Greens plan to lower house prices by 50%

July 28th, 2016 at 1:00 pm by David Farrar

Radio NZ report:

A declaration by the Green Party that Auckland house prices should be deliberately dropped over the longer term has been met with strong resistance from its political ally, Labour.

Green Party co-leader Metiria Turei has said prices should be gradually lowered by up to 50 percent over a number of years, in order to avoid a market crash.

Labour leader Andrew Little said such talk was irresponsible.

“It’s not going to happen under the next Labour-led government.

“Our plan is about stabilising house prices by building more affordable homes, and then secondly by taking the overseas speculators out of it by putting restrictions on non-resident foreign buyers.”

Labour and the Greens recently struck a co-operation agreement including a no-surprises policy but Mr Little said Ms Turei had not raised any plan with him, or others in the party, to deliberately push down house prices.

The Greens have clearly violated the agreement. Not off to a good start are they.

As the Greens basically oppose making more land available for housing in Auckland (they only want to build up, not out), they of course have no chance of stopping house price inflation, let alone reducing it.

But I look forward to them campaigning that they want to reduce the worth of Auckland homeowners by a total $300 billion or so.

 

Crone on Auckland housing

July 28th, 2016 at 12:00 pm by David Farrar

Victoria Crone writes on what she would do to make housing more affordable in Auckland:

Implement higher and more realistic targets for how much housing the city needs to be consented in any year.

• Rethink planning restrictions under the final Unitary Plan to allow more housing where transport and water infrastructure already exist.

• Release underused public land for development much faster.

• Implement strict sunset clauses on released land so that development happens faster.

• Discourage land banking through substantial targeted rates.

• Overhaul the council’s consenting process to introduce shorter consenting times and tougher penalties for not meeting them, take it online, provide full transparency to users, take a serious look at the necessary resourcing and look at introducing competition.

• Provide stronger incentives to encourage the building of more affordable homes, including looking into consenting costs reflective of house size.

• Provide clear and useable report cards on our housing progress.

They all look good policies. But the most important is to abolish the MUB.

Unitary Plan doesn’t go far enough

July 27th, 2016 at 4:00 pm by David Farrar

The Herald reports:

More urban sprawl and greater intensification have been recommended in a new rulebook for Auckland released today.

The city’s urban boundary will be expanded to free up 30 per cent more land for housing and many homeowners, particularly in the central isthmus, will find their homes rezoned for intensification.

These are among the big changes recommended by an independent hearings panel, for the new rulebook, formally known as the Unitary Plan.

Auckland council’s new rulebook telling people what can be built,where and what height buildings can go has been three years in the making.

The panel has come up with a proposal to provide 422,000 new dwellings over the next 30 years, 270,000 within the existing urban boundary and 152,000 in rural areas and around towns like Warkworth, Pukekohe and Kumeu.

This is a good step or even two steps in the right direction but the ratio between up and out should be around 50:50 not 2:1.

It is good they have recommended moving the boundary to free up 30% more land but as Phil Twyford has pointed out just moving the boundary encourages speculation and land banking to shift to the new boundary.  Only scrapping the boundary will lead to land prices stabilising.

The intensification proposals look good to me, and I hope they get approved. It isn’t a choice of up or out – we need both.

How to fix the Auckland housing crisis

July 22nd, 2016 at 1:00 pm by David Farrar

Donal Curtin has an elegant and effective fix for the Auckland housing crisis:

The Auckland Housing Enablement Bill, 2016

1. The purpose of this bill is to accelerate and increase the supply of well-built housing in the Auckland area.

2. Any house up to two storeys in height may be built anywhere within the Metropolitan Urban Limit without further planning approval, provided that the construction

  • is carried out by, or supervised by, a Registered Master Builder or New Zealand Certified Builder, and

  • the quality of construction is signed off in writing by two, arm’s length, full members of either the New Zealand Institute of Architects or the Institution of Professional Engineers New Zealand

Would greatly reduce the development costs also.

ANZ Chief warns of housing bubble

July 21st, 2016 at 1:00 pm by David Farrar

A strong op ed by David Hisco, the CEO of ANZ. He warns of the problems the housing bubble may cause.

He proposes a number of actions:

Heavily increase LVR limits for property investors. The Reserve Bank wants most property investors around the country to have 40 percent deposits in future. We think they should go harder and ask for 60 percent. Almost half of house sales in Auckland are to property investors. Taking them out of the market will be unpopular amongst investors but it may end up doing them a favour. Of course this would mean less business for us banks but right now the solution calls for everyone to adjust.

He could well be right that more than 40% is needed. But I think see the impact of the 40% requirement before deciding if it needs to increase to 50% or 60%.

Weaken the New Zealand dollar. The Reserve Bank should look to weaken the dollar, making our export industries more competitive. That’s good for employment and our balance of trade in the long run. The Reserve Bank in Australia are already examining unconventional measures to do this. The longer our dollar is out of step with the rest of the world we will slowly drift towards being uncompetitive. Rising unemployment and rising house prices can’t co-exist.

Here I disagree. The role of the Reserve Bank is not to set the currency rate, but to keep inflation low. Plus the level of our currency is set mainly be external factors such as Brexit, Australian economy etc.

