Opinion: Olly Newland says building reasonably priced housing is a dying business, strangled by regulation. Your view?

Opinion: Olly Newland says building reasonably priced housing is a dying business, strangled by regulation. Your view?
'The Tax Gatherer' 1540 - Marinus Van Reymerswaele

By Olly Newland

Olly NewlandAlmost on a daily basis websites are full of angry people accusing ‘speculators’ of ramping up the price of property - supposedly pushing it out of reach for ‘the poor’ and first home buyers.

‘Bring in a Capital Gains Tax!’ is the cry, or there are calls to ‘restrict’ lending for property purchases, or to ‘punish’ investors by removing tax advantages, or to flood the market with more undeveloped land.

Some even want the government to tax gains that have not even been realised.

This cacophony of shrill envy aimed towards property investors is almost exclusively driven by those who cannot comprehend this market reality: where someone has actually taken the plunge, bought a property of some kind and then - whether immediately or over time - made a profit.

However let me tell you that it’s not ‘speculators’ who are driving up the price of property. Indeed, they are more likely driving *down* the price of property! For speculators can only really thrive by fierce haggling in order to buy at bargain prices.

No, the real culprits who are driving up prices are the Local authorities: Councils and quasi-council organisations and all their hanger-ons whose habit of profligate spending requires ever more income. As a consequence, outrageous charges have to foisted on the consumer in order to keep the money rolling in.

The public is more openly critical than ever. Mini ‘revolutions’ have already started. They will get more frequent no doubt, especially in these straightened times.

Kaipara rates revolt | Protesters threaten rates revolt in Christchurch

The profligacy of local Councils, especially the Auckland Council, is a hot topic and frequently discussed. It seems that when Council can’t take money directly from its ratepayers’ wallets, it borrows on their behalf … so that spending can go on forever. Never mind how it gets paid.

Auckland Council rating under pressure

Let me give you an example of what the charges are just to build a house in the Auckland area. You will see by this exercise that the taxes and charges imposed add a huge amount to the final cost.

A builder friend of mine recently completed a development - a nice property, somewhat better than a group-house box, but not a mansion either.

The charges he had to meet - and pass on in the price - included:

- Building consent $10,000
- Resource consent $5,000
- Storm water approval $2,500
- Compulsory inspections $15,000
- Crossing permit $500
- Water meter $5,000 (actual cost of meter: $400)

On top of all that, the Council decreed compulsory double glazing, stainless steel nails, extra and approximately another $20,000 in sundry charges as inspectors and engineers visited and revisited the site many times and often with overlapping and conflicting demands.

In addition, all the slab, excavations, retaining walls and bracing were inspected twice and he was double-charged and often treble-charged as a result of a new regime in the latest building code.

All these charges added at least an extra $100,000 to the building costs - to which, naturally, must be added the developer’s margin, and the ubiquitous GST impost of 15% which added many tens of thousands of dollars on top of all the rest.

My developer friend said that if the charges and taxes were set a fair and reasonable levels, the property could have been sold for an estimated 25% less (!) and still have left him a fair margin for the 12 months’ arduous work he put into it. (Not to mention the risk to his capital.)

From this exercise, which is repeated up and down the country, it is no wonder that developers are unable to build more affordable houses. The costs are just too great for the meagre margin they can earn for their time, trouble and risk. This is the true reason building consents have slowed to a crawl, and why there are bun-fights between buyers breaking out all over the place as people try to bid against each other for existing homes - and hence drive up prices.

The rabble who cry for punishment for those who “profit from property” should turn their misguided anger towards the bureaucrats who ramp up prices - via massive charges and wasteful projects designed to massage their egos with little regard to the consequences. Their actions, more than anyone else’s, push property prices out of the reach of the those who who like to own a small piece of paradise they can call their own.

Big fees for little service

Here is another example of how out-of-control charges can and do drive up prices and building costs. I was asked to look at a small development overseen by a hard working team of volunteers for a registered charity.

The charity owned an almost derelict homestead on a site, together with an existing small modern building that needed extending. The dedicated staff and management believed in their mission with great zeal.

For decades the charity had scraped and saved its pennies for this project. Cake stalks, sausage sizzles, fund-raising functions of all kinds were held - and slowly these efforts built up and came to fruition on a magical day when enough was in the kitty to actually make the dream come true.

Everything went according plan and recently the building was finally completed. Money was tight, as you can imagine, so it came as a bombshell when WaterCare sent a massive bill for more than $19,000 simply to check the connection. This one bill alone would swallow up the fruits of scores of cake stalls and fund-raising efforts over many years.

What is extraordinary is the fact that the site used for the new development already had a water meter - plus all the piping installed which supplied the old homestead that had been been removed from the site.

So what was this massive WaterCare bill actually for?

WaterCare had to do nothing. They needed to supply no new equipment, they checked nothing, fixed nothing. All that would happen is the existing water meter would turn faster and WaterCare would be able to charge more for what it supplied in the future.

Surely this was just a mistake? Surely no one would charge $19,000 and provide nothing in return?

According to WaterCare’s website these charges are created to cover the costs to provide the infrastructure, with the clear understanding (to me anyway) that new developments such as housing estates which required a large investment in new pipes, engineering, earthworks etc, should pay towards them … which seems almost understandable (see their ‘Infrastructure Growth Charge’ pamphlet – 400KB PDF).

The charity sent a polite letter to WaterCare seeking a remission of all or part of the charge in light of the fact that nothing had been or needed to be supplied and consequently little or nothing should be charged.

The response came back in typical bureaucratic double-speak from one of WaterCare’s Chief Officers:

“WaterCare is a minimum cost provider of water service. As a consequence it is a non-profit making organisation. Our charges directly reflect the cost of the services provided. The infrastructure Growth Charge for (address) reflects a portion of the increased cost of managing the extra demand your development places on the system. If we were to reduce our (charges) the cost of water would need to increase. This would mean that existing customers would unfairly fund new developments. Given the above we cannot change our charging methodology or make case by case exceptions irrespective of the reason for any development.”

Nonsense! It is obvious that the letter was self-righteous pre-written template designed to ward off pesky complaints. It was an excuse to cover the fact that in this case, NO services had been provided, no management had been needed (other than checking the meter), no significant extra demands were placed on the system, no charge to existing customers existed, and no unfair costs for funding had arisen.

In other words, WaterCare’s charge is a crude but simple tax. Unlike other taxes, however, it is not graded or designed to fit the income and budget of the individual taxpayer.

At this rate some serious thought might be given by many to obtaining a regular supply of water the simple way - by installing tanks to collect the abundant rain water that we are blessed with in Auckland. Maybe the time has come for the return of the old system of collecting water off the roof and aiming to become self sufficient, free from unwarranted and expensive controls. The problem is that WaterCare has no competition. It is a monopoly that can charge what it likes. Its officers and directors are not elected but are only accountable to its masters - the Auckland Council.

Just to be sure who is in charge here note that WaterCare has on issue some 260,693,164 shares and every single one of them is owned by the Auckland Council. In this manner the Council has used sleight of hand to divest itself of accountability so that WaterCare does not have to answer to the voters for its actions at every election. This one example demonstrates how a local bureaucracy can impose unnecessarily high costs, while remaining totally unaccountable to the people.

It also demonstrates quite clearly why building reasonable priced houses is a dying business. It simply does not pay to build reasonably priced houses when the layers of costs payable to the faceless bureaucrats mount up in ever increasing numbers - plus of course GST which is a tax plonked on top of every other tax.

Those who are baying for blood from ‘property speculators’ should think again and come to realise that they should be directing their wrath toward those who really are to blame. Reading the above it shouldn’t be hard to work out who they are.


Olly Newland
© May 2012 www.ollynewland.co.nz  Used with permission.

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"Almost on a daily basis websites are full of angry people accusing ‘speculators’ of ramping up the price of property - supposedly pushing it out of reach for ‘the poor’ and first home buyers."
That is because they are Olly. If there was no ability to leverage into property (borrow leveraged money to purchase) then there would not be a bubble. While there is some truth in what you say about councils the rest of your article is really just noise, designed to redirect from and obfuscate the real issue. 

Scarfie, I am not sure I can agree with your comments. Leverage on property has taken the blame for increasing home prices and causing the housing bubble. However a value on a property is the first fundamental that needs to be taken care of.  Property has been valued on what people are prepared to pay and as long as the borrower could afford the interest payment along with any principle payments required by the lender the bank rubber stamped the deal.
Immigration, working for families income supplements, taxation and keeping up with the Jones has played a significant role in the housing bubble.

Look the fraudulent money supply affects all those other things as well, so indirectly it is the same cause, although immigration perhaps not. 
"Property has been valued on what people are prepared to pay and as long as the borrower could afford the interest payment along with any principle payments required by the lender the bank rubber stamped the deal." Well yes but this requires people to be ingnorant of the fraudulent nature of our money and the effect their borrowing has on the money supply. It all hinges around that point of borrowing and that is my interest in commenting here, getting people to think about what money is, where it originates and where it comes from. I come down hard on property investors because they are generally aware of some of these issues but still choose to take advantage.
Think about this. When money is created bearing interest, the mere fact of paying the interest subtracts from the money in circulation. Not only does more money have to be introduced to cater for the interest, but the same amount again to preserve match production. If you expect growth then that means more money on top of that again. I have modeled it and you will at some point see the money supply go parabolic.

The shortage of money in your above reply creates the credit crisis which Govt's then solve by more of the same measures that created the problems in the first place. 
I agree the valuations "require people to be ignorant of the fraudulent nature of our money supply and the effect their borrowing has on the money supply". People were buying houses in under 24 hours - that is extremely ignorant. Did these people have time to do any due diligence? - not likey.  Everyone that was buying was telling me it didn't matter what they paid as they would accept the annual capital gain and they wouldn't have to pay tax on that.
Taking issue with property investors because they were aware and took advantage of the system is unhelpful as they were compliant with legislative processes at the time. I would like to get some members of our society to also think about "what money is, where it originates and where it comes from" as maybe then the Govt and its cronies would shrink in size and we would all be better off.

I will take you as sincere when you say this "Taking issue with property investors because they were aware and took advantage of the system is unhelpful as they were compliant with legislative processes at the time". Just because something is lawful doesn't mean it is moral. What happens when the law maker/s have dishonest intentions? Seems to be the case with the money supply.
Think about this as an extreme case. Hilter made exterminating Jews lawful, policy in fact, so does this mean that everyone following orders in doing so should have been exonerated?
I can assure you it is the same sort of thinking that is applicable to property investment, no consideration of the victims.

Using the case of Hitler legalising genocide against the Jews as part of your argument is rediculous as is exonerating those who committed such crimes
Thinking Property investors have made victims out of some members of our society is also rediculous. The world revolves around business in the supply and demand of goods that is an inescapable reality. All business has to take opportunity, risk, failure and much more.
Do you not believe in people gaining reward for their efforts? The supply of houses to those who need housing is something we should appreciate. The property investors fill the demand of other peoples needs. If no landlords or property investors existed people would not have the ability to move locations so easily such as when you go to Uni, get your house trashed in an earthquake, relocate town/city for work or simply don't want to take on the perceived risk of buying etc.  Everyone who purchases property should be perceived as a property investor as  housing should be an investment whether you are living in it or renting it out. 

Sorry no, the analogy is quite correct. It is not the outcome but the intent that is important. In fact the outcome could be much worse if you think about it. As for motivation the Nazi's saw nothing wrong with the priciple of racial purity, albeit completely misguided.
Please explain what effort a property investor exerts to justify a reward? Seems to me they do nothing at all except borrow money, money that is freely created. The risk is very low once you understand the money supply,  a guaranteed income at the expense of others if you stick to postive yielding property.
Filling the needs of others is a fallacy. If anything it is the developer and the builder that provide that service. If investors worked solely of savings they could be forgiven in part, but they generally don't.

Don't listen to scarfie.  He is seriously deluded on this issue.

Done that IQ test yet Chris? or still avoiding showing your deficiency?

Are you eight years old scarfie?
Seems a bit childish.

It it your juvenile and fallacious comments that lead to that challenge Chris. You are free to label others stupid or worse, indicating you think you are more intelligent. Prove it buddy. Put up or shut up.
You won't because you can't.

