By Len Brown*
Housing affordability is the hot topic in Auckland at the moment, if the frequency of it featuring on the front page of the New Zealand Herald is any indication.
Recently the government released its response to the Productivity Commission’s investigation into housing affordability.
The government it committed to working with Auckland Council and others to see what can be done to reduce the costs of buying a home, lowering the barriers facing so many families.
The commission cited land availability as the chief constraint facing the housing market. Restricting land does have an impact on housing costs and increasing land supply does place downward pressure on the housing market.
The Auckland Plan, therefore, provides for up to 40 per cent of new housing to occur on greenfield land over the next 30 years.
But Auckland currently has capacity for thousands of dwellings on existing greenfield land.
So the issue is clearly more than just land supply.
Opening up new greenfield land loads higher costs onto society – including local and central government (the true cost of development is not charged) – and it will not provide housing for a substantial proportion of current and future Auckland households.
That is because the cost of building new houses is simply too expensive for many households.
Of the 450,000 projected future additional households in Auckland by 2051, only 30 per cent will be able to afford a dwelling costing more than $400,000 (in 2011 dollar terms).
The current average Auckland house price is $618,000. Another 30 per cent will need a dwelling in the $275,000 to $375,000 range. The remaining 40 per cent will be unlikely to afford a dwelling at all, and will need affordable rental accommodation.
It is for these reasons that Auckland Council does not agree that releasing more land is the ‘silver bullet’.
Broad intervention needed
Regardless of land release, a large proportion of households will not be able to afford what the market can deliver. The issue is far more complex.
Interventions across a wide spectrum will be required.
We now have broad consensus that the way forward is the creation of an affordable, quality, compact city that gives Aucklanders housing choice through mixed density development on greenfield and brownfield sites inside the new Rural Urban Boundary, and greenfield sites in satellite towns such as Warkworth and Pukekohe.
While more land supply is part of the solution, it will be nowhere near enough to address the problem.
Setting aside land, productivity in our building sector lags around 25 per cent below that of Australia.
As we increase the level of intensification, we should see our productivity levels rise.
Nonetheless, this is a real issue right now.
High cost of building materials a problem
Another factor is the cost of construction materials here, with building materials being around 30 per cent more expensive than in Australia.
Perhaps some of the answers lie in the past. From the 1930s, successive governments provided support for people to enter the housing market through State Advances loans. They don’t exist anymore but many argue that such low interest loans are the only way some first home buyers will ever get into the market.
Also, some argue that the accommodation supplement should be used to assist people into owning property rather than funding landlords.
Other issues to consider include how councils fund and pay for roads and other infrastructure associated with new subdivisions.
Another option is incorporating some provisions for affordable housing in new developments into council regulatory tools.
Also, the council – through its Housing Strategic Action Plan – is looking at how it could use its land assets to develop housing, including affordable housing, through partnerships with community housing, private and government sectors.
We can't neglect rental housing
House prices are the most visible part of the housing debate, but we cannot neglect the rental market, and low cost public housing which acts as an anchor to the rental market.
Not only do we need more public housing, we also need manage the current housing stock with great care.
We must work sensitively with communities and take individual family and wider community needs into account. People should not be displaced from the communities they often have lived in for years - community development is not something you do to people, it is something you do with them.
We don't want to create new, concentrated areas of deprivation by moving people wholesale into new state housing sub-divisions.
We also need to see the quality improves in terms of warm, healthy, well-designed homes that are energy efficient, and well insulated.
A developed economy should be able to deliver decent housing to all. It is good to see the debate moving beyond simple single-issue fixes.
It is a complex issue requiring government and councils to work together with developers, banks, the building industry and other players in the housing market to find long-term solutions.
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Len Brown is the Mayor of Auckland Council. You can contact him here » This opinion piece is presented here with permission. The original piece was published here »
60 Comments
Hugh do you ever speak with Bob Jones. He maintains there are no human rights. I have to figure that tt is nice and convenient for the likes of him to do just that - to justify not having to acknowledge that, a) there is serious inequality in this country and, b) it is a bad thing
Drastic measures are now going to have to be taken. To my mind the first is dealing with the one big factor that is skewing Auckland and subsequently, everywhere else, prices and that is the cashed up foreign buyers. My preference would be that it just became illegal for them to purchase without residency as a bottom line.
