More Auckland houses being consented

March 14th, 2015 at 10:00 am by David Farrar

The quarterly report for Year 2 of the Auckland Housing Accord seems to show that it is working in terms of increasing supply. Key points:

  • With adjustments for ‘double counting’ the net number of new sections created and dwellings consented was 3,291, just over 25% of the Year 2 target of 13,000
  • 2,188 new dwellings consented, up by over 220 from 1,959 in the same quarter of the previous year.
  • 768 new apartments consented in the quarter up from 704 in the same quarter of the previous year

In Year 1 there were 11,060 new dwellings consented, above the target of 9,000. This was the highest level since 2006.

So good to see progress being made on the supply side. It is easier to change supply than it is to change demand.


RMA reform

January 23rd, 2015 at 4:52 am by David Farrar

Nick Smith announced earlier this week:

Dr Smith today also released an independent report by Motu Economic and Public Policy Research – commissioned by the Treasury and the Ministry of Business, Innovation and Employment – into the impacts of planning rules, regulations, uncertainty and delay in residential property development.
The report concludes that the RMA is adding an extra $30,000 to the cost of an apartment, an extra $15,000 to the cost of a home, and that it is reducing the capacity of housing development by 22 per cent.
“This report is consistent with the conclusions of the Productivity Commission and the Organisation for Economic Cooperation and Development in highlighting the high administrative burden of our system of environmental regulations, but also adds new information by estimating the actual cost of its flaws. It indicates that over the last decade, the RMA has added $30 billion to the cost of building and reduced new housing stock by 40,000 homes,” Dr Smith says.

So the time has come to make significant changes I hope.

Dr Smith outlined ten major changes the Government would be including in its second phase of reforms in 2015:

  • Add natural hazards
  • Recognise urban planning
  • Prioritise housing affordability
  • Acknowledge importance of infrastructure
  • Greater weight to property rights
  • National planning templates
  • Speed up plan-making
  • Encouraging collaborative resolution
  • Strengthening national tools
  • Internet for simplicity and speed

Pleasing to see that so far there has been support from the Auckland Council and Local Government NZ for the changes.

The question will be whether they will do enough. The greater weight to property rights and prioritisation of housing affordability look the most promising.

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Crampton on child poverty

October 3rd, 2014 at 11:00 am by David Farrar

Eric Crampton writes at Interest:

Prime Minister John Key signalled last week that child poverty is to be one of his priorities for the coming term. Too many children in New Zealand grow up in families with very little disposable income. Poverty has traditionally been an issue captured by the political left, with demands for more redistribution to solve the problem. Inequality too has captured a fair bit of attention, despite strong evidence that income inequality has not really changed much since a rise in the late 1980s and early 1990s: the trend has been flat for two decades.

Even more surprisingly, data from the Ministry of Social Development shows that real household income growth in the lowest deciles has been very strong, both from 1994 to 2013, and from 2004 to 2013. The poorest decile in 2013 has real household income 40% higher than the poorest decile in 1994. And from 2004 through 2013, real household income growth was strongest for the lowest four deciles than for the richest six deciles.

Inconvenient data!

So why has poverty, and especially child poverty, seemed so much more pressing?

The Ministry of Social Development data, cited above, measures real household incomes before housing costs. And housing costs have been rising. MSD reports that 23% of children aged 0-17 live in the poorest quintile of households (the bottom 20%): they’re slightly over-represented, when disposable household income is counted before housing costs. But when we take incomes after housing costs, 27% of children live in the poorest quintile: high housing costs disproportionately affect poorer children. Forty-two percent of households in the poorest quintile spend more than 30% of their income on housing; only 9% of the richest quintile do.

While child poverty is lower than it was in the early 1990s (even after housing costs) and child poverty rates are now back to levels comparable to those prior to the Great Financial Crisis, they remain substantially higher than they were in the 1980s. Housing costs substantially affect disposable incomes at the bottom of the distribution.

Housing unaffordability is consequently a substantial part of New Zealand’s child poverty problem. When poor households have to spend 30%, 40%, or even 50% of their incomes on housing, there simply is not much left to pay for anything else. And so spots of bad luck, like a car breakdown or an unexpected expense, can quickly become major issues.
So the biggest victims of the artificial restrictions Councils have placed on land use, are the poor. Allowing Auckland to build both upwards and outwards would be a great step in reducing child poverty.
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Some people rorting KiwiSaver home subsidy

September 28th, 2014 at 12:00 pm by David Farrar

The SST reports:

Speculators are cheating the KiwiSaver scheme that helps first-home buyers by using it to purchase rental properties.

The rort emerges as the new Government prepares to double taxpayer subsidies under the scheme – a flagship policy in National’s election campaign. An extra $218 million will be available – money that could be diverted into speculative property investments, rather than first homes for young families.

