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Bernard Hickey argues the Government and Auckland Council should ramp up their attempts to change the expectations of land bankers about constantly rising prices

Bernard Hickey argues the Government and Auckland Council should ramp up their attempts to change the expectations of land bankers about constantly rising prices
"A great opportunity is here for the astute buyer with the new Unitary Plan indicating Future Urban rezoning on this conveniently located property just minutes from the main centre of Pukekohe. This unique proposition would suit a land banker ..."

By Bernard Hickey

Expectations are a powerful thing.

They're the reason as many as 45,000 sections in Auckland are just sitting there ready to go, with all the connections to water, power and roads - but no houses.

The expectations of a repeat of the doubling or tripling of land prices in and around Auckland over the last 15 years will do that to expectations.

It has created a dangerous dynamic for the economy and first home buyers in particular.

It means it makes a lot more sense for land bankers to simply hold the land in the expectation of tax-free capital gains and not bother with the messy business of actually building and selling new houses.

Land owners - it would be too charitable to call them developers - have over the years snapped up parcels of land that is zone residential (or might be zoned residential) in the bullet-proof certainty of land price escalation.

The 35-40% rise in Auckland land prices over the last two years was proof positive if they ever needed it that they are sitting on the biggest sure thing in the history of New Zealand investment.

The Metropolitan Urban Limit in Auckland acted as the biggest artificial constraint on land supply, helping to first turbo-charge and then gold plate those capital gains.

But is that about to change?

Building and Housing Minister Nick Smith would certainly like to give those expectations of forever-rising land prices because of land restrictions a kick in the guts.

He has his work cut out and it's a crucial task if the Government's Housing Accord with Auckland Mayor Len Brown and all the recently created Special Housing Areas are to be a success.

The risk is that tens of thousands of resource consents for sections simply sit there for years, being drip-fed onto the market to ensure supply doesn't crash the market.

That would be the economically rational thing for a small and disciplined group of land owners to do. After all, why kill the golden goose that laid so many big golden tax-free eggs for so long?

There have already been signs of land owners buying land in anticipation of getting Special Housing Area status and then sitting on it.

The only way to change that expectation is to force land prices down by doing whatever it takes to unleash a landslide of development.

That should be the openly stated aim of both the central Government and the Auckland Council.

That would, of course, be politically difficult to say out loud, but Nick Smith talked tough this week in announcing with Len Brown that 11,060 new sections had been consented in the first year of the Accord, which was 20% above the targeted 9,000.

They were also confident about hitting the second and third year targets for new sections consented of 13,000 and 17,000 respectively.

The Government is preparing to launch its policy announced before the election of doubling subsidies for first home buyers buying new homes and hopes this will tempt the land bankers out of their shells to actually build houses for these newly cashed up buyers.

Smith talked in particularly direct terms about changing the expectations of land bankers this week.

"If they see land prices continue to appreciate at 15-25% per year, then they will have the incentive to sit on their land and not to develop it, and that's why a critical part of the Accord is making plain that the Metropolitan Urban Limit is dead," Smith said.

"The Government and the Council are determined to release sufficient land supply and we're not going to allow land price inflation of the sort we've seen over the last decade," he said.

"I want the land owning development community to realise that the Government is serious with Council about freeing up land supply, and they cannot bank on ongoing high land price appreciation that has encouraged land banking over the last decade."

There will be a Mexican stand-off for a time to see if the tough talk turns into softer land prices.

First home buyers all around the country will be hoping the dam breaks and the more nervous land owners decide to jump first to avoid being the last whale beached in a weaker market.

We're over a year into the Government's supply-side drive to change those expectations and there are few signs yet that the land bankers are losing their nerve.

A simple search for "land bank" in Trade Me's Auckland property section yields a bevy of advertisements trumpeting pieces of land with Special Housing Area or re-zoning potential that are aimed straight at land bankers.

"A great opportunity is here for the astute buyer with the new Unitary Plan indicating Future Urban rezoning on this conveniently located property just minutes from the main centre of Pukekohe," says an ad for 6.22 ha at 87 Yates Rd. "This unique proposition would suit a land banker," it said.

If this continues and the consents for sections in the Special Housing Areas simply add to the pile of 45,000 existing empty sections then the Government should look at selling and developing its own land to properly shred those nerves and break the land bankers.


A version of this article was first published in the Herald on Sunday. It is here with permission.

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"Gut the RMA", whilst probably a good thing to some extent, could easily lead to cheaper sections followed in short order by cheaper houses, then a banking crisis and the glory of a Green/Labour/Communist government, with currency collapse and lots of inflation for deserts. Interesting times ahead I think. Ponzi schemes like our housing/finance one do not get resolved quietly.

and National or say ACT would have a different result? um no.

You miss my point, National will cause the ponzi scheme to collapse and will get booted out when it does. We don't elect a government, we boot out the existing one when things go wrong. We then elect whoever else is flavour of the month.
The danger is we move from the near centre to the opposite extreme and in so doing elect a bunch of fruitcakes (in this case the Chaotic Left, but in eg Nazi Germany, the extreme right).

Roger - We will never have satisfaction while we have a duopoly political system.

You know you have the un-erring ability to show yourself up as a extremist right wing nut job.
Sure Labour etc are too far left to win an election....but they are not xtremists like say left of the Internet party (or even them).
oh and calling someones the equiv of a nazi is a bit much.

Roger the way Key is behaving National will lose the next election regardless of what happens to the housing market.
Andrew Little doesn't look like a fascist meglomaniac to me. He has performed in a surpisingly grounded way and has been very effective at exposing Key's spin for what it is. 

I odnt agree on JK losing, I think enough people including almost myself ran from the left as the lurched from the centre-left, to the left.
That is what cost Cunliff the election and he fell on his sword, well deserved IMHO.
Rinse and repeat in 2017 and maybe even 2020.

