Bernard Hickey sees a massive opportunity in two of our most intractable problems. How do you see it?

Upcoming events on the world stage forces New Zealand to make massive changes in a number of sectors. Foremost the government should stop megalomaniac economic ambitions in favour of foreign, mostly greedy investors.

The government should aim for full employment in a much more diverse and flexible economy. Especially infrastructure orders should be allocated to NZcompanies and not to foreign workforces.

Government and the NZpublic have to live within the means, without losing sovereignty, security, assets, our environment – our land.

Hang on Bernard...34 times the median salary for a worker in Auckland is pocketchange to the SOE bosses and salary bloated local govt blobs....you seem to think govt is about the people....wake up Bernard....new reality....the people are the pawns on the media board for the 1% to play with....

No worries if the peasants are forced to rent...there is the landlord supplement to take care of them and fatten the landlords and banks....heck that's three sets of votes for one subsidy benefit..

As for building new houses....Bill took care of that with his 15% gst grab...knocked the crap out of the regions....try phoning around to find out the impact....it's been a hammer blow...

I'm not sure what the relevance was for the last paragraph. If buying in that zone for 'free' state schooling, the profile is likely to be mid 40's professionals (children born when their mother was early 30's) buying their second or third house.

I'd wager a good double income and possibly an OE nest egg in there as well. Factor in the alternative cost of private school to interest cost (if you can get a place at a private school) and you have the recipe for spirited bidding. None of the above has much to do with the body of the article. This is likely an isolated incident not an example of the wider market, which by the way has never been broadly affordable in my adult life. 

"Why can't New Zealand as a nation take a strategic decision to solve these two crises by training these 83,000 young people as plumbers, chippies, electricians, roofers and the like" Nice idea I suppose, but it assumes that the individuals concerned actually want to be trained in these particular fields (or trained at all).

if i train as a builder and get well paid do i still get my rent subsidy and can i still get sozzled every friday and saturday night.

also will i have to pass a drug test before ican train.

Good on you Bernard. Keep up pounding away and something will happen.

The house I am in is on a worthless piece of land on a hillside. Previously it was used for gorse production, a well known non economic activity. Once blessed with the title of "house section" it becomes worth $250 000 ($350 000 three years ago). This is clearly stupid. There are costs in turning worthless land into a building site; sewerage, electricity and roading and so forth, but surely $30 000 plus fees of $20000 would cover it (it is on an estate in Nelson).

Where is the political will to sort this out? Why are National wasting their poltical capital on projects that will give us a Green/Mana Party dominated government at the next election (and the economic stagnation and decline that will follow)? What happened to their political nous to pursue policies that will stick, to make progress at a rate the bulk of New Zealanders can go along with? Have they lost the plot? Has success addled their brains?

Bernard believes he can persuade Bill and John to give Bob the builder some work...fat chance Bernard...chch is stuffed and the capital flight is well underway...the rotting rubbish rots and who gives a rats...tax take heading down deficit heading up...no worries just borrow more of Bernanke's toilet paper or even Mervs.

Bernard, best you watch what happens in Greece cos that's gunna be us pretty soon.

Word is out the ratings liars are set to crush the banks every which way leading to rising rates...guess what that'll mean for the Kiwi serfs.

Have the nats lost the plot?

What was the plot in the first place?

When I voted them in for their first term, I thought they had promise. They seemed to talk to the middle class. They talked big about turning around the exodus to Aus, and sorting out the socially and economically draining housing cost issue.

Well over three years later, and they have not acheived any meaningful policy gains. Their returns on RMA / planning reform have been meagre and ridiculously slow. The productivity commission inquiry into housing affordability was another joke, given how much evidence exists to develop new policy.

The harsh reality is, doing things like freeing up planning conrols will help, but will only partly solve the issues.

The costs of development are so high now, that regulatory reform will only make small differences round the edges. In most parts of Auckland, medium density is not feasible due to building / development costs. I've worked on numerous housing development schemes in the past 2 years, and none of them stacked up, because the units (typically 3 bedroom terrace houses circa 120 square metres) would usually need to sell for circa 25% more than standalone houses on full sections in the same neighourbood, once you've accounted for all the building and devleopment costs, plus 15% GST, plus profit margins etc. Doesn't take a rocket scientist to conclude that the demand for compact 3 bedroom terrace houses will be crap when you can buy a detached 3 bedroom house on a full section in the same neighbourhood for 25% less.