Boy oh boy, scarfie. 
If I am free to label you as the aforementioned, sobeit I will!
(Anyway I reckon I have adequately determined your IQ level from our previous exchanges - but if you feel the need to let the world know all of your deficiencies - feel free to continue)

Scarfie makes sense, theres a movie about him called The Dictator coming out soon. 

Your'e question "Please explain what effort a property investor exerts to justify a reward? is indicating that you don't know what effort is required of a property investor.  Property investment is just the same as any other business type and requires an enormous amount of effort.
Property investors, Speculators, Property Developers and non-Investment Property Owners all play completely different roles within the property market. Property Investors and Property Developers have a legitimate business model with all the hassels of business and compliance on an on going basis.
Speculators and non-Investment Property Owners are probably the worse players in the market. The speculator is always "hoping" the price increases as this is their keep out of mortgage default card, while non-Investment Property Owners tend to value property from a very different perspective which often has little to do with actual value and returns obtainable in the true market place.
I am having difficulty following your statement "The risk is very low once you understand the money supply,  a guaranteed income at the expense of others if you stick to postive yielding property". Everyone has the ability to resource themselves from the same money supply so everyone has the same risk. Any investment should provide a return or else it is not an investment - it is a liability.  In recent years positive yielding property has been difficult to find and generally has required some form of capital input from the purchaser. There is no return off this portion of capital injection until the property has become postive yielding. 
Property investment is no different from any other business. The cashflow just happens to come from housing stock. There is no difference between housing stock, livestock, coffee stock, education stock etc they are all used for the purpose of generating an income higher than costs.
To strike out at property investors as you believe their intentions are immoral on some level is quite dispicable and could be in breach of human rights. Property Investors use the same money supply as everyone else. If you buy a coffee or eat out I bet the business has a debt. Well that debt came from the money supply chain, along with student loans and every other kind of debt.  So by your thinking everyone is immoral - as you will be a consumer of goods on a daily basis you are also part of the problem as much of what you consume will have a debt behind it somewhere.
While I understand your concern for HOW THE MONEY SUPPLY IS CREATED we also have this thing called democracy which allows each person a vote and NZ has continually voted for the money system that is in place. I have only seen one alternative to the creation of the money supply and that is from the Democrats for Social Credit. I am sure you have your own views and agend on how the money supply should be created/controlled and wouldn't a better more productive use of your time be in showing others how the alternatives to the money supply will work instead of criticising one business sector who requires capital.

Oh I know full well what is involved of a property investor(unwittingly got caught as a landlord), but that and other points you make doesn't change the fact that it is non productive. There is a world of difference between the business owner or home owner that uses the fraudulent money to facilitate production or a home to that of an investor that makes money from money itself. Property investment is little different to putting money in the bank on interest, then leveraging that at 36:1 by borrowing from the bank at a wholesale rate and loaning it to them at a retail rate. Agree re speculators being the worst.
Yes everybody does have access to the same source of money, but not everyone takes possession of it with the intent of profit. It is the intent that is different and I suggest you concentrate on that aspect, as intent is the defining point of almost all criminal offences(manslaughter and receiving are a couple of exceptions). Tell me where money by definition should be a source of profit?
Have you seen my modification of the quantity theory of money? (M.V)+i=P.Q , where 'i' is interest. Until I created that equation I thought that fiat money and fractional reserve banking were the evils, but it turns out interest is main one. Of course the former two faciliate the later. Interest only works when there is a constant surplus to pay it, but it becomes a ponzi scheme as the interest component keep growing as a percentage of the total money supply and eventually the new inputs can't keep up. We are staring down the face of a double barrel as our money supply is nearing the end of its natural life span. The inflexion point in the population graph in 1961 means the rate of growth is declining and will soon turn negative. Interest rates will have to turn negative from that point. The question is why ? What has caused the slowing of growth? Peak resources seems a logical conclusion to make. Debasing the money supply was a natural progression from this condition IMO.
Be careful when you say capital, because you know it isn't:-P But otherwise I try to drop in the terms 'fiat' or 'fractional reserve' with the intent that if even one person who reads it starts to investigate then it is a success. When they find out for themselves the loud protests from some quarters will make sense. I don't presume to know the answer to what will work BTW, it is enough of a responsibility in trying to design someones dwelling.

Scarfie, how does a bubble exist in an environment where credit growth has been negative, and prices are at roughly the same levels that they were at 5 years ago? 
Furthermore, if leverage was not available, it would affect everyone in the same way. Prices may well be lower, but first home buyers would have no access to leverage making home ownership even more unaffordable than it is today. 

That is tripe and I think you know it. You have got to be kidding me trying to defend leverage,  civilistation existed quite happily for thousands of years without it.
Misallocation of resources is your answer. When you have a system of rules that favour one asset class over another, which housing has an almost exclusive over via allowing you to borrow leveraged money, then that asset will be highly attractive. Too damn attractive for the greedy bastards out there to resist, people like property investors. Simple greed faciliated by some beneficial rules, that is all it is.
It is a moral and ethical issue as much as a monetary. Those that created the monetary system understand human nature only too well and have stimulated the greed emotion very very well.
(edit: why do you think we have moved from single income families to two? Mortgage terms have extended over the same period of time. It is no coincidence that these have taken place since we went off the gold standard, or though that isn't the only issue)

Really?  You do know banks (and individuals) have been lending money on houses for hundreds of years!
That's an ad from one of NZ's first newspaper editions in 1842.
Leverage is nothing new.
Nor are banking failures (look at the banking collapses in the 1890s including the Colonial Bank of New Zealand).

I said thousands, not hundreds. I am quite aware that fractional reserve banking made its appearance well before NZ was colonised. So did Maori have a central bank? Or practice modern banking? Or were able to borrow money to build Whare? According clowns like you they would have suffered a housing shortage. Short sighted and well short of an argument as usual.

So by scarfie's reckoning the whole basis of modern civilisation is corrupt and fraudulent!!!
What did I say previously? I think we've now caught the biggest loon in town!!
And so the Ancient Romans and Greeks didn't have money or lend money or mortgage assets????  Check your history and I think you'll find they did!  Or perhaps pop down to your local stamp and coin shop and you may even find some of that money that the Romans never lent or spent!!!!
Obviously you never read the annals of Publius Cornelius Tacitus (56-117AD) [Book 6.17]
Hinc inopia rei nummariae, commoto simul omnium aere alieno, et quia tot damnatis bonisque eorum divenditis signatum argentum fisco vel aerario attinebatur. ad hoc senatus praescripserat, duas quisque faenoris partis in agris per Italiam conlocaret. sed creditores in solidum appellabant nec decorum appellatis minuere fidem. ita primo concursatio et preces, dein strepere praetoris tribunal, eaque quae remedio quaesita, venditio et emptio, in contrarium mutari quia faeneratores omnem pecuniam mercandis agris condiderant. copiam vendendi secuta vilitate, quanto quis obaeratior, aegrius distrahebant, multique fortunis provolvebantur; eversio rei familiaris dignitatem ac famam praeceps dabat, donec tulit opem Caesar disposito per mensas milies sestertio factaque mutuandi copia sine usuris per triennium, si debitor populo in duplum praediis cavisset. sic refecta fides et paulatim privati quoque creditores reperti. neque emptio agrorum exercita ad formam senatus consulti, acribus, ut ferme talia, initiis, incurioso fine.
Hence followed a scarcity of money, a great shock being given to all credit, the current coin too, in consequence of the conviction of so many persons and the sale of their property, being locked up in the imperial treasury or the public exchequer. To meet this, the Senate had directed that every creditor should have two-thirds his capital secured on estates in Italy. Creditors however were suing for payment in full, and it was not respectable for persons when sued to break faith. So, at first, there were clamorous meetings and importunate entreaties; then noisy applications to the praetor's court. And the very device intended as a remedy, the sale and purchase of estates, proved the contrary, as the usurers had hoarded up all their money for buying land. The facilities for selling were followed by a fall of prices, and the deeper a man was in debt, the more reluctantly did he part with his property, and many were utterly ruined. The destruction of private wealth precipitated the fall of rank and reputation, till at last the emperor interposed his aid by distributing throughout the banks a hundred million sesterces, and allowing freedom to borrow without interest for three years, provided the borrower gave security to the State in land to double the amount. Credit was thus restored, and gradually private lenders were found. The purchase too of estates was not carried out according to the letter of the Senate's decree, rigour at the outset, as usual with such matters, becoming negligence in the end.
And you thought quantitative easing was a new idea!!!!
Get with it scarfie!  You are just plain old fashioned loony.

As usual your diatribe contributes nothing to the argument, although I commend you on taking that step towards actually doing some research for your posts.
AFM states that leverage (fractional reserve banking) is essential for the housing market to work. "Furthermore, if leverage was not available, it would affect everyone in the same way. Prices may well be lower, but first home buyers would have no access to leverage making home ownership even more unaffordable than it is today." 
I called this as tribe and you haven't actually contested that. 

So 2000 years of lending on houses in civilisations not based on subsistence in grass huts isn't enough for you??
Loon, loon, loon, loon, loon...  Yes I think you are a loon!

Thinking? The concept is completely foreign to you.
And again, the conversation is about fractional reserve lending. But lets not let a basic concept like sticking to the argument prevent you from calling on the best of your vocabulary. So is your technique in the hope that if you repeat it enough it might come true?

...... and there I was , sailing along through life , happy in the knowledge that a loon is a North American aquatic bird , from the genus Gavia ......
No one told me that it was a scarfie too ! ...... we live and loon ......

Whats more, a flock of Scarfie's as well...

....... flocking hell !

Quite interesting how two people can look at the same evidence and draw completely different information from it. I guess that is a reflection of the original behaviour :-) Being repeated :-P

The Gummster wonders how much the price of houses would pull back if all the government interference was removed ( rental subsidies , state houses , tax breaks , etc ) .......
...... here in Oz the John Howard government added fuel to the roaring house prices , with the first home buyers grant ....... which just served to push prices even further from affordability ....
It boggles me tiny mind that governments allow us tax breaks on housing debt ;  but punish savers by taxing them heavily on the interest earnt on their cash deposits .

Olly, you are so right.  Up here in Kerikeri 4 years ago I  subdivided 2 sections off my 21 acre property,  resource consent and surveyors fees cost $60K. I planted both sections out with hundreds of trees to make them nice private 1 acre lots.  The conditions placed on me by council,  GST etc at the time meant that selling the sections would mean I would have to sell them for 160K just to recover the money spent(that is the price of sections up here),  this does not include the loss of value of the existing property.  I would have liked to self build 2 houses to sell but the sums just do not add up.  To rub salt into the wounds the resource consent is expiring soon so to renew it will cost another 4K and I was told I must hire a landscape architect to draw up the plantings on the sections ,  telling you what trees to plant.  Please please Olly use your influence to save us all from this madness.

Why would the subdivision consents have an expiration date? 

Because they want you to build within a certain timeframe,  ignoring the situatiion we have here in NZ where sections cant be sold because buyers wont /cant buy at the price needed to make it viable to sell.  A cynic might say it is a good way a getting more money in to pay for axcessive staffing.

Surely you don't have to build a dwelling on the property within a certain timeframe - you just have to complete the subdivision process - ending with lodgement of the new titles (for bare land) with LINZ?
I'm guessing that you might have been relying on the proceeds of selling the subdivided land to finance completion of the subdivision - I assume that's what most ads which state 'subject to title' are attempting to do. 
If so, I understand it's quite common that those type of development plans never get off the ground.   I would hope that the council folk and/or your lawyer might have cautioned you in this regard. 

What a lot of weasel words.

Consider yourself told off, Keriwin. How dare you want to make a living. Don't you know you are meant to hold land for years at your own finance costs while you wait for bureaucracies to get their a into g - also at your cost?

... while you wait for bureaucracies to get their a into g ...
Looks to me that the council got it's "a into g" - as Keriwin has a subdivision consent - in fact it looks like that consent was granted nearly four years ago! 
I doubt it's the council holding up the transaction being completed.
Happy to be corrected if Keriwin drops back in.
Also happy to stand corrected if indeed one has to build something on the land inside the four year timeframe in order to complete the land transfer transaction.

With two children as lawyers I hope so.  I could get titles for another $100,000 but what is the point if I can't make any money on the deal.