Steven - All this talk of left and right is nonsense.
Back in the 80's when Labour sold state assets they were labeled "Ultra right wingers"
When JK and National sold state assets they were labeled "Centrists"
The Centre has moved to the right.
If you vote for the current centre then back in the 80's you would be classed as an ultra right winger.
In reality National and Labour policies are both a mixture of right, left and centre.
We use to have two socio-economic systems. Capitalism and Communism.
National leaned towards Capitalism and Labour leaned towards Communism.
Now that communism has gone Labour is forced to lean towards Capitalism which is the same leaning as National. That is why it is often hard to tell the difference between them.
For Labour to survive it needs to find a socio-economic system that is different to National
This same problen exists throughout Britain and Europe. As a result third, fourth and fifth parties are gaining in popularity (just like in NZ).

I dont agree with you here...

I'm not so sure that the socio-economic Communist system is gone it just took a different direction via the legislative process.........that is why NZ business is completely bogged down in statutory obligations!!!
The Labour movement won their battle via legislation. It is enshrined in law to protect labour at all costs. The health, wealth and stability for all employed people has priority over the health, wealth and stability of employers........
It looks like capitalism, sounds like capitalism......but when swallowed it is communism.

All Little has to do is follow Cunliffe's path and labour will loose IMHO.  His only chance is a lurch to the centre, he wont though as he's union, so whos the new leader for 2018? 

I think we have been through a very weird time politically. Dirty politics and Kim Dotcom sucked all the ozygen from everyone's election campaign. Post election I have never seen the media and public mood turn against a newly elected government so quickly.
For Labour Cunliffe wasn't the right fit -he was too cold and distant, Labour didn't campaign together as a team, they didn't explain thier policies properly. Post election Labour seems to have learned these lessons and Little has made a good start. Three years is an impossibly long time to make political predictions with any confidence but I would say Labour is in with a chance in 2017.

We'll See eh Brendon.  Honestly I dont think it was Cunlifee it was the steer left. With The "Internet" party which was the Alliance in drag plus the Green's not helping.  I also dont agree they have learned, the Greens sure seem not to have.
I think Labour needed/needs a centralist appearing leader, Little doesnt strike me as that person, but we'll see.  Lets see how he looks in 6months?

"They're the reason as many as 45,000 sections in Auckland are just sitting there ready to go, with all the connections to water, power and roads - but no houses"
(1) Just where are these '45,000" sections ? Break down please.
(2)  From what source did this figure come from?
(3) Are there other reasons rather than land banking why they haven't been developed further?
(4) Are they all "affordable" sections?
(5) From where does the notion come that these sections are being held for future capital gain?
(6) If indeed these 45,000 sections are ready to go with water, power, roads etc, what about other vital services to them e.g. good public transport, schools, shops, doctors, creches,etc? Without these services they would be almost useless.
(7) Logistics: Is the man power available right now to build so many houses, and if so how long would it take to build 45,000 houses?
(8) Are these sections reasonably near places of work or would the residents need to travel hours to get anywhere?
Let's start with the answers to these questions first and move on from there.

Not a chance in hell that they are titled sections sitting on formed streets with water mains running past the front gate. Let alone that all that other social infrastructure like schools and shops and health services exist.
Almost certainly these are in outline development plans; i.e. pieces of paper with lines drawn on them. As always the map is not the territory. The wonderful thing about outline development plans is that they tell land bankers exactly where to buy and guarantee them windfall profits of several hundred percent. Got to love them.

Yep...and better tax free as well.

CGT and a land tax.

There seems to be only two types of reporting/articles about land/housing...Glorifying/sensational and Scaremongering..Why ?

Feel free to wite your 'balanced' version. We may well publish it ...

This is the blogpost I wrote a few years ago..But times have proved that the Government is not really serious about solving the housing crisis..too many vested interests, may be ?
Quote :
The present state of the housing market and the housing unaffordability in New Zealand is being talked about so much, I think any thing the Government will do to improve the situation will result in demand going up, pushing the prices further. That will be another short-term fiasco.

The demand pull in the housing market is due to different reasons, viz, immigration, overseas investment, New Zealand being a small economy with limited supply of houses, the unwillingness of Government to free land and rules to improve housing stock, the attractiveness of living in a peaceful country and of course the benefits of having rental properties. Inspite of high prices and higher cost of mortgages, people are compelled to buy houses, because they see that as their economic and social security. The demand pull has to be reduced by making available alternative investment opportunities. The stock market is small and shallow with very little movements to interest speculators. Tax regime is against savings and income levels are low.

The solutions could be
1. Tax incentive to save money. Tax rebates for interest and mortgage repayments.
2. More housing finance companies in the market to push down the rates
3. Asking Reserve Bank not to be too pre-occupied with inflation. Renting and interest costs are anyway too high adding to inflation.
4. Alternative investment avenues with tax concessions
5. Raising pay levels to reflect the efforts of workers and to keep up with international arena.
6. Subsidies to exporters.
7. Streamlining taxation to make more surplus available at the hands of people. With huge government surplus this is not impossible. Why should the marginal tax rate for individuals be 39% when the highest tax rate for companies is 33%. Is this not indirectly subsidising businesses when the reality should be other way around?
8. Development of other regions of the nation to reduce the pressure on Auckland area. Subsidies and tax incentives and may be migration assistance to people moving to other areas may help.
9. RBI or Governemnt intervention in foreign currency market like in USA, UK may be required to bring down the high dollor

All these will add to government costs, but a little bit of higher inflation may be the bitter drug required to bring the market to good health. Then the demand and supply position will correct itself over a period of time bringing some sense to the market.

Sensational and scary are two sides of the same housing coin when you have a dysfunctional housing market.
In orthodox economics residential property is a consumption good; you buy a loaf of bread, you buy a night with a roof over your head. No difference. Some of our markets have gone pear-shaped and houses have now become a savings vehicle. Even our Prime Minister has proclaimed this to be so. In this environment people pay irrational prices for houses in expectation of a capital gain. Sensational if you are the seller and scary if you are the buyer.
I appreciate the effort you have put into identifying possible solutions to affordable housing but the king hit will come from just one solution and that is the solution to stupid overvaluation of land.
We could look at migration but for Auckland, natural increase, returning Kiwis, internal migration and migrating Aussies (all out of government control)  continue to dwarf migration from all other sources.
We could look at CGT but, unless the government has the cojones to impose a %100 tax on windfall gains it will always be worth a "farmer's" while to hold out for the highest price possible. And developers will never pay the CGT because they transform the land from a big block to lots of little ones - a perfectly legitimate activity in which any windfall gain would be completely buried from sight.
We could look at building costs but even if we sourced our building materials at the same prices as Australians we would knock only about $30k off the total build cost.
By comparison if developers sourced land for residential housing development at the cost of buying a farm as a going concern we would knock about $200k off the price of sections. Now, that is something worth doing.