Developers are often heard saying now that even if they got land for free they would find it hard to get development to stack up.

So unless the govt is prepared to do something radical like cancelling GST (and they won't do that) on all new housing development, then there is no show for any meaningful private sector delivery of housing in Auckland. And even if a development stacks up as feasible, there is still the issue of obtaining finance.

As Bernard alludes to, and as I've stated here recently several times, the govt is going to have to start delivering housing again, because the private sector is going to deliver only a fraction of the housing needed.  And the govt needs to give more funding to developers like the NZ Housing Foundation doing shared equity development.

Doing this would relieve the housing issues, and would create jobs in the housing sector.

It would probably need a rise in income tax.

I'm sure some here would object to that. If so, my question would be what would you do? And don't tell me that changing the planning rules is the silver bullet because it isn't. As I stated above, it would help as one of a number of new approaches.

And what, may I ask, are Ministers Heatley and Smith doing for their pay? 

(Edited for language -- the sh.. word / bernard)

so, above I told you what SHOULD be done

Now I'll tell you what WILL be done.

The Nats will make some fairly trivial RMA changes.

That's it!!!!

So, in Auckland at least, we'll see construction struggle for years, and rents will keep edging upwards. This will drain household's disposable incomes, so we'll contnue to see retail and hospitality struggle.

Auckland's GDP growth will be anemic, and the city will struggle to attract teachers, nurses etc. These professionals will be increasingly drawn to the regions, or to Australia.

I'd just like to mention these "training programs" wouldn't necessarily need to be long - if at all - in most cases. 

Much of the skills needed for construction can be learnt on site. Of course, electricians and plumbers ect might require more training, but we don't really want to put 80,000 kids into a profession NZ only needs 5,000 of, for example.

At least half of the 80,000 kids could just start doing building labour. They'd quite quickly learn the basics and by the end of a year or two, should have gradually progressed and learnt a lot of new skills.

Building foundations isn't rocket science, nor is shifting dirt, erecting frames, and so on.

Dear Mr Hickey -   please advise when the 30% housing crash will arrive- we cant hold off buying much longer

yep, things have certainly stabilised / strengthened for house prices.

I think Bernard is still seeing a 15% drop - although is not specific on timing

I think some regional areas might fall a bit more, but Auckland? It will edge upwards nominally,staying flattish in real terms, even with continued economic weakness, by virtue of abysmal supply response and ongoing govt inaction.

The only chance the Auckland market will crash is if Europe really disintegrates and China and Aus slump big time. Not likely, but certainly possible, maybe a 20-25% chance? 

John Key and his property loving mates in high prices will be delighted, of course. The wider economy remains sickly but who cares when the elite are doing very nicely thank you. Its all very feudal. Of course most of the public don't see through Key, although maybe the tide is starting to turn.

Paint dries slowly, Matt.

Sadly, any Treasury hack will tell you it's cheaper to build razor wire fences and hire bodyguards, than it is to train those on the wrong side of the tracks.

Firstly, Bernard should declare a 'vested interest' in more folk being interested in interest on interest.co.

Big picture, it's a good debate to have. Len Brown would be a good interview subject, Bernard. If he's playing the long game, I'll bet he knows what's coming (growth-forever ldeologues don't think in terms of rail).

Firstly, housing has to be payable-for. That, looking forward, says it won't be conventional construction. I suggest we'll see standardisation, and things like bathroom modules which arrive on a truck, just with water-in/waste out fittings, and probably all kitchens will be back-to-back with them, meaning kitchen water/waste would feed in/out of the bathroom module. It doesn't need massive training to do that kind of production-line work.  I also expect panel construction, it's lighter, less material and quicker. These will have service cavities at standard heights (above-skirting and above-bench probably). Again, production-line stuff. Our 135 sqm house panels took 42 person-hours to erect, and that was an amateur, first-effort/steep learning-curve effort. Again, not much training needed.