People who use the KiwiSaver first-home deposit subsidy scheme must live in the house they buy for a minimum of six months and it cannot be used as an investment property during that time – a rule designed to dissuade speculators from taking advantage of the popular scheme.

Fairfax NZ has learned of instances where first-home buyers have moved out of their property soon after buying it – or not moved in at all – and are instead renting it out.

This is not surprising. Our lessons of history is that when there is a financial incentive to do so, people will change their behaviour in order to gain the incentive. Any government agency proposing or evaluating a policy should brain-storm all the different ways people might try and rort the system.

Housing NZ financial operations manager Matthew Smith said first-home buyers using KiwiSaver for a deposit could be made to pay back their subsidy with penalty interest if they were caught breaching the rules. They would be required to remedy the breach or pay the subsidy back with penalty interest charged at a current rate of 5.75 per cent.

Smith said applicants were required to sign a statutory declaration stating they would live in the property for at least six months. “We also contact the owner after five months to check they’re still resident in the property,” Smith said.

But Bolton said there was no follow-up system to confirm buyers had stayed in the home.

I guess one needs to know the size of the problem, to decide whether one needs to physically check up on applicants.

My preference would be that the Government doesn’t give out taxpayer subsidies to aspiring home owners, but insteads work more vigorously with local government to free up land, reducing the cost of housing for all New Zealanders.


Swedish housing controls

September 15th, 2014 at 1:00 pm by David Farrar

Quartz reports:

Due to Stockholm’s infamously strict housing market, its citizens are having an incredibly hard time finding an apartment.

There are two main factors underlying this phenomenon. First, the city wait list for a new apartment is now 15 years on average, or 7.7 years in the Greater Stockholm region.

This is what happens when you have rent controls. No new supply.

n the last 10 years, 35,000 rental properties have been converted to condos with the result that the black market for getting a rental property is $29,000 per room. To be clear, that means paying someone $29,000 just for the right to rent that room.

So maybe all those strict housing controls are not such a great idea.

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On housing

September 12th, 2014 at 10:00 am by David Farrar

Stuff reports:

New Zealand’s high housing prices are “a choice”, with building affordable housing in Auckland “basically illegal” under current settings, National finance spokesman Bill English says.

Politicians from the major political parties are today wooing business groups at the Deloitte-BusinessNZ Election Conference.

At the opening session, for finance leaders, English said the audience would be familiar with the recent Economist report showing New Zealand had some of the most expensive house prices in the world.

“That’s a choice made by New Zealand,” English said. “It’s not a fact of nature.

“We’ve chosen a very expensive rapidly rising housing market”, with the price of land rising because of restrictions on new supply, and planning rules adding to costs.

“In Auckland it’s basically illegal to build a house that’s worth less than half a million,” English said.

I’m glad Bill understands this, and is saying it. Every expert body that has looked at house prices has come to basically the same conclusion.

More land had been consented for residential housing development in the last nine months than in the previous nine years, English said.

And that will make an impact as it becomes ready for developing.

Labour finance spokesman David Parker said introducing a capital gains tax which excluded the primary family home “logically must” address housing-cost pressures.

To quote Jamie Whyte, that is a fourth form economics argument.

Australia has a CGT and their house prices are rising even faster than NZ in some cities.

Also the Labour CGT is so exemption riddled, the impact would be minimal.


Labour’s aspiring home owners not actually looking to buy

August 28th, 2014 at 2:00 pm by David Farrar

The Herald reports:

David Cunliffe is backing the party’s choice of a couple used as a case study for Labour’s housing policy, after the pair conceded they weren’t actually looking to buy.

But one of them is a member of the Labour affiliated EPMU, so they’ll do!

Mr Cunliffe introduced Jordy Leigh, 20, and Harrison Smith, 22, as “a young couple who make about $75,000 a year”.

Not bad for so young.

Ms Leigh said they were currently living with her parents and although they had “had a look at houses in the Auckland area” she conceded they weren’t actively in the market to buy.

Twyford could not point out one of the properties he was talking about, saying they were scattered through the development.

The party could also not say how many $360,000 homes would be built.

“We haven’t actively been looking for a home to buy in the near future – that’s definitely not our goal – our goal is to have a home in a few years. We’re trying to start a family.”

Stuff points out:

However, Leigh, an EPMU union member, said their first home would still be out of reach even under Labour.

National’s policy would help only with the deposit and she and Smith couldn’t meet mortgage repayments.

“So, we haven’t been looking actively for a home to buy in the near future, that’s definitely not our goal,” Leigh said.

“Our goal is to have a home in a few years … not actively looking but aspiring to have our own home. We would not be able to get one next year. Under KiwiBuild we would have to wait a few years.”

Cunliffe shrugged off the gaffes and told reporters he wasn’t worried about Labour’s campaign.