Land banking is the instrument that transfers income from the productive working and entrepreneurial classes to the ticket clipping unproductive capital and bureaucratic classes.

it is one of many.

Investment into bare land is no different from investment into infrastructure or IP or shares.

People want return from there silly little currency tokens.  That's why the term "unearned income" was invented.   It's exceeding simplistic, especially when corporation is a form of collective action which preserves the ratio peoples sacrifice and effort (and unfortunately more preserves their political and social manipulation skills)

Central government and Auckland Council have to put their hands in their pockets and do some serious spending if they want to smash the land bankers. And that's not going to happen - ever.
Developers know that they have to sell fringe sections at around $300k in Auckland. The market has proven it will bear that price but not in the volumes that they would if the price was $100k. Why do developers have to sell at that price? Because the original owners know they have the developers by the short and curlies. It's not like developers can go and buy land anywhere else. Both the government and AC explicitly and implicitly restrict development to a woefully small area. So it's as much the lucky duckies who just happen to own land in the right places as the land bankers who reap the windfall profits.
All this government has ever done is talk. They never take any meaningful action so the landowner/developer group will continue to ignore Nick Smith.
Smith's outburst at the release of the first year's report on the SHA's was designed to mask the apparent miserable failure of that strategy. The failure of SHA's is telling us that RMA red tape is not the primary cause of slow development. The primary cause is the cautious approach to providing adequate infrastructure combined with restrictive planning rules.
The ball truly is in Nick Smith and Simon Bridge's court not the landbankers.

Bernard, if you go back over the history of land valuations you will see a pattern.
I can only speak for Christchurch but i expect all areas are the same.
Going back many years, to the time when Council planing was three yearly.
The pattern worked like this
1) - The councils new plan would come into effect with all the new land zoned residential.
2) - Now that new residential land was available prices remaind constant for the next two years.
3) - In the 3rd year everyone would complain about the shortages of sections and the price of sections would skyrocket
4) - Then the next city plan come out and so repeated all over again
Smart people (not me) bought sections about 14 or 15 months out from the new plan. Then sold them just before the new plan came into effect making a killing.
Then when it went to 5 years the same thing happened only on a 5 year cycle
You see the Council would allways (maybe deliberately) underestimate the number of sections required to meet the demand for the planned time period.
Bernard can you plot a graph of section prices in Christchurch going back 50 years. Then mark on the graph when the town plan came out?

(above) Actually i should have realised. The land bankers were causing the shortage.
However we cannot blame the RMA as it was not around then.
I seem to recall, years ago, that there was calls to tax undeveloped sections, to stop land banking.
This is not a new problem but it has gotten worse because more people are on the band waggon doing it.
Everyone is out to make a buck - money money money

Hugh Pavletich often comments that earlier generations of Council "planners" would actually co-operate with a developer wanting to leap-frog his competitors land banks, for the basic moral reason that it was inflating land and house prices. At some point planners ceased to be able to be appealed to on those grounds. I think "Planning School" degree courses were set up that were nothing more than indoctrination into deep green ideology, and the old engineers and economists and architects who had been properly trained and still possessed common sense, eventually all retired or were sidelined. 

Maybe the best aproach is
Rezone land to residential but if it is undeveloped after 3 years then it looses its residential status and reverts back to what it was before.

Interestingly, Colin Craig is the only political candidate who has ever suggested threat of compulsory acquisition. It is ironic that the Greens who don't give a stuff for property rights, never talk this way, I believe because they do not have the economic literacy to even start to understand that urban planning and growth boundaries cause price inflation in the first place. 

As a society NZ needs to decide whether people who work hard and do useful things should get rewarded or whether it is the people who don't do anything and obstruct others are the ones getting the big bucks.
As difficult as it may seem to change the current rules with regard housing, long term it is the right thing to do.
In the past we have changed the rules in a way that altered the balanced of rewards to the various groups in society. Importers lost quotas, parrallel importation was allowed, farmers lost subsidies, Beer barons lost the six o'clock swill and so on. Some groups faced difficulties, some even went bankrupt but in the end NZ was better off for it.
Once as a society collectively we decide to act then it is a simple matter to redress the balance between FHB and landbankers, between the productive and unproductive economies.
The government could take a sledge hammer to current cosy arrangement between planners and landers by compulsory purchasing land at rural prices and develope it themselves if landbankers refuse to release sections at competitive prices.
Perhaps less controversially MUDs could be allowed. Imigration could be reduced. Infrastructure could be provided. Planning rules could be relaxed.....
Ultimately the problem is not with the how it is with the will.

wont happen...BH's article lays it out and it will go no where I suspct.

Not so sure. The housing affordability debate has gone from utter fringe (i.e Hugh Pavletich) to more mainstream in the last two years. It is taking time but there is certainly a momentum building.
Articles like Bernard's are useful in that they keep the conversation going. They are not so useful in that they focus on non-problems. In all honesty this article has the right intent but is wrong in almost every respect.
But every time there is a chance to try to kill a zombie idea like immigration control or CGT or RMA red tape people take it in the hope that the debate will finally shift to the crucial issues of land supply and infrastructure supply.
Brendon is right to focus on political will. As a for instance, AC (or the government for that matter) could take a mini-swipe at land banking tomorrow and at no cost. There is a provision to renew a subdivision resource consent when its time runs out. This is useful fo developers because the time-consuming part of many developments is usually getting the RC application though the council. It is really worth while to get that done well in advance of getting the bulldozers rolling (which is when serious money starts to flow). So developers can resource consent bank on top of land banking. This allows them all the time in the world to finesse the market or drip-feed as Bernard puts it. Right now AC charges a developer a measly $750 to extend a resource consent. In the context of multi-million dollar developments that is a small price to pay to pick market timing to perfection.
Bearing in mind that neither councils nor government want to take the actions that would actually make housing affordable for all it is no surprise that they won't even take a simple action like stopping renewing RC's.

