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Rodney Dickens says section prices are the key to solving the housing affordability problem, not higher density around transport hubs. He warns against force-feeding in areas that won't deliver the intended outcome

Rodney Dickens says section prices are the key to solving the housing affordability problem, not higher density around transport hubs. He warns against force-feeding in areas that won't deliver the intended outcome

By Rodney Dickens*

Maybe reflecting vested interests and complacency, National's housing policies did nothing to solve the affordability problem.

In the case of Auckland this is evidenced by section prices having increased 72% since the first tranche of Special Housing Areas was approved in 2013.

Labour is adopting a broader and more hands-on approach to addressing the housing affordability problem including proposing some policies that have the potential to address the most pressing problem: excessive section prices.

For a while this was mainly an Auckland problem but it has spread to all growth centres.

Labour should be commended for giving priority to trying to fix the housing affordability problem. However, just as I was rightly sceptical of how much National's policies would fix the affordability problem I believe there are some good reasons for being somewhat sceptical about Labour's policies; especially regarding fixing the largest problem of excessive section prices.

Labour appears to be falling into the trap of believing higher density housing around transport hubs will provide much more of a solution to the housing affordability problem than it will. Instead of putting top priority on addressing the problem of expensive sections

Labour appears to be focused too much on trying to force-feed the market the types of housing it would like to see built.

It is still early days for Labour's housing policies but my sense is that they won't do enough to solve the largest problem. Labour's policies are also likely to crowd out private sector building much more than the government has suggested, as discussed in our pay-to-view building reports.

Lessons from National's housing policies

National failed to reform the RMA significantly and did little to solve the infrastructure funding problem for new housing. Its housing policies ended up relying excessively on Housing Accords and the resulting Special Housing Areas with the focus most but not exclusively on Auckland.

In the case of Auckland, 154 SHAs were approved between 2013 and 2016 offering the potential for around 56,000 new dwelling sites. This did nothing to improve housing affordability. Since the first batch of SHAs was approved in October 2013 the median Auckland section price reported by REINZ has increased 72% (chart below). Section prices have increased lots in all the growth centres. Higher section prices have played a major part in boosting existing dwelling prices (second chart below) and new housing costs.

Superficially National's housing policies were a success if we look at the level of Auckland new dwelling consents that reached a new peak of 11,073 for the current upturn in the last 12 months (next chart). On a relative basis, Auckland consents have been outperforming consents in the rest of the country since 2014. However, it doesn't take much digging to reveal that the real story is very different than this superficial one.

In the first instance, the latest peak of 11,073 consents is still 14% below the peak of 12,937 consents achieved during the previous building boom in the mid-2000s. Interest rates and net external migration are much more favourable currently than was the case in the mid-2000s (second chart below).

Based on the much lower interest rates now than in the mid-2000s, Auckland experiencing the highest net external migration ever and the many SHAs that have reached the construction stage since 2013, the level of building in Auckland should be much higher now than the peak level last decade. Rather than being just over 11,000, Auckland new dwelling consents should be 14,000+.

Capacity constraints in building and building-related industries will partly explain why Auckland consents haven't even reached the 2004 peak let alone got close to 14,000. But the more likely reason is that section prices and new housing costs in Auckland have risen to levels that are having a large negative impact on the level of building. The huge increase in section prices means a growing proportion of would-be new home owners have been priced out of the market.

An implication of Auckland housing becoming more expensive than housing in the rest of NZ is Auckland experiencing a net outflow of people to the rest of the country (blue line, adjacent chart). However, Auckland population growth has still exceeded growth in the rest of the country so a loss of population to the rest of the country can't explain why Auckland consents haven't been much higher recently than has been the case.

National's policies failed to stop surging section prices making new housing unaffordable to a growing proportion of the population. This has become much more than an Auckland problem and is acute for first home buyers

It is questionable how much Labour's policies will solve the underlying problem

Labour hopes a range of existing and new policies will solve the housing affordability problem:

• In Auckland relying on the Unitary Plan that allows for more intensive housing and less restrictive limits on the likes of building heights and coverage especially near transport hubs.

• Increased building of state houses that was already underway by National (adjacent chart).

• The KiwiBuild plan to scale up the building of "affordable" new dwellings to 10,000 per annum over three years. This includes 40% "affordable" housing in KiwiBuild subdivisionsdevelopments. More building on government land than National had proposed. Offering long-term contracts to KiwiBuild builders to make lower cost prefabricated housing more viable.

• Probably some sort of rent-to-buy scheme.  A more coordinated housing and transport plan with the focus on building higher density housing around transport hubs.

• Finding an alternative source of funding for infrastructure so the full cost isn't built up front into section prices (e.g. a central debt fund that can borrow cheaply with the cost covered by targeted rates that spread the cost over many years). This makes much more sense than the full cost being built up-front in section prices.

• Boosting building apprenticeships and making it easier for building firms to import immigrant workers via work visas.

• There have been suggestions Labour should or may make it easier for people to build small dwellings on existing properties like granny flats and petition existing dwellings to make them multifamily dwellings.

Talk of dumping the Auckland urban limit so much cheaper raw land costs are possible seems to have faded. This is in the context of a Motu study a few years ago showing that the urban limit meant raw land costs were 8-9x higher just inside the limit than just outside. But progress on this front is likely if a comprehensive change to funding and paying for new infrastructure is implemented.

Labour's concept of what is affordable is well off the mark. Affordable house and land packages for first home buyers appear to have been defined as $500,000-600,000 for Auckland and $300,000- 500,000 elsewhere. This does not represent genuinely affordable housing for most first home buyers.

Labour's plan is focused too much on force-feeding housing to the market without giving top priority to the most important issue, which is getting down section prices. Using taxpayer money to fund building and using government land potentially at subsidised prices to make it work for a period isn't a fundamental, long-term solution.

The PM has suggested apartments offer a solution to affordability, but the evidence in terms of building costs contradicts this. The chart below shows the average square metre cost in Auckland for apartments, stand-alone houses and townhouses/flats/units. The building consent data shows the square metre cost for apartments being almost double that of standalone houses and townhouses etc. Proposed prefad apartments may offer some solution to this problem.

