Nick Smith says housing affordability is in the eye of the beholder; Defends government’s track record on Auckland affordable housing supply; Says can't regulate prices in SHA developments, despite desire for 10% affordable

Nick Smith has defended the government’s track record on boosting Auckland’s affordable housing supply, while admitting affordability levels in the city are not at satisfactory levels.

The Building and Construction Minister was speaking on Radio NZ about a story that despite the Auckland Housing Accord stipulating 10% of any Special Housing Area development must be ‘affordable’, the Council didn’t in fact have any figures or idea of what prices these houses had been sold for – or whether the houses had even been built.

Smith said the purpose of the SHAs was primarily focussed on increasing supply in Auckland, not on regulating prices of the houses built. “The Productivity Commission, the independent hearings panel and the Auckland Council all concluded that trying to regulate house prices through the resource consenting process was a nonsense,” he said.

It was put to Smith that a key purpose of the Accord was increased affordability and greater access to housing for first home buyers. Smith sought to argue that housing affordability had improved in Auckland over the past 12 months, basing his comments on the Massey University measure of affordability.

The Massey measure is based on median house prices. Other measures, such as Interest.co.nz’s first home buyer Home Loan Affordability Report and the government’s own Housing Affordability Measure (HAM), recognise first home buyers typically don’t buy a median-priced home – or at least shouldn’t be needing to.

Interest.co.nz’s measure for Auckland first home buyers shows in May 2017 it would take 45.2% of a 25-29 year-old couple’s take home pay to service a mortgage on a lower-quartile house, compared to 40.3% in May 2016.

The government’s HAM measure is 18 months out of date, but for what it’s worth, it showed that between 2013 and mid-2015, affordability for first home buyers in Auckland “steadily worsened.”

The definition of affordable housing was “very much in the eyes of the beholder,” Smith said. “Obviously, someone has bought the 4,751 new homes consented in those Special Housing Areas.” He then seemed to acknowledge that 30% of sales had been to investors. This did not mean the policy had failed.

“What you’re saying is affordability is the key. We know from Massey University’s independent index there has been a substantial improvement in affordability in the last 12 months. We know the purpose of the Accord was to increase housing supply. In May, we consented more houses, in the month of May than any year in 40 years. Now it is increasing supply, it is increasing affordability.”

“I cannot be a miracle man. We’ve had six straight years of increased housing construction in Auckland. There’s never been before six straight years. You cannot grow a sector at about more than 20% per year. Now the May figures are 20% up on last year.”

Auckland was set to deliver on its required 13,000 new houses per year by the end of 2018/early 2019, Smith argued. “Here’s the other part. Radio New Zealand is repeatedly running stories about the issues of quality. So, my challenge as Minister of Building and Construction is not only to open that pipeline as rapidly as I can to get new houses built, but to also ensure that they are of quality.

“There’s no question that the construction sector is booming and that it is creaking a bit in terms of the pace of new house construction that’s going on, and that pace has only been achieved because we’ve had Special Housing Areas that have opened up new land for supply,” he said.

Back on why the Council could not figure out whether 10% of the SHA houses did fall under the affordable category, Smith said the provision was included due to the insistence of then-Mayor Len Brown. “The government’s position always was that trying to regulate a house price, through the RMA, was always going to not succeed.”

“When the unitary plan superseded the Special Housing Areas in October last year, those requirements for statutory declarations were dropped, because the evidence was that those mechanisms do not work,” he said.

“In respect of when the government owns the land, like at Hobsonville or Weymouth, the Government can absolutely determine what the price point [is] of those houses [that] are being sold. But in private subdivisions, the government never has, and the Council never has actually known the prices of which homes are sold,” Smith said.

“Am I satisfied with the level of affordability of housing in Auckland? No I am not. What I’m encouraged by is that affordability has improved over the last 12 months as incomes have grown, as interest rates have remained flat and house prices in Auckland are at last – the heat’s coming off as we’ve seen over the last nine months. And we’re seeing record levels of construction. It’s headed in the right direction.”

A significant supply success

Smith had earlier argued the SHA policy had been a significant success in boosting Auckland housing supply. The government’s input on the Housing Supply Accord had always been about unlocking the supply of land.

“We now have 4,751 homes consented in Special Housing Areas. A third of the new houses being built in Auckland right now are in Special Housing Areas. That is, if we did not have that mechanism, we’d have 3,000 a year fewer homes being built. And that is why it has been a significant success in what it set out to do, and that was to provide access for more land than had previously been choked,” he said.

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17 Comments

What is 'affordable'. Well a reasonable definition is what an average worker can afford on an agreed multiple of his annual earnings. The dept of Immigration puts that at $55k and traditionally 3 times has been the multiple for the last 100 years. OK now we seem to assume a couple has two incomes not one (although how they can produce children doing that I've no idea). So affordable in the past meant $165k and maybe now it is $330k. And you only have to check the websites to discover this is roughly the cost of a nice modern house built by a large reputable supplier. In fact it is the price houses sell for in Oamaru.

So why does the Auckland average price reach about a million? Council costs connecting to infrastructure and a totally not related to reality price for land.

Thanks to Nick Smith and his colleagues the house I bought just to live in has accidentally made me a millionaire. Great for me but not so good for my adult children. Please vote national and keep me wealthy.