But you said sections go for $160K (and you'd have two) - so what's the problem? 

Yes but when you get title you have to pay all sorts of council contributions.  And don't forget the loss of value to the existing property.
The only way I could make money is if I built two houses myself.  I am a retired engineer and used to make prototype cars accurate to 15/1000 of an inch so have all the skills to do the job,  however due to the new rules I would have to pay an inferior skilled person to do the job.  I have a letter from the minister on this and it says "no leaky homes have been built by self build owners". 

Any chance you could provide link to copy of that letter?  With contact details obscured (other than ministers) is fine.  Letters where minister make blatanty incorrect statements can be very useful in certain situations.  Thanks

You really can't build anything new & complete in a reasonable suburb - even in the PRovinces for less than $550k.   $200k section,  new build $350k.  

Mortgage-Belt- one word;    bollocks.
Been there, proven you wrong.
Vested interest in interest, methinks.

PDK, I am with you on the potential low cost of the building.
That is your specialty, and I admire it.
My specialty is the cost of the land, and the reasons why it inflates in value several hundred percent just because of urban planning. I wish you would recognise this factor as well.
There is a massive difference in affordability between a PDK $80,000 house on a $200,000 section, and a PDK $80,000 house on a $50,000 section.

Yes thats what I don't get about pdk, energy efficient homes and building, nobody is going to argue with that.
Overpriced land costs due to silly council processes, building regs etc etc. Ironically some of that is preventing the types of homes pdk advocates - as people/companies are less able to experiment. I can't see why home building/design isn't basically on a reputational basis, perhaps with a few provisions to ensure builders can't escape shoddy work via limited liability provisions.
Perhaps pdk is the one with vested interest and pdk actually stands for "property developer kilmog" area.

having only completed 3 years at college i could be wrong but i think that the GST component on a house would somehow escalate the building costs
if i import the timber then onsell it plus gst to a building and he onsells it to a builder plus gst and then he onsells it to aperson building a house plus gst and this continues with every aspect of building a house then GST in my calculations would be approx 45%
I could be wrong

Check the price of timber elsewhere.  We are being ripped off.

You are wrong.
Any party registered for GST can claim back any GST paid, so GST is only paid once (on the final price a product or service is sold for).

No, the GST is 15%. Say everyone puts a markup on of 30%. You buy the timber for $100. You onsell it for ($100 + 30%) = $130 +GST (which you collect and pass on the the IRD). The buyer onsells it to a builder for ($130 + 30%) = $170 +GST (which he collects and passes on the the IRD). The builder sells it to the customer for ($170 + 30%) = $220 +GST = $253. So the GST is $33; the rest ($120) is profits by all the middle people.

...you forgot the part where the buyer claiims the gst back...hence the gst merley gets passed along until the final stage..ie the non registered end user

In my view the GST is a completely separate entity - it can be ignored in all calculations.

The point I was trying to make is you don't pay GST on GST. I.e. GST is 15%, not 45% or whatever.
So the final price is original price plus margins by middle persons - excluding GST which is paid only (and not claimed back) by the end consumer. It's only the margins that increase the price at each step; not the GST. The margins don't get added to the inclusive-of-GST amount (not in a business-to-business environment anyway - retail may be different?).



Excellent work Olly.
It is local and central government responsible entirely for the price of housing and the lack of supply.
Would it hurt the state to sell 1000 houses a year in Central Auckland where wealthy people want to live (which would regenerate the ghettos) and build brand new better quality housing on the fringes for less?  This work create building work and employment plus increase the supply of houses for renovation and redevelopment in the Central Auckland suburbs.

Correction Chris_J: Central Auckland suburbs do not include Eastern Suburbs.  Thanks.

Oh don't feel too depressed doublegz - stuck out their in the eastern Auckland ghettos.
Maybe if uncle John sold off some of the slums out your way the area would improve!

Chris_J, your conceit towards the eastern suburbs is insufferable!!

"However let me tell you that it’s not ‘speculators’ who are driving up the price of property. Indeed, they are more likely driving *down* the price of property! For speculators can only really thrive by fierce haggling in order to buy at bargain prices"
This is misleading indeed quite dishonest simply because it is ignoring the other end of such transactions such as the high prices wanted when greedy speculators are onselling and the obscenely high rents charged in between.

Olly's analysis shows the need to finance infrastructure properly.  These extra costs, when added to the already inflated cost of land due to artificial supply restrictions, make producing affordable housing impossible. 

...... property is not unaffordable at all ..... it's your fault for not earning enough ...
There are 24 hours in a day ...... stop slacking around the 16 where you're not working , and get 2 more jobs !
...... stop the blame game , and doing the " dying duck in a thunderstorm " routine  , and get stuck in !

Hugh Pavletich has been telling us about Municipal Utility Bonds and how they work, for years.
Yet our glorious Productivity Commission's Inquiry into Housing Affordability did not even mention them.
There is also a system called "latecomer contributions" that works well in some parts of the USA.
Our current system is immoral. Councils take fees up front, do not provide anything like as much value of infrastructure as the fees they collect, AND "finance" the infrastructure they do build, anyway.
Even more immoral, it does not matter where a first home buyer buys their house, its price is inflated by the inflated price of new houses. So first home buyers are paying out a total of money that it would have been better to have simply fined each of them and used the money to build infrastructure. As it is, the money goes to existing property owners, speculators, and banks.

Councils take fees up front, do not provide anything like as much value of infrastructure as the fees they collect, AND "finance" the infrastructure they do build, anyway.
Exactly, and if the private sector did this they would be locked up for fraud.

The point is these costs have to be met...so by one means or another paid for. 
For me its classic user pays, want a new house pay for this work upfront as a lump sum, simple, no debt or liabilty dumped onto others its known as being responsible. I would have thought that that would be a clear Libertarian goal.
The US uses bonds which are interest paid so in effect it costs more as a rolling cost....If you start to look at developments as a rolling process over time it makes no sense to do it this way IMHO.

The equity issue arises because
1) everyone so far has "paid as they go". People paying upfront now are still expected to pay in to the "pay as you go" scheme as well for the rest of their lives.
If you really are correct that paying upfront is the best way, then everybody in houses right now should be socked their fair share $80,000 or so and rates themselves should be partly abolished, and then everyone is in a roughly similar fair position.
2) as I have said again and again and again and you take no notice, the fees push up not just the price of new houses, but the price of all houses, thus penalising everyone who buys their first home, regardless of whether it is a new one or not. Therefore it is not just the people who buy new homes who are paying "up front" AND "ongoing"; it is every first home buyer.
You really must have peculiar ethics if you think this is OK.
Or are you one of these loopy Deep Greens who buffs over the idea of reducing humanity's ability to reproduce, by whatever means - including burdening young people financially to the point that they cannot afford to support a family.

Investors and speculators are not driving this market up.
Very few people own more than the house they live in.

for the first time ever I ALMOST totally agree with Olly.
Where I don't agree is that I think it is wrong to say speculaiton has had no impact. It has had some impact, but not nearly as great as some claim

I could not have put it better.
Usually what Olly writes here is a joke. Nice to see something worth reading.

Yes, I credit Olly with having done some serious and honest thinking on this issue. He could possibly credit a few other people with having been right all along, though.

Investors invest so that their investments will pay back the investor over time. The paying back mechanism is called rent.
Speculators speculate because they rely on speculative bubbles to give them a capital gain when their properties are sold.
Speculative Bubbles are created and grown by banks creating too much credit(money printing). This is how they make enormous profits  for themselves. The intellectual underpinnings  of this dubious practice are created in the minds of defunct economists, many of whom live in Ivory towers. We are all slaves to defunct economists.

What allows the prices to push up so high;
(1) ease of payment - lots of cash available - this the banks are responsible for - but in a liquid market with economic strength that _should_ be a good sign.

So does this last sentence imply that the massive amount of consumer debt that NZ racked up in the last property boom is OK? 
If this massive debt is not ok then maybe the economic rulebook that the Reserve Bank etc were following is flawed. The next question then is, who wrote their rulebook?

Listen to the Chatter
Why housing prices in Auckland will not fall. New builds will occur only when the price of existing stock rises "well above" the cost of a new build.

This is what drives it .. Here they come
An Argentinian’s journey to Australia forewarns a coming wave of new migration beating on our shores. The economies of the old world have been reduced to such a wretched state that it’s inevitable people will look to escape.
In places like Greece and Spain, where unemployment is spiking towards Great Depression levels and extremist politics are beginning to appeal to ever more desperate voters, Australasia suddenly glitters in ways that wasn’t possible when its promise was outshone by the United States. In the case of Greece, there already exists strong ties with an established community here, which is reporting greatly increased interest in escaping the old world for the new. But the globalisation of the last three decades means that everyone can look everywhere for a potential new home, or a safe harbour.
The new attraction. In its latest (Labour) budget, Australia has now copied NZ and introduced Welfare-For-Families with an $1800 cash-up-front annual bribe for familes with school-age children. What they dont realise is that in this new age of instant news that snippet flashes around the world immediately

I usually don't agree with Olly either but he's 100% right with this column.
The costs are scandalous, but your average man in the street just has no idea that councils are charging this much.
In the list of costs above, Olly left out the development contribution to be paid to the council on construction of a house.  This alone is anywhere from $13k to $32k in Auckland.
With any build nowadays there are many reports to get, noise, insulation, structural, geotech, ventilation, fire etc.  These along with the resource and building consents not only cost a lot but take a lot of time.  So 12 months to build a house is around normal in Auckland now.
And of course the time delay just makes the whole process dearer too.

Most people do not understand what I am about to say, but this is meant to be a serious economics and finance blog.
Some commenters say that house prices are basically the result of "demand"; if people stopped paying so much, prices would not go up so much.
This ignores the basic laws of supply and demand. Only under conditions of inelastic supply, do prices go up as much as they have in NZ. Yes, if people stopped paying so much, prices would stop going up so much - but a lot of people would have to choose not to house themselves.
There are many cities in the USA where the population growth has been simply mind blowing for us puny little Kiwis. in the TEN YEARS from 2000 to 2010, Houston grew from  3.8 million to 5 million people; Atlanta grew from 3.5 million to 4.5 million; Austin grew from 900,000 to 1.35 million; Charlotte, NC grew from 760,000 to 1.25 million; Raleigh NC grew from 540,000 to 880,000; Avondale AZ grew from 68,000 to 197,000; McKinney TX grew from 54,000 to 170,000; and Lady Lake FL grew from 51,000 to 113,000.
These are places where housing stayed AFFORDABLE. Construction boomed, and any eventual "bust" under elastic supply conditions is nowhere near as calamitous as a bust after a price bubble. No cities where prices bubbled, grew much at all. They get a much bigger hangover without even having had busy builders.
Authorities on land economics hold that the PRICE of urban land is determined by supply and demand; and 'fees" are not an "add on" to the price if the price is already much higher than the fees alone can explain. If you abolished all the fees, it would make no difference to prices; all it would mean is that incumbent owners of land and property would get more; the fees come off what they get. Fees are just a "share of planning gain".
IF "supply" was elastic and land owners basically sold to developers at competitive prices, THEN "fees" would be an "add on" to the base land selling prices that are NOT inflated by "planning gain". i.e. there is not enough "planning gain" for the fees to be a share of.
Focusing on reform for fees and not "supply", is not the solution at all. Abolishing fees and leaving urban growth planning in place will just mean that the raw land vendors get more. Fixing "supply" alone would probably fix half the price excesses. Fixing fees alone would not fix anything. Fixing "supply" AND fees would fix all the price excess.

Sorry as per my comment earlier,  people wont pay the price to cover my fees,  so I am not selling.  If the fees were not there then I would sell.

A tad disingenuous. The time period you refer to covers the Katrina Hurricane EVENT and most of the inhabitants of Louisiana moved to the left of New Orleans, to the areas you refer to ie Dallas, Houston etc, and most of these evacuees and refugees werent exactly willing home buyers.

So what? Prices didn't go up.
Even more people came from California, because housing is unaffordable there, than what came from New Orleans. And many more people came from all over the place in the rest of the USA and the world.
Whatever the reason people came, houses were built for them double quick and prices did not go up. Infrastructure was financed sensibly, too.
That is my point.
Kiwis, confronted with any amount of population increase for any reason, just throw up their hands in horror and say "we can't do it". "We can't do the infrastructure", "and we're running out of land".......
And house prices continue to go up regardless of how stuffed the economy gets.