The PM and others have also suggested building smaller houses as part of the solution. There is some logic in this in terms of the average new house size in Auckland being around 230 m² versus only 120 m² for townhouses/flats/units and lower generally for apartments (next chart).

If the average new KiwiBuild house is 100 m² it suggests the building cost per dwelling could be around $200,000 less than the current average of around $470,000. But if you add on the average section price in Auckland of around $550,000 this doesn't stack up very well in terms of affordability or common sense. Obviously, building little houses on little sections would have to be part of the solution. But this isn't really addressing the problem of high section and land prices.

With townhouses/units/flats and apartments already much smaller there isn't much scope to improve affordability by downsizing these although there is still some scope.

I see too much focus on building housing to fit the current job distribution and not enough on encouraging industrial-commercial development around the peripheral areas of the city alongside Greenfield residential developments that would reduce the pressure of Greenfield development on existing transport routes/systems.

I see a somewhat misguided belief that building more intensive housing in existing urban areas doesn't come with significant infrastructure costs. Increased population density puts pressure on often ageing infrastructure while retrofitting existing infrastructure like sewerage comes at a high cost.

I see a misguided idea that the market has failed to deliver the sorts of housing people want which partly relates to the misguided view that intensive housing can solve the affordability problem when it has failed to do so. The market and consumers only responding to the environment they face. Cheaper sections in Greenfield subdivisions are critical to reducing land price in general including for higher density housing. I am concerned Labour's policies don't put solving this most important part of the affordability problem at the forefront.

In a growing city like Auckland and also relevant to the likes of Hamilton and Tauranga, it is natural for more intensive housing to make up a growing share of total new building over time. This has been most notable in Auckland in recent years in terms of the growing percentage of new dwelling consents for townhouses/flats/units (chart below). Although this partly just reflects a return to the situation during the last building boom in the early-to-mid-2000s. But even townhouses etc. need land which brings me back to my concern Labour's policies aren't putting enough focus on getting down section prices; at least not yet.

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152 Comments

I'd add that addressing the demand side of the equation is a pretty significant difference between the current and previous government's policy.

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I agree they've done a couple of things that might hopefully reduce speculative demand - but where are the measures to stop increasing the numbers of people needing to be housed?

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They don't seem to be reducing immigration like they said they would.

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If kiwibuild manages 10,000 houses a year that wont even cover the ongoing inflow of 70,000 immigrants a year. Unless they live 7 people to the house.
Stop the population growth and the housing crisis will fix itself.
We will still have a deficit of infrastructure needed to support our new enlarged population but you don't need to be an economist to work out that if we let in more people we need to keep providing them with infrastructure. They don't bring it with them. The NZ taxpayer has to build it.

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It's worse than that. A lot of these immigrants are having a lot of kids, at least in my neighborhood. So the problem actually compounds. It's not kiwis pushing around the prams.

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Somewhere, close enough to Auckland, on a railway line, build a Lane Cove. Bloody awful undoubtedly but nothing being suggested so far looks likely to solve the shortage soon enough. Demand has been allowed to outstrip supply for far too long now. The problem itself has become virtually self-reproductive.

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Create more DGZ's to ensure a win-win for all.

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Yeah nah. Too many self-entitled in the original over crowded DGZ, can’t have that spreading...

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The world is awash with far too much debt. Our monetary system will eventually crash. It will be a very dangerous time to be a darklord. From the ensuing debacle will arise farm and residential etc land costs that the majority of our own people can afford and are not based on expected capital gains. The unknowns are when and exactly how it will occur.

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Yes, the end of the world is nigh.

Better stock up on baked beans and guns and ammo baby!

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That was the response to those that saw the GFC was imminent. You need to read history and learn from it.

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I’m amazed how quickly people forget events like the 87 sharemarket crash and the GFC and somehow convince themselves it’s different this time.

There will be a correction and many will get burnt.

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This article is about houses, not the sharemarket

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equally applies to houses.

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Did house prices collapse in 87? Nope

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Yes, the end of the world is nigh.

Better stock up on baked beans and guns and ammo baby!

That's usually the kind of comment usually aimed at people who own gold as insurance or as an investment. Or something like "Who in their right mind would own a useless piece of metal and an asset that pays no interest?:

It's also the kind of comment that suggests that the status quo is fine; the world's debts can be wiped away with money printing; low debt cost servicing costs makes people wealthy;, and debt-driven consumption is more important than actual production.

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Maybe I read too much science fiction but if the economic system does crash - everyone suddenly realises paper money is just paper and numbers in a bank account are just numbers - then I'm not confident the guys with food will swap it for shiny heavy metal. However so long as there are people then black pepper corns and Parmesan cheese will be valuable (less so if you live in India or Italy). There is a precedent, during the great fire of London Samuel Pepys buried his cheese in the garden.

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Highest ammo sales were in the leadup go the gfc. Reladers in NZ found it challanging to get ammo components (primer and bullets) due to manufacturing demand on domestic sales in the US. It even had its own show on TV about prepping.

SA is probably one of the recent examples of breakdown in rule of law and society. Guns are pretty mainstream there.

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Its more correct to say that the highest ammo (and gun) sales were due to Obama's win and the fear of "the Kenyan will take our guns" than the reality. This of course generated a boom time for the gun industry, now the orangutan has been elected the gun companies are going bust, ironic really.

SA, when I saw criminals using high explosives (and Ive heard grenade launchers) to take out security vans it was a WTF moment, a hand gun isnt going to stop these guys. https://www.youtube.com/watch?v=96NIPUYMkHA

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If/when our monetary system collapses no-one would be spared. Who knows, those with mortgaged assets may get a debt hair cut. To presume that it will impact on ‘darklords’ alone is naive.

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... how else could house prices reach $ 1 Million each on a pimple at the buttocks end of the world ... except by the sloshing around the global economy of too much cheap debt looking for a lazy shore to wash up upon ... and a benign regime too dopey to monitor and tax foreigners buying up our properties ...

