Geoff Simmons sees more questions than answers in Labour's housing proposals. Equity, NIMBYs and government monopolies all point to serious potential flaws

Geoff Simmons sees more questions than answers in Labour's housing proposals. Equity, NIMBYs and government monopolies all point to serious potential flaws
Andrew Little, Leader, NZ Labour Party

By Geoff Simmons*

Labour’s housing policy hit all the right political notes; more social housing, more affordable housing, a tax-based rap over the knuckles for all those ‘nasty’ investors and of course a ban on foreign buyers. The question is can they deliver?

We’ve previously talked about how a capital gains tax (even if it is called a ‘bright line test’ instead) won’t solve the housing bubble, a Comprehensive Capital Income Tax is needed instead. We’ve also discussed how difficult it is in practice to exclude foreign buyers in a modern open economy. As far as the new policies go, delving into the detail raises more questions than answers.

Who gets the “affordable” houses?

It sounds great in theory; 10,000 new affordable homes delivered each year. The basic idea behind how they would be delivered is sound too. The developments could be done at scale, without private developers creaming the profits. We also know that in Auckland private developers would rather build expensive 3-4 bedroom homes than the modest, 1-2 bedroom ones people actually need. So on the face of it, there is no reason to believe Labour couldn’t deliver on their plan.

The trouble is, once you have built an affordable home, how do you make sure it stays “affordable”? The only way to do that for certain is by keeping it in public ownership and renting it out, which given our national obsession with home ownership isn’t a political winner. As soon as you put the houses in private hands, they can be sold at the market rate so there is no guarantee they will stay affordable. Even if the people you sell it to live in it for a few years, when they come to sell it they may have realised a massive private gain. Effectively Labour’s policy is handing a massive win to 10,000 lucky people a year – so how you choose those people has very important equity implications.

What will you do about the NIMBYs?

Truly affordable homes are close to the centre of town – we know that sprawl creates cheap houses but they usually end up being more expensive once the private and public costs of transport are taken into account. The big barrier to inner city development is the people that resist medium density development in their back yard; otherwise known as NIMBYs. What will Labour do about them?

The long awaited Auckland Unitary Plan will appear later this month. If the problem is not solved there, it looks unlikely to be solved by the Government’s National Policy Statement either. That document merely forces Councils to make land available in areas where house prices are much higher than incomes. Without dealing with the NIMBY issue head on, the opportunity for truly affordable housing will be lost. Of course, this means standing up to a very loud, affluent, mostly elderly group of voters, which no politician likes to do.

Why does Government have to do it all?

The final question for Labour is why does the Government – through Housing NZ, Kiwbuild and the proposed Affordable Housing Agency – have to do it all themselves?

If the NIMBY problem discussed above were solved, it would be far more possible for the private sector to build more medium density housing; i.e. terraced houses or apartments. That would make a massive difference to the availability of affordable housing, without the government having to get into the risky business of doing it themselves.

Another tool that could be used without government involvement in building houses would be to regulate to ensure that private developers have to provide social and/or affordable housing as part of any development. We are seeing this happening in Auckland now, but it could be expanded.

If those changes weren’t enough to deliver the goods, there are still other options for delivering affordable housing without government having to build it. In many countries overseas, social and affordable housing are delivered by cooperatives. Why not build and empower the cooperative sector to deliver their goals? There are two advantages to this approach.

Government funded organisations can always be cut or tinkered with by politicians. All it takes is a change of government for policies to change. On the other hand stand-alone, sustainable cooperatives are far more capable of delivering social and affordable housing consistently on an ongoing basis. They are less at the mercy of the changing whims of government.

The second advantage of cooperatives or voluntary organisations delivering social housing in particular is that they can be better able of delivering a variety of services than government. We have seen in the UK that non-for-profit housing associations have lower eviction rates and higher levels of tenant satisfaction than government or Council providers. Having non-government, not-for-profit organisations delivering social housing at scale has also proven to be an effective way to deliver wraparound holistic services for families. They can help make the vision of projects like Whanau Ora a reality.