And as it happens the real TWI is currently at 72, down from a peak of 82 in 2014. It hasn’t been below 70 consistently since the 2009 recession so I don’t think it is a major issue.

Voluntary tightening of lending criteria by banks. Since the GFC banks have been more conservative than ever on lending. But the current situation will see ANZ implement even tougher criteria for investment loans as house price inflation spreads from Auckland to other regions.

Great.

Review immigration policies. Immigration has been great for New Zealand. We are a harmonious, diverse and inclusive society. But Auckland’s housing, roads, public transport and schools are struggling to cope. Let’s have an honest and sensible debate about immigration using facts rather than prejudice to see if we should push the pause button.

I agree and have been saying this for some time. However we need to be aware that the level of residency visas has remained constant, so the Government doesn’t have a lot of latitude to impact net migration. However I do agree it should look to do so until the infrastructure has caught up.

Have a strong focus on infrastructure build, particularly in the growth regions.We always seem to play catch up in this country relying on bureaucratic formula to work out demand. There are smart ways to fund infrastructure that can spread cost across the generations if we choose to go that way.

Again I agree but would say this Government has done more infrastructure investment than any other. But definitely more to be done.

Does Goff have any policies?

July 21st, 2016 at 11:00 am by David Farrar

The Herald reports:

Phil Goff, a Labour MP and former Housing Minister, offered little in the way of solutions for poor people affected by the city’s housing crisis at a mayoral debate in South Auckland last night.

Gordon Myer, of the CAB in Manurewa, said every day he saw the misery of people who cannot find a home.

“What, if anything, can council do to make God’s Own really God’s Own?” Myer asked four mayoral candidates, Goff, Vic Crone, Mark Thomas and John Palino.

Goff expressed sympathy for the problem, told a couple of stories about people sleeping rough in cars and threw in a few numbers about the housing shortage. His only hint of a solution was working in partnership with the Government to deliver on basic needs for human beings.

It is understood Goff, a leading contender to replace Len Brown who is stepping down at October’s local body elections, will issue a housing policy next month.

A policy would be a nice thing. So far Goff has made no specific commitments on pretty much anything.

Phil Twyford has said Labour’s policy is to abolish the MUB (formerly the RUB). However the only people who can do this are the Auckland Council. Will Phil Goff specify that as Mayor he would propose and vote for abolishing the MUB?

That is the one thing that more than anything else would reduce house inflation in Auckland.

Phil Twyford gets it. Will Goff?

Property investors will need a 40% deposit

July 19th, 2016 at 1:00 pm by David Farrar

The Herald reports:

Property investors will need a 40 per cent deposit under tough new restrictions revealed today.

The new rules are being urgently introduced in an attempt to put a lid on New Zealand’s spiralling property prices.

Reserve Bank Governor Graeme Wheeler has outlined the new rules this morning, and told banks they will be expected to act immediately.

The new loan-to-value ratios (LVRs) would take effect on September 1, but the Reserve Bank wants banks to “observe the spirit of the new restrictions” in the lead-up to the new policy.

The rules are:

Investors
• Restrictions for investor lending extended from nationwide from Auckland only
• Banks will be forced to require a 40 per cent deposit – up from 30 per cent – for at least 95 per cent of the loans they make in this area.

Home buyers
• Restrictions for owner-occupier lending extended from Auckland to nationwide.
• Required deposit level remains at 20 per cent for at least 90 per cent of bank lending.

It will be interesting to see how much impact this has. The large property investors may have enough capital that this won’t impact them greatly.

Housing demand and supply side measures

July 13th, 2016 at 12:03 pm by David Farrar

The media constantly report that the Government has only had policies dealing with the supply side of housing, and not the demand side. This is not true. Off memory, here are policies that National has implemented, or the Reserve Bank has.

Demand Side

  1. Removed the ability to claim depreciation on houses as a tax expense
  2. Middle and low income earners get grants of up to $20,000 for their first home
  3. Any non-primary house sold within two years of purchase to be taxed as income on the gain
  4. Non-resident buyers required to register with IRD, so level of foreign purchases can be monitored
  5. $5,000 grants for people on social housing waiting list to move out of Auckland
  6. LVR rules requiring 20% deposits nationally and 30% deposits in Auckland
  7. DTI rules setting a maximum debt to income for borrowing likely in near future

Supply Side

  1. 210 Special Housing Areas agreed with Councils to consent 70,000 new houses
  2. Made crown land available for 10,000 homes, of which 40% will be “affordable”
  3. $1 billion fund available for Councils for infrastructure to new housing areas
  4. Require Councils to free up land in line with population growth
  5. National Policy Statement on Housing to give developers ability to take Councils to court if land not made available
  6. RMA changes to reduce consenting costs
  7. 4,000 more state houses being built
  8. Income related rent subsidies expanded to community housing providers
  9. $41 million funding for emergency housing providers to provide 3,000 beds
  10. Reviewing tenancies of state house tenants who no longer need a state house, so more needy families can get one
  11. Build 150 pop up houses in Auckland
  12. Central and local Government partnerships in areas such as Tamaki and Hobsonville to do major housing developments

Now there are other factors at work, which the Government has little influence over. Three major ones are:

  • Land restrictions put in place by Councils, especially Auckland Council. Only the Auckland Council can change these, unless Parliament over-rides them.
  • The level of net migration. The level of residency visas has remained constant, but we have more Kiwis remaining and returning, plus more temporary visas (students and work).
  • The low level for interest rates

This is not to say the Government can’t do more. Like Labour it should explicitly call for the Auckland Council to abolish the urban boundary. The idea of infrastructure bonds for new developments is worthwhile, and an urban development authority is also a good idea. But the power of compulsory land acquisition is a step too far.