What were the gaffes?

Twyford could not point out one of the properties he was talking about, saying they were scattered through the development.

The party could also not say how many $360,000 homes would be built.

So they could not point to a single specific house and say this is what they would build for $360,000 and can not say how many they could do for that price. It’s almost a con.

Nick Smith also points out the reality of Labour claiming 10,000 houses a year:

“KiwiBuild is a joke because Labour has no idea how it would build 10,000 homes a year, cannot explain how they would pay for it and they still have not worked out who would be eligible for the homes,” Dr Smith says.

“Launching the policy in Hobsonville only served to highlight Labour’s previous failings.

“Labour in government announced a 1600-home development on this land in 2002, but by 2008 had no planning approved, no resource consents, no infrastructure built nor a single house constructed.

“If they couldn’t build 1600 houses in six years, how can they promise 10,000 a year now under KiwiBuild?

As I said previously, if they do win it will be hilarious watching the excuses.

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Labour claims they can build Auckland homes for $360,000

August 27th, 2014 at 3:55 pm by David Farrar

The Herald reports:

Labour would be able to offer first home buyers two-bedroom properties in Auckland for as little as $360,000 if elected, party leader David Cunliffe announced today.

Labour’s KiwiBuild policy would build 100,000 new, affordable homes over 10 years and sell them at cost to first home buyers, Mr Cunliffe said.

“Using the purchasing power of the Government and off-site building techniques we will be able to lower the cost of building a home.

“This will enable Labour to sell a new two-bedroom terraced KiwiBuild home for around $360,000 in some parts of Auckland.

“That compares to around $485,000 for a similar Hobsonville home.” …

Labour’s housing spokesman Phil Twyford said KiwiBuild would deliver the equivalent of a Hobsonville $485,000 two-bedroom terrace home for $360,000 by forgoing the developer’s margin on the land cost-saving $36,000 and a further $89,000 would be saved by using off-site manufacturing, bulk buying building materials and reducing builders’ margin through high-volume tendering.

If Labour do win the election, it would be amusing to see them actually try to implement the policy and the excuses they’ll come up when the homes cost way way more than that. Maybe they’ll blame the unions for pushing the price of labour up!

Socialist parties always think that the state can provide things cheaper if you get rid of the profit margin, and economies of scale. But, you know what? The history of the world is they almost never do.

By this logic, we would all have much cheaper food if the Government owned all the farms. Think how much cheaper our food would be if farmers did not make any profit from the land, and instead the Government just employed them all directly?

And think about how much cheaper our food would be, if the Government centrally purchased all agricultural supplies for farmers. It would reduce the cost of farming massively, and hence food.

How about this for a challenge to Labour. If they really think they can produce two bedrooms houses in Hobsonville for $360,000 at no loss, then why don’t they promise to reimburse the taxpayers for any homes they build that cost more than that? Why should it be our money they gamble with?

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Bertaud on City Planning

January 24th, 2014 at 2:00 pm by David Farrar

Alain Bertaud is the former principal urban planner for the World Bank and has written the introduction to the 10th annual Demographia International Housing Affordability Survey. Some extracts:

Are planners in the worst performing cities paying any attention? And are they drawing any conclusions on how to improve the situation? Or do local governments conclude that the best way to increase the supply of affordable housing is to impose new regulations that will mandate developers to build housing units at prices, standards, and in locations selected by the government?

The last approach, under the name of inclusionary zoning is unfortunately the most common response, as recently seen, for instance, in New York and Mexico City.

Urban planners have been inventing all sorts of abstractly worded objectives to justify their plans for our future cities – smart growth, livability, sustainability, are among the most recent fads.

There is nothing wrong, of course, for a city to try to be smart, liveable, or sustainable.

But for some reasons these vague and benign sounding objectives usually become a proxy for imposing planning regulations that severely limit the supply of buildable land and the number of housing units built, resulting in ever higher housing prices. In the name of smart growth or sustainability, planners decide that densities should be lower in some places and higher in others.

Population densities are not a design parameter whose value depends on the whim of planners but are consumption indicators which are set by markets.

Even the Communist Party of China recently declared that resource allocation is best achieved through markets; why can’t urban planners in so-called market economies reach the same conclusions and let markets decide how much land and floor space households and firms will consume in different locations?

It is time for planners to abandon abstract objectives and to focus their efforts on two measurable outcomes that have always mattered since the growth of large cities during the 19th century’s industrial revolution: workers’ spatial mobility and housing affordability. …

A periodic regulatory audit should weed out obsolete regulations to allow an elastic land supply and to increase households’ ability to consume the amount of land and floor space that would maximize their welfare in the location of their choice. Part of the audit should concern the regulations, taxes, and administrative practices that unnecessarily increase transaction costs when building new housing units or selling or buying existing ones.