What you say does not debunk the authoritative land economists I am quoting.
If you cut Akl Domain in half and one half had fees and the other did not, both halves in a land restrained market will be saleable for the same price. One seller will make more money than the other one who has to pay fees (or sell to a buyer that has to pay fees).
IF the market is NOT land restrained (as in the affordable cities in the USA) what you are saying is correct; one half will sell first at the "no fee" price and the other may sell later or not at all - if there are other pieces of similar land also with no fees.
Let's consider some actual sums of money. In land supply constrained Akl, say each half of the space is saleable under simply supply and demand conditions, for $4,000,000. If fees on one half are $500,000 and there are no fees on the other half, one seller will capture $3,500,000 and the other will capture the whole $4,000,000.
If the same land was in totally-undistorted Dallas or Atlanta (say) it is more likely to be priced at around $600,000 per piece. A $500,000 fee on one half would probably cause this half to remain unsold indefinitely, because there is so much cheap land everywhere else anyway. But let's assume the fee is only $50,000 - in this case, possibly the half with the fee applied would sell eventually with the seller either managing to get his $500,000 or possibly accepting a bit less so as to be able to move it.
What you say, "......consent etc costs are actually a serious matter of thought for renovators - that's money they have to hold back from the purchase price......." is simply exactly the same thing as what I am saying. In the absence of fees, they will pay the "full price" required by the laws of supply and demand. So abolishing the fees and leaving supply strangled, will do precisely nothing for "housing affordability".
Strangling supply at the urban fringe simply does affect the entire market. The reason that median multiples are 3 or below in affordable cities, is not just because fringe land is cheap and new developments are cheap; it is because the entire urban land rent curve from fringe to centre, is lower. The Housing Affordability Inquiry had an appendix with a graph of Akl's urban land price (by location) curves over a number of years - the curves moved UP along their entire length without changing shape. This is exactly what anyone familiar with analyses of this kind from all over the world, would have expected.

Yep, of course while the builders costs have only grown 15% the builder can now charge a far bigger premium for that bigger McMansion so it pays him to put as big a house on the section as he can manage....
and some costs dont go up.....a driveway is a driveway and indeed if the house is bigger the length of it might be shorter, saving concrete, shuttering, time......power connection etc negligable difference in cost....water supply.....ditto, smaller garden less top soil to get.....

Yes, I would have thought the builder margins were on labour and not basic materials....though when it comes to the finishing I think the margins go up.....

Hmm, interestingly the last builder I delt with wasnt happy when I wanted to take on some of the finishing off him, got quite sh*tty. Then he was the organiser so just took a slice off the top and his self-employed son was the "joiner" apparantly. Not wanting to upset him my father-in-law went with the flow, end result fitted wardrobes didnt....Ive been attempting to straighten them but really the frames need to be ripped out and started again, 4~6mm out in height AND width, and not in line by 3 or 4mm....bedroom doors have holes for the locks about 4mm ish out....so work lose....
Yeah agree on the improvements, which really makes sense, you want a return on the $ spent or really there is no point, hence why I dont do much these days as I used to. After about 2005 materials costs seemed to get so bad I didnt think I was getting my money back let alone labour.....so these days I just repair and replace....but Im looking forward to doing a new kitchen.....that will be fun.

Or just go under the radar:  DIY to better standards, pay off the neighbours (they will need the favour returned soon enough), throw a little patina over the surfaces.  My old prediction....
"Always been there.  Just painted 'er up a coupla months ago.  Like the colour?"

We used local North Canterbury tradesmen for  our Loburn property ( carpenters / electricians / arborists / plumbers / gas-fitters ) over 6 years ....... and no reason to complain about any one of them !...  100 % satisfaction ..
.. . the most fun was an older carpenter from Greyskills : he was a hoot , incredibly hard working , and willing to teach a novice DIY'er .
Since then we've had carpenters and painters fix up Mummy Gummy's house in Rangiora ( earthquake damage )  , and once again , awesome fellows did the jobs . Tradesmen from  Woodend / Oxford / & Rangiora .

While you are on that line of thinking, it can be cheaper to put in windows than to have wall. Window goes in, finished. Wall goes up, has to be clad, then plastered, then painted, on both sides.

Its easier to paste this than reply to this.

I might keep that for GBH replies....

Why not think outside the square, re maerials? My walls and roof cost 16000, painted both sides, insulated, delivered. Four people x 10,5 hours to erect .
Have youy equated what we post here about energy? Peak energy flows on for the planet, says no mortgage will still be being paid in 30 years. That's cloud-cuckoo stuff.

ah but, for the last 80 years, yes OK inflation has been the norm....If however you had bought your house in say 1928?  hello Great Depression....
So the point of Peak energy is that it will cause a Great Depression....hence deflation...so you would care.
So you could with some correctness say that the BBs were the start of the mother of all the bubbles, as they exit so will that first bubble....huge drop in house values in that case....
Rich and Powerful, well think marie antoinette.....

Doesn’t help your arguments choosing extreme outlier events in history as support.

If you look at the debt and debt to gdp compared to the 1930s its actually significantly higher and that was a credit event also.
Then we had the Long depression in the 1870s...so it was not a unique event...
Not that I expect you will bother reading it, but its recorded....

Yes, it's far better to ignore outliers and extrapolate short time series into perpetuity. Even better if you choose the start and end points that confirm your opinions. 

In modern history, housing has consistently cost a median multiple of around 3.
Society spends roughly a similar level of its income on housing, whether the income is low (1930's first world, current third world) or high (current 1st world).
The difference is that as incomes rise, people do get bigger and better homes.
"NZ Heads to Fin" does not understand this basic reality. People do not naturally choose to start spending MORE than the historical norm on housing, to get something way beyond their current incomes.
As a matter of fact, most of the problem is in the land price. We pay probably ten times as much per acre as our grandparents did, and we pay far more than ten times as much per acre as people in the undistorted markets in the US do. Half acre to 1 acre lots are typically $35,000 to $50,000 in approx 200 US cities (out of 260 - in the annual Demographia Reports).
The structure, one would expect, should be improving in value for money somewhat like cars and aircraft and electronics have, if there are relatively free markets in building. But the Productivity Commission's Report on Housing Affordability said that the high cost of land, and difficult regulatory processes, were preventing "best practice" and progress in building techniques.

OK, Mr Semantic, I was talking about "median multiples"and prices relative to incomes.
We are paying many times as much as our grandparents, per acre of land, relative to income.
Did I really have to insert the words "in real terms" or "relative to income" every sentence, on a serious economics and finance blog where contributors are meant to be reasonably intelligent and actually get what others are saying?
Your point about "not the same city" is nonsense. This is what median multiples are all about. If some cities, due to supply elasticity, have median multiples around 3 or below, then other cities with low supply elasticity due to regulations, should also be able to achieve median multiples of around 3 by regulatory reform.
Certain contributors on here are just loony Gaia religionists serving their Gaia earth mother, who would be cross if her turf was disturbed anywhere. These people are simply impervious to evidence and reason, and all they do is obfuscate and time-waste.

Trying to baffle us with B.S.?
Anyone who buys in a market with a higher median multiple than what their grandparents bought in, is at a disadvantage relative to their grandparents at that point.
"But their incomes might rise faster than their grandparents incomes did"?
"But interest rates might stay lower over their lifetime than what they did for their grandparents"?
So these "might's" absolve urban planners of any responsibility for unaffordable housing?
This is what you are saying.
But the inflated urban land prices themselves are a drag on the economy, because they represent a cost to the productive sector of the economy. And a burst bubble is inevitable, and so is a painful deleveraging.
The evidence mounting up from everywhere, is that it is the first home buyers in the last few years of house price inflation, who make up the overwhelming majority of bankruptcies over the next few years.
So I really don't know how you can lie straight in bed and make those B.S. claims to the effect that there is nothing to worry about when young people have to pay a much higher proportion of their current incomes than what their forebears for generations did.

call me naive, but why is is that in pretty much ALL the western world there was a MASSIVE price appreciation from 2000 to 2007? did they ALL suffer from high council costs? The thing all bubble markets have (or had) in common was easy credit, and easy credit creates demand by allowing more people with more money into the market place, and as this increases prices, the motivation to enter the market gets greater and the positive feedback loop ensues. There is no question that higher council costs and limited land release have played a part, but they are not the major reason. For me the easy rule of thumb is to look at rents - yes they have gone up to reflect supply and demand, but not nearly as much as prices. Rent = supply v demand, house prices = supply v demand +/- fear or greed / speculation. Current prices have a large speculative premium built in.
[Race comment deleted. Last warning. Ed.]

In pretty much ALL the western world, there does happen to have been a mania for "urban growth constraint planning". Al Gore has a lot to do with this. What planet have you been on if you have missed this?
There are enough exceptions to YOUR rule to totally disprove it. For example, numerous cities (200 out of 260) that had no price inflation at all under exactly the same conditions of credit that caused a catastrophic spike in growth-constrained California.
At the other extreme, South Korea had NO credit expansion at all, in fact national net savings increased, while house prices went from a median multiple of 4 point something in the 1970's, to 16 in the late 1980's.
The increase in net savings was due to young people desperately saving for a house that was rising in price far faster than they could save. Marriage and birth rates collapsed. All due to new urban planning policies introduced in the 1970's, based on the ghastly Pommie ones.
Rents remain low in a supply-induced price bubble because 1) many landlords own property that they bought before prices went up 2) new investors are chasing capital gains, not rental income, and new investors tend to increase the supply of rental properties relative to demand for rental properties. Renting in a price bubble is good sense for young people. DON'T BUY until prices crash.
This stuff has been gone over again and again on this site, but certain loony Gaia-worshipping Jesuit-equivalents have to troll on here to muddy the issue and please their Deity. It is time to apply the old principle of keeping religion out of politics, to these people.

PhilBest - not sure where the gaia/jesuit reference comes from, must be an old hang up of yours? Anyway, your arguments are as usual nonsensical, are you Olly in disguise?
Take rent for example, landlords dont charge what they need to to get by, they charge what they are able to - if there is massive demand for places to live due to underbuilding based on council restrictions / cost, then demand is great and rent rises appropriately. If i have to choose between 2 propositions a) prices rose because at basically the same time ALL councils around the world suddenly added restrictions OR 2) prices rose because a global credit boom occurred which enabled people to borrow more, I know what I would choose as more plausible, especially given rental rises were not great AND most share markets also rose greatly during this period (ie were shares subject to council restrictions???????). I could point you to some stats from Aus which show that for the most part up to 2005 Aus was overbuilding property, but this did not stop a run up in prices from 2000 to 2005.

Indeed looking at the empty houses in US suburbia and the empty plots which councils probably got into debt to supply service to but now wont get a return as no house was built....its hard to justify that it was land contraints. Now if you go to the Alan Greenspan puts ie dropping the OCR for years to keep going the ponzi scheme going you start to have a global occams razor.
So for me its lay it where it deserves to be laid at the feet of the Libertarian to hold the highest financial office.

Jimmy Squirrel and Steven are both just time wasters on this blog.
Neither of them are capable of being reasoned with or shown evidence.
Neither of them have addressed my points.
1) most (200) cities in the US did not have unaffordable housing and price bubbles, in spite of having the same monetary and credit conditions as the other 60.
2) South Korea has had serious unaffordability and price volatility not related to credit expansion at all, rather the opposite.
I could add a third example for them to explain - Britain following the 1947 Town and Country Planning Act, had a volatile repeated cycle in house prices, of about 16 years in length, which has continued up till the present date. The number of houses built in each "boom" cycle has got steadily less, as price response as got steadily greater.
Jimmy Squirrel and Steven, on the subject of urban growth constraint, are like the medieval papists on trans-subtantiation or papal infallibility. It is a religious thing. Never mind the evidence of the pain it causes young people through rip off urban land prices. Urban growth constraint is such a sacred thing, it is not to be questioned or blamed for anything.

