • Use the taxed-away CG to pursue policy that actually assists FHB's:  multi-proof factory builds would be a good and do-able start.

This action will, and possibly quite rapidly, significantly alter the incentive structures around TLA's, their Plannerators and Zonerizers, and several useful outcomes might even come to pass:

  • Zones, MUL's, RUB's cease to be attractive and the drawers-up of these economic distortions could be released to productive work:  factory builds for FHB's for example.
  • Environmental effects can be handled by the RMA - that's why it is worded the way it is.  A Build-Anywhere-Appropriate ethic would soon arise, and drive away the current 'Build-Anywhere-We-Unelected-Staffers-Tell-You-To schtick.
  • The judicious re-distribution of the Confiscated Council-Generated CG's (perhaps we need a new acronym:  CCGCG?) to Worthy Causes would soon arise:  politicians are if nothing else, expert at sniffing out the best electoral results for a given dollar.
  • The taxed Councils, meanwhile, would after the initial shock passed, quickly realise that rating so as to penalise the land-bankers who are sitting on perfectly buildable land, to recover that tax just levied, could be a useful spur to getting it built on....

 
Now this is all just a rough draft, but what's not to like in the general concept?

Good idea, BUT -
the Auckland City Council have already signalled that they would like to share in this CG windfall with developers, and as a token gesture will use some of that money to subsidise affordable (oxymoron) housing, the rest to be used on what well-being they are feeling at the time. Since it is a left leaning council after right wing land bankers, this makes complete ideological sense.
Your suggestion of Central Govt. right of centre party taxing left councils after they have taxed right leaning land bankers is political karma, and  I agree is more workable than just leaving it to council to distribute their unlearnt windfall gains.
However, having another Govt. department in the loop is only adding further delays and costs into the system, the end result being no more truly affordable housing.
Witnessing Central Govt.s response to the immediate earthquake crisis gives me no comfort that their direct involvement in housing would work.
I still think, that the right LGA and RMA reforms that allow properties owners and/or developers to quickly meet more in real time any demand is the best solution.  And in that regard I think Nationals thinking of setting the right regulatory environment with minimal direct Govt. interference (central or local) has more chance of succeeding than any direct role proposed by the other political parties.
Now that they have an MMP majority means they have NO excuse for not implimenting their plan to achieve affordable housing. 
They have all the rope they need, and it's up to them whether they use that rope to tie a bow or a hang mans noose for themselves before the next election.

How does that work, Dale? Unless AC are the landowners they don't get a share of CG. The lion's share goes to the vendor selling land to the developer. Presumably the lucky vendor then pockets said CG and heads off to a longish holiday in the Carribean (Cayman Is?)

Yes, you are right in that is how the present system operates, but the idea is for say a present landbanker/developer who has purchased a certain type of zoning to be allowed to up zone it (say from low density to a higher density) so its value is increased and council receive some of the increase in value for agreeing and indeed encouraging this to happen. 
This value can be in real money, or the gifting of titled sections for the council to cash in, as happens now under the name of affordable housing contributions in some authorities.
In effect the council and developer become more vertically integrated, a de facto JV if you like. This gets around words like ‘developer contributions and levies’ which will be able to be challenged under the new legislation, and councils revenue will continue uninterrupted.
Councils can mutate quicker than central govt. can find and implement a cure. 

Dear God. Can't see that one ending well.
 
Normally I give councils some benefit of the doubt but that proposal reeks of the medieval church selling quick access to heaven.

We are already there with first home owners in mortgage hell.
My whole premise of making housing truly affordable is to get rid of non-value added costs (waste) out of the system. At present the non-value added costs of zoning uplift, and many council processess (costs and time), and the resulting unneccessary higher mortgage costs/rents etc that banks recieve, are protected at the expense of value added costs like house quality and size.
 
 

And that fits perfectly, the definition of "rent" in economic terms. Actually there are two types of economic rent, "differential" and "extractive". Usually when classical era economists are talking about "rent", they regard it all as of the "extractive" type.
Extractive economic rent is the amount someone is forced to pay for something over and above what they could have got it for in a market where there is genuine competition in the entire chain, including the resources incorporated in the product. 
There is no extractive economic rent at all in housing in median-multiple-3 cities.

Don't forget that interest will always result in a redistribution of wealth, or in your terms interest is always extractive.

That is an interesting point - when "money" was based on gold or an equivalent, deflation was the norm. Hence ancient prohibitions on interest charges - money lent increased in value anyway. When it was paid back, it bought more. 
When it comes to mortgages, the big gouge relates to the size of the principal. The lenders absolutely cream it to a much greater extent, even if the repayment size is initially the same, if there is a larger mortgage, low interest rate; compared to a small mortgage, high interest rate. I hope everybody on this forum is bright enough to understand why by now. It has been pointed out often enough.
You can bet the smart finance sector magnate will have his money on "smart growth" and super-low interest rates courtesy of "easing". 

thats going to always be the case when investors can get a return on buying up the market and forcing up demand artifically (ie through artifical scarcity, rather than value add/improving)

Exactly! Have all the pieces of the puzzle fallen into place?

yes I must rush out and buy as much scarce land and other resources as quickly as possible :D

Why not? According John Key that's how this nation saves.

Who pays Waymad? Answer productive capital and labour.
 
I will explain with a economic history lesson. Back in the 1830s and 40s the industrial revolution was getting started in England. The industrialists started one of the first organised political campaigns in order to get rid of the Corn Laws. This law prevented the importation of cheap grains from abroad. In particular from North America. The problem for industrialists is that they had to pay their workers high wages so they could afford to pay the high corn prices (bread) and the workers had lower disposable income so could not afford the new factory produced products.
 
Both the industrialist and the new factory workers productivity was been siphoned off by the landed gentry -rentiers. Note how the Corn Law issue is bigger than just free trade as it is often portrayed. It was about moving towards a more efficient egalatarian economic system.
 
During the campaign against the Corn Laws it was not just capitalists like Cobden who fought against it. Sheffields trade unions for instance switched from the generalist 'Charterist' moverment to the specific campaign to repeal the Corn Laws on the grounds that once they had achieved cheaper bread they would have more strength to resist other evils.
 
Modern day liberties like the right to vote and free education in part stand on the successful repeal of the Corn Laws in 1845.
 

the difficulty being that the Corn Laws held up the yield to the factorys that made corn, penalising the other manufacturers, who therefore had low margin and low turnover.

Now things have gone so far the other direction where the "Corn Factories" have such low margin, that they're the ones paying "matchstick girl" wages, and the mid range manufacturies (food processors, infant formula makers, supermaket chains) are the ones stuffing their pockets.  

Cowboy a 'Corn Factory' is a flour mill.
 
The point I was making was back in the 1830s the majority of a working mans wage went on feeding him and his family. Bread prices were high because the landed gentry and the political establishment refused to allow competition from further afield.
 
Now the majority of a working families income goes on housing costs and a new type of landed gentry (see Kumbels and others description of who these are) is using the political establishment to prevent competition to lower housing costs.

Except that competition eventually leads to a "winner" or maybe two and it starts all over again. Look at a firm like Edmonds that we had here, it is now, via Goodman Fielder owned by the world's largest palm oil processor, along with, no doubt, a whole lot of other Edmonds' around the world.
BTW my food choices have reduced because of this as I try not to purchase palm oil products and I am damned if I will support the world's largest processor of it, as if they would notice, anyway.
 