Then we may have to revisit things similar to the old State Advances Loan. It would be much much more preferable to have people in what is, or eventually will be, their own home. People with a decent stake in society help create a decent society. Renting is really not an option in this country, you are just a means for someone else to line their pockets with most of your income, only to be told you can't do this you can't do that, and at any monent the person who owns the house could sell it or otherwise reclaim it.
Free market polcies have created this problem, it was always going to, as it always does, now we have to put it right again.
Hugh, please can you or someone else explain WHY no one wants to do anything about the ridiculous house prices in Auckland? To a certain extent I can accept bureaucratic incompetence in Christchurch, but the high level of 'lack of interest' in Auckland is mind boggling! It almost smacks of skullduggery... or am I being too cynical?
In short, like most ponzi schemes. It only works if it keeps going. Foreign buyers coming in help fuel it for their own reasons but this does not alter the fact that it is in many peoples best interest to keep the prices going up. Councils earn fees and development levies, agents earn commission, Govt. collects GST, developers profit is based on a % of outlay, Vendors want to sell for more than they purchased for. All these groups benefit if prices continue to rise and restricting supply helps all this.
Raegun - Bob Jones would be absolutely correct if he is referring to the the Bill of Rights Act or the Universal Declaration of Human Rights, NZ government and its agencies would appear to have an extremely poor record of up-holding the rights and responsibilities out-lined.
It is not the free market that has created the problems - it is the lack of a free market that has created the issues. Government Legislation and regulation has ensured the Free Market has been distorted. The cost of housing has increased and one of the biggest costs is regulatory compliance.
If the Government actually decided that their job was to ensure that the Bill of Rights and the Universal Declaration of Human Rights were up-held at all times and also ensure that property is added to the Bill of Rights Act thus ensuring that citizenship obtained a quality meaning then the free market would evolve to serve its citizens as the two would be fully linked as they should be.
The status quo in Government delivery is that the free market has no boundaries of citizenship and allows wealthy off-shore investors freedoms that many citizens cannot experience. The citizens end up subsidising the off-shore investors.
Citizenship has to mean something, it has to be the starting point. Guaranteeing all citizens their Rights is the next important stage. Ensuring all people regardless of the wealth levels have their rights upheld provides for equality it is then up to the individual where they advance from that point.
The Free market has always been about the ability to transact freely. Both Government and Councils interfere in this process which distorts the price of goods and services. The bureaucats have used the terminolgy Free Market without any consideration to the Rights of citizens. The citizens wear the costs of compliance internally while the off-shore investors get off, pretty much free of these burdons. Internal prices escalate by two methods. 1, Fewer locally based business's to fund the growing Government costs. 2, Profits from off-shore owned business operating in NZ are removed from the Country.
People worry about the Government selling State owned assets while in the meantime real wealth is being stripped away continually.
People worry about the cost of affordable housing but few consider where the real problems are.
Councils are not interested in affordabel housing. They want land prices kept up as they hold land investments. The want subdivisions full so that annual service delivery costs cover their budgeted expenses. Auckland is most interesting as it has a very high number of leaky buildings which the Council has financial obligations for. Increased charges will assist the Council in meeting its annual obligations.
The free market has been stifled by bureacracy and the never ending costs of compliance . The free market has been severely hampered in meeting the demand side of housing hence escalating home prices.
Hugh,
Len Brown makes some points that on the surface seem reasonable. He says there are thousands of greenfield sites available now, but they are not being built on because the maths don't add up. If he's right that there are many thousands of such sites (he hasn't quantified how many), then that does support the idea that land availability alone is not the issue. Sure open up new farmland, so long as roads, water, sewerage etc are paid for by the developers (he seems to suggest the current system does not enforce that scenario), but if they do pay, then presumably the maths still does not work.
He seems to agree with a separate point that you make; that house building costs here are outrageously high. It may not be within the council's remit to fix that and I'm not sure you have really cracked it with the Levitt story.
One suspects the building supply industry needs some very strong disintermediation, and scale is also required by more than a duopoly of Fletchers and a couple of other significant size builders. Maybe building regulations need improving, and he has a clear role there.
I agree with him that we do not want distinct new very large ghetto areas.
Separately as he suggests maybe state sponsored loans are better than housing supplements; at least fror a number of people- but that is a central government call; as are most of the solutions even you outline (apart from land zoning)
So Brown isn't breaching any human rights at all; am pretty sure he would genuinely like to have more affordable housing. He doesn't have the cheque book of central government; or the ability to change most laws.