About land, yes, but Bernard is as wrong as HughP et al, in ascertaining what land. Here there are two valid approaches, the 'Keep cities tight/more rate-take per service-metre' approach, and the 'sustainable long-term' one.

Only the latter is worth appraising/adopting. Track housing is out, in that one. So too are apartments. So too, is population increase and immigration. A good book is Tim Flannery's 1994 tome "The Future Eaters". (Some of us have been thinking about this for some time....)

So the land being made available should be the BigAg stuff currently covered with cows. Cut it into sustainable-area lots, and cluster them round village hubs. The area (section size) will no doubt be site-specific, but will be dependent on food-growing ability, and on effluent-disposal capability. My guess is between 1 and 5 acres.

interesting people talk about shortages of houses. i live in Takapuna / Belmont area where there is a huge amount of navy properties in the area. you can go for a walk anytime during a month and you will find at least 40-60% of these houses empty. they are also on sections big enough to put another house on so now that the local maori tribe has aquired a lot of this housing thru the treaty they could look and maybe helping the housing crisis and do a bit of building.

What I am curious to know is who is prepared to pay that kind of money for a house close to the Auckland CBD? Are they city workers, foreign nationals, cash-rich retirees, or property speculators? How leveraged up are they?

Well "the government should"  But me.  I don't think so

Bernard.  what makes you think the government can afford this, when individuals who are the ultimate payers of goverment costs, can't afford it.

It's that economic fraud and the hiding of true costs that has made Greece the economic powerhouse it is today.

Rather than another 'borrow and hope' project, with lage amounts of cash going out, which just transfers the costs to our grandchildren.  Why not shrink government's role to that which enables the people to get on with these essential tasks.

As citizens we can find the energy and resouces within us to get on with these essential tasks, if only we had the drag of goverment weight off our backs. 

Auckland is a totally different market to the rest of NZ. Many families are obsessed with schools in Auckland and being in the right zone. This distorts those suburbs' property markets.  There are great schools all round the country and most kids in regions are able to access many more sports and activities because of the time wasted travelling in Auckland. I realise the job market is much bigger but even so, I don't know how families afford to live there.  The huge mortgages issued for average houses there are scary.  

I agree with Bernard.

There is a problem with home construction which is leading to an increase in house prices. In the end the value of an existing house does relate to the cost of building a new one.

There is a problem with youth unemployment in particular and a skills shortage .

This is an issue that the maori party in particular should be using their poliitical leverage over and offering to marshall Iwi land resources . That would give them more credibilty than playing wedge politics over mixed ownership of SOEs.

There are existing Housing NZ homes which could be sold to free up cash to fund some building.

The state is not normally very good at building anything but we do have a situation where the market is distorted by the hangover from the finance company collapses , building regs tightened to buggery because of leaky houses and  artificially constrained land supply. There does seem to be a role for the Government to knock some heads together and break this particular circuit.

I'm not sure government housing would lower any prices, since those houses would likely not be desirable to the middle class.  The government would inevitably let in a high proportion of beneficiaries in that new housing leading to a less desirable neighborhood. The middle class would still fight over the housing shortage in good neighborhoods, as they do now.

Also, I think we can lay to rest the idea of cheap labour in NZ, no matter how young they are.  Maori and Pacific youth are unemployed now because they don't want low wage jobs picking fruit, which we import people to do. They will complete training only if the training and jobs pay well.  

It doesn't make sense to have an army of builders crawling over each site anymore.  If we want economies of scale pushing down prices and bringing up quality, like they do in other markets, we need to build our housing in factories and ship it in pieces to the site. Train factory workers to use high tech machines, not builders to use a hammer.

Then we'll need technology, to build those factories and houses, and thats something we can export to the rest of the world.

