Finance Minister Bill English has spoken out against "compact cities" saying that they drive up house prices.
In a speech to the Trans Tasman Business Circle in Wellington today English said the Government was "addressing inequities" caused by the effect of planning rules in the housing market.
The Government and the Auckland Council have recently agreed in principle to an Auckland Housing Accord that would enable the fast-tracking of developments in New Zealand's largest city, with 39,000 new houses planned over three years.
However, the Government and council have been at odds over the enacting legislation for the accord, currently with a Parliamentary select committee, because it gives the Government wide powers potentially to over-rule the council and make development planning decisions and approvals itself.
The proposed Unitary Plan for Auckland features a combination of new greenfield development and increased intensification in the Auckland metropolitan area.
Auckland's deputy mayor Penny Hulse has said that the housing accord legislation as currently worded appeared to "go back to the ‘just release the urban limits around Auckland and lets plonk houses in paddocks’ which is definitely not going to work".
Drive up prices
However, English said today that "compact cities" can drive up house prices - both by restricting the spread of cities and setting expensive standards for urban design inside cities.
"Both measures make housing more expensive. This favours existing owners of houses and can lock young and low-income families out of house ownership.
"The same price rises that make home owners better off also increase inequality. By any international standard, housing in New Zealand is expensive relative to income.
"Therefore, anyone concerned with unequal wealth should support more flexible supply of new housing."
Auckland is currently estimated to have a shortage of about 30,000 houses. Real Estate Institute figures out this week showed that the region's annual house price inflation was running at nearly 20%.
Times of need
In his speech English paid particular attention to how he said this Government's policy had "maintained a redistributive tax and income support system to support those New Zealanders through times of need".
"Therefore, at any particular time, a large number of households effectively don’t pay any tax. That’s because the amount they pay in income tax is exceeded by the amount they receive from welfare benefits, Working for Families, paid parental leave and accommodation subsidies. That’s entirely appropriate for those families genuinely in need."
English said using data from the Household Economic Survey, the Treasury estimates that in the current tax year ending 31 March 2014, households earning over NZ$150,000 a year – that’s the top 12% of households by income – will pay 46% of income tax.
"But when benefit payments, Working for Families, paid parental leave and accommodation support is taken into account, these households are expected to pay 76%t of the net income tax. And that is before New Zealand Superannuation payments are added into the equation.
Top households pay 76% of tax
"So we have the top 12% of households by income paying 76% of net income tax."
At the same time, he said, households earning under NZ$60,000 a year - which is around half of all households – are expected to pay 11% of income tax.
"But when we take account of the income support payments I’ve mentioned, as a group those households will pay no net income tax at all. That’s because the NZ$2.7 billion of income tax they are expected to pay this year will be more than offset by the NZ$8.1 billion they will receive in income support."
Estimates of net income tax paid by household income, before and after Budget 2010, indicate the system has "become more progressive" over this period, English said.
Households earning less than NZ$60,000 are generally expected to pay less, in percentage terms, towards net tax in 2013/14 than they were paying in 2008/09. Conversely, households earning more than NZ$150,000 are generally paying more of the net tax than they were in 2008/09.
"These figures are a timely reminder to those who call for even greater transfers to lower income families, or who call for the top personal tax rate to be raised, just how redistributive the system already is."
44 Comments
And me! I spammed my disgusting right-wing sacrilegious filth to every breathing parliamentarian in New Zealand.
http://andrewatkin.blogspot.co.nz/2013/03/the-real-deal-housing-in-new-zealand.html
...make sure you have a long hot shower after reading it.
Bob. At least under Hugh's approach, consumers will the CHOICE about how they live, not have it thrust upon them by central planners.
If you are so sure that households don't want to live in detached houses on the fringe, then the MUL and planning restricts are not required and we can let the market decide where new homes are built.
While I generally agree,
The problem with choice is making that choice with all the available information to hand.
So taking on a 30 year mortgage on the fringe when cars have at most a 10 year life left for most ppl will be somewhat painful. Living in a denser city with public transport on the other hand will probably be more functional.....
regards
At what jobs? Growing their own food to live on?
You aren't the brightest bulb in the rooom, are you?
Where do you think all the wealth is created now, to pay the wages of the people who work in cities and catch trains to work? It sure as heck ain't created in those cities.
I suppose you're one of these Greenies who think wealth is something governments print.
I actually respect "post energy economy" alarmists who say it'll be back to the land and subsistence living, for a bit more intellectual consistency. The "live in apartments and catch trains" people simply show their total lack of understanding how anything at all works in the modern world.
