International expert says land supply is the reason for house inflation

August 27th, 2014 at 9:00 am by David Farrar

David Killick at The Press reports:

Former World Bank principal planner Alain Bertaud, who visited Christchurch this month, has more than 30 years’ experience in urban planning. Now based in New York City, he has worked in places as diverse as France, the United States, Central America, Yemen, and Thailand. …

Providing affordable accommodation, according to Bertaud, is not that hard.

“The solution is to increase the supply of land. I would not bother so much on the construction of the housing itself, I think that can be taken care of fairly easily by the private sector.”

The opposite of what Labour is proposing. Labour has been against increasing the urban boundary in Auckland to allow more land to be used for housing.

Let’s figure it out. Look at your latest property valuation, or that of someone you know. Compare land value and “improvements” (the house). I bet land value accounts for over 30 per cent of your total property value. In some desirable areas, like coastal areas, land value may be over 50 per cent.

That is crazy. Bertaud says the rule of thumb is that land should be no more than 30 per cent.

In Houston, Texas, it would be only 15 per cent. “It’s strange because normally when the land prices are very high it’s a very dense country like Japan or Holland. This is not a dense country.”

Exactly. Unless we expect farms to take over the whole countryside, New Zealand has plenty of space for houses. “It’s a self-inflicted problem, frankly.”

It is, primarily by local government. From the point of view of local government, they like to restrict land, as it makes life easier for their planning departments. So land supply restrictions work well for the entity which decides them, but punish those seeking to buy a home.

Restricting land supply and imposing too many controls also stifles business growth, especially in the central city, Bertaud warns.

“I think it’s so inconsistent to put restrictions on height and say at the same time we want a compact city, we don’t want sprawl. If you put a restriction on height, it means you want people to use more land but you don’t provide this land.”

You need to allow growth to be both vertical and horizontal.

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Australian house prices

July 12th, 2014 at 3:00 pm by David Farrar

Stuff reports:

An Australian report that lays the blame for rising house prices on a lack of land for development, rather than a “price bubble”, could have reached the same conclusions here, a free-market think tank says.

The report, by the Sydney-based Centre for Independent Studies, said Australian house prices had risen at an annual rate 3 per cent higher than inflation since the 1970s.

Author Stephen Kirchner said foreign and domestic property investors had been made a scapegoat when the real problem was zoning and planning rules. They restricted the availability of building land and prevented the more intensive development of existing residential areas.

The supply squeeze in Australia was compounded by taxes such as stamp duty and capital gains tax, he said.

Australian house prices have risen at much the same level as New Zealand. What is useful to note is Australia has had a Capital Gains Tax since the 1980s.

So when Labour goes on about how a CGT will magically mean house prices decrease, ask them why has that not worked in Australia?

The solution in both countries is the same. Make more land available. It is about as basic economics as you can get. Artificially restrict the supply of land, and of course the price of land increase.

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The trade offs of urban form

June 17th, 2014 at 10:30 am by David Farrar

The NZ Initiative has published a major research report which examines the trade offs of urban form.

A report summary states:

  • zoning restrictions, such as urban limits, have been quantifiably shown to increase land supply shortages and dramatically reduce housing affordability. According to Demographia, the three least affordable cities in the world are the compact cities: Hong Kong, Vancouver and San Francisco
  • New Zealand’s main cities are characterised by severely unaffordable housing markets, with Auckland particularly unaffordable due to urban growth constraints and inner-city height limits. 
  • high land costs in ‘superstar cities’ have been shown to create a property inflation cycle where prices exceed wage growth, only affordable for wealthy residents, forcing lower income residents from the inner city. 
  • all urban residents share the cost of land prices in rent and mortgage costs, not just property owners, as businesses have to pass on higher operating expenses through prices. 
  • far less restrictive planning regimes in the United States and Europe have consistently nurtured affordable housing markets for decades.

The conclusions are no surprise. The Productivity Commission has also concluded that the artificial scarcity of land for housing is the largest factor in house prices. There is a wealth of evidence that this is the biggest single factor.

