Opinion: The Government and Auckland Council's 'housing accord' is a good statement of intent. But there is nothing to suggest that the plan's targets are remotely achievable

By David Hargreaves

First, let's be positive.

The Government and Auckland Council should be congratulated for reaching their  "accord"  aimed at fast-track housing developments.

This deal, announced on Friday, hopefully at least for now ends a rather unpleasant impasse between the Government, through its feisty agent Housing Minister Nick Smith, and the council.

You might recall that earlier in the year Housing Minister Smith lobbed a few grenades in the way of the Auckland Council, threatening to "smash" the metropolitan limit, while also releasing a report that said the council had only about 2000 sections ready to build on and not the 15,000 previously claimed.

The council for its part in releasing its draft unitary plan said Aucklanders wanted 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.

At the centre of such exchanges was the fact that after several years of under-building Auckland is now widely perceived to be very short of available housing. The current shortage  is seen as about 30,000, while it is reckoned that about 12,000 to 13,000 a year now need to be built to meet ongoing demand.

The shortage in Auckland is putting upward pressure on house prices,  and this has been reaffirmed by latest QV figures for April. Recently RBNZ deputy governor Grant Spencer issued a warning about rising house prices and the potential impact on inflation, with particular reference to Auckland.

Last week the RBNZ announced that it was getting the big four banks to hold more capital against so-called high loan to valuation ratio loans, in an effort to maintain banking stability and to take some heat out of the housing market.

But of course, it is not up to the RBNZ to solve this problem. The problem is a perceived shortage of houses in Auckland. So, building more houses is the only real way to fix it.

Therefore a compromise between the Government and council over the next three years before the unitary plan becomes operational that allows some more "greenfield" development within and without the existing limits as well as a fast-tracked approval process is commendable.

Plan undermined

However, in my view the Government and council have immediately undermined the plan by saddling it with what are clearly unachievable targets. Who on earth decided that Auckland could build as many as 17,000 houses in one year, with 39,000 over the next three years when recent history shows the city has achieved nothing like that?

It is worth revisting some of the historical figures. At the start of 1990s when the economy was similarly depressed to how it has been the past four years, Auckland was building around 5000 houses a year.

As the economy improved in the mid-1990s so house building picked up with the number of housing consents per year ranging between the high 7000s and just under 10,000 between 1994 and 1998. Then in 1999 there were over 11,000 new house starts approved, before the numbers dropped again in the early 2000s.

But with the national housing market really starting to fire after 2000 the Auckland building market caught fire too. Between 2002 and 2004 annual new home approvals topped 11,000 once and 12,000 twice. From 2005 onwards, however, even though the housing market will still hot, house starts began drying up. In 2005 there were under 8000, a little over 7000 in 2006 and a bit over 6000 in 2007.

Then as the downturn leading to the Global Financial crisis in 2008 bit hard, the numbers plummeted. There were 4300 approvals in 2008 and then less than 4000 in each of the next three years before something of a recovery to nearly 4600 last year. At current rate of approvals progress Auckland is on track for somewhere around 5000 new home approvals this year.

Modest recovery

So, the Auckland new housing market is recovering to an extent, but not to the point where you could suddenly expect as many as 9000 houses in a 12-month period (the target for the first 12 months operation of the accord), building to an incredible 17,000 within three years.

If the Government was proposing to roll up its sleeves and bankroll the building of these thousands of new homes with taxpayers' money then you might, at a pinch call it achievable. There would still be the logistic problem of where all the builders are going to come from to ramp up activity in Auckland when so many of them are pre-committed to the rebuilding of Christchurch.

But of course, notwithstanding that specific difficulty of the availability of labour, the Government and council will have no control over the rates of building in Auckland. This agreement provides an arguably better environment for developers to undertake new housing projects. It is still up to them to decide they want to develop, as the accord agreement itself concedes, by saying: "These targets will need to be achieved mainly by private housing developers, although Government has an active role in developing social housing and some affordable housing. Investment in land development and housing cannot be compelled..."