Geoff Simmons is an economist working at the Morgan Foundation. This article is here with permission and first appeared here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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58 Comments

I think labour said that those affordable house could not be sold for 5 years and if sold to part with ca[ital gain and 5 year is good enough time for 1if 10000 houses are in the market in a year price may stabalize and also the current boom that we are in now, will take a breather sooner as cannot be a one way street.

Give it to private builders and either price will go up or quality will deteriorate

Every policy will have its plus and minus but important is that labour is trying to work on supply as well as on Demand which is missing in current national government.

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Well something is up
look at Fran no less, at what she is really saying

Jennings has confronted the business elite with some unpalatable truths: rising house prices and immigration-fuelled economic growth are masking an underlying "iceberg that lies ahead".
"We are sleepwalking into an economically ugly place," he warns. "How can we look at ourselves in the mirror and say how can we live with having one of the most unequal education systems in the Western world - and even if you are very selfish you better say to yourself that is not sustainable.
"Those chickens are going to come home to roost."
Powerful stuff.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1167...

For how long can a collective balance sheet be funded off asset revaluation reserve (at the lenders discretion no less).
Rather retained earnings for where are they.
This party is entirely at our own collective invitation.

Lets just give Auckland its own currency, it could be called the Lenny, with the $3bronzed Lenny as the smallest coin. The notes would come in rolls, with perforated edge for dispensing, denominated in irrational numbers only..

Solving the densification (NIMBY) problem with a Targeted Rate.

What the $ value in the below formula needs to be would be determined by just how much of an incentive for densification one wants to provide via the targeted rate. You then need only one Residential Zone - along with a height to boundary rule - and mutli-unit complexes ought to start popping up in all the best locations close to the centre. Point being, those close to the main centres enjoy all the benefits of the concentration of public infrastructure (universities, libraries, museums, hospitals, CG HQs, LG head offices, etc.) but don't pay the requisite rates/tax associated with their enjoyment of those benefits. It's a kind of more equitable land tax on those close to centres of employment (and hence centres of public infrastructure concentration).

Using a Targeting Rate and just plain old market (i.e., not planning!!) mechanisms. In other words, do away with the need for all the sub-zones and planner determinations as to where intensification should/should not happen - and simply introduce a tax incentive, leaving the market to then sort it out. It would go something like this:

The Targeted Rate would be calculated as follows:

Distance Factor (of a residential lot to a main centre of employment)
x
Size of the residential lot in m2
x
Number of residential units per lot
=
Intensification score x a fixed dollar value (say $1.00 for ease of analysis)

Where I increases with the inverse of the number of dwellings per lot rather than in proportion to it.

So that's: D x S x N = I x $1 = Targeted Rate

Main centres of employment are broken down into Distance Bands (DB), where DB moves inversely with distance in km, not proportionally, say assign:

A factor of 1 for all distances >30 kms
A factor of 2 for all distances between 29.9kms and 20kms
A factor of 3 for all distances between 19.9kms and 10kms
A factor of 4 for distances between 9.9kms and 5kms
A factor of 5 for distances < 4.9 kms

Main centres of employment are also broken down into Number Employed (NE) bands, where NE increases with the numbers employed; say assign:

A factor of 1 for main centre employing <250 people
A factor of 2 for main centre employing between 250 and 999 people
A factor of 3 for main centre employing between 1000-4999 people
A factor of 4 for main centres employing more than 5000 people

Where D = DB x NE in the above.

Size of the residential lot in m2 - Use the raw lot size as the factor

Number of residential units per lot

A factor of 5 for a single unit dwelling per lot
A factor of 4 for a two unit dwellings per lot
A factor of 2 for a three-five unit dwellings per lot
A factor of 1 for 6+ unit dwellings per lot

It needs GIS modelling - as I have no idea whether the numbers I've proposed would do the trick. But, it's hopefully simple enough that everyone will get the idea.

