By Bernard Hickey
Prime Minister John Key has signalled the Government plans to tell the owners of 14 Special Housing Areas (SHAs) in Auckland that they must develop their land or lose their special status.
Key made the comments at his weekly post-cabinet news conference in response to questions about what the Government was doing about surging house price inflation in Auckland and the Reserve Bank Deputy Governor Grant Spencer's call last week for action to increase taxes on capital gains for property investors.
Key said owners of 14 land areas deemed to be Special Housing Areas (which are given accelerated consents) faced demands to develop the land or lose their SHA status.
Housing and Construction Minister Nick Smith confirmed the Government and the Auckland Council were planning to send letters warning the land owners their SHA status could be revoked.
"They'll probably find in the next few days they'll be getting a letter from Nick Smith, to say that if they don't progress or bring those Special Housing Areas on to the market, then the Special Housing Area designation will be taken off them," Key said.
A spokeswoman for Smith said Smith and Auckland Mayor Len Brown agreed at a quarterly Housing Accord steering group meeting last week to send the letters.
"The advice the Mayor and the Minister received at the time was that 70 of the 84 Special Housing Areas established to date in Auckland had applied for structural plans or resource consents, but 14 had not," the spokeswoman said.
"The letters informing the owners of these 14 areas of the option of revoking Special Housing Area status are being prepared. The letters will invite the owners to provide evidence of work being undertaken to bring the land into housing development, and will advise that if progress is not made, the Minister may revoke the Special Housing Area status," she said.
'Capital Gains Tax won't work, and won't happen'
Meanwhile, Key ruled out a Capital Gains Tax or any widening of taxes on capital gains made by rental property investors, as suggested by Spencer in last week's speech.
He said such a tax would not work to address any short term house price inflation as it would take too long to introduce and then too long to have an impact.
"I don't think the Capital Gains Tax would work, if that's what Grant Spencer was talking about in terms of a short term problem as he would define it in Auckland," Key said.
"In reality, firstly, if we wanted to put in a Capital Gains Tax, we would have to go to the electorate and campaign on it, because we specifically said we wouldn't. There is no way I would implement a Capital Gains Tax if we didn't have a mandate from the people. There already is a Capital Gains Tax and how that's applied is always open for debate. A new Capital Gains Tax is not something we'd promote," he said.
"Secondly, it would take a couple of years to theoretically devise that, and thirdly, the advice we've always had, is it would take a decade to get any revenue. So, it's not a short term fix, if that's the point Grant Spencer was making."
Key said a Capital Gains Tax had not been effective in controlling house price inflation in other markets and the Government's view was that bolstering the supply-side was the correct primary response, although the Reserve Bank could take further actions on its own.
"There are discussions between the Minister of Finance and the Reserve Bank around any other options they have available to them or we might want to consider. We've always said we're happy to continue those discussions and last week I said I actively encouraged them to continue to explore areas that they think they can make a difference in," he said.
Loan to income ratio?
Asked if the Reserve Bank could adopt British style loan to income ratio limits, Key said he had not seen any such proposals.
"We're not closed to saying if the bank has a view or the Minister of Finance has a view about some things the bank could do, we'll explore those," he said.
'Market says Auckland not over-valued'
Key also questioned the Reserve Bank's view that Auckland house prices could be over-valued, arguing there had not been a major correction in 45 years because the market believed the value was supported.
"One of the reasons why you probably haven't had a significant correction over the last 45 years is because there's a general view that house prices are not over-valued relative to a whole lot of different factors," Key said.
He was then asked if the Auckland market was still not over-valued.
"The market will always assess these things, not politicians. If you look at the general demand and the general structure of Auckland, I'm not saying prices shouldn't go up. I'm just saying If the market truly believed they were massively over-valued, then it wouldn't be the way that it is," he said.
He was then asked about the Reserve Bank's view that Auckland house prices were among the most over-valued in the world.
"If that's the case, then they haven't corrected," he said.
'General belief Auckland not over-valued'
Key said he accepted prices were going up too rapidly, but that the best response was to bulk up supply, which had worked in Christchurch.
"If there hasn't been a correction over 45 years, it's an indication of the fact that at this point -- for decades -- there's been a general belief that they've been appropriately valued at the time," he said.
"It doesn't mean there not going up too rapidly or the Government's doesn't want to help that dramatically by making sure there's more supply."
Key said the Government's "not sitting back doing nothing, but it's not a perfect market in housing and things take some time."
"Three or four years ago you were struggling to sell a house in Auckland. Now there's a lot of demand, but it's not a new issue," he said.
"House prices are still going up at a slower rate under us than under the previous Government."
REINZ figures show Auckland house prices rose 67% in the first six and a half years of the 1999-2008 Labour Government. They have risen 60% under the first six and a half years of the 2008-2015 National Government.