Apologies, Bernard. I have just re-read your article and I get your point. It was too subtle for me the first time round :-)

Steven it has been by experience that NZ has either constipation or diarrhoea with regard to reform. We are currently constipated. I would say NZ is in a situation a bit like 1981. We need to make adjustments to a new economic reality but we are doing too little too late. The danger is that along comes 1984 and we do too much too quickly and end up throwing out the baby with the bath water.

The only time a Govn will act is when they are forced to and then then over yes I agree.
Labour will with leftie Little lose in 2017 and then by 2020 we'll be past peak oil and it will be ugly.
Most of the  "rich's" wealth is based on finance, and in turn oil and BAU, it will vapourise as fast as our economy IMHO.

Want to make a Simon/Ehrlich bet about 2020 and the impact of "peak oil", Steven?
I bet the current revolution in fracking/shale etc and the falling fossil fuels price is going to last beyond 2020. 
Did you even see it coming? 
I would also bet that "peak oil" will come late enough for technology to have resolved the energy problem. You will die a disappointed Jonah, Steven. And I don't even know how old you are, I am presuming young, because most people have got a bit more suitably skeptical about doomsaying by the time they are older. Except the saaaad old Greens, and given the frequency of their youthful flirtations with communism in most cases, their sincerity about resources and enviro is probably nil. 

Then again, everybody assumes a great shortage of sections.
If land is released and causes building and land price to fall there are many loosely held rentals available quickly to be bought by owner occupiers given a pricing adjustment downwards.
Hence many less sections really needed.

There is a shortage because the land bankers keep it that way.  So really they are the problem not the councils.

Land bankers could only create an artificial scarcity and raise prices by operating an illegal cartel. We only have land bankers because there is a shortage of the raw commodity : land. And that shortage is caused by council planners and engineers.
Land bankers are the symptom of a dysfunctional development system not the cause.

Mostly right, though I think the land bankers are multiplying the problem when in fact there should be no severe problem.  So really there is a fix, put a CGT and a land tax so the land bankers start to hurt.

Glad that Kumbel can make you see some sense.
Land taxes might indeed go a long way to making planning of growth via intensification a lot more effective. Under the status quo it is nothing more than enabler of a rentiers paradise.
The latest McKinsey Global Report on Housing Affordability says that 45 percent of sites in London with development permission, are sitting idle. This is the direction we too are headed in. Ironically, Houston is probably the one city in the first world where the most intensification is going on. Dallas and Indianapolis are doing well too.
Please try and understand this. Urban land sites in a land-rationed market are not "a factor of production", they are "gold". Actual development is unnecessary and even a mug's game. Development permission, especially to do higher densities, capitalises straight into the site value without it being necessary to actually DO anything with the site. The person who might DO something with the site, has to first pay to the site owner, the value that represents the full level of rent extractable from the DEVELOPED site. There is almost NOTHING in it for the actual DEVELOPER except a whole lot of hassle and risk.
This is why Plans that presume growth will be catered for by intensification within a growth boundary, are doomed to failure in terms of actually housing people adequately at any price. In so far as population density has been increased within growth boundaries like those in Vancouver, Portland and UK cities, it is almost all through overcrowding, not added floor space.
Cities like Houston, Dallas and Indianapolis are going gangbusters building "up" because their local economies are going gangbusters and there is functional needs for added floor space in vital locations, and honest operating rental income to be made out of building it. the site cost is peanuts because the urban land rent curve is low and flat, because there is no growth boundary multiplying the raw land cost by a factor of tens of times at that point.  

steven, too often when we discuss housing issues at this site we (and I mean the collective we) seem at times to talk at cross-purposes. Terms like "land", "property", "infrastructure", "owner", "developer" etc mean slightly different things to differnet people. It does not help that some terms like "speculator" and "landbanker" are emotionally charged terms.
I find it useful to think of land as an abstract concept, a squiggle on a map. In the abstract, land has no value. For the purposes of the discussions we have here land gets value placed on it three ways:

  • for what is on it naturally (dirt, timber, minerals, water etc)
  • for what has been put on it by us (fences, buildings, landscaping, irrigation, roads etc etc)
  • for where it is

The relative importance of those three factors varies depending on what use you put the property to.
So someone intending to run a sheep & beef operation will place a value on the productiveness of the land and the improvements on a specific property. But, if all other things are equal, that kind of farming business will make the same amount of money regardless of where it is in the country so location is a long way down the list.
Completely different story once you convert that farm into urban plots. Now, what's naturally on the land doesn't matter at all. But where that plot is relative to something else important like work, schools, shops etc is. And the most important location is within an area where (a) you can get permission to urbanise without too many dramas and (b) there is some commitment to supplying public infrastructure to the property at some time in the future.
What I and others are trying to bring to notice is that the transition from farming to urban uses is very badly managed in Auckland. When a farmer sells land within a residential zone today they get the price not only of the current use but also they get paid for the future use of the land even though they will do nothing whatsoever to bring about that change.
Sorry if it lookslike I am singling you out or talking down to you but this has to go somewhere. When I get time I would like to explain what I think the roles of landbankers, developers, speculators and so on are in this transition.

You are now seriously good at this stuff, what kind of study have you been doing? 
It is not a good look for the remaining intransigents on this site, with such helpful insights and patient explanations being offered by the genuinely objective and fast-learning participants.

Pretty much the same effect as what you describe, Kumbel, with rural land owners reaping the urban value in advance without doing anything, is also what happens with the owners of already-urban land when it is upzoned. 
The big fat rentier class is actually just as much about upzoning as they are about fringe growth containment. In a city with fringe growth containment but low density zoning, they can't gouge anywhere near as much economic rent. Boston is a classic example, it is about half Houston's density and 1/10 the density of most UK cities - and yet its house price median multiple is directly comparable to the UK cities where average private space per household is 10 times less. 
Basically this is all about something called "the price elasticity of demand for space". You can force people to pay $300,000 for a 1/10 of an acre section, which translates into greenfields land rentiers being able to hold out for $2,000,000 per acre from developers, but if there is a 1-acre minimum section size mandate (which is the sort of thing that goes on in Boston), you cannot force people to pay $3,000,000 for each 1 acre section or force developers to pay $20,000,000 per acre. So the big fat rentier class has only won half the battle by getting growth boundaries imposed: upzoning is the full-metal rip-off. 