The Interest.co does a series on affordability. I think they base it on median income for the main buying demographic and, for a couple its something like 1.5 times the single income to allow for children and the doubling of the likelihood that one partner will be unemployed.
I honestly can't see how the typical Aucklander can even consider having children. Perhaps that's the idea - both partners work till they drop and import the replacements with a top up from "professional" breeders.

I suspect 'affordability' has more to do with the payment load on household budgets than simply 'house prices'. Inflation, interest rates, pay levels, even tax levels are important aspects as well on those household budgets. And did I mention the ability to save for the deposit?

All those are factors that have existed for a century. Put interest rates and tax rates back to where they used to be and things look far worse and they look pretty bad already. I thought deposits came from three sources: bank of Mum and Dad, imported from abroad (that's how I got into the housing market in 2003 - back then $330k seemed an enormous sum) or the casino. Saving $200k is impossible except for criminals.

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well time for you to move on you incompetent politician... only interested in the select few but ignore the vast majority... in 80 days time you may have all the time in the world to contemplate on these statements and the lost opportunities for the middle class

It is a known that people are more concerned about losing something than getting something. The 55% home owners will out vote the youngsters renting or sleeping under bridges.

Agree. This is one reason I think it's important it's made known how much the oldies benefited from the efforts of those who came before - including previous government builds, housing corp loans, cheap government leasehold land etc.

Because up till young people started sticking up for themselves (or others for them) it's been all about how the young are spendthrifts (when it turns out they're saving more than the previous generations were), they'd be able to afford a house but for smashed avocado and Sky television (showing how out of touch the accusers are...as if young people buy Sky television) etc. The technical term for this is "bollocks".

In actual fact houses were affordable for boomers for very good policy and structural reasons, and they're now unaffordable because of different policies and structural reasons. For which the politicians and their votaries bear some responsibility...they have created the housing crisis.

Firstly, I suspect the multiple of 3 times average incomes is not sustainable in a New Zealand sense, and anyone expecting Auckland prices to drop to that level is naive. I suspect it will fall to 7 to 8 times, which implies a further 20% from where we are now.
The affordability issue is SHA was always misguided. When prices fall across the board young FHB will do what every other generation has done before them- buy older houses and do them up. Building new 'affordable' housing in the SHA's was always a political game.
And finally house prices aren't high because land prices are high - land prices are the difference between the cost of building and the value when complete. Therefore when house prices decline land prices fall faster. So a lot of land bankers are about to find values drop substantially - which I am looking forward to.

3 times is a factor that applied roughly to my grandfather's 1st house, my father's 1st house and my 1st house. It roughly applies in the depopulating regions of NZ today. Thinking short to medium term I reckon you are right - a drop from a multiple of say 10 to say 7 is quite possible (given odds I'd bet on it but by the very nature of a capitalist free market they could go up too).
But a house purchase in times of low inflation is a long term (30 year) commitment; I'm worried that there will be some hard working responsible Aucklanders going without for their entire working life just to own the roof over their head and in say 15 years time they will have neighbours buying at the 3 times multiple.

Yes, affordability is in the eye of the beholder. The problem is, a large and increasing number of beholders don't like what they see. So when these beholders are forced to look the other way, many householders are stuck with declining assets. After a while the assets may settle to a point where beholders can become householders too.

But there's a way to go before householders and beholders see eye to eye, and can change one to another without either of them getting into severe financial straits. Until then, these straits are value evaporation for one, immense debt load for the other. Neither are to be wished. But these are the choices.

We would be 3000 short if it were not for SHAs? Nonsense, half the houses were already being built when the SHA was declared in Weymouth. What makes Nick Smith think none of the other developments would have happened without SHA status? Does he acknowledge that mist developments underway right now took place without SHA status?

Affordability in the eye of the beholder.

Rubbing salt to the wound of FHB.

This reflect National government - need say more.

Think and Vote for Change.

Nick Smith says housing affordability is in the eye of the beholder; Defends government’s track record on Auckland affordable housing supply;

Are we allowed to use swear words - Mr Editor but again by swearing will be dirtying self and nothing happens to such........

Such an Audacity can only come with extreme form of arrogance and power.

In the eye of this beholder, housing affordability only happens when the poor suckers have spent 5 to 10 or more years putting together the $130k as the deposit on that $650k "affordable" palace.
Whoops! By that time the deposit has risen for the $1m box.
And every year saving up the deposit leaves one less year to pay it off.

This is utter garbage from Dr Smith.
The question related to how many affordable houses - as defined by the Council and government's agreed Auckland Housing Accord - have been consented / built. The 'eye of the beholder' stuff is disinegenuous fudging, because for the purpose of the Accord the government has set an affordability benchmark. It's just not good enough for Smith to avoid the question and not provide the data.
By the way it is also disingenuous to say that regulating affordability through planning doesn't work. In fact the evidence shows that it is often a failure in urban infill settings, but can work quite well in greenfield settings. The Productivity Commission, the council and the government failed in not doing their homework properly, and ignoring the nuances.

Affordability is not in the eye of the beholder at all. It is clearly defined as a multiple of income,vs interest rate.

I agree with you, but I think what Smitty means is that the beholder's eye doesn't have to belong a New Zealander, or even someone residing in NZ.