You just named some monopolies that occurred due to protection and government interference.
Name one that has occurred in a free market, and that has charged "extractive economic rents". 
It is ironic that "evolution of monopolies" and extraction of economic rent, is a main argument against the free market, yet all the examples of them have involved government interference.
Standard Oil? Drastically lowered the price of fossil fuels.
J P Morgan? Drastically lowered the price of rail travel.
Henry Ford? Drastically lowered the price of cars. 
Alcoa? Drastically lowered the price of aluminium.
Why? Because they were NOT monopolies with government charter. They "stayed ahead of competition". They eliminated extractive economic rent in the market in which they were operating. Henry Ford actually understood this and wrote about it. He regarded himself as striking the most effective possible blow against the rentiers in urban land - and he was right. 
He was also striking a blow against the main pretext for Marxism. 

Global financial industry.  
Commodity prices amnipulation via say the futures market.
Lots of disasterious examples showing up how an effectively un-regulated free market is disasterious.
Standard oil? that resulted in the first anti-trust case.
"http://en.wikipedia.org/wiki/Standard_Oil"
All your examples show the effects of competition, once that competition was eliminated these same companies extracted excessive returns.  Busting them with lawsuits and regulation created a fairly level playing field.
 
regards
 

No Brendon a "Corn Factory" makes corn.

Stop winding Brendon up. He has to work with mad people every day - he doesn't need it during his downtime.
 
"Corn" is an older English word referring to any starchy cereal. It mainly means wheat but can also mean rye, spelt, maize, maybe oats.

Not trying to wind him up.  I just dislike people thinking that agricultural business is somehow magically different from other businesses and business processes.   Culturally accept a difference and you'll help create that difference, and the harder it is to undo.

Hence a "corn factory" is any vegetation producing agribuiness (and that includes dairy cows, sheep etc, because they all run on grass).

So any "corn factory" should follow similar rules and regulations as a flour factory (which produces flour)  or in the example given I'm comparing "Corn Factories" to the "Matchstick Factories" of industrial Britian, where the necessity of minimum wage and minimum working safety had to be introduced through legislation - because one part of the production chain was reaping profits, by gouging customers and paying workers/equipment less than survival rates.  But the rates were so low, the workers were effectively slaves to their jobs, and peasant tenants to their business and property owning masters.

In 1840 agricultural business was seriously different. It was controlled by hereditary owners who did very well out of all sorts of privileges granted by the Crown. Factories like today's were few and far between. Almost all business was what we would call small business today.
 
The point Brendon makes is that, despite their aspirations to climb through the ranks, the middle ranks in 1840, the owners of productive businesses, found common cause with the labourers. They advocated to increase worker pay by reducing the workers costs. And they found those reductions by taking away protections from the landed gentry that enabled them to charge whatever they liked for flour.
 
Cheaper bread was the same as a pay rise. What this article also says is that reducing accommodation costs for the bottom quintile has the same effect as all sorts of extra transfers via the tax system. Given that a high percentage of those costs just goes to people who do nothing to earn their returns we should take those windfall profits (Lotto wins) out of the system and let house prices fall back to fair value.
 
And the reason the majority of this year's National voters should also clamour for housing reform is an increase in income for everyone except a few peri-urban landowners.

read up (or better still watch) at some of the excellent documentaries on the start of the textile industry in Britain.  Like all documentaries they are simplified for visual audience.
 Then read up on the Matchgirl revolution.

Cheaper bread (and reducing accomodation) is not the same (as pay rise).  And doing things via tax system is even worse, when you've studied the tax system.

When you understand the few basic prinicples that aren't advertised by those paid by the government our current predicament (and that of the agriculture, labourers and matchgirls) suddenly makes a lot of sense.  And it is depressing, because it bodes ill for our own destination.

"Taking out the Lotto wins"  ... and low wages and taxation .... making everyone equally poor, might be the council and socialist dream,  but it is a massive failure.  without good returns then where is your spending coming from?  without spending less wages, less taxes, EVEN LESS money for bread.

As per usual Cowboy you make no sense. I suggest you have been talking to cows too much much and have lost the ability to have a two way conversation.

Executive Director Oliver Hartwich urged National to tackle the ‘big ticket’ problems as he now has the political capital to do it, with RMA reform at the top of the list.
....
Stretching a point to say Key's victory means RMA reform is o.k. If so how come the Saint Index in the US:

1. Stop all development anywhere near me. 79% of Americans want no new development projects in their communities. Now that does not mean they are against development. They are not. They just do not want it anywhere near them. They want new jobs, local tax dollars and new shopping opportunities, but it should be over there and not right here.
2. All development is political.84% of American say a candidate’s position on development is important when they decide for whom they will vote, so development takes an increasingly prominent role in local politics
3. The system is broken. 64% of Americans say the relationship between developers and elected officials makes the process unfair. They believe the game is rigged for developers and politicians and it makes them angry and frustrated.
http://ht.ly/vBOqX

Yet plenty of US cities have a median multiple house price of 3 regardless of how much "exclusionary" zoned suburban areas they have. Allowing development "over there instead of here" is what results in housing affordability; disallowing housing development "over there" always results in unaffordability regardless of how much is allowed "here". 
Allowing both has small advantages over allowing it only "over there". But the systemic difference between affordability and unaffordability is decided by the convertability of rural land to urban use, end of story.

The problem is we have high immigration and a low wage population who pay for Fulton Hogan etc out of taxes and councils have to go cap in hand to ratepayers. Development levies represent user pay (except new migrants get their infrastructure thrown in).
The issue isn't covered well because of a concensus amongst journalists to not present immigration as a problem.
National is looking for a way to pinch the community without getting the blame, hence they do a deal with Act and there is the very convienient call by the NZIER for a larger population (despite it being against the concensus of policy makers).

All a larger population will mean is rinse and repeat a bit further down the track, it's not a solution at all

NZ has had much larger population increase, followed by household formation increase some years later - what do you think the "baby boom" was? And we handled that without housing becoming unaffordable - we just built freakin' 3 times as many houses per year as we do now. It is an attitude problem - "yes we can" (in the past) versus "no we can't" (now).

housing became less affordable, and does every generation.  it's higher population, you end up with those making 0.1% of turnover as the spiders in the center of the web, and each step futher away from the palace is less income , but higher cost than the next step out.
As population goes up the pyramid base gets a longer perimeter, which costs more (and spreads the wealthy over a larger number of units members)...and supports a taller center

It seems you are describing a Ponzi scheme. Have we put Bernie Madoff spiders in charge of the web when we should have put them in jail?

In effect it is Ponzi like.   Centralisation makes higher demands and resources for the "pilots" at the centre of the web.  Logisitics and feed-in connections are less effective on the "passenger" periphal.  But that is a normal mathematical "Game of Life" system.  That's why if humans wish to impliment such systems there needs to be feedback loops, channeling resources back to the extremities - although the feedback is at risk of butterfly effect (aka "bubbles")

The difference is that a Ponzi has no real resources, only membership and price.
In this system the buy-in and pay-out are in real resources.

You are on the right track, cowboy, but what you are leaving out is that over time, the price of land relative to incomes steadily falls. This starts with rural land, which has fallen in real terms by around 75%. As long as there is no growth boundary to a city, this effect flows into the price of sections.
The other biggie is dispersion of employment and other amenities, which flatten the urban land rent curve. 
William Wheaton's paper "Commuting, Ricarding Rent and House Price Appreciation in Cities With Dispersed Employment" (2002) explains all this - and Wheaton was attempting to explain the reality, which was contrary to his own earlier, mono-centric-based theory (1977).
CBD land in a non-growth-contained city with freedom of dispersion has been calculated by Cheshire et al of the LSE to be between 120 times and 700 times cheaper than the same land in UK cities, which are severely growth-rationed.