Zoning laws hurt the poor

July 13th, 2016 at 9:00 am by David Farrar

John Cochrane blogs:

Conor Dougherty in The New York Times has a good article on zoning laws,

“a growing body of economic literature suggests that anti-growth sentiment… is a major factor in creating a stagnant and less equal American economy.

…Unlike past decades, when people of different socioeconomic backgrounds tended to move to similar areas, today, less-skilled workers often go where jobs are scarcer but housing is cheap, instead of heading to places with the most promising job opportunities  according to research by Daniel Shoag, a professor of public policy at Harvard, and Peter Ganong, also of Harvard.

One reason they’re not migrating to places with better job prospects is that rich cities like San Francisco and Seattle have gotten so expensive that working-class people cannot afford to move there. Even if they could, there would not be much point, since whatever they gained in pay would be swallowed up by rent.” 

Stop and rejoice. This is, after all, the New York Times, not the Cato Review. One might expect high housing prices to get blamed on developers, greed, or something, and the solution to be government-constructed housing, “affordable” housing mandates, rent controls, low-income housing subsidies (which protect incumbent low-income people, not those who want to move in to get better jobs) and even more restrictions.

No. The Times, the Obama Administration, California Governor Gerry Brown, have figured out that zoning laws are to blame, and they’re making social stratification and inequality worse.

This is the major factor in house prices in Auckland. Labour, National, the Productivity Commission, the NZ Initiative etc all agree. We just need the Auckland Council to listen – and if they won’t, to have Parliament over-rule them.

In Labour land you can build 100,000 houses with $2 billion capital!

July 11th, 2016 at 9:00 am by David Farrar

Stuff reports:

Little said KiwiBuild would be paid for with a $2 billion “capital injection”, which would be paid back at the end of the programme as houses were sold.

Little said the Government was out of touch, particularly when it came to housing, and was alone in refusing to believe there was a housing crisis.

“They might have given up, but I won’t. Not now, not ever,” he said.

Associate Finance Minister Steven Joyce described Labour’s policies as “underwhelming”, with many of them echoing work the Government was already doing.

“They have talked a very big game politically about this, that it was going to be a massive change, when in actual fact it’s not – it’s more or less an endorsement of what the Government’s already doing with a few tweaks.”

Joyce said the Government was already backing the urban development approach through projects like the Hobsonville Land Company, while the $2b of funding for the KiwiBuild programme would need to be recycled 25 times in 10 years if it was to build 100,000 houses.

If you reckon you can buy the land, build and sell 100,000 homes for $2 billion in just a decade you have magical powers – probably like the Wizard of Oz.

Crampton on housing

July 6th, 2016 at 10:00 am by David Farrar

Eric Crampton has a lengthy post at The Spinoff on Auckland housing. He looks at what won’t and will make a difference.

First why there is a problem:

Auckland is adding houses less quickly than it is adding households. But it cannot be as simple as that. Avocado shortages aside, high migration figures haven’t led to shortages of anything else that people buy – and I would not blame migrants for the avocado shortages either. Auckland doesn’t have a barber crisis induced by the tens of thousands more people who need haircuts every month as compared to the same time last year.

Fundamentally, the problem has to be constraints on supply: either the building industry simply cannot keep up, or the council isn’t zoning enough land for either building up or building out.

The constraint, so far, has not been the construction industry. When I was at the University of Canterbury, you couldn’t walk between two buildings during the earthquake rebuild without meeting Irish accents in fluoro vests. Markets can scale up to meet demand if they expect that demand to be sustained. Builders can come in from overseas. Cement plants can be expanded and upgraded. Unexpected housing demand can then cause price blips, but you shouldn’t get the years-long rolling maul we’ve seen in prices.

The series of three reports the Initiative released in 2013, our reports since, and the Productivity Commission’s reports, point pretty strongly to council-level constraints on new building. Pro-density activists made it too hard to expand at the outskirts of town; Not In My Back Yard activists made it too hard to build apartment towers or terraced housing close to downtown. When a city can’t go out or up, prices can only go one way when population increases.

Auckland needs both up and out.

