Jason Krupp says Auckland's proposed Unitary Plan is a step in the right direction, but expecting it to be a silver bullet for homelessness is naïve

 By Jason Krupp*

Last week most of the country, or at the very least a third of it, heaved a high sigh of relief when the Independent Hearings Panel released its quite sensible recommendations on the Proposed Auckland Unitary Plan (PAUP). 

The sigh was justifiable to some degree considering just how crazy the outcome could have been given the precursors. 

What was not justifiable was the rush of blood to the head it caused to some of the commentariat, who claimed that the PAUP was the silver bullet needed to cure the city’s problem of people sleeping in cars and homelessness in general. 

I’ll explain my reasoning in a moment, but let’s clear the air on my views on the PAUP, which I have not dedicated 55 days to reading (an estimate of how long it will take to read the thing cover-to- cover, based on a reading speed of 200 words a minute). 

I am broadly in favour of the plan’s direction. Getting rid of regulatory madness like the Cultural Impact Assessments (which were a potential boon to rent seekers) and some of the heritage overlays is great. More substantively, allowing the city to grow up by lifting height restrictions and out and freeing land on the edges of the city is long overdue and desperately needed. 

The question is whether the PAUP will free up sufficient supply so that housing is within reach of the average household, and specifically those struggling with homelessness.

 It is difficult to answer this question. Consider that Auckland’s population grew by about 40,000 people last year (net). During that time the number of residential building and apartment consents hit about 12,000 (admittedly, I’m mixing stocks and flows). Even if all these consents translated into actual buildings, it would still mean an average household density of 3.3 people per household for all the new arrivals. That is above the national average and Auckland’s current average. A lot more needs to get built to get that figure down in one year, to say nothing of pent up demand. 

If we are relying on apartments to do it alone, we are going to be waiting a number of years. Regulatory supply may come on stream with the stroke of a pen but it still has to be matched by the market. That means developers will need to assemble land, draw up plans, raise capital, and build said apartments, assuming there is construction capacity to do so, and planning permission is not an issue. Even if we kindly assume a timeline of three years, it will not be a fast or smooth process. 

And it will most likely only cater for a proportion of the market, such as older people who are downsizing and younger people who don’t have family obligations. As such the housing they free up in other areas is likely to be constrained. This does not help those sleeping rough in the short, or even medium term, and besides, inner rents are likely to lock them out of this new stock. 

Housing New Zealand is apparently looking to build a lot more social housing (and upwards to boot), but this again will depend on the factors discussed above (land might be easier to acquire, and presumably, and if the government can’t get fast track planning permission no one can). But even under the best scenario, it is a multi-year process. We also need to assess the government’s commitment to a building programme, given that until recently the preference was for operational expenditure (accommodation supplements) not capital expenditure (housing construction). 

Some of the property slack will be picked up by residential development at the edge of cities, where building times are a lot shorter. But then the trade-off of cheaper living versus more expensive and congested commuting has to be factored in. I do not have enough visibility into the lives of those sleeping in their cars to say for certain, but it seems to me that they place a value on proximity to places of work. 

But say people are happy to make this trade-off, it will still require enough infrastructure-ready land to be released to meaning full drop prices. I subscribe to the idea that a deluge of land needs to be released onto the market if prices are to be meaningfully reduced. In my view, if land supply and infrastructure continue to be trickled onto the market, it sends a strong signal to investors that Auckland property status quo is still in place, particularly in the current low interest rate environment. Does the PAUP deliver this deluge? I remain unconvinced that it can do so on its own, but on the positive side it does pave the way for further regulatory improvements, such as Municipal Utility Districts. 

The other unknown is the effect of the recently imposed LVR restrictions on the market. That a whole lot of supply may come onto the market in the form of apartments is to be welcomed. But as I recall from my days of house hunting a few years ago, the deposit requirements are higher than the LVRs (30% seems to be the figure in my mind).  

Even if moneyed empty nesters heed the call to sell up and move to apartments, someone still needs to buy their existing properties. This is where LVRs restrictions on existing home buyers may bite. 

Where previously property investors could be relied on to do some of the heavy lifting, the new restrictions are likely to limit their activity (40% equity mortgage). Even where they do have the capital, a contact in the industry recently told me that investors will probably head towards commercial property since the equity requirements between retail and commercial are not that far apart, and the returns are better in the commercial market. 

I could go on (let us not forget that Franken-beast called the Resource Management Act, the Building Act, and council’s regulatory inefficiency). 

But in the interests of brevity, let me just recap: In my view the PAUP is the first of many steps on the path to restoring housing affordability in Auckland, and probably New Zealand in general. But that path is likely to be complicated, slow going, and will require a lot of regulatory tinkering and tweaking. 

What the PAUP is not going to do is provide immediate or even medium relief to those unfortunate people who have been forced to sleep in cars, garages and overcrowded houses. It cannot do this, do not expect it to. 

Perhaps I should also be aware of an irrational rush of blood to my own head. Just as I would caution said commentariat about expecting too much from a policy document, so too should I be cautioned not to expect too much critical thinking from the commentariat.

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*Jason Krupp is a Research Fellow at The New Zealand Initiative, which provides a fortnightly column for interest.co.nz. jason.krupp@nzinitiative.org.nz

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12 Comments

A good article Jason that recognises the number of confounding factors that have to be got into line to get a major development away. You also highlight that for prices to drop there needs to be a deluge of dwellings (apartment/terrace house/stand alone) onto the market. It is not in developers interests to see this deluge come about.... so it is not going to happen with current structures.

