Productivity Commission eyes urban limits

Property

Productivity Commission’s latest gig to look at local govt productivity, regulation, and what central govt could do; MULs in sights again

20th Mar 12, 9:23am by Alex Tarrant

By Alex Tarrant

Who should set metropolitan urban limits will be in the Productivity Commission's sights after it was tasked by the government to review the regulatory powers of local government.

The Commission is currently investigating housing affordability in New Zealand, and said in a draft report that a lack of new land supply on city fringes was one of the major contributors to unaffordable housing, particularly in Auckland. The Commission will release its final report on Friday.

It's next task is to review the regulatory functions central government has allowed its local counterparts and determine whether these could be better performed by central government. Local Government Minister Nick Smith yesterday released a set of reforms the government will impose on local government, in an effort to control rates rises and control council debt levels. See our earlier article on the reforms.

Asked whether he would like the Productivity Commission to further investigate councils' regulatory powers in respect to setting urban limits, Smith said it was during the Commission's current investigations into housing affordability and international freight costs that it expressed an interest in what took place within the local government regulatory environment.

"We...think the Productivity Commission can, as an independent body, provide some balance to this big debate about what regulatory functions are best done by central government, and what are best done locally," he said.

Smith would not say whether he thought local or central government should be in control of setting urban limits.

“The Productivity Commission has produced a report on housing affordability. That currently is out for public consultation. If we are to respect the independent role of the Productivity Commission I think we should let them finish their work, report to government, and for us to then draw our conclusions about what change might be required," he said.

Driving up prices

Research by Motu economists Arthur Grimes and Yun Liang found that property values just inside Auckland’s Metropolitan Urban Limit were 10 times higher than those just outside the limit. Grimes told the government's 2025 Productivity taskforce in 2009 that extention of the city's urban limits would be one way to remove roadblocks to development in Auckland.

Auckland was land-rich, Grimes said, adding Auckland's MUL could be extended around existing infrastructure such as the Northern Motorway. This would have the double effect of lowering Auckland house prices and creating more space for productive 'urban' activities not allowed outside the boundaries in rural zones. 'Urban' activities not allowed included setting up factories or housing, or even schools in rural zones.

In its latest draft spatial plan, the Auckland City Council was considering allowing for only 25% of new housing development in Auckland over the next 30 years to take place outside its existing boundaries. After discussions with the development community, it now looks like the council will allow up to 40% of new development to occur outside those limits.

The Productivity Commission in December said the Auckland council's plan to have 75% of all new housing built within existing boundaries would be difficult to reconcile with affordable housing.

There was an urgent need to release additional land for residential development, particularly in Auckland, the Commission said. Section prices in Auckland now accounted for around 60% of the cost of a new dwelling, compared to 40% in the rest of New Zealand. Section prices had grown more quickly than house prices over the last 20 years, indicating that appreciating land prices had been a key driver of house price inflation.

There were immediate issues of affordability closely related to a "chronic and potentially prolonged shortage of new (both greenfield and brownfield) dwellings particularly in Auckland," the Commission said.

"The Draft Auckland Plan for example acknowledges a shortfall of 10,000 homes currently and possible annual demand of 11,000 new homes a year over the thirty years to 2040. This compares with an average of 7,500 new dwellings actually consented in Auckland annually over the ten years to June 2011; and just 4,700 annually over the past five years," it says in the report.

Govt concerned

The 25% plan raised the ire of the government, which has been discussing land supply issues with the Auckland council.

Following the Productivity Commission's draft report on housing affordability, Key said it made some good points on the need to release more land for housing development.

“Their main point is if you choke off that supply of land then by definition land prices have to rise," Key said in December.

Treasury is also pushing the government to consider policies to help improve the responsiveness of housing supply to demand.

The Department of Building and Housing also told its incoming Minister that Auckland needed to allow for more house building on its fringes to help alleviate affordability problems in the city..

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35 Comments

by Wolly | 20th Mar 12, 11:31am 1332196270

One big fat ongoing rort snippy....expect heaps of effort to go into spin and blather from govt...and for nothing to change on the ground...as you say..vested interests...