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But, if you tax them won't policy evolve to encourage them, in order to get more tax revenue for the bureaucrats to spend "on our behalf"?

Isn't that essentially why the problem arose in the first place? Very bright bureaucrats tell rather less brainy politicians that immigration and capital inflow is a good thing and will make the country able to pay more in taxes?

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Didge, I think you're on the wrong website, Interest.co.nz is a business site, not a science fiction webpage

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Just wondering, what would be the theory it will crash?
If interest rate increase beyond a limit, it will be difficult to service mortgage; but I think given the enormous debt, the central banks would bring some other policy - minting money or some sort - to control crash. Yeah.. savers will be hurt.

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Spot on Greg

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Interesting article Rodney, unfortunately I can't see any suggestions to bring down land prices.

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Tax it ! ... Sir Mickey Cullen himself said it , if you want to suppress or discourage anything , apply a new or a vastly increased tax to it .... and it's worked to decrease cigarette smoking here ...

...a solid land tax , applied across the entire country , no exemptions .... that'd slow down the speculation , and provide the government with a reliable stream of revenue ...

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I thought it was banning smoking in pubs what did it, but there you go, I'm probably wrong. What about taxing bank lending, that might do it?

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Nationalise it. Lets follow South Africa.

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...or Zimbabwe, Mugabe for P M

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Another person who thinks that urban sprawl from Pokeno to Orewa isn't enough. And no mention of the cost of doubling the transport infrastructure. Why is it always about increasing supply, and not reducing the number of people piling into Auckland each year?

Interesting that Auckland refugees are a real thing - backs up the anecdotes.

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Auckland is a beautiful city, beautifully sited. It is the only city in NZ anywhere near real international status. It is a magnet. It is a Mecca. Folk migrate & gravitate there just as they have done, London, Sydney, Toronto. Even in the 1980’s when crime ruled the streets, New York grew like topsy. Even if immigration came to not a comma but a full stop, Auckland will still continue to suck in the populace. The same trend, relatively speaking, that Christchurch was to the South Island. The problem explained in this article, is alive and kicking in Auckland now and it’s not new. You cannot stop people migrating to where they think they need to be. You have to service them whether you like it or not. Powers that be should have had plenty of warning of what would be happening, nothing was done. Now a big big problem for everyday life in our largest city.

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Mecca or mecca.Two thirds of New Zealand's population clearly have not had the memo ,or is that meme.

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Tks & good alliteration for a fine Sunday morning, nothing mechanical about it, except perhaps that particular bay. I go for Chambers. Mecca ; a place heavily visited by, or with special attraction ......

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Silly comment Cowpat, very, very few countries have one third of thier population living in a single city.

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Yvil, take your pick,Oslo,Copenhagen,Montevideo,Beunos Aires,Vienna,Santiago,Seoul,Riga,Beirut,Santa Domingo,Lima,Doha,Tripoli,Athens. From the OECD, New Zealand has the second highest number of its population,( over 1 million) who neither wish to live in New Zealand or indeed Auckland. This may alleviate some of the obvious inbreeding currently occurring .

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You have just shown how little you know about these cities, of the 13 cities you mentionned 3 are close to 1/3 of their country's population. Stop just writing anything, there is a thing called Google, check your facts

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Yvil, my ten year old niece advises me that you are misinformed. She also notes that your fundamental mathematical skills , those of counting ,are similar to Alice.

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An easy and quick search of the first 4 cities named reveals cowpat to be correct. It is baffling to me how somebody who posts as often as you do, Yvil, can expect to ever be taken seriously when you can't get something so bloody simple right. Embarrassing.

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You are either conflating a metro area with a city or you cant divide one number by another.

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Haha, nice one

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The metropolitan area is obviously more meaningful in this context. There was no confusion on my part.

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Oslo 634k Norway 5.2 Mill = 12%
Copenhagen 583k Denmark 5.7 Mill = 10%
Montevideo 1.38 Mill Uruguay 3.4 Mill = 40%
Buenos Aires 2.89 Mill Argentina 43.8 Mill = 7%
The first 4 you mentionned, maybe you want to call Google and tell them to their facts right from your niece?

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Cowpat,

i don't wish to come between you and Yvil. However,to have a useful argument,you must surely define just what it is you are arguing about. For example,the population of Norway is approx. 5.30m. The municipality of Oslo is around 670,000,urban Oslo is 940,000 and metropolitan Oslo is 1.70M. If you are referring to the last of these,then you are right,but if Yvil is referring to either of the others,then he is right.
I am baffled by your OECD reference to Auckland. Where did the figure of over 1m come from?

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I assume Cowpat is referring to expat citizens?

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Linklater01,the 1 million figure comes from OECD and Stats NZ data,the number refers to native born and those holding citizenship of New Zealand. There is some extrapolation due to under 16s not being included in the data. Alternatively,New Zealand has the second highest percentage (within the OECD )of native born individuals living overseas second only to Ireland.The OECD data as of 2014 was 14.1 percent.The numbers have undoubtedly changed since 2014 Ireland has seen a surge in returning 'natives',and New Zealand has seen a change in migration patterns. Out of curiosity what is the population of Auckland City, does Auckland City include Manakau City or is that part of the Auckland region?

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You most certainly can stop people migrating to Auckland, especially when the graphic in the article shows 7 - 8,000 native Aucklanders leaving each year.

Put me in charge. I'll have Auckland's population stabilised in no time.

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So why didn't you put your name and ideas forward at election time ? - it's a bit too late now, However, you have 3 years to run a campaign so people can see or agree with your "proposed Solution"....but we surely don't need another PT ..!

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Very well said Eco Bird

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Doris don't say you will do something outrageously brave like set our immigration rate to match average for OECD countries? Say from 1.5% to 0.3%pa. Careful you will be called a racist.

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Or just a survivalist. Lifestyle and amenity of NZ born and raised Aucklanders is being destroyed by immigration. One wonders if we will have a land court review in 100 years like Maori have.

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OK, how will you do it Doris?

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As Eco suggests that it cannot be a PT perhaps Doris would see the role for herself as a RD, as in Rodrigo Duterte. Now that would impact on numbers, most certainly. Just kidding folks!