The twin objectives of maintaining mobility and housing affordability should drive the design, financing, and construction of trunk infrastructure.

Because the building of trunk infrastructure often requires the use of eminent domain, governments have a monopoly on its design and construction. Here is a new simple job description for urban planners: plan the development of trunk infrastructure to maintain a steady supply of developable land for future development, but leave land and floor consumption per dwelling to the market.

There is no silver bullet to increase the supply of affordable housing. But if planners abandoned abstracts and unmeasurable objectives like smart growth, liveability and sustainability to focus on what really matters – mobility and affordability – we could see a rapidly improving situation in many cities. I am not implying that planners should not be concerned with urban environmental issues. To the contrary, those issues are extremely important, but they should be considered a constraint to be solved not an end in itself.

Urban development should remain the main objective of urban planning.

A lot to agree with there.


CPI 0.1% for quarter

January 21st, 2014 at 2:00 pm by David Farrar

Stats NZ reports:

The consumers price index (CPI) rose 0.1 percent in the December 2013 quarter, Statistics New Zealand said today. Higher international air fares and rising housing and dairy prices were partly countered by lower vegetable prices and cheaper petrol.

International air fares rose 12 percent in the December 2013 quarter – the highest quarterly rise since the December 2009 quarter. “International air fares usually rise in December quarters. This quarter’s rise reflects seasonally higher air fares to Asia and Europe,” prices manager Chris Pike said. Package holiday prices (up 7.3 percent) also showed a seasonal rise.

Prices for housing and household utilities (up 0.5 percent) also rose, reflecting higher prices for property maintenance, purchase of newly built houses, and rentals for housing.

Annual inflation is 1.6%which is higher than I like it (I believe in aiming for 1%) but under the midpoint of the 1% to 3% range.

I prefer to look at the long-term series. Here are some comparisons of average annual price increases over the last five years (Dec 08 to Dec 13) compared to the previous five years (Dec 03 to Dec 08).

  • Electricity 3.9% compared to 7.8%
  • Household Energy 3.6% compared to 10.0%
  • Food 1.7% compared to 3.4%
  • Fruit & Vegetables 0.6% compared to 6.4%
  • Rental Housing 1.9% compared to 3.6%
  • Home Ownership 2.9% compared to 8.0%

Labour are very good at claiming they will lower food prices, electricity prices and housing costs – but their track record speaks for itself. Last election they campaigned to remove GST on fruit and vegetables. Well under the last five years of Labour they increased by 32%, and under five years of National just 3%.

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Housing affordability

January 21st, 2014 at 10:00 am by David Farrar

Stuff reports:

Housing is unaffordable in all eight of New Zealand’s major markets, an international survey shows.

High median house prices have been upwardly skewed by recently imposed mortgage lending restrictions and low mortgage interest rates, an economist says.

The 10th annual Demographia International Housing Affordability Survey classified Auckland, Christchurch, Tauranga-Western Bay of Plenty, Wellington and Dunedin as “severely unaffordable”.

Palmerston North, Napier-Hastings and Hamilton-Waikato were “seriously unaffordable”, the survey said.

The survey uses a median multiple to determine the affordability rating of houses in 360 metropolitan markets in nine countries. The median multiple is calculated by dividing a region’s median house price by the median income.

Regions with house prices more than three times the median regional income are deemed unaffordable.

Overall, New Zealand had a median multiple of 5.5, up from 5.3 last year.

We need to free up more land. That is the component that has been increasing the most.

The Demographia survey is here.


Auckland house consents at five year high

December 17th, 2013 at 2:02 pm by David Farrar

The Herald reports:

Auckland house and apartment building is at a five-year high, with nearly 5700 dwelling consents issued in the year to October.

Geoff Cooper, Auckland Council chief economist, said this was the highest annual figure since 2008 and a 28 per cent increase over the year to October, 2012.

That’s a step in the right direction. You can only lower the pressure on prices by reducing the cost of land and construction, increasing supply and/or reducing demand. Ideally all three.


Nonsense stats

December 10th, 2013 at 3:00 pm by David Farrar

The Herald reports:

It would take 19 median incomes in Auckland to buy a home for the city’s median house price.

Property in some of the world’s biggest cities cost a lot more than in our biggest city, but Auckland wages make it much harder to get on the property ladder.

In the 1,119,195 Census forms filled out for Auckland, the median annual income was $29,600, a Herald analysis found.

That’s almost 20 times less than the Real Estate Institute’s median house price figure of $582,000.

Auckland does have a housing affordability problem, but this stat is meaningless. Individuals do not generally buy households, families do. The calculation that is generally used is to compare median household income, not median personal income.

Median personal income is always a pretty low figure as it includes a huge number of people not in paid employment – students, non working spouses and those retired.