They also look at the claims that compact cities have less congestion:

  • US cities that have chosen to pursue compact development strategies tend to be more congested than dispersed urban environments (urban areas in North America most resemble New Zealand cities). 
  • research by the Reason Foundation, which quantitatively analysed 74 US metros over a 26-year period, found investments in public transit systems had little impact on overall traffic congestion. 
  • public transit, such as buses and trains, cannot replace the utility of cars for groups in society who have needs that extend beyond public transport routes, such as young families, working mothers and those who don’t work in the CBD (87 per cent of Auckland’s working age population are not 
  • employed in the inner city).

They also look at the claimed health benefits of compact cities:

  • there is a weak relationship between high population densities and low obesity rates. 
  • some of the world’s most dense and compact cities in Asia are struggling with obesity epidemics similar to that of their Western counterparts, despite high levels of walking, cycling and public transit 
  • landscape and climate have a bigger influence over walking and cycling activity levels than urban form. 
  • quantitative research in Vancouver, a compact city, shows urban areas with high walkability are exposed to significantly higher primary pollutants than suburban areas. 
  • green spaces and vegetation within cities, proven to provide health benefits, are likely to decline as population densities increase, particularly gardens, parks and playgrounds.

Central planners tend to have a holy zeal to try and regulate a city so it is compact. That makes the job of the local authority easier. But it doesn’t make it better for residents.

My belief is that cities such as Auckland need to be able to build both up and out. You need both. Building up is great for younger people without kids who like inner city living. But many families don’t want to live in an apartment block, and are quite happy to live some way from the CBD. As the Initiative points out, only 13% work in the CBD.

Many will attack this report simply because they don’t like the conclusions. But will they be able to back up their beliefs with actual data that refutes these findings?

The full report is only 48 pages, well references and documented, and a good read.

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The Labour curse strikes again

June 5th, 2014 at 12:27 pm by David Farrar

We’ve seen with manufacturing and immigration the Labour curse in action. After a few months of them declaring something is a crisis, it improves massively. In fact immigration has improved so much they’re now claiming it is a reverse crisis with not enough people leaving which has turned Auckland house prices into a crisis.

Well the curse has struck again. The Herald reports:

Auckland house sales, prices fall in May

I’m going to write to Labour and ask them to declare my love life a national crisis. That should result in a hugely improved winter for me :-)

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Labour ramps up the rhetoric on migrants

May 27th, 2014 at 9:00 am by David Farrar

Yesterday the UKIP wins the UK European elections, and maybe it is no coincidence that David Cunliffe is on TV that night saying that migrants are responsible for our increasing house prices.

3 News reports:

Labour leader David Cunliffe has taken his hardest line yet against immigrants, blaming them for rising house prices.

It follows a 3 News-Reid Research poll which shows almost two-thirds of voters say immigration should be restricted.

“It would take 80 percent of our housing supply just to accommodate this year’s migrants – and National is doing nothing,” says Mr Cunliffe.

This is the politics of blame and xenophobia. The facts do not back up what Cunliffe is trying to get people to accept.

I blogged the data for the last 10 years here. I repeat the key point:

So net migration is 24,000 higher than five years ago. But look at what makes up that 24,000. 15,300 are fewer people leaving. 5,700 are Kiwis returning or Aussies migrating. Only 3,400 are other migrants.

Migration does have an impact on house prices. But the level of migrants coming here has not changed greatly in recent years. In fact residency visas are down on 2008.

Will Labour just dog whistle on this one, or will they come out with a specific policy they propose? Do they propose to scrap work visas for that has been the area of most growth. For if they do, well then it means houses in Christchurch will not get built as quickly – because hey it is those damn migrant workers helping build them.

And now mistruths in this Radio NZ report:

Mr Cunliffe told Morning Report the party has always backed the skills and diversity migrants bring with them, but it must be sustainable.

He said a gross inward flow of about 70,000 migrants is forecast over the coming year, while a figure of about 15,000 has been a rule of thumb in the past.

That’s totally wrong. The current figure (PLT arrivals of non NZ citizens) for the year to April 2014 is 71,070. Here’s what it was when Labour was in.

  • 2008 – 64,320
  • 2007 – 59,670
  • 2006 – 58,640
  • 2005 – 54,710
  • 2004 – 54,670
  • 2003 – 64,310
  • 2002 – 71,040
  • 2001 – 58,170

15,000 has never been close to the rule of thumb. David Cunliffe was Immigration Minister for two of those years.