So tell me, what number do you think we should grow to and then what do we do when we reach that number. Might as well find that new way of doing things now, I reckon, as in my view, we are about there, in a world that needs LESS people not more

"Peak child" has been passed. Total population will start to fall as the long-surviving baby boomers start to die off. Global population won't go higher than 11 billion and will fall from there.
All the population increase is in the form of more people aged over 80 than ever before; and more people aged 60-80 than ever before; and more people aged 40-60 than ever before. It has always been about survival rates, not birth rates. 
Birth rates fall as survival rates increase and population increases. 
There is a VERY enlightening presentation by Hans Rosling on population and poverty, that is one of the most educational things you will ever experience in your whole life:
http://www.gapminder.org/videos/dont-panic-the-facts-about-population/#....

Phil the world cannot afford to go to 11 billion in population and if it does the "fall" will not be a good thing to be around. Truth is, the world only has enough resource for about 3 billion of us. 

Also Phil back then people had plenty of work as actual people did the work, now as we increasingly mechanize things, we actually do not need people other than for keeping this stupid ponzi scheme going, do we now.
New thinking is now needed and grow grow grow sure as hell aint it. We have to learn what things will look like when the growing must stop and waiting for some catastrophic event or till the planet can no longer sustain us, until we've practically wiped out every other species (since 1970 the world's wildlife population has halved, that is HALVED) is just plain stupid. 
We should not put this off any longer, thinking that in some nicey nice way on the dot of 2050 the world's population will flatten out.
We now are hearing the Huraki Gulf is in not too great shape, more people will do worse that nothing to fix that.
 

There has been wave upon wave of mechanisation and technology "putting people out of work", and all it has done is create new forms of employment for all the new wealth to be put to use; new wealth that has been created by the addition of "capital" to the factors of production. 
Look at the distribution of employment now, compared to 100 years ago. Why be pessimistic about the addition of capital, period?

Dead seas, extinct fauna and flora, seems a pretty good reason to me, Phil

symptom

IMF Global Housing Watch lists New Zealand as a global champion in overpriced houses. Doubtful that fiddling with the RMA will change the picture substantially.
 
One would need to dramatically re-assess the way the economy of this country is run. Like stop all the debt-binge policies that have ridiculously inflated some of the Western world's worst housing stock. 
 
This would mean weaning off generations that grew up believing that riches can be found in speculation rather than work. Key will not dare to do anything that would take the plug out of the bubble. Too many voters would feel like losers and there are simply not enough young people to outnumber them.

"...... ridiculously inflated some of the Western world's worst housing stock....."
We are just tracking the UK a few decades behind, their housing is much tighter and older and worse condition than ours, and getting steadily worse. As ours will continue to do, until we do the right reforms.
The evidence is undeniable. These problems commence from urban planners trying to save the planet. The Poms started doing this from 1947 onwards and got a housing market problem from that time onwards. The Californians started doing it in the 1970's and got a housing market problem from that time onwards. Every nation that reverses a trend to improvement in its average housing value for money, (section sizes fall, infill eliminates family-friendly backyards, quality falls, dilapidated housing remains unrenewed, overcrowding and health issues increase, etc), has its urban planners to blame. 
 

tyhe young people would need to find work  (work that pays enough)

Well that's not going to happen in an increasingly mechanized world that only needs so many brain surgeons and CEOs is it now. 

Housing costs, when there is a constraint on the amount of land allowed to be used in the urban economy, is elastic to income. 
In fact everything would be elastic to income if there was a racket in the supply of everything.
This is basic economics of "rent". It was far better understood in the 1800's because it was a real problem back then. Find online, for example, a 1904 essay by an architect named Raymond Unwin, entitled "No Need for Overcrowding". He displays an excellent grasp of the principle of land rent in urban economies, contrary to the vast majority of EXPERTS today, let alone non-economics people like architects.
(Peter Cresswell is an honourable exception today). 

But is is not elastic to income if banks are lending over longer and longer periods and we are in a period of relatively low interest.
Plus add in the foreign money making its' way here to push the bubble up and it gets away from ability to pay for an average NZer

The elasticity to income changes when it becomes a leveragable investment with low failure risk.  Still elastic, but it opens the bidding much higher - as the winner contributes to the overall success of the investment if they bid up.

Possibly the most important article published this year in this country. Thank you.
 
The issue of housing affordability is central not only to the social outcomes that many of us want but also the general health of the New Zealand economy. It is gratifying that credentialised, intellectual firepower is now being applied publically to the problem.
 
I would like to think this public challenge by the likes of the NZ Initiative would galvanise our new government into action but I am not that confident. The track record of the National-led governments of the last six years has been long on talk short on action. For instance both Rodney Hide and Nick Smith promised us the earth on RMA and Local Government reform. What we actually got was charter schools and asset sales.
 
National has effectively operated a Dooh Nibor (reverse Robin Hood) scheme of taking from the poor to give to the rich. The genius has been that it is not even going through the government books. The truth is, as other commenters have already noted, the NZ economy is riddled with all sorts of economic rents and rorts. Our markets are hopelessly non-competitive. We have noted often on this site the problems with our non-tradeable sector. But Eric, himself, has also calculated the 40% "Bought in NZ" premium that is lumped on imported goods. 
 
It's not just some fringe rabble in the interest.co.nz commentariat saying this. The Productiivty Commission brought the inefficiency of the building supplies market to the government's attention. And the government's response was to ignore the problem.
 
So we have a slew of monopolies, duopolies, oligopolies not competing much who extract rents out of the "market" . These rents are extracted equally from all making its impacts highly regressive. I am pretty sure that those who do well out of this rort, not only the owners of businesses, but senior managers across the board including in our councils, government and SOE's - are very grateful to the National Party and are more than willing to donate to the campaign war chest when the time comes.
 
Not sure that this government is highly incentivised to stop the music yet.

So true. NZ runs its very own brand of capitalism for the poor and socialism for the rich. And John Key is not the guy to change any of it.

I agree. Don Brash had a clarity about the housing issue in particular, in 2005, that leaves John Key utterly without a valid excuse for maintaining the racket for his FIRE sector buddies ever since 2008. 
I think the only Cabinet in modern NZ political history that would have actually fixed this, had it been in government as the bubble developed from 2001 onwards, would have been Lange-Douglas. Bolger-Richardson would be next. Key is a huge disappointment on this. But Labour are utterly ineffective at pinning anything on him, because the problem developed on Helen Clark's watch, and John Key he is just me-tooing on planet-saving urban planning and keeping those trendy Remuera housewives votes, same as he has done on numerous other issues where Clark changed the whole game and ratcheted NZ to the progressive Left. This is very convenient for the "Tory in Name Only" crony capitalist enablers. 

The thing that put the housing market into reverse was leaky buildings and the legislation that caused that was put in place during a national government, if you want to get all political about it. In my view it was when leaky buildings first presented themselves that the whole game changed and the new regulations that got passed to try to counter them did not help either.
 

