This Government portrayed the solution to the hot Auckland house market as being all about increased supply - but its efforts in that regard have faltered badly in the past year

By David Hargreaves

Well, I'm still waiting for the Government to play its election year hand on the housing shortages bedevilling the Auckland market.

This is a Government that spent a long time refusing to accept that demand pressures might have anything to do with rising house prices and sought instead to make it all about bumping up supply.

Personally I've never accepted it's just all about supply - as the large numbers of people categorised as housing investors (at times well over 40% of the Auckland house buyers) show. There is a demand issue there too.

Be that as it may though, the Government made it all about supply from its perspective and therefore should be measured by how it has done at ramping up supply.

The answer is: Not brilliantly at all.

You can lead the horse to water but you can't make it drink. Or, in other words you can talk about new houses being built, but you can't just get them built - perhaps unless you choose to roll up sleeves and do it yourself.

After all the Government bluster, the year-ending figures from Statistics New Zealand show that Auckland's housing recovery from the very low post GFC levels of 2008/9 is running out of steam.

Once upon a time we had a Housing Minister who would talk enthusiastically about all the new houses that things such as the Auckland Housing Accord were going to introduce.

Oddly, the Housing Minister disappeared about the time Bill English became Prime Minister, in what is a huge departure for National Governments. So now we have a Building and Construction Minister, talking a brave game but increasingly referring to the VALUE of properties being built - not the number.

Well, people live in units, not values. The below table shows the extent to which the Auckland building effort is currently losing impetus.

Consents for new Auckland dwellings - calendar years
Year Number % change
2008 4,308 -29.5
2009 3,475 -19.3
2010 3,603 3.7
2011 3,772 4.7
2012 4,582 21.5
2013 6,310 37.7
2014 7,632 21.0
2015 9,251 21.2
2016 9,930 7.3

Source: Statistics New Zealand figures

As can be seen, the growth - both in percentage and actual number terms - was the smallest in Auckland since 2011 last year.

The Independent Hearings Panel, in its Auckland Unitary Plan recommendations last year, put the current housing shortage in Auckland at 40,000 units and said 131,000 new dwellings - so, well over 18,000 a year - were needed in the next seven years to make up both the shortfall and to provide for expected growth.

In recent years about a third of Auckland's population growth has come from 'natural' growth and two-thirds migration. But the latter ratio is probably even higher now.

Statistics New Zealand figures for the full 2016 year suggest (after a bit of necessary arithmetic to account for migrants who didn't disclose a final destination) that as many as 42,000 net new migrants settled in Auckland last year. If you add in the current natural net growth rate (births minus deaths) of around 14,000 to 15,000, then it's entirely possible Auckland's population grew by not far short of 60,000 last year.

If you look at the current living ratio in Auckland of three people to a house - that would mean something in the order of 20,000 houses would have been needed to cope with the extra numbers - and we got half that number.

And for all the Government's putting on of a brave face, it has to be disappointed, because the figures being achieved are well shy of the estimates it's been coming out with.

The Ministry of Business, Innovation and Employment has been issuing annual reports, trumpeted by the Government, which estimate how many houses are going to be built - and they've been getting it wrong.

The July 2015 report was suggesting Auckland's consent numbers would hit well over 13,000 last year.

As recently as July 2016, the updated MBIE prediction was that Auckland would get 12,000 consents last year. Not even close.

It seems if the Government really is serious about tackling this issue it might have to do the aforementioned rolling up of sleeves itself and yes - back the building of some low cost housing.

For National this would be a horrible Labour Party-like solution, but just at the moment the free market ain't fixing this one.

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

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26 Comments

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18

1) The governments using the high net inward migration rate to keep the GDP growth up in what is a deflationary world. Too bad about gdp/capita.

2) They dont want to cut the immigration rate suddenly or risk a sharp drop in housing prices and lots of negative equity. So they prefer to put forward the argument to increase supply only.

3) The migration rate is volatile and difficult to manage over short periods. However personally I think the 12 month rolling migration rate should be given to the reserve bank as a macroprudential tool alongside monetary policy. This would take the politics out of it and just let the politicians set the migration policy framework.

4) The NZ economy is small and suffers from the tyranny of distance. There are probably some sound arguments to increase the population base. But not at the rate we currently do.

5) The long term migration rate is too high leaving real interest rates too high (demand for capital for infrastructure etc) & exports low as a % of gdp. I'm sure we could find a better balance with a lower migration rate, lower real interest rates, lower exchange rate and higher exports.

I disagree. Deflation sucks. The best fix for deflation is immigration. Ask Japan how no immigration and deflation feel.

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30

err, pretty darn good i would say. japan has had higher per capita GDP growth than NZ for years. per capita GDP is the only thing that matters, and NZ is not a rock star on this. NZ remains a low wage, low skill economy, with the tourism industry one of the chief culprits. tourism jobs pay peanuts and the industry creates nothing of real value. the crowds of tourists and associated infrastructure wreck the attractions they come to see, and make us strangers in our own country.

Bingo.

Japan has been having a real estate boom for the last 6 years with 10% year on year capital gains.

it astounds me people think real estate booms somehow create wealth on an aggregate level....
Again; the lack of actual growth has to mean that all new debt issued (as mandating by a financial systems which requires constant growth in debt) means the debt flows into capital .... it just shows that growth is actually dead.
This is not a good thing if you are dependent - as everyone is - on a system which will not blow apart.
When return on capital = zilch, a capitalist system has a big problem.