UPDATE: Radio NZ has altered their story so it now reads:

Mr Cunliffe cites predictions of net immigration of 40,000 people over the coming year, whereas he says a figure of 15,000 has been the rough rule of thumb in the past.

Why has the story changed. Did David Cunliffe say what the original story quotes him as saying, or did Radio NZ get it wrong. If the latter, then once again we have media altering stories with no transparency. If the former, then why did the web story change?

UPDATE2: Have now listened to Morning Report and the error is Radio NZ, but also Cunliffe tried to fudge figures.

Cunliffe did say gross migration was around 72,000. He said it should be lower and Espiner challenged him to name a figure he thought was acceptable. Cunliffe in response said that 15,000 is the normal level of net migration. So Cunliffe did not say gross migration is normally 15,000.  But he was being tricky by talking about gross migration in slating the Government, and then talking net migration for the level under Labour.

I can understand how a Radio NZ reporter got confused and conflated them. Doesn’t change the fact though that their original story was wrong and they should note at the bottom of a story when they have changed it from a previous story.

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If 90% fail, it’s a silly test

May 16th, 2014 at 11:00 am by David Farrar

Stuff reports:

More than 90 per cent of rental properties in a nationwide survey have failed a ”warrant of fitness” (WOF) check.

About 140 rentals across Christchurch, Auckland, Tauranga, Wellington and Dunedin were given the once-over by home assessment experts earlier this year.

The rental housing WOF trial involved councils, the Accident Compensation Corporation (ACC), the New Zealand Green Building Council and the University of Otago.

It aimed to test whether draft WOF checklists and methodologies were practical for landlords, assessors and tenants.

About 94 per cent of the 144 houses inspected did not pass at least one of the 31 checklist items, but the majority failed on only a handful.

This should ring major warning bells that the proposed WOF checklist would push up costs and eventually rents for pretty much every tenant and landlord in New Zealand.

There might be some merit in some sort of WOF test which highlights the very worst properties as being sub-standard. But a test which sees 94% of properties fail is just some sort of unworldly wishlist. It’s fine as a voluntary branding test (you advertise you have passed it) but any notion of Councils making it compulsory should and must be rejected if it means 94% of properties are failing it.

Having the Government say that only 6% of NZ rental properties are good enough to allow people to live in them, would push housing prices and rentals up massively.

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Pellett blaming the Chinese

March 20th, 2014 at 9:00 am by David Farrar

Selwyn Pellett tweeted yesterday:

 

Pellett is a donation to both Labour and David Cunliffe and meant to be involved in their economic policy development. As you can see he has concluded the problem is Chinese expat house owners.

Note his robust source of data – a mate who texted him. And somehow this mate not only went around 25 houses, but went out of his way at every house to ask about the ethnicity of the owner, and whether or not they are expat. His data sounds about as reliable as a typical caller into talkback radio.

 

Bill Ralston congratulates him on behalf of Winston. Ralston also supplies a fact, as opposed to a text from a mate:

 

So Pellett asked for some facts, and got them.

 

But amazingly even after Ralston supplies the source, Pellett seems to suggest that the data may be made up or manufactured. This from the economic genius who cited a text from a mate as his source.

 

I then helpfully stepped in and provided a media report citing the BNZ data. So we have Pellett arguing 92% of homes sought by his buyer mate were owned by Chinese expats vs the BNZ data from reat estate agent sales that found it was 1.2%. You’d think he’s give up, but no.

 

Now he is claiming that the Auditor-General or someone has to audit the BNZ data before he will accept it. This would be more hilarious than tragic if it were not for the fact he started the discussion by citing a tweet from a mate claiming that 92% of homes he had looked at were owned by Chinese. He certainly does know shit data when he sees it, but because it allowed him to bash the Chinese, he used it.

 

Then finally he claims it is not about race, but foreign ownership. However he is the one who tweeted explicitly citing Chinese expat owners. Bit too late at the end to try and say it isn’t about race. The reality is he tried to scaremonger over Chinese buyers based on an anecdotal text from a mate. And then when called out on it, he rubbished any data that contradicted his mate’s text.

