By David Hargreaves
Measures including greater development of crown land, limits on migration, inflation-adjusted mortgages, rate hikes on undeveloped land and state-funded housing infrastructure have been put to the Government by officials as potential ways of tackling Auckland's pressured housing market.
The suggestions were contained in a Ministry of Business, Innovation and Employment briefing to ministers on November 25 about housing affordability.
Last week Building and Housing Minister Nick Smith flagged new unspecified regulatory interventions in Auckland's housing market to ramp up supply, but wouldn't give more details. It is eminently possible that the measures Smith has alluded to could have been included in this MBIE briefing.
The Government made substantial decisions around housing, particularly in relation to social housing, before the end of last year and is rolling out these proposals now.
The MBIE paper says that "even once" Auckland's Housing Accord is delivering new sections, the forecast is that Auckland’s shortfall will persist.
The MBIE put the current shortage of houses at 20,000, with Auckland household growth forecast to continuing growing at more than 10,000 per year.
"Therefore, demand is forecast to exceed supply in Auckland for at least the next decade."
$30 billion not enough
The $30 billion forecast to be spent on the Auckland market in the next five years "will not be enough for supply to match accumulated demand", the MBIE said.
It said measures such as the proposed reform to the Resource Management Act would not be sufficient alone to "incentivise" additional investment.
MBIE estimated that a further $11-13 billion of investment (on top of the $30 billion) was thought necessary to make up the shortfall of supply within the next five to 10 years.
There was an opportunity to add increasing dwelling supply as a specific aim of the social housing reform programme. Opportunities to develop other Crown land were also likely.
"The Crown holds extensive land holdings in well located urban areas, both HNZC properties and others, some of which has the potential to be developed to deliver more dwellings."
MBIE said large developments (1000-plus houses) of Crown land had "potential to attract large off-shore developers with extensive capital and expertise that would not otherwise invest in New Zealand".
Large-scale developments were the "most likely" means to overcome the majority of Auckland's dwelling shortfall inside 10 years, the MBIE paper said.
However it would require an "extensive work programme" to scope and implement and may require "bespoke legislation" and development of a "new managing entity".
MBIE said residential development of Crown land could be accelerated by enabling special planning powers for particular developments.
On the possibility of rate hikes on undeveloped land, the MBIE said "land bankers" could be targeted and this would likely bring land into development more quickly.
More feasible than CGT
There would be "many" details to iron out with such a plan, but the existing rates mechanism could be used. This, MBIE said, was likely to be "more feasible" than a capital gains tax.
Inflation-adjusted mortgages would allow home owners to spread the real cost of repayments over the life of the mortgage, reducing the cash costs of a mortgage in the early years and trading it of for higher nominal costs in later years.
This measure, MBIE, said would make mortgages more affordable, but could actually increase crease house prices as the effect was similar to a demand subsidy. Regulation already allowed for such mortgages but the market was not providing them, however, the Government could work with Kiwibank to introduce them, MBIE said.
In terms of funding infrastructure in Special Housing Areas (areas legally designated for fast-tracking of development), MBIE said the Government could establish a special fund to build infrastructure in "the highest yielding areas".
MBIE said that the impact was "potentially significant" as about 30% of the shortlisted Special Housing Area sites in Auckland had "large infrastructure issues".
"To the extent that some of these can be improved by providing more funding, we could significantly expand the set of developable land," MBIE said. It said it was "feasible" to set up such a fund, but would be "difficult" to get the governance structures and institutional settings right.
On the suggestion of migration curbs, MBIE said this could be done by reducing the targeted levels of inbound migration, or directing migrants into ares with less pressure on housing markets.
Such a change would be "administratively simple", however, "wider economic considerations" could limit the feasibility for major change, MBIE said.
Longer term options raised in the MBIE paper included establishment of Urban Development Agencies, introduction of a mortgage interest levy and "capturing" land value increases to fund affordable housing.
Development agencies would involve a partnership between central and local government, with the agencies undertaking land aggregation, infrastructure provision and urban design and the developers then doing construction. This would, however, require legislation and funding and would take at least a year to establish.
Mortgage interest levy
The mortgage interest levy would be a tax on mortgage interest rates that could be lowered or raised depending on the extent to which the housing market was overheating relative to the rest of the economy. This would allow for more "precise control" over the housing market.
However, MBIE said, this would take a least nine months from a decision to proceed to enact legislation and there would be difficult governance and organisational incentive issues to work through.
On capturing land value increases resulting from a decision to rezone land, there were "various options" that could be applied either nationally, or regionally.
MBIE said such a plan would "reduce the arbitrary gains to private landholders from decisions to rezone". The plan may lead to some increases in house prices, but revenues could be used to fund low-cost housing.
However, this again would likely require legislation.