Ahhh no. You got it the wrong way around. Sprawl housing is the only choice allowed in the Hugh scenario. It's status quo free standing housing only - exactly as the current plans. Right now you can buy the cheapo Hugh sprawl house in Clendon Park or similar suburbs for $250K. Hugh's dream houses are already sitting waiting for purchasers.
It has taken me a while to get Hugh but I think I am driftng his way more and more. And you can thank Eric Crampton for that. BTW Hugh gets big ups here. But Eric also made the simple but profound observation that individuals make their choices about where they live according to a bundle of factors. There is a trade-off between travel time and house price. Some people will travel a long distance for work and play if housing is cheap, some will choose the opposite. Absent any external interference the economic difference between them should be nil. A lot of people get this: the wisest thing I have ever heard a council CEO say was "put the price of petrol to $3.00/l and zoning will be irrelevant.
Some thoughts:
- 21st century cities are not mono-centric. Even the Christchurch Urban Development Strategy (pre-earthquake) recognised that not all commercial activity or high-density housing could be forced into Christchurch's CBD. Post earthquake there are centres everywhere.
- Look at northern Perth, WA. A long dual spine of train and road gives you future flexibility between private and public transport. So dump the rail loop in Auckland and the second crossing just build a long straight spine south toward Hamilton. The rest will follow.
Kumbel, it is now rare for any city to have more than 20% of regional employment in their centres. Some US cities - the ones with the freest land markets, incidentally - have less than 10% there.
An academic named Peter Gordon, and various colleagues, have been producing academic papers since 1989 with titles like "Decentralisation and the Stability of Travel Time".
Alex Anas and various colleagues joined in in about 1998. A recent one was entitled "Discovering the Efficiency of Urban Sprawl".
William Wheaton, the original inventor in the 1970's, of the monocentric model that most urban planners still use today, with disastrous consequences, published in 2002, a paper entitled "Commuting, Ricardian Rent, and House Price Appreciation in Cities With Dispersed Employment and Mixed Land Use".
This de facto said: my monocentric model is a waste of time and everybody should stop using it. He found that cities naturally will disperse, employment will disperse too, the price of land will fall relative to incomes, and everything will sort into more and more efficient locations relative to each other. If we let it.
The planners just haven't got the memo yet.
The real world evidence, which I am quoting elsewhere on here, also supports the general concept.
The high petrol price no zoning trade off could be a solution that satisifies both Hugh and PDK. It could even be a deal that brings peace to the cold war between central and local government.
Central government could allow local government having their own petrol taxes in order to fund local transport infrastructure. But local government would have to agree to relax zoning restrictions, support MUDs and forgo the revenue from development contributions.
Bill E said a few days ago:
“We cannot let 20 planners sitting in the Auckland Council offices make decisions that will wreck the macro economy. We cannot let that happen, and we won’t let that happen”
He’s onto it, albeit a bit late. This is not just about giving young people a fair go. This IS about the macro economy.
If Dorklanders don't want "sprawl", then the government should just start a new city or three somewhere out of sight, out of mind, in the general region. This is what those "dumb" Yanks worked out long ago. Don't want certain stuff in your backyard? (Apartments, etc). Let growth happen somewhere else, then. All problems fixed, including traffic congestion as well as housing affordability and choice.
Same goes for ChCh and other anti growth cities - which all of NZ's cities are. This will stuff that macro economy. Simple.
Actually there is a natural, if somewhat unfortunate, experiment happening in Christchurch. I expect the imminent census data to confirm that Waimakariri and Selwyn have the highest growth rates of any NZ territories. I also expect that at mesh level the data will confirm that the highest growth rates are associated with the state highway network. Christchurch is spreading out right now.
The census provisional estimates show that, since the earthquakes, Waimakariri District has grown to be larger than Timaru and Nelson City. If the growth continues it will soon outgrow Invercargill. It's not like the shopping or night-life are fantastic let alone the drive into Christchurch but the overall bundle is obviously very attractive.
So not "should" but here's an example.
Kumbel your description of Canterbury is how I see things on the ground.
You are right that Christchurch post earthquake is an unfortunate experiment. Massively increased satelite towns are the result of increased demand meets inelastic supply of housing in Christchurch.
Bob; it is all relative. An affordable city has great top-end stuff at a far lower price than the unaffordable city, as well as the bottom-end stuff being massively disparate. Here is a comparison I have assembled between Austin TX and Manchester UK. No guesses which one Dorkland is most like.