And this is who is helping Labour write their economic policy. That’s the really scary thing.

UPDATE: A reader has pointed out to me that Pellett wasn’t so opposed to foreign investment when he got hundreds of thousands of dollars from Jim Anderton in grants for his company, and then sold it off to a foreign buyer. Also it has been suggested that he ask family members how they would feel about his mate racially profiling them on the basis of assumed ethnicity if they were home owners.

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LVRs from 1 October

August 21st, 2013 at 12:00 pm by David Farrar

The Herald reports:

Reserve Bank Governor Graeme Wheeler said banks will be subject to restrictions on high loan-to-value ratio (LVR) housing mortgage loans from October 1.

He said banks would be required to restrict new residential mortgage lending at LVRs of over 80 per cent to no more than 10 percent of the dollar value of their new housing lending flows.

He said the LVR restrictions were designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.

In a speech today at Otago University, Wheeler said housing played a critical role in the economy but was also a major source of “value and risk” to the household sector and the banking system.

“The Reserve Bank is concerned about the rate at which house prices are increasing and the potential risks this poses to the financial system and the broader economy,” he said.

“Rapidly increasing house prices increase the likelihood and the potential impact of a significant fall in house prices at some point in the future,” he said.

So this move is not about lowering house prices, more about reducing the risk of a boom and bust cycle.

ASB’s chief economist Nick Tuffley said the Reserve Bank was continuing to highlight the need for fundamental issues such as the shortage of land and housing to be addressed in the long-term.

Freeing up land will do more for house prices than any other action. Almost every piece of independent research has confirmed the artificial scarcity of land for housing is the largest factor.

I’m not a huge fan of LVRs. They may be a necessary evil, but I think making it harder for people to get a mortgage is not the best way to take the heat out of the housing market.

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Brash on land prices

May 28th, 2013 at 6:56 am by David Farrar

Don Brash writes in the NZ Herald:

Of course Dr Hosking is right if the supply of land is fixed, as indeed it has been by council decision. But it doesn’t have to be fixed. At the moment, less than 1 per cent of New Zealand’s area is urbanised. We are one of the least densely populated countries in the world. The council has quite deliberately chosen to make land expensive.

The price of land in Auckland is not an accident. It is, as Don says, deliberate.

And the consequences of that decision are disastrous, socially and economically.

It’s disastrous socially because for most low and middle-income families, buying a house in Auckland is now not even remotely possible, and for those families who do make the attempt, it almost inevitably means both parents working outside the home. Most low and middle-income families can’t even make the attempt, and often live in over-crowded, poor quality rental accommodation.

Don asks:

Why is it possible to buy 500sq m sections on the outskirts of Houston for $40,000, whereas 400sq m sections on the outskirts of Auckland cost $400,000? The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.

Town planners turn their nose up at Houston, and claim it is an awful place to live. However families from all over the US are heading there – because they can buy a reasonably sized home at a decent price there.

The very first report of the New Zealand Productivity Commission was on the cost of housing. The commission concluded that there were various reasons why housing is so expensive in New Zealand – but overwhelmingly the biggest single factor is the price of land, and that in turn has been a quite deliberate policy choice.

There are multiple factors, but ignoring land supply is ignoring the elephant in the room.

Dr Hosking mentioned that four of the five cities in the Mercer quality of living survey are “intensified”. And the fifth is Auckland. What he didn’t note was that Auckland is already more intensified than one of the other five, namely Vancouver. In fact, according to the Demographia survey of many hundreds of urban areas around the world, no city in the United States, Canada or Australia has more people per square kilometre than Auckland has now.

Again, a deliberate choice by the Council. And the fact Auckland is one of the most expensive cities in the world to buy a home is deliberately linked to that. And politicians from the left near universally are opposed to doing anything meaningful about it.

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Not the fault of Chinese buyers

March 15th, 2013 at 7:00 am by David Farrar

Stuff reports:

The latest BNZ and Real Estate Institute residential market survey found 9 per cent of house sales were to people offshore. 

Of those offshore buyers, 18 per cent were from Britain, 15 per cent from China and 14 per cent from Australia.

Will we hear the parties of the left going on about banning Brits from buying property in New Zealand?

