Time Govt fronted on Auckland houses

If it believes its own words the Government should be prepared to take centralised control of Auckland housing development

6th May 15, 4:43pm by David Hargreaves

By David Hargreaves

If the Government truly believes that the scorching Auckland housing market is 100% a supply problem issue (as it claims) then it should have no qualms about calling the Auckland Council's bluff and simply taking centralised control of housing development in New Zealand's largest city.

The Government keeps banging on and on that the heat can only be taken out of the Auckland market by building lots more houses, as soon as possible. The Auckland Council is now seemingly putting a spanner in the works.

Okay, so what comes next should be reasonably uncomplicated. If the Auckland Council won't open up greenfields land for more houses, the Government can and, again, if it truly believes this is all about supply then it should being doing it right now.

Building and Housing Minister Nick Smith was at the time insistent in retaining special "over-ride" provisions in the Auckland Housing Accord's enabling legislation the Housing Accords and Special Housing Areas Act 2013.

This was despite resistance led by Auckland Council's designated 'bad cop' on this issue, deputy mayor Penny Hulse.

I thought then, and still do, that the legislation gives the Government too much power.

In essence the Government can, after giving six months notice to terminate the accord with the Auckland Council, start centrally controlling Auckland's housing approvals and development processes. The one significant change brought into the legislation due to resistance to the over-ride provisions was that there is now a "dispute resolution process". Goodness knows quite how that would work and it does sound a bit messy, but presumably it would not prevent the Government disentangling itself from the accord and getting on with running the Auckland house market from Wellington.

NIck Smith fought for this power. Now that it appears he needs to use it, well, come on Nick.

That the Auckland Council and the Government would have a falling out over the housing accord and the building of more houses in Auckland appeared inevitable from day one.

Personally I think the council has been too cute by far and for its own good in creating an issue now.

It seems clear that the council has seen the Government's vulnerability over the housing issue and has elected to attempt - in not very subtle fashion - to exploit the Government's discomfort and squeeze it for more cash for infrastructure. Which is not to say that it isn't a valid issue to raise the whole question of where money is supposed to come from to build necessary infrastructure that goes with new housing developments.

But what the disagreement with the council really seems to boil down to is that the Government is rejecting the council's ideas for toll roads and ratepayer levies - for reasons which frankly mystify me - so the council's trying to apply pressure to vulnerable parts of the Government's collective anatomy - whilst trying to seem very civilised about it.

So, therefore, we come back to the beginning.

The Government is painting the over-heating Auckland housing market as a problem that is all about supply. The Government can therefore right now ensure there is no impediment to the supply and use those centralised powers it wrestled so strongly to retain.

Surely, it is a no-brainer. Unless, perhaps, the Government doesn't really think the Auckland market issues are just all about supply and that maybe strong demand for investment housing is something to do with it as well.

After all, if the Crown were to take control of the Auckland housing market and wasn't able to fix the housing affordability problems by waving it's supply wand, where would it go from there?

If the Government had to concede that maybe just a bit of Auckland's problem is a demand issue stemming from: Record numbers of migrants coming in, overseas investors buying (how much we don't know, we don't have figures), and Kiwis buying up large in anticipation of capital gains because interest rates are so low, then maybe the Government would also need to concede it might have to do something to quell demand.

And clearly, it doesn't want to.

This fight with the Auckland Council I think is a massive test of the Government's credibility.

I would reiterate: The Government should put its actions where its mouth is. Either take direct action to ensure large numbers of houses are built in Auckland. Or concede the real multi-headed nature of the problem and start looking for some comprehensive answers.

Tackling demand right now would be a start.

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50 Comments

by iconoclast | 6th May 15, 6:34pm 1430894059

After 7 years of watching and looking and talking it has finally come down to this huh?

5 years of chatter
2 years of sledgehammer politics
Now the 10-tonne wrecking ball

All in the name of supply supply supply supply supply supply supply

It never was supply

by Kumbel | 6th May 15, 9:26pm 1430904408

The SHA never was about supply that's for sure.

