Today's Top 10 is a guest post from Brendon Harré.*
As always, we welcome your additions in the comment stream below or via email to david.chaston@interest.co.nz.
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See all previous Top 10s here.
1. In Parliament there has been a battle on whether the blame for unaffordable housing is the fault of this government or the previous one.
The current government is advocating that they will return New Zealand to its historic housing affordability levels over the next 12 years.
I have my doubts. New Zealand seems to be following the British model after a fifty year delay.
According to left wing British housing affordability campaigners such as Ian Abley, the fault in Britain did not solely lie with the 'socialist' Labour government who brought in the 1947 Town and Country Act. They did nationalise the land owners’ development right to change land usage. But the 1947 British Labour government was anticipating the State keeping 100% of the 'betterment'. The fault, according to the left wing campaigners, is really with the following 'capitalist' government led by Winston Churchill that reformed the Town and Country Act in 1952. On the basis (supportable by the evidence at the time) that this had led to virtually no land being sold to developers at all, the Tories gave all the 'betterment' to landowners and developers to ever inflate to what is now known as 'planning gain'. No British government (according to these campaigners) has been willing to reverse the process, not because they support socialism, but because it would destroy 'capital' even though it is unproductive capital.
There is an element of this in New Zealand. Whenever John Key discusses housing reforms he also mentions the need to maintain stable property values. Unproductive capital is being protected by this government. Phil Twyford, the Labour Party's housing spokesman, has offered the government the chance to reform the Resource Management Act (RMA) and to add a National Policy Statement regarding housing affordability to the RMA. The government declined this offer.
2. In the UK the situation has deteriorated so badly that councils are sending up spy planes to catch people illegally living in garden sheds. New Zealand, being fifty years behind the UK, our councils' fascist tendencies haven't developed to such great heights. But even so some kiwis are creatively finding ways to bypass councils' development restrictions.
3. This chart shows median rents have increased $130 from $320 per week to $450 in Christchurch, a 41% increase in three and half years. This is much more in absolute and percentage terms than any other urban area in New Zealand, the Wellington, Auckland and National increases being between 13% and 17%.
For Christchurch this translates to a $6,500 annual rental gain to the typical landlord and corresponding loss to the tenanted household. Median household incomes are only $65,000 to $70,000, so this is the equivalent of the tax rate going up 10 cents in the dollar, i.e. tax payments increasing from say 20% to 30% of household income. Future tax cuts will not be this big so for tenants housing reform is more important than tax cuts.
The situation is predicted to get worse with rents forecasted to hit Auckland levels by next year.
The housing supplement is much less in Christchurch compared to the North Island cities, the supplement works on zones and in the Christchurch zone the maximum supplement is $51 per week, it is $45 more in the North Island cities at $96 per week.
These zones have not changed since 2005, so tenants are burdened with the full cost of post earthquake rent increases without any protection from government agencies.
4. These facts have translated to some people falling off the rental housing market completely. Here are two stories.
http://www.stuff.co.nz/the-
Campbell Neil has a full time job, but chooses to live in his van instead of paying "ridiculous rents" for second-rate conditions. The 37-year-old "opted out" of Christchurch's expensive rents and competitive housing market by moving into his van about 18 months ago.
"Ridiculous rents, shoddy conditions and constantly being expected to bid for a roof? Get stuffed"
Byllie-Jean Rangihuna never expected to be homeless.
But after six months in a leaky caravan and applying for more than 100 tenancies, the mother of three says Canterbury's rental market is denying single-parent families the chance of a home.
5. Rental conditions in Christchurch in particular, and Australasia in general, have led to a discussion of France's more stable long term rental agreements here and Germany's here.
Strong provisions in favour of the tenant led in New York to an undersupply of rental accommodation. This has not happened in Germany due to generous government subsidies for the initial construction of rental accommodation, along with other fiscal incentives for landlords. NZ already has provisions that benefit the landlord, such as the ability to write off rental property operating losses against other income for tax purposes. Policies like this made good sense in earlier times when the supply of housing was elastic and prices stable. but they are only toxic when speculation is the order of the day due to historically unprecedented tax-free capital gains.
"In Auckland there is a huge amount of speculation that's driving up house prices. And I say this because when we look at what's happening with the cost of housing through rent versus the cost of houses, rents haven't really done much. They're very subdued, growing at a gradual pace, but house prices were rising at a very fast pace," says Eaqub.