Kumbel – your spot on in saying that land bankers are the symptom, with the cause being a dysfunctional development system that has been turned into a revenue generating scheme by council.
And Central Govt. are further throwing petrol on the fire of unaffordable housing by how they are releasing (not) land.
They fail to understand basic supply principles and how these motivate people. If you start with a large RUB and then a smaller MUL and then an even smaller SHA, further which council supply relative small amounts of infrastructure in a predicable linear fashion, and is further compounded by only some of the property owners wanting to develop NOW, then you are REDUCING the amount of affordable land available, not increasing it.
Also any land that is with in these areas was purchased prior at the higher inflated price, with the expectation of further capital gains growth and therefore the owners will not/cannot lower the price to where it needs to be to make the developed land affordable.
Further the owners of much of this land have the ability to hold this property long term, many have paid cash, and thus the holding costs of sitting on this land are minimal. Only those who have used borrowed funds are vulnerable, yet if they cannot develop at the inflated price profit, their funders will eventually end up with the land and will resell the land to recover their capital and it will more than likely be purchased by the long term cash buyer. This cycle is set and the length of this cycle is way way longer than any political cycle.
All the SHA’s have done is further strengthen the position of the corporate land bankers   albeit they have to still deal with council but as George noted,  
"No question now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which."

GREAT comments, Kumbel and Dale. Experts like Hickey himself are taking years to convey to their readers, the vital pieces of the overall jigsaw puzzle. Do they get it themselves or is there a problem with putting the facts out there?
The developers are "meat in the sandwich". Mostly they have PAID the original land vendors a monopolistically-derived price and now CANNOT build and sell housing "affordably" without going broke! The original land vendors have taken the super profits that ultimately come out of first home buyers pockets, and the stable door is open and closing it is pointless. 
This is all so self-evident, one wonders at the motivations of the people who have spent YEARS swamping discussions with red herring diversions and worse. The various paid media pundits are bad enough, but presumably some of the more rabid commenters on discussion threads share the ignorance or dishonesty of the paid pundits, only lack the restraints of ettiquette that govern the latter. 

It's dwellings not sections that really matter. Admittedly for the last 80 years they have been pretty much the same thing. But it is dwellings we need and not the equivalent of battery hen farming.
We can argue all sorts of principles and theories until we are blue in the face but there are some stark realities in Auckland:

  • Already 20,000 - 30,000 dwellings short in December 2012 (according to Auckland Council) - that's around 50,000 people poorly housed already
  • AC think they need 13,000 new dwellings each year just to keep up with population growth
  • Statistics NZ estimate Auckland's growth last year at 2.4%. If you estimate 2.4 people per dwelling that's 14,000 dwellings. There's bound to be some problems with Stat's numbers as they catch up from the late census but it's in the ballpark.
  • In the last year Auckland didn't come with within a bull's roar of creating the dwellings needed for one year's growth let alone making a dent in the deficit. The figures produced by AC and the government were 7,000 dwellings consented and another 4,000-odd sections consented (note that, as I point out above, developers can bank consents to create sections as well as bare land, so they hardly count as new dwellings)
  • Since December 2012 the 20,000 - 30,000 deficit in houses has grown to 32,000 - 42,000 or about 87,000 people unhoused or poorly housed.

Auckland now has the equivalent of Palmerston North pretty much sleeping in their cars because neither National nor Auckland Council care enough about them to do something positive.

Just to be the devils advocate Kumbel. What if Auckland never gets the predicted population increase? What if Canterbury continues in the decades to come to grow faster than Auckland? According to the stats on this website for the last year more building consents were issued in Canterbury than Auckland. New house/land packages are cheaper in Canterbury. Greater capacity is coming on stream in Canterbury with the Mike Greer factory (900 houses a year). Maybe Auckland has priced itself out of the market?

It is a fair challenge. Already a number of retired Aucklanders are selling up and moving out, to Tauranga or similar. Once other cities have the critical mass to provide the positive things that significant cities have, including Tauranga, Christchurch, Queenstown, and satellite towns near Auckland, prices just may level out somewhat. Will baby boomers move out en masse? The internet based world should make a number of occupations manageable somewhat remotely. Transport options could work for smaller cities differently but on balance, as well as or better than Auckland.
We can fill up Auckland with even more immigration but am not sure that is an optimal solution. It probably though is the more likely scenario. And immigrant communities will likely congregate where the jobs are, and where their fellow countrymen appear very comfortable. 
Some planning to house a continued increase would seem sensible. Current prices suggest we haven't got it right.

Yes Stephen L I think several areas have the potential to grow faster than Auckland in the coming years. Waikato towns, Tauranga/Coastal Bay of Plenty, Greater Christchurch, Wanaka/Central Otago Lake towns.
If NZ properly devolved funding and resources to local/regional govenment I think more places would be added to that list and NZ would have a much more balanced economy.

Indeed hopefully the retired will look at the substantial windfalls cash up and move out.

IF New Zealand had a city or two that deliberately placed themselves as the affordability, pro-growth alternatives, Auckland would become NZ's New York/San Francisco - the place people leave from, either because cashing up is a winner, or because they are young and/or undercapitalised and "opportunity" is better elsewhere. I include entrepreneurs in that latter. 
There are some really great urban economists in the UK who have been trying for decades to persuade any city there that will listen, to position themselves in this way; the utter failure to achieve any kind of breakthrough along those lines does not fill me with hope that Hamilton or Christchurch or anywhere here, is going to do it, ever. Preserving farmland from urban sprawl is an article of faith of the new Established Church. 

Invercargill did that.
It did prove to be popular.....but it just doesn't have the big career opportunities or the lifestyle some people want

That is a good call - but existing size (and to some extent, location) matters. What can be said for Invercargill is that it is probably a lot more thriving than if it ran its policy like Wellington or even Nelson. 
Maybe Invercargill will make it one day as NZ's opportunity urbanism metro given enough time in the face of all other metros carrying on strangling themselves. I have always agreed that Houston and the other US "focus on fundamentals", non-s*xy cities would not be growing as fast as they are if it were not for better-endowed cities foregoing growth opportunities. 
ChCh is the city that has the existing mass to become NZ's opportunity urbanism metro overnight if the right political revolution occurs. Hugh Pavletich for Mayor......!!  Pity he doesn't want to be.