Am not at all sure you have provided the answer for Auckland; and calling him names in the meantime doesn't seem helpful.
Stephen L - a friend who is a counciler told me the Auckland plan, just approved, has a shortage in it of housing / land for 50,000 people. The mayor and councilers know they have engineered a shortage. His article unfortuantely is disingenuous. Hugh, I think, is the honest guy in the room.
With regard to housing we have a no action council and a no action government.
To solve the housing problem all the Auckland Council needs to do is change the Res 5 and Res 6a zones in the old "Auckland City" area.
Currently you need 800m2 in the Res 6a and 1,000m2 in the Res 5 Zone before subdivision into current minimum size lots of 400m2 and 500m2 is possible. The height restriction of 8 metres limits building to two storey.
So change the Res 6a and 5 zone to permit lot sizes of 250m2 and this will allow a massive volume of sites to be created.
In addition increase the height limit to 10 metres to permit 3 storey construction and cut the two carpark per dwelling requirement to one carpark in order to encourage use of public transport.
Of course the longer the councillors delay making any supply based decisions the higher their own personal property prices will go.
So don't expect anything to change any time soon - ie no change for years!
How ironic Len Brown saying some of the answers to making houses more affordable lie in the past, because most of the answers as to why they are unaffordable NOW also are found in the past as well, in fact the very recent past. His smart growth philosophies of restricting land supply or at the very best, pin pointing what will be released in the future is directly responsible for raising bare land prices. And because of that he is right that releasing more land his way will not help ease house prices. The horse has already bolted, the present crop of property developers and land bankers have already purchased at inflated prices, or are expecting to get inflated prices on this fringe land Len has identified. The best the first home buyer and below can expect to get is fringe Hobsonville 90m2 townhouses on 120m2 of land. In less than two generations smart growth has reduced the 1/4 acre (1,000m2) paradise down to a 120m2 paradise. Get ready for the ‘paper bag in middle o’ road’ paradise. The only way Len and Labour can dig their way out of this is via more taxpayer subsidy. Notice how Len does not even mention council bureaucracy costs as a cost, to him it is legitimate council revenue.
2 million people, with an occupancy rate of 3 per household, would require 166,666.667 acres for all to be on a 1/4 acre section say 674 square kilometres. Double that for roads and other land uses and we're only up to 1348 square kilometres, lets round that up to 1500 to be on the safe side. Triple Auckland's current urban area (of around 531 square kilomtres) and we're done!
It's not even really the size of the section that is the issue, it’s why they are the price they are. If you removed the waste from the system it would allow for example the purchaser to either buy the same size section at the same location for ½ the price or spend the same amount and move closer in. The very thing that smart growth is trying to prevent, ie the unnecessary expansion of the city, is exactly the result it causes. It forces people to move outwards until they qualify.
Sounds good but what a lot of commentators fail to appreciate is the big increase in build cost for a two level dwelling. I was in the building industry a few years back and, as a rule of thumb, the second floor would be 50% more expensive than a single floor. So a $1500/m2 build cost would rise to $1875/m2 for a two level with less usable volume after taking into account stair wells. This may not apply for really big multi unit, multi level development but certainly does for one off single unit dwellings.
In the Ponsonby example you quote it would almost certainly be more economic to buy a 70m2 bigger section and go single level. Maintenance costs are also much lower.
Its interesting that the house and all the others in the street date from 1870. Mostly single level workers cottages. The sections were all 200m2 in 1870 even though most of Ponsonby was farm land and there was heaps of space. I think the suburbinisation of the 1950's onwards gave us different expectations for a while about section size.
My girlfriend lives in a 180 unit development in Botany with two teenage kids. 3 brms, large living areas. No garden, just a decent patio and two car parks. Very very quiet. No problems with privacy. 5min walk to Botany Town Centre and schools. Nothing wrong with it apart from being reclad
Stop wasting your time.
Olly Newland has got the right answer - as usual.
http://www.3news.co.nz/Labour-dreaming-with-housing-plan--property-deve…
Also, some argue that the accommodation supplement should be used to assist people into owning property rather than funding landlords.
So much nonsense in this article, where to begin! Please tell us Len how diverting taxpayer funded accomodation supplements that pay for rent into bidding up capital values instead will do anything for supply?
The mind boggles at how houses were built in the past without the myriad of consultation that is now required. Do you think this might have something to do with the cost burden?