He then looks at the red herrings:

  • 33,000 empty houses at the census – is lower than most centres as a proportion, and consists of houses being sold. renovated or holiday rentals
  • Capital Gains Tax – will cause a one off drop in house prices, but not stop them appreciating again.
  • Migrants – Atlanta has gone from 3 million to 5.7 million people but houses there are only three times median household income- because they build to keep up
  • More state houses – The Government also has to obey the Auckland zoning rules. Unless Parliament legislates over the top of the Auckland Unitary plan, they are also limited to where they can build
  • Land banking – agrees with Phil Twyford the solution to land-banking is eliminating the RUB and allowing development to “leapfrog” over existing land-banks

So what does Crampton suggest:

  • Give Councils incentives to have houses built such as the GST revenue from the construction costs
  • Change zoning to allow housing to build up and out
  • Amend RMA to make it easier to subdivide, easier to change district plans and harder to block new developments

$1 billion for housing infrastructure

July 4th, 2016 at 7:00 am by David Farrar

The Government announced:

The Prime Minister today announced a new $1 billion Housing Infrastructure Fund to accelerate the supply of new housing where it’s needed most, Finance Minister Bill English and Building and Housing Minister Dr Nick Smith say.

The contestable fund will be open to applications from councils in the highest growth areas – currently Christchurch, Queenstown, Tauranga, Hamilton and Auckland.

Mr English says the Housing Infrastructure Fund will help bring forward the new roads and water infrastructure needed for new housing where financing is a constraint.

“The Government will invest up front to ensure the infrastructure is in place. But councils will have to repay the investment or buy back the assets once houses have been built and development contributions paid.”

Dr Smith says the fund will be available only for substantial new infrastructure investments that support more new housing, not to replace existing infrastructure.

“To access the fund, local councils must outline how many new houses will be built, where they will be built and when they will be available. Ideally, they will have agreements with developers on these issues.

Councils have been saying that to make more housing available, they need more money for infrastructure. This helps provide it.

Mr English says infrastructure, and its financing in particular, is one of the three key constraints to building more houses – alongside land supply and consenting requirements.

“Councils have strict debt limits which means some lack the headroom to invest in infrastructure now and then wait for future development contributions to recover the costs. The fund will help provide more infrastructure sooner by aligning the cost to councils with the timing of revenue from development contributions.”

Depending on the number and timing of applications, it will require the Government to temporarily borrow up to $1 billion, which will increase net debt until it is repaid.

Dr Smith says the Government is also considering establishing Urban Development Authorities (UDAs) to help further speed up the supply of new housing.

UDAs have streamlined powers to override barriers to large-scale development, including potentially taking responsibility for planning and consenting and other powers.

UDAs could be the policy (if they do them) that has the biggest impact.

It appears the loans from the Government will be interest free. At say 5% borrowing costs, this would take $50 million a year to the operating balance. That surplus may not last long at this rate!

Capital Gains Tax and housing

June 14th, 2016 at 10:00 am by David Farrar

I support a comprehensive capital gains tax (so long as other taxes are reduced to compensate) as the best tax system is broad based, low rate and few exemptions.

But I have always been suspicious of the claims that a CGT will have a big impact on house prices. Certainly Australia has a full CGT and they have similiar price inflation.

This exchange from Q+A was interesting:

Jonno Ingerson told Q+A that the Government’s bright line test doesn’t seem to be deterring speculators.

CORIN   Well, that’s interesting too, because that suggests, say, that the bright line test that the Government brought in, which was to say, ‘You sell within two years, that’s a clear line there. You have to pay your tax on your capital gain,’ that’s not deterring people.

 JONNO No, and if you look at the people that that was targeted at, which would be the speculators, if you like, that are driving the market, turning it over quickly, a lot of them were doing that as a business anyway.

 CORIN   And paying tax, presumably.

 JONNO And paying tax. Quite happy for the IRD, sure, yeah, ‘I bought and sold, and I’m paying you my big block of tax.’ The people it was aimed at were those that were skirting around the system. Yeah, it’s knocked a tiny number of those out, but—

 CORIN   Yeah, but that suggests they’re making such a decent profit that they’re quite happy to hand over it.

 JONNO Quite happy. Make 100,000, there’s your 50,000, 30,000, whatever it is and keep going.

If you make $100,000 off a house purchase and sale, then its a great investment whether or not your profit is $100,000 (untaxed) or $67,000) taxed.  A CGT will have some impact around the margins, but when demand is so much greater than supply, the impact is small.

Until the land supply issue is fixed, house prices will continue to increase.

Maori home ownership rates

June 13th, 2016 at 9:00 am by David Farrar

Stuff reports:

The Government are being blamed for plummeting home-ownership rates for Maori and Pacific Islanders.

But Housing Minister Nick Smith says the data just confirmed broader social statistics, including that these groups having lower incomes and lower education achievements.

Recently released figures from Statistics New Zealand show Maori and Pacific Island home ownership fell at a faster rate than for the total population over the past 25 years (ending at the latest census in 2013). …

The Labour party have added the latest statistics to their list of housing issues the Government was not adequately addressing.

“It clearly shows this Government doesn’t have a plan,” Labour MP Meka Whaitiri said. 

I’m always interested in breaking down long-term trends to smaller segments so we can see if the problem is in fact getting worse.

In the 2001 census the Maori home ownership rate was 47.0%. In 2006 it was 45.2% and in 2013 it was 43.1%.