Desperate, desperate. You obviously haven't learnt much from following this blog and you obviously don't know much beyond the eco-loony hysteria that passes for information and education these days.
Use the annual Demographia Reports to check the median multiple trends in 260 odd US cities with populations over 500,000.
Refer the Lincoln Policy Institute's "Atlas of Global Urban Land Consumption" to find out exactly how "urbanised" each country in the world is - as a proportion of total land or as a proportion of arable land.
Assumptions that we are "running out of land" are just plain nonsense, and worse - lies from political power grabbers and rent seekers. Especially in NZ; but even in Europe, "food security" is not a problem, and they are quite a bit more urbanised than India, China, Pakistan, Bangladesh, etc etc. Japan is about the only major nation that has food security problems; they have 120 million people on slightly less land than NZ.
Auckland residents and businesses "won't relocate to sattellite towns"? Huh? Name me one sattelite town whose own "plans" (or those imposed from the "regional" level in any case) is so pro growth they can take, say, 100,000 people in the next decade?
I am 100% in support of sattellite towns and decentralised urban form; this, and low, stable land costs, is the secret underlying the fact that the USA's urban economies are the world's most productive. Everyone is making a colossal mistake in assuming that sprawl and low density is a disadvantage that somehow the US makes up for on other factors. I know: what I am saying is heresy. Call me Galileo and haul me before the inquisitors, quick, before it spreads.

When a new sub division, home etc is built, it has immeadiate access to all of the citys ammentites, such as libraries, roads, schooling, water  so  on and so on.  These costs being charged are in affect an entry fee to the use of these existing, already paid for (debt ridden) resources.
Councils are all short of cash and borrowing flat out, one could argue that they are not charging enough.  The reality is that the cost of maintinaing these facilities is rising by the day - they have to be paid for somehow!
Council fat is another issue. Whilst it can be trimmed, I believe it would make little difference to the massive ongoing infrastructure and borrowing costs that are due.
So while you all pat Olly on the head for being so right...I don't really think you have thought this through.  These  fee's go to sustaining real assets, debt and building new facilities due to the increased populations the new builds bring. 
 Where else do we get the cash from...do you want existing hoome owners to subsidise new builds - because that seems to be Oll's agenda..

Why don't we just fine everyone when they turn 18, for having the temerity to be born?
Up till recently, everyone paid local taxes all their life for these things.
Now, every young person has to pay upfront AND all their life; this is FAIR??????
The increase in price of new houses, pushes up the price of ALL houses, so young people, wherever they buy their first home, pay the "fine" for "needing infrastructure".
An outright fine paid to the Council would be better, because then the council could spend it on the right things. As it is, the banks and sellers of long-owned property are getting this wealth transfer from the young.

Yes, there is no such thing as "public servants", is there. They are all "public masters", and know it.

From where I stand I believe the main reason is us baby boomers were in a position to really go for it in the years 2002 to 2007 and boy did we go for it and not just in NZ. We had the incomes, the drive ,cheap interest rates and cheap assets to buy. The banks just loved us. Many have bought far  properties than they will ever need for income and capital gain. It became a game for many just like farmers buying more and more farms to have more than the neighbours. It was a perfect storm so to speak and it will probably never happen again in our lifetimes. In many parts of NZ the impetus in prices peaked in 2007 and have dwindled back ever since. In the mean time we have truly snookered our own children and grandchildren who will struggle to get onto the ladder. Some of them will be lucky as they will eventually inherit from those of us who have done well so to speak.

I'm a baby boomer, and I didn't 'go for it' and buy a property between 2002 and 2007. So please don't say 'us baby boomers' as there is no 'us' here.

Anyone who is a genX or a genY should have a very close look at episode 5 of Professor Niall Ferguson's documentary series "Civilisation - Is the West History" and the 6 Killer Apps. Killer App 5 is about consumerism and these ingrates should come away with a sense of gratitude towards their BB parents and how life would have been if not for their BB parents efforts. Not ingratitude. You can get it on youtube.

Oh, come ON.
The housing racket is so bad that it would be hard to still be "in credit" as a generation "owed something" by your descendants. There is every chance that the current generation will be the first one in history left worse off by the preceding generation's actions. "Housing" is that big.

If things continue to go the way they are headed I suspect Gen X,Y, and Z will deal with the BB's by making then take "showers" in rooms with no windows but plenty of gas. My less callus point is at some very near stage in time the next generation will be making the rules on EVERYTHING. 

The envy seems justified if they don't get the tax break you get.  Why any system would give special tax treatment to speculation of any kind is beyond me.
And many businesses pay their tax in advance and (might wrong here) but don't farmers get taxed on their stock growth before it's realised?

yeah...but don't forget their stock rises in value due to deductions they get for all the inputs in raising them.  Some of this increase is taxed, some, being the capital amount, doesn't. Even so, they still get tax breaks that Joe public doesn't get ..

And still prices rise.
Another 2.2% in Auckland last month.

Thanks for the update on Auckland Bernard.

Yes there is, but keep quiet about it!
The very last thing we need is Aucklanders racing around the rest of the country building leaky townhouses and stuffing them full of immigrants.
All prudent farmers know to keep the pigs in the sty, and not let them have the run of the place.

I blame Olly for high house prices.

$5000 for a Resource Consent?
They got off lightly - that's for the most basic of consents i.e something that is Controlled activity like earthworks (just paperwork).  As soon as planners are writing reports and making assesments of effects you're into the 10s of thousands.  Auckland City has been getting rid of anything zonedfor  Permitted or Controlled activities.  The more land zoned Discretionary the more money they can take.
Cheap housing is usually multiple unit development.  Any development over 3 houses is heading for $10's of thousands for planners/urban designers, infrastructure engineers, arborists, geotech and council fees to get RC.  Ironically the potentially cheapest houses often attract the most RC fees.  Also as soon as you are adding houses you've got $20k plus for development tax per unit.

You always have those who are ambitious and those who are not. Which camp are you in?
As for Iconocast I am sure a lot of g and Y would like to be able to buy property now rather than wait for their parents to die and use the inheritance to get on the ladder. In the meantime while they wait for the olds to die they just keep renting.

Joe Flood and Emma Baker (Flinders University) "Housing Implications of Economic, Social, and Spatial Change" (2010); among many other things, make a disturbing finding that there is little evidence of "inheritance" of the inflated values of the houses that their parents owned.
Possibly the value is being spent by their parents on retirement village fees etc.

Useful article. Plus I had to look up the word cacophony and so have learnt something today.... It's a multi-causal problem and PhilB and I hadn't covered them all here:
However, the main problem is, no one is doing much of substance about any of the causes and so nothing will change.
Who benefits from that outcome?
Cheers, Les.

Hi Olly,
If residential real estate isn't on the cards, what are good entry level commercial real estate opportunities for someone in their 20's living in Auckland?
Should you be looking at retail shops, small offices or small industrial warehouses?

What's going on? Seems the typical familly used to be able to afford the typical home, the sewerage and water schemes got done at reasonable prices and paid off in short order.
Now the councils are adding years worth of wages to the cost of building and they're deeply in debt as well. How much money is being wasted on consultants, planners and council parasites before anything even starts to get built. It didn't used to be this way. Look at the Mangawai sewerage scheme and how it has virtually bankrupted an otherwise prudent council.
Have we become so in love with complexity we can no longer afford our own bullshit.

Yes, Mangawhai. An interesting example. Know of a couple who have a 10 hectare block there and decided to subdivide off two sections of 1 hectare each for their two children. 7 Years ago. And still waiting. They still don't have approval or consents. All because of the sewerage scheme. 7 Years in limbo.

Regardless of the drivers, and the high income multiples - you are still better off by buying a good home in a good suburb. Its a hedge against inflation, high rents, & unwelcome changes. A home is a better place for your money than shares (87), kiwisaver, bank deposits (low), etc ...

Our salaries (Bubble) [cf to India/China/Poland],  Groceries (Bubble), Petrol (Bubble), Electricity (Big Bubble), Broadband (Bubble), Rents (Huge Bubble).....    You'll need to be Beansprout living in the DoC hut on the West Coast to get out of the Bubble ....
ATM Bubble is all we have ....
Just because you recognise a Bubble doesn't mean you can avoid it ...

I agree that Kiwis will have to revolt on the subject of rates sooner rather than later. Why do Kiwis keep right on taking this nonsense? The single worst problem, if you look at the accounts going back decades, is the cost of public transport subsidies, especially if rails are involved.
Public transport is one thing that, in contrast to cars, electronics, food, and clothing; has become steadily more expensive relative to incomes rather than cheaper relative to incomes. The amount of subsidies required has gone up faster still because policy makers insist on keeping the fares "competitive" with cars.
If you do some basic maths; if you are catching a train and paying $3, and the subsidy is $7 (pretty much the norm); then the true cost is not a lot different to running a reasonable car like a Toyota Corolla. Decades ago, the real cost actually WAS a lot lower than running a car, and the 2 costs have steadily "converged" in spite of rising oil prices.
This may be largely a consequence of the grossly inefficient model on which most public transport is run. The simple reason that it is illegal for anyone to run a 10 seater van in competition to the public monopoly, is that privately run 10 seater vans would KILL the public system for efficiency; fares, even unsubsidised, would be lower and the operators would still actually make a profit.

"However let me tell you that it’s not ‘speculators’ who are driving up the price of property. Indeed, they are more likely driving *down* the price of property! For speculators can only really thrive by fierce haggling in order to buy at bargain prices."
Some smug idiot doesn't even have the IQ to know the meaning of "speculation".
My god, Olly, why don't you go buy yourself an island and stay there? Then the rest of us who aren't necessarily just "out for ourselves", who BELIEVE in "communities" and a society driven not just by a global ponzi monetary scheme can get on with making the world a better place for the next generation?

"However let me tell you that it’s not ‘speculators’ who are driving up the price of property. Indeed, they are more likely driving *down* the price of property! For speculators can only really thrive by fierce haggling in order to buy at bargain prices."
Some smug idiot doesn't even have the IQ to know the meaning of "speculation".
My god, Olly, why don't you go buy yourself an island and stay there? Then the rest of us who aren't necessarily just "out for ourselves", who BELIEVE in "communities" and a society driven not just by a global ponzi monetary scheme can get on with making the world a better place for the next generation?

Well done Olly:  and not a bad thread to follow, either, chaps and chapesses.
As Hugh P has pointed out, wearily, for the umpty-umpth time, there's no magic in the solution.  A lot of vested interests in the path, yes, but nothing a CERA doesn't have the legislative steamroller to flatten. It's as simple as doing away with the urban limits (squiggles in maps, clearly delineating the no-go areas (high-value horticultural soils, liquefaction-prone areas - something a competent set of starving post-grads could rattle together for Christchurch in a week or two) and using a sensible financing model for incremental changes to infrastructure.
As for the ridiculous notion put up by some common tater about new entrants having to 'buy their way in' to the commons - to pay (again) for sunk costs such as libraries, reserves, community centres and other fixed plant:  ferchissake, learn some accounting and read a few  LG financial statements. 
You'll discover that these costs are constantly amortised (look for 'depreciation') so as to spread the original cost over the relevant remaining life.  And this has the effect of retaining cash for replacement of said assets in the organisation.New facilities, which tend to be more functional than the old ones they replace, cause spikes in the financing needs (cost more than the retained cash) and the best model for dealing with this is the loan/bond market, which allows the cost to be spread over the whole rating base.  Because, folks, when you read the fine print, you will discover that built into Rates, is the financing for the loan servicing of the Costs/depreciation of the assets.
So making folks buy their way in by various forms of Development Taxes, is quite simply double-dipping.
And Olly's main point - that taxes such as these can distort, prevent and generally foobar development - is surely clear from the woeful pace of the housing rebuild around Christchurch.  Development taxes were quoted just this week, by Mike Greer of the eponymous MG Homes, no less, as $75K per house.
Facts, facts.  They do tend to intrude upon airy theories, eh?
And of course all of this is such ancient ground:  William Rees-Mogg nailed it in a (now pay-walled) Times article years ago which I quoted here, and I am assuredly not the first - try e.g. Not PC....or Doctor Housing Bubble, and my own now venerable experience in LG....