In the course of developing this accord, have the Government and council actually engaged with the development community in terms of finding out specifically the kinds of things they need to make increased development attractive? There's no evidence from what is contained in the accord or the accompanying media materials with Friday's announcement to say that the developers have been engaged in such a way.

Similarly, has there been any industry-testing of those target figures as to whether they would be remotely achievable? You would have to suspect not.

Unrealistic targets

The problem with going into this new scheme with patently unrealistic targets is that the Government and the council will not get the buy-in of the developers. And it absolutely needs that buy in.

While it would be contentious to do so, particularly in parts of the country that are not Auckland, I would suggest that if the Government and council are at all serious about following up on the statement of intent that is the accord, then they should be prepared to throw some incentives into the path of the developers. What about some kind of extra tax relief on new developments under this scheme? Or perhaps some rates relief for buyers settled under this scheme?

The other point is that the Government could physically get more involved. Housing New Zealand currently owns over 16,000 houses in Auckland. Many of those are now in the wrong areas and are of the wrong size for modern requirements. Housing NZ is making some incremental changes, notably with moves such as the recent sale of a number of adjacent properties in Sandringham with the proceeds to be used to build more appropriate social housing elsewhere. But arguably much more could be done of that kind of activity that would benefit the Auckland area.

The Government appears to have its eyes on a big shake-up in management and probably ownership of social housing in this country once its current partial sale of state assets is completed. But it would be good to see this process kick-started in Auckland now. How many of those 16,000 state homes could be sold for redevelopment, with social housing then built in other areas? Physically doing it would again be the problem, but a semi-state driven solution would appear to have greater chance of getting real impetus than just leaving it all to the private sector.

Affordable housing?

Then there is the question of affordability. A stated key purpose of the accord is increased affordability and greater access to housing for first time home buyers.

"All qualifying developments are therefore required to give consideration to the provision of affordable housing and/or first home buyer purchase. Conditions of consent may include requirements for a proportion of the development to include affordable housing and/or provision for first time buyer purchase," the accord says.

Well, it sounds good. But the reality is, if a developer wants to build million-dollar-plus houses because those are the ones that will give that developer the big profit margins, how is the Government/council going to knock them back? Are they going to say, 'no, you can't build those 50 million dollar houses you were planning' and then have the developer walk away? The rhetoric of the accord sounds good, but unless there's some genuine incentive (other than the threat of turning down the application) for someone to build lower cost (and lower profit) houses they will be disinclined to.

Again, there may need to be some sort of incentive, whether it be through tax reduction or some kind of rebate, offered to genuinely push lower cost housing.

My best guess is, it simply won't happen and those people at the bottom of the rung might have to just hope that solving the supply shortage might eventually reduce the upward pressure on houses, making them relatively more affordable. But nobody would be advised to hold their breath waiting for that to happen.

A lasting truce?

And the final big doubt over this accord is whether the truce between the council and Government will last. The accord will be overseen by Housing Minister Smith, Associate Housing Minister Paula Bennett, Auckland Mayor Len Brown and deputy Mayor Penny Hulse.

The immediate problem is that this is a four-person committee, so there is no casting vote. If the two council reps and two Government reps disagree on an issue (and you've got to admit this would appear to be a stronger than strong possibility) then who breaks the two-all voting deadlock?

My suspicion is that this accord will not be backed up by action. This will end up as one of those cases in which the Government and council have signed up to a deal that is only a statement of general intent in order to be seen as doing something. Then they can turn around in three years time and say: "Hey, we created the environment for people to build, but they didn't, so, what were we supposed to do?'

I hope I'm wrong. I hope the basic statement of intent that is the accord will lead on to wide engagement with the community so that the developers do come on board and do try to make a difference to the Auckland issue. Because this housing shortage is not just an Auckland problem. The supply shortage has the potential to cause very big distortions in the whole economy.

The signing of this accord can be seen as a very modest and overdue step. So much more is needed.