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Auckland was a beautiful city, it is crap now, and the harbour and gulf are going the same way. If the Hauraki Gulf continues to deteriorate then Auckland is f#%$ed.

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For me, there is a lot to still like about Auckland. However, I hear you. Been up to Omaha couple of times this summer, even on a non-holiday or non-long weekend it is an absolute nightmare getting back to Auckland.
I'm not against immigration - I think targetted immigration is important. But it's pretty clear to me that NZ's immigration policy over the last 20 years been far too indiscriminate. We are paying for it now in terms of our infrastructure (including healthcare and education) and our environment. And our housing.
Short termism exemplified.
thanks Helen, and thanks John.

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I still love our landscape and our harbour - one of the most beautiful in the world! In my daily train commute I get to enjoy the views of Orakei Basin, Hobson Bay, Judges Bay and Waitemata Harbour, not to mention Rangitoto Island... and don't get me started on taking selfies with Peter Burling and Blair Tuke at the amazing Volvo Ocean Race carnival at Wynyard Quarter this past week!

I feel like I'm in heaven everyday - we don't know how lucky we are.

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Getting to so you wouldn't want to go swimming in your view.
Oh god, selfies, spare me..

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PS Land?? Most of it concreted over.

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Well, only a certain minor % of Auckland's population are in the position where they can live in a nice area with a sane commute.

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I know I am lucky where I am and I am grateful for it. I keep reminding myself everyday especially when having to listen to colleagues on how bad the motorway traffic is and how long it takes for them to get to work...some up to 1.5 hours commuting from Whangaparaoa to the CBD.

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Funny you should mention that – I think the same – on a good day one of the most beautiful cities in the world – but in a general sense that’s the bit that comes with the territory – we really weren’t that involved.

It’s what we have done with the city, the bit we interact with every day, that I think we have mucked up.

I wish we could replay the last 30 years.

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Similar boat (train) to you except in the Wellington region. My colleagues always complain about the traffic, while I get off at the railway station and cross the road to the office. I don’t even need to use the pedestrian signal at the lights, traffic is so backed up I can cross safely anywhere I like.

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Can’t speak for anyone else, but my Auckland is stunning. Walk down to the beach, grab a coffee at Kohi Cafe. Watch the people walking and out on the water. Lunch in St Heliers, evening with Neil Finn and the APO (disappointing turnout) whatever was on at Spark Arena seemed more popular. Beautiful drive around the Bays at night. Coffee again this morning, a bit of gardening, lunch at home, then off to Emily King and Teeks. If that’s a crappy city I’ll take it every day.

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You should try La Fourchette oh my it's delicious!

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That was lunch last week.

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“evening with Neil Finn and the APO (disappointing turnout)”

Yes – I noticed as well – perhaps a bit pricey for a local lad??

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It sounds like the sort of thing I would pay money to avoid. Split enz meets spinal tap

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Yes, tonight was better value. The APO concerts are often half full at a lower price. Emily King was amazing. Teeks has a great voice. The Bangas were an acquired taste. Overall there are only so many entertainment dollars out there and it seems like a parade of big acts are constantly coming through so you have to price to compete. They were expecting another 800 last night.

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What an enlightening, well written comment PocketAces

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Of course the government won't be able to deliver nowhere near 100'000 affordable homes in growth areas. No one can. The problem is they got elected on this promise

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Of course the government won't be able to deliver nowhere near 100'000 affordable homes in growth areas. No one can. The problem is they got elected on this promise

That's because they never promised "100'000 affordable homes in growth areas". Secondly, "no one can" is also another poorly thought out troll bait.

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The government certainly promised to build 100'000 affordable homes, so you must be referring to the "in growth areas". Are you suggesting they should build these affordable houses in areas that are not growing J C?

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i'm not suggesting anything my dear little emotion fisher. Nevertheless, it is not impossible to build 100,000 affordable homes in any country with a fiat currency and the legislative power to make it happen.

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re-read your comment above... "That's because they (the government) never promised "100'000 affordable homes..."
YES THEY DID

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Yvil. You are like a stuck record. Surely even you and your spruiker cohorts realise that it will take time to get such major improvements in our residential building industry. It is too early to tell but if there is no improvement in housing availability, my cohort will be back to protest voting in 2020.

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They could go a long way IF...

Zoning rules are relaxed.
Covenants on home size or minimum architectural features are made illegal.
Materials could have a wider range of standards instead of just BRANZ/CodeMark.
The building code is updated.
The govt don't go crying to Fletchers/Carters and instead seek out experienced offshore companies that know how to build warm, cheap, quick prefabs.
Land was taxed - for goodness sake I've seen sections with sheep on them for 20 years.

We're still building with sticks and bricks from the 1960s when there are much better methods like structural panels or concrete.

Reducing land price is good, but if building materials are run by a cartel and people are forced to build to a minimum size then you're just transferring profits from land owners to Fletchers et al; The system as a whole will still be fleecing us instead of delivering competitive prices.

What really gets my goat is that we're expected to swallow the open borders policy "benefits" like "diversity" and traffic congestion yet when it comes to building a home there are borders everywhere to importing proper products e.g. windows not made of metal f*&@# frames.

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What a good article.

I've been telling anyone I can for some years now that building apartments is expensive. They look at me blankly like I don't know what I'm talking about. But having built a few, I do.

This sentence is very good:

I see a somewhat misguided belief that building more intensive housing in existing urban areas doesn't come with significant infrastructure costs. Increased population density puts pressure on often ageing infrastructure while retrofitting existing infrastructure like sewerage comes at a high cost.

Imagine the cost of digging up and replacing sewer and stormwater pipes in the Auckland CBD to take the volume from the 150 apartments you want to build in your building. It would be huge.

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Let alone the cost of changing the rural highway into a 4 or 6 lane motorway. which is what is going to have to happen if Twyford's genius plan to put 30,000 people at Paerata goes ahead.

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Agreed - he contradicts himself far too often as he flounders around this issue...