Seriously, if you analyse the 70+ pages of the Housing Accords and Special Housing Area Act 2013 it boils down to one thing: enable business as usual while the Proposed Auckland Unitary Plan is being put in place. It is really a minor procedural tweak to let the same old planning processes continue as they were before. AC's planning processes were already constraining housing provision so that's what would continue to happen.

What was really obvious at the time was that there was no plan for infrastructure provision; it was just assumed it would happen. You can't live in lines on a map so without basic infrastructure real houses were never going to happen.

So both parties were really pleased to be appearing to be doing something even though they were only kicking the can down the road. The funny part is it turns out they were different roads.

by Brendon | 6th May 15, 11:37pm 1430912267

If it isn't about supply why is that a government that didn't mind stepping on some toes could buy a few farms for say $50K a hectare, maybe using compulsory purchase powers. The price such it allows the farmer to buy another equivalent or better farm. This land being located in some future greenfield transport hubs, North, West or South of Auckland. Build medium density housing of 20 houses per hectare. With the houses contracted out to be built by the private sector.

Costs per house.
Land $2500
3 waters/ subdivision dev. $80,000
Build cost -3 bedroom/single garage $220,000
Upgrade transport to hub $50,000

All up cost $350,000 for a modest home that should be affordable to the median buyer.

Tell me why this supply solution wouldn't work?

by cowboy | 7th May 15, 7:16am 1430939793

Government refuses to get into that part of the market, and has made it illegal for councils to do that same (not that they want to.)

I suspect they realise that buying top priced land, then trying to develop it is crazy risky and they would have to explain their own over-the-top charges to themselves !
- - -
the difficult with the Land Banking comes from greed. (not unreasonable attitude to investment).
A land banker/farmer will buy a property in Year One, and add costs every year.

But the price they want to sell at isn't based on that historic Year One price, the return they want is like any other investment, it's "Mark to Market". ie They want 110% of what the land is worth _today_, (or historic + cost + margin, ; whichever is higher).

Any purchaser is looking for the opposite. They're going to shop around for land that is well under 90% of current value. They need to make their margin when they buy.

And since value is a Mature market, both seller and buyer have full information access, and each area is valued on it's merit. So a nice access piece with good view potential will have higher current market value than a piece of land without those aspects.

A classic market conundrum. Both parties know the true value of the item. The seller wants more than it's true worth. The commodities buyer knows they have to pay less than its really worth to make their margin.

Without strategic information or external drive to break the deadlock then it can't been resolved. And if both parties are completely informed then both their prices shift on new strategic information or rumour of an external drive (eg a britomart size investor).

by steven | 7th May 15, 7:44am 1430941489

It would as much as anything would. However no Government is willing to do this. Plus once the TPPA is signed destroying a land owners ability to make huge profits will result in a dispute. It would be interesting to see just how much land is banked around Auckland by foreigners btw, quite a bit I suspect.

Not sure where you get the transport hub costings from but light rails is $4500 or more per metre, so a 20km line is $90million+ plus extra for stations I think, spead across how many houses? not 20 that is for sure. 20,000 now, well yes, then its about $5000 per house. Plus then roads, a fairly decent road would be needed, I odnt have the cost per metre for that. If you are going to do this then really there is a case for a MUD actually, that way the entire cost of all the services are met by the owners of those 20,000 houses.

Personally I think the Govn since it can borrow very cheaply for 10 years (4.5%?) should do so and do the work itself and let it run and not put impossible criteria and expectations on the council(s).

Actually I think the Govn could and should do a compulsory purchase most NZers would have no issues I suspect, but dogma will stop this present Govn if nothing else. Then hand it over as a MUD with say a 20 year right of income.

by Brendon | 7th May 15, 8:23pm 1430987024

20,000 houses x $50,000 contribution towards a transport hub/link upgrade = $1 billion.

That should be plenty for some pretty impressive transport infrastructure!

20,000 houses with a density of 20 houses per hectare consumes 1000 hectares (one big or a few small farms). That would be a circular urban area with a 1.8km radius.

If there were light rail/ express busway station(s) everybody would be in biking/walking distance.

by Simon | 7th May 15, 10:57am 1430953073

who buys it at 350k? When its market value would immediately be 650-700k? Its equivalent to gifting someone 300k. Not very fair.

