Jason Krupp says Auckland's proposed Unitary Plan is a step in the right direction, but expecting it to be a silver bullet for homelessness is naïve

 By Jason Krupp*

Last week most of the country, or at the very least a third of it, heaved a high sigh of relief when the Independent Hearings Panel released its quite sensible recommendations on the Proposed Auckland Unitary Plan (PAUP). 

The sigh was justifiable to some degree considering just how crazy the outcome could have been given the precursors. 

What was not justifiable was the rush of blood to the head it caused to some of the commentariat, who claimed that the PAUP was the silver bullet needed to cure the city’s problem of people sleeping in cars and homelessness in general. 

I’ll explain my reasoning in a moment, but let’s clear the air on my views on the PAUP, which I have not dedicated 55 days to reading (an estimate of how long it will take to read the thing cover-to- cover, based on a reading speed of 200 words a minute). 

I am broadly in favour of the plan’s direction. Getting rid of regulatory madness like the Cultural Impact Assessments (which were a potential boon to rent seekers) and some of the heritage overlays is great. More substantively, allowing the city to grow up by lifting height restrictions and out and freeing land on the edges of the city is long overdue and desperately needed. 

The question is whether the PAUP will free up sufficient supply so that housing is within reach of the average household, and specifically those struggling with homelessness.

 It is difficult to answer this question. Consider that Auckland’s population grew by about 40,000 people last year (net). During that time the number of residential building and apartment consents hit about 12,000 (admittedly, I’m mixing stocks and flows). Even if all these consents translated into actual buildings, it would still mean an average household density of 3.3 people per household for all the new arrivals. That is above the national average and Auckland’s current average. A lot more needs to get built to get that figure down in one year, to say nothing of pent up demand. 

If we are relying on apartments to do it alone, we are going to be waiting a number of years. Regulatory supply may come on stream with the stroke of a pen but it still has to be matched by the market. That means developers will need to assemble land, draw up plans, raise capital, and build said apartments, assuming there is construction capacity to do so, and planning permission is not an issue. Even if we kindly assume a timeline of three years, it will not be a fast or smooth process. 

And it will most likely only cater for a proportion of the market, such as older people who are downsizing and younger people who don’t have family obligations. As such the housing they free up in other areas is likely to be constrained. This does not help those sleeping rough in the short, or even medium term, and besides, inner rents are likely to lock them out of this new stock. 

Housing New Zealand is apparently looking to build a lot more social housing (and upwards to boot), but this again will depend on the factors discussed above (land might be easier to acquire, and presumably, and if the government can’t get fast track planning permission no one can). But even under the best scenario, it is a multi-year process. We also need to assess the government’s commitment to a building programme, given that until recently the preference was for operational expenditure (accommodation supplements) not capital expenditure (housing construction). 

Some of the property slack will be picked up by residential development at the edge of cities, where building times are a lot shorter. But then the trade-off of cheaper living versus more expensive and congested commuting has to be factored in. I do not have enough visibility into the lives of those sleeping in their cars to say for certain, but it seems to me that they place a value on proximity to places of work. 

But say people are happy to make this trade-off, it will still require enough infrastructure-ready land to be released to meaning full drop prices. I subscribe to the idea that a deluge of land needs to be released onto the market if prices are to be meaningfully reduced. In my view, if land supply and infrastructure continue to be trickled onto the market, it sends a strong signal to investors that Auckland property status quo is still in place, particularly in the current low interest rate environment. Does the PAUP deliver this deluge? I remain unconvinced that it can do so on its own, but on the positive side it does pave the way for further regulatory improvements, such as Municipal Utility Districts. 

The other unknown is the effect of the recently imposed LVR restrictions on the market. That a whole lot of supply may come onto the market in the form of apartments is to be welcomed. But as I recall from my days of house hunting a few years ago, the deposit requirements are higher than the LVRs (30% seems to be the figure in my mind).  

Even if moneyed empty nesters heed the call to sell up and move to apartments, someone still needs to buy their existing properties. This is where LVRs restrictions on existing home buyers may bite. 

Where previously property investors could be relied on to do some of the heavy lifting, the new restrictions are likely to limit their activity (40% equity mortgage). Even where they do have the capital, a contact in the industry recently told me that investors will probably head towards commercial property since the equity requirements between retail and commercial are not that far apart, and the returns are better in the commercial market. 

I could go on (let us not forget that Franken-beast called the Resource Management Act, the Building Act, and council’s regulatory inefficiency). 

But in the interests of brevity, let me just recap: In my view the PAUP is the first of many steps on the path to restoring housing affordability in Auckland, and probably New Zealand in general. But that path is likely to be complicated, slow going, and will require a lot of regulatory tinkering and tweaking. 

What the PAUP is not going to do is provide immediate or even medium relief to those unfortunate people who have been forced to sleep in cars, garages and overcrowded houses. It cannot do this, do not expect it to. 

Perhaps I should also be aware of an irrational rush of blood to my own head. Just as I would caution said commentariat about expecting too much from a policy document, so too should I be cautioned not to expect too much critical thinking from the commentariat.

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*Jason Krupp is a Research Fellow at The New Zealand Initiative, which provides a fortnightly column for interest.co.nz. jason.krupp@nzinitiative.org.nz