BNZ’s chief economist Tony Alexander said real estate agents reported that at least 69 per cent of British buyers planned to move to New Zealand, while 37 per cent of Chinese buyers and 51 per cent of Australian buyers intended to. 

“Taken all up that means at most 5.6 per cent (but perhaps as low as 4 per cent) of all dwelling sales are to people offshore not planning to shift to New Zealand.”

So between 94% and 96% of sales are to people residing in NZ or intending to reside here. How disgraceful that some politicians have tried to blame house prices on the 4%.

“The sprawling anecdotes regarding Auckland properties being snapped up by Chinese buyers are not supported by the evidence,” Alexander said.

While most overseas buyers in Auckland came from China (19 per cent – compared with 18 per cent from Britain), sales of property in our biggest city to Chinese buyers comprised just 2.1 per cent of total sales there.

And just 1.2 per cent of house sales in Auckland were to Chinese buyers not intending to move here.

1.2%. Remember that number the next time the xenophobes try to blame them.

 

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Labour’s housing policy falling apart

November 27th, 2012 at 3:00 pm by David Farrar

The media are starting to realise that Labour’s policy to build 100,000 houses for under $300,000 is out of touch with reality. It simply can not be done. Labour have in fact been proving this themselves with their photo ops.

First Shearer visited some affordable housing in Newtown as an example of what they will provide. But the houses there were not $300,000 but $495,000.

However, at the Newtown development Mr Shearer saw first-hand how expensive even entry level housing can be. The four four-bedroom homes he visited were each valued at $495,000.

So he tried again.

Opposition leader David Shearer got a closer look at what houses built under the Kiwibuild scheme could be like today. …

Shearer spent the morning touring New Zealand Housing Foundation properties across Auckland to promote the policy by illustrating innovative projects already underway.

The foundation is a charitable trust that helps low to middle income people into houses through a range of shared equity programmes.

His second stop was in Mt Roskill where he saw larger homes worth $400,000-$500,000.

”A lot of people are asking what can you build in Auckland for that money. We’re saying if you can build these here so close to central Auckland, we should be able to build much bigger homes if we’re doing it en masse.” 

Yeah the Govt will wave a wand and homes will both be bigger and cost less, under $300,000.

The foundations properties are an excellent example of what could be built under Kiwibuild, MP Phil Goff said.

”These are at the higher end for middle income families, but there are still about $100,000 cheaper than most houses in Auckland.

Yes the foundation properties are cheaper. In fact they even do have some homes for $300,000. But do you know why?

They are already being subsidised by the taxpayer. From May 2012:

The majority of the new projects are in Auckland, with the New Zealand Housing Foundation receiving the largest share of funding with $8.86 million to build 68 homes in West Auckland, Takanini, Mt Albert and New Lynn, and a further two in Kaikohe in Northland.

That is an average of $130,000 subsidy per home. Now Labour are saving they can do houses for under $300,000 with a mere $15,000 capital per home. Their numbers are so out of kilter with reality that I don’t think it is too harsh to call them a lie. There is just no way they can make it happen unless they can reduce the cost of land to $50,000 a section. Ironically they oppose almost every initiative to reduce the cost of land and consenting building on land.

Shearer’s credibility on this was savaged on 3 News last night:

Labour leader David Shearer hit the streets today, on a mission to prove his affordable home policy will actually work.

But one of Auckland’s top property experts has offered Mr Shearer some advice: start buying caravans, because it’s not going to happen.

Publicity stunts don’t always go to plan, and Mr Shearer found that out today as he showed off a low-cost subdivision.

Just over a week ago Labour announced, if elected, it would build 100,000 homes – many in Auckland – selling for just $300,000 each.

Construction costs would make up $220,000-250,000 of that, leaving just $50,000-$80,000 for the section.

When asked if he knew the average section price in Auckland, Mr Shearer says, “it depends where the section’s going to be”.

The average section price in Auckland is actually $300,000.

It is simple – we need to reduce the price of land. The supply of land is artificially constrained. Labour are against increasing the urban land limit in Auckland, so section prices are not going to decrease – and only on Planet Labour will you get land for $50,000 – not just one or two pieces of land – but 100,000 sections!