The annual decline from 2001 to 2006 was 0.35% a year. From 2006 to 2013 it was 0.29% a year.

 

Key on Auckland land

May 30th, 2016 at 7:00 am by David Farrar

Bernard Hickey writes:

Prime Minister John Key has upped the ante in the Government’s battle with the Auckland Council to free up more land for housing, saying a new National Policy Statement in the next fortnight would direct Councils to release land as a matter of law.

Responding to Council concerns that it could not afford the NZ$17 billion infrastructure bill to provide the roads, public transport, water and sewage pipes to underpin that housing, Key said the Auckland Council may need to look at selling assets.

Key used his flagship post-Budget luncheon address to a Trans Tasman Business Council audience in Auckland to increase the political heat on the Council ahead of its decision on the Unitary Plan due on August 19, and to deflect some of the political heat building up on the Government around Auckland’s housing supply shortages.

Key described the Metropolitan Urban Limit put around Auckland in 1992 as an “utterly failed experiment” that increased land prices from NZ$100,000 per section to NZ$450,000 per section now.

Excellent. The two major parties agree that it is a failed experiment that should go.

The one person who doesn’t agree it seems is Phil Goff.

Little on housing

May 26th, 2016 at 7:00 am by David Farrar

One News reports:

Andrew Little says it will take a Labour-led Government a single term in office to fix the housing crisis the Government denies even exists.

Well that’s nonsense as almost every major city in countries like NZ is facing the same price increase for housing. There is no magic wand that will change the fundamental challenge of demand rising faster than supply. But there are things that can help. But their impact will take a long time.

Last week the party announced a new policy to relax the rules around Auckland’s Metropolitan Urban Limit (MUL), which Mr Little says are artificially driving up prices.

“We said we would change the rules on urban limits so we’re not having this arbitrary distinction between properties in Pukekohe selling for $600,000 — that’s just for a section — then just over the boundary you know, properties actually at a more reasonable sort of level,” he told Paul Henry on Monday.

“There’s this arbitrary rule that’s been created that’s just causing this ridiculous inflation in section prices.”

Great to see Little campaigning on this also though. I was worried that Twyford had got the policy through caucus when they were all sleeping. But if Little is promoting it, that means Labour is committed to it – which is good.

Mr Little says if the council doesn’t approve the Unitary Plan later this year, a Labour-led Government will override it and open up the land anyway.

Excellent. I wish National would say the same.

Taxpayer funded motels

May 25th, 2016 at 9:00 am by David Farrar

The Herald has what is meant to be a sob story about a women who owes WINZ $60,000. But I think most people who read the story will be horrified by how much money taxpayers are spending on this family.

A mother of eight has been lent $60,000 by Work and Income to pay motel bills because she has been banned from state housing for a year.

The Mangere woman, aged 28, has been put up in motels with her partner, 30, and eight children aged from 5 months up to 11 years for the past 10 months.

She’s 28 and he’s 30, and they have eight kids. Problem number one.

Work and Income is paying $1200 a week for their current motel, where they have been for five months. Some of their earlier bills were for up to $1700 a week.

On top of the massive welfare payments they’ll be getting, taxpayers are also paying $1,700 a week for them to stay in a motel, That’s how generous our welfare state is. There is of course no chance it will ever be repaid I’d say.

The woman, who asked to be called “Jane”, said she was suspended from all Housing NZ properties after her last state house was found to be contaminated with “pure” methamphetamine (“P”).

Social Development Ministry housing chief Carl Crafar said the family was evicted from the house last July due to the meth contamination.

“They are currently not eligible for a Housing NZ house, and have admitted to using meth in their past three Housing NZ properties,” he said.

But Jane said the contamination occurred before she moved into the house three years earlier.

“I have never used meth or cooked it in my life,” she said.

She was sure that no one else used the drug while she lived there.

So it is just coincidence that their last three houses has tested positive for P.  This means taxpayers have probably spent tens of thousands of dollars decontaminating the houses.

She said her partner worked as a builder until the family was evicted, but then stopped work to support her.

So neither of them are working.

She said the family received $800 a week in jobseeker support, family tax credits, accommodation supplement and temporary additional support.

It would be far more than that. They are eligible for:

  • Jobseeker support $375
  • Family Tax Credits $542
  • Accom Supplement $225

So that is around $1,150 a week plus their temporary additional support and plus the cost of the motel not met by the accom supplement.

I can’t imagine there is another country around which would be so generous in supporting a family with eight kids, who aren’t working, and who lost state house eligibility due to drug contamination.

Herald on Labour’s housing policy

May 23rd, 2016 at 4:35 pm by David Farrar

The Herald editorial:

The Labour Party surprised many people last week, and dismayed some of its own supporters, by advocating the complete abolition of boundaries on urban expansion.

Its housing spokesman, Phil Twyford, endorsed the Government’s view that boundaries imposed by the Auckland Council have been a major contributor to the escalation of house prices. His announcement was timed to get in ahead of an urban development directive to councils expected from the Government soon, possibly in the Budget on Thursday. But Labour’s proposal goes further than Mr Twyford believes the Government’s national policy statement is likely to go.