In Austin: decent suburban house: $185,000
http://www.trulia.com/property/3116284850-4501-Dorsett-Oaks-Cir-Austin-TX-78727
In Manchester UK: an unappetising two bedroom terraced house: 90,000 pounds sterling
http://www.zoopla.co.uk/for-sale/details/17813014?search_identifier=1258dfe956a83b66504487c506edb458
Reasonable suburban house in Manchester UK: 275,000 pounds sterling
http://www.zoopla.co.uk/for-sale/details/28691593?search_identifier=56882724d30eb7812c6618708395df1c
In Manchester UK: top end of the market: 4 million pounds
http://www.zoopla.co.uk/for-sale/details/28684187?search_identifier=d444374c653c1a2e0b21c9385d29f49d
On 2 acres……..
http://www.zoopla.co.uk/for-sale/details/28221966?search_identifier=d444374c653c1a2e0b21c9385d29f49d
A 3.75 million-pounds FLAT in the CBD area……..!!
http://www.zoopla.co.uk/for-sale/details/28681024?search_identifier=d444374c653c1a2e0b21c9385d29f49d
Bottom end of the market: 65,000 pounds, and who wants to live in these disgusting row-hovels?
Austin TX:
Top end of the market: $15,000,000
http://www.trulia.com/property/1054022726-12400-Cedar-St-Austin-TX-78732
On 16 acres………!!!
$7 million dollars:
http://www.trulia.com/property/3109652765-12021-Selma-Hughes-Park-Rd-Austin-TX-78732
On 3.5 acres......
$4 million dollars:
http://www.trulia.com/property/3061760156-1025-Marly-Way-Austin-TX-78733
On 2 acres......
If you want a lavish prime location condo like what will cost you 3.75 million pounds in Manchester: try $2.8 million in Austin:
http://www.trulia.com/property/3110602598-40-N-Interstate-35-PA-1-Austin-TX-78701#photo-2
Absolutely HAVE to live downtown on a budget? See what less than $100,000 gets you:
http://www.trulia.com/property/3039999946-1800-Lavaca-St-205-Austin-TX-78701
Bottom end of the market: would you rather be a poor person in Manchester (or Dorkland), or HERE? Look for yourself at what you get for WELL UNDER $100,000……..
http://www.trulia.com/property/3110047250-5914-Hidden-Valley-Trl-Austin-TX-78744
http://www.trulia.com/property/3113538430-2318-Deadwood-Dr-Austin-TX-78744
http://www.trulia.com/property/1093930854-6812-Pondsdale-Ln-Austin-TX-78724
If you can only afford $28,500:
http://www.trulia.com/property/3113382458-Branch-Creek-12609-Dessau-Rd-469-Austin-TX-78754
Evidence, boyo, evidence.
For the 100th time price is a function of desirability. Population growth is not. If a house in a sprawl city is cheaper than a house in a compact city in the same country then clearly there's more people wanting to live in the compact city. People don't just want to live in the cheapest city. They want to live in the best city. Yes Austin is cheaper than Manhattan. That does not mean that it is a better place to live - it means it's worse.
Bob, ... [ portion deleted as personal abuse. Ed]
"Supply" MATTERS.
Put growth restrictions in place, prices go up.
It happened in Portland. It happened in Phoenix.
California was famously affordable until the 1970's and the anti-growth regulations. It was growing twice as fast as Texas is now, back then, too.
Was the climate not as nice back then? Why the affordable property?
Manchester is nicer than Austin? Every city in the UK is a "more desirable" place to live than every affordable city in the USA?
Liverpool too? Every city in the UK? Why? The UK's climate? Its ghettoes? It's riots? The unemployment rate in many of its cities?
When was the last riot in Austin, or Houston, or any city in Texas?
German cities are cheaper than the UK's. They're less desirable places to live?
Ignorance? I think you mean he's someone who doesnt blindly accept your libertarian/austrian mantra at face value, given how wonky it starts to look when you dig in, thats wise.
The unemployment in central US cities isnt significantly better better than UK ones and when you start to look at the real US un-employment it will start to look worse I suspect.
regards
Bob is a developer of apartments, Steven.
WHO looks wonky when they dig in?
Data source, please, on unemployment stats. UK cities versus US cities. Over time. Explain unaffordable UK cities that have been unaffordable for decades, in terms of "stronger employment".