The leakiness of buildings is nothing to do with the price of the land buildings are sitting on.
Have you see the Herald articles on the million-dollar wreck? 
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1133...
Looks pretty leaky to me, and nothing to do with liberalisation of building codes.
There are several contributors to the leaky homes debacle, and one of them is houses being built without eaves, due to eaves being part of the "site coverage" restrictions - and sites are pricey and need utilisation as fully as possible.
The leaky homes scandal would have been far less serious in an undistorted property market - you can do a lot more to remedy the problem if you get the leaky home for $200,000 instead of $1,000,000+
The difference is all in the land (Ponzi) "value". 

Phil I can see another side of this. The leaky buildings occured in the height of neoliberalism in NZ. Many neoliberals are soft of urban economics because they have a lazy attitude that they don't need to know about competition policy, building regulations and town planning because the market will 'magically' regulate itself. Well it doesn't. MUDs do not spontaenously come into existence. NZ will not suddenly get the commercially savvy local governments of Northern Europe. Cartels and monopolies do not suddenly freely compete. These things require democratic support and active intervention by governments to fine tune laws and regulations to allow them to exist.

The leaky buildings wasn't a failure of neoliberalism, it was a failure of years of socialist thinking.

(1)People would just hire people to build on flashy resumes or signage, without checking their product history.  Usually going for the cheaper options, or for expensive options based on theory that if they paid more then there was less chance of a bad job (of course the poor workers knew that and just upped their prices).

(2) There is little or no come back under the NZ Legal system.  Many dodgy folks are used to being in court or bullying/bluffing their way around.  On the rare occasion a client still has enough money to hire a lawyer, there are many ways to make it very expensive and drawn out to file a civil case, ... and in the meantime the responsible parties have already consumed any profit or protected their assets, meaning even more expensive court work to try and get the blood from the stone.

This is because NZers are used to regulations and certifications and authorities to look after them, and labourers are used to being highly protected at the taxpayer and employers cost.

Put them in a more personally responsible position and they are frequently unable to make prudent decisions.  (if the builders said untreated timber and monolithic cladding is ok, then ok do it. Council looks at it and says "it's not actually illegal" so it's ok, then ok let it happen.  Oh Noes, it didn't work, the sky is falling, the sky is falling, who can I blame?

Phil's right. There's not much of a connection between leaky buildings and overpriced residences.
 
A quick recap of the sequence of events:

  • Building Act 1991 removes absolute right of councils to determine and control their own building standards
  • The right to set standards is transferred to central government
  • At least one well-known building products manufacturer finds the newly self-appointed experts at the BIA relatively easy to con. It's way simpler than traipsing around 80 councils.
  • Knowing that they will end up in court if they don't approve buildings that comply with the nationally set products and methods, councils have no choice but to watch as dodgy buildings are constructed
  • This mostly happens in the nineties.
  • The RMA is passed at the same time as the Building Act but it takes a lot longer to implement - it's unintended effects of strangling land supply aren't really felt until after the property downturn around 2000-1

 
There are two minor effects from leaky buildings contributing to the current price levels:

  • The overreaction amendments to the Building Act made building certification way more expensive than it had been
  • FEars around leaky buildings possible made some residences in Auckland less desirable and increased the demand for some other properties

But if there was no shortage of affordable land available neither would have a major effect on the final price.
 
Phil, when did property prices really take off?

2002

How many of the leaky buildings were constructed by qualified tradesmen?

How many were designed and constructed by licensed and trained businesses?

Many times the designers used products that, according to their material description, would make the grade.  Yet completed-apprentice tradespeople would not have used those materials because they contradicted the building techniques they'd been taught.   Thus it was cheaper and easier to just use a contractor rather than a qualified trademan - and when a growth boom happens the trades-system is very slow to churn out qualified candidates.

So people were building to the material and design specifications, and using cheaper labour because then they could save interest and/or build flasher houses.  One quote I saw, the cost of the untreated timber was 30% less than the basic treated product, and simple monolythic cavities were under half the technical work to install (compared to spacing weatherboards, or isolating concrete products from timber).  Frequently qualifed personnel didn't have the trade experience to comprehend how moisture traps and drains were designed, and thus expected closed cavities to stay dry. (instead of "vacuuming in" atmospheric moisture and storing in a damp, shadowed, cavity.)

I disagree.  there is a huge cost for the "non-user pays" services made to the poor

Who are you disagreeing with?
Consider any city with "free" water.
The rich people fill their swimming pools for free and water their large gardens for free; don't you think a disparate cost impact falls on the poor people who still pay a "water rate" yet use less of it? 

In those cases I do - especially when we see hose bans, and people with swimming pools, and when platinum quality ratepayer funded potable water is used for those pools.
 
The gardens not so much, but washing cars yes.

the swimming pools should be funded through the consents process, put in a pool, pay a registrations fee.  We have to pay for a dog (which is an living being with intrinsic worth and little public overhead,  so swimming pools should also carry a semi-annual registration fee to be fairer for the public facilities load water use AND those who have swmming pools tend to be better off so can afford to pay for their luxury.    Temporary pools, make registration part of the sale process.

I was disagreeing with the capitalism of the poor and the socialism of the rich.

It's far more a case of "One rule for All, Rich and poor alike, that none should steal bread or live under bridges".     Noting, of course, a certain degree of limited experience* that those who are in charge of these rules (a) are Rich and well paid, and (b) aren't expect to be responsible for the costs of what they demand.  (so even if they demand charitable work, it's the poor/middle that fit the bill, not the rich or the rule makers)

* authoritarian pecking order cash glad handling

Re: "I am pretty sure that those who do well out of this rort, not only the owners of businesses (rentier firms), but senior managers across the board including in our councils, government and SOE's....."
 
NZ doesn't have 'brown envelope corruption' stuffed with wads of high denomination bills that will buy you whatever government service you desire. But we do have 'Koru Club corruption' of an elite doing each other favours that assists themselves but not the wider community.
 
NZ has real problems instituting good quality regulations and in this environment the good guys with a social conscience struggle against those without.

The cost of property is not only one of the major causes of child povety, but it is making us all poorer than we need to be.  The cost of farms, housing, commercial and industrial property is reflected the cost of wages and all goods produced in NZ; so not only does it make us all poorer, it undermines our efficiency and compeditiveness as an exporter.  Much of the capital for this stupid property investment/speculation activity is borrowed from overseas and our exports are not keeping up, so we are being steered in the direction of selling our assets (businesses, land and housing) to make up the shortfall.  The fact that the government refuses to adress it in any meaningful way and encourages immigration to keep the party going is little short of treason.

Hurray, another one who gets it.

Much of the difficulty is lack of viable alternatives.    Globalisation is only going to make this more marked.

Laaaaaaaalya
 
da da dum, da bum da dumm

Two challenges for economists anywhere: (i) how to fix our markets and (ii) how to get councils to loosen up.
 
First a preamble: when Geoffery Palmer drafted the Resource Management Act I am sure he thought he was crafting a beautiful garden spade and that, using that tool, our councils would lovingly tend their gardens producing pretty flowers and nourishing vegetables. I am sure he didn't foresee our councils running amok, weaponising the spade and hitting their citizens over the head with it.
 
Always blaming the RMA is a sideshow that doesn't address the real problem of why councils have bent the legislation so that it delivered what suited them (i.e. the councils as institutions separate from their communtiies) rather than their communities.
 
So drawing this and my other comment together we have the Productivity Commission already identifying cost of land and cost of building as the main reasons for ridiculously expensive housing. The only mystery is why the government are still sitting on their hands when these facts are in their face. So to help them along here are the two challenges:
 
Challenge #1: Fix the inefficient markets.
 
What policies would make all of our markets but especially the building supplies and building industries more competitive?
 