“What we are calling for is the abolition of the urban growth boundary, not softening it, not making it more flexible,” he says. “And not just doing what the Auckland Council advocates, which is periodically adding in more parcels of land zoned for development. All that does is feed the speculative land market.”

I hope the Auckland Council listens, but I fear they won’t. And Phil Goff is refusing to back the policy, which is a bad sign.

The main condition is that development on the urban fringe must pay the full cost of the additional infrastructure they need and the party has proposed an interesting method by which this could be financed. It wants the Auckland Council to be allowed to issue infrastructure bonds that would be repaid from rates levied on the newly developed properties.

Developers are already charged for the cost of connecting their subdivisions to a city’s services but Auckland planners have long opposed urban sprawl on the basis of its infrastructure costs, so clearly those costs have not been fully covered in developers’ contributions. Infrastructure bonds could fill the gap. In fact, they could permit more amenities to be built in these new communities than have usually been provided from development levies because bonds are effectively a loan to future residents whereas development levies are built into the upfront cost of houses. …

Infrastructure bonds would enable those savers to share the gains from housing the population boom without pushing up house prices. The bonds might also attract some housing investors, reducing their demand for houses and slowing the rise of prices. New Zealand offers few investments as safe as houses and has an unsatisfied demand for bonds as secure as these. Labour is thinking well.

I agree. I like their policy on bonds rather than developer contributions up front.

Even Greens support scrapping Auckland’s RUB, but Goff doesn’t!

May 20th, 2016 at 3:00 pm by David Farrar

Bernard Hickey reports:

Green Co-Leader and Housing Spokeswoman Metiria Turei said the Greens were also open to Labour’s package of relaxed city limits, relaxed density controls and new infrastructure financing, as long as it included integrated planning with public transport and protection of special land.

“That deals with a lot of our general concerns about just freeing up land on the rural boundary to allow for more sprawl. On the face of it, it looks like something we could consider and support because it has all of the parts of the puzzle integrated. The devil is in the detail always, but we’re certainly interested in their proposal,” Turei told me, adding she was also open to the infrastructure funding idea.

“If this is a measure to help with the affordability question, then this is a measure that should be given some serious thought. With the housing crisis as it is, every idea needs to be explored. We can’t afford to dismiss any idea outright.”

Wow, not quite a total endorsement, but a real sign that that the facts are winning through in this debate – if you don’t allow for more land, then nothing else will work.

Auckland Mayoral candidate (and favourite) and Labour MP Phil Goff stopped short of endorsing Labour’s proposal for the abolishment of the RUB, saying other measures would have to be put in place to control growth or fund the subsequent higher infrastructure costs of housing developments well beyond the fringes.

“If you abolish them you’ve got to put other measures in place,” Goff said, referring to the bulldozing of farm land he had seen near Kumeu which he did not approve of.

“You have to have controls. You have to have a situation that if somebody wants to build way out of the city, the developer and therefore the property purchaser, will pay for the internal infrastructure — the streets and the water supply — but the Auckland ratepayers pay the cost of getting infrastructure to that area and the further out you go the more expensive it is,” he said.

“And unless you’ve got a user pays system in place there you can’t have open slather.”

Goff, as usual, won’t commit to anything at all. As other candidates release detailed policies, he seems to have none.

John Palino some weeks ago explicitly advocated scrapping the RUB. Labour has now endorsed Palino’s policy. But Labour’s Mayoral candidate will not.

Germany releases land to keep housing affordable

May 20th, 2016 at 11:00 am by David Farrar

Forbes reports:

On Wiles’s figures, German house prices in 2012 represented a 10 percent decrease in real terms compared to thirty years ago. That is a particularly astounding performance compared to the UK, where real prices rose by more than 230 percent in the same period. (Wiles’s commentaries can be read here and here.)

A key to the story is that German municipal authorities consistently increase housing supply by releasing land for development on a regular basis.

If you don’t release land, then prices can go only one way. You need to do more than just release land but nothing else will work if you don’t do that.

Widespread support for Twyford’s policy

May 19th, 2016 at 9:00 am by David Farrar

Bernard Hickey reports:

Economist and former Reserve Bank Chairman Arthur Grimes, who has researched the effects of the Metropolitan Urban Limit on land prices, said he also supported its removal and a change to infrastructure financing, as well as the relaxation of density limits. Along with other researchers from Motu, Grimes found in 2008 that land prices inside the Auckland boundary were 10 times higher than outside the boundary. See my 2009 article on that here  and subsequent Productivity Commission research showing similar results here.

“I’m partial to removing whatever they want to call it this week — the Metropolitan Urban Limit or the Rural Urban Boundary,” Grimes told Interest.

“There are two urban growth boundaries in Auckland. One is a horizontal one and one is a vertical one, and it’s important to get rid of both of them,” he said.

Grimes said he opposed the recent practice of progressive extensions of the RUB, which simply gave land owners serial monopolies on land that pushed up land values.

“The way it’s been discussed in the draft Unitary Plan really shows a misunderstanding of basic economic principles and is almost designed to give people their own specialised monopoly for a while that forces up the price of land.”

Grimes points out very well the problem of just moving the boundary.