 

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House prices and GVs

November 25th, 2012 at 10:00 am by David Farrar

Kirsty Wynn at HoS reports:

It’s almost as good as claiming Lotto’s first-division prize – the winners in Auckland’s frantic housing market are selling their properties for hundreds of thousands of dollars above their official valuations.

Ummm, no it’s not.

One could sell a house for hundreds of thousands above GV and lose money on the sale.

Official valuations are often massively different from market values. What makes a seller a “winner” is how much profit they made selling a house compared to what they paid for it, plus improvements made.

Statistics show that in the past six months there have been at least nine properties that sold for $500,000 or more above their CV, and one went for a whopping $1.2 million above valuation.

A meaningless statistic.

Another stand-out property was 18 Rangitoto Ave in Remuera, which sold for $2,895,000 in August – $1,175,000 over its recent CV of $1,720,000.

Bayleys Remuera agent David Rainbow, who marketed and sold the property, said buyer competition was fierce.

“Two hundred parties registered from open-home viewings and at auction. Five parties were competitively bidding against each other, which ensured the top price was achieved,” Rainbow said.

He said the CV could be a ballpark figure but a lack of stock and high demand meant the price was pushed up by bidders who all desperately wanted the home.

The house had undergone significant internal renovations and remodelling work that were not factored into the $1,720,000 council valuation.

“A council valuation is a broad snapshot of a suburb, and fails to take into account added-value work that owners have invested in,” Rainbow said.

Exactly. An apartment near where I live recently sold for around $100,000 thousand over GV. However the previous owner had spent $300,000 on improvements – so in fact she lost considerable money on the sale – yet this article’s criteria would declare her a winner.

This is not to say that some people are not making a good profit on selling their houses. I am sure they are. But the comparison should be to purchase and improvement price.

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Transtasman on house price logic

November 2nd, 2012 at 2:00 pm by David Farrar

Transtasman report:

OK, so the Govt wants us to smoke more, which is why it has hiked the tax on tobacco, right? And the whole Kyoto, putting a price on emissions thing: it’s to encourage people to put out more greenhouse gases, isn’t it?

No?

Well consider the position of Labour and the Greens and – as of this week – whoever writes NZ Herald editorials. Apparently, according to this logic, the way to get more houses is to tax them more.

Thanks TT for pointing out the stupidity of their arguments. They want to tax houses more, so they cost less. Yeah, right.

At the moment the issue is supply of houses. There isn’t enough of them, in Auckland or – for obviously different reasons - Christchurch.

In Auckland the question is simply because it’s the only part of the country with net inward migration and a growing population. In short, both Auckland and Christchurch need more houses.

You don’t – unless your grasp of economic incentives is really skew-whiff – increase the tax on something you want more of.

Labour and Greens are against freeing up more land, and want to tax houses more – imagine house prices then!

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Auckland land prices

July 31st, 2012 at 7:00 am by David Farrar

NZ Herald reports:

An environmentalist has accused Fletcher Building of being greedy and rebuffed its recipe for solving housing affordability problems.

Gary Taylor, the chairman of the Environmental Defence Society, criticised Fletcher for demanding the Government and Auckland Council expand urban limits to create more housing.

“Fletcher, with its market dominance, stands to make a fortune out of building more houses. But that won’t make housing more affordable. It will, however, contribute to Fletcher’s excessive profit-taking, which is a big part of the problem,” Taylor said.

In a column for the Herald’s Mood of the Boardroom publication last Thursday, Jonathan Ling, Fletcher’s chief executive, said central and local government must free up more land, particularly in Auckland, if the city is to grow and prosper.

But Taylor said it was an urban myth that more land brought cheaper houses.

“It won’t make any real dent on cost because raw land value – a greenfield site before it’s subdivided and developed – is only around 10 to 15 per cent of the total value of a new house and land package,” Taylor said, advocating instead the creation of a more competitive building supplies market, improving labour inputs, reducing development levies and consenting costs and tightening up on infrastructure spending.

I don’t think Taylor’s figures are supported by the facts. In Auckland the land is on average 60% of the house price, while elsewhere it is 40%. Land just inside the urban limit costs eight times as much as land just outside it.

Philip King, Fletcher’s investor relations manager, cited his company’s submission to the Productivity Commission and said land prices made up almost half the cost of new houses so it made sense to make more land available.