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With all the debate and media coverage, one thing is for sure that wether one wants or not, some measures will have to be taken on Demand side also as is turning into a Bigger Crisis with every passing week and with election next year, government can avoid and delay till end of this year but will have to act soon, after doing the calculation of their vote bank - Rich Versus Common Kiwi.

As overall the atmosphere is not in favour of government and is gaining momentum and bigger the crisis bigger the anti government movement (Though will always have rich who are being benefiting by current government, will support but have to remember that overseas buyer and non residents whom the government is protecting does not vote).

Like your name suggests, I think the only time we'll start to see action from our leaders is when it's too late - and that is when the ship is stranded on the rocks and is breaking into pieces!!

I wonder if the Government are timing any significant action that they may take so that they can say before the election we are doing all this significant stuff and take the wind from Labours sails, but leave it late enough so that it has not had time to precipitate the inevitable crash. If so a shocking and cynical abuse of power that will mean that even more fist time buyers will be sucked into the crazy market and loose their equity.

GS is still harping on about his employers CCIT. Why is that any more likely to be a cure-all than other measures well done? Yes, the Nats led shambles is ridiculously difficult to correct but it will be corrected and in probably the least desirable way by a market collapse with a lot of damage. Labour and their policies however well managed they work will not prevent a severe drop in values in Auckland at least. All that can be done is to avoid the worst of it.

what is scary is both labour and national think they have policies that can stabilize house price rises back to the CPI rate of inflation, they are both wrong.
the asset price rises worldwide are being fed by debt creation and low interest rates.
when this corrects all the inflated asset prices that have no fundamentals behind them will correct.
will it deflate slowly or crash? my guess crash.
and the worst part is NZ is so small and not prepared for it.
as an example say GFC2 hits, and presume 20% of nz houses are owned by overseas investors, now suddenly they want out, half go then we end up with 10% of houses suddenly added to supply for sale.
it has happened before in NZ mostly regions like queenstown etc in 2009 which took years to recover,
this time it will be Auckland.

The target CPI rate is -10-15% p.a. isn't it if we include future housing costs in the target? (tongue in cheek..)

...no doubt it my mind that a significant global event (maybe we are seeing one today) will suck the lifeblood out of these overpriced real estates assets at such a rate you wouldn't have thought it possible. And as Auck evaporates it will affect the regions that are playing follow the leader. Take a screen print of your paper profits today... to prove you were once a zillionaire.

what is happening in turkey is interesting, it may have failed but it is a message that the leaders can not ignore
same as brexit, or the south china sea,
the world is very unstable at the moment and nationalism is on the rise so some event may occur that sends markets into a downspin very quickly

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Whenevr and wherever in world when people are fed up and want a change, voting percentage is high and in next election the voting percentage will be highest in NZ based on current government attitute unless they realize and do what is required of the government.

Still not too late but arrogance corrupts power.

Of course the elephant in the room is land pricing.
I would suggest an annual development tax (say 20% on fully serviced sites or 5% on other developable land) that taxes land holdings gives the owner the chance to sell now or take the risk that land values will hold up in the rush to quit.

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There are quite a number of elephants in the room (immigration, taxation, foreign buyers) - it's getting to the point that we should start considering relocating the Beehive to the Auckland Zoo....

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“The story being told in 'Star Wars' is a classic one. Every few hundred years, the story is retold because we have a tendency to do the same things over and over again. Power corrupts, and when you're in charge, you start doing things that you think are right, but they're actually not”. George Lucas

No Wonder. national has been in power for too long.

At the moment it is important is to ask question to National Party more than labour. Slowly and steadily everyone is relalising that enogh is enough and JK has to come out of denial and act

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11675391

That would mean a few things for John Key:

1. He'd have to acknowledge there is an issue
2. He'd have to admit that he's going to take responsibility for the issue (the point of being a leader right?)
3. He'd have to back a plan to rectify the issue.
4. He'd have to take responsibility if/when the governments action doesn't have the desired outcome. History of housing bubbles generally implies that at this stage there is nothing government or RB can do to limit the damage now. The market will do what the market does - follow it's course.