So comparing individual income, instead of household income, to house prices is daft and meaningless.

UPDATE: Stats Chat also takes the story to task:

I checked with the Stats NZ Census figures (Excel spreadsheet) and found the $29,600 figure is for the usually resident population count aged 15 years and over. In other words, this includes everyone who is not in paid employment: all the students, retirees, parents who are staying at home, those on benefits and not working etc.

Using Statistics New Zealand’s income survey data for the June 2013 quarter (Excel spreadsheet), the median earnings for people in paid employment was $45,864. This figure is only from those earning wages and salaries and/or self-employment income.

The point I made.

They also adjust for household income to find the stat should be:

“It would take 7.9 median household incomes in Auckland to buy a home for the city’s median house price.”

7.9 is still too high of course, which is why we need more land for housing. But it is vastly different to 19 times.


17 houses available under stated rent limit for person in tent

December 10th, 2013 at 12:00 pm by David Farrar

The Press reports:

Nellie Hunt and her children spent last night sleeping in a tent in a public park, while another 39 Cantabrians are living in similar or worse conditions.

Hunt is deemed priority A on the Housing New Zealand (HNZ) waiting list, but The Press understands 39 other people stand before her in the queue for social housing.

Her plight was revealed in The Press yesterday and offers of help have flooded in.

The 35-year-old and her three children, aged 16, 11 and 9, were evicted from their rental property and shifted into the tent in Waltham Park yesterday.

Three social agencies could not find the family a home after they were served a 90-day eviction notice in September.

Wouldn’t a balanced story include why she was evicted? The video says it is because the landlord is selling the house, but that doesn’t require you to evict tenants. In fact having tenants generally makes a sale easier.

Hunt turned down offers to move into other people’s homes because she was afraid it would forfeit her “urgent” position in the HNZ queue and one of the only chances she has of getting her children a suitable home.

So it is a deliberate choice to move into a tent.

On an average week she will receive about $760, which includes her wages and Working For Families and accommodation supplement entitlements.

Hunt is hoping to find a three or four-bedroom home in Waltham or surrounding suburbs, and said she could pay a maximum of $400 rent per week.

A lot of families have three kids and don’t have four bedroom houses.

The figure of $760 a week sounds light.  Let’s say she is on $14 an hour full-time. That is $560 gross a week. Tax reduces that to $481 a week. WFF for three kids is $290 a week and the accom supplement for that income and $400 rent in Christchurch is $106 a week which is income of $877 a week or the gross equivalent of $55,000.

Finally I’ve gone to Trade Me and done a search on rental properties in Waltham or nearby suburbs for under $400 a week for three to four bedrooms. There are 17 of them.  That would be relevant information to include in the story, and maybe ask why one of those were not rented. They’re all currently available.

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NZ Initiative on how to restore housing affordability in New Zealand

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

The NZ Initiative 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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Jones call for fewer building permits

November 18th, 2013 at 6:06 am by David Farrar

The Herald reports:

Former minister of building and housing Shane Jones wants to simplify renovation compliance measures and cut costs.

Jones, Labour’s building and construction spokesman, said much could be done to improve the system.

“Where a builder is a registered, certified builder, like a plumber or sparkie, where they are working on odd jobs or renovations that don’t require a great deal of attention from compliance because it’s low risk, you shouldn’t need to get a building permit, just like you don’t need to get a building permit for a plumber or sparkie to fix your place.

“So if the remedial job has a level of risk not in orbit, why tie up building inspectors where a competent builder – who can be sued because he’s registered – can just get on and do it.”

Once again I tend to agree with Jones. But does his caucus? Will this idea become Labour policy?

Someone should keep a running tally of all the stuff Jones announces as Labour spokesperson and see if any of it actually ends up backed by his caucus.

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Christchurch planners v developers

November 11th, 2013 at 10:00 am by David Farrar

The Press editorial:

Friction between property developers and local body planners is to be expected.

Developers want to be able to get on with their separate projects, doing what they need with the minimum of bureaucratic oversight.

Planners are concerned not just with the outcome of any individual project but also with its impact on the bigger picture of what is going on in the city.

Planners also want to see that rules, which have been adopted through appropriate processes for good reasons, are properly applied.

The two groups’ aims are not necessarily in conflict – developers want to get stuff done, planners (ideally) want to let it be done (provided the rules are followed). 

The statement that planners want to let things be done is highly contestable!

After the debacle earlier this year of the Christchurch City Council building consents process, which led to the council losing its status as an accredited consenting authority, it is alarming to hear home builders complaining that red tape and “design palaver” in the council planning process are holding up the construction of apartments and units.

The council has rejected the complaints, saying any delays come from developers failing to come to grips with new, tougher design rules.