Anyone forking out $120ooo for the right to cut a section off has to be out of their minds.

by Dannte | 21st Mar 12, 10:11am 1332277916

I tell you why. Because a brigade of USELESS know-it-all sociopaths who need a job and who think the community needs them and their ‘management’ are ransacking the system. These parasites help themselves to precious compliance monies and ensure at the same time that the self-propagating bureaucracy breeds more of those suckers. Bureaucrats are killing NZ. And the sheeple will keep voting for their social bribes and keep them in power.

by bob | 20th Mar 12, 11:27am 1332196051

What a good idea. I'm sure building a thousands of cheap houses just north of Albany will have an effect on the price of my central Auckland property. As long as no one tries to increase density in town because I'd like it to stay just how it is now and we all know that the next densest form of development after a free standing house is a 15 level apartment building (there is nothing in between).

Covering that nasty farmland with nice tract housing also is a good idea because then there will be more cars on the roads, and more roads and infrastructure to build and maintain which is good. More congestion on the roads will be good because then more people can sit round in cars burning petrol. Luckily there is endless cheap petrol available and no such thing as global warning (the scientsts are wrong because I don't like their conclusion) so building car dependant suburbs makes perfect sense and if oil did run out someone could just invent an air powered anti gravity hovercar like Luke Skywalker had.

by Wolly | 20th Mar 12, 11:34am 1332196460

I'll sell you one Bob..it's super special cos it's invisible like so the tax coppers can't get at you...you can have it for $55000...I can't go any lower...I'm losing money at that price.

by Matt in Auck | 20th Mar 12, 1:24pm 1332203096

Vast swathes of land could be developed around Dairy Flat / Silverdale, and the northern busway could be extended to the north of Albany to service this area. More business could also locate in this area ,which would reduce commuting to the city.

The worst face of urban sprawl can be avoided through strong regulation of subdvision design, and high environmental standards.

Recent studies have demonstrated that the environmental benefit of higher density development versus lower density suburbia is greatly exaggerated.

by bob | 20th Mar 12, 4:35pm 1332214541

Yes and the "strong regulation of subdvision design, and high environmental standards" will also ensure the houses remain affordable. Having everything a discretionary activity so the council planners and UD's can decide what they like depending on their mood on the day means they can disagree amongst themselves what they want thereby spinning out resource consents over months and years. It gives them heaps of work.

There sure are lots of recent studies available on the Demographica website demonstrating how bad density is for the environment. My favourite is the one that demonstrates that although there's heaps more pollution and energy waste with sprawl because it's spread out you don't notice it so much so it's better for the environment.

by Kleefer | 20th Mar 12, 4:24pm 1332213877

Bob your sarcasm-laced comment betrays your ignorance of the issues at hand. Allow me to disabuse you of some of these notions.

You imply that building new housing on the city fringe is bad because it requires new infrastructure to be built. However, the cost of this infrastructure pales in comparison to the extra $150,000+ people have to pay for sections as a result of the arbitrary restrictions on land supply that you clearly support.

You also err in your claim that opening up land supply on the fringes and therefore reducing population density will increase traffic congestion. International evidence suggests that the denser the city, the worse its traffic congestion, and public transport has little effect in terms of reducing it.

Inherent in your claim is the assumption that all these people living out at Albany or other fringe locations will all commute to the CBD every day. However, this ignores the fact that only about 12% of Auckland's jobs are in the CBD, in line with most comparable Western cities. And don't forget that as new suburbs are created, new jobs will inevitably be created in those suburbs. Maybe even a factory or two will open in areas with affordable land supply!

And finally, if you're really worried about the cost of petrol, high density isn't the way to go - drivers in high-density cities end up using more petrol than their counterparts in low-density cities, for a couple of reasons. Firstly, they don't spend as much time idling in traffic. And secondly, lower house prices mean people can afford to live closer to where they work.

I suspect your real motivation in opposing affordable housing for New Zealanders is to do with keeping your own property prices artificially high.

by bob | 20th Mar 12, 8:59pm 1332230361

That's a very clever arguement. Once you've pointed out that your smart and I'm ignorant you don't have to come up with any logical arguement because any point I make is invalidated by my ignorance relative to your self proclaimed supreme intellegence.

I see you also reference 'international eveidence' which, by benefit of being both international and evidence is indisputable.

Thankyou for informing me that only 12% of Aucklands jobs are in the CBD therefore suburbia doesn't generate traffic congestion. I'll remember that point as I cruise at 100kph down the motorway from Albany at 8:30am tomorrow. I will dream of a time when there's even more houses north of Albany making the motorway even less congested than it is now.