We are a small, remote country. In a lightly regulated environment it is not hard for one, two or three players to end up as the only survivors in any particular market. Once in that position and as long as no player goes mad and gets competitive the players can ward off new entrants and exercise pricing power - basically cruise. Look at our two supermarkets, three oil companies, two telcos, two bakeries etc etc et-bloody-cetera.
 
Challenge #2: Incentivise the councils to get ahead of growth
 
Q.: What do councils get out of being so bloody-minded about growth? A.: Long political and management careers. 
 
There is no upside for councils in being pro-active about putting infrastructure in place to enable future but as yet unknown growth.
 
Anyone who has ever worked in an infrastructure role of any kind knows that the sweet spot is being one or two steps ahead of demand; growth then happens seamlessly.
 
Councils are incentivised to be one or two steps behind. The challenge for economists is to devise mechanisms whereby infrastructure can be upgraded without being linked to specific developments, AND, none of the costs are borne by current ratepayers.
 
You see, the main benefit councils get from complex and restrictive District/Unitary Plans is channelling all development into predetermined areas which tends to eliminate all risk of infrastructure spend for them. It's yahoo for today's ratepayers and boohoo for those who have to pay the inflated land prices the councils have just gifted the landowners by drawing squiggly lines on maps.
 
 

Everything you are suggesting is what happens with Municipal Utility Districts (MUDs) and they only exist because of regulations that encourage (and don’t hinder) their creation.
The changes to the RMA and LGA are pointing in the right direction, but are still way short of the mindset change that needs to happen for it to work. 

Good points.
 
I still rather tend to the 'take the spade offa them' approach, and can even think of some of the wording of the Act that would do so (or, given the penchant of Gubmint to tuck away immensely powerful - er - Powers in the ability to issue Regulations, the - well - Regulation...) :

  • This Act shall be entitled the 'Build Anywhere Appropriate' Act (BAAA for short).
  • Upon the operative date of this Act, every existing existing Zone, MUL, RUB, or <list all the possible varieties of map-squiggle here> in an operative or proposed District Plan shall be deemed Null and Void.
  • From the operative date of this Act, all Effects of proposals (as defined in the RMA) shall be considered using the existing provisions of the RMA.
  • From the operative date of this Act, no Applicant Cost imposed by a TLA for  consideration of proposals under the aforesaid RMA shall exceed 2% (or such amount as may be determined by the EPA from time to time) of the total estimated value of the proposal.
  • From the operative date of this Act, a TLA must calculate Imposed Interest costs to RMA applicants, based on estimated or actual capital committed to the proposal by the Applicant, and at ruling IRD UOMI rates: such Interest to be deducted from the aforementioned Applicant Costs as assessed by the TLA.

 
Should lead to considerable re-incentivisation in the TLA community, not to say Consternation amongst the Cardy-Wearers.....

There is a psychological issue with the spade-wielders.  And very few care to be self-aesthetic enough to avoid the result.
 It's power. authority.  And when in a social herd with a pecking order that means you're "someone" - it's made worse by our system remunerating these people for their authority (making them even higher in social mindset - as opposed to paying them for what they personally achieve).

Such power doesn't happen in a vacuum.

But the worst part is, that for the non-aesthetic, this is their worldview.  It is the entire nature of how their universe is constructed with them at the center, and they have no incentive (and much decentive) to look further afield.  Thus it is better to gain control and respect in the herd by hitting others to impress your masters, and to quickly gain power; than it is to cultivate improvement, an improvement which is likely beyond the ken of their socio-economic horizon.
 And if they help others...then the others gain power, resources and a say (le gasp).  Far better to keep those who should never make enough to buy a house, in their place.

Was having drinkies with the local lines company one day and they said "Noticed you'd allowed some building down x road. Thought we better build up our network to support growth in that area. The Board approved a major new substation within 2 months".
 
It was probably 6 months from bright idea to an operational substation. I cringed when I realised that it would take us over two years to do the same thing by the time the idea made its tortuously slow way through the Council.
 
Even though its a community-owned lines company they could move faster because their Board comprised experienced business people, they are not shy about making a modest profit to build up an investment fund, they don't tie themseles in tight knots over public consultation and basically they were happy to support growth in their community.
 
MUD's bring that same spirit into the picture but I don't see NZ moving exclusively to that model. Which is why our councils need to get some gumption as well. The challenge remains open but thank you both for the first entries.

Similar happened in another large company.  One of the higher executives was having power lunches with a VIP and mouthing off.  He made promises the company couldn't provide but rather than omit the mistake they made investments of multi-millions of dollars of plant to provide the service.  It took many many years to recover the cost (fortunately they are a price setter) but without the impedous such a improvement would have never occurred.  Real Rhino-man kind of prorgess.

I was rather thinking more of taking the garden off them.

Clever

PM Key is correct when he says the issue is one of disposable income but as soon as disposable income is lifted and more spending takes place by those in the vulnerable section, the RBNZ will take action that counters any increases in spending.
 
There is no room to increase the tax-take........
And that means no room for hand-outs.
If the Government decreases taxes.......then it struggles to get its own books in order.
The RBNZ ends up playing chess with the Government..........
One option available to the Government is to perhaps increase the RBNZ's mandate to include affordable housing in the policy targets agreement !!!!!

The way "extractive economic rent" in housing works, when urban planners have enabled it, is that it rises to suck every spare bit of income out of household's budgets. If you can cut back on food, you will pay more for housing. If electricity prices are reduced, house prices and rents will rise. And so on. Income increases will also push up house prices and rents. So will income tax cuts or GST tax cuts. It is nonsense to advocate compulsory pay rises or ways to increase households disposable incomes as a solution under these conditions. 
Virtually every economist in the time of Karl Marx understood this, the debate was never about whether this was true or not, it was about the solutions. Marx said nationalisation, Henry George said to tax land. Alfred Marshall said to increase its de facto supply with transport infrastructure. The famous urban planner Ebenezer Howard started off a Marxist but was persuaded otherwise by Marshall. Howard devoted his entire career to "Garden Cities", and it has been conveniently forgotten now that part of the whole point, was to build them on rural land, at rural land prices that would then be passed on to the buyers of housing (with sensible charges for development costs of course, but none of this immoral gouging that our urban planners have re-enabled). 
 
http://www.nzherald.co.nz/anne-gibson/news/article.cfm?a_id=39&objectid=...
 

Fully agree with you PB.....it all goes into housing in one form or another.......maybe my suggestion of affordable housing being a RBNZ mandate under the policy targets agreement needs to have a disposable income factor built in as well........I can't see the RBNZ being changed so I would add things into the policy targets agreement that force them to have to take other issues into consideration. I would also ban them from holding shares and investments.
I intensely dislike any market manipulation I'd throw the whole lot out and start again........the current RBNZ mandates have an impact on house prices.....The RBNZ makes statements about house price increases and over-valuation but the fact is they do not want house price deflation.......and will do anything they can to maintain the status quo.......they have been provisioned with an arsenary to manipulate the maintenance of prices......LVR's might have slowed the number of house sales down but certainly did nothing in reducing prices...all it did was take young people who didn't have a big enough deposit out of the market.....raising the OCR when most other countries had a lower rate is another issue that directly impacted on the price of all goods and services to the upside. Personall I think the independence of the RBNZ works against the local so-called free market.......and lower income earners are the serious losers in all this as they face higher prices for everything and stagnant incomes.
 