For a politician, taking responsibility for this isn't a smart move as there's not much he can do to prevent the inevitable. So he's a bit of a caged animal right now. Not familiar territory for Teflon John - I think something might finally stick.

I'd rather Try and fail than fail to try.

Housing will be his epitaph.

If democracy has to be strong, it is the role of the opposition and media to keep check on government and make them realise and force them to take correct just action.

Definitely this government has lost track and its leader are in self gratification.

"True happines...... is not attained through self-gratification, but through fidelty to a worthy purpose". Hellen Keller

small problem with the plan to build all these houses - Who will build them ? currently every builder / trade /designer/ architect / planner I know is completely swamped with work and can't take on any additional work - so either we import these exports increasing immigration and so increasing demand - or the state is employing builders to build them - who are no longer building private developments - so net gain in housing of 0 extra houses - - the only way we can get more houses with the same amount of skilled labour is to build more multi unit facilities which are easier and quicker to build per unit created.

or we could modernize the building industries like they do overseas where they are constructed in factories , wiring, plumbing, insulation already fitted in walls. and they are put together modular style onsite.
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or
https://www.huf-haus.com/en/the-company/points-of-interest.html

State-of-the-art production

Quality and tailor-made mass production

At first sight, the terms 'tailor-made' and 'mass production' appear irreconcilably incompatible. HUF HAUS proves the opposite. Although the components of a HUF House emerge from a state-of-the-art production line, they are assembled to create an individually architectured house, with every part being manufactured to the highest quality standards. The production process is not driven by quantity but by the semi-automated pre-fabrication and pre-assembly of the components that results in a quality standard that could never be achieved through manual, predominately on-site, assembly

Yes, this is modern industry. NZ is not Germany, Japan, or the U.S. We do not have the benefits of technology, innovation, and integration where it matters. We might have it in dairy, accounting systems, and our cafes, but we don't seem to have it in building houses.

Labours housing plan will push up prices even more than now.
Given there is a shortage now of 30,000 houses in Auckland it will take three years just to catch up by which time there will still be a shortage even if immigration moderates.
And even if house price increases moderate to 2 percent over five years, the median Auckland house price will be closer to $1.5million assuming no property crash but an orderly decline.
For simplicity sake assume $1Million for Auckland house today-near enough.
Year one 15 percent house price inflation (modest) assuming no crash adds $150k
Year two say 10 percent inflation on $1,150k adds $115k to year one. Total now $1,265M
Year three say 7 percent inflation on $1,265M adds $88,500" total now $1,353M
Year four say 5 percent inflation on $1,353M adds $76,500 total now $1,429M
Year five say 2 percent inflation on $1,429M adds $28K total now $1,457K
So how will Labour keep on building affordable homes around the $400K mark when the median will be almost 50 percent dearer than now?

When you consider those figures Big gay Daddy, do you ever consider how irrationally exuberant, mad, unsustainable they are?

Who is going to be buying a house at $1.5 million? It certainly won't be your typical couple living in Auckland - and I'd certainly be first to admit that landlord/investors are stupid but surely not stupid enough to buy an exceptionally overvalued asset with a yield of less than 1% where they're almost a certain chance of losing capital and the income is F all?

Quite right the numbers are totally mad,
But that was what we were saying 5 years ago when $500k was a top price for the average home.
Anything the mind can conceive is possible.

No black swans between now and then?

Yes a whole flock of them, but not black, only red.

Have you read Nassim Talebs book?

I thought this advice of his was quite good:

If I had to relive my life I would be even more stubborn and uncompromising than I have been. One should never do anything without skin in the game. If you give advice, you need to be exposed to losses from it.

