Finance Minister Bill English says the Government stepping in to take the supply of land away from local government in order to tackle a shortage of new houses being built would be a "dramatic" solution but "possible" if housing affordability continues to worsen.
English told Radio NZ (listen to the interview with English here) that Auckland Council was due to produce a housing strategy and a draft new plan by March.
"That's an excellent opportunity to look at whether they have shifted their strategy to enable more housing and we've got the same kind of opportunity in Christchurch with the Canterbury rebuild," English said.
He also said the Government was planning a study into the cost of building materials, which last year's Productivity Commission report on housing affordability said comprised about half the price of all residential construction costs and rose about 19% in real terms on standard homes between 2002 and 2011.
English's comments come after an annual international study comparing 337 urban markets, released yesterday by Demographia, showed in parts of central Auckland the median multiple, or the house-price-to-income multiple, is well over seven times. Auckland's North Shore has almost reached seven times. In Manukau it has reached six times, and in Waitakere it's 5.5 times.
Housing is considered "affordable" when it can be purchased for less than three times annual household incomes. It is "moderately unaffordable" at between three and four times household incomes, is "seriously unaffordable" between four and five times household incomes, and "severely unaffordable" above five times annual household incomes. See the full story on this here.
English said forecasts from Treasury and others suggested house prices will continue rising. According to the Real Estate Institute of New Zealand, the national median house price reached a record high of NZ$389,000 in December, with the Auckland median price NZ$535,000.
English told Radio NZ that there would also be some growth in supply of housing and therefore prices would ultimately level off.
"And I think that points to the core issue here that we need to get more flexible supply of housing and that's why we're focusing on working with councils to ensure that we can get enough houses coming on to the market to meet the kind of demand that's pretty evident now in Auckland and Christchurch."
Auckland Council getting 'clear message'
Auckland Council was getting a "pretty clear message" from the Government and opposition parties.
"Opposition political parties who've got plans which simply can't be executed unless they dramatically change the planning system," said English. "And I think the councils would probably prefer to adapt what they have than have their planning system just ripped up so the opposition can build more houses."
"So we are working with them (councils), communicating with them," he added.
The Labour Party wants to build 100,000 houses at an average cost of about NZ$300,000 each over 10 years with leader David Shearer saying this price is plausible because building new homes on the scale of 10,000 a year would bring costs down by about 30% to 40%.
'Dramatic solution'
Meanwhile, asked about the Government potentially taking control of land supply away from local authorities English said: "That's a dramatic solution and possible if the situation continues to get significantly worse."
"But of course government doesn't have the knowledge of the local circumstances that council has and actually it doesn't have a mandate from local voters to make those decisions in entirety. So we would be better to do what we're doing now which is working with councils, putting across a very clear set of objectives, those are backed up by the Productivity Commission, by I think a broad political consensus," said English.
"What we're saying to the councils is 'the Government really wants to see results here. If the councils don't take action then the Government will'."
'Anecdotal evidence of large building materials players exerting excessive market power'
Asked whether there was anything the government could do to make the cost of building materials come down English said: "That's another part of the solution. There has been quite a lot of focus on the building materials industry (with) plenty of anecdotal evidence that large players (are) exerting market power, excessive market power, and they're jacking up prices one way or another."
"It's not obvious that there's anything there that breaks the law but we would be keen to have a look at it a bit more closely. The Productivity Commission recommended what they called a market level study and we're just working out exactly what that would be," said English.
The Productivity Commission's report last year noted that trade prices for a series of building materials in New Zealand were significantly more expensive than in Australia, with the Australian price as a percentage of the New Zealand price put at 76% (see table 10.2 below). The Productivity Commission said New Zealand had a number of different characteristics to Australia that impact on the price of materials. These include a small and dispersed population with relatively low demand for construction services and building materials making it harder to generate economies of scale.
Overall he said the housing affordability issue problem stemmed from "a chain of activity" starting from when a council starts zoning land right through to getting the final building consent.
"And that chain of activity just takes too long and has too much cost built into it."
(Update adds table 10.2).
27 Comments
Mr English on his usual Blah Blah blah mode. All talk and no do. The last time he tried to talk to Len Brown about Auckland housing, he wimped out and turned tail......
