Opinion: All parties seem at least prepared to try to build 39,000 new houses in Auckland during the next three years

So, let building commence.

Auckland now has its Housing Accord.

All that’s needed is for completion of the targeted 39,000 houses in the next three years. A piece of cake, he said, with tongue firmly in cheek.

Housing Minister Nick Smith is to be congratulated for the dogged persistence that will see the Housing Accords and Special Housing Areas Act come into force a mere four months after being introduced into Parliament. In Parliamentary terms, legislation clearing all the hurdles in that sort of time frame can be seen as break-neck speed.

Whether the sheer pace involved means there will be problems down the track remains to be seen. Unintended consequences are always a risk with any legislation. But when the new law has been assembled as quickly as this one then the risks are surely that much greater.

The early noises coming out of the Auckland Council following the passing of the legislation have been encouraging.

There seems a genuine will to get on with the job and start opening up land for development. The council’s talking about having had 70 or 80 inquiries about undertaking developments, while the Government’s shooting for perhaps 5000 sections made available by Christmas.

The stakes are quite high for both the council and the Government.

Housing affordability looks likely to be a strong election issue. Young people wanting to buy first homes but not being able to are a very bad look for a Government and could have disastrous electoral consequences.

It is therefore very much in the Government’s interest to see as many young people as possible getting their own nest.

Strong incentive

The other potential bad ramification for the Government would be if everybody’s interest rates – by which I mean everybody throughout the country - start going up because Auckland’s house prices are going crazy. So, again, the Government’s got a strong incentive to do what it can to check particularly the Auckland housing market.

The council, meanwhile is under notice.

The most contentious part of the new legislation was the “over-ride” powers whereby the Government could in certain circumstances simply take over the council’s role of designating “special housing areas” and approving developments.

Despite strenuous efforts by the Auckland Council and Local Government New Zealand the “over-ride” provisions have been retained – the one softener being the introduction of “dispute resolution” processes.

The Auckland Council was therefore in the interesting position whereby if it had turned around and decided not to sign its housing accord with the Government, the Government could have rolled the tanks into Auckland and taken over the development planning and approval process.

It is therefore very much in the council’s interest to do its damnedest to get somewhere near that 39,000 target in the next three years and then send the Government on its way, letting the hopefully by-then fully operative new Auckland Unitary Plan take over the Auckland planning and development requirements.

Encouragement?

Few casual observers would give the council much chance of meeting that target. Statistics New Zealand figures arguably, however, do give some encouragement that the target might with extreme effort be met. In the three years from 2002 to 2004 the Auckland region approved building consents for 35,600 dwellings.

However, in the three year period preceding 2002 the Auckland region had seen more than 27,000 new dwellings consented, so the region had been, if you will, building up to the peak figures achieved during the previous housing boom.

The council and the Government are by comparison trying to achieve the targeted 39,000 in three years from a virtual standing start.

In the past three calendar years the total number of building consents for the Auckland region was a touch under 12,000.

So building activity is starting from a very low base now compared with in 2002 levels and its difficult to see how Auckland's activity is really going to be ramped up without the Government and or the council offering some types of incentives to developers.

Auckland Mayor Len Cook said this week that since 2007 the city had seen its number of construction companies shrink from 1200 to 300.

The Christchurch distraction

As if that’s not bad enough there is the not small matter of the enormous rebuild taking place in Christchurch, which is sucking up vast resources.

If the Auckland Council and Government really do try to keep the pressure on to achieve that 39,000 figure then the competition that will occur for both labour and materials is likely to be seriously inflationary.

That poses two potential problems; first, that the cost of the houses is higher than expected and second, that the Reserve Bank will start leaning heavily on interest rates making it more expensive to borrow money.

While increasing the housing supply in Auckland should theoretically reduce upward pressure on houses, the inflationary pressures stemming from the big build itself could offset that.

What this would therefore do to the aspirations of having affordable houses as part of the 39,000 is a moot point.

But all anybody can do now is to see how many houses can be produced as part of this accord and see if that really does make a positive difference.

A mistake

I personally still think it’s a mistake to believe that lack of supply is the beginning and ending of Auckland’s problem – even while accepting that the building of new houses in recent years has slipped to very low levels.

I simply don't think it is just a supply problem - I think there are demand issues as well.

Ultimately a government (accepting that it’s extremely unlikely to be this one) will probably need to do something that focuses on the New Zealand love affair with property as a primary form of investment. Whether that be capital gains tax or whatever, I certainly think that New Zealand needs the proverbial level playing field for investment options – so that housing is not the first, second, third and last choice for investment money.

But as things stand probably everybody needs to hope that the Auckland Housing Accord does make a positive difference.

The spectre remains of a country that will in future have higher interest rates and inflation than it should have, largely because people are fighting over houses in the largest city.