"That means that there's no shortage of actual houses, physical houses...."
Yet Auckland gets 39,000 newly zoned residential sections in its Housing Accord while Christchurch gets.....
7. When the government states their housing supply reforms will return housing affordability back to historical levels over the next 12 years, voters should assess the believability of this statement against their achievements in Christchurch.
After the earthquakes was the perfect time to try genuine housing affordability reforms. The need was there and the Government had a mandate to act.
They could have removed urban growth limits like Hugh Paveletich asked immediately after the first earthquake.
If that was too 'free market' the Government could have bought farmland at rural prices and rezoned it residential. Then swapped it for red zoners earthquake damaged land. Red zoners asked Earthquake recovery Minister Gerry Brownlee for that in this video (Skip to 2.47 then play)
This could have been a combined housing and transport package such as this.
All Christchurch got was a continuation of existing planning restrictions sped up a little and then the pathetic Christchurch Housing Accord: 180 social need houses.
Red zoners fears (see video) of being priced out of Christchurch materialised while Brownlee's reassurances regarding housing affordability were found to be false.
8. Due to Christchurch not having affordable housing there has been a leap frog sprawl effect where Canterbury satellite towns and lifestyle blocks have grown faster than Christchurch. For many months after the earthquakes between 2011 and 2014 the building consent figures for the neighbouring councils Selwyn, Waimakariri and Hurunui combined were larger than Christchurch. Now there is a transport crisis. Gerry Brownlee is also the Minister of Transport and his NZTA is keeping an emergency report on how to alleviate congestion choke points away from public debate.
But the government has released its national draft land transport policy statement. It is basically business as usual. No significant increase in funding, especially given infrastructure construction inflation has been increasing faster than CPI inflation. No change in transport mode share. No devolution of responsibility and funding for urban areas transport needs to local authorities. For Cantabrians it means no significant improvement in the current congested transport system.
For National this shows it has not changed its 'low cost provide the odd new motorway/road and very little else' transport policy. While Labour/Greens criticise this for not providing public transport and alternatives modes of transport such as biking and walking, they do not commit either any greater funding or widespread devolution of transport responsibility to local bodies.
The differences and ideological fervour regarding transport between Labour and National go right back to the first Labour government and their state housing/rail transport initiatives.
Unfortunately this history means in New Zealand the transport debate has become so partisan and entrenched it is difficult for anyone to move forward.
9. The NZ Initiative recently came out with their latest thoughts on housing affordability. There is much of merit there especially the chart on page 27 comparing Ikea’s prices in various European countries. Britain being 20% higher than 'right to build' Germany.
I think Alain Bertaud discusses agglomeration economies better though. He explains in 'Cities as Labor Markets' that these result from cities generating scale economies by firms reducing costs per unit, knowledge spillovers, and lowered transaction costs due to more competing suppliers and consumers in close proximity. Importantly he gives some empirical data on this effect.
In Korean cities, a 10% increase in the number of jobs accessible per worker corresponds to a 2.4% increase in workers’ productivity.
Additionally, for 25 French cities, a 10% increase in average commuting speed, all other things remaining constant, increases the size of the labor market by 15 to 18%.
In the US, Melo et al. show that the productivity effect of accessibility, measured by an increase in wages, is correlated to the number of jobs per worker accessible within a 60 minute commuting range. The maximum impact on wages is obtained when the number of jobs accessible within 20 minutes increases; within this travel time, a doubling in the number of jobs results in an increase in real wages of 6.5%. Beyond 20 minutes of travel time, worker productivity still increases, but its rate decays and practically disappears beyond 60 minutes.
Both papers demonstrate that workers’ mobility –their ability to reach a large number of potential jobs in as short a travel time as possible, is a key factor in increasing the productivity of large cities and the welfare of their workers. Large agglomerations of workers do not insure a high productivity in the absence of worker mobility. The time spent commuting should, therefore, be a key indicator in assessing the way large cities are managed. (p. 24, 25).
I know I already put this information here on Tuesday. When I recommend that Phil Twyford used a Bertaud formulation for mobility and housing affordability as his RMA National Policy Statement. But really this needs to be viewed widely.
New Zealand has awful city transport infrastructure http://www.
This should be a no brainer. Reforming housing and transport will decrease inequality by making tenants better off, decrease general prices for everyone, increase firms productivity and increase real wages for workers.