Think he can do differently this time ???....
Land supply.....Please note his words ..."only if the situation gets significantly worse"...
ie he is not doing anything about supply until it prices blows up in everybodys faces.
As regards to his comments on David Shearers"s proposalthat councils "have their planning system just ripped up so the opposition can build more houses."
Dude, that's what Goverments are for !!! If you have to achive an ultimate goal for the better good, Councils sensitivities become secondary !!! English shows he is a wimp and a limp one too .
Increaseing the supply of land won't necessarily lower prices. Let me use the example of Whangarei. Since notification of the first District Plan (1998) under the Resource Management Act, successive councils have pursued very permissive, market orientated policies in regard to the land market. Land regulation in the form of zoning and minimum lot sizes has been extremely permissive – based upon a largely laissez faire approach to land development. Liberal zoning and housing density provisions (a 350 square metre to three hectare minimum lot size across the whole district) reflected this approach.
As a consequence, the district experienced a subdivision boom, resulting in a situation today where there is estimated to be around 10,000 vacant building lots in the District, spread across all zonings – a district of only 70,000 total population. At 2.5 people per lot this is enough vacant lots to accommodate 25,000 additional people, an increase in the district’s population of over 30%.
Yet has this (inarguable) oversupply of residential land resulted in lower housing prices? Not at all. Housing prices in the district have more than doubled over the last ten years – at least as much if not more than the national average.
So if it is not the restrictions on the supply of land that has driven up housing costs over the last ten years what then is it? …it is investment in the property market (largely speculating on capital gain but with a component of rental return on capital outlay) together with high rates of leverage in a low inflation high liquidity environment. These are the drivers of real estate increases over the last ten years.
You have nailed it. The land availability issue is largely a red herring, promulgated by those that dont want the real culprit (cheap and abundant credit) identified and curtailed. Three years ago the land supply was exactly as it is now - but house prices were heading down because access to credit was severely curtailed. Three years on and the land supply issue is exactly as it was but we now have an incipient boom spreading out from Auckland and CChurch - this is purely the consequence of the banks (seemingly with the connivance of the RBNZ which is looking the other way having slashed interest rates to nonsensically low levels) handing out cheap credit to all comers.
andyh - I have made a very similar comment in the 90 seconds at 9 to David Chaston's statement on housing affordability being primarily the fault of Local Authorities.. You only have to look at the graphs of land supply, population increase and credit growth to find the answer. The increase in credit growth absolutely dwarfs any other housing affordabilty factor as the culprit for this problem. Unfortunately it seems that if a lie is told repeatedly it somehow becomes the reality. However with a former banker as the P.M. I am certain that the real problem will never be resolved.
If land supply is a "red herring" then how do you explain the graph in the Demographia survey comparing lightly regulated and heavily regulated land markets in the US that shows lightly regulated markets are affordable while heavily regulated markets aren't? Are we meant to believe all these lightly regulated areas have heavily regulated credit supply?
I don't think anyone denies cheap credit increases housing demand. What the Demographia research shows is how in areas with responsive land supply this demand leads to more building, while in less responsive markets it just leads to a bubbling in prices.
Bill English clearly understands the issue and I'm hopeful that with affordability likely to become an election issue National will do something meaningful to stop councils implementing these economically disastrous land-use restrictions.
Deputy Mayor of Auckland states that Council does not want "Unplanned Wholesale Release of Land (see link below) So obviously Auckland Council is prepared to hold the prices up at any cost and their reasoning is the cost to ratepayers for servicing. Penny Hulse is talking bollocks and is obligated by the Oath she took when being sworn into her position on Council.
http://www.stuff.co.nz/business/industries/8208317/Govt-could-run-housi…
I agree with kleefer above that "English clearly understands these issues" and maybe the information released in Demographia will ensure he takes action sooner rather than later.
Don't leave your run to late Bill.
"...the Government was planning a study into the cost of building materials..."
This is BS speak from English.
But because so many in the National Party are invested into the major building material supplier companies in NZ, we can expect nothing....not a sausage.
The NZ/AUS table of building costs, screams out to all Kiwi that they are being screwed...plus gst on top.
