By Bernard Hickey
Prime Minister John Key has told first home buyers in Auckland to look at buying apartments to get on the property ladder, although he acknowledged that recent rises in house and land prices in New Zealand's biggest city were not sustainable.
He later said home buyers should be aware that buying property in Auckland was not a one-way bet and that a surge in property supply in Auckland over the next three years may change the equation.
He told TVNZ's Breakfast programme getting on the property ladder had never been easy.
His comments came after Auckland Council released ratings valuations showing house values rose an average 33% over the last three years, including increases in some suburbs in areas where first home buyers have bought.
"You have seen some big increases and I think actually over the last 20 years you've seen very big increases in Auckland which are not sustainable," Key said.
"They don't need to go up that quickly - there is a way of resolving that issue and I think it is dealing with those structural issues, which is basically supply, he said.
Key said he wanted more land released and houses built quickly. Meanwhile, first home buyers needed to look at different options for getting on the property ladder.
"Some people will have to consider going into an apartment for instance, that has been the international change," he said.
"If you're a young person buying your first place in Sydney or Melbourne or Brisbane, in most instances you'll be going into an apartment," he said.
"Buying a house has never, ever been easy."
Key acknowledged that home ownership rates had been on a long term decline.
"The real magic here is what's driving those [price] increases - it's land," he said.
Later news conference
Key later told a news conference after the formal opening of Parliament for the new three year Parliamentary term that
"No. My advice is to believe in the system because it will work for young people," Key said when asked if his advice to young people was to give up on buying a house and instead buy an apartment.
"We're releasing an enormous amount of land at a far faster rate than there's been in the past. It's one of the really key factors driving up those house prices. But yep, buying an apartment is also an option. You've seen that with a lot of young people in Australia. In Sydney, Melbourne and Brisbane a lot of people get into apartments," he said, also referring to the Government's ramped up HomeStart subsidy for first home buyers of new homes.
Key said the Auckland capital valuation increases showed housing was an important issue the Government needed to stay focused on "and the only way to really address that is on the supply side."
He said land prices had been rising much faster over the last 20 years than the cost of building.
Key said over 5,000 housing dwellings had been consented in the Special Housing Areas "and we know that 99% of those that are consented are actually built."
Auckland Council figures
However, Auckland Council figures show Auckland Council was considering 60 resource consent applications for 1,184 new sections and homes in the Special Housing Areas, but only 35 building consents had actually been approved so far within the Special Housing Areas.
Of these, there have actually only been 31 consents for new dwelling units and only 5 new houses actually built.
Key said building activity was starting to ramp up through building consent figures and was now up to its previous peak seen in 2007.
Asked about the speed of consenting by the Auckland Council, Key said the Government was monitoring its performance and he was due for a regular meeting with Mayor Len Brown later this week.
"It's not just a matter of land being released under Special Housing Areas, it's homes being built and to build those houses consents have to be granted," he said.
He described the power for the Government to take over consenting from the Council, which is included in the Special Housing Areas legislation, as a last resort.
"At the moment, there has been a marked increase in the number of homes being consented in Auckland," Key said.
He said "in the end" there would tens of thousands of homes built in Special Housing Areas.
"When you take a step back, what is driving those housing prices in Auckland is the very slow release of land and the inability to develop brownfields sites and the Special Housing Areas legislation fixed that," he said.
"It's been a problem that's been around for 30 or 40 years. It's not a problem that developed overnight, and it's not a problem that can be fixed overnight."
Slower house price inflation
Key said the extra supply coming on to the market in Auckland was already slowing down house price inflation there.
"I'd just caution people not to believe it's a one-way bet. There are plenty of times when house prices actually come off and there's now going to be a lot of supply in Auckland," he said.
Asked if he thought house prices would fall, he said: "I wouldn't be surprised if the discussion three years from now is about how many houses are available. There's going to be a helluva lot of houses built over the course of the next three to four years. There's a lot of land released."
Key said the SHAs accounted for tens of thousands of new dwellings. "What the Government probably wants to see is what home-owners want to see: that is a slow, modest escalation in house prices. Ones that gallop away aren't in the interests of home owners or the Government because history shows you as it did in the United States is that it leads to a bubble that has to burst."
Key said his speech from 'the throne' to open Parliament on Tuesday would cover the Government's economic agenda, it's moves to increase housing supply and reducing poverty. It would also cover the issue of referendums on the flag.
Key also said the number of people living in unacceptable conditions had increased a bit in Auckland, but was not dramatically different. He said this was was behind the Government's focus on increasing social housing: "How we get more houses constructed. Whether the state owns them or a provider someone like Presbyterian Support Services owns them is a bit of an irrelevance from the Government's point of view, it's that those houses are built."
Key said his expectation over time was that Auckland house price inflation would fall to "more normalised" levels.
(Updated with more details from news conference)
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