Grimes also supported moves to finance the infrastructure needed for development with targeted rates, pointing to other similar tools used overseas such as as (Tax Increment Finance) TIFs.

“These sorts of things are quite mainstream internationally and would seem to me to make a lot of sense to investigate. I can’t see major fishhooks in them and they’re definitely worth looking at,” he said.

Grimes also said Councils also had low debt ratios in New Zealand and linking rates payments to infrastructure bonds was an accepted and sensible practice.

I’ve previously blogged in support of Twyford’s infrastructure bonds proposal, so that the costs of infrastructure to new properties is funded through targeted rates over time, rather than up front.

Property Council CEO Connal Townsend said he agreed with Labour’s call to abolish the Rural Urban Boundary.

“The Rural Urban Boundary is a barrier to entry into Auckland’s land market which will continue to distort market behaviour. An artificial boundary that chokes land supply is counter intuitive,” Townsend said.

He said he also agreed a rethink of infrastructure financing was needed.

“We know that paying development contributions through targeted rates over a number of years is workable. And, we already have the Local Government Funding Agency which more and more councils are starting to make use of,” Townsend said.

The property people support it.

Business NZ also welcomed Labour’s proposal.

CEO Kirk Hope said providing more land for building was needed.

“With agreement on this issue between both main political parties, it is to be hoped that local government planning decisions will take heed of the need to focus on land and housing supply,” he said.

As does business.

A great policy from Labour

May 18th, 2016 at 3:00 pm by David Farrar

The Herald reports:

Labour wants the Government to abolish Auckland’s city limits to get people out of cars, caravans, garages and tents.

Labour housing spokesman Phil Twyford said the urban growth boundary had to go because it has fuelled the housing crisis and people would not be forced into bad circumstances if the Government acted.

“The Government should rule out any possibility of an urban growth boundary in Auckland Council’s Unitary Plan if it is serious about fixing the housing crisis,” Twyford said.

“Over 25 years the urban growth boundary hasn’t prevented sprawl, but it has helped drive land and housing costs through the roof. It has contributed to a housing crisis that has allowed speculators to feast off the misery of Generation Rent, and forced thousands of families to live in garages and campgrounds,” Twyford said.

I’m stunned, but in a good way.

Twyford had been showing signs of getting it for a few months now, acknowledging that land supply restrictions were a huge issue. Every expert report into housing says the artificial restriction of land for housing is the biggest factor, and other measures will be ineffective if you don’t fix this.

I thought that Labour would have some imprecise policy such as supporting some movement in the boundary. I never thought they would come out and say abolish it.

This is excellent they have. Huge kudos to Phil Twyford for getting Labour to agree to this. They’ve done a lot of things wrong in recent times, but this is a sign they are doing some things right.

But Twyford said the urban growth boundary created an artificial scarcity of land, driving up section costs. Land inside the boundary is up to ten times more valuable than rural land.

“It is not enough for the council to progressively add more land zoned for development here and there. That just feeds the speculation that is an inevitable result of having the boundary.

Twyford is dead right – moving it is not enough.

National needs to get some balls, and come out with the same policy. Auckland Council should be left under no mistake – abolish the boundary, or Parliament will step in and do it.

There is a less dramatic way to abolish it. Labour’s candidate for Mayor Phil Goff could adopt this as policy. Also will Twyford get the Labour-aligned City Vision candidates to support abolishing the boundary?

This announcement by Twyford makes him my MP of the Week, MP of the Month and maybe even better than that. It is a seriously good policy that will make a huge difference to Aucklanders if implemented.

UPDATE: You can sign a petition here (from the Taxpayers Union) calling on the Government to adopt Labour’s policy on abolishing the Auckland Metropolitan Urban Limit. The more people who sign the petition, the more pressure on National to do the right thing and sign up to Labour’s policy.

Councils will have to unlock more land for housing

May 17th, 2016 at 12:00 pm by David Farrar

The Herald reports:

The Government is set to confirm plans next month to force councils to unlock more land for housing.

Housing Minister Nick Smith told TVNZ’s Q+A this morning that he would be “upping the ante” on increasing housing supply, in particular in Auckland.

“Next month I will be producing a national policy directive under the [Resource Management Act] that will put far tougher requirements on growing councils to ensure they are freeing up long-term the land that is required so that we don’t get into the sort of juggernaut that has been at the core of the unaffordable housing problems in Auckland.”

The Government was “pulling every lever it had” to increase supply, he said, and progress had been made on plans to build houses on surplus Crown land in Auckland.

Several contracts with developers would be announced in the next few weeks, and he expected the first house to be built on this land before the end of the year.

Around $52 million in funding for the scheme had been exhausted, and further funding was expected to be confirmed in this month’s Budget.

Dr Smith also told Q+A that Auckland’s Unitary Plan was “hugely important” for ramping up housing supply in the city.

“If we’re going to solve the problem in Auckland, it can’t be the sort of binary choice – is it up or is it out? It’s actually both.”

Good to hear Nick say this. Just doing one of them won’t work.