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11

No, the best fix for deflation is not to blow extravagant bubbles that destabilize the economy. Japan's future ageing population issue was known in the 80s. It didn't prevent the bubble nor would have opening the immigration gates prevented the negative impacts of the bubble.

To Jimbo. Japan's situation 'feels' pretty good compared to ours.

I wouldn't feel that great if I was working 12 hour days like the Japanese. I wonder if their GDP per hour worked is better than ours?

Where are our main stream political journalists on this?
Busy taking turns putting the boot in to the opposition over some irrelevant issue.
Not Winston tho - not now that National need him, to have any hope of fulfilling Tracey Watkin's and Claire Trevett's dream of a fourth term.

extinct species

It looks like we need about 25,000 units built a year in Auckland if we have any hope of reducing this crises. It looks like the market can only manage around 10,000. I think part of the problem is that since the cost of housing is so expensive it is almost impossible to develop existing property - buying a section and then subdividing or demolish and new build. There is actually paralysis in the market.
The government needs to pick up the slack. The government should spend about $1B a year in Auckland on building dwellings - high value, mid value, low value and a range of density. The money could come from phasing out the accommodation supplement ($2.5B) which distorts the market by pumping more money into the housing market. Give a general increase in the benefit and lower the supplement over the next five years to zero. If the government does the building right it actually could come out of this making a profit!

Supply coming from the private market will not be enough when sections cost upwards of $400,000. You can get whole houses for that cost in Tokyo. It will be a small house but well located -you will not need a car. Check this article out. https://medium.com/@brendon_harre/what-is-the-secret-to-tokyos-affordable-housing-266283531012#.fd9pczg1n

Problem is, the government still hasn't worked out that the construction industry is inherently tied to the existing housing market. If there's uncertainty in the market as there is currently, developers/investors will pull back.

That in my view is the problem with letting the market fix the problem. The market is there to maximise profit and just won't function unless it can. Auckland needs lots of smaller houses but these are not the most profitable so are not built.
Time for a different solution.

Auckland has the most expensive land (average value) in Australasia and is therefore just about the least profitable place to build in Australasia. The market has been able to solve this equation very simply and Auckland has the slowest construction rate of any major city in the region.

In cities not governed by Auckland Council, thousands of small homes are being built.

It actually doesn't matter what kinds of houses are built, as long as there are lots of them.

Consider a market in which there are five people who want to buy, and four people who want to sell, a house. The price will go up until the poorest buyer cannot afford to buy a house.

Now add in two more houses, both of them right at the top of the price range. The two richest buyers buy them. Now the owners of the two previously-most-valuable houses have to lower their asking price until the third- and fourth-richest buyers can afford them, and the other two sellers are having to compete for the poorest buyer.

Thus the provision of expensive new houses creates a supply of affordable homes just as surely as the provision of inexpensive new houses.

Yay, someone else who understands this. It irks me when they say we need more affordable housing. Auckland already has lots of crappy 2 bedroom uninsulated houses, these would be the affordable houses if there were more houses in general.

Not just new houses. Property spotters - the new train spotters... "It was bought for £350,000, with 1pc of that sum being paid to Ms Hutton. It will be renovated and let within eight weeks, the firm said."
http://www.telegraph.co.uk/investing/buy-to-let/got-3500-spotting-empty-...

Personally I've never accepted it's just all about supply - as the large numbers of people categorised as housing investors (at times well over 40% of the Auckland house buyers) show. There is a demand issue there too.

That merely shows that investing in Auckland property is a very good investment. As a result of the unique planning model of Auckland (cutting off 60% of the land supply to the city and opening up 120% sprawl development land supply miles from the city) property investment has resulted in brilliant returns.

Of course we attract investment, there are very few places on the planet which have ratepayers subsidising real estate profits and virtually none to the extent of Auckland Council. We are global leaders in forcing land prices upwards.

Unfortunately the problem with making it really expensive to buy land, is that it becomes really expensive to but land and build on it.

It seems if the Government really is serious about tackling this issue it might have to do the aforementioned rolling up of sleeves itself and yes - back the building of some low cost housing.

The government cannot back building in Auckland, because the land costs too much here. Low cost building is not economically possible. If the government were to do it, it would require the taxpayers to subsidise Auckland at massive cost and that is unlikely to be popular. In effect it would be the taxpayer subsidising Auckland land prices, taxing poor people top keep Auckland property owners rich.

Just because Auckland Council has banned development on the Takanini Flats and on Albany Hill and on the horse paddocks surrounding Swanson railway station. Just because Auckland Council has cut off land supply so that property investors can make an absolute killing. Just because the Auckland Council likes making unique planning decisions.

There is a much easier solution. People should leave Auckland.

And with all these planners, we still end up with shockingly-planned monstrosities such as Westgate and North West.

That is a feature. The Unitary Plan is to quadruple the size of Kumeu with low density housing. All these people will be commuting by car (because the council planners stopped the rail service to Kumeu), so that part of the city needs shopping centres with lots of car parking.

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National have been next to useless, not to mention dishonest in their approach about there not being a problem, saying the settings are right but refusing to measure any meaningful data....I would suggest not voting for them a the next election

Might I add to help with the problem Housing NZ will be adding a meagre 400 houses per annum nett to their Auckland housing stock. Unlikely to help much when the city is growing by 40,000+ people p.a. and there's already a large amount of homelessness and un-housed people. Basically a very small fig leaf on a National's tiny penis of a housing policy.

NZ First policy = only NZ residents can buy houses
http://www.stuff.co.nz/business/money/89189951/political-parties-draw-ba...

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