No wonder so few new houses are being built...The chch rebuild will be a shadow of the promised boom and then chch activity will die away.
The new houses that are going up.....shrunken versions of an earlier time and plonked inside micro sections not worth a dam.
Re the price of windows, this is an apple and Orange comparison, In AU windows are fabricated in large central factories, in NZ they are done locally by franchise holders it would take a complete demolition of the industry to change this
Some of the other differences can be accounted for due to economies of scale but not all, but my opinion is that the biggest disincentive to building is councils taxing and restricting infill housing and renovations which historically supplied a significant increase in dwellings & capacity in the metropolitan areas
Add to this the knee-jerk central government reaction to leakers (licencing builders enforcing excessive solutions) and the inertia of the council empires that have built up on the back of the RMA and building Consent industries, this is not going to be fixed by deeming a few rural fields urban
There is no doubt that NZ can't achieve the same economies of scale as Australia, but the government can help through tax incentives. Make building materials GST excluded and things should get 15% cheaper. Some more competition wouldn't hurt either.
I've been on the receiving end of councils incompetence and excessive costs. I built a minor dwelling on our land in Auckland and was charged $25k, the build cost was only $145k. All of the paper work required for thier records was supplied by our developers so all they needed to do was file it. They claimed they needed storm water contirbutions but the storm water infrastructure does not change. They sent an inspector out a few times who was there maybe a half hour at a time. Mostly he did nothing but try and sound important, or demand that we shovel a bit of gravel off a man hole. All this cost me $25k.
Sub-division costs are up to $100k, for what!
Happy
Any sort of tax incentive will simply be soaked up by the industry so i see no benefit in it (also opens a window to aviod GST), but the issue is the councils, not only in the direct cost of their tax but the disincentive to do anything hence the pressure on supply which only means the council empires have to up their charges...death spiral
for what?? for his salary of course! There are approx 1100 Auckland councils staff earns above 100K per year...Take that and in the future the cost will keep increasing as the residents will keep feeding the staff (till they retire ..wait do they have pension package? Add that on top of the salary)..but why the increase? The staff claim they are entitled for salary increase yearly, indirectly from your pocket money!
So BE with "Overall he said the housing affordability issue problem stemmed from "a chain of activity" starting from when a council starts zoning land right through to getting the final building consent."
Is going to can kick, so existing ratepayers will get lumbered with more debt and risk of loss. Once you are suckered in of course you have no where to go.
Sure Bill lets free up more land. More likely we hand huge rent seeking profit to the land bankers who will trickle out the land charging a huge margin, builders build huge over-priced houses to recover that costs and make a fat profit.....ppl will still be shafted Bill.....the only thing that changes is who is doing the shafting.
regards
They need to look at ALL of the reasons why housing is unaffordable for kiwis and the one thing they seem to be avoiding like the plague is the non-resident, cashed-up foreigners buying up houses in job lots.
That needs dealing with as well, English, you need to grow a pair and do something about it
raegun - That's a very good point. It would be very interesting to know how many houses and sections are owned by non-residents. I have no doubt that if non-residents could not own NZ property and land we would not have this problem. However this is not going to happen because foreign buying is probably the major contributor to keeping house prices high. If foreign buying is stopped then house prices would fall, recent house buyers would be underwater and there would be a banking crisis. It's complete madness.
Won't happen. Meanwhile, China (itself) has severe restrictions on property investing by non-residents, and limitations on the number of properties nationals (China citizens) can own, plus tax imposts on second and third purchases owned by nationals
BEIJING - China's surging housing market is expected to cool, after a new package of policies that include: purchasing restrictions, property taxes, and the availability of government-subsidized flats are implemented nationwide.
With the government's latest tightening measure, more than a dozen Chinese cities have capped the number of apartments a family can buy, especially raising the level of difficulty for non-residents to buy apartments for investment.