The ignorance continues.
Hugh's 'multiple' is correct, but misses the reason that things have changed forever - so does the 'consultation' critique above.
Brown is on to it partially:
"Opening up new greenfield land loads higher costs onto society – including local and central government (the true cost of development is not charged)"
And there lies the problem. Hugh (and most vested-interest commentators, to be fair) fails to ascertain the true cost of development. A rough rule-of-thumb says you can follow the cost of oil - given that the roads, pipework and services are made from and by it.
Jan 2002 19.48 4.73 %$20/barrel in 2002, $110 in 2012. Add in the geometrical extension factor, the geological curtailment factor, and you can forget yesterday's sums. Why do some folk continue to ignore facts? Ignore = ignorance.
PDK, but its not "some" folk though is it? few get it...most seem to not want to know....maybe its a subconcious thing, fear of the un-fixable? Others of course are trying to shoot the messenger or gag. The latter I find the strangest, I'd have expected a greater understanding of the foundations of our industrial society from those who claim to understand economics.....yet if anything they seem the least willing to fathom that its all energy [inter]-dependant...
NB One of the changes of thought on oil price though is we wont see $200USD a barrel (in real terms, ignoring some geo-political shock, like Iran being invaded). That thought alone says the bell curve is going to be highly assymetrical, ie oil much above the marginal cost of $150 and maybe $120wont fly, ever.....and we cant even get most ppl to accept there is even a peak, or its about now....or its effects.
The greatest teacher of all is I think experience, going to be prising some eyes wide shut open rather nastily that one.
regards
Len , you are missing the point completely and I have some questions for you
If you want land holders to free up land inside the city limits , you need to facilitate the process and make it simple and easy and inexpensive
I have a couple of acres where I live slap in the middle of Greenhithe, where we have a few sheep .
The Council fees and charges afor subdividing this land runs into Hundreds of thousands of Dollars.
Then you have to install Auckland council Water meters costing as much as $10,000 EACH to install , ( the measuring unit costs about $200 and the piping about $80) In Australia the same meter costs $450,
Basically many of these fees are charged by council for doing nothing whatsoever .
In some cities overseas , I am told that there are incentives to subdivide land inside city limits , so why does Auckland council see land development as a source of revenue and charge rapicous fees for doing basically nothing ?
Once subdivided the council will earn rates on each section in perpetuity so why all the subdivision fees, levies etc ?
In my case , all the infrastructure exists (roads , electricity , water, tel lines, on bus routes ) its all in place and paid for years ago. The sites would be accessible from existing roads
So with all the rorting by Auckland Council in fees , levies and the like , where is the incentive for me to subdivide?
I will simply hold on to this land and use it one day as my pension if I have to
2 things,
a) It appears the problem is the income (rates) to replace the existing infrastructure that you say is there, isnt sufficient, hence the council needs to charge fees left right and centre....
b) when you increase population density the existing pipesand plant etc will be too small to do the task...
regards
No steven me old m8. I used ter be a County Treasurer and I know exactly how Councillors' minds work. And I've built and maintained some of the big data cubes for local bodies, which have an Accounts dimension tree which ends up at those magic words 'Rates Required'.
If it goes on the Rates tab, why then there are endless meetings in draughty halls, consultaterating and justifying them rates. Because naturally everyone in the audience can do the jobs cheaper, or has only a pension to live on and cannot afford it, or is happy shitting into a can and burning wood to keep warm and candles for light. On a good night (and there are Many Such Nights of consultizing), most ratepayers are all three.
Ratepayers vote for Councillors.
Whereas if'n yer shift the whole shebang sideways, and call it Contributions, levied on Greedy Developers, for Essential Infrastructure, why then the consultion and the meetings tend to focus on Why are you not Spending them Rates down My Street, rather than the absolute Quantum of said Rates. Much easier. I believe it's known as 'Pork Barrel Politics'.
So Fees, Levies and Contributions aren't Rates.
Ratepayers vote for Councillors, and those Rates just got within the Tolerance Margin of them wot Pay 'em.
Geddit?
"Rates just got within the Tolerance Margin of them wot Pay 'em."