Bernard – if you are going to get all Keynesian on us why not direct the workers towards Energy Independence for New Zealand…  Sure some more cheap apartments / terrace houses / units in Auckland are needed but what would be really inspirational and would make people want to stay in New Zealand is if we could build a 100% renewable electricity system.  This would serve as a base towards total energy independence in the future – yes the oil will run out one day people.   If New Zealand can’t do this, then no one can - freenrg4nz.wordpress.com

There are many builders and kitset home companies that can supply fully insulated, double glazed new homes for around $1000-1200 sq m complete, including appliances and fittings. And that's without economies of scale. Will middle class kiwis bought up on a diet of house porn on TV and magazines want them though? Does it make sense when land is so expensive to put inexpensive houses on it? There are massive opportunities for the building industry to get together with Iwi who have the land to offer healthy new homes for their people but do Iwi heirachy actually want to do this? (Cue Willie Jackson and John Tamihere)Do elders really want younger people moving back from the cities?

New, healthy homes in village clusters on cheap/free semi rural iwi/local govt land might rejuvenate some of the provinces. Would young people accept more limited job opportunities in return for vastly more affordable housing?

http://www.lockwood.co.nz/Default.aspx?pageID=2145893513

http://www.latitudehomes.co.nz/site/transportable-and-budget.asp

http://www.c-style.co.nz/

http://houseplans.co.nz/house-designs

BH has finally realised there is a housing shortage.

Better late than never!

EASY TO CREATE THOUSANDS OF UNSKILLED JOBS IMMEDIATELY:

Christchurch has at least 10,000 houses that need demolished and are not worth relocating.  At the moment these are being crushed by diggers and moved to what will ultimately be landfill.

BUT one house could be constructed with about 8 weeks of labour (1 person) all the material sorted and recycled.  The cost of that unskilled labour at $15/hr is $4800.  The average demolition cost is $15,000.  The value of salvaged material would easily cover an extra labour cost.

That means about 1000 extra jobs full time for 2 years.

Relocating good houses at a cost of $50-100,000 each (largely labour costs) would create immediate housing that was affordable and of excellent quality (many suitable homes are under 20 years old).  Houses could be up and running for as little as $200-250,000 plus the cost of acquiring the dwelling from the Government.

Why is no action being taken to make anything sensible happen?

Where is the leadership?

FYI from a reader via email

Bernard

Your informative articles are always of interest.

There seems a hint in yours about NZ Housing Shortage that the Leaky Homes problem is proportionally worse in Auckland.

 Is there available any data to confirm or deny this?

It would be interesting to know whether builders and architects in different areas of the country were more careful about what they designed and built.

Regards

FYI a comment by a reader via email:

1. Compulsory superannuation at an initial rate of 5% (of the salary/wage) rising by 1% pa until we get to parity with Australia;
2. SMSF for the self employed;
3. Salary sacrifice would be available for both to the equal extent of the contribution (if you want Kiwi’s to save then you will have to offer them a tax incentive; may not be fantastic fiscally however that is how they think and the savings would outweigh the cost);
4. Increase GST to 20% and exempt fresh fruit and vegetables, milk too;
5. Introduce a CTT (Canterbury Transaction Tax) in reality a Financial Transaction Tax at 2% with effect from 1 April 2012; (this has widespread support throughout the community);
6. Introduce CGT (Capital Gains Tax) at a rate of 10% with effect from 1 April 2012; base value being the most recent GV;
7. Introduce an investment allowance for new machinery and equipment at a one off depreciation rate of 25% of CP;
8. Introduce a 150% income tax allowance for approved research and development;
9. Increase the age of eligibility for Government Superannuation progressively so that a 60 year old would receive it when they turn 70; 61/69 and so on; ensure there’s a safety net for those who are vulnerable in the short term;

FYI from a reader via email:

Bernard

We have the opportunity to train a generation of young people with the necessary skills to be active participants in this work. Currently we have 83,000 young people aged 15 to 24 who are not in any form of work, training, or education. This is up 4,000 from last quarter. We cannot sit idly by and watch this figure continue to climb. I finished high school in 1991, when youth unemployment was at 20 percent, so I know firsthand the fear of leaving school and there being no jobs. We had two choices then: further study or go on the dole. I made a decision to go to university—I was the first in my family to go straight from school—but the hopelessness felt by my friends who were looking for work is something I will never forget.