It has been proven time and time again throughout history that it is manipulation by authorities that is what causes harm to the people hence Bill of Rights and other Constitutional freedoms have been recognised as the most important fundamental things that can be granted to people.  Why the heck people can't get their heads around this issue completely astounds me.......Even our journalists can't get their heads around the issue..........we get silly headlines on poverty and housing shortages etc and everyone wanting a fix but no-one looking in the right place or understanding the real problems......
 
People assume that an independent Reserve Bank is a good thing but in reality there is no difference in having an independent Reserve Bank and one directly controlled under a Government as the latter always gets to provision the former with the rules. If a Government does something that people don't like you can vote them out.....and that can mean a sort out of the bureaucracies........these independent bureaucratic powerful players are influencing all areas of the economy and they are using that influence against the very people they should be protecting......the bureaucracies are given far too much freedom in their interpretation of what they are required to do.........often their internal policies are in direct conflict with the legislation they are implementing.......and average income earning people do not have the resources to take action.
 
If NZ has lots of foreign investors in property it is a widely held belief that this spreads the risk.......but it only decreases the risk to NZ'ers and the NZ banking system if those foreign investors do not hold debt here with a NZ bank mortgage.....if they have local mortgages then the risk from any downside to NZ housing will fall on the locals in the event of an OBR.....Given the plays of the RBNZ over the last 2 to 3 years I'm strongly suspecting that there are a whole lot of foreign investors with NZ bank mortgages........and it appears that these investors are protected by and at the expense of the locals.........I'm thnking the theory must go something along the lines of; if prices deflated the locals will be carrying the can anyway........so we'll just hold prices up through various tools in small enough increments so that current owners will be happy so we have the majority onside.....and the fact is the RBNZ knows that they have plenty of help from other areas like Councils and their urban planners......the RBNZ is so sure of themselves on this issue that they hold investments in housing related areas.....they would not hold these investments if they thought that house prices were going to decline......it is the biggest contradiction when you have investments in housing related activity while preaching houses are over-valued by 30% or more.
 
 

I think you are right about central bankers in most countries and most of the time.
I am still open minded about Graeme Wheeler. I think he intends to burst the house price bubble with interest rate hikes, and LVR restrictions are doing a favour to young people who are prevented from loading up with mortgage debt now. They might thank Wheeler in a year or two.
The problem with not bursting the bubble, is that it will burst anyway one day. The public needs to be sold this by a "good communicator" politician (I reckon Lange could have and would have done it long ago). And the longer it is left, the bigger the pain will be eventually. 
The most sickening aspect is that the vested interests who are relying on John Key to not do effective reforms (i.e. his finance sector buddies) fully expect bailouts when the day of reckoning comes. The moral hazard is massive.
I say that the idea of bailouts, from day one in the US, should have been conditional on the bailed-out companies top couple of layers of executives being sacked, stripped of their superannuations, and banned from holding any similar positions again for life. I do not mean to imply that this would actually have happened: given these conditions I would bet my bottom dollar that the industry would come up with its own solutions that did not cost the taxpayer a cent. 

+1.
Before the property ponzi collaspes the rentier elite will demand the immigration spigot be turned to maximum. They will pressurise the government for more demand boosting measures like National's Homestart subsidies. They will resist any serious attempts to open up residential land in easy to expand locations like Christchurch and Tauranga (good luck Elizabeth) where the sort of measures discussed here could make housing genuinely affordable.
 
P.S the UK pattern is each collaspe is smaller than the boom so the collaspe does not reset the system to more competitive times.

Wheeler's mandate is to maintain price increases between 1 and 3%.......deflation is not an option. Hence his interference with the NZD as milk prices keep declining. This interference with the NZD will add costs to construction from all the imported components that go into building......this is giong to inflate the material costs.
 
If New Zealanders took any notice of Wheeler they would have enough intelligence to only pay an annual increase of between 1 and 3% annually when purchasing a house in any given year.
Overvalued houses are created by bureaucrats and red-tape......I think it is unrealistic to expect the same buraucrats and red-tape brigade to fix any problems....they whole lot should be resigning.....our public system is a diabolical, incompetent box ticking disaster......their arrogance that they are experts on you, me and every individual is dispicable.....there will be no changes to house prices unless NZ is deregulated !!
 
The average house costs between $1800 to $2000 a Square meter to build depending on material used and prices can include the landscaping......Wheeler, Key and  anyone else involved never get into the basics they just repetitively state NZ houses are 30% overvalued. Well if it is an $1800 per square meter house it is going to have to be built for $540 less and a $2000 square meter house is going to have to be built for $600 per square meter less and then their is the land price to factor in.  So is Wheeler really expecting an $1800 per square meter house to be built for $1260 per square m and a $2000 per square to be built for $1400.....tells me there are a few heads in the clouds because price drops like this will require deflation but Wheeler's mandate is to maintain price increases between the 1 and 3% target.
 

most houses in NZ aren't going up in price significantly.  only in Auckland and Chch.

Problem with Wheelers 1 to 3% is rises in one area create weaknesses in others, so we end up with a permanently crippled society.  what if external prices are going up 3% (eg fuel)  if we only have 2% growth, our ability to create local economic activity (to replace foreign dependance)  has dropped 1% of the marker.   And if any sector actual does well it is penalised, rather than stimulate growth in the entire economy.

Such moronic systems might work in a steady 2-3% world, 50 years ago.  In an advanced trade society with modern banking, it's insanity.  And with globalisation, its quisling.

I'll agree with you except for the last line.  Of course Wheeler can make housing affordable by taking the LVR from 80% to 75% or maybe 70%. Just the FHB wont be buying, but houses will be cheaper.
Now if you wanted to make housing more affordable introduce a CGT and let the RB zet that level  then the foreign speculators will have to pay up and an unknown amount...but no that isnt acceptable.
Disposable income wont be going far for a lot of people for some years...hence there is only debt left to boost incomes with and that has to be paid back.  Debt is nasty stuff, its crippling and can leave you with no options.
regards
 
 

South Korea has had LVR restrictions of between 40% and 60% for decades, yet the median multiples are around 12-16.
All that LVR's do is make the people who DON'T miss out on a house altogether, save for longer. The actual house price is dictated by the elasticity of housing supply.
The recent Bank of International Settlements paper "Can non-interest rate policies stabilise housing markets? Evidence from a panel of 57 economies" is something I refer to frequently, for obvious reasons.
 
http://www.bis.org/publ/work433.pdf
 
In the conclusion of the study they say:
 
“…..None of the policies designed to affect either the supply of or the demand for credit has a discernible impact on house prices. This has implications for the degree to which credit-constrained households are the marginal purchasers of housing or for the importance of housing supply, which is not explicitly considered in this Study……”
 
They also say that even LVR's have no discernible effect on either house prices or mortgage credit expansion. I had long understood this to be the case, based on South Korean housing market history. The only constraint on credit that has any effect on credit expansion, is restrictions on the proportion of borrower's incomes that repayments may exceed. This still does not affect house prices.
Even if first home buyers have to save up 8 times their annual income as a deposit, if the distortions to supply in their housing market mean they still have to borrow another 8 times their income, that is well and truly enough debt relative to income to destabilise the financial system.

Steven...Out of despair I'm going to attempt a very simple analogy for you.
 
Just say your wife/partner has sex with you 7 days a week.
Your wife/partner then decides to place an LVR limit on the number of times you can have sex and she sets a limit of 80% per week instead of the 100% that you could once have.
 