Or say they cant sell, for how long? Eventually it must be sold. Its value is based on the market, so all govt, council could do would be to flood the market at current prices to stop them increasing, and they cant build enough at present to met the demand which is at least 50% speculator driven. What will flood the market is when speculators get spooked by price falls and all sell to lock in these massive gains, the gread turns to fear and all of a sudden no one wants to catch the falling knife so as supply spikes, demand goes to zero... Anyone catching on to this in the mainstream media yet??

by skudiv | 7th May 15, 11:26am 1430954792

It'll take a recession (or negative growth as it is now called) to get house prices down. Once they start falling, it should be quite watchable.

by Magnum PI | 7th May 15, 11:45am 1430955915

NZ's next big economic recession will occur when the house bubble bursts because the house bubble IS New Zealand's economy.

by Brendon | 7th May 15, 9:57pm 1430992662

Simon if you own a $65K car and a company finds a way to make the same or better car for $35K what is the value of your car?

Should this company be allowed to devalue your car in this way?

What do you do with your devalued car? Accept your paper loss and keep using it?

by cowboy | 7th May 15, 12:35pm 1430958918

Just as an aside, are you aware of what that would do to farm land values (and land bankers) around city outskirts??

by steven | 7th May 15, 12:59pm 1430960359

It would I assume see the land bankers stack up huge paper losses, I feel so sorry for them, nit. If the land is bought off a farmer for the agricultural price I dont see why that would be an issue unless also the farm's price was inflated un-duly due to the possibility it might be re-zoned. I suppose no policy or fix really solves the issue without "injuring" some party.

by Davo36 | 6th May 15, 7:25pm 1430897103

Bring it on.

The sooner the Auckland Council, consisting of Len, Penny and a bunch of lefty planners, gets removed the better.

It's a failed organisation.

by philthy | 6th May 15, 8:44pm 1430901865

Yeah planning's for idiots, good thing the previous National government didn't plan the changes to the building codes well, that caused the leaking building crisis either, what's that cost the country? a good 30 billion or so.
What did the one before that do that cost us billions? that's right Think big, there's always something with these guys that goes belly up costing the tax payer, while their rich mates get richer.
Now bad planning is rearing it's head again, and will no doubt cost the tax payer a fortune.
Every other country in the word addresses demand, but not these muppets.

by sharetrader | 6th May 15, 11:41pm 1430912462

it was doomed to fail the day they created the supercity. before we had councils competing against each other to be the best place to live, to set up business etc. now we have one huge monopoly that is so inefficient it not funny

by cowboy | 7th May 15, 7:22am 1430940176

It was just as bad before, with more duplication in many areas.

Problem arises because the people involved are not thinkers and have no reason to develop advantages or efficiencies that are a staple requirement of private business, the drive for bureaucratic bloat, became super-bloat with the super-city. It's just the same policies and people that were there before except before they could hide it by playing off each other.

Assign them a flat revenue (eg 70% of last years rate, no annual creep), watch things change.

by Lucky Basket | 7th May 15, 10:29am 1430951374

The main reason John Banks wanted a Supercity was so he could make himself "Lord Mayor". It should have been a condition that he could have nothing to do with it and then he would have dropped the whole stupid idea in an instant and we would have been spared all that followed.

John Banks is an egomaniac and his desperate desire to be some kind of royalty god of Aucklanders has done untold damage.

by DFTBA | 7th May 15, 12:51pm 1430959918

Agreed, the super city is failure. I know Rodney is trying to de-amalgamate, and another previous council is looking at doing the same.
I hope they succeed. There will be swathe of others trying to do the same if they do

by DFTBA | 7th May 15, 12:51pm 1430959918

by dtcarter | 7th May 15, 10:41am 1430952079

yup, those lefty central planners in Wellington are so much better than the lefty local planners we have in Auckland.

by steven | 7th May 15, 1:03pm 1430960609

Actually if you think its going to be good, well good luck with that. The Auckland council is saying hold your horses who pays for all the extra costs? the existing ratepayers? that kind of sucks IMHO.