"My major hobby is teasing people who take themselves & the quality of their knowledge too seriously & those who don’t have the courage to sometimes say: I don’t know...." (You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race)" NNT

The whole country have their skin in the game on this one because of poor policy and reckless risk taking by certain groups - I don't want to be involved but because I want to continue living in this country I have no choice! If it causes a recession and I loose my job as a result so that you and big gay daddy can build rental portfolios, well that is absolute BS.

The other day you were saying you were looking forward to it all burning down.

You're deliberately spelling lose as loose...right?

I've been waiting to see when you'd loose the plot over it...(left a couple for you yesterday, disappointed with 0 bites)

I suspected you were doing that.
You know I do understand where you are coming from and I would likely have a similar attitude if I was a young, single and house-less European Aucklander.

It's happening in Vancouver. It can happen in Auckland. The comments on the article below - exactly the same as here at interest.co.nz .

Vancouver area benchmark house price now $1.4M, up 30% in 1 year

What I don't get is ..Canada it's pretty big isn't it? Surely Vancouver is not the only desirable place to live. Vancouver is quite small. So Vancouver is now one big affluent suburb...so what?

You obviously have never been there. I have relatives living in Alberta who I visit often. Vancouver is one of the only places in Canada where you would actually want to live climate-wise. Similar to NZ and not much snow. Canada is huge and very beautiful but try living in minus 30 degrees day in and day out during the winter even though their infrastructure and houses are built for the weather. Having experienced that it's not much fun. There is not a lot of actual habitable land in that country. We are off to Toronto and Montreal in a few weeks where most of the retail areas are underground.

Crikey thanks for the info Gin. Your story makes Auckland sound even more desirable. Actually it makes the whole of NZ sound desirable.

On the weather front I would totally agree with you, however comparing the two countries, we are a third world country compared to Canada IMO. jobs, education totally superior in Canada.

I won't subscribe to that way of thinking. New Zealand is great IMO.

The numbers aren't irrationally exuberant at all when you consider the facts. New Zealand is high up on the Human Development Index list of countries...and rising. Auckland is the premier city of NZ and it is possible for many people from all over the planet to buy a property in Auckland. When you consider that we are the only known intelligent life in the entire Universe a slice of Auckland property looks like a highly desirable thing indeed.
The question really is, why are prices so low? A two million average price for a detached house would still look like an absolute bargain.

Disingenuous as ever. How does this relate to house prices - just because New Zealand is high on this index, the country is more desirable and justifies house prices that are out of kilter with local incomes that is a fairly long bow to draw - just because New Zealand has a high HDI score doesn't mean that it is a desirable place to live - Greece is on the list as well would you like to live there. Additionally it is an index which is measuring disparate indicators which may not necessarily be linked in any way - the individual indicators may paint a different picture.

The Numbeo cost of living index ranks Saudi Arabia has having the highest local purchasing power , New Zealand is 22nd ( Australia is 5th, the US 10th and the UK 21st) - Belize is 3rd

http://www.numbeo.com/cost-of-living/rankings_by_country.jsp

"If you torture the data long enough, it will confess" Ronald Coase

You think the human race is intelligent - we are destroying the planet on which we live by destroying the environment and resource depletion. - I've said before we can't destroy the planet but we can destroy the ability of humans to live on the planet.

It relates to house prices because of the international buyers who know where Auckland rates in the scheme of things. Greece btw is number 30 on the list so is quite a way below. Saudi Arabia's local purchasing power is no surprise to anyone I am sure.
We are intelligent but a bit reckless. I'm confident we will work things out. What choice do we have?

As usual you miss the point - anyone can take a statistic and use it to suit there own agenda. The fact that Greece is 30th is irrelevant - it's a ranking not an indicator of the relative desirability. New Zealand's index value is 0.913 and Greece's is 0.865. It's a failure to understand the difference between the ranking and the actual statistic used to generate the rankings - but that comes as no surprise.....