The equity issue arises re development contributions because
1) everyone so far has "paid as they go". People paying upfront now are still expected to pay in to the "pay as you go" scheme as well for the rest of their lives.
If you really are correct that paying upfront is the best way, then everybody in houses right now should be socked their fair share $80,000 or so and rates themselves should be partly abolished, and then everyone is in a roughly similar fair position.
2) as I have said again and again and again and you take no notice, the fees push up not just the price of new houses, but the price of all houses, thus penalising everyone who buys their first home, regardless of whether it is a new one or not. Therefore it is not just the people who buy new homes who are paying "up front" AND "ongoing"; it is every first home buyer.

You see we are not always against you.
Facts speak for themselves.
Opinion is where you can let you and your readers down.

In Auckland City the Res 5 and Res 6a zones permit subdivision if they have total 1000m2 or 750m2 respectively. If the restrictive Auckland Council altered both those zones to say a minimum lot size of 250m2 or 300m2 then thousands of sites could be created in Auckland City within 7kms of the City centre and close to main transport routes.
The problem that Olly illustrates would still be there ie excessive costs - a builder acquaintance was recently quoted the following to create a site at the rear of a bungalow in central Auckland:
Surveyor $12,000
Services, power, phone, sewer, storm water, drive $38,000
Resource Consent $9,000
Council contribution $30,000
LINZ $1,000
Lawyer $2,000
Geotech Report $2,000
Planner $4,000
Traffic study $3,500 (site is near a busy intersection
$6,000 Fencing division between front house and rear lot.
Total $107,500 plus GST
Estimated time to obtain separate title - 9 months!
Market value of the new site approx $350,000 so still worth doing although the value of the existing home would reduce. 
If the Res 5 and Res 6a zones allowed 250m2 or 300m2 lot sizes then additional supply may see value of such a site drop perhaps $100,000 but there would still be a decent margin available.
So what's stopping Auckland Council making such a zoning change? They would receive more rates and for every 100 sites created they would pull a $3,000,000 contribution.
They appear set on allowing small lot sizes on the fringes ie Hobsonville which only contributes to a greater traffic problem.

Another ridiculous requirement in Res 6a and Res 5 zone is that you must have two car parks for each lot - crazy!

Urban land rent curves always slope up towards the centre at a sharp enough rate, that child raising 2 parent households are never prepared to "trade off space" at the amount necessary for them to be able to afford it - even if "transport costs" are lower.
Add the fact that the international average for CBD employment as a regional share is around or below 20%, the "inner city living is the cheapest option" argument is about as relevant as the Brontosaurus.

Changing or deleting the density table in and deleting 2 cars/residential unit is the most  sensible first step Council could make to address housing affordability.  It wouldn't even change the 'look' of those suburbs as the bulking/landscaping rules control that.
However NIMBYS etc. are terrified of density as their small brains thank that suburban sprawl and hong kong style apartments and they only options.  Council respond to NIMBYS.
Council apparently philosophically against in-fill housing (because in the past some of it has been ugly - in order to comply with their rules).  They want comprohensive developments on large sites so they can be heavily involved, at great expense, in the design.  However there's not many of those sites around so nothing will happen. 

It is absolutely absurd that council planners want to restrict fringe growth and promote infill development, yet they are unable to "smash through" the obstructions to infill development that mean that it simply is not available as a "option" to the house hunter as yet.
If "saving the planet" is what is at stake, then surely a bit of "eminent domain" and total set-aside of NIMBY objections is in order? Otherwise, the planners should piss off out of the lives of ordinary families who just want somewhere affordable to live. These people have the shamelessness to say they want to "increase housing choice", by changing the options from $200,000 suburban home or $200,000 CBD apartment, to $450,000 suburban home or $900,000 CBD apartment.
FFS, if I was NZ's Lee Kuan Yew I would not just sack these people, I would prosecute them.

A huge part of the problem is that not only have the planners limited greenfield development, they have also heavily limitted intensive housing!!!!! How dumb is that! Any surprise that housing construction is miserable and affordable housing is rare as hen's teeth?
The Council's new unitary plan is supposed to come out later this year, let's hope they get their act together

I have just read Olly's brilliant piece and he has hit it on the head well and truely.
He is, I am sure, very pleased to get so many richly deserved compliments so he will no doubt, be straight into writing some more very shortly.
Some of the subjects he may touch on concern the up coming budget in a couple of weeks.
He thinks there could be some more turns of the screw aimed at porperty investors e.g. deductions further  limited  by fiddling with interest paid, disallowing some GST claims, or re- introduction of stamp duty (which is still operative) and the like?
All good news for him for sure.  Any such moves will only tighten up the rental maket even further.  

Does household debt amplify downturns and weaken recoveries?
Refer Chapter 3: Dealing with household Debt
Based on an analysis of advanced economies over the past three decades, we find that housing busts and recessions preceded by larger run-ups in household debt tend to be more severe and protracted. These patterns are consistent with the predictions of recent theoretical models.
Based on case studies, we find that government policies can help prevent prolonged contractions in economic activity by addressing the problem of excessive household debt. In
particular, bold household debt restructuring programs such as those implemented in the United States in the 1930s and in Iceland today can significantly reduce debt repayment burdens and the number of household defaults and foreclosures. Such policies can therefore help avert self-reinforcing cycles of household defaults, further house price declines, and additional contractions in output.

It would be nice if all the highly paid experts in the civil service etc actually bothered to ring alarm bells when this problem was building up, not suggesting afterwards that debt needs cancelling to resolve the effects of too much of it.
Every responsible person in the Cullen years who did not ring alarm bells about the shrinking productive sector and rising household debt while the economy appeared to be ticking along nicely, should be prosecuted for negligence. Especially Cullen.
Every other finance minister NZ has ever had, would have noticed the trends and acted accordingly. If Cullen noticed them, then he deliberately maximised the damage that the following administration would have to cope with by entrenching exorbitant State spending levels.

Median Multiples are NOT part of the problem of status quo inertia. They are a warning sign that no-one has been paying any attention TO. The status quo inertia you are talking about, has ignored rising median multiples and rising mortgage debt and rising equity-cash-out spending and debt.
I am not so willing to excuse "the establishment" for being so b----y clueless over all this. The idea that "this time it's different", and the party will never end, never had the slightest justification even on the most basic vital statistics available to everyone. But it is not "everyone's" job to follow them; that is what we elect governments for and appoint finance ministers for.
Michael Bassett pointed out that if, during the Lange cabinet era, anyone among them had suggested that Cullen was the man among them who would be a future finance minister, the place would have collapsed with mirth.
Some of the famous economics and current affairs information providers should actually pay a panel of grandmothers to assess the basic data; they would do a better job.

mist42 - good points, but look at the context you are attempting to draw parallels with.
Power generation and distribution was a State function (in the sense of a Gumnut Department) until quite recently (in terms of the life of the assets involved).  Capital works were conceived, considered and allocated in an intensely political atmosphere.  So, inevitably, there was under- and mis- investment.  I was a Post Office engineering cadet back in those days and the Regional Engineer always said - ferget the engineering, lad, it's all aboot the politicians and the money.
When those assets were SOE'ed and more sensible accounting introduced, including such innovations as asset registers, asset maintenence programmes and capex schedules, hey-ho, it was duly discovered that the aforesaid misallocation had left a deep legacy of dodgy plant, a complete lack of current technologies such as SCADA, and the general need for a catch-up.  Which has duly occurred.
So one rather spots the difference between LG foobarring of land allocation, and a much deeper power-sector issue of catching up to current demand, technology and practise.  The first is driven by planners who frankly couldn't plan their way out of a wet paper bag, who have inherited the fads of their academic teachers, and who (thanks to Sandra Lee's disastrous 2002 LG Amendment Act which handed these fools real power) can go about their well-intentioned but economically dopey tasks unhindered by thoughts of housing affordability, time value of money, or effect on ultimate purchasers.  The second is driven by engineers who know how to count, are acutely tuned to their markets, and who have the sense to call in others for the heavy lifting when needed.
So to conflate these two sets of circumstances is not exactly a great rhetorical device, hmmmm?

I would like to see the energy market "vertically deregulated" so there is not the disconnect between generation and the consumer.
I would like to see the people near a new hydro dam project being able to buy cheap electicity from that project once it is completed.
There is currently no dis-incentive to NIMBYism because of the inflationary effect that anti-progress ideology has on energy prices (and resource prices and national income and economic productivity and traffic congestion and a whole host of other things).

A lot of the BS must start with the land value/price & the allocation of costs.
I realise there are a number of variables but just looking at some simple numbers here I don't understand the discrepancies.
On the western fringe of Auckland are two blocks of land, same size, same amenties and services and both zoned lifestyle.  Based on recent valuations one is valued at $41 sqm and the other $28 sqm.
Further down the road is the Hobsonville Point development zoned multi units.  Most recent valuation works out to be $48 sqm, unfortunately I am not privy to the deal between govt and developers for this site.  I am aware that there are additional costs of this development to be allocated but most recent sections for sale are at $328,000 for 450 sqm which is a huge increase.
Across the road from here are two lots side by side.  One zoned lifestyle at $68 sqm and one zoned multi use within commercial $16 sqm based on latest valuations.
Within MUL in the same area existing land values (old developments) are valued between $200 sqm to $400 sqm and of these the smaller the section the higher the sqm value.
I understand that govt valuations are only a benchmark but is there an issue with how the land is valued in the first place? 

Olly Newland says building reasonably priced housing is a dying business, strangled by regulation.
Olly Newland says property investors part of the solution not part of the problem.
It all comes down to overcharging by councils.
Opinion: Quite likely there is a degree of truth here as when a television personality gets in charge and buys the Ellesmere flower show*
We have seen a period of great tax free gains going to property owners. This was supposed to be part of a cycle where things come back to a norm but it hasn't happend. Why?
Possible factors (ignoring money supply and pork barrell tax treatment):
a) We now live in a globalised property market: Harcourts showcase $800million of Property at Shanghai symposium (etc).
b) It is a given (as in the Auckland Plan) that (e.g) where as pakeha are now 60% of the population by 2121 we will be 48%. The potential of well healed purchasers flowing from developing to developed countires is percieved to be enormous. left and right have a concensus that immigration will never be an issue; you may as well try to stop the Waimakarrri (potically speaking).
C) as the Savings Working Group pointed out we have had the 2nd highest rate of immigration in the OECD; immigrants require infrastructure immediately. The combination of high immigration and a low wage economy has led to a need for greater development contributions.
The idea that it is all about land supply is a meme being pushed by those Julian Simon libertarians who believe that we live in a system where there are no limits (All watched over by machines of Loving Grace). The Demographia crowd have been pusing this line, they confuse development land with space and obsufucate thedevelopment contribution thingy by telling us about sexy MUL models and Houston Texas.
As we know there is no such thing as a free lunch and as far as I can tell the Houston model is private funding with minimal services and if a neighbourhood hasn't got it then it is assumed it doesn't want it: in other words economic rationalisation, or, poor communties "failure to value" their own infrastructure.
Professor Albert Saiz has thrown some doubt on the land supply did it meme as in:
I process satellite-generated data on terrain elevation and presence of water bodies
to precisely estimate the amount of developable land in US metro areas. The data shows that residential development is effectively curtailed by the presence of steep-sloped terrain. I also find that most areas in which housing supply is regarded as inelastic are severely land-constrained by their geography. Econometrically, supply elasticities can be well-characterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and demographic growth. Geography is a key factor in the contemporaneous urban development of the United States.

The Saiz paper is becoming part of the lexicon in pointy head circles.
but has created a whoof! from Wendell Cox:

I get nervous when people talk about human rights but I do believe a human has a right to live in an urban environment which isn't deprived of the things nature made such as sunshine, space, ambience, community. Olly's crowd see the neighbourhood as a big lolly scramble; they will cut up ,controll, contract and squeeze the wealth out of the land while living on expansive properties with harbour views etc.

business lobbied for more immigration and a changing of the rules that allowed rich elities to pig out on property in countries of which they were not residents.
The problem now is that we have had to provide more and more infrastructure (subsididise developers) which is a drain on taxes and pushes local body rates up.