What we are seeing is an attempt by central govn to do a "robbing of peter to pay paul" and hoping no one notices that the "cheaper" housing isnt. just that part of the cost is dumped on others no matter their ability to pay, or not. having a "righty" council will make diddly difference to the outcome.

by Kumbel | 6th May 15, 8:05pm 1430899518

iconoclast, I think we have agreed to disagree but it it really is about supply, supply, supply.

David, this is another excellent article. I can't entirely agree with your conclusion but you are absolutely right to call the government on exercising the powers it has awarded itself over the last 6 years. As a minor quibble I would point out that, some years ago, the government amended a number of pieces of legislation relating to local government giving Ministers powers to directly intervene in the affairs of local government. The HASHA Act 2013 is only a special case of those overall powers.

In the debates we have we seem to forget that the issue is price which, of course, is the intersection of supply and demand. Any real solution has to consider both sides of the equation. So yes lets think comprehensively.

However, like other supply-siders I firmly believe that the situation is asymmetric in the sense that many perceived demand side problems disappear once you have got the supply side sorted out. The simple example is speculation. So whether its foreign buyers or the famous "mom and dad" investment property buyers, no speculation would happen where there is a track record of supply immediately responding to changes in demand. There will always be a market for rental properties but once that need is met there is no point in anyone else pouring money into a "rental" if the price of the property stays static.

I would also point out it is way too late to tackle demand issues for the simple reason that there is a chronic shortage of housing in Auckland that is expressed mainly in the fact that Auckland houses are 20% overcrowded compared to the rest of the country. Even if you cut visa based migration to zero today there is till an unmet need for housing in Auckland that won't go away until enough houses are built.

I would also point out that there is more to supply side solutions than simply building more motorways. Some of the best examples of affordable management of growth are where governments are active players in the sense of buying, developing and possibly building in their own right. Generally that happens where they co-ordinate development with their own transport investment. New Zealand is a shining example (historically) but we can look to Tokyo and London and Germany for contemporary and historical examples of government intervention getting it right.

So yes, Nick Smith, put your (our) money where your mouth is.

by philthy | 6th May 15, 9:59pm 1430906397

According to our "government" and other the other deluded, Auckland house prices must be the only thing in the world that defy the laws of economics, and the well established laws of supply and demand, it really is an amazing thing that.
To them for some reason demand has no effect on the Auckland house prices, only supply does, such an extraordinary thing that.

by waymad | 7th May 15, 10:23am 1430950981

Agree entirely. DH's noted that ACC has overplayed a weak hand in any case.. They are infested with Brit-style Town and Country Planning Act 'planners' (the Brit's motto - we Finish what the Luftwaffe Started), who have not the slightest notion of economics, development cycles, affordability or the other aspects which, on the ground, determine what is built, where, when, and for how much. Planners are expensive in themselves, and they certainly add cost to the development cycle, if only via the injection of Time to all processes.

The build-out of the major world cities of yore was, in many cases, following infrastructure provided by private speculators, but with Gubmint incentives. London's tube (John Lanchester 'What we talk about when we talk about the Tube' http://www.amazon.com/What-Talk-About-When-Tube/dp/B00CB5R2CQ is a useful primer here, as is Kunstler's 'Geography of Nowhere' http://www.amazon.com/Geography-Nowhere-Americas-Man-Made-Landscape/dp/… for the USA scene. Development followed the lines (tubes in London, horse trams, electric trams, buses in the US). The London tubes were private companies (and at each other's throats) until the early 1930's. This pump-priming is what Kumbel and I have urged.

I'd point to another Gubmint aspect which is a significant contributor to housing unaffordability: regulation and licensing. Examples:

- Scaffolding (a recent and extremely expensive requirement)
- LBP - at least 5 licenses for various bits of a building = downtime, overheads, cost
- fencing and worksite safety in general - way out of kilter in terms of cost/benefit ratios. Ask an older tradie.
- tool certification (at least the battery-powered kit is proof against this madness - for now)

The question is, of course - how much benefit is actually derived from this very significant cost (I'd estimate not less than 10% of build, could easily be twice that)? Again, the older tradition of craftsmen builders has little patience with all of this: they operated in a time when one built Up to one's reputation, not Down to some Code.