"Geddit?"
very much so, but do you get why (Rates just got within the Tolerance Margin of them wot Pay 'em) ?
geddit?
and in terms of "pay'em" the interesting Q is when we go into decline (Greater economic Depression) the 6%+ rates incrase per annum is going to be taking an ever bigger % of the shrinking pie. That pie is likely to shrink at 4~12% per annum and its quite possible we will see a year of 20%+, maybe 2 years.
geddit?
regards
All these local and central government politicians are meglomaniac empire builders wanting bragging rights. Where is the logical arguement for Auckland being so big? Why not cap population where it is now and try and develop other centres. Everyone assumes massive population growth is just inevitable. Its not. It can be stopped in its tracks if there was a will to do it.
Egotistical politicians can't help themselves. They look at Sydney and Melbourne with envy and want to super size Auckland to match so they don't feel like little brother at the next conference. Australian politicians probably have similar envy of cities somewhere else. Population size and city growth has become like a giant pissing competition.
Listen. These people are no hope. The only way you can believe in forced urban intensification, and its massive land price hikes, is by ignoring glaring facts that only a 5 year-old child can't grasp.
We need another party to function as a platform to get this message out. If you could convince these people then they would have been on your side a long time ago. There is something wrong with them. I don't know what exactly, but there is. Either a painfully weak character or a painfully weak intellect.
If it's really about saving a tiny bit of farmland from residential expansion, then fine. Why not regulate sprawl to be green? No our thinking does not even go there. Intensification is the only answer - and an answer to a problem that does not even exist.
All this talk is pointless really. We need action! Other countries have this sorted, why can't we?
We need leaders that represent the people who can no longer afford to own a house.
Bernard Hickey for Mayor, Hugh for PM!!!
Oh wait, they won't receive enough votes, because Generation Y has left. In fact anyone who doesn't own property with half a brain has already left.
Forget it, Auckland's screwed, and for that matter so is NZ.
Some advice to anyone waiting for property to come down to reasonable levels: Move to another country.
All that will happen is that NZ will get more and more indebted until eventually we will be the equivalent of Greece, and there will be bank bailouts etc. Will the debtors loose? Not likely, the debt will become publicised. The people with no property will be the worst off, for they will have debt transferred to them by proxy.
It's just really sad to see such a great place be ruined by something that could be fixed easily if there was a politician that had a spine.
Yeah. It's just a tough call being kicked out of your home country.
The new 'hope' for NZ are those immigrants who have replaced the younger generations. We should look at how this group can be targetted. Immigrants should understand that in a democracy you don't just say "thank you" to a government that let you in, you participate to make sure your new government is playing the right game - for their sake and everyone elses.
Here is a list for you to choose where to live, seems like our house price ratio is better than most, hope you enjoy the country you choose. Will be difficult as NZ is near the top.
http://www.numbeo.com/quality-of-life/rankings_by_country.jsp
Yes - others are playing the same crazy games which makes things difficult. If Australia wasn't a severely unaffordable market (as well) then the Kiwi exodus would be incredible, today. Indeed, if NZ made housing affordable again then we might need to adjust immigration policy to avoid a maybe excessive flood of returning ex-pat's from Australia, and others.
The wider context is a critical issue.
Do you not read the facts posted on this site, again my resource consent cost $30K per section, for that I get some pegs in the ground. GST @ 15% costs $25K, Roading contribution costs 25K per section, council contribution cost $14K per section. That alone costs $94K and now we have to apply for a building permit. So please post your costs to make $50K.
Unfortunately some costs, ie land price, you inherited when you bought your section (prior to subdividing) so you will have to absorb that cost. But most of the other costs you are being charged are unnecessary and are just easy revenue gathering by a monopolistic business. I have done the figures in CHCH on real subdivision figures, it shows a 2/3rds reduction in section prices for a greenfields section if developed along the lines of the Texas MUD system. If greenfields sections were developed this way, in time it would also help lower land costs going into the city as there is a direct correlation between fringe land prices and inner city prices.
Its interesting that despite some scorn on the idea of 250m2 sections that this size is higly sought after i.e: Sydney The Rocks , Akld Ponsonby, Wgton Newtown etc etc. In fact every large city everywhere. Not everyone wants a big area to maintain. Personally we've found equal or more privacy in blocks/ high density as in traditional type large sections - depends mostly on design and neighbours. Small indeed can be beautiful and higher density also encourages good public transport. Time to leave the past behind? .
The point is not the size of the section, but why any section is the price it is. If you strip the waste out of the system then a 250m2 would be half the price, or you could buy in a better location, or closer in to your work etc for the same price as today's rate. This applies across the board to any sized section.
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