And as usual you fail to see reality. New Zealand and Auckland especially are highly rated internationally.
[Part comment removed. Keep the offensive 'race superiority' element out of your comments or you will lose the right to comment here. That was disgraceful, totally un-New Zealand. Final warning. Ed. ]

They may be rated highly internationally that does not necessarily equal desirable. I think you are confusing the two.

In my lexicon rated highly and desirable are roughly synonymous. Of course points of view would differ so I must point out that I am considering this question from a foreign investor angle.

The Editor has kindly given me permission to write my pre-approved response in a more fleshed out style to avoid confusion:

What I meant to convey was that NZ is high on the list of the countries in the human development index and okay the differences in countries can be small on this index but what really gives us an edge when it comes to attracting immigrants is that we are British/Germanic/Nordic culturally/historically with great property laws, low corruption, developed institutions etc along with the fact we speak English which is a second language to so many, a language that Indians and Chinese and many others can speak or desire to learn. The international language of commerce and the language of the UN too.

When weighing up a place to emigrate to or invest in property these factors must work in our favour even over somewhere like Norway, Sweden or Iceland or over Greece or Italy or Hungary or almost anywhere else in the world except maybe Canada, Australia and the US who will be close competitors in attracting immigrant interest.

You are right Zachary. See the following latest QV values for the top 25 surburbs in Auckland:

No Suburb Median Value
1 Herne Bay $2,247,950.00
2 St Marys Bay $2,035,900.00
3 Remuera $1,852,300.00
4 Stanley Point $1,791,750.00
5 Epsom $1,770,500.00
6 Westmere $1,697,550.00
7 Campbells Bay $1,694,700.00
8 Orakei $1,656,250.00
9 Ponsonby $1,611,300.00
10 Mission Bay $1,588,600.00
11 Kohimarama $1,579,800.00
12 Devonport $1,560,600.00
13 St Heliers $1,560,550.00
14 Glendowie $1,545,250.00
15 Castor Bay $1,528,350.00
16 Takapuna $1,499,300.00
17 Parnell $1,490,050.00
18 Narrow Neck $1,429,500.00
19 Greenlane $1,411,900.00
20 Murrays Bay $1,386,450.00
21 Mt Eden $1,382,600.00
22 Mairangi Bay $1,379,850.00
23 Pt Chev $1,345,300.00
24 Dannemora $1,317,650.00
25 Greenhithe $1,308,500.00

(Source: QV)

Wow, thanks for that Echinops. Good to hear from you.

Zacky boy can't help himself, as a walking talking oxyMoron!
And he'll just come back as a shape shifting online troll to keep his ego insatiated...;-)

More from experts

http://www.stuff.co.nz/business/opinion-analysis/82144384/shamubeel-eaqu...

With strong Media and active oposistion and people now it may not be easy for national government to deny and lie like have been doing till now.

Why did national party overcomitted to Asian that now though exposed are not able to act despite being exposed by one and all.

How True amam. Have too heard that the only solution to national is change of leadership as new face will be able to start on a fresh note as now many within national too are not happy with their leaders over commitment towards asian.

The only hope for national whatever little is and will be change of leadership. May see some resignation in futute.

I guess 'everyone' is an expert on housing these days. But this guy isn't.
He asserts that housing closer to centers is more affordable. That's frankly garbage. Even accounting for transport costs housing further out is almost always more affordable.
He could have said central locations do benefit from lower transport costs but instead he jumped to an unsupportable generalized conclusion.
Also he's obviously Wellington based because he seems to have no sense of the reality of what is happening with the unitary plan. It is going to quash the NIMBYs, or at least the recommendation will, and probably so will the council decision ( and if it doesn't the govt will then intervene)

Another give away this guy has no idea is his suggestion that developers should have to provide a proportion of housing as social or affordable. Anyone who knows anything about 'inclusionary zoning' knows it is counterproductive. The only areas where it can work ok without being counterproductive is in greenfield locations.
The housing debate is not helped at all in this country by mediocre economists, or to put it more charitably, economists commenting on housing economics when that is not their specialism.