The Productivity Commission has called for the immediate release of new land for residential development in areas such as Auckland and Christchurch to help alleviate housing affordability problems, a recommendation the Auckland City Council has attacked as narrow minded.
There also needed to be more moderate-density brownfields development, particularly in Auckland, as well as development of greenfields sites which were close to existing centres, local employment, and services, the Commission said.
The Auckland Council needed to quickly bring significant tracts of both types of land to the market, and signal land with future potential for urban development, while making a commitment to major offsite infrastructure capacity.
Auckland City Council Deputy Mayor Penny Hulse attacked the recommendations, saying the Commission failed to understand how modern cities developed (see her full comments below). Aucklanders did not want their city sprawling from Northland to Hamilton, and while there were plans to allow for 160,000 new builds outside the limits, the council was looking to develop 280,000 new properties within existing boundaries, Hulse said.
The Auckland City Council is looking to allow for up to 40% of growth in the city to occur outside its existing metropolitan urban limits over the next 30 years. Last year it had suggested only 25% of new development would be allowed outside the limits, a policy that was attacked by the Commission in its draft report last year, and subsequently revised by the council.
The government was also not pleased with the Auckland Council's initial intentions, and has been in discussions with the council about allowing for more development outside the current limits.
Finance Minister Bill English told media in Parliament on Wednesday that Auckland City Council needed to take into account more the needs of lower income New Zealanders, "because the existing policies have tended to push prices up pretty sharply in Auckland more so than anywhere else."
Meanwhile, the government needed to monitor the impact of its move to not allow building owners to claim depreciation on commercial and rental properties with an expected useful life of over 50 years, for evidence that expenditure levels relative to the proper upkeep and safety of buildings was being maintained, the Commission said.
New Zealand's social housing sector would also need considerably more assistance if it is to scale up to the extent of work required of it, and that must be done within a reasonably short timeframe.
'We'll consider it'
Finance Minister Bill English today tabled the Commission's final report into housing affordability, saying the government would carefully consider its recommendations over coming months.
"New Zealand experienced a sharp rise in house prices over the past decade, resulting in declines in housing affordability and home-ownership rates and large increases in household debt," English said.
"Rising prices made it harder for families to climb the first rung on the housing ladder and the accumulation of debt left the New Zealand economy more vulnerable to external shocks. These imbalances also create further pressure on demand for social housing and accommodation subsidies," he said.
Release more land
Following the release of the report, Commission Chair Murray Sherwin said it was fundamental to the success of communities that comfortable, affordable housing was available, particularly at the lower end of the property ladder.
"Younger people and those on lower incomes currently have much less chance of ever purchasing their own home,” Sherwin said.
The Commission had found that taxation was not a key driver of the recent housing boom, he said.
“We carefully considered the claims that housing is tax advantaged, but concluded that any advantage is much smaller than often suggested,” Sherwin said.
Containment policies such as ‘Smart Growth’ and Auckland’s Metropolitan Urban Limit (MUL) were also found by the Commission to have an adverse effect on housing affordability by limiting the availability of land for housing.
“Pressure on land prices needs to be reduced and the Commission has recommended that there be an immediate release of new land for residential development in high demand areas such as Auckland and Christchurch," Sherwin said.
“Councils should also ensure they aren’t putting up barriers to development and should take a less constrained approach to urban planning. There also needs to be a review of regulatory processes with the aim of speeding up and simplifying consent processes," he said.
“There is no need for our homes to be expensive - we can construct quality, affordable homes. But, it will take councils and developers to work together so that sections can come to market quickly at a price that allows the building of homes at an affordable price."
Social housing needs assistance
The Commission also recommended reconsideration of current social housing reforms.
“The community housing sector has a unique and very valuable role to fill. It can provide below market rents and more security of tenure than is available from private landlords. It is also well suited to providing the range of ‘wrap around’ services required by many social housing tenants with needs that run well beyond just affordable housing," Sherwin said.
“But, the social housing sector will need considerable assistance if it is to scale up to the extent required, and do so within a reasonably short timeframe. The Social Housing Fund set up to help the community housing sector grow is not equal to the task demanded of it," he said.
See our report on the Productivity's draft housing affordability report: Productivity Commission wants more land for home building, puts tax changes in 'too hard' basket in draft report on housing affordability.
Also see Alex Tarrant's piece on the draft report: All the Productivity Commission needed to say in its housing affordability report: 'Quit whining about tax; It's land supply, stupid'
Following its initial investigations into housing affordability and international freight costs, the Productivity Commission is now setting up to investigate the regulatory powers of local government. See: Council development levies, urban planning, building consent and inspection processes set to fall under Productivity Commission spotlight.
'We need a capital gains tax'
Green Party co-leader Russel Norman said the Commission’s main recommendations for affordable housing would create sprawling, congested, and less productive cities.
"Relaxing Auckland’s urban boundary, combined with Government subsidised motorways, will simply lead to further unsustainable urban sprawl and further congestion on Auckland’s roads,” Norman said.
“Facilitating urban sprawl is not the way to build highly productive cities where people live close to their workplaces, can easily travel around the city on alternatives to congested roads, and can enjoy high quality amenities within walking distance of home. The Productivity Commission’s plan will condemn people to spending large amounts of their time sitting in traffic, spending money on fuel," he said.