Are you saying that this new arrangement of the 80% LVR on your bedroom antics is going to be acceptable to you?  You're now going to have to save the 20% deposit to get the 80% right to have sex and all this is going on while everything is bursting because there is not enough supply and now a very increased demand. Believe me your wife/partner is in the driving seat here exactly the same as housing.
 
Your wife/partner then decides that a CGT is to be implemented (she has heard you talking about CGT) so what do you think happens? It doesn't take the demand away does it? Now think about what a CGT on sex would do to you? Because the same damn thing will apply to housing.
 

... so wotcha saying is that LVR's and CGT are no use in ameliorating a supply side issue ...
 
We actually need to increase the supply available ... demand is just getting pent up ...
 
... steven ... what's the wife's sister like , bit of a looker , alright is she ?

This analogy isnt even that and further makes no sense in the real world of LVRs on housing, but then that is typical for 99% of your posts.
Like you say you are no economist, maybe read Steve Keen for some real economics  on the subject of LVRs and the opposites, first time buyer grants and their effect.
 
regards
 
 

uh no, like I said the voter voted no to the to far left thanks, I see no or little evidence that a CGT effected things much.
regards

Correct - nothing to do with CGT,  and,  nothing to do with left or right
 
It was the packaging and salesmanship - Labour and Greens and NZFirst all offered targetted Pain for someone while super-smooth oil-can-harry Key outfoxed them all by going the vanilla route, offering No-Pain, BAU, No-Vision, No-destination, same-old same-old, strong leadership, etc etc etc plus if you are good you will all get a dollop of candy-floss in 2017
 
It was that simple

Pushing the LVR won't change the house price, won't make them any cheaper.  You could make the LVR on stock purchases 100% and they won't go up in price because that's not the controlling variable.   FHB are such a small portion of the market that they have minimal price impact.  Equity-wise they're even smaller fish.

CGT won't reduce prices.  GST doesn't reduce food price, it just reduces the moeny available to the retailer to pay staff.  And since margins are set by outside forces (overheads, contingincies, interest rates, expected dividends, retained earnings for expansion) frequently that means extra tax (eg GST or CGT) put up prices while simultaneously lowering returns.

Debt isn't nasty stuff.  Debt is useful and enabling.   Interest...Interest is nasty stuff...especially when tax is slapped on things because tax always affects earnings available to pay down principal...which extends the length of the interest period which is a cost to everyone (and isn't any advantage to the lender*)

(*as they could just re-lend for future interest gain)

It seem sustainablity as a catch phrase is out and "child poverty" is in.  So no matter what the solution presented by any extremist point of view will fix child pverty, warts, AIDS and be sustainable.
really...
regards

It's worth noting that, as a bottom-up reaction to all of the above woes i.e.

  • land-price ratchet effects set off by urban 'planners'
  • materials-supply Opolies
  • licensing and regulation of every worker in the building trades
  • consenting (building and resource) capture by the Obstructor Class
  • TLA's running outta Rates Munny, so keen to lump their extensive revenue requirement onto everything else via Fees, Levies, Contributions, - anything but Rates

many determined house-hunters are holding up a central finger to all conventional housing solutions and simply building large trailer homes.
 
They are generally dignified by the 'Tiny House Movement' meme, but essentially, they are trailer homes, double-wides at best, and will end up in trailer parks.  Construction costs run $15-40K - which is the exact price range for a basic 4-berth caravan.
 
This is an entirely rational, but in terms of our social aspirations, very sad, reaction to the whole housing situation.  
When one considers that a single prefabricated house factory at Frankton was, in the 1920's, able to supply well over a thousand real if simple houses for railway workers,  the lack of anything approaching this, in the 21st century, is simply abysmal. 

consent application rates are dropping...
we were promised many new houses...
6 months later, how many are completed?

Where is the production that underpins the housing debt?
 It's got to be somewhere but now dairy has tanked its not going to be on the cows back.  The reality is that we cannot pay back the housing debt, we don't have the income.
 Correction coming along with more affordable housing or unaffordable housing hence the correction.

A leetle story from 1976.  (Yes, I'm ancient).
 
Drew up (yes, myself) house plans - original, own ideas - on two A3 sheets of drawing paper.  Plan plus elevation of House, plan of house positioning on section (to within a 1/2 metre or so - it was a 1 2/3 acre plot, in a small country town).
 
Submitted to builder (local, well thought of) for detailing and consent.
 
Consent waved through, builder started, finished, house occupied, all within six months. Nothing flash, but a very compact, warm unit.
 
Amuses me to hear about the number and cost of 'professionals' needed to build shelter these days.  Them days, me plus builder, end of story.  It's just not that hard.

That story is just sooooooooo..............
pre leaky buildings

We did exactly the same in 1987.
I'm trying to recall the number of inspections but there weren't many.

Also so pre leaky buildings. New regulations, after them, went so much further than the old ones before they were "adjusted" to a point that allowed leaky buildings. 

Leaky buildings had multiple causes:  regulation and materials novelty is certainly not blameless, but over and above all of that - Design.
 
Four classic design foobars:

  • Lack of eaves
  • Complex roof shapes (Jefferson's Monticello has 13 sklights, six chimneys, a balustrade and 400 ft of entablature - took a century and a half to get it watertight)
  • Flat roofs
  • Balconies

All are all potential water ingress vulnerabilities.......  so the mantra of 'relaxed regulation' does not explain much or perhaps most.  
In an AKL apartment building I have some passing familiarity with, the two areas where most damage occurred were the balconies, and the common-firewall flashings.  Both failed.  Both are included in the Design column, in my book....
 
And the lack of eaves, upthread, is explained by other common taters as down to site restrictions by who else - Planners........
 
A final note re Codes:  Stewart Brand 'How Buildings Learn' quotes a CA builder:  buildings can be built Up to my standard, or Down to a Code.......

also over-insulation and lack of ventilation zones.  Take a lot at older buildings many of them leak outright, and are draughty ... which means the moisture doesn't sit.  So as long as the inner envelope is sealed, then the the shelter and comfort is maintained.   People have been reducing draughts (and filling the air-paths with insulation)  so any moisture can't dry out.

The design foobar situation has risen in parallel with the amount of computer design software and architech engineering - just because older more basic computer software said you could build it, doesn't mean it would work.  But the experts knew everything and their computers said they could do it.

Some of the worst experts were in Councils.......builders are forced to comply with Council building inspector experts and then when those buildings have problems which the builder has warned the Council experts on the builder becomes liable !! Buidling inspectors have to get the right boxes ticked and that forces builders to get the right boxes ticked.....
 
We always here the words cowboy builders........but what about the cowboy regulators.....there are far more cowboy regulators running around who are not experienced!

Agree, NotAnEcon.
 
Working example, Chch's ill-fated CTV building.
 
Even a cursory glance at the plan (single shear tower OUTSIDE the floor plates, not within them) should have convinced someone that exquisite attention would therefore have to be paid to the tower-plate coupling system.
 
Guess who waved That through?
 