But when a developer of the prominence of Mike Greer – owner of the region’s biggest house building company and who presumably runs a sophisticated operation capable of understanding any regulatory requirements – says the council’s bureaucracy is making it nearly impossible to build affordable housing, the complaint must be taken seriously.

As Christchurch has a serious housing shortage, you would think they would be doing what they can to make it easy to build more housing.

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Building material costs

November 7th, 2013 at 3:00 pm by David Farrar

The Government announced:

The Government is proposing increased transparency, simplified compliance, changes to anti-dumping duties and tariff concessions to bring down the cost of home building materials, Housing Minister Dr Nick Smith and Commerce Minister Craig Foss announced today.

“Building materials costs are too high and can be as much as 30 per cent more in New Zealand than in Australia according to the Productivity Commission. The industry needs a shake-up through increased competition and greater transparency to ensure kiwi families can get access to more fairly priced building materials and homes,” Dr Smith says

“Our market study has flushed out some very real issues in the building materials industry. I worry that high duties on some imported building products, combined with limited competition in New Zealand is allowing excessive margins by building product manufacturers. I also have concerns over a lack of transparency for consumers over what benefits builders are getting from using certain products,” Dr Smith says.

The options paper is here. Some of the options include:

  • Reform of BRANZ governance
  • Prevent specification of “no substitutes”
  • Require disclosure of financial and other benefits
  • Limit continuation of anti-dumping duties

I’m all for disclosure and lower tariffs.


A way to reduce housing costs

October 24th, 2013 at 7:00 am by David Farrar

The Government is keen to reduce housing costs. Eric Crampton has a way they can do this:

Donal Curtin pointed to some less-than-helpful government action that helps increase construction costs. New Zealand initiated anti-dumping action against Chinese wire nails, Malaysian galvanised wire, and Thai plasterboard, among other things. And so we have a specific tariff helping to keep prices up for plasterboard. While we’re trying to rebuild after an earthquake.

So one part of central government is all mad about excessive construction costs. Another part of central government penalises foreigners for selling us construction materials cheaply.

It’s a fair point. If foreigners want to dump cheap materials on us, let’s take advantage of it!

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6,000 new homes for Auckland

October 10th, 2013 at 10:00 am by David Farrar

Sarah Harvey at Stuff reports:

Up to 6000 new homes will be built in 10 areas of Auckland in the first step by the Government and Auckland Council to try to solve Auckland’s housing crisis.

The announcement today of the Special Housing Areas, by Auckland Mayor Len Brown and Housing Minister Nick Smith, comes after the Government and council this year signed an accord to run through until 2016 to increase the number of quality affordable homes in Auckland.

Smith said today land supply was the most “critical issue” when it came to addressing housing supply and affordability in Auckland. The first batch of land was a “significant step towards the Auckland Housing Accord’s target of consenting for 39,000 new homes over three years”.

The special housing areas announced today are in Papakura, East Tamaki, Pukekohe, Hobsonville, Kumeu, West Harbour and Orakei.

Excellent. Freeing up land and making it easier for new houses to be built is badly needed.

Applications for subdivisions would be considered by council under fast-tracked mechanisms. These aimed to deliver approvals within six months for greenfield developments, compared to the current average of three years, and three months for brownfield developments, compared to the current average of one year.

This will help allow supply to match demand, rather than lag behind it.

The Bankers’ Association said today’s announcement was a positive step in addressing the housing supply issue in Auckland.

Association chief executive Kirk Hope said the big issue in the Auckland housing market was a lack of supply.

“Freeing up land for housing is a move in the right direction to help improve supply where it’s needed and alleviate pressure on house prices.”

All the independent analysis of the housing cost issue has concluded that the major increase in cost has been the land.

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Dom Post on Labour’s own goal

October 2nd, 2013 at 11:00 am by David Farrar

The Dom Post editorial:

The immensity of the task facing new Labour leader David Cunliffe is starkly illustrated by his party’s bungled attempt to embarrass the Government over new minimum house deposit rates.

Mr Cunliffe has talked about putting Labour on a war footing. This week’s events show it is not on a war footing. It is in a deep slumber. …

It is six weeks since the bank announced a minimum deposit level of 20 per cent for most home buyers. You’d think in that time Labour would have been able to come up with a young family who’d been saving for several years and had had the dream of home ownership snatched from their grasp at the last minute. Instead the best the party could manage was a 23-year-old IT consultant who was not even sure he would live in a house, if he bought it. “If it’s good enough I could live in it, otherwise it could be an investment property,” said Kanik Mongia.

No criticism of Mr Mongia. Good on him for saving enough for a 10 per cent deposit on a $400,000 to $500,000 home.

But does Labour really want to portray itself as the party of upwardly mobile young property investors? And is it really prepared to undermine the integrity of monetary policy to give Yuppies a leg up?