... [ portion deleted as personal abuse. Ed]
Consultant to developers - and not just apartment developers. Sprawl and tract housing developers also. Affordable sprawl would sell well, but numbers never stack up - even on free land. The minor savings on metre rates never make up for the infrastructure/roading costs.
I also actually live in Auckland and want it to be a better city - not just a cheaper one.
Land within "Auckland City" (auckland central) is already priced at "True Market Value". It's all developed, all occupied.
Land that could be made available is 50 km to the north, Riverhead, Kumeu, Silverdale, north of Albany City, and 50 km to the south, south of Manukau City
English is really running out of excuses...the bubble is a direct consequence of his govts decision to blow more cheap credit into the property market to fake some happy happy data....
As I pointed out days ago...National will do nothing about the madness bubble but they will blather every which way about how concerned they are for first home buyers et al....right up to the election. Heck they might even extend some pork in the form of promised grants to FHBs!
Meanwhile Wheeler sits in his ivory tower on the Terrace....doing what he is told.
Shows how much you understand economics if you think higher interest rates and freed-up land supply "would have made the bubble worse and crashed it, worse."
To the Interest.co.nz team: why do you put up with economically illiterate time waster trolls on your forum and then come over all heavy moderators/censors when people like me tell them where to get off? If they can't take the heat they should get out of the kitchen.
Bill English has just confimed that Auckland Council and the National Government are in total conflict over the future of Auckland City. Urban sprawl versus rezoning. If all Res 5 and Res 6a areas of Auckland City were rezoned to minimum section sizes of 250m2 or 300m2 immediately then here would be thousands of sections able to be created throughout the exisiting central suburbs. There is no logic to what Bill English is saying. Does Auckland want more motorways, longer travel times etc? All that will happen here is that house prices in Auckland existing suburbs will continue to increase at a rapid rate as it will take years to create greenfileds subdivisions and those greenfields sites will not be affordable nor will the cost of petrol getting into the CBD from these outlying areas. I guess that the politicians must be multiple investment property owners in th einner suburbs or are mates with the owners of the paddocks on the outskirts of Auckland! If it goes the greenfields way then the land owners will be tempted to land bank for many more years and watch the value rise before they finally subdivide.
Where is your data that proves that the larger the city, the longer the travel times?
The most comprehensive source I have ever seen, (without any NZ data) is page 36 of this paper:
http://www.fcpp.org/files/1/PS135_Transit_MY15F3.pdf
In this data set, it is obvious that there is no correlation between density and commute times. In fact the worst examples are all high density cities. The “best” examples are high unemployment cities, but the best examples that are economically strong cities, are all LOW density cities – eg Salt Lake City and Hartford.
More data here:
http://economix.blogs.nytimes.com/2011/10/14/world-of-commuters/
And here:
http://www.macrobusiness.com.au/2013/04/brits-pack-em-in-like-sardines/#comment-237902
There is no evidence that justifies making housing 3 to 4 times as expensive. It doesn't reduce average commute to work times, and average commute to work congestion delays are far WORSE.
http://www.tomtom.com/en_gb/congestionindex/
Auckland is worse than LA, which is the USA's worst. Because both cities are high density, BTW. The USA's really LOW density cities, like Indianapolis, Salt Lake City, and Nashville, have LOW congestion, SHORT trip to work times, AND houses about one third the price.
There is also no evidence that low density correlates to local fiscal unsustainability. Again, the opposite is probably true.
Except the first one is written by Wendel cox and isnt as per normal a peer reviewed paper, so really its an opinion, nothing more.
and thats just it, time and time again you point to background information/reports/data that isnt verifyable...
tomtom is of course car based commutes...so your data is probably around a car centric world.
regards
Wendell Cox provides data sources. Generally national censuses and transport department data. Prove he has made anything up in that paper, seeing you are so smart.
Ad hominem attacks mean "I've got no valid argument".
I supplied several sources. They all confirm Cox and each other.
YOU supply a data source now, smart-arse. Show us what an expert you are and how much research you have done.
"Peer reviewed academic papers" are ignored by you too, when I supply them.
"Car centric world"?
Where is your NON car centric world that you can offer the people of NZ as a viable alternative? Dhaka? Lagos?
... [ portion deleted as personal abuse. Ed] You could actually try to provide some credible arguments backed up by your own research seeing you seem to have so much time.