Labour claimed 30% of Auckland houses purchased by Chinese, actual data shows 2.3%

May 11th, 2016 at 9:00 am by David Farrar

Phil Twyford claimed last year:

Nearly 40 percent of the houses sold in that period went to people of Chinese descent, and as your introduction pointed out, the Chinese New Zealander population in Auckland, according to the most recent census data, is about 9 percent. Now, that is a remarkable discrepancy, and, in my view, it’s simply not plausible to suggest, as many have done in the last couple of years, that the Chinese— ethnic Chinese people who are buying houses in Auckland are all Chinese New Zealanders. It points, I think, to only one possible conclusion, and that is that offshore Chinese investors have a very significant presence in the Auckland real estate market when you consider that Auckland house prices are spiralling out of control at the moment. …

This is an issue about foreign investment, and it doesn’t matter in one sense what the surnames of the buyers are, but if this data shows, and I believe it strongly suggests, that offshore Chinese investors have a major presence, possibly as high as 30 percent of the houses sold by this real estate firm over a three-month period, then that is very significant.

Louise Upston has released actual data. It shows that 4% of Auckland buyers were overseas tax residents and 58% of those 4% were from China which is 2.3% of total Auckland sales.

Phil Twyford should be ashamed of himself for his disgraceful and shoddy data where he failed to differentiate between New Zealanders and foreigners on the basis of their surname. You may have a Chinese sounding surname yet be a 4th generation New Zealander.

The LINZ data is not perfect and they go to great lengths to state its limitations. But the gap between the 30% Twyford was claiming and the 2.3% in the LINZ data is so great that is is preposterous to suggest that Twyford was anywhere near correct.

Stats Chats says:

The LINZ report does a good job explaining the real limitations of `tax residence’ as a criterion, but it’s a lot better than any previous data we’ve had.

I’m looking forward to a Mt Roskill by-election (if Goff wins) where the Labour candidate has to explain to the many Chinese New Zealanders living in Mt Roskill why Labour whipped up Aucklanders to blame them for high property prices.

The data will continue to be updated every three months, so we will be able to see if the levels of purchases by foreign tax residents increases. But for now there is nothing to suggest they are having a big impact on the market, and hence Labour’s policy to ban them is basically worthless, as it would have a miniscule impact on house prices at best. Maybe Labour could focus on real solutions such as increasing the amount of land available, instead of deeming people with Chinese sounding surnames as the problem.

Bob Jones on Housing

May 9th, 2016 at 7:00 am by David Farrar

Bob Jones writes in NBR:

Let’s get some facts straight, once and for all on this matter.  First, most house dwellers in Auckland are owners.   Make no mistake, it’s no crisis in their eyes.  Good luck to them for this wealth windfall. 

Prime Minister John Howard summed it up beautifully a dozen years back.  He listened patiently while a current affairs television journalist berated him about house prices.  “Listen,” he said, when the bore finally finished.  “Over the past three decades I’ve been harangued from one end of Australia to the other on every imaginable subject, with one exception. No one yet has complained to me about their home’s rising value.”

Secondly, Auckland is today and has been for the last decade or so, Australasia’s fastest-growing city.  In a nutshell, that’s the market, otherwise known as the public, voting with their feet – a huge compliment to the city.  With that rapid population growth comes unavoidable baggage, namely transport congestion and housing shortages. Nothing is free but what’s undebatable from the continuing inflow, not just from abroad but also from within New Zealand, is that those problems are a price people are willing to pay. That’s not opinion but logic; otherwise they wouldn’t keep coming.

Land re-zoning, house, road and rail construction to resolve these demand pressures can’t be achieved with a wave of a wand. They not only take time but lots of it.  More important, they’re all happening in Auckland right now. No one is sitting on their hands, despite the newspapers’ tiresome handwringing.

This situation is a global one with other cities experiencing similar inflow booms. London, Hong Kong, Sydney, New York, San Francisco and many more, are all having the same growth problems, without the accompanying tedious journalistic infantilism we are enduring.

Bob Jones is right that these large increases are occurring in many major cities around the world.

And there is a huge amount happening on both the demand and supply side, which I detail below. But the one thing which would make the biggest difference – a major shift in the urban boundary for Auckland rests with the Auckland council, not the Government. If you want cheaper land in Auckland, vote for a Council that will make the land available.

What has been done though is:

  1. Tax changes so any sale of an investment property within two years gets fully taxed
  2. Houses no longer depreciated for tax purposes
  3. Reserve Bank introduced restrictions on the number of mortgages a ban can offer with less than 20% capital (and in Auckland less than 30%)
  4. Obligation for all buyers to have an IRD number to track if foreign demand is significant and needs a policy response
  5. New home construction in Auckland up from 3,579 a year to 9,566 in the last year
  6. The KiwiSaver HomeStart scheme which allows more KiwiSaver members to use their savings and a grant of up to $20,000
  7. A Government building programme in partnership with Auckland Council through the Tamaki Regeneration Company building 7,500 homes
  8. The fully Government owned Hobsonville Land Company building 400 homes
  9. Almost 28,000 new houses and sections consented in Auckland through the Special Housing Areas and a further 28,000 likely
  10. RMA changes which have reduced some consenting costs