The Christchurch earthquakes give us an answer.

I estimate that 70% of residential builds were done in a time when regulation was absent (pre 1950's), light (to 80's), or at least sensible (to the mid-90's).

No-one was killed by bad build structures in residences, once one excludes URM, chimneys and exogenous sources (rockfall etc). Structures twisted, tilted, and cracked. But they did not kill their occupants, in a 2+g vertical acceleration sequence.

So the 'old', lightly regulated practices and their built results, have withstood probably the most severe test Gaia could devise.

Modern codes add cost but little to no incremental benefit, compared to these.

And more cost = less affordability. It's as sad and as simple as that.

by Kate | 6th May 15, 10:13pm 1430907217

Such a pickle. Last week it was the nasty developers not cooperating;

http://www.interest.co.nz/property/75094/pm-key-says-government-sending…

Now the AC gets the use-it-or-lose-it message.

All this is telling me is that governments don't build houses - and hence have SFA ability to influence the supply-side - unless of course - they stump up the dosh and do the infrastructure provision and building themselves.

I assume that's what they're trying to do with their recent $200m + 2800 asset transfer.

That'll turn into a sink hole as well, I suspect.

Meantime, $2 billion per annum in rent subsidies have to be added to the overall tab of the inability of this government to see the wood for the trees.

And I agree - in the words of Dirty Harry, the only question is: Nick, do you feel lucky?

by Brendon | 6th May 15, 11:13pm 1430910815

A while back Bill English said 20 'planners' were holding NZ to ransom. He said their 'lair' was in Auckland in something called a 'Council office'. Nick Smith was given a Ministerial warrant to bring these villains to justice.

Somehow these ransomers remain free? Are these 'planners' master criminals with super powers? Or is Nick Smith a wimp scared of confronting wrongdoers?

by cowboy | 7th May 15, 7:01am 1430938879

And Fonterra is holding NZ farmers to ransom... where is the call to bring villians to justice?

by Magnum PI | 7th May 15, 11:43am 1430955839

That's ironic for farmers considering how long farmers have held NZ to ransom.

by cowboy | 7th May 15, 12:27pm 1430958444

when have _farmers_ ever held NZ to ransom?

by notaneconomist | 7th May 15, 12:27pm 1430958448

Really Magnum....in what way have Farmers held NZ to ransom?

by notaneconomist | 7th May 15, 12:34pm 1430958868

by steven | 7th May 15, 12:17pm 1430957842

Funny isnt it, or not. Or sad, those with power ie pollies feel they can attack others with immunity in order to blame shift, simple bullying by a thug. 20 faceless ppl in a building somewhere in Auckland are responsible, Im quite surprised that isnt seen as almost inciting a lynch mob.

by Magnum PI | 7th May 15, 8:21am 1430943668

Why just Auckland when the whole country has stupid ideas about what houses are worth? Implement a c.g. Tax on everything but longterm family homes and maybe one holiday place. Bar foreign purchases and ownership even if only temporary - say for 5-10 years until prices come down to earth again.

I know the govt. won't ever do this be ause they know it will trigger a collapse of the prperty market and that will trigger a collapse of the New Zealand economy since it's mostly based on houses and not much else, but I can still dream.

by Magnum PI | 7th May 15, 8:21am 1430943699

by cowboy | 7th May 15, 12:29pm 1430958563

Why does your luxury "holiday house" get a free ride?

Many people in NZ can't even afford a first house, or even a hoilday away from home.

by Magnum PI | 7th May 15, 8:25am 1430943921

Sorry for the multiple posts! I got a "server error".

by steven | 7th May 15, 12:19pm 1430957985

I am getting the same thing, suspect the server is overloaded.

by bob | 7th May 15, 12:11pm 1430957515

According to stats NZ:

In 2006 there were 1,303,000 people in Auckland region living in 439,000 dwellings. That is 2.97 per dwelling.
In 2013 there were 1,415,550 people in Auckland region living in 473,448 dwellings. That is 2.99 per dwelling.