You're right those drivers in high density cities must go through an awful lot of gas sitting at lights - especially the ones that don't have cars. You're right on your next point too - sprawl does mean people can live closer to where they work. That explains why fringe sprawl dwellers spend so much less time commuting than those of us who live centrally. I'm suprised fringe sprawl suburbs aren't way more expensive than central suburbs seeing as they have shorter commutes and use less gas - must be swell places to live.

by Matt in Auck | 20th Mar 12, 9:32pm 1332232363

Pointless argument guys. The evidence clearly shows auckland will need both high density housing amd suburban development. Its not either/or

by bob | 21st Mar 12, 1:50pm 1332291025

I actually agree, however as sprawl is so much more politically acceptable than increasing density I suspect we will end up with mostly the later. Soon it'll be 95% outside MUL and 5% inside MUL (IF you can get a notified discretionary activity RC - which you never will).

by Plutocracy | 20th Mar 12, 6:13pm 1332220397

Don't sweat mate, isn't David B sitting upon the solution to the world's energy problems as we speak!?

by powerdownkiwi | 20th Mar 12, 11:33am 1332196393

Well said Bob. It won't get off the ground, though. The urban expansion, not the anti-gravity hovercar. They're on borrowed time even now. Interesting description of interest, that.

by Henry_Tull | 20th Mar 12, 11:57am 1332197822

The vested interests. As they say no conflict no interest.

The actions of those on the inside must be seen to be believed. The problem is that the numbers are getting so big (many suffer), and often what happens is such a struggle to prove under existing rules.

Could be time for a Hong Kong style commission to stop the fun & games. Some would see this as a sign of maturity, others a revolving door.

by Kate | 20th Mar 12, 12:12pm 1332198732

Withdraw the accom. supplement ($1 billion+ in annual government expenditure savings).

Announce it will happen some 5-6 months into the future to give both landlords and tenants time to adjust.

Change tenancy regulations meantime that prohibit penalties to tenants for breaking fixed term tenancies should the landlord be unwilling or unable to reduce the rent by that amount which equates to the government subsidy currently being paid to the tenant.

All persons get an accom. supplement letter confirming the amount of their supplement that will be withdrawn - making it easy for landlords and tenants to work out their new rent budget.

Watch rental and house prices plummet overnight.

I'll bet the Productivity Comm. doesn't even mention the fact that taxpayer subsidies are one of the principle causes of our affordability problem.

How hard commonsense thinking has become in our day and age, eh?

by Wolly | 20th Mar 12, 1:08pm 1332202136

Hang on Kate...one step at a time...first you need midnight legislation ensuring tenants from whom landlords are taking any of the subsidy must be provided with protection from eviction.

Then the govt must change the subsidy payout to reduce it by 10% this year..another 10 next year and so on down to zero...

let the landlords scream all they want..they could not evict tenants on the grounds of being unable to pay....rents would be forced down...house prices too as landlords bailed out of the rort.

Oh but there is a snag...landlords are in the national party rump...and the banks would lose their property bubble profit bonanza...

Forget it Kate.

by Andrew R | 20th Mar 12, 10:00pm 1332234054

The Productivity Commission (so-called) may not be allowed (by the terms of reference) to talk about certain things like income inequality. Certaintly it has an aversion to thinking about the implications of increasing income inequality and of the reduced/flat household disposal of the bottom two -three quinltiles of the population on housing affordability.

Admitting there is an income issue here might mean concluding that the neo-classical economic experiment that has been New Zealand since 1984 is a complete disaster. Given the strong neo-classical credentials of the Productivity Commission commissioners they ain't going to admit anything like that. Hence the ideological drivel that is their draft report.

by Philly | 20th Mar 12, 12:24pm 1332199494

"If we are to respect the independent role of the Productivity Commission I think we should let them finish their work"

Independent?? Since it is part of the supply & confidence agreement of Act, is stacked with Act members & affiliates, how can you see it for a nano-second as "independent"?

It is plainly politicically ideological and sectorial, hardly what I would call "independent"!

Plus they have clearly got off their brief of "productivity" to follow their little obsessions.

Cheers

by Kate | 20th Mar 12, 1:51pm 1332204690

No, the growers and the importers will just reduce supply in response to the reduced demand for these goods. Not the same for the housing market. The houses are there, they exist, money is sunk and outgoings on rates and maintenance are still there on a vacant building.