I work in healthcare, an area the government spends a lot of money on ($14.5 billion), much more than it does on transport ($3.1 billion). As a country we provide this care because we collectively agree it is the right thing to do. Fair enough. I wish we also had that attitude to transport and housing infrastructure too.
I think it is such small-mind thinking; the belief that the best way forward for New Zealand is that government should stick to business as usual, wait for a surplus to accrue and then give it out as tax cuts to favoured groups of voters. When that surplus could be used to improve transport and housing infrastructure for the benefit of us all. If we achieve Bertaud's goals of house prices being about three times incomes, rents 25% of income and workers able to access the majority of the labour market in an urban area in under an hour, preferably under half an hour. Then it would be understandable that we look at tax cuts or extra governmental spending. To think otherwise is putting the cart ahead of the horse.
10. There is another component to the housing market that needs to be fixed. The cost of materials. Tony Sewell, CEO of Ngai Tahu Property, describes the situation well in "House of the rising sum" and has a simple yet effective solution.
"Sewell encourages anyone building a house to get on the internet to check overseas prices and to question local charges. The problem was a "cost-plus system" where if the price of a building product went up the builder simply informed the customer the cost of his house had risen.
"No one is really looking hard. I think we need to get more interested in the procurement chain."
Builders could do better by their customers, he says. "I wonder why the [Certified] Builders Association doesn't have a buying co-operative, like the farmers do with RD1 Ltd. That would be a way to pass on savings to their customers, but they don't seem to have any interest in passing on savings."
A government that genuinely wants affordable housing could easily play a facilitative role in getting this up and running.
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* Brendon Harré is a psychiatric nurse working in Christchurch and is a regular commenter on interest.co.nz.
22 Comments
Its Pavlov, not pavlova
- who is "the man with a hammer" or a wish for wisdom...
Should we consider there is something more at the core thats involved in the debate and decision making, for example incentive caused bias and the open out-cry auction...
Munger: Although I am very interested in the subject of human misjudgment -- and lord knows I’ve created a good bit of it -- I don’t think I’ve created my full statistical share, and I think that one of the reasons was I tried to do something about this terrible ignorance I left the Harvard Law School with......
http://buffettmungerwisdom.files.wordpress.com/2013/01/mungerspeech_june_95.pdf
http://buffettmungerwisdom.wordpress.com/
The motives of Human Judgement can be many.
RETIRED HUSBAND
After I retired, my wife insisted that I accompany her on her trips to Target.
Unfortunately, like most men; I found shopping boring and preferred to get in and get out.
Equally unfortunate, my wife is like most women - she loves to browse.
Yesterday my dear wife received the following letter, from the local Target:
Dear Mrs. Harris:
Over the past six months, your husband has caused quite a commotion, in our store.
We cannot tolerate this behavior and have been forced to, ban both of you from the store.
Our complaints against your husband, Mr. Harris, are listed below and are documented by our video surveillance cameras:
1... June 15: He took 24 boxes of condoms and randomly put them in other people's carts when they weren't looking.
2... July 2: Set all the alarm clocks in Housewares to go off at 5-minute intervals.
3. July 7: He made a trail of tomato juice on the floor leading to the women's restroom.
4. July 19: Walked up to an employee and told her in an official voice, 'Code 3 in Housewares. Get on it right away'.
This caused the employee to leave her assigned station and receive a reprimand from her Supervisor that in turn resulted with a union grievance, causing management to lose time and costing the company money. We don't have a Code 3!
5... August 4: Went to the Service Desk and tried to put a bag of M&Ms on layby.
6... August 14: Moved a, 'CAUTION - WET FLOOR' sign to a carpeted area.
7... August 15: Set up a tent in the camping department and told the children shoppers he'd invite them in if they would bring pillows and blankets from the bedding department to which twenty children obliged.
8... August 23: When a clerk asked if they could help him he began crying and screamed, 'Why can't you people just leave me alone?'
EMTs were called.
9... September 4: Looked right into the security camera and used it as a mirror while he picked his nose.
10. September 10: While handling guns in the hunting department, he asked the clerk where the antidepressants were.
11. October 3: Darted around the store suspiciously while, loudly humming the, 'Mission Impossible' theme.
12. October 6: In the auto department, he practiced his, 'Madonna Look' using different sizes of funnels.
13. October 18: Hid in a clothing rack and when people browsed through, yelled 'PICK ME! PICK ME!'
14. October 22: When an announcement came over the loud speaker, he assumed a fetal position and screamed;
'OH NO! IT'S THOSE VOICES AGAIN!'