“Land price rises have outstripped other building costs by a factor of more than two to one over the past two decades. Construction materials have increased by around 70 per cent whereas section prices have gone up fourfold in nominal terms or threefold in CPI adjusted terms,” King said.

The Real Estate Institute and Statistics NZ found the biggest driver in the increase in house prices has been land value appreciation, King said.

You know I think I’ll go with Stats NZ!

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Auckland Housing

May 17th, 2012 at 11:00 am by David Farrar

I get mad when I read this:

A report by the Housing Shareholders Advisory Group in 2010 found there was a 70,000 house shortfall across the country.

The Greens say yesterday’s announcement is ”just a drop in the ocean”.

Co-leader Metiria Turei said the housing crisis was ”a ticking time bomb”.

”We urgently need to increase the supply of housing to cover the 70,000 house deficit we have in New Zealand. At this pace it will take decades.”

Families were struggling with high-cost, low-quality, overcrowded housing while some families didn’t even have housing, she said.

And why do we have high-cost low-quality housing in Auckland especially? Because the Greens and others steadfastly campaign against the one thing which could massively lower the cost of land, and hence housing. That is to increase the urban limit.

The Greens are against this because that means people living further out will drive those evil cars more. Now that is a reasonable point of view to have – that getting rid of cars is more important than affordable housing.

But hell when you then come out all upset over the cost of housing, well go bloody look in the mirror.

Personally I regard making housing in Auckland more affordable as far more important than trying to force people out of their cars. The Greens do not however. Their solution is to keep land prices high.

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Is it bye bye to LAQCs?

January 2nd, 2010 at 4:09 pm by David Farrar

James Weir writes in the Dom Post:

The Government has a chance to lift the economy in 2010 with big changes on “crazy” tax breaks for investment property, according to NZX chief executive Mark Weldon.

“Tax is the No1 change,” Weldon said.

The Government has an unprecedented chance to take action and send signals this year.

“That would make meaningful long-term differences to our wealth, growth and standard of living.”

I agree, that some tax reform is much needed.

Investment property should be the target, such as dumping loss attributing qualifying companies (LAQCs) which allowed some wealthy people – including some on the Government’s own Tax Working Group – to pay no tax at all, Weldon said. Weldon is a member of the Tax Working Group.

“There is no difference between a rental property, a share, bond or bank account, so treat them all the same [for tax],” he said. If they were all treated equally for tax purposes, then money would go where it should, rather than chasing tax breaks.

Weldon makes a good point. Far too much property investment is because of the tax breaks. And this means capital is tied up in residential property insteaad of other areas which could grow the economy more.

But capital gains taxes – taxing a house when it was sold at a profit – showed mixed results around the world.

“You are a lot better off with a low-level land tax. It is administratively efficient.”

Such taxes could be imposed at, say, 0.2 per cent of the land value, raising a few hundred dollars a year, which would not upset house values.

Raising such a property tax would allow for personal income tax rates to be brought down and might allow company tax rates to be reduced if Australia dropped their company tax rates further.

I do not support a capital gains tax but do support a land tax, if income tax is reduced to compensate. A land tax would be administratively very simple -  Councils already levy rates on properties, so it would be merely added to that.

If listed companies were the same size as the value of all rental properties in New Zealand, shareholders in listed companies would theoretically pay about $11b in tax.

In stark contrast, investors in rental properties actually got back $150 million from the government from tax breaks.

This is the nub of the problem. Over $100 billion invested in residential property, and the “investment” generates a loss or effective subsidy from taxpayers.

“You look at that imbalance – you are taxing the productive sector and not the unproductive sector,” he said. Weldon questioned the concept of allowing depreciation on rental properties which was supposed to be for things that wore out. There was no depreciation on shares or bonds, which are supposed to go up in value.

That is a change worth considering also – no depreciation on residential property. One can claim 3% a year depreciation off tax, which is a lot of money. Now eventually when you sell, the tax claimed has to be repaid – but you have had the benefit of that money interest-free for possibly a couple of decades.

Has any residential property ever actually decreased in value, such that depreciation makes economic sense? Not over any extended period of time. In fact they constantly appreciate.

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