NZ Initiative on how to restore housing affordability in New Zealand

November 19th, 2013 at 9:00 am by David Farrar

The has released the third of its three part series on housing affordability. This final report looks at policies that could make a difference to make housing more affordable. They sum up the problem:

Local government has been left to bear the burden of infrastructure costs associated with new home construction, while being excluded from participating in the economic benefits that this activity brings.

As it stands, regional and territorial councils are in fact incentivised to adopt anti-development attitudes, and to see each new inhabitant as a cost ‘exacerbater’. In practice, this means limiting the expansion of cities with Metropolitan Urban Limits, increasing the costs and duration of the planning process, and passing infrastructure costs onto property developers.

They propose three policies to align the economic incentives for Councils with the policy desire to making housing more affordable. They are:

Housing Encouragement Grants

Local government needs a structure to share in the proceeds of population and housing growth that is almost exclusively paid to central government in the form of earnings and sales taxes.

Councils must be entitled to a Housing Encouragement Grant for every new house built in their area, provided the house meets minimum delivery deadlines from application to completion. Grants would be benchmarked on the GST levied on the house, recognising the impact of sales tax on house prices. For a house-and-land package with an inclusive price of $400,000, the central government would pay the council one-off grant of $60,000. It would be a straightforward calculation and involve no new compliance costs to infrastructure or service providers.

These grants would also foster a pro-development attitude within councils, and provide a predictable cash flow to local governments by increasing their revenue from more development. It would also incentivise councils to speed up the planning approvals process.

So if you want 10,000 houses a year in Auckland, it would cost the Government $600 million a year. A lot of money, but it would massively change how local Councils behave.

Reforming Water Infrastructure

The costly provision and maintenance of the potable and waste water infrastructure is a challenge for many councils in New Zealand, and one of the primary reasons why they are reluctant to open land to development.

To sidestep this, water provision should be stripped from local councils, and in its stead five regional water companies established, with ownership vested in the councils. These water companies can use network pricing to create quality water infrastructure and make long-term infrastructure decisions free from political or electoral considerations.

In turn, councils would be free from the burden of water provision to concentrate on social infrastructure such as parks, libraries, and sports and community amenities. With this shift in the political economy of housing, no longer would councils and residents see new housing development as ‘cost exacerbaters’.

Regional Council owned water companies sounds much better to me than the current hotch potch we currently have.

Community Development Districts

To counteract the high costs charged by monopoly suppliers for infrastructure within new development areas, we recommend a new kind of infrastructure funding option be created.

Loosely based on Municipal Utility Districts in Texas, Community Development Districts (CDDs) will be able to privately raise debt finance to build new infrastructure – fresh and waste water, electricity connections, etc. – and charge residents an ad-valorem tax to repay the debt. This would serve to pay off the infrastructure costs over the life of the bond and not capture the cost in the upfront price of a new home.

Regional or unitary councils would identify the areas where CDDs cannot be developed based on long-term environmental, tribal or practical concerns. This would compel councils to carefully consider their priorities.

There would be an assumed right for CDDs to develop outside the areas designated by a council for non-development. The Resource Management Act would apply only to design or infrastructure features that affect properties and areas outside the CDD boundary.

Excellent thinking outside the square.

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31 Responses to “NZ Initiative on how to restore housing affordability in New Zealand”

  1. nickb (3,659 comments) says:

    FFS don’t play around with GST exemptions. I saw one of their policies was to exempt GST off some of the costs of building a new home.

    Body. Dead. Over

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  2. Alan (1,059 comments) says:

    Why do some people seem determined to bring house prices down and destroy investor value ?

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  3. tvb (4,199 comments) says:

    Stop building bespoke houses and build similar houses that can take advantage of economies of scale and blanket consents etc.

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  4. MikeG (391 comments) says:

    How about looking at the demand side of the housing equation? The right are fixated on the supply side.

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  5. Colville (2,070 comments) says:

    Local government has been left to bear the burden of infrastructure costs associated with new home construction, while being excluded from participating in the economic benefits that this activity brings.

    What?

    Councils require developers to install and pay for all infrastructure within the development and also to pay a development levy to account for costs incured “downstream” from the development.
    Councils then charge rates to the new house owners and derive a massive income.

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  6. scrubone (3,044 comments) says:

    Stop building bespoke houses and build similar houses that can take advantage of economies of scale and blanket consents etc.

