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

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

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

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

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

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

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

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

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

Key said that what was happening was "normal".

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

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

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

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

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

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

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

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

Spreading out and going up

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

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

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

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

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

Land supply not only issue

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

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

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

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

Can't wait

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

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

Actually, I really enjoy working with him."

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

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

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

A collaborative process

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

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

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

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

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