25 Comments
The old efficient markets theory ... not a bad idea, in principle, but as governments and central banks in just about all OECD countries (and beyond) did not allow markets to e.g. take mismanaged banks or mismanaged countries out of business, what is the value of this statement?
And had markets not declared SCF bankrupt? Why was it Key's job to bail out market participants who took a risk and failed?
Just self-serving nonsense talk. He could simply say that he is not going to wreck the boomer gravy train because he wants his ilk to stay in power. At least that would make him look honest.
Also Oliver Hartwich recent article on interest.co.nz where he described the rational expectations of the market could lead to a downward price correction if all the market players genuinely believed there was going to be a increased supply response can be read another way.
This being the market has assessed John Key and decided he will not intervene in the property market in any meaningful way. That he lacks the political will to confront his property owning constituents. The market may have assessed that when it comes to proper regulation of property John Key is all talk no action.
So the various market players very rationally assessed after John Key was re-elected that the property market was and is likely to have an upwards price correction.
Rational expectations and the old efficient market theory have passed judgement on John Key.
"The emperor has no clothes", the market says so.
I don't know about clothes but he certainly has no moves. Apart from raising GST in his first term and smiling for the next two what has he done that is significant. The Asiafucation of AKL you say - well yes I forgot that. He just seems to be in neutral at the moment - not what you want from a leader. Has he already started on his memoirs?
He must address the demand side - anything else is more of the same
Declaring Special Housing Areas is all very well and good but threats to remove their status may not be effective.
I know of an area in Auckland declared a SHA which had 5 separate sections with houses on each but couldn't attract an offer for the lot. All offers for the group were far below what each house would sell for singly.
You have to assume that some of the SHA's would have been privately initiated plan changes in normal times. For all the noise about the Special Housing Accord legislation all it really is is a fast-track for plan changes especially during the interminable time from a draft plan being notified and it actually going operational (during which time all private changes are frozen).
So I guess some developers did line up to be included. But now they are in a bind. If they own the land already they have seen its value rocket. They can either put developed sections on the market at its current value and see them sell slowly, if at all, or put them on cheaply and take a massive paper loss.
As Brendon says I am guessing they have all assessed John Key as all talk and that it will be worth more to hold on the lots until the Housing Accord expires in a couple of years and its back to BAU than to develop now.
My pick is that Nick Smith's letter will go straight into File 13.
I still don't get it. If I interpret what you are saying, this SHA land was previously not residential, but rather rural or perhaps rural residential - and in accepting the terms of an SHA agreement, the land was re-designated residential.
So, my question is, what does the Government and the Auckland Council propose to do (having already approved a plan change and re-designated the land as residential zoned)? Are they going to go through some process to amend the zoning back to rural or rural residential? Good luck with that :-).
The Housing Accord legislation seems to say that applications for qualifying developments kind of bypass the existing plans especially if the proposed plan allows for those kind of activities once it goes operational. In other words although I describe it as fast-tracking plan changes, at the procedural level that is not what is happening necessarily. So withdrawing the SHA status preserves the status quo rather than unwinds anything.
However Housing Accords and Special Housing Areas Act 2013 s18 (3) says that the Minister can only recommend revoking the status if certain criteria are met. At a guess Smith would have to rely on the non-development of this land as evidence that s16(3)(b) was not being met i.e. that there is no demand for an SHA in that specific area. Arguable in court I would have thought.
Could still be Rural blocks on the plans, but zoned for anything, or the could be re-surveyed into residential blocks but with nothing in the way of roads and services finalised, or could be they're surveyed and noted but no sales/consents indicated.
Considering the SHA is a special privilege extrended for a explicit purpose, it doesn't seem unreasonable to revoke it if that purpose is not being followed up.... just like we need to be doing with those from foreign places who contract to do things (and don't do them)
I am sure the developers will put some sections up for sale, so they are not seen as uncooperative. But it will be 7 to 10 stages over 7 to 10 years whereas the overly excited Minister of Housing Nick Smith probably thought all the designated SHAs would be offered for sale now in this electoral term.
Fool he will be lucky to get half the housing building increase at twice the price he sold the public on. Those promised building targets are going to haunt Nick Smith and John Key will need to do more damage control PR. Get ready for more 'crisis what crisis' speeches.
It's sad to watch our PM slowly deconstructing before our eyes.
Here's a little lesson in property rights for the National Party:just cos an area is designated as being able to be converted to residential housing doesn't mean it has to be. If the current owners want to carry on growing thistles and ponies it is their prerogative. With their lots rising $1,000 a week for doing nothing why would they want to go through the pain of developing the land?
And the reason the prices are rocketing is that the Masters of the Universe at Auckland Council have given themselves the task of deciding for the 1.4 million residents of Auckland where they ought to live. It's ironic that the SHA's are part of the problem not anything like a solution.