There is a great opportunity for Hamilton City and the corridor through Waipa and Waikato to siphon both manufacturing and population away from Auckland. Christchurch has an opportunity also but not as good as Hamilton's.
Trouble is Hamilton City Council and/or Christchurch City Council would have to wake up to what it would take on their part to make it happen. No sign of that enlightenment happening any time soon :-).
Of course anything could happen to populations. In an ideal world we would have a development system that responded instantly to market signals. Instead we have the dead weight of Ten Year Plans, 30 year Infrastructure Strategies and Infinite Year Development Contribution Policies. Our development system is fossilized right from the start.

Agree completely, I said something similar my own way just above. 
The problem is part NIMBYism, part "money talking" (rentier vested interests), and a LOT of ignorance and misinformation in which the mainstream media plays a culpable role. 
Like, people have this idea that if their city grows out onto greenfields, it will create added traffic congestion. Hint: trying to add all your growth by way of intensification instead, most definitely makes traffic congestion a LOT worse still!

You have probably already caught Stat's "Commuting Patterns in Auckland".Some fantatsic details in there. Just two that come to mind are:

  • 5,000 commuters from Waikato District travel into Auckland to work; 2,000 from Hamilton City
  • In Franklin and Rodney (the fringes of urban Auckland) about 45% of workers work inside their own locality

And that is such a familiar story, all over the world. Look at the commute data by location, for Tokyo workers:
Or New York greater urban area:
The "Commuting Pattern in Auckland" stats should have the voters revolting over the CBD Rail Link project costs, given the miniscule proportion of actual travelers it will benefit. 
Have you seen Andrew Atkin's latest video?


The permanent arrivals statistics data is back-ward looking
The sum of the past 12 months adds up to 45,000 arrivals - boom boom

The last 2 months (only) permanent arrivals were 6,000 per month
On a forward-looking basis
That's running at an annualised rate of 72,000

Of which 80% stay in Auckland

72000 * 0.8% = 57000 stay in Auckland

Applying your 2.4 units per household
57000 ÷ 2.4 = 24000

So just to keep up with inbound permanent arrivals AKL needs 24,000 dwellings pa
Just to stand still
PS: that's a growth rate of 4% excluding natural growth

I don't think 80% of immigrants go to Auckland. Certainly it is greater than Auckland's population percentage but 80% is stupid. That would mean you would hardly ever meet an immigrant in Christchurch or Wellington or some smaller place because they were all in Auckland. I think a smaller number like 50% is about right. Also a much higher percentage of the current 'immigrants' are returning kiwis so are more likely to return to their home towns/cities.

80% is using a figure that has been reported here on a number of occasions. How come you've never challenged it before?

Not sure why I haven't noticed or challenged it before. It just doesn't seem right. Do you or anyone else have some statistics that could confirm what percentage of immigrants go to Auckland?

Really happy for you to play with the numbers, ostrich and two other guys. I am just pointing out using the best numbers available to me - mostly from Auckland Council but also from Statistics NZ - that the housing deficit in Auckland has got worse since the big SHA push. Your numbers may mean its worse than I think. 
Alas Smith and Brown are talking 13,000 new dwellings a year but each year that we don't meet just what is required to meet increased population is a year when that number goes up if Auckland is to wipe the deficit. Auckland now needs to think about 20,000 dwellings a year.
I am not surprised that Auckland may have an occupancy rate of 3.02. Somwhere I read that they are aiming at 2.4 and 2.4 is used in other parts of the country. Remember that Auckland is overcrowded so 3.02 may not be an aspirational goal.

Kumbel your battery hen farm link is pretty horrifying for a country that used to pride itself in how well kids were bought up. It is like we are heading back to the days of "How the other half live -Studies of among the Tenements of New York" (1890) by Jacob Riis one of the first photo journalists. Or maybe Dicken's England that many of our ancestors gratefully escaped from.

I asked 8 questions and neither BH or anyone has answered them.
Conclusion:  this is a non-story about a problem that doesn't exist. 

BigDaddy AKA Olly Newland the days when representatives of unproductive capital (rentiers) like you could dictate and frame the debate are well and truly over.
The hardworking productive classes are not going to let the likes of you manipulate the consensus in a way that doesn't meet their needs.

I have given up saying I am not Olly but I am in a similar business as him.
Your venom and obvious envy proves you are beyond logical discussion and hence dismissed.
Rentiers provide a vital service to the community with supply of shelter for the deserving poor and lower classes.
They also provide hundreds of thousands of jobs for trades by developing, renovating  and building new. 
How do you do away with rentiers without destroying those who build or develop?

Well BigD that is not Olly but similiar to Olly I will take the venom comment as a compliment.
Me, Bernard and others do not want to get rid of developers, landlords, realestate agents, bankers and so on. They should be a normal competitive businesses with normal rates of returns. Really there is nothing special about what these rentiers do and they should be boring but safe businesses with modest returns. We should change the rules so that this becomes the norm. If as an emergency measure that means the government developing its own land to break the landbankers cartel well so be it.
Really it is not about envy. It is an aspirational message of those who work hard will get rewarded for it. While those that do nothing will not.
Before you say this is socialism or communism. My thinking is this could actually save capitalism which is grave danger buggering itself up.

You are too kind, anyone that thinks that being a rentier is benevolent is seriously deluded.

Look at the RE sites for any US city with a median multiple of 3.
Competition forces landlords to treat their customers well, just as it does in every other line of business. Quota schemes in anything will result in prices going up, and arrogance of the service providers going up at the same time.

you are incorrect and biased.
you assume that everyone has the capital or wages to buy what they need or setup whatever business the need, or that consignment stock is available on demand without retainer.