Affordability freemarket style.
"Christchurch architect Roger Buck, a longtime advocate of sustainable housing, says this could have been the moment to make the move to not just greener homes, but greener suburbs.
More innovative ownership models could have emerged, such as community designs grouped around shared garden spaces.
Instead, all he sees are cookie- cutter estates offering standalone houses on ever-shrinking plots. "They're short-life buildings to begin with, what I'd call stick houses," he says.
They look ritzy when first built, but use flimsy materials and are unlikely to age well.
Also, the sections are too small. Buck says people are clinging onto the old quarter-acre Kiwi ideal, but trying to make it work on half the land. We are building a rash of new suburbs that will never have vegetable patches, proper gardens or the shelter of trees.
"When the easterlies blow through, they will be utterly bleak."
Nor do these subdivisions allow people to capture the winter sun.
"You need do no more than orient your house to the north and that's free winter energy.
"However, developers just chop up the land at random to get as many sections out of it as possible. The house are then plonked down to fit the roads."
Lincoln University associate professor in property studies John McDonagh agrees that people are questioning whether we are building the slums of tomorrow - houses too big on land too small, subdivisions which are tight tangles of roads where the only escape is by car.
However, he says it is unrealistic to expect a radical change in thinking just because of the earthquakes.
"It's a lowest common denominator thing.
"Developers get comfortable building a certain type of product. It's a risk-free approach. They know they can do it."

Here's where the money went:
"For the housing market’s winners, the gains have been spectacular.
Infometrics director Gareth Morgan calculates that between 1989 and 2005, the residential property market has provided investors - and owners - with a tax-free 319% gain."

And do you know, jh, the great irony here is that in the year you mention, 1989, the Reserve Bank Act came into being.
So Gareth Morgan came out and said there was no point buying houses anymore because the Reserve Bank Act would stop inflation and so houses would stop rising in price.
Bet you never hear Gareth Morgan reminding everyone of his advice in 1989...

Perhaps he wasn't party to this:?
New Zealand's change in immigration policy dates back to the early 1990s when the gap in productivity with other nations became pronounced between the years 1970 and 1990. Higher immigration was intended to fix the problem.
In its report, the SWG claims the move backfired.
"The policy choice that increased immigration, given the number of employers increasingly unable to pay First-World wages to the existing population and all the capital requirements that increasing populations involve - looks likely to have worked almost directly against the adjustment New Zealand needed to make and it might have been better off with a lower rate of net immigration.''
The Savings Working Group also underscored the need to remove tax distortions that heavily favoured property investment. Failing the adoption of capital tax, it suggested the only way to reduce the tax distortion on property prices would be "at the very least to reduce taxes on financial assets,'' which it identified as the "main investment alternative.''

Donald Trump on Wednesday swept into Scotland's parliament to demand the country end plans for an offshore wind farm he fears will spoil the view at his exclusive new $750-million-pound ($1.2-billion) golf resort.

Great article Olly...  It pretty says it all...  That Watercare example is  freaky. !!!!!   I thought that sort of gouging corruption only happened in Greece.

At some point the cost of doing business, in building rental and salary to retain staff with high living costs, must reach a point where business will start to leave the Auckland CBD. I'm surprised it hasn't started in earnest already, given that business involved with information or finance can be run from anywhere. Employees have a better and cheaper quality of life to boot. It really makes no sense to have our primary business hub, largest university and biggest hospitals on such a narrow isthmus of land.

Olly Newland: Wish to add to the accolades. Just goes to show what happens when you provide valuable factual info that goes to the heart of the housing problem. Put aside the bluster and puffery and bumph.

Blame the developers for the Kaipara rate rises
....Mangawhai is the latest community to be on the receiving end of a Council imposed sewage treatment scheme. The local Residents and Ratepayers Association has called for a Septic Tank Bylaw and is anxious to consider alternatives which keep costs down. However Kaipara District Council, under pressure from the Regional Council to clean up the Mangawhai Estuary, and from developers keen to follow the Cooks Beach example and get intensive subdivision development underway, are pushing ahead with a proposed $16 million sewage scheme. Kaipara District Council have decided they cannot fund the project, and have instructed Beca’s to put the whole project out to private tender. I am advised five private organisations have been shortlisted. These include overseas companies..
it was clear that the fundamental reason for KDC's enthusiasm for a new traditional sewerage system was that it supported calls from land owners and developers who wanted to develop their land, and subdivide down to lots of around 400 square metres. That sort of urbanisation was in conflict with the large lot development that had characterised Mangawhai hitherto. Bach owners and resident lots were around 1200 to 1500 square metres - big enough to accommodate an onsite wastewater system based on a good septic tank and a drainage field. The underlying land being largely sand - drainage was appropriate and effective.

So. Intense urban development proposals required a networked wastewater system - sewers and a wastewater treatment plant - and existing property owners were advised that their onsite systems were polluting the estuary. At the time I couldn't believe the draconian and uncaring way that KDC went about imposing this vision on this seaside community.
But the real problem for KDC is that its plans suffered from the collapse of the coastal property market. It installed a wastewater network to support a property boom which never came. It borrowed money, just like all those real-estate investment companies did that went bust. But Councils don't go bust. Well. They haven't yet in New Zealand.

One of the excessive costs homeowners have to face is the cost of rates.  I think it is time we had a real debate about this.  We keep hearing about "user pays" and having a fairer system but you cannot use "user pays " fairer system" and rates in the same sentance.  We need to change the whole system of  "local taxes".  
Up here in the Far North we are told that 60% of our rates are spent on roading so how many car users are paying that cost?  Also we have a lot of ancestral land that makes the collecting of rates very difficult.
The only "fair" and "user pays" way of collecting the money needed is to put a tax on diesel and petrol.  As an example,  why should an old lady on a pension living alone and only going to the shops once a week in her only car pay the same as her next door neighbours who happen to be a couple with two adult children all owning a car and using them every day. She is paying four times as much and that is clearly "unfair" and certainly not "user pays".  This is only one example of how wrong this old system is.  With modern technology a better way must be possible.
Please make this a topic on this site.

Petrol is not a good example
Petrol excise is charged on all motorspirit and its value is used to fund the national roading construction. Diesel however is not taxed at point of sale and road user charges are payable on all diesel powered vehicles.
What you are reaching for is called a "Poll" tax but that didn't get off the ground in the UK when Thatcher (I think) proposed it.

Central government however only funds local roading costs/maintenance to roughly 50% (some places a bit more some a bit less) - so local ratepayers do pay the balance through their rates.  Hence Keriwin does have a point - there isn't a great deal of user pay-type equity associated with their funding. 
Roading is the single largest budget line item in most local authorities I know - and the Far North District is particularly hammered given the vast distances and hence large roading network it has - in comparison say to the Kapiti Coast District (which you can drive through from north to south in about 1/2 an hour).
Local petrol taxes were muted by the ARC, I believe, before the SuperCity came in - but haven't heard much along those lines more recently. 

Sorry you are wrong. The taxes you are talking about are for State Highways.  Rates are used for non state highways.  Was my veiw fair?

Keriwin: I understand your point .. The question of "fairness" is a complex one. An old lady on a pension living alone and only going to the shops once a week in her only car .. is a case in point .. she may not use it every day .. true .. but it's the utility .. she wants that road running right past her door regardless of how often she uses it .. she certainly wants it there the day she does venture out in her car .. and she wants it right there and available in the event of a medical emergency .. doctor call out .. ambulance etc etc .. it's a big topic .. is it fair? .. don't know .. can't help you there ..

It did get off the ground, I paid it for a while in Wandsworth, think I was paying 130sterling a year and lambeth (loopy lefts) next door was 600 sterling per adult per household......and yes it was Marget Thatcher, she lost it on that which is sort of a shame,( a very intelligent woman and a real tory, pro looking after the planet for future generations etc) ....it was actually fair IMHO.....but got stopped after huge un-rest....I think one of her side kicks also proposed and they brought in fines for say speeding based on your income....that hurt The Tory vote as the well could get slammed for many hundreds but if you were un-employed and broke you could have a string of serious offences and pay all of 20 quid....

Years ago, when in Canada I saw a sticker on a petrol pump showing a pie chart, which explained how the price of petrol was arrived at.  It showed what percentage was tax, transport, profit etc.  Petrol prices there are much lower than here but that didn't stop the complaints of course.
I think a similar sticker on a new house would be a good idea, to show people how much of the price was council tax, gst, building materials, labour etc.  A big pie chart is easy to understand.   
Your examples are eye-opening but as long as these facts are hidden in the total price, people will opine as to why the cost is so high and BS and disinformation will be the norm.


Being as how it's LTP season again, it's always fun to poke yer local Clueless Council in the eye with a pointed leetle submission such as:

•I see you have budgetted for X million pesos revenue, from Development Contributions. Please set out the average revenue per section expected, segmented into residential, commercial, industrial and Gummint.
•Please provide some economic commentary about these figures, given that they are significant inputs into section prices, and coming as they do early in the development cycle, attract significant developer financing cost additions prior to section sale, and are ultimately paid for by the incurrence of household, public and business debt.
•Please provide commentary about the revenue risk implicit in these averages, focussing on the most likely such risks: development flight to cheaper jurisdictions, housing inflation, buyer resistance, disadvantagement of low-income new-house purchasers.
•Please provide a table showing comparative Development Contributions for adjacent jurisdictions, for equivalently sized Councils across New Zealand, and against a New Zealand average.

Y'see? A submission (on public record, no less), an education for Councillors who are often shocked! Shocked! to understand just what their faceless bureaucrats are inflicting on anyone enmeshed in their processes, and (best of all) a chance to stand up in front of the Council and tell these hapless fools just exactly what a dire effect they are having upon their local economy, residents and businesses.
And HappyFunBalls (is that yer Real name???) idea of a pie chart for new home owners is also a Jolly Good Idea.  It's also easily legislated for:  there will be a Regulation tucked away somewhere with an empowering clause which allows the relevant Minister, on the advice of certified astrologers, to do any damn thing s(he) likes.
So how's about an Itemised Bill for the householder who's just bought that beautiful new house-and-section package:  vendor must, upon pain of excommunication, disclose:
- original land price (pro-rated for the section and the share of common land like roads and reserves)
- interest paid by the developer on all outgoings (again. pro-rated)
- vendor's commission
- Clueless Council Development Contribution, broken down into the Four well-beings (might as well enjoy the squirming...)
- Council and regulatory inspection fees
- Council and regulatory consent fees (will include a trades break-down, might as well use the LBP categories since they will all end up with Compliance Certificates)
- GST (but of course)
- rates paid on land between purchase and sale (shows the extent of double-dipping by the Council)
- roads
- stormwater
- sewerage
- reserves within the subdivision
- and so on.
Oh, and (silly me, I blame a crook Sav Blanc) the Hoose!
Truth in Purchasing, one could say, perhaps.
And the results won't be pretty:  if'n a Developer type common tater has some of these figgers to hand (there are some partial lists in the comments already) how's about enlightening us all?  Inquiring minds are waiting...

Glad to assist in a Tear Duct Cleanage, misty (how apropos a moniker!).
Actually, folks, the Stuff-up Tax is much worse than that:  your (yer, if'n Ah'm in HillBilly Mode) calculations are only for the initial debt.
If we apply the rule of thumb of interest paid over the full term of a loan is around equal to the principal at the start, then you're looking at double those numbers....

Olly, are you on performance bonus for 200+ comments? If so I just brought up the double century for ya. If not tell BH to loosen the purse strings.

201 ! ...... that's indicative of the Kiwi love affair with houses as investments ....
... try mentioning something constructive here , such as manufacturing ...... big yawn from the gang ..... you may attract comments from the resident " peak oil " brigade .......or  Walter & Les ( if you're so lucky ) ..... otherwise , zippo ....

mist42nz - we have no decent jobs for our well educated NZyoungsters.
Change the mindset and culture of manufacturing.

mist42nz – I recommend to read the link above. A solid manufacturing sector has positive implications on any economy.
In which sectors could New Zealand create decent jobs for the youngsters, the wider NZpopulation to lift production and reduce our account deficit ?

mist42nz - as many nations demonstrate, to enter manufacturing and succeed you need the right culture. This is a process over years/ decades and doesn’t just happening.
Interesting you didn't answer my question about employment.

Property is King.

Thank God for that ! ..
...... I was crapping my Gummy nappies that one day Camilla's old man  Charles would become King ....
Long live King Property ...... Amen !

