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.
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..