Use a bit of commonsense.

by Kleefer | 20th Mar 12, 4:38pm 1332214713

Kate has this one right. Eliminate the supplement and rent prices will fall, albeit depending on the area (Kawerau will probably be hit but Kohimarama not so much).

Those getting the supplement may be a minority (although I suspect a rather large one) but they directly compete against those who don't get the supplement.

Accommodation costs should be paid for out of the main benefit, not a separate payment that masks the amount beneficiaries actually receive (some get as much as $800 a week once everything is added up).

The government should also make the first $30,000 of income tax-free and index the benefit (and the pension) as a ratio of what someone working 40 hours per week on the minimum wage would get.

Studies have shown that children growing up in jobless households have much worse outcomes than those brought up in working families that get the same income. Allowing affordable housing to be built is another key piece of the overall economic and social puzzle.

by steven | 20th Mar 12, 10:26pm 1332235565

Given peak oil, jobless households will be far more common......and yes that clearly suggests a lot of social issues.....Housing is simply greatly over-valued, at least 50%.....but if you have no job a $400k house now being worth $200k is still un-achievable.

regards

by steven | 20th Mar 12, 10:22pm 1332235366

Kate, it isnt necessarily so that such reductions happen.....over-capacity in china means prices drop.....tvs now are extremely cheap....the only way to reduce supply is to shut up shop....interesting thing is supply for an item could actually increase as the supplier needs the money so produces more at lower margins....a good example of this would be crude oil...

Please dont use "common sense" its really the defense of the inadequate to my mind......and is an attempt to put anyone who doesnt agree with you down.....thats not a good debate I think.

regards

by steven | 20th Mar 12, 10:17pm 1332235032

Common sense usually isnt Ive found....its an excuse ppl who have no better reasoning use because they would like it to be like that.

regards

by Postman Pat | 20th Mar 12, 1:07pm 1332202073

Driving up prices

Duh, isn't that stating the bleedin obvious? Of course land zoned for development will be worth more than land that isn't. You could rezone hundreds of hectares for urban development but the sections will just come on the market at the going rate, which is high. You would have to simulatenously deliver ten of thousands of sections to have any impact on prices through supply, due to the real matters that influence house prices:

investment in the property market (largely speculating on capital gain but with a component of rental return on capital outlay)
high rates of leverage in a low inflation relatively high liquidity environment.

These are the actual drivers of real estate increases over the last ten years. To prove this - exmaple below:

Article by DR K Grundy, Planning Quarterly, December 2008

“In respect to supply and demand, let me use the example of …. Whangarei. Since notification of the first District Plan (1998) under the Resource Management Act, successive councils have pursued very permissive, market orientated policies in regard to the land market. Land regulation in the form of zoning and minimum lot sizes has been extremely permissive – based upon a largely laissez faire approach to land development. Liberal zoning and housing density provisions (a 350 square metre to three hectare minimum lot size across the whole district) reflected this approach. As a consequence, the district experienced a subdivision boom, resulting in a situation today where there is estimated to be around 10,000 vacant building lots in the District, spread across all zonings – a district of only 70,000 total population. At 2.5 people per lot this is enough vacant lots to accommodate 25,000 additional people, an increase in the district’s population of over 30%. Yet has this (inarguable) oversupply of residential land resulted in lower housing prices? Not at all. Housing prices in the district have more than doubled over the last ten years – at least as much if not more than the national average.

by Ricardo | 20th Mar 12, 1:38pm 1332203923

It's incredible that in 2012 housing affordability is still a hot debate...it's an issue that should have been dealt with by now.

by Andrew R | 20th Mar 12, 10:06pm 1332234391

Bernard told them how -- compulsory building apprentiships.

Really it is a good idea, especially if there is another state housing building programme like that introduced by the first labour government.

I figure that John Key will support such a programme as new housing will mean more than one of his ten commendments for the public service will be met (e.g. reducing rheumatic fever). Unless of course he isn't serious ...

by powerdownkiwi | 20th Mar 12, 9:36pm 1332232597

Ricardo - quite the opposite. The more we use land, whether it be for housing or to feed the folk in them, the less there is left to do either

You can't have ever dealt with growth 'by now'. Think about it.

by Kate | 20th Mar 12, 2:32pm 1332207172

So you gave up on the "eliminate all benefits, then the price of food, wide-screen TVs and used cars will naturally fall" argument ... and now you're changing tack?