There is an alternative. By 2013, 36,000 additional workers will be required in Christchurch. Bringing in skilled trades professionals from overseas simply cannot be our solution. We need to invest in our young people and let them lead the way. Such a commitment is not a leap into the unknown; we have done this before on the scale that is necessary now. Following World War II, New Zealand faced both a critical housing shortage and the underemployment of young Māori. Labour Prime Minister Peter Fraser showed the necessary vision to resource trade training schemes for young Māori workers. This scheme was the subject of my PhD thesis and I saw both the positive opportunities this scheme provided individuals and the benefit the nation received in having a generation of skilled tradespeople—not to mention a stock of well-built houses.

FYI a comment from a reader via email:

FYI a comment from reader via email:

Overruling planners and opening up greenfield developers will create unintended consequences. Creating another Otara on the edge of an urban area is 20th century thinking - 19th in other parts of the world. I agree that more dwellings are urgently needed. But they need to be in communities, with schools, affordable transport and health and social services. Overriding planners will be a shortcut to social deprivation, infrastructure issues and other unintended consequences. The better answer is to give local planners more power and resources by devolving the responsibility and assets for social housing to local government. Housing NZ and its paternalistic centrist approach could be wound up and local communities then could be empowered to find local solutions. Tax resources would be shifted to the local level. You journalists really do need to get out more. Go and look at social housing in Sweden for example, which faced a housing crisis several decades ago.



I agree with training a lot more trades but dumbing down the professions won't catch us up to Sweden. Maybe under your scenario Auckland may look more like Bangkok.



Shaun

FYI from a reader via email:

Hi Bernard,



Well said.



It's been my view that we have out priced our market due to overt planning regulation and other blunt instruments.



The banks and the councils are also to blame. Bloody banks lending frivolously and allowing the market to ramp up whilst councils trying to squeeze us all into some utopian apartment dream they have.



Personally I think the road is going to get harder. The costs of producing houses are so high we have no margin or a limited market at a higher price. Nobody can afford anything despite the lowest interest rates of all time. Says a lot.

FYI from a reader via email:

I absolutely agree with your column 100%, you've said it all. My wife and i are young professionals and are not even considering buying, you are far better off saving your money in tax efficient investments. We also cannot as a nation continue with youth unemployment the way it is.

I really thoght John Key would bring a down to earth style of leadership to parliament and stop the silly point scoring that occurs, but he is as bad as any ive seen. He never seriously answers questjons during question time, just has a silly grin on his face.

I voted twice now for him, not again though! Where is the leadership he promised, the only winners under his policies are his banker mates.

FYI from a reader via email:

We've spent six years - so far - trying to meet / complete the conditions of our Resource Consent to split our property into not one, but three titles.

FYI from a reader via email:

Typically, I concur with your sensible economic comment to a large degree - yet reading your recent article, I can't help but feeling your thinking around opening up the town belt is severely flawed.



The one thing that loosening the town belts does, is benefiting the speculators - it's not bringing down house prices sustainably. There's ample evidence for this (e.g. Queenstown tried this - with no effect on affordability). Plus, there is no real gain from pushing lower income families ever further away from their workplaces - an inevitable effect of urban sprawl.

There's ample opportunity for densification within the MUL. As an example: Paris is by all accounts a very liveable city - and it does not have high rise apartments (apart from very few in troubled satellite suburbs). Paris density: 20,980/km2, Auckland (metro) density: 2,654/km2. Of course, we cannot increase density 10fold over night - but we are by no means at any rational limit, yet. And despite the popular myth: high rise apartments are not required for vastly higher density - just smarter use of land.



You rightly demand government to become an active player in the housing market by opening up government owned land, and I agree with this. If government would furthermore invest the 1.2 billion we spend on the Accommodation Supplement annually (basically a subsidy for landlords) to buy strategic pieces of land within the MUL (the Lion Brewery in Newmarket, or Vinegar Factory in Ponsonby come to mind), and making them available to the right people, this could have a real impact over time.

Strengthening of the third sector, e.g. enabling housing co-operatives, would be another good idea. Overseas, special legislation for housing co-operatives is making it easy to set them up and operate. Here, housing co-operatives are viewed as for-profit companies, and fall under the Securities Act with all the implications for cost and compliance associated with this.

Anything that inoculates the basic need of housing from the imponderabilities of markets is good - housing co-operatives have been very successful in this regard overseas, e.g. more than four million units are owned by co-operatives in Germany, well contributing to the very affordable housing situation there - despite it being absolutely impossible to build anything at all outside of tightly defined urban limits.