    Well, there needs to be a system whereby a design can be certified in one place and built anywhere.

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  7. dave_c_ (214 comments) says:

    “stripped from local councils, and in its stead five regional water companies established”

    This sounds like providing water on the same basis as electricity – Companies who can begin to treat water like a commodity (not service). Imagine the expected price rises, availability charges, and whatever else they’d love to rort us (the customer) for.

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  8. wikiriwhis business (3,883 comments) says:

    ‘So if you want 10,000 houses a year in Auckland, it would cost the Government $600 million a year. A lot of money, but it would massively change how local Councils behave.’

    They would have more rates therefore more empowerment

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  9. dime (9,396 comments) says:

    This will be like taking GST off fruit n veges. Prices back to normal in about 6 months.

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  10. wikiriwhis business (3,883 comments) says:

    ‘Companies who can begin to treat water like a commodity (not service). Imagine the expected price rises, availability charges, and whatever else they’d love to rort us (the customer) for.’

    Many on KB are vested in that rorting

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  11. wikiriwhis business (3,883 comments) says:

    ‘Why do some people seem determined to bring house prices down and destroy investor value ?’

    The general public image is big cat real estate greed.

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  12. gazzmaniac (2,317 comments) says:

    scrubone – there is talk (it may have come about) of a system where a big developer can send a design to the Department of Building and Housing or whatever they are known as now for approval. That leaves the foundation design and town planning as the only part of the building the council has anything to do with.

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  13. gazzmaniac (2,317 comments) says:

    The general public image is big cat real estate greed.

    It is not greed to own a couple of rental properties to fund your retirement.

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  14. dime (9,396 comments) says:

    “It is not greed to own a couple of rental properties to fund your retirement.”

    Correct.

    You have to admit though – the capital gains we have made in the last few years are just bullshit. they shouldnt have happened.

    The rental i bought in may has gone up 100 stacks. thats just plain wrong. 6 months. I would have to earn 150k gross to get 100 stacks in the hand.

    Did i mention ive pumped a whopping 7 grand into it? Not a bad return. Oh yeah, there will be a tax refund at the end of it.

    Our system is fucked.

    Although im raping the market, its just very very wrong.

    Can anyone tell me what the new auckland council debt went towards? a challenge! how bout those fuckers load up some debt and bring down the cost of building. open up some land. service the debt with all the new rates they are getting.

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  15. wikiriwhis business (3,883 comments) says:

    ‘It is not greed to own a couple of rental properties to fund your retirement.’

    Agreed. But the perception remains of the real estate industry

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  16. marcw (223 comments) says:

    Correct me if I’m wrong, but don’t Councils get about 17% pa depreciation allowance for infrastructure now, which would more than pay for renewals and new builds if this income were all applied where it was intended. My understanding is they instead use this income as a cash cow for their favoured play things, therefore condemming ratepayers to be forever facing increased rates to make up the subsequent shortfall.

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  17. Hugh Pavletich (59 comments) says:

    I have made a rather comprehensive initial response to the NZ Initiative “Free To Build” paper within the thread at Interest Co NZ …

    http://www.interest.co.nz/property/67399/business-led-think-tank-suggests-radical-reform-local-government-and-infrastructure-o

    While in principle I support the Community Development District suggestion, I do not support Housing Encouragement Grants and Reform Water Infrastructure.

    Hugh Pavletich
    Co-author Annual Demographia International Housing Affordability Survey
    http://www.PerformanceUrbanPlanning.org

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  18. dave_c_ (214 comments) says:

    We dont need US Agenda 21 like initiatives here in NZ – Consolidation of water ownership under total governmental control. With the prospect of only providing it to those who support their own agenda, and begin to restrict access to these resources to those who dont.
    Is already illegal in most states to accumulate (store) rainwater for ones own use –
    Any initiative to set the framework for similar abuse in NZ should be fought against strongly

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  19. wikiriwhis business (3,883 comments) says:

    ‘Is already illegal in most states to accumulate (store) rainwater for ones own use –
    Any initiative to set the framework for similar abuse in NZ should be fought against strongly’

    Is already illegal for farmers to store rain water. That’s why thay got so affected during last summers drought.

    although of course, the corrupt media did not remind us of this.