Guess what failed?  Them couplings:  the shear tower stayed intact, the rest decoupled then pancaked.  100+ deaths.  Check the vids:

From memory the inspector did not think the C TV building was safe but he was over ruled by his boss. I think his daughter spoke about this because the inspector passed away some time ago. I am sure I read a newspaper article about this. It should be on the interweaving some where.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10853110
http://en.wikipedia.org/wiki/CTV_Building
And over at the Huffington Post
The rapid-assessment placard system was developed in the 1970s and first used after the 1989 Loma Prieta earthquake in the San Francisco Bay Area. Officials quickly inspect buildings and assign a red, yellow or green tag to indicate whether people are banned from the building, can gain restricted access or are able to go back to work.
So Green means your able to go back to work.
The father of the system, Oakland-based structural engineer Ron Gallagher, said it's often about triage, and officials sometimes make judgment calls based on instinct while trying to juggle assessments of hundreds of buildings. The responsibility for a full inspection, he added, lies with building owners.
And this is where great confusion came about.....the officials have visited, given a green sticker, which as we note in the first para above says the building is OK to go back to work in. So a building is OK to go back to work in BUT hell we don't know if it is earthquake safe, in other words there wasn't tick box for this issue......And from memory it wasn't until after the Dec 2011 earthquake that I can recall reading that it was up to bulding owners to get their own reports.......I remember the sudden closing up of several commercial premises during Jan 2012.
On a visit to Christchurch after the February quake, Gallagher found problems.
"We heard from a number of people that when the public viewed a green tag, they thought it meant the building was safe from future earthquakes," he said. "That's not the way the placard system is used, or is meant to be used."
And those administering the system in our Council had no bloody idea what the system was meant to do.
Inspectors did go inside the CTV building, as Canterbury Television was commonly known. But they didn't tear back walls to assess the damage, commission engineering reports or look at building plans.
The inspection lasted 69 minutes and generated a brief summary: "Looked at by 3 CCC (Christchurch City Council) senior officials. Interviewed manager – no issues (signaled) by users of building."
 
So the senior Council officer states no issues by users of the building yet not only was the building performing differently (it was vibrating when trucks went past) there were also cracks which daylight could be seen from. It is very clear from the following that users of the building knew the building behaved differently - so where the heck do the senior officials come to the conclusion there were no issues!!
CHRISTCHURCH, New Zealand – Passing trucks shook the six-story office building constantly in the months after a magnitude 7.0 earthquake in September 2010.
"There were quite big cracks, you could see daylight from some offices with outside walls," said receptionist Maryanne Jackson. But, she added, "there was a green sticker on the door that said it was fine."
Survivors of the collapse said they think the building was noticeably shakier after the first quake.
"All the girls lived in fear of that building," Jackson said.
Officials ticked a box indicating they estimated damage to the building at between zero and 1 percent. They placed the green sticker on the front door. And they moved on to the next building.
Comments made after the February disaster indicate how much trust was placed in these rapid assessments. For instance, Christchurch Deputy Mayor Ngaire Button told The Australian newspaper that the CTV building had been "inspected by our engineers and declared safe."
And even the Deputy Mayor didn't know what she was on about !!!!
 
http://www.huffingtonpost.com/2011/10/11/canterbury-new-zealand-earthqua...

"The responsibility for a full inspection, he added, lies with building owners."

That is the bit that gets my back up.

The responsibility is with the _inspectors_.  There are there to do a job, and have the skill and are paid to give accurate reports.   For this cowboy, that says duty-of-care all over it.
If you're an inspector/council etc and you can't hold up to cowboys real tests, then don't take on the job, don't print your report, and don't take the munny!

If the building owners get a "full inspection" then the contractors they use will include legal disclaimers, just like the disclaimers they can profitably use selling their opinons to the councils etc.  Because they're not held responsible.

So how can inspection (and future strength) of a building be guaranteed by the _owner_, Are the law makers really so asinine that they think building owners are better builders and inspectors than professionals?   or is it just legal-rort buck shifting?

Probably your last question Cowboy!!

Had the experience of seeing it all for myself Feb 2011........
 
I knew that when the Council was hell bent on getting the CBD open after a couple of weeks after the Sept quake that buildings were not going to be checked properly....there wasn't the time, expertise or resources available.......the whole thing was driven by positive optimism that overlooked the real risk factors that were presenting at the time.  The did not plan for the worst case scenario......and the loss of so many lives in one building has been the outcome of such stupidity and foolhardiness.
 
The secret is to never ever trust a box ticker in any official capacity !!!!  Do your own due diligence at all times !!! Realise that you're going to come up against the box tickers....so know the appropriate legislation, policies and codes etc !! BE prepared because the box tickers hold far too much power and will abuse it and you !! Above all keep all communication in writing and if you have to voice record, photograph and video these exchanges. Get them to guarantee their advice and requirements !! In a nutshell ensure that you are keeping evidence at all times.....and never ever become complacent.
 
I think it was Brendon who said something along the lines that we don't have brown envelopes stuffed with money type corruption in NZ.....but we do have Koru lounge crap going on.

I might be biased here but I think the cowboys aren't the problem.  I gained my building experience in the Palmerston North area which had infamously critical building inspectors.

But when the regulations starting getting tighter and more paperwork being generated (about the time plumbers had to all certified and were just told to pass on the cost) we got more inspections - but the inspectors had to rely on written instruction either legal or engineering. Even if an inspector with 40 yrs experience spotted a fault, if it wasn't on the check list he couldn't say anything (although often they'd give advice off record if they like you) as the council had to be able to prove in court that their was a legal fault - which was impossible if the fault was corrected, or if the fault was like leaky buildings and would take 5 - 15 yrs to show up.

So there was more stuff put on the list...but not all of it worked (because it the list was made by the same "experts" that designed the buildings and made the materials.)

Personally we had challenges like trying to put up a load-bearing stucco wall... the load bearing sheet material had to have spacers under it for cavity ventilation, but none of that was in the material building tests - but it was required for documentation by council.   Then all the documentation we got for the council to prove it was usable, was for single story buildings, so even though the inspector could see it was overkill, we had to give the council enough documentation so it could defend itself in court.   It didn't matter how well or poorly the building performed, what matter to the council was had the inspections occurred frequently enough at correct stages, and were all the boxes ticked off.

At least with the cowboys the quality of the goods mattered.

That's the trouble Cowboy.....they are only interested in ticking off their boxes......Good builders need to be obsessed with the quality of the building and materials.....as they have paying clients who might order further work or highly recommend you to new clients.
 
Even with all the regulation and regulators there are still some very poor quality buildings around......rateable valuations do not discern between a good or poor build.....I don't think many people even pull a property file up when purchasing a lot of the time...they might check the LIM but they are not beneficial in telling you whether the build is poor or good qualiity. It will just tell you that consents have been granted which is minimum standards have been met.

The industry was mostly at fault. Architects wanted freedom to design complex shapes and add features that were not prudent in our climate eg an internal balcony. On top of that we had the supplier industry keen to supply cheaper materials. Then it seems our builders somehow started to lack historic knowledge, ie threw out decades of experience on what worked and what didnt.  The regs were then altered by vested interests who wrote them for "free" as our Govn didnt want to pay for them.
Result one huge mess with the punter left holding the baby, or maybe I should say abortion.
regards
 

exactly.  traditional builders wouldn't build some of those things because they didn't have te skill...which means training up people who could build that kind of architecture which is very expensive.

But typical NZ mindset, an expert with a computer said it could be done, and then go and hire a salesperson who swears they can do it.  So our kiwi goes and hires the cheapest of those who say they can build - not check that there is sufficicent come back.

kind of like Fonterra's gDT...might look good on paper but unless you can ensure it's up to scratch , it never will be.

Our build was in a very high-wind zone and prone to heavy snow........it was up to us to ensure the building was going to be constructed to withstand the conditions......and we certainly didin't want it blown the nearest gully or collapsing under the weight of snow.
 
Our local building inspector was actually a health inspector......funny thing is there were no leaky buildings on his watch.