Mightn't sound like much, but another way to look at it it the 112,550 people that were added since 2006 fitting into the 34,448 dwellings added since 2006 is 3.27 per dwelling. That's got to create some pressure on prices. Apparently the people per dwelling is dropping in more central areas (more apartments, smaller households). Larger households are apparently more common in more southerly areas which is presumably where overcrowding would be more obvious.

by Simon | 7th May 15, 12:24pm 1430958241

Omg 3 ppl per house??!! This overcrowding in auck has to stop! Can imagine a family of 3 in a 3 bedroom house only having the single guess room; the hardship they go through when more than one guess turns up must be unimaginable

by cowboy | 7th May 15, 12:33pm 1430958826

If you have a 3 or 5 bedroom house does that mean your neighbours have to move in with you?

by Kumbel | 7th May 15, 1:13pm 1430961202

That's occupancy by dwelling not house.

For every resident occupying a single room in an aged care facility or a student in a hostel there has to be a balancing dwelling with 5 occupants. Of course the real problem is in the Tamaki-Manukau corridor where occupancy reaches an average of 4 people per dwelling. That means that every single occupancy is balanced by a dwelling with 7 people in it.

You wouldn't be so sarky if it was you in that 3br, 7 occupants house.

by bob | 7th May 15, 4:26pm 1430972766

3 people living in a 3 bed house constitutes about 15% of Auckland's housing stock. It may be the default in the provinces but not here. 1 or 2 people living in a 3 or more beds house is more common - approaching 30%.

Apparently with an ageing population the trend is expected to be more people living in houses much bigger than they need (central and east) and more people living in houses much smaller than they need (west and south). Around 6% of houses are 3 or less beds containing 5 or more people.

by Chairman Moa | 7th May 15, 12:48pm 1430959690

Bugger, now the rental yield is getting even lower!

by JimboJones | 7th May 15, 12:57pm 1430960273

You people honestly think the council are being unreasonable because they don't want an entire city worth of new houses to be erected at the end of a congested motorway? Maybe if the council had a way to pay for new transport infrastructure (other than the hugely unpopular rates rise option) there wouldn't be a problem

by steven | 7th May 15, 1:05pm 1430960733

Agree.

Maybe the MUD's would be the way to go. ie ring fence a building zone and let "free enterprise" solve it, yeah right.

by cowboy | 7th May 15, 1:45pm 1430963113

You could label it "Special Housing Area" and declare the problem solved then blame any problems on developers. Oh wait...they've done that one...

by Chairman Moa | 7th May 15, 2:03pm 1430964184

JimboJones, are you one of those highly paid Auckland council bods?
I had the privilege to spend few months in the Consents department pre-merger days. Honestly some of the decisions made were mind boggling and it was pretty much like what side of the bed they woke up to.

by JimboJones | 7th May 15, 4:00pm 1430971218

Not saying the council is perfect by any means - just saying that if the govt want to force sprawl on Auckland they could at least help the council fund the required transport infrastructure (either by fixing the infrastructure itself, giving Auckland Transport some money, or allowing the council to apply regional fuel taxes, motorway charges, etc)

by Brendon | 7th May 15, 7:43pm 1430984597

Jimbo National will not do it. Listen to Nick Smith and how smug he is that Christchurch house prices have stabalised. How did Christchurch do it? Well housing was cheaper 20 to 50 km away and 10,000+ people fled the city. No transport infrastructure was improved. Commuting time in Canterbury has exploded.

Basically the cost of rebuilding was privatised and people paid in excessive commuting time.

This is the model National want to impose on Auckland. John Key has been down in the Waikato promoting his RoNS -the Waikato Expressway as the solution to the housing crisis.

by Alter Ego | 8th May 15, 10:24am 1431037491

The UK are hanging all their pollies as the punters have had enough...no majority...at all...for the entire lot of...their smug...bar stewards in the UK.

Maybe hanging is too good for em?. Same problems, different Country.

http://view.ed4.net/v/QM42II/325M37/K2AQMH/5C4KYC/?ftcamp=crm/email/201…

Now there is a thought, what can we do to get rid of ours??.