Anyone who travels Today on the southern motorway at the very early hours of a working day cannot escape the dreadful parking lot inching North on the other side of SH1 gathering commuters from Pokeno, Waiuku and Pukekohe and from as far down as Hamilton ....

You would have thought that arranging a rail service during morning hours using some new passenger trains on the main rail line from Hamilton to Manukau would be a piece of cake in a civilised first world country ? Until the genius sorts the problem of electrification and new light rails - but No the geniuses want a light rail to the airport to be used by travelers and tourists instead !! maybe completed in 10 years if lucky.

We cannot get things done because we are lazy and tangle ourselves with bureaucracy and planners with limited ancient-thinking people at the helm ...

Egypt, has built few new cities housing hundreds of thousands in the last 2-3 years including a New Capital with all new services, schools, and facilities .... they will be finishing the first Million Unit building projects next year or so ... this is a country in war and in financial hardship, its population increases organically by 2.5+ million people a year! ...China does the same , singapour did the same ... what is wrong with us? why cannot we think outside the bl**dy box and prioritise spending money wisely ?

The author of this report is correct, we will see more of this in the coming months.

Wish that land taxing was the answer, it would work for just a little while and stop all speculators instantly - but then all land prices will shoot up and we all end up with an over inflated market .... the only one laughing all the way to Bank will be the IRD.

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Good points and well made in this instance Eco Bird.

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Agreed Eco Bird, I think it's a matter of too much democracy (sounds odd) where just too many people have the power to constantly object about making anything happen. Just look at the America's Cup village, it's a mess in waiting because every man and his dogs objects to any plans to change anything.

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This comment is indeed a rare (eco) bird.

Agree, doing nothing while increasing sprawl isn't the answer. Politicians trying to keep rates lower than needed to fund infrastructure for increased density - and not cutting regulation to allow that increased intensity - is a major issue. The problem needs tackling from multiple angles at once - and agree a Land Tax will help but not in isolation from any other measures.

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I agree. While the rail to the airport would be useful to me the spending needs to be targeted where it will be most effective for resolving current and future issues.

There are a number of issues with Auckland Council that need to be fixed. More pressure on central Government may be needed to get real change underway.

With respect to building apartments from the original comment. Yes they are very expensive to build, if there are significant infrastructure costs they can easily kill a project. Converting existing buildings to apartments is more cost effective and often (not always) there is enough infrastructure to support the project.

Real leadership and knocking heads together is going to be required to hit the 100,000 houses goal.

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That would be pretty handy if it was available.

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Very well said Pragmatist

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Pragmatist, yes it is worse.

Because all the pipes need to be upgraded out to Mangere in the CBD option too. Not due to one development, but if we have many in the CBD? Why do people forget about this? They see costs associated with greenfields developments, but seem to see as developing in a CBD as free?

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..

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I can’t imagine new subdivisions with row upon row of McMansions is helping matters either - albeit simply a market response.

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I think one of the most significant core reasons here is that we have made housing an investment asset and there is no limit on number of it. Therefore, top 5-10% of wealthy controlling 50-60% of total assets will make others challenging to even enter the market. These top people have a good interconnection with the foreign buyers, who still finds its less challenging to purchase houses in NZ. Thus the ordinary kiwis have fallen in to a bottomless basket and how much policy you would like to impose potentially won't work. Secondly, there is a lack of co-ordination among the government departments. Chinese and Indians are about 60-75% of the total immigration population where they actually count less than 40% of the world population. And there is no limitation on total number on this. Essentially, we are missing out the diversities from other nations. People moving from these two countries will not only bring their talents but also their habits of corruptions and third world services. Apparently, very few of the migrants would go through any relevant training on culture or etiquette here in NZ.

Therefore, reducing and limiting the numbers from these two nations will potentially lessen the pressure on migration. Secondly, government should control and limit the number of properties one can possess as well as should impose yearly taxes on the higher number of non-owner-occupied property owner. There should have extra taxes for empty properties as well. This can leverage the opportunity to let the wealthy to invest in other businesses.

Anyway, I won't wonder if government is unable to succeed merely imposing the ban on foreign buyer. Because perhaps the lobby for them is quite strong and the consent from the wealthy locals or opinion government receives is only on their favour. The law could be as simple as this. If you live permanently here you have right to purchase, otherwise not. I know we are getting biased by the foreign investment. However, if we are building the houses using foreign money, I am pretty sure ordinary kiwis will never be able to afford those new houses. Similar situation is there in Australia. Luckily they have a larger economy than us. I think as a sovereign country we have every right to decide around the policy how we should control the property market. We can even negotiate with Aussies about the situation and potentially bar OZ temporarily to manipulate the market. Obviously, this can be soften when the situation gets better in future. Not sure how long the un-wealthy 80% of the kiwis will have to suffer and pay against rest of the wealthies. I assume the answer will be how long the government is willing to stay blackmailed by this top 20%.

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"" also their habits of corruptions and third world services"" - you can't say that unless you are Mai Chen!
Once I wrote something similar about lack of diversity in our immigrants but politely added my own country of origin: UK. Not stop, just fixed quota for all nations and that would effectively reduce UK, China, India, Philipines maybe SA. I was called a racist by one of our learned professors [and that still angers me]. He said any quota by nation was racism - seems he doesn't realise INZ have had quotas on the working-holiday for decades - over 20 years ago my son (French citizen) was unable to do his OE in NZ because of the quota. However use the word racism to stop any rational discussion.

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Very good article. The affordable housing proposed is simply not affordable.

A) Demand
- Reduce the immigration rate to something sustainable. As the article indicates this is the elephant in the room and must be addressed as it is simply driving up land prices (The floating exchange rate will offset the drop in artificial aggregate demand driven by high immigration)

B) Price
- There is little that can be done with worldwide low interest rates.
- For social housing - leasehold land & rent to buy
- Remove developer contributions and make the user pay via targeted rates - its the user that creates the demand.
- Remove the tax incentives to invest in housing - this needs to be done carefully otherwise there is a risk of substantially reducing rental properties over a very short space of time when not enough new houses have been built and house prices remain too high (ie there are too many people that can only afford to rent and cant afford the inflated house prices)

c) Supply
- Get rid of the urban growth boundary
- Remove land use zoning from the RMA and go full effects based. The market hasn't responded with density as its it is regulated by doing so in many locations. (the market needs to be able to respond with marginal density until there is no profit)

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Beyond ideology, what real value is there in getting rid of urban growth boundaries?
Especially in a city like Auckland, where most of the land beyond the urban area is highly fragmented / steep / flood prone / inaccessible etc etc.