    Why Federated Farmers allowed this corporate crime without a fight is a mystery

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  20. dave_c_ (214 comments) says:

    TVB – Wot ! I can see high rise concrete housing monstrocities for the masses (like in soviet Russia), and exclusions for the Elite – is that really what we want ?

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  21. dave_c_ (214 comments) says:

    Whatever has happened to “Free Market Forces” ? The once touted solution for everything. Seems like that phrase is now only used when convenient (by the advocators of that philosophy), and for all other scenarios, we’ll allow grants (subsidies), and forced privitisation.

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  22. dime (9,396 comments) says:

    “Whatever has happened to “Free Market Forces” ? The once touted solution for everything. Seems like that phrase is now only used when convenient (by the advocators of that philosophy)”

    hard to be a free market when the left wont allow a market to actually happen.

    Free market – we would be able to just divide land up and sell it off without years of council and govt bullshit. that is the problem

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  23. BigFish (132 comments) says:

    Housing encouragement grants will only encourage councils to ensure house costs and prices are high so their GST take is higher than ever.

    Independent water suppliers will hold developers to ransom if new connection and supply prices are not fixed. Look at how much rural power connections cost if you want an idea of how bad this can get.

    The ad-valorem tax specified is pretty much the current rates regime.
    Higher rates that reflect the cost of running a city is preferable to the often unbelievably inflated housing development contributions and consent fees. Councils are charging well beyond time and people cost for approvals and plan checking with little provided in the way of warranties.
    Inflated user fees and charges are simply a transfer of the rate payer burden to new residents.

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  24. unaha-closp (1,111 comments) says:

    Why do some people seem determined to bring house prices down and destroy investor value ?

    Some people have the temerity to suggest that at some point soon interest rates will rise, considerably.

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  25. wikiriwhis business (3,883 comments) says:

    ‘Some people have the temerity to suggest that at some point soon interest rates will rise, considerably.’

    Everything in the economy rises. Why shouldn’t interest rates ?

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  26. PaulL (5,872 comments) says:

    Not a fan of shifting the incentives in the other direction – councils incentivised to build lots of new houses, therefore lots of urban sprawl. Sometimes the right answer is infill, renovation, apartments. I’d rather see a more balanced proposal than this. But maybe it’s more about putting an extreme position out there and hoping to get half of it, which might be reasonable.

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  27. hj (6,348 comments) says:

    IEA say US shale oil boom could PEAK in a decade.
    Just saying.
    《blockquote》
    A milestone was reached last month in oil imports: For the first time in 18 years, the U.S. produced more oil than it imported thanks to fracking and reduced consumption. But according to a new IEA report, shale oil growth will peak within a decade.
    《/blockquote》
    Author of 《i》The Wisdom of Hobbiton《/i》Called sprawl 《i》Orcification 《/i》
    Population increase is National (Orc Party) policy.

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  28. hj (6,348 comments) says:

    What this country needs is a Hobbit Party (that would form a contrast to National Realestate and the multicultural (welcome all comers) Labour / Red-Green.

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  29. Viking2 (11,125 comments) says:

    So if you want 10,000 houses a year in Auckland, it would cost the Government TAXPAYER $600 million a year. A lot of money, but it would massively change how local Councils behave.
    ===========================
    fixed that myth.

    In turn, councils would be free from the burden of water provision to concentrate on social infrastructure such as parks, libraries, and sports and community amenities. With this shift in the political economy of housing, no longer would councils and residents see new housing development as ‘cost exacerbaters’.
    ==========================================
    um, the provision of water is a base council responsibility. Provision of parks and entertainment and other social infrastructure belongs with residents and those that chose to use those amenities.

    See that’s one of the problems. fucking socialist ideas that ratepayers should provide for residents rather than the residents funding the amenities. (and for those that can’t follow the logic, residents are barley40% of ratepayers and some ratepayers don’t even live in the place the amenities are.) (think Landlords and tenants.)

    =========================
    I thought these guys were thinkers.
    Well Not in MHO.
    Mearly repeaters of earlier rubbish.

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  30. hj (6,348 comments) says:

    This post confirms that the NZ is only .07% urbanised is a rred herring: the issue is infrastructure/ wages/tax take and the political issue is immigration bias.

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  31. hj (6,348 comments) says:

    What about “milionaire at 20″.. young prperty developer etc….. huh, huh and huh? Baldy on Telstra Clear Business ooozed admitation. The system is set up for him/you.

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