Opinion: Alan McMahon says developers will not reduce prices unless they have to, and a more efficient consent process may in fact increase land costs. Your view?

Haha this is quite funny. The poor old home owner is the meat in the sandwich as developers and planners fight it out for a cut of the action. Of course someone like Hugh would put his halo on in the name of affordable housing for the masses, whereas this guys is just painting developers as a bunch of greedy sods that want to take the home owner to the cleaners for as much as they can get. Both just as bad as each other IMO.

I wrote this as an email to Hugh but maybe the interest.co.nz public would also like to comment.

I have been thinking about the problem of changing house building regulations causing a property crash. With all the risks of negative equity, bankruptcy, etc. This is a concern that our PM publicly discussed in the last affordability announcement.



You may remember I proposed a solution in my last email whereby if councils were not releasing enough land for housing then the Reserve Bank could direct them to do it, because it had a legislated and therefore explicit target to maintain stable house prices.



I have thought of another solution. Christchurch could be a test case for the MUD model ( I will not detail all the specifics of MUD's because you know them better than me), the government could set up an agency that can approve new MUD's. That agency would allow any MUD to develop housing given a list of sensible provisions, such as consumer protection, credit worthiness and complying with the city development plan (i.e. some land would be off limits due to future transport corridors, parks and reserves and business clusters). Farm land would not be off limit. So the basic rule is new subdivisions are free to be built anywhere unless specifically told not to. So it is a reversal of the current rule where you are not allowed to build anywhere unless specifically given permission. The first case is consistent with Anglo saxon history where freedom is the general case unless otherwise proscribed.



Another important restriction that answers John Key's concern of a property crash is that the new agency would limit MUD's and therefore new subdivisions if there was evidence that Christchurch house values were falling below the last rateable value before the earthquake. The rateable value used for red zone payouts. So you would have freedom to develop new housing but you are not free to crash the market. This adds to the stability to the proposal, not just to the wider community but also to the MUD's themselves because if their was such a rash of new subdivisions that they only partially sold and were slashed in price, then some MUD's might become bankrupt, like the Pegasus development. If that happened then financing for other MUD's would become more expensive because of the perceived risk.



The interesting question is how do the Municipal districts relate to their local and regional councils?



It is my understanding the municipal districts are responsible for all the public infrastructure within its sub division. So the local roads, cycle ways, footpaths, parks, playgrounds, sewage and water systems etc. That there is elections and municipal taxes on property owners. And the finance method for infrastructure is long term municipal bonds. But what about the wider city infrastructure, the bus network or other public transport services, the central sewage processing and water treatment plants, the major urban through roads?



So would Municipal districts be free from all consent fees and processes because they provide their own new infrastructure? Would municipal district householders have to pay local body rates? Surely they would need to if they want access to those city wide services. And what if councils started to charge up front fees for this access too, wouldn't we be back to the current situation?



I still see many benefits for MUD's. There is transparency in what you are paying for infrastructure wise. Currently their is no way of knowing if local body consent fees actually reflect the true cost of publicly provided infrastructure. Are fees just a reflection of a bloated bureaucracy that can exploit their monopoly situation. Are consent fees subsidising services that actually should have been paid for by existing homeowners. Is the problem that central government has denied local bodies a fair deal in revenue sharing and the only way local bodies can fund local services is to tax new developments with excessive consent charges? But these charges just cause a downward spiral of missed opportunities and poor income growth. Christchurch's average income is $56,000 compared to Auckland's $72,000. Australian cities have even higher incomes. MUD's might clarify this situation.



I also think it is good that we fund our public infrastructure with long term low interest fixed municipal bonds, ideally bought by New Zealand investors such as Kiwisaver. Apparently baby boomers need them because as they enter retirement their pensions need to convert shares into bonds (Bernard Hickey had an article on this a while back). Currently local bodies charge up front fees that are passed from developer to new home owner. Home owners then use the only finance option available to them, the short term (a few years max) fixed or floating mortgage, where a healthy margin goes offshore as banking profits.



Christchurch is a good option to experiment with MUD's. Due to the earthquake there is a huge shortage of housing. So it is unlikely we will oversupply the market and cause a crash in the short term. This should allow a critical mass of MUD's to develop, so there would be a well developed municipal bond market. Housing developers would get big enough that gains from economies of scale can be pass to their customers. But as there is freedom for any developer to enter the market and create their own MUD, there is competition to keep the price down. Christchurch is not as critical to NZ's economy as Auckland so we can afford to take some risks with new ideas.



An interesting issue is whether MUD's can provide higher density housing and housing with better environmental standards.