15. Took a box of condoms to the checkout clerk and asked where is the fitting room?
And last, but not least:
16. October 23: Went into a fitting room, shut the door, waited awhile; then yelled very loudly, 'Hey! There's no toilet paper in here.'
The likes of Tony Sewell and Ngai Tahu are being a little hypocritical telling the building industry to get their act in order (all though they need to), when land developers and land bankers like them get second crack after council at the rort that is the high cost of land in NZ.
Any savings that builders put out there would soon be captured by Council and the land guys, so there is little incentive to do that; they might as well keep it in house.
The suggested end recipient of any saving ie the homeowner, is right at the end of the line and only gets offered enough of any saving to keep them on the right side of the maximum that can be squeezed out of them.
#10 ""I wonder why the [Certified] Builders Association doesn't have a buying co-operative, like the farmers do with RD1 Ltd."
Actually, our franchise building systems, such as Golden Homes, and GJ Gardner etc, gain their edge from bulk purchasing and supply chain advantages.
11. 100 points to me for adding the most unexpected character into the New Zealand housing debate -Winston Churchill ; ).
Winston Churchill was an inspiring leader that help save the world from communism and fascism but in the final analysis he was an upper-class twit who made too many bad judgement calls.
I vote him to be the man who hates Christchurch the most! Gerry Brownlee http://www.stuff.co.nz/the-press/news/city-centre/9425736/Park-bench-dedication-to-Gerry-Brownlee has only been doing it for a few years. Winston Churchill has been hating us for 100 years!
Look at the evidence.
1. Gallipoli http://www.historylearningsite.co.uk/gallipoli.htm - how many Cantabrians died there?
2. Gold standard
Winston Churchill’s decision in April of 1925 to resume convertibility of the Pound Sterling at the pre-WWI parity prompted one the greatest financial crises of the century. Churchill chose this course despite John Maynard Keynes’ prescient predictions that deflation, unemployment, and domestic unrest would follow. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1449829 How many Cantabrians lost there jobs, incomes and wealth in the Great Depression? Luckily we were partially shielded by Micky Savage's First Labour government.
3. Town planning
Winston Churchill failed to remove the 1947 Town and Country Act in 1952, he 'reformed' it in a way that entrenched an inefficient market mechanism with powerful vested interests. This started a British boom bust housing cycle in comparison with its neighbouring European countries http://www.macrobusiness.com.au/2011/06/how-germany-achieved-stable-affordable-housing/. Gradually British planning ideas, 'Green belts' and so on mutated into urban containment ideologies that spread around the world. This contributed to the 2008 Financial crisis. How many Cantabrians lost jobs, incomes and wealth again in 2008?
4. Green belts
Christchurch being the most 'English' of New Zealand cities has long adopted British 'Green belt' planning restrictions. This means there is little elasticity in housing supply. When demand for housing increased following the earthquakes the only possible response was higher prices. How many Cantabrians are suffering because of the housing and rental affordability crisis?
Clearly Winston Churchill hated Christchurch and we should be making plaques for public viewing saying so.
Thanks Brendon, good top 10.
With respect to National not wanting to pop the bubble (destroy unproductive capital), with all of the consents they are pushing in Auckland they are at risk of causing a significant price correction if demand does drop (due to interest rates, or less foreign buyers, etc). Good luck to anyone trying to finely manage a bubble and have prices "plateau".
Thanks Brendan, good article. Quite insightful, though a lot we already know.
Unfortunately the fact is that the government couldn't give a damn about housing affordability. They're desparately trying to distract the public and blame others for the current crisis.
Over at the NZCPR website Muriel Newman has a good report!
http://www.nzcpr.com/figures-on-home-ownership-and-facts-about-affordab…
Muriel is trying to pull the wool of your eyes regarding the decrease in home ownership being hard to measure with trusts etc confusing the picture. The rise in the number of households who reported in the census they were renting is easily measured. Not that home ownership is the goal -affordable housing rented or owned is the goal.
Overall her message was. "There is no problem with the housing market. The government has everything under control. If there is a problem it is someone elses fault."
Sound familiar. Do you really believe it?
