Housing Minister Chris Bishop is promising to deliver a “trifecta” of policies to drive growth in New Zealand’s cities and tackle the housing crisis.
He said buying a home was out of reach for many young people and councils needed to rezone as much land as possible, both at the edge of cities and inside their central suburbs.
New infrastructure funding tools and financial incentives will be provided to change the “political economy” problems that have led to councils’ restrictive zoning rules.
“I call that the housing trifecta: the zoning and regulations, the infrastructure funding, and then also the incentives. We're determined to make progress on all three of those critical areas,” he said.
Research by BNZ economists, released on Tuesday, found there had not been enough houses built to keep up with the post-pandemic population boom. According to Statistics NZ, New Zealand’s population grew by 145,100, or 2.8%, in calendar year 2023 - with estimated net migration, migrant arrivals minus migrant departures, accounting for 126,000 of this.
Immigration Minister Erica Stanford recently said the Government plans to crack down on low-skilled work visas and devise a long term population plan to guide future policy settings.
Mike Jones, the chief economist at BNZ, said New Zealand needed to build as many as 50,000 residential dwellings in the year ending June to accommodate the record population growth.
“It's highly unlikely these sorts of numbers will be delivered … we think no more than around 35,000 dwellings might actually get built”.
Jones warned the margins of error in these kinds of estimates could be huge, but it still showed construction was lagging behind demand in many regions.
The areas with the biggest mismatch were likely to be Bay of Plenty, Otago, Waikato, Auckland, and Southland.
Auckland doesn’t stand out in the data, despite enjoying stronger-than-average population growth, as it has also had strong building numbers for a sustained period.
“That’s something that, along with Canterbury, is a key point of difference,” Jones said.
Housing advocates often point to Auckland and Christchurch as examples of how generous zoning can improve affordability in both purchase prices and rents.
Crisis diagnosis
In a speech and a cabinet paper, Bishop said New Zealand had one of the least affordable housing markets in the OECD.
Inflation-adjusted purchase prices rose 230% since 2003 while the median household income had grown by just 114%.
Almost half of renting households spent more than 30% of their disposable income on rent in 2022, up from just 19% in 1988.
Houses were expensive, in most of the country, because of restrictive zoning which created “artificial supply constraints” inflating the value of land.
“My goal is to flood urban housing markets for Tier 1 and 2 Councils with land for development,” Bishop told Cabinet.
The first step in his plan will be to make the Medium Density Residential Standards (MDRS) optional for councils. Those who opt out will have to zone 30-years of housing growth “immediately”.
A Cabinet decision approving this change is expected to be made by the end of next month, and will likely include more details on other elements of the “housing trifecta” policies.
Time to waste?
Stuart Donovan, a senior fellow at Motu Economic and Public Policy Research, said the cabinet paper signalled good intent and showed Bishop understood the issue well.
However, the big question was whether the plan could be developed and delivered fast enough to offset the negative supply effect of making the MDRS optional.
“The effectiveness of the overall package of reforms that the Minister wants to advance is likely to hinge very much on the policies that are yet to be announced and especially whether they are able to identify and implement some quick wins,” he said.
Bishop has assembled a ministerial working group to coordinate housing policy with other portfolios.
It includes the ministers of finance, transport and local government, building and construction, and an Act Party under-secretary for infrastructure and Resource Management Act reform.
Finance Minister Nicola Willis helped to write the original MDRS policy, which the National Party supported before Christopher Luxon became leader.
Interest.co.nz asked Willis if she would encourage local councils to keep the MDRS rules once they were made optional next month. She said it was up to each council to decide.
“I'd encourage every council that's worried about their people's ability to afford housing, to afford the rent, to zone for as much housing as possible”.
“New Zealand needs to build more houses and we need to make it easier to build more homes,” she said.
Interest.co.nz also asked Act Party leader David Seymour, who opposed the MDRS, whether he would like to see further densification in his home electorate.
He said Auckland’s Unitary Plan, which was passed in 2016, already allowed for “an enormous amount of densification” in Epsom.
“What I'd like to see less of, frankly, is smartass reporters that are five years late”.
The electorate has been zoned for a wide range of housing—including apartment buildings and three story units—but many parts are still limited to two storey suburban style homes.
Up & out, but mostly up
Donovan said economists encourage cities to allow building both “up and out” but NZ’s local governments have tended to allow sprawl more than upzoning, and have increasingly allowed neither.
The majority of new builds required to tackle the housing shortage will likely come from densification in existing urban areas. This could be as much as 80% in geographically constrained cities like Wellington and, to a lesser extent, Auckland.
However, rezoning land on the city fringe would still help to anchor land prices across urban areas. That greenfield land would act as a “pressure value” when urban land prices climbed too high.
Bishop said each square metre of land inside Auckland’s Rural Urban Boundary costs roughly 4.3 times more than the land immediately outside it.
While the Government's proposed policy is agnostic about where councils choose to zone new housing, the Housing Minister emphasised the benefits of density in his speech.
“Cities are engines of productivity, and the evidence shows bigger is better. On one estimate, doubling a city’s population increases productivity by 15%,” he said.
“When we stop people building houses, we lock people out of cities. That makes us poorer”.
However, people living in these big cities needed to be able to move across them quickly in order to get these benefits.
“If a worker living on one side of the city cannot reach a job on the other side of the city in a reasonable time, say 30 minutes, then the worker and job are effectively in different markets”.
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