It was a staggering own goal. They propose destroying the independence of the Reserve Bank so a 23 year old can get a bank to fund a $500,000 investment property for him. It would be difficult to find a more unsympathetic case to highlight.

Not only did they fail to find someone better, they had their leader railing against property investors in the same story as they are promoting one.

I’m reluctant to blame parliamentary staff for the failings of a party, but in this case the bungle should ring warning bells. I have to assume that Cunliffe wasn’t told that the photo op he was doing involved an aspiring 23 year old property investor. Surely he would have said no if he was told.

So this suggests that his leader’s office didn’t do due diligence on the person. They should have had a conversation with him and found out that he was thinking of using the house as an investment property.

At this early stage you can get away with errors like that, but going into the election you can’t afford to have such fuck ups.

Labour’s failure to find a more suitable “victim” for its campaign indicates that it is either out of touch with the issues or not well connected to the community it purports to represent.

However, the party’s fortunes will not be transformed simply by the leader performing better. The party must also do its bit. On this week’s evidence it has a long way to go.

Normally it is the Government that is happy when there is a recess as it means no question time. I’d say Labour should be very happy there is no Parliament this week, because they’d be getting a massive mocking in it, if there was.

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Labour’s pin up example for a needy first home buyer

October 1st, 2013 at 6:48 am by David Farrar

Labour did a photo op yesterday with an aspiring first home buyer who now can’t buy his first home because of the Reserve Bank’s new LVRs. Labour has promised to destroy the independence of the Reserve Bank by stating it will instruct the Bank to exempt aspiring first home buyers from the new rules (despite the Reserve Bank saying they won’t work if you do that).

So who was the aspiring first home buyer they highlighted to show how his or her dreams had been crushed after presumably years of saving for a first home so they can live in it.

Labour leader David Cunliffe met would-be first-time buyer Kanik Mongia, 23, in central Auckland today.

He’s 23? Labour’s pin up child for being locked out of the property market is a 23 year old? Someone who has probably been in the work force for just two years?

Mr Mongia, an IT consultant was looking at properties in the $400,000 to $500,000 range in south Auckland or Mt Wellington.

Tell me Labour are joking? their big photo op was with a 23 year old wanting to buy a half million dollar house? This is their rationale for wanting to destroy the independence of the Reserve Bank?

“If it’s good enough I could live in it, otherwise it could be an investment property.”

It gets worse for Labour. He wants it as an investment property!!!!

Mr Mongia said he has been looking for four or five months and has enough saved for a 10 per cent deposit.

Okay so let’s look at this in full. Labour is proposing to destroy the independence of the Reserve Bank so 23 year olds can buy half million dollar investment properties with a mere 10% deposit?

Now all credit to Kanik Mongia. It’s great he has saved even $50,000 by age 23, and great he wants to buy a house so early on. But when we talk about housing affordability and propose radical solutions such as having the Government over-ride the Reserve Bank, then you need a much much much stronger case than the fact that someone may have to wait until they are 24 to buy their first investment property.

UPDATE: Love the irony in this Stuff story:

Labour leader David Cunliffe ramped up pressure on the Government with a public meeting with Kanik Mongia, 23, an IT consultant, who had mortgage pre-approval for a 90 per cent loan cancelled by ASB because of the LVR changes. He was seeking $450,000 for an investment property.

Cunliffe said there was need to cool the property market, especially in places like Auckland, but the new lending rules would have “unintended consequences” on first home buyers.

“Unfortunately they are taking it out on the hide of first home buyers like Kanik, and that’s not what we want. We want young people to be able to get into their homes and we don’t want young speculators driving prices through the roof,” he said.

I’m sorry, but this is as big a fail as you can get.

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Dann on LVRs

September 30th, 2013 at 1:00 pm by David Farrar

Lian Dann writes in support of LVRs in the Herald:

There are at least four good reasons for introducing LVRs.

The first is that they protect first-home buyers from being trapped into high levels of debt that they might not be able to service if interest rates rise dramatically in the next few years – which they are expected to do.

Given the projected interest rate rises of two full percentage points over the next two years, we are likely to see bank rates rise above 8 per cent and it seems entirely reasonable to imagine retail mortgage rates going above 10 per cent within the next five years. That’s where they were in 2007 and in the 1980s they went much further.

Interest rates are currently at historically unprecedented lows and that is a dangerous place to be taking on a low equity mortgage.

Worse still, if were to see the kind of house price crash that happened in the US five years ago, then it is these people with the highest debt levels who will be most likely to hit negative equity.

In other words, they could be left owing more to the bank than the house is worth. In these conditions those with high debt levels lost their homes along with their deposits and all the rest of the money they had put into their homes.

So yes, it is a bummer if you’ve missed the chance to buy a house this year because of the LVRs.