I applaud the initiative to take the housing crisis seriously - but please do not become a mouth piece for the vested interests demanding more of the same: more sprawl, more motorways, more profit.

Urban planners in Auckland got it wrong for the longest time - they are just beginning to see the light, and getting flak purely because they throw a spanner in the works of a well loved money making machine.



Kind regards

 

FYI from a reader via email:

Bernard,



The MUL in AUckland has been in place for decades (30 or more years at least. It was first put in place to protect the Auckland airports operation as I understand it from an old planning colleague of mine) -  not since 1999 as you suggested in your article.



Otherwise though, I generally agree with your view of the housing crises these two cities are facing. I would also add dealing with earthquake prone buildings to the crises - this will particularly affect Wellington, but other areas too. Of course, if the Royal commission in Christchurch proposes to increase the EQP code level from 33% to say 70%, the number of earthquake prone buildings will go up overnight, so the construction and property sectors will face an even more interesting challenge at that point - how to pay for all of these problems! A national scale building programme must be funded from somewhere - not a great time to be funding that with more borrowing!



Which government owned land would you open up? Why should taxpayers subsidise the provision of housing?



Thanks

FYI from a reader via email:

Hi Bernard



In your Herald article, you assume that the 83,000 youth who are unemployed are all employable.  The sad fact is that most of these young people represent the 'fat tail' of our education system.  Most of these young people have left school without even the most basic formal qualification, more than you would like to think cannot read at a functional level.  Worse, large numbers lack the most basic life skills that require them to get up in the morning, and then work while at their place of employment.  Did I mention problems with mental health, drug and alcohol abuse?



When you have 25% of our nations children, (220,000) growing up in benefit dependent homes, most of these the DPB, where there is no father in sight, abuse and neglect is all too common, then perhaps we should not be surprised.



If we want better outcomes for our young people, then we need to stop State funding for teenage mothers, who make up presently 1/3 of those entering the DPB for the first time.  22% of which go on to have a subsequent child while on the benefit.



More than 50% of those on the DPB are Maori or Pacific Islanders.



More than 50% of Maori women between the age of 20 and 30 years are on a benefit.



I see no prospect for meaningful change while we continue to fund this stupidity.



This is the real issue affecting the future of New Zealand that no one is talking about.



Kind regards

Brendan

And still no mention of those giant McMansions with 1 kid-families.

962 Houses under $250k on Trademe in Hawkes Bay.  Can't get cheaper than that.  Plenty of jobs here for skilled workers.  Solution to housing problem:   Buy yourself a cheap house, use this period of cheap interest rates to pay it off fast.    5.5% on 220k = cheaper than rent.

Powerupkiwi I have never heard so much rubbish spew forth from anyone untill

I read your blogs who the hell do you think you are , telling everyone to stop using

energy oil gas etc ,not to have kids ooooh the worlds overpopulated etc etc  grow food we are all going to die most of what you say is just at best half truths get a life son and grow up

Baz

They do say that the cure for high prices is .... high prices.

Just 2 things

1) were the buyers of the place in Epsom kiwis? I'm guessing Asian.

2) Akld Grammar is a crap school - they poof on about their "winning" mentality - from what i can see given they have nearly 2000 boys, their sporting record relative to other colleges is shite (and thats despite the large amount of poaching they do).

There seem to be several reasons for the high percentage of leaky homes in Auckland and most have been identified in previous posts.

But my experience has been that Auckland has been most agressively promoting a high density compact city and enforcing high site coverage.

For example a landowner approached a colleague of mine (an architect of the old prudent school) to design a medium density housing cluster.

He did and the owner applied for the consent. He was told it was not dense enough and to have it redesigned to so as to increase site coverage. Their solution was to remove all the eaves and get closer to the boundaries.

My colleague refused because of the risk associated with monoclad low cost construction.

So the landowner went to someone else who was prepared to lop off the eaves.

End result?

Leaky building.

Dear loser - There is quite a simple workaround to this problem.

'dont buy a leaky property'

Also - loser - what do you think will happen/is happening to the values of non-leaky properties?