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So long as it is not land that is valuable for food producing and so long as infrastructure tracks it and so long as we have some idea of how much is enough in a finite world, yup.

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If it were up to me, we'd have 0 population growth.

BUT if we are going to import 40,000 people into Auckland each year then we need to let people build. Otherwise prices go up, simple as that.

Also, the idealogical bent hasn't been that we should remove the MUL, it's been that we should keep it at all costs, in the face of all evidence to the contrary. It's smart growth and it fails everywhere.

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'Also, the idealogical bent hasn't been that we should remove the MUL, it's been that we should keep it at all costs, in the face of all evidence to the contrary. It's smart growth and it fails everywhere.'

That is an ultra simplistic view. One of the reasons 'Smart Growth' often fails is because an MUL is imposed, without sufficient upzoning. Like Auckland until 2016.
But that does not mean the MUL per se is the problem.

Tell me please, where, in Auckland, could large scale residential population be accommodated beyond the RUB? Accounting for topography, land fragmentation, hazards, accessibility.
I haven't heard a decent answer to that question yet.

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One of your suggestions I really like: ' Remove developer contributions and make the user pay via targeted rates'. Could even push it further and give the developer a cash grant when services are built and again when foundations are built and approved and finally on completion. Then get that money and far more from rates over the next 10 years. Result: new houses very inexpensive but owners of old houses not penalised. Retain at least some of the value of existing property, makes being a developer less risky and less cash flow troubled. Makes new houses much cheaper but leaves the new owner with a big annual rates bill. Am I missing something?

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Lapun, you got the point.
However for Councils and ratepayers it will probably mean more borrowing & interest costs as the cashflow will be deferred coming from rates rather than upfront developer contributions.

I also note that Labour is looking for looking for ways to finance infrastructure rather than government (local or national) "Robertson seeks investment community help for new ideas" http://www.scoop.co.nz/stories/BU1803/S00290/robertson-seeks-investment…

However the problem is no matter what fancy innovative funding scheme is come up with (ie bring forward debt with higher commercial rate of return) taxpayers or ratepayers have to pay it back (at a higher interest rate) which is pointless. Government should either borrow the money itself or go the whole distance and sell off the infrastructure so that it is provided privately. The issue with the latter is more often than not it is a monopoly service provision and monopoly rents will be extracted. There is no free lunch.

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To re-summarise: be nice to the developer and everyone benefits - the concept goes against the instincts of the public but is rational. Our local Church sold land to a developer but with this idea they may have developed the land themselves.
Your are correct about a cash flow problem for the council - but I might buy a council bond backed by future rate demands spread over all recent new homes; offer a reasonable interest and I'd prefer it to a bank's term deposit. Certainly wouldn't want to loan against a generic bond issued by the council - I don't trust them not to go bankrupt - some areas of the council spend money like a drunken sailor.

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Lapun, you are probably the first person to put forward an interesting idea that might actually burst the log jam. Property developers live with a target on their back in this country.

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Housing inequality threatens fabric of society. More than half of Australian first-home buyers now receive help from their parents to get a toehold in the property market.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=120…

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People are really doubling down in that market. People are taking on risk not only on their own houses but their investment properties and now the houses of family members. When that market goes pop it will be absolutely spectacular. A veritable Krakatoa

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Back in the day I would have agreed with a potential “pop” – but of late I think we’ve seen that Central Banks etc really will do “whatever it takes” to avoid or mitigate the damage of poor financial oversight.

And again, with the very likelihood of creating an even greater risk down the road.

Something about can kicking...

You could suggest the “pop” may be of such an extent that the CB’s are simply unable to contain it – my response would be “whatever it takes” is pretty open ended and would be played as such.

The above shouldn’t be the case – but to me, all the evidence suggests it is.

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Well, I think the Aussie ocr equivalent is 1.5%, even at that rate people are maxed, they don't have any rope left. My bet is, in the short to medium term we'll see some Aussie banks having near death experiences. The Aussie mortgage sector is a disaster waiting to happen

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Back in the late 80’s or early 90’s I remember jumping in a lift and over-hearing talk of Westpac going under – and everyone was taking it very seriously.

But now – “too big to fail”??

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I think it was the early ‘90s. Property exposures nearly brought them down.

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Back in the day I would have agreed with a potential “pop” – but of late I think we’ve seen that Central Banks etc really will do “whatever it takes” to avoid or mitigate the damage of poor financial oversight.

You mean the Federal Reserve? Do you think that the RBNZ and RBA have the power to influence asset prices to the extent that the Fed has? The Fed was never able to "protect asset prices". All they have done is blow bubbles that are potentially bigger than the pre-GFC bubbles. Furthermore, the implications of this are unknown. Think a bit laterally. Let's assume, in the case of NZ, that we have an emergence of some kind of neo-feudalism. What does that actually mean for the economy? Do you think that the country can survive living of arguably the 30-35% with the lowest incomes? What will that do to the consumer economy?

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Yes, Federal Reserve, ECB etc.

In the case of the US they initially didn’t appreciate the magnitude of the problem – even the banks and investment houses playing the game didn’t understand their level of involvement, leverage and lack of risk management.

However, I understand what you’re saying – that there is a risk in some form of neo-feudalism developing, and this is certainly not a good thing.