There actually seem to be two well intentioned but conflicting philosophies arguing with each other. The Pavletich spread (which separately has a MUD funding model going with it, that may or may not be in Bill English's version, and without which it may not work, but that is an aside) vs more condensed. As I understand it, there aren't just cost of housing issues at stake; but style of City- whether in the spread version it becomes a collection of somewhat interconnected villages; or in the more condensed version, the City is more based around a centre with maybe 3-4 significant other industrial/ commercial hubs.
Then there is Auckland's Unitary Plan, which as I understand it- and especially for non Aucklanders' benefit, who just may not understand either the geography or what is going on in reality- there is actually a mix of both. It seems to me there is a fair bit of new housing being built in relatively far flung suburbs of Hobsonville and other parts West, Albany and the Whangaparaoa in the North, Howick and East, and Karaka, right round to Pokeno in the South. The funding model for this including infrastructure may or may not be optimal, and that may be the City, or central statute's remit to fix. But that is slightly different to condensed vs spread.
There is also a desire to infill in areas where that makes sense (and where no-one will be forced to do so). Relatively low rise apartments are part of the model. We already have several villages, with 4-5 main commercial industrial hubs, including the centre, which wishes to and is expected to be, one of NZ's main corporate head office areas, with university and other event/dining/entertainment options. People who want to live on a fair chunk of land, and are happy being remote, have plenty of options. Those who wish to or really need to live accessibly to their work, also need to be catered for. And that does need better transport.
Just maybe the Houston model is best from a blank sheet of paper. But we have what we have already, squeezed into a relatively narrow waist of an isthmus.
As long as the Unitary Plan has plausible space for the 30,000 houses that everyone seems to agree are required; and moderately manageable funding models within the NZ context to build them, then it's worth a closer look before going off on other tangents.
StevenL, there is no evidence anywhere in the world that guesstimates of "potential supply of housing via infill" are ever realised as "actual supply".
The only way to achieve it would be via compulsory acquisition of the land, or steep penalty taxes for non-intensification.
If there really is an existential crisis requiring saving the planet, we should do these things.
Otherwise the whole thing is just a ploy to force the price of property up without actually achieving any of the objectives. "Big property" wants to force the prices up. So does "big finance". So do the Council bureaucrats, because they want "land value uplift" levies as a new revenue stream. It's a toxic alliance of interests.
Virtually every land economist in the world opposes blunt instrument urban growth boundaries, and says that targeted taxes on land and energy are a far better way of achieving the desired outcomes. I have quoted a lot of academic papers on here in the past. There is a great collection of references here:
http://www.performanceurbanplanning.org/academics.html
One of the papers by Paul Cheshire and somebody else says that the blunt instrument urban growth boundary lumbers society with more than 20 times as much cost as road pricing that would achieve the same objectives.
There is also plenty of research to the effect that UK economic productivity and hence incomes, are far lower due to 6 decades of growth containment urban planning. The effect has been estimated as close to 4% per year.
I would not say "the Houston model" is the very best. It is nearly the best, and there is no "best" as yet. But "the Houston model" plus intelligent pricing of roads and energy, seeing this is what we want to affect, would definitely be the very best. The fact that they have a land tax and no tax on "buildings and improvements" is hugely to their benefit. This means that "building UP" is not penalised by a tax, and also that owners of underutilised land are incentivised to redevelop it to higher densities. Few people realise Houston has this feature built into its system. The rate at which "fragmented" land is filled in is higher than Portland.
The MUD system of funding infrastructure is simply unbeatable. Our system is plumb crazy.
The issue of "minimum lot sizes" and other mandates, that make so many US cities so low density, is a controversial one over there. None of this is centrally imposed - it is a democratic choice on the part of individual neighbourhoods. They choose not to rezone and "get rich flogging off their backyards to builders". This seems to not be a "problem" in NZ. Hugh is quite right to protest at the mis-characterisation of his advocacy as "compulsory sprawl". It is Hugh who is about "choice" and his opponents who are crypto-totalitarians.
If we adopted "the Houston model" with minor tinkering to reflect our desire to reduce resource consumption, via pricing of the actual variables instead of blunt instrument growth boundaries, we could do a lot better than any other approach, whether status quo or Len Brown's misguided utopian visions. People can decide how to react to the pricing of energy - some will adopt approaches that are not compatible with expensive land and high density, such as cooking on the barbecue with biomass, drying washing outside, using geothermal heat pumps, using solar power (passive and active), growing their own food, collecting rainwater, etc.
Meanwhile, in Indianapolis:
http://www.realtor.com/realestateandhomes-detail/2716-Saturn-Dr_Indiana…
Yeah, we're still getting ripped off.
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