But, if you can’t afford a 20 per cent deposit on a house, then perhaps you can’t really afford the house. And if that’s not fair then it is not fair because of the fact that house prices are too high.

Which is a second good reason for LVRs. If they dampen demand they could potentially lower house prices. In Auckland and Christchurch they almost certainly won’t, but they could help slow growth and that could buy some time for house hunters to keep saving for a deposit.

A third upside to LVRs is that if they work they will reduce the need for the Reserve Bank to raise interest rates as fast as it might have. That’s good for all mortgage holders, especially new home owners with high debt levels.

Finally there is the official reason the Reserve Bank is introducing these restrictions. The bank has a statutory duty to ensure the stability of the New Zealand financial system for the good of the country. That means it has some control over how banks are allowed to behave.

The Reserve Bank is simply not comfortable with the banks holding a high level of low equity loans in the wake of the worst financial crisis the world has seen since the Great Depression. Debt was to blame for the crisis in 2008.

So to those who say the bank is being overly cautious, one can only ask: “Dude, what planet have you been on for the past five years?”

 A good summary of the case for the LVRs. However they are no silver bullet he reminds us:

If the gap between supply and demand is wide enough, no amount of regulatory policy can hold back the market – just look at China where far heavier bank lending restrictions are doing little to cool the urban housing boom.

One has to increase the supply, and that will not work unless you increase the land supply.

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Green MP says she shouldn’t save for a deposit on MPs salary

September 30th, 2013 at 10:00 am by David Farrar

The Herald reports:

Green Party co-leader Metiria Turei

Paid $214,000 for a three-bedroom wooden villa in Dunedin’s North East Valley in 2007.

She and her family left Auckland in 2002, partly because of the cost of housing on an MP’s salary.

She says there were good homes available in Dunedin for $140,000 to $180,000 when she was house hunting.

But her bank wouldn’t lend her less than $200,000 as she had no deposit and had to take out a 100 per cent mortgage.

You’re an MP on around $130,000 a year, and you claim you couldn’t save for a deposit.

Wait until they’re in Government and running the economy!

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The NZ housing honeymoon is over

September 27th, 2013 at 12:00 pm by David Farrar

An advertorial from the BNZ:

The housing honeymoon is over

Mortgage rates are rising – but all is not lost for home buyers.

It’s often said that all good things must come to an end, and this certainly seems to be the case with the recent period of record low mortgage rates in New Zealand. With all four major Australian owned banks in NZ having raised their long term mortgage rates recently, prospective home buyers look set to suffer a setback in their spending power. At first glance, a third of a percentage point may not seem like a lot, but to many would be home owners, that tiny incremental difference over a period of a 30 year mortgage can make the difference between being able to afford the house of their dreams or not.

With recent mortgage rate comparisons indicating that the hike in mortgage rates looks to  be increasing over the next 5 years to between 6.3% and 7.1%, it is becoming imperative that new home buyers ask themselves just how much house they really can afford. When one takes into consideration the fact that a 1% increase in mortgage rates is equal to around a 10.75% drop in purchasing power, home buyers, including those who were pre-approved a few weeks ago, will now find that they are in fact eligible for a good deal less than their pre-approved amount.

A common error in evaluation those new to the housing market often make is to confuse a house’s ‘sticker’ price with its affordability. The true cost of home ownership lies in not only the ‘for sale’ price but also in the monthly carrying cost – of which tax, home insurance and of course the mortgage all comes into play.

Faced with the prospect of progressively rising mortgage rates (and therefore higher monthly home payments), existing home owners would be advised to hold off on refinancing their homes, and if they are on a floating home loan scheme to switch over to a fixed rate. Those in the market for a new home would be best off by securing a fixed home rate, as projections are all indicating that the mortgage rate only looks set to increase from here on out – thanks to raised international borrowing costs and the tightening of borrowing guidelines by lenders.

Of course, home owners and buyers alike need not suffer the inevitable rise of mortgage rates by simply reaching deeper into their pockets every month to shell out for higher monthly payments. Homebuyers can instead opt to raise their down payment amount in order to maintain an otherwise constant monthly payment in the face of rising rates. This may be difficult or even impossible for some first time home buyers and recent homeowners, but it is a smart move to make for those with the capability.

A second option is to lower their bid price on a home. Generally, higher mortgages lead to a declining demand from house buyers, so some home sellers may opt to accept the lower bid instead of sitting with a house to sell in a market where the mortgage rate looks set to increase for the next 3-5 years.

So, whilst the mortgage rates offered by all the major banks, including BNZ, look set to head north for the foreseeable future, home buyers are still left with some options to stay ahead of the inflationary curve. Provided they assess their home’s affordability accurately, maximize their equity and attempt to lower the bid price on the house, they should be able to afford the monthly repayments on their dream home. 

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