Adam Smith had a timeless quotation on this point.
"It is not to the benevolence of the butcher or baker that we owe our dinner, but to their own self-interest".
In a way, Scarfie is right, but the point is irrelevant. People are driven by self-interest regardless; free and unrigged markets simply direct that self-interest into maximisation of production in which there is consumer surplus rather than economic rent. 
Providers of goods and services in competitive markets, motivated by their own self-interest to fulfil the needs and wants of customers, do not need to be benevolent, but are doing good regardless. "Rentiers", though, is a term that is not synonymous with "landlords" - it actually refers to anyone who seeks and gains "economic rent", which is like a price-gouge over and above what people would pay for something if there was a genuine free market. Housing and urban land is an obvious glaring example of this in action. 
The owner of land inside a newly imposed UGB is a "rentier" even if he is not a landlord, and merely sells the land for $40 million instead of $2 million. The $38 million is pure "economic rent". Take a bow, Councillor Burrill. 

Change that to percieved self interest, for there is nothing like working collaboratively for all concerned :-)
The rich man seeks to accumulate happiness through wealth but unfortunately the door closes by his very action.

Sorry, but the notion of saintly-minded people "working collaboratively for all" is what underlies the miserable failure of all communist economies. 
Even the early Puritan immigrants to the USA tried communalism and nearly starved the first year, before wisely instituting a system of private property rights to ensure their survival.
The famous Captain John Smith, no less, wrote:
“When our people were fed out of the common store, glad was he who could slip from the labour, or slumber over his task, he cared not how; nay, the most honest among them would hardly take so much true pains in a week, as now for themselves they do in a day”.
And Governor William Bradford:
“Private property…...made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the governor or any other could use……”

You are not getting it sorry Phil and I can only put it down to a lack of the experience. I am not talking about communisim, I am talking about daily activity that goes on all around this country under your nose but most are oblivous to. Try the hospital a the first port of call.

Another example of economic rentier activity - it is not purely about the owners of greenfields sites inside a newly enacted UGB: ALL the land inside the UGB inflates in price. 
If the land at the fringe is 20 times more expensive than it should be, the land in the CBD can also be up to 20 times more expensive than it should be. This is often where the BIG vested interests in economic rentier activity are to be found. The values there are a lot higher than on the fringes. 

The once-famous econometrist and land economist Colin Clark made the following argument in one of his last books, "Regional and Urban Location", 1982.


".....If rail and subway services to the center of large cities were charged at full cost....two consequences would follow. The employers of the lower paid workers in the city center would have to raise their wages, reduce the level of service offered, or move to suburban locations......Meanwhile the higher paid......would have an incentive to move their residences closer to the center...... .


"......These movements would have their reflection in the price of land.......In net effect, the subsidies on rail and subway transport are subsidies to the owners of certain types of land - for which there is no social justification......"


And see also the series of articles by Ross Elliott on the issue of transport "investments" regarding CBD's, linked from HERE:


Don't poke the bear, Brendon.

Sorry Kumbel I couldn't help myself.

This has nothing to do with Capital gains tax .
Vacant fallow unused land will never generate a return ........ zero .
It follows therefore that if you invest in something that generates no return whatsoever , you are speculating for gain in a high stakes game
Its quite simple , if you buy an asset such as a peice of land and do not use it at all to generate income , you are SPECULATING  in that underlying asset .
There can be no doubting the property owners (taxpayers) intention .
The sole purpose for the transaction is speculation for gain .
You should therefore be deemed a Speculator in land if you buy and hold more than one peice of vacant land in a five year period .
The profit should be taxed just as any other property developer or speculator  pays taxes

That profit already should be taxed under the current rules. The IRD just takes time to catch up with everyone doing this, at least partly because there is a myth that you DON'T need to pay taxes on these profits. 
Of course actual capital gains are required, not "on paper" ones, otherwise the whole system becomes incredibly messy. Targeted land taxes are really the simple way of achieveing what you are suggesting. 

We , like many others are sitting on urban sections that can be subdivided and/or take 3 x 3 or 4 bedroom homes
But the costs before even turning a sod from local the council at this piont in time stop this from happening.....
So we simply sit on our land bank and let shortages appreciate it, till we we can no long take care of the extensive gardens and the grandchildren have grown up.
There is a shortage, but unlike in previous decades , the local council (manakau/ Auckland) are more into figering out how to balance the books that sort these issues out. If the where then far more consesions be given to  filling in as happened in in Papatoetoe around the tranition of Papatoetoe City transition into the new manukau city , at the time.
Auckland council say and what they do are 2 very different things...Central government needs to get off their butts and step in like they did after the CHCH earthquakes...and stop postulaing with red herings about things like stupid regulations. They know they are here, step in with a few commonsence ppl and deal to the matter.

WhaleOil, routinely smeared and written off as fringe right-wing dirty politics blog, is NZ's most-viewed blog by a wide margin for a good reason. It actually covers important and topical issues like these.
A classic illustration of “new media” doing the investigative journalism and carrying the commentary that is contrary to “the establishment”, that the MSM won’t. I could provide a lot more links too. Check out this, and have a browse of the site for yourself:

Good thread.
The issue rarely touched upon here is of course that of existing land plots' prices/valuations.
Flooding the market with (say) $90K sections:  costed out as:

  • raw rural land cost of $5K for 600 m squares
  • services $30K
  • roading, reserves, landscaping $50K
  • throw in $5K for the Council to have a Festival or two

should/will have an instant effect on the values of comparable existing plots.
This is simply the converse of the existing 'price-osmosis' effect, unwittingly or cluelessly set off by economically illiterate planners and Councils:  anything - ANYTHING - which causes plot prices to rise, will transmit to existing plot values via a variety of well-understand means.
But the ratchet-effect of plot price rises is generally seen as positive (except for FHB's who as not-yet-property-owners, don't count):

  • unearned CG for owners who choose to cash it in either via equity withdrawal or just selling up
  • increased interest revenue stream for banks
  • increased commissions and ticket-clipping throughout FIRE in general

Whereas the negative-ratchet effects of plot price falls are generally seen to be negative:

  • the equity-withdrawers go underwater almost immediately
  • FIRE has to subsist on smaller revenue streams:  redundancies, losses, higher provisions for bad debt etc
  • capital effects on banks as ratios need somehow to be preserved
  • which effects may well include a lesser percentage of loans offered to RE in general, thus clobbering the FHB's
  • the cash-er-up sellers suddenly experience limitations in choice as their purchase pot shrinks
  • highly leveraged multi-property owners experience leverage in reverse (yes, Virginia, it happens - check out farm sales through the 80's) and are forced to bail and in a domino effect.
  • jingle mail, as highly underwater owners simply walk - check Doctor Housing Bubble archives for amusing stories here.