Wow - I heard of a $ 140.- increase in rent p/m - for a small retail shop.
Considering the increasing difficult economic circumstances worldwide and the fact that high numbers of small (retail) businesses and tenants are on the verge of financial collapse  – I have three questions:
Depending on contracts - when insurance, rates, taxes, etc. go up and property owners pass these on to their business lessee, who have reduced incomes/ profits – how does that work until businesses are collapsing  ?   
Depending on contracts - when insurance, rates, taxes, etc. go up and property owners pass these on to their  tenants, who have reduced/ stagnating incomes – how does that work until tenants are stressed to the limit ?
How much, under fair circumstances can be negotiated and how many cases exist, where both parties are under stress or/ and stubborn ?   
Looking into the situation of smaller communities - I suspect there are already massive property owner vs. lessee/ tenant wars brewing.  
New Zealand has about 52’000 retail shops.

Why is doing business a battlefield between parties here in NZ ? - the last thing we need right now.
Mist42nz – in most of your articles I recognise a strong attachment to the "Anglo- Saxon" model of doing business. While I see some merits, I think the model is old fashion and does in today’s difficult and complex world in general a lot of damage. I rather see solutions following the “Rhine capitalism” or the “Nordic” model.

Quite alot of justifications in all of the above for why rents can't fall. Curious really.
Take this for example, now what is the landlord going to do with his great big warehouse if the company went under?

Exactly, in 2000 I worked for a small IT firm who struggled, the landlord demanded the rent every month and indeed wanted increases we really struggled to pay it.....when I left it folded, the property was empty for 18+ months....that is I think coming in greater quantities.....

Correct Steven – I see a lot of empty shops, not just for a month, but a longer period of time  –  clear signs of failed business practice among negotiating parties.

Considering the worldwide economic prospects, New Zealand business will struggle, bankruptcies increase and employment with decent jobs will be the task of the nation.
Mist42nz – under that scenario and the way you describe your policies as a commercial property owner - I think you are on the wrong path.

Two points, I think I read there is a "magic" sustainable % of a retail business's takings that should be rent, 11%, yet at the time NZ was 14% but the commercial landlored didnt think it was an issue (they wouldnt, would they?)  This year I think I read over time it has increased even further with 3% more guaranteed....and retail is really suffering....so a shops income will be dropping a double whammy....
In terms of location, sure a building demands a premium, but that is dependant on ppl foot traffic (say) and ppl buying......hence right now there is some reasonable argument to look at lower rents...or the danger is and I see it now, empty shops in streets and malls....for long periods
Tenants take the space, uh no.....thats just it.....
"Adapt", blood from a stone comes to mind. The old days of adapting I think are to a large extent gone, there is so much supply chain management and optimisation that I think there is little slack. That is what worries me, the more optimised and efficient the system, the less resiliant and therefore more likely to quickly fold....rather than adapt.....
"Is that really what you want?"  you make a lot of supositions but only go so far, for instance.  Just look at America, do we really want real un-employment to go to 15%+ ?  house prices to drop, what 30%+?  or the UK? We have been lucky in NZ, if the ones who hold the "keys" insist on holding their ground then I think they risk it biting them....Now sure I dont know how tough it is for commercial property owners.....but interestingly if they have debt is going to be by and large with a bank? whos profit margins seem very healthy, in fact improving....jsut who is winning and losing here?  Strikes me there are at leat 4 parts, bank depositors/lenders, banks, property owners and retailers...whos doing better despite the mega recession?

I think there are also a numder of contracts, it may even be common? that say there is a 3% increase in rent per year built in.
What we are seeing and what PDK has been repeating is there is an ongoing fight for a shrinking pie.
and here also,
The Govn wants to make the laws more pro-employer, and the unions are saying ppl are struggling to pay bills....same thing really.
Interesting that the Govn wants to move on labour rates which are already low, but wont move on bank profits which are large and increasing, when for a recession they should be shrinking to my mind.
ie apart from the shrinking pie, finance is the problem for employees and employers and they should be waking up to that and joining forces....then maybe the Govn will act.

German-based group undercuts Fletcher by half.
A major German-headquartered company is undercutting Fletcher Building by selling its insulation for half the price.
Stuart Dunbar, Knauf Insulation general manager for Australia and New Zealand, said his business was able to supply New Zealand builders with insulation for 50% less than Fletcher products.
He criticised high prices here and said competition was great for consumers and might help lower residential construction prices.
"The cost of building a house in New Zealand is amongst the highest in the world because components to make houses are more expensive," he said.
Since 2008, Knauf has been bringing in wallboard, insulation and ceiling tiles from Europe and the United States, challenging Fletcher goods.
"With companies in a monopoly or duopoly, consumers tend to pay higher prices and that's happening in the New Zealand market," Mr Dunbar said.
Knauf sells its cheaper insulation via the internet on BuildForNextGen and distributes through Mainfreight.

I totally agree......but its not just Fletcher, look at the prices for powertools and who effectively holds the keys on imports, ie the vendors...hence I see tools priced at $1800NZ here for sale at <$600US...........so the margin is 100% plus and Im sure that US price has a profit margin........Hence I think behaviour like this has caused NZ's productivity to drop, ie with NZ's cheapish labour buying expensive tools/machinery/software  often doesnt add up....

I guess the next step, seeing manufacturing has been offshored, is to offshore your retailing.
Aussie retailers are trying to put the stops to buying offshore.  I would suggest there are ways around it.
I have no view on whether a site like www.viaddress.com is better than www.myus.com
Both allow you to by pass NZ retailers.  While the shipping for tools is likely to be high.. For the prices quoted by steven, you can probably buy offshore and make a saving

I have looked at this (actually myus.com) US address idea as a possibilty.  So the original problem is, you go to amazon they accept the trolley cart until you tell them the delivery address....now it could be cartel type behaviour / agreements or simply too risky to allow CCards to foreign addresses, (this is what OZ companies say to me)  So OK  use these addresses and at each stage you see a substantial markup plus huge postage that in the end it just makes (depending on the item) little financial sense, especially for the risk as,
WOT (Web of Trust) slams www.viaaddress.com....as poor in all cats, says enough to avoid it.
So we appear to be stuck....
Hence I think things like improving "productivity" in NZ etc are a joke...too many ppl extracting monopoly level rent.

In Sydney one is allowed to build a 1 bedroom apartment with an internal bedroom (check out the illegal-in-Auckland Foster/Nouvell etc. designed Central Park development in Sydney).  Since 2006 in Auckland a 1 bedroom apartment must have the bedroom on an external wall.  As the number of apartments that can fit on a site is determined by available frontage this rule doubles the frontage required by an apartment, halves the number of units therefore doubling land cost per unit.
Just one of many ways our District Plan has made our housing more expensive.

So I assume that includes a window? so you get air changes, maybe find their reasoning?

No.  The Building Code covers air changes.  The window could be permanently fixed shut under the Plan.
The rule is there because a planner decided it was nicer - and it is nicer, no one disputes that - so is a high stud, beautiful materials and luxury fittings.  However you can't both require everything to be extra nice and complain about how housing is expensive.
Is it really Councils job to decide how 'nice' someones private space is and consequentially how expensive it is?  They should concentrate on making the public realm nice.  I should be able to make my own choice if I want to pay 50K or 100k extra for a room with an external window.

There is a huge difference between luxury fittings and necessity say for hygene or sanity  ;]
I certianly dont recall such things as the opportunity of natural ventilation and light as "nicer" or a luxury but then I have not read such stuff in 6+ years......
It certianly should be part of a council's regs to make spaces that are fit for long term human habitation, will last an economic time and use the minimal economic amount of energy at the same time.

We're not talking about dwellings that are not fit for human habitation.
We are talking about spaces like this http://www.centralparksydney.com/interiors-east/
...being legal in Sydney, legal under the NZ Building Code, but not being acceptable under the Auckland District Plan.
Look at the floor plans - some floors have 14 out of 20 units that would not comply with our Plan for internal bedrooms and outlook. 

Quelle horreur.....!!!!!!!
If Sydney did not have such insane growth constraint policies and absurdly bubble-priced land, those rabbit hutches would not be necessary.
Do tell us what the price of each one is; I bet something with ten times the space in an affordable city, would cost less.

You could be an ACC planner with that attitude.  You don't like it therefore no one should be allowed to live there.  Thats' exactly how they react.  You want to live in a suburban house therefore everyone must - you'd make a great planner.

The Economist had an article last week on why real estate agents fees' in the US are so high at 4-6%. http://www.economist.com/node/21554204

4% to 6% on affordable circa $150,000 average/median house prices (in most US cities) is quite a lot different to 4% to 6% on unaffordable circa $450,000 average/median house prices (eg California or NZ).
It think it is unlikely that post-crash Californian RE agents will be expecting too much in the way of commission income these days.

The issue with Coucnils (I used to be a Treasurer of one back in the day - the title says it all) is quite simple to state, and very hard to fix.
They now have power over so much of the regulatory aspects of housing and building (a partial list:
- land prices (via zoning)
- land developmnent (via consents and taxes)
- housing design (via consents, design rules)
- housing build (via inspections, requirements)
- continuing use of house plus land (via Plans, consents and permitted uses)
That their ordinary operationas, in puddling through all of the above, have a major economic impact on the lives, businesses and prospects of anyone enmeshed in their gears.
And yet, at the very same time, Councils are economically clueless.
- they have no idea of, let alone penalty for causing monetary loss because of, the time value of money
- they have no idea of the principles of monopoly (who else runs the sewers, roads, stormwater?) and take no precautions against the ancient abuses arising from this
- they employ staff on salaries, who are completely disconnected from quantum or quality of output, and who thus experience precisely zip/zilch/nada of the consequences which would follow in the business world (termination, bankruptcy, or at the least, serious loss)
- they are able to compulsorily demand fees for services (or no consent, buddy), rates (or we'll sell the place from under you), and levies (or no subdivision, you 'orrible greedy developer).
Thus they wander serenely about the landscape, causing economic havoc in their wake, and congratulating themselves on a job well done, because they Do carefully count the awards made by juries of their peers...
But how to change this horrific combination of power and incompetence - aye, well there's the rub....

An earthquake or 2 might ultimately do it...........
His Worship Hugh Pavletich, Mayor of Christchurch? Bring it on.


Property...property...property....the small minded obsession that dooms us to repeat the cycle of behavior over and over...while ,talking it to death (i wish) in the process.
I do try to refrain from adding any fuel to Ole's fire as I'm sure he  sits an smirks to himself "well as long as the chumps are talking about it , it remains a hot topic, poarizing ,and confirming players , wanna be players, first home desperado's in the industry.."
 Well Ole' ..I don't think it is a question of "who" is responsible ....but what is responsible.
Fear....now you know that don't you Ole'...uh...watching them scramble for fear ..watching  them exceed their means...for fear.....watching them drive the index skyward... for fear.
 Fear  is great is it not Ole'.......most of the shmucks are not even sure what it is their scared of ..just caught up in the frenzy of it ...are they not Ole'.
Of course there are persons who build their livelyhood out of Property  and retain ongoing portfolios and have a geuine stake in the industry....but they are not the drivers, are they Ole'.
 Put any justification to it you like but for the majority, and I mean the vast majority fear remains at the root of the inexplicable, unjustifiable spiral upward .
There will be situations such  as the Mainland Chinese demographic growth in Epsom displacing those taking the extra cash and displacing persons in Mt.Eden and so forth and so on.........By Ole's own decree those persons are shortsighted if we are to believe the credo....hey but we already know their stupid don't we Ole' ...I mean look at the choice of M.P.
And so we are left with two ideals for the cauldron to remain on the boil.
Fearful greedy people...Desperatley fearful needy people...and that's just dandy with you  ain't it ....Ole'....really.

Who's to blame? well who make the tax laws that overwhelming favour property? - the government, that's right. Well it's the governments fault END of storey
They just need to do somethign about it, instead of trying to blame previous governments and everyone else.
They've been in power 4 years nowl, still blaming previous governments for everything has gone well beyond wearing thin.

Have you ever hear of infation at all? why is the government taxing interest on a deflating asset like cash, yet not taxing an inflating asset like property?

Doesn't make sense but there you have it, because they are too scared of doing something unpopular is the real reason.
No wonder this country is so unproductive, and creates very little high paying idustries and jobs, the incentive is to just go and slap what you have in property, and even borrow up to the hilt doing it as well.

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