So as a developer you find a offshore sponsor with money, you leverage up and buy land at edge of the city (the sellor thinks he can sell at almost developed prices....takes ages to convince him about council.) you then fight council for 12-16 months resubmitting plans (50k each time) while every special interest group inside council makes you jump through hops that they don't actually have legal rights to do (but the environmental court would be 12 months plus $$$ to fight) you resubmit drawings with run off dams, without them , (they have changed their minds again......) you rehouse frogs and replant trees...... finally about 16 months after you bought the land you get consent...... you really believe that as a developer you wouldn't want to get the MAXIUMUM you could for each land/build package... after all this pain. Why don't developers complain.. think about that for a minute.....

And even to get the thing off ground before conscent the $$$ guys want it 30% presold (what first home buyer wants to wait 36 months before moving in......probably a kid already on the way) oh and no good schools this far out of CBD...

And maybe you add build cost caveats to protect your investment... you get what you vote for NZ

I am not for a moment saying prices cant drop just sayin its very very expensive to add land to the existing holdings, and NO ONE would even attempt it without a profit motive. its just too hard.

I was at a friends place in Kumeu on the weekend - Just sold (8 acres) to a Chinese investor who is land banking in Kumeu. He is here 3 to 4 times a year.
Another friend building in Central Akl estimates costs are up 50% in the last 15 months. Blockies at 200/m2 were at 120/m2 12 months ago, leading hands are $50 an hour plus, Concrete is a 3 week waiting period, material prices are being cranked, and definite price fixing going on.

Basically - Irrespective of any plan, the fundamentals are a chaotic mess.

Does the PAUP deliver this deluge?

No, it doesn't. The PAUP creates deluges of land in Pukekohe, Clarks Beach, Kumeu, Silverdale and Warkworth. If any of these places were suffering from housing shortages or homelessness, then problem solved. None of those places are suffering. But add them all together and they get enough land to account for about half of Auckland Region's growth.

Auckland, the large urban centre, gets restricted and confined. The council has even gone as far as to invent the "large lot" classification to prevent Aucklanders developing large areas of land within the MUL.

Prior to the IHP recommendations there was a 50% undersupply of land to Auckland and a several 100% oversupply to the exurbs. Post IHP there'll be a 30% undersupply Auckland and an even larger over supply to the exurbs. The IHP is a bad first step.

Food for thought : How about dropping the GST on all building material, design and consenting fees, compliance and contribution costs, trades and subcontractors work as well as the price of all new built dwellings ... FOR A CERTAIN PERIOD say 3 or 5 years ... and make it compulsory for everyone to pass on these cost reductions ... that will make everything a bit cheaper, increase affordability and possibly encourage renovations, subdivisions and new built ....?
It Will be great to hear back from our astute economists contributing to this site ..

Unitary Plan - First Step is correct but what about the second step of curbing Demand like taxing foreign buyers as RBNZ is doing its part and council its part what about National Government.

Comprehensive approach is lacking by government as is not sincere.

National Party is not interested in controlling the current Housing Crisis as this is the only thing that is reflecting positive in the economy but government does not realise the long term impact. Feel Good for property owner is the only hope that they have for the next election.

Any amount of measures will not help unless they control overseas buyer but who wants the party to stop as all politicians and so called experts and media person are all benefitting by it and who cares about the common people or nation as a whole.

What happened to Panama papers and EU - never heard on news or the topic of foreign buyer relating to housing crisis as everything is manipulated by the government and their PR agencies and why would they as just heard in news the other days that most top leaders of national party after next election are looking for lucrative international management role so are basically making ground for their future by supporting foreign buyer.

National are behaving in a way that the Yanks would now label cuckservatism: chase GDP quick gains, enrich selves at expense of social fabric. Move on once damage done

Homelessness is not about a physical shortage of places alone. Just about everything is a factor. Just one is that wages in New Zealand are low. But we have a government driving population growth as an objective, but not understanding it's having a negative effect on wages.
Why drive for higher population, bigger GDP, but ignore the welfare of our inhabitants.

You provided the answer. Question is why do they behave this way instead of caring for their people. Potential answer: they don't recognise a people.

Homelessness can't be fixed by anything other then decent employment and rents that reflect minimum wages, in general new homes have never bee affordable rentals at the bottom end unless built by gummint and this one denies there is even a problem.

I think the issue is that two minimum wage jobs at 35k only produce 70k, add in a few kids and the current 500pw rent in Manurewa and you are NEVER going to be able to save for an Auckland house.

Lets have a 25% stamp duty tax on anyone that does not hold a NZ passport OR a full residential working visa/permit ... students/working holidays etc can all stuff off... impossible for a student to buy a house anyways.... its just a rort. Open up the list of buyers who do qualify for public inspection ... transparency , that will be a new concept for the current crop.

Correct, there is a very large amount of useful and essential work that gets done in this city,at the minimum wage rates, or just above that! Certainly under $15/hour net,to the employee. These hundreds of thousands of hard working citizens will never own a home in the city that there hard work
And great service, keep the city running, fed, cleaned transported,you name it.
Trailer parks on unit title purchase?