“New Zealand already spends $8 billion a year importing oil, which will only continue to rise over time. The so-called Productivity Commission wants us to spend even more importing oil to fuel traffic jams on Government subsidised motorways. Smart urban planning can be achieved through rules that facilitate medium density development on mass transport spines, not more urban sprawl.”
Noman said the Commission's findings were incongruous with the Savings Workings Group and OECD’s findings last year on the role a capital gains tax would have in creating more affordable housing.
“The lack of a comprehensive tax on capital gains is keeping the dream of home ownership out of reach for many New Zealanders, especially first home buyers who struggle to get a foot on the home ownership ladder,” Norman said.
“The Government appointed Savings Working Group found in 2011 that house prices rose an additional 50 percent from 2001 to 2007 due to the preferential tax treatment of housing including the absence of a capital gains tax on housing. Likewise, the OECD found that the absence of a capital gains tax had significantly affected home affordability, widening inequalities in wealth, and leading to disproportionate levels of investment into housing instead of into the productive sector," he said.
“The Commission is defending the status quo saying that the impacts of a capital gains tax would be ‘unclear’ and have ‘significant practical challenges’ to implement, yet New Zealand remains an outlier by not having a comprehensive tax on capital gains. A capital gains tax which excluded the family home would benefit the vast majority of New Zealanders through more affordable housing and jobs as investors take money out of housing speculation and invest in the manufacturing and export sectors.”
'Release land to help the tenant generation'
ACT Party leader John Banks said the report had revealed the "disturbing emergence of a tenant generation." The Productivity Commission was established as part of a 2008 confidence and supply agreement between National and ACT.
“Bad urban planning and housing policies are denying the dream of home ownership to a whole generation of New Zealanders. These policies have increased costs and created delays at every step of home building process," Banks said.
“Council restraints on the supply of land for residential houses have had a big impact, pushing land prices up and with it the average price of a modest home. This upward price rise is reflected in our housing statistics. Home ownership rates have plummeted, largely because house prices have skyrocketed. The ratio of house price to income has doubled since the 1980s, while home ownership rates have fallen as low as 60 per cent," he said.
“The proportion of 35-44 year olds renting has doubled from 20 per cent to 40 per cent. One wonders whether our children and grandchildren will ever afford to be home owners.
“The inquiry reveals a number of steps that could be taken if we are serious about reversing this trend, with the restrictions on land being singled out as an area requring change. ACT would like to see action taken immediately to lift the restrictions on buildable land so that more New Zealanders, particularly the young, can afford to own their own piece of New Zealand,” Banks said.
Reinvest Housing NZ's dividend
Labour Party Housing spokeswoman Annette King said the Government should be doing some serious self-analysis following the release of the report, which showed its social housing policy was not up to task on the same day another report highlighted New Zealand’s on-going rental crisis.
“The Productivity Commission’s report on housing affordability points out that the Government’s social housing fund, set up to help grow the community housing sector, isn’t up to the task and needs ‘considerable assistance’ within a short space of time. It’s a sobering read. There is NZ$170 million worth of applications competing for a measly NZ$40 million in allocated funds," King said.
“This is nonsensical when the government, as part of their ‘cost-saving’ change programme, recently slammed the door on third parties who were willing and able to assist tenants into private rentals if necessary," she said.
“The Government takes a dividend from Housing New Zealand. Over the next year it is forecast to be NZ$73million. Why not invest some of that into community housing?
“We know there’s a housing crisis in Christchurch and in Auckland. Figures released by Trade Me today show the shortage of rental housing is fuelling rent rises across the country. The flow on from that is a lack of affordable homes for first-home buyers," King said.
“As the Productivity Commission chair, Murray Sherwin, says ‘it is fundamental to the success of communities that comfortable, affordable housing is available’, especially at the lower end of the property ladder. After four years you would expect National would have woken up to the fact we have a housing crisis, yet Bill English is talking about having a look at the Commission’s report ‘over the next few months’.
“More navel gazing isn’t going to fix a problem that’s here today. The term ‘housing affordability’ is becoming a misnomer. When you have people living in cars, you’re talking unaffordability," she said.
'Aucklanders don't want sprawl'
Meanwhile, Auckland City Council Deputy Mayor Penny Hulse said the report was too narrow minded.
"The commission fails to come up with solutions to deal with the cost of building materials, the favourable tax treatment housing receives or take into account the ongoing costs of living in a vast sprawling city," Hulse said.
"It dismisses the added expense to Auckland from having to provide infrastructure over a greater area or the impact to the homeowner from increased travel costs because of having to live further and further from major infrastructure. The Productivity Commission has ignored advice provided to them on these issues by the Auckland Council. They have clearly not read the Auckland Plan and as a result, the findings are ideological nonsense," she said.
"What the Auckland Plan actually plans for is 160,000 houses to be built outside the current urban limit. That is a city outside the existing boundaries bigger than Hamilton, Dunedin, Palmerston North and Hastings combined. How can anyone think that is not large enough.
"Aucklanders have told us they don't want their city sprawling from Northland to Hamilton and we are looking at realistic solutions, supported by the Property Council, to develop 280,000 new dwellings within the existing urban boundaries," Hulse said.
"There is ample room to redevelop land that gives people the chance to live near to employment, educational or lifestyle opportunities. It is that demand, along with population growth, that is driving the market, not the cost of land at the boundaries," she said.