Regardless of how the accom. supp. is calculated - it's overall cost (meaning the amount the government forks out for that line item overall) is on the up and up as more and more people become aware of it and realise they fit the criteria for seeking a claim to it.

And that will continue to grow as incomes are not keeping pace with these rental price rises - hence more people become eligible.

There is, animal lover, no way out for the government aside from scapping it altogether. There will be no great rise in "new homeless" - as the stock of existing houses won't suddenly disappear.... the market will adjust to the $1 billion dollars no longer being in circulation.

by Kate | 20th Mar 12, 6:36pm 1332221781

Any landlord that doesn't know how it works need only log on to the WINZ calcuator to run various numbers through it. Low income rental property landlords would be well aware of the typical top ups their clientele are likely to be eligible for. Property managers can pretty much advise their clientele who don't know, giving them a pretty accurate idea of what they will be entitled to in relation to the subsidy.

If you think landlords and property managers don't know what the ins and outs of this supplement are - then you're the one not in the real world.

by Andrew R | 20th Mar 12, 10:08pm 1332234518

Where is his correction?

by Andrew R | 21st Mar 12, 8:55pm 1332316513

Thanks for explaining that Hugh. Now I undertstand that Grimes didn't actually say he was wrong, it is just that you think he is wrong.

by bigblue | 20th Mar 12, 5:55pm 1332219307

If the peak oilers are to be believed then it won't be long and petrol will be $4 or $6 per litre - who will want to live well out of the centre of the city once that happens.

by steven | 20th Mar 12, 10:11pm 1332234698

Peak oil is a geological and engineering fact , so "belief" seems a word to me I prefer not to use.....too many negative conitations of religion, anyway .....in time line its also about here.

The problem for me is the shear quantity of variables.....not least of which is human behaviour......

Now will we see $4 or $6? that is a difficult call because at that stage its not so much paying double what we pay now to fill a tank as the impact on the NZ and global economy....So in the USA once energy gets to 6% or so of GDP they go into a recession......for the world as a whole its 9% of GDP and we are bout there at $2.50NZ a litre. So maybe $3 at which point we see an Economic depression. Then the oil price will do as 2008~9 and collapse...so $4 is possible as an upper limit, for the next few years....

Inside the next 5 years, yes its going to look expensive to live out, but you assume the impacts will be fairly small.....when there is a lot of un-employment and I mean 30%+ just how will taxes cope with the WINZ bill? I suggest they wont.....how will ppl eat? well they will grow a lot for themselves.....which takes land.....those lifestyle blocks may yet prove fruitful for those who own them......

So initially yes I think there will be some concentration in the centres say for up to 10 years, but later say 10+ but it could be 20 a reversal as ppl move to where they can sustain themselves....villages etc....that layout and spacing worked...its proven........

regards

by bigblue | 20th Mar 12, 5:58pm 1332219507

In Auckland City the Res 6a zone requirement needs to be changed.

Currently a site of 750m2 is required before you could build 2 dwelllings on a Res 6a site - this needs to be changed to 600m2 ie 300m2 per house. Immediately that would free up thousands of sites in Auckland City, so many in fact that the land price would reduce as there would instantly be an oversupply.

Many years ago the limit for a Res 6a site to have 2 dwellings was 650m2 - change it back to that or 600m2 now! At the same time the ridiculous 1,000m2 limit for a Res 5 site needs to be altered also to 600m2 or 650m2.

Changing these two zones would mean more people living in the inner city rather than creating even greater traffic problems by building further out.

Density close to main transport routes within 5km of the city centre is the answer. Flood the market with cheap lower m2 limit Res 6a and Res 5 subdivisions and the affordability and supply problem will also be solved.

by steven | 20th Mar 12, 10:13pm 1332234781

Have you considered how much land is needed to grow food for a family? I'd suggest 800m2 minimum.....

regards

by powerdownkiwi | 20th Mar 12, 9:28pm 1332232119

Well known by those who steadfastly refuse to learn.

Nicole Foss will be in Canty shortly - perhaps you might try and get along.

It'll rock your socks. (She mentions your median multiple, but not in the same sentence as 'permanent')