Yeah, correct me if I'm wrong but for years the developers have put their new subdivided land up for sale in small parcels/tranches at inflated prices, then 5-6 years later when all that first lot of sections are built on, the next set of lots come on the market - rinse and repeat .. sometimes over a 15-20 year period.
If the Government and the Auckland Council expected all the SHAs to come on stream with all the land parcels put on the market all at once .. they must've been idiots.
Dale Smith is a better person to comment on that.
From what I know it depends on when the developers buy the land. I normally say that it is only when the bulldozers are running that developers are spending real money and the clock is ticking. That is probably no longer so in Auckland. Remember that a farm inside the MUL is worth ten times a farm outside the MUL.
When the price of developable land is eye-watering the carrying costs are horrendous. As the size of market that can afford to buy a new house shrinks - and we seem to be settling in at about 8,000 dwellings p.a. but possibly even that number could go down - developers have to pick their moment.
My guess that the current economics precludes them from drip feeding a single development. They need to develop and get out in one go.
Yes the government and AC are idiots. There is plenty of empirical evidence from all over the world that constraining fringe development leads inevitably to high house prices. The Housing Accord legislation did nothing to undo that in Auckland.
BTW we are due a quarterly report on progress in the Auckland Housing Accord covering Jan to Mar.
Given Nick Smith's sabre rattling and Deputy Mayor Hulse's declaration that AC can do no more and it's now up to a cross-party approach from central government I am picking the numbers in this report will not make for pretty reading.
In the past they given an indication of the development pipeline in the form of sections consented but not yet formed (a number that is not normally publicly available). In the last report they switched to titles issued. Titles are only issued by LINZ a couple of months after the council has issued its s223 Certificate of Completion. So this number reflects ancient history not what is coming up.
There are many other clues in that report that the pipeline is hardly flowing to capacity. I am trembling with antici-----pation.
The SHA are an excellent example of why paper sections do not equate with real developed sections, even when the PM makes threats.
In theory the SHA’s have released enough land to build thousands of extra sections over many years into the future, in the anticipation that this will make sections more affordable.
Yet the ACC think that releasing only 5 years supply is enough to achieve more affordable sections.
What they continually fail to see, in spite of being told many many times, is that paper supply will never eventuate into actual affordable supply while you have restrictive zoning, which in effect the SHA is.
For the simple reason not all properties within these areas want or can develop now, and even those that could will only do so at the rate where their release onto the market (supply) is less than demand, thus keeping the price as high as possible for them to cover the exorbitant fees council charge for infrastructure, fees, and the risk of having to pay this game.
Perhaps the answer is for the RBNZ to wash their hands of the matter and put interest rates back down to 2.5%, thus precipitating a crisis. Was their recent speech warning of exactly this?
The country either needs the government to run a 3% deficit and thus allow the RBNZ to put interest rates up to stop the bubble in Auckland house prices; or, alternately, the country needs significantly lower interest rates (2% lower?) if the government insist on balancing the books.
If the RBNZ does follow the Aussie lead and put interest rates down it will cause Auckland house prices to go ballistic in a final frenzy of speculation. This will cause outrage and allow the government to actually make real changes instead of just pretending. The cure for high prices is high prices, perhaps what is needed is really, really high prices.
JOHN KEY IS RIGHT about CGT.
Ordinary Kiwi's are not the cause of the Auckland housing mess , so why should they pay a new tax for a mess created by Local Govt incompetence , and the NZ IMMIGRATION SERVICE ?
How will a new tax ( a cost that is unavoidably and ultimately borne by the buyer / end user/ consumer ) going to reduce house prices or make them more affordable ?
If you want less of something , you introduce a TAX to slow-down or discourage the behaviour or activity .
If you want more of the activity , you incentivise it through TAX allowances ( Such as R&D)
Do we want less houses and land to be bought by the providers of land and rental stock ?
I think CGT will never have the desired effect of reducing house prices, because everyone I have spoken to say they will simply not sell the asset ( usually in a discretionary Trust ) and borrow against it its debt bearing capacity instead , that way they release capital without the tax liability
What a load of nonsense, Key says the value of auckland houses are not overvalued because that's what the market is paying. His logic is totally broken. The market value is always determined by the market. By his argument nothing can ever be over or undervalued. The market always get it just right.
So the value of houses in Ireland just prior to them crashing 40% were not overvalued at the time because "there's [was] a general view that house prices are not over-valued relative to a whole lot of different factors. The market will always assess these things, not politicians. "
Talk about ducking responsibility, it's not the governments role to get involved in 'the market'. Except of course that it's already well involved.
Ya got my drift......Gotta luv someone who sticks up for herself...in spite of who he thinks he is.
Everyone's best friend...not..
I once had high hopes...some hopes....that we would be lead properly, not solely up the property ladder....then pull it up behind him and his cronies....then deny all knowledge....of reality.
A blatant lie can be forgiven perhaps....if talking to ones enemies....Not ones poorly housed VOTERS.
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