The cycle can certainly be put into reverse.  But, and as the Christchurch earthquakes have all too graphically illustrated, the underlying capability of everyone involved to actually manage this sort of event, from form of contracts, to case management, to Council capability, to Government action - is just not there.  
There's no real preparation for any of this.  And certainly no political will - it's a 'third rail'.
It's about the same level of preparedness as for a Carrington event.....

The land owners don't create land scarcity.  Land scarcity is being created mostly by rampant immigration.   All the land owners are doing is holding on to what they own - what they've paid for and what they are therefore entitled to. 
I'm not a land banker.  I dont have any vacant sections but I don't like the way people always want to steal other people's things (in this case their ownership rights).  I would also like to see answers to some of Big Daddy's questions (above) to see how much of this is fact and how much is prejudice. 
Rampant immigration rips off NZers.  If, over a number of years,  we double our population through immigration, then each share of NZ that could be attributed to the NZers at the start of the doubling will end up being half what it was at the start of the doubling. And obviously land will be more expensive. I know we were all immigrants at one time but that doesn't change the dynamics at all.
Perhaps land price increases would be a little slower if councils and government weren't also using their ratepayers/taxpayers money and monopoly powers to compete against their citizens to invest in land, manipulate land price rises for their gain and waste.
I believe NZers have undervalued our NZ land for a long time. NZ land is in a safe country where ownership mostly means ownership (some exceptions). That's why, now that we are part of an international property market, there has been so much catch-up with the rest of the world (with the world's exploding population)  and how the rest of the world regards our property values.  
Every NZer who has any motivation might do well to consider investing somehow in property (no guarantees of course) - not necessarily for monetary capital gain but as a defensive preservation strategy against loosing the ability to own land, against the pressures of an overpopulated world (future food fights etc) and the affects of immigration and foreign ownership.

NZ's population growth, particularly in its cities, has been far higher than it currently is. Immigration and population growth is a red herring diversion by people who are ideologically and financially vested in keeping the racket going, enabled by urban planning. 
There are US cities that have been stable at house price median multiples of 3 for decades, where the population growth is 20% per decade. Houston, Dallas, San Antonio, Austin, Atlanta, Indianapolis, Nashville, Raleigh, Charlotte, many others. Just build freakin' houses! We actually have similar abundance of land, believe it or not in this age of Google Earth where any fool can see for themselves.

If sea levels rise there could be even more competition for land.

There is no shortage of land. You could overnight zone enough land to double Auckland's population by making all lifestyle blocks residential.
The problem is lack of supply. If houses were built as fast as population growth (whatever the source) then house prices would not go up. Presently, we have a massive shortage and going backwards. This will not end well.

Correct Kiwimm. Immigration doesn't help but it is a red herring. Lack of supply of affordable sections, not just sections per se is the issue. They can release all the sections they like under the present dysfunctional system but since the underlying land was paid for at an inflated value, then the sections produced will still be unaffordable.
Add to that the time and cost burden of dealing with council and up it will go. Under this present system the only way down is via a crash where naïve land bankers and developers enter the market (as they are doing now), and temporarily flood the market with overpriced sections, cannot sell in the timeframe needed to service debt and go broke.
 If its general trend is wide spread enough, the funders will try to hold up the market to protect their investment. The fall in prices is never as far as the boom was up and is still overpriced. Land bankers that can afford to sit it out do and the shortage soon resumes.
I cannot see anything that the Govt. has done to date that will ‘manage’ affordable housing into existence as well as they have mismanaged unaffordable housing into existence.

Nicely put, Dale.
It's obviously not an easy story to tell about why landowners sell their "farms" for what they sell them for, why developers hold onto their land before converting them into sections, why they have to sell them for $300k on the fringes and why that price makes a state house in Grey Lynn cost over $1m. It helps having someone with your experience cut the crap and tell it like it is.
There is only one solution to providing affordable housing (and, thereby, releasing billions into the producive economy) and that is for central and local government to pro-actively build the infrastructure required to support development.
We will continue to recycle the red herrings and the government may even having a go at "fixing" them until they are all proven to be side issues:

  • immigration
  • Resource Management Act
  • cost of building materials
  • preserving farmland

Government and councils just don't want to face the fact that they can't talk the market down and that they will have to spend real money to bung a circuit breaker into the Auckland market especially.

Kumbel: for some years now I have followed your articulate presentations on this subject - I remain unconvinced

Thanks for reading them anyway.
What I will say is that I follow what appears to me to be pretty straight forward economic logic, informed in my case by some years spent working for a council. I always look for systemic problems first before I hunt for villains. If you have ever read any of Peter Senge's Fifth Discipline books you will know what I mean. So, before I put the boot into land bankers I simply ask myself why do they do what they do? Of course there are elements of greed in there but development is an inherently risky business so the rewards have to be high to offset that risk. I believe the development system partly forces landbankers down a certain path and then rewards them for going there. I would like to see the system changed; I am less worried about the developers' moral condition.
I have also found that it has paid to stay active in the commentariat. I have radically changed my position since I started commenting and I have certainly refined my ideas by articulating them and by doing the research required to respond to criticisms. It has been well worthwhile.

Kumbel..  just want to say...  Ive followed your comments over the yrs ...and I've become convinved...
SO...  many thks for posting....  

Thanks, Roelof, much appreciated.

I concur. I have watched Kumbel's position evolve exactly as he is claiming; he is intelligent, open-minded and an excellent learner, from observation of reality as well as others arguments. If someone does not "get it" from Kumbel's exemplary explanations now, they never will. Dale and Brendon and others are also really helping the understanding of these issues forwards. Interest dot co dot nz is slowly becoming somewhere that can be visited to get at the crucial points, thanks to certain regular participants in comments threads. It is baffling that so many formal media pundits remain so unhelpful.

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