Further critique of Muriel's points, the Housing Accord and the wider urban planning agglomeration effect is here
and here
http://transportblog.co.nz/2014/06/18/nz-initiatives-ideology-short-changes-compact-city-debate/
The rise in the number of households who reported in the census they were renting can include those who rent back from their Trusts which can distort the total number of people renting in the figures.
If you have a Trust entity it owns the assets like housing not the individual/s who were the settlors of the Trust. Are the people living in those houses meant to pay rent back to the Trust for the use of the house?
You are not meant to the Settlor, Trustee and Beneficiary of a Trust as it is considered a sham Trust.
I disagree that her overall message is that there is not a problem with the housing market. She identifies the factors that have constrained supply.
Muriel Newman's report has been republished on interest.co.nz
I think it is an example of 'unproductive capital' trying to protect itself by the usual methods -deny there is a problem and in the same breath admit there is a problem but it is someone elses fault.
ALAIN & MARIE-AGNES BERTAUD NEW ZEALAND SEMINARS
28th to 30th July, Auckland, Wellington and Christchurch.
Register by following the below link.
https://nzinitiative.outreach.co.nz/?Ns=&Na=view-msg-public&SMESG-oid=4…
The disaster was not the quakes themselves but the response.
Much like the famines in India and Ireland were not caused by a lack of rain or a potato virus but by a political economic system that ignored the plight of the poor and let them starve to death. Amartya Sen discusses this in his book ‘Development as Freedom’, his strong point re Ireland is throughout the famine Ireland was exporting food to Britain. James Belich in ‘Replenishing the Earth’ expands on the economic history of Irish food exports p.445-6. Fascinating and horrifying stuff. Check it out.
Anyone who says 'socialism' or 'democracy' is irrelevant and the 'capitalists' or 'neoliberals' have won the argument do not know there history.....
The pro-transparency group WikiLeaks has released the secret draft text for the Trade in Services Agreement, TISA, a trade agreement covering 50 countries and more than 68 percent of world trade in service. Until now, the draft has been classified to keep it clandestine not only during the negotiations but also for five years post-enactment. … The draft Financial Services Annex would also establish rules favorable to the expansion of financial multinationals into other nations by preventing regulatory obstacles. The draft text comes from the April 2014 negotiation round.
When asked by host Juan Gonzalez what Wallach found most objectionable about the plan, she responded:
Well, the single most glaring and easy-to-understand piece of it, if you want to—if viewers want to take a look at it, is a provision that’s literally called “standstill.” And what it means is you have to have your regulations stand still as to where they were. And practically, it means—let’s say you want to ban a certain kind of derivative that gets created, and it’s a disaster—it causes speculation and instability. You’re forbidden from having new financial regulations. But the tricky part about this is, if you look at the way the different versions of that provision are written, it may require countries to stand still relative to where they were when the WTO services agreement was established in the 1990s, and that would mean all of these new regulations that were put into effect after the global financial crisis would automatically be violations. So the way the language is written, maybe it’s standstill from 1994. And if that’s the case, it would automatically reverse—would make trade violations out of—wouldn’t automatically reverse, would make trade violations out of all of these new re-regulations. Certainly it would not allow you to do anything new, going forward. But the way the different versions of the text are written, I think it refers back to the old commitments from the ‘90s, and that’s where you’re frozen. That’s perhaps the most pernicious.
http://www.truthdig.com/avbooth/item/wikileaks_reveals_trade_deal_pushi…#5 - French housing agreements.
I'd advise extreme caution in comparing the French with the Christchurch rental situation.
France deals with the lowest quintiles of its renters by warehousing them in banlieues - and there are 731 such 'special housing areas' scattered across the nation.
So, mais naturellement, having banished one's problems to the ghetto, the remaining renters are, shall we say, much more civilised and tractable. N'est ce pas?
Waymad your link raises some serious questions about the French system. Banlieues is not something we should be trying to copy. Reading the article the problem seemed to be that in Paris these special housing areas had been created without good transport connections. This created a divide between the new areas and the rest of Paris. This was widened by racism against the new residents of foreign descent.
Bertaud talks that affordable housing cannot be seperated from good transport access to the rest of the urban area -'Cities as Labour Markets'. He gives examples from South Africa where new affordable housing schemes did not help the intended residents because they were too far away from the city.
In Auckland I have read that the motorway system gives favourable access to the CBD and cross city travel to some suburbs but not others, google Chris Harris -Two Aucklands. (I don't know why but I can't copy and paste on my home computer to interest.co.nz but I can from other computers)
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