I would argue that the Texas Municipal Districts urban sprawl reflects the fact that Texas was a major oil producer (so they wanted to promote car use) and historically has had low petrol costs. That Christchurch MUD's could have higher density to relfect today's environment of higher oil costs, say the 15 units per hectare as our current plan says. That this would promote mix development that might be appealing. Say a 10 hectare development would have a village of 150 units, 30 as terrace housing on 10% of the land, 45 as town houses or granny flats on 20% of the land and 75 traditional family homes on the remaining 70% of the land. This medium density housing would allow the cycle ways and public transport options that people want. Plus allowing the mixed community with people at different life stages and with different incomes being able to live in the same community. It would also counter the argument that freedom to build would lead to endless urban sprawl, with the social cost of public services that require higher density becoming unaffordable. And it would promote social cohesion whereas in the current situation only the wealthy can afford new high quality housing, while much of the remainder are segregated to areas of older poor quality rentals (a third of households compared with only a quarter twenty years ago!). If MUD's were allowed in Waimak and Selwyn with their lower housing density limits then new home owners would have bigger section options in those locations. Do you agree with this or is the only way to get affordable housing by allowing complete freedom for MUD's to develop whatever subdivisions they like?



Houses could be much better environmentally. I bet that the cheaper US houses are better quality than NZ houses are. I suspect that any standard of build can be done reasonably cheaply, if mass produced and efficiently assembled. Double glazing used to be prohibitively expensive in NZ, but now that it is required in new builds, prices have become much more affordable. So it is a political decision on what environmental standards are needed and then affordable housing becomes a means of gradually replacing the less environmentally efficient housing stock. Less restrictive house zoning actually helps this process.



Does this make sense. Should we be campaigning on this. Could we rename MUD's something more appealing? Say independent democratic villages. Could an article be written with the title, Christchurch rebuilt by independent democratic villages

as much as I prefer market solutons, the govt has to intervene in Auckland to adequately address the problem.

It simply needs to get back in to house building. If it needs to increase taxes a little to do so, then so be it. Large scale house building would generate significant economic activity 

This won't happen under National's watch however.

Would have to agree with Allan McMahon's following statements:

"Relying on competition to reduce prices and increase choice in a market which looks to be chronically undersupplied for some years hence, is optimistic."

"Decreasing development costs need to be accompanied by real and significant increased brownfield and greenfield land supply if this unintended consequence is to be avoided."

Competition is healthy in any market but the supply side is distorted which offers developers a premium in the market place and good on them for getting a premium they didn't create the uneven playing field or design the regulation, policy and handouts.  Most developers would have known that demand was out-stripping supply but no one in Government listened and instead the Government focused a large percentage of the population on tax issues.

Government at both levels have created housing market distortions. Much of what is happening to house prices is actually caused by regulation and policy. Until Government deregulates and unwinds the meddlesome regulations and policy, prices will continue to rise.

While many people have identified key areas of land supply and RMA costs etc there is also the issue of how rents and loans are being subsidised through housing assistance packages such as those paid to beneficiaries and the WFF.  These payments while designed to assist struggling families/individuals have ensured that higher home prices can be maintained and the bad regulation and policy have not been dealt with.

Even if an over-supply of land is released and the RMA and other Council problems are addressed immediately it will still take time to get sufficient dwellings erected before the market can be satisfied. 

Other issues have arisen in Chch with units/apartments built pre-1976 having to meet 34 per cent of the new building code and it has been reported that insurance companies will require buildings to be around the 60 per cent of new standards. These rules apparently apply to buildings of 2 or more stories and with 3 or more dwellings on a site. I'm not sure as yet of the number of dwellings that will be affected but it appears Chch has a number of buildings that will fall into this category.

As an outsider looking in it seems to me that "Town Planning Departments" are not planning. They are not doing their job.

From the outside i get the impression that Town Planners look at at a map of the city then throw darts at it. Where the red dart hits is residential, and so on.

Looking at every city and town in New Zealand can anyone out there point me to a well planned one? I can't think of one.

It does seem that the town planners, when they have marked an area as residential, then wait on the developers to put in a subdivision plan. When it is the Town planners who should produce the subdivision plan and let the developers subdivide acording to the council plan.

If there are any planners out there this is what a city plan may look like

a) it may be along the lines of the Venus project (at least it IS a city wide plan covering all aspects of city life)

or

b) What about dividing Auckland up into say 80 suburbs instead of the current over 200.

Each of the 80 suburbs designed to house 25,000 people each (a total population of 2 million).

Each suburb being built to provide a quality lifestyle for the residents, energy efficient and sustainable and so on

At least this is a plan of a city and not a piecemeal patch job as we have now.

Surely real planners could design something really good particularly for Christchurch.

Well, that's my pennyworth, but i just feel we need to plan a CITY and NOT subdivision by subdivision.

Oh yes, it's naive in the extreme to think prices go down when costs go down, especially when the market has proven it will pay an inflated price.

But then it doesn’t take a genius to see lower house prices is the last thing politicians, banks, property developers, real estate agents and John Key’s “good kiwi mums and dads” want to see.