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Can the RBNZ not save the banking thereby protecting the asset prices? We all know that debt levels are huge and the numbers like debt-to-income, GDP etc. I think the RBNZ will be obliged to protect the banks, because it's mistake/masterplan lead to this messy/rockstar economy.
They could mint money or control OCR , at the cost of exchange rate, couldn't they? But poor savers like me will be hurt and will be very difficult to buy a house

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Labour's housing policies are superior to National's but they still fall short.
What is necessary is MAJOR investment in rental housing development led by the government. Large scale 4-5 storey apartments. Market rate rents, and tenancy management provided by the government. Over time the return on investment will be good.
The crisis that will arrive soon is the private rental market crisis. Private developers are generally building for the upper-middle / upper end of the market, when they build at all - development is so marginal. Increasingly there will be insufficient rental options for a large swathe of the population, who cannot afford to buy, and earn far too much to get social housing.
I'm telling you all now, this crisis is right on our doorstep, and almost no one is awake to it.

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Personally, I think investors should be completely cut out of the existing market, bar a few exceptions, say removing an older house on a larger section and replacing it with multiple dwellings. People who want to build an investment portfolio of residential properties should do just that, build it!

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You're all talk.

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I just don't see that the rental market is where the "crisis" is. Take Auckland. Rents have gone up approx 25% in the last 5 years. But adjust for wage growth and the figure is around 10%. Yes that's material, borderline significant, but hardly an indication of a crisis. See other parts of NZ where rents have really accelerated to reflect excess accomodation demand, much more than Auckland. Purchase prices have gone up, but investors have largely "met the market" for rentals by accepting lower and lower rental yields. There seems to be an unlimited supply of investors dumb enough to give tenants the free use of their equity and accept yields of 3% or less, long may it last. But the disproportionately larger increase in prices has had a dire effect on the owner occupier sector, particularly FHBs. That's where the real "crisis" is.

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Bobster, if you read my post again, you will see I talk essentially of an 'imminent' rental market crisis.
ie. one that is not quite here, but nearly is.
What gives you confidence that this crisis is not close? With increasing numbers of younger / youngish people unable to buy, and kiwis and foreigners continuing to flock into Auckland, and insufficient construction, surely it is a matter of time???
Also, factor in an Aussie / overseas crisis (economic or otherwise) , or a major earthquake in Wellington - Auckland's population would swell again. We need to account for such possibilities
I agree with you on the FHB issue. That is a real crisis, that has been with us for years.

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Ok, sure, but unless there is some fundamental change in demand (which seems unlikely to me) not sure a change in the rental market is upon us. It's been under pretty consistent pressure the last few years, I don't see much changing

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you don't see Auckland's population increasing by circa 50K per year as ultimately, soon, breaking the camel's back?
BTW, big interventions are required. Personally, I'd like to see at least one of Auckland's urban golf courses converted into housing. 3000-4000 apartments, which the government contracts the private sector to build, then either sells at no or minimal profit (5%?), or manages as rentals.
If you take out or bring down a developer's profit margin, you can make inroads into affordability

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Remuera golf course?

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Well, we've had bigger annual increases than that, and camels back still ok so....dunno. Yes to asphalting over a golf course or 3, preferably while some golfers are still on it

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ha ha.
Actually, they don't need to be asphalted. You could do mid rise apartments with a lot of 'park like' green areas kept.

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I'm fine with asphalt

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Although to be fair, an Aussie meltdown would probably have a material impact on net migration

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Ok, interesting scenario, if Aus melts down. Kiwis might return to nz en masse, but it Aus melts down then we will melt down. In which case returning kiwis are likely to be 'refugees' who seek shelter back here with family / friends. So maybe limited housing effects. But effects on expenditure on benefits?

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If the Aussie banks melt down then we melt down too. And Peter Thiel then asks himself "wow what did I sign up for".

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Bringing it all back to RD's point - that land prices are the underlying affordability issue - one way around needing to pay stoopid prices upfront, and thus foobar affordability at the get-go - could be leasehold.

But as this Stuff article notes, about Greymouth's CBD woes (yes, it Has a CBD...), the fact that most of it's leased (from Mawhera Incorporation - a local iwi) is a contributing cause. Banks won't lend for earthquake strengthening on such land, according to the article.

Part of this is, surely attitudinal. Leasehold is common in some, perhaps more collectively-minded - jurisdictions. But, as with all these issues, we have to start from where we now stand, and use the resources we can currently see. Far too many thought experiments neglect to factor in these assumption/constraints.

Just to remind common taters what land actually costs:

Assume good horticultural land prices of $50K/ha, 1/3rd of area goes to roads, reserves, services, rest is 600-square sections each hectare.

The raw land price of each of the 11 sections possible in that one hectare is 50,000/11 or $4,546.

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Waymad - but where is such land near Auckland?
That is not highly fragmented, or flood prone, or poorly accessed?

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One step at a time.

And the first step is to remove the urban growth boundary as it stands at present and replace it with a presumptive right to build except for excluded lands based on environmental, protected soils, future transport corridors etc.(basically the opposite of what we are doing now).

This will leave multiple amounts (far more than present) of potential land that could be developed now at the raw land price as Waymad has said,

As the price is set at the fringe, this will then ripple back towards the CBD, specially making land-banked lands with in the present RUL not near as valuable in their present undeveloped state, forcing the speculating land owner to sell at a more realistic price to a developer or develop themselves to extract a profit.

STEP wastewater systems by private contractors are far superior and cheaper than present council monopoly, both for green-fields and as a parallel system for brownfields re development (no need to upgrade present system).

Cheaper land, more of it, makes not only for cheaper end product but extra money available for extra amenities and to make for any needed infrastructure upgrades.

But of course Central Govt. aren't really going to release the Urban Boundary, they are only going to put it into a Govt, Entity that while saying have done away with the UB, will still drip feed it out in a predictive way, thereby maintaining the Status Quote by default.

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Nice theory but...

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And also works in practice in those jurisdictions that have done that.

I have also run the numbers on a developing like this in NZ, and the numbers stack up.

The only reason it can't be done at the moment is the bureaucracy won't allow/don't want land developed affordably.

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Please enlighten me as to where it can done at scale in Auckland.
Because it can't as much as I would like it to be the case. I worked for a very well moneyed investor / developer and we did an Auckland region search last year, there were very slim pickings indeed in terms of potential.
That's why I call it no more than a nice theory - at least for Auckland.

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Yes there are very slim picking to being able to buy land at scale at raw land price within the UGB, about zero pickings actually.