The central government also raised the down-payment requirement for second home purchases and the lending rates, while introducing the country's first-ever property taxes.
http://www.chinadaily.com.cn/business/2011-02/23/content_12067767.htm
IMHO the govt HAS to step in
Lets look at the reality
Even if the Council do get their new Plan right, its gonna be AT LEAST 3-4 years before it becomes operative. So the existing crap provisions will remain for at least 3-4 years. That means little potential for infill OR new greenfield
If the Govt doesn't override this, AND / OR start building houses, then in 3-4 years time the problem is going to be really ugly
MIA - If the Govt has to step in it actually means that the Councils are not able to properly administer the legislation they are tasked with nor did those Councillors rmember that Oath that they took on being sworn in.
More worrying is how the financial markets will interpret what is going on as they will be factoring this demographia information into their decisions now.
MIA - If the Govt has to step in it actually means that the Councils are not able to properly administer the legislation they are tasked with nor did those Councillors rmember that Oath that they took on being sworn in
Unless I am mistaken, the Council is tasked under the legislation to get their Unitary Plan through in 3 years from the moment they begin statutory consultation. For most of this year they will be doing pre-statutory consultation on a draft version. This means the Plan is at least 4 years away from being operative.
Under this scenario they have fulfilled this legilsative duties, but it results far too slowly in a new planning system
In my opinion this is far too long given the crisis, but is mandated by the legislation. Thats why I think the govt need to intervene, even if it means actually building houses over the next 3-4 years, rather than overiding Council's planning function
to state the obvious, there are 2 sides to this disaster, under supply and over demand. One is a hard long term problem (supply) the other is relatively easy to mitigate. To state the obvious, why dont the govt freaking well do the following:
- reduce immigration (reduce demand)
- ban sale of nz resid property to anyone who is not a perm resident (reduce demand)
- put a blanket CGT on ALL ppty including family home (reduces speculative demand and increases tax take, use money for building more houses) ie reduce demand AND increase supply
- ban tax loss claims on neg geared ppty (reduces speculative demand and increases tax take, use money for building more houses) ie reduce demand AND increase supply
- add higher LVR ratios (reduces credit and therefore the abilty to push up the value of a house, and therefore reduces demand at existing price levels)
- provide tax breaks to savers (reduces demand by allowing a more tax efficient alternative to property speculation)
- ban covered bonds again. Less risk on depositor AND govt who guarantees depositors. Makes credit more expensive and therefore harder to get, less demand due to cost.
- get all banks to sign agreement with govt which either a) accepts they are guaranteed by govt, and while guaranteed they agree to pay 80% corporate tax OR b) acknowledge they will NEVER EVER be bailed out. All banks will sign up to a) and have a strong incentive to get better cap ratios so they dont need the guarantee.
So why does the govt not implement the above? Simply put they DO NOT GIVE A CRAP about housing affordability. They serve banks, vested interests, foreigners - you name it. ANYONE but NZers trying to get established.
MIA - I'm certainly not going to cut any Councillors or long-serving staff any slack on this issue. Previous plans have placed significant limitations on releasing land for development. and that is why the problems exists now.
Councils also have to comply with other legislation when formulating plans and often the Councillors and staff forget the other legislation and have tunnel vision when doing plans.
The fact that Bill English has made a statement may indicate that he is trying to assure the financial markets that he will act in some capacity. However he will not appease the financial markets for long if he is seen to be taking no direct action and the markets will factor this in just as they will have already factored in that Aucklands plan won't take effect for some time.
my big concern is even if the new plan is any good its still at least 4 years away from being operative. Until that is sorted there will be minimal new development, and the crisis will explode. House prices will go up (at leats until the bubble explodes) and job creation in construction and the wide range of assoicated fields will be minimal
That's why I advocate for some interventionalist housing approachs from central govt especially in the next 3 -4 years
make the rentiers pay for their parasitic dumb luck and bring property prices down...
http://www.guardian.co.uk/commentisfree/2013/jan/21/i-agree-with-church…
English has a problem. No, not the 'need to address sustainability' problem.
He is there by way of a certain type of voter. By and large they own at least their own property. Most think of themselves as 'wealthy' in direct relation to that propertys' 'value'. Lower that, and his mob is out on it's ear. These aren't thinking voters - some of the comments here point that out - these are hip-pocket voters. He's between a rock and a subdivision - there are more who have vested intersts in holding their existing values, than there ever will be wanting cheaper/new sprawl.
But it's a deckchair debate, pretty much irrelevant in the bigger context.
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