If they change the rules to truly get rid of the UGB, then the pickings won't be slim, and land will fall in value as I have mentioned, and then so does the scale needed to make it worth while for developers to be involved. Small lifestyle blocks, and brownfields development sites will becomes more feasible.

In fact under the present system, scale does not help at all with making anything affordable, All scale achieves is that if you own it all, then you have a monopoly position, which of course a Urban Boundary helps ensure that.

The key to true savings is all about 'flow', ie how quickly and efficiently you can have supply meet demand and how efficiently you can dovetail all the component parts together that make up a project from start to finish.

If you don't have good flow in developing one small project, getting bigger doesn't help with costs, just ask Fletchers or any Govt. Department.

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Do you live in Auckland Dale? Do you know anything about the characteristics of Auckland's hinterland?
Because we searched long and hard OUTSIDE the RUB and hardly came up with anything

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yep, worked in development for 15 years in Auckland, and am up there once every few months.

You are right in that Auckland is its on special basket case, but remembering that ever other part of NZ is just an Auckland cluster awaiting to happen, or is starting to happen.

And its all down to the rules, change the rules and change the result.

Present system you are trying to buy in is high priced land and unavailable scale. Whereas if you get rid of the UGB you will find land will become more available at a better price and you won't need to buy at such a scale.

But other than the rules, there is nothing inherently different about Auckland land or hinterland that makes it any different for development including the plus and minuses, than land elsewhere.

But of course if you don't think this 'theory' of removing the UGB will work, then there can be no objection to removing it.

It is easy enough to put this theory into practice, if the motivation is there.

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I will be clear. I am an agnostic on urban growth boundaries, I am certainly not wedded to them. Removing them could make a large difference in some places. I am just not convinced Auckland is one of those places.
Having said that, as you say just as there may not be much benefit in removing them in Auckland, there is also possibly not much harm.
Plan changes would still need to be promoted for rural land, with or without a RUB

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Depends what you mean by promotion of plan change.

Just because you remove the UGB does not mean that there are no rules, but what rules there are, are based on a presumptive right to build minus the restrictions for environmental land etc.

And the basic rules are already in place for subdivision development, minimum requirements for street widths, and other infrastructure requirements, boundary set backs, height restrictions etc, so as long as a developer can show they meet this criteria, council are not allowed to impose any other restriction etc. ie it is approved as of right.

Any promotion of the plan is the ability of the development to sell in a market where monopolies cannot dictate the price of the land (land bankers) or the speed of which it is developed (council).

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My point was if you get rid of UGBs then you would still need a plan change to allow residential development to be built on what is currently rural zoned land.
What you are saying - correct me if I have got you wrong - is that there should be no zoning. So that you can simply go ahead and build outside the urban area, subject to some limited rules.
In theory I don't necessarily have a problem with that. But in practice could it not result in some horribly ad hoc outcomes?

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Think of it as having a set of rules, that by following those rules allows for your development to be a permitted activity, so it doesn't really matter whether you call it no zoning, opening zoning, or permitted activity zoning etc. But yes build in theory anywhere, subject to the rules.

Yes it will piss off the NIMBYs and those with vested interests in retaining the present Ponzi, but No it does not result in some horrible ad hoc outcomes because the open market it creates makes it a super competitive development environment which they can only survive by offering something better than the competition, both in terms of price and amenity.

But if you really want to see some ad hoc development, then how about Atlas Concrete across the road from Westlake Girls, and the Rosedale Waste Treatment Station being surrounded by subdivisions.

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If they bring in a land tax I think we might see a lot more leaseholding. With a very low yield on a very long lease you could make the land next to worthless on a financial valuation present value basis and push the value onto the improvements. It would be an interesting court case as it would inevitably be challenged.

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Have we reached peak retard yet? 830k for a postage stamp terraced shoebox in Huapai!!!?

https://www.trademe.co.nz/property/residential-property-for-sale/auctio…

Maybe the Chinese owned Universal homes messed up the yuan to dollar conversion?

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I’m calling that the peak. Well spotted

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Bargain!

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They should be able to bang out a "bi-zillion" of these for far less once they get going - if they ever do that is.

Be careful what you pay for with these cookie-cutter things in the middle of nowhere.

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agree...

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Bargain Indeed, the same designs were sold in Hobsonville behind the Countdown store for over $1M last year and they are all gone now .... crazy, not because they are expensive but they hold no value ... it is miniaturized living at its worse ... the single garage is only suitable for a suzuki swift and most cars are parked outside ....!!

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The housing market is really really batty

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Nice theory but...

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Did anyone see that graph above for only $2000 a square meter to build a house in Auckland??????. I can tell you for a fact that unfortunately that is way out due to recent events in my life. Try $3000-$3500 a square meter at present. I suggest everyone here get their home insurance policy out and read the total sum they are insured for. If it was only $2000 a square meter my house would have been rebuilt. Just about everyone out there is currently under insured.

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Yes it's an area where clarity is needed.
I am aware the rate often varies greatly depending on what is included / excluded. For example, lower rates sometimes exclude earthworks, landscaping, services, fees while higher rates include them.
What I am seeing is circa $2500 per sq m in Auckland, excluding those things

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I agree on the section pricing problem. As long as the surrounding land is owned by "land bankers" removing the building boundary will not change anything. All that will happen is the artificial restriction moves from public hands to private hands ie they will want to hold up their land prices. The only way around that is either compulsory purchasing by the crown or punitive taxation on the owners of the property, or both. Hence with no so drastic being politically acceptable this will not be cured IMHO.

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I have a privilege to travel for work quite overseas a bit. To construction costs are simply ridiculous in NZ. before you even take your tools out - $50.000 (!), connection of waste water $14.000 (!). I watched US edition of 'location, location, location' ....what a joke. it is unreal what you can buy in US compared to NZ. Then you look at some episodes of THE GRAND DESIGNS and what they can do for 300-4000 pounds would here cost 3-4mil!

And then you have all real estate stuff that are selling houses made out of fibre cement with asbestos, painted with lead paints as perfect opportunities...

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