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.

Tags:

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%.

Tags: , , ,

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.

Tags:

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.

Tags:

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.

Tags:

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.

Tags: ,

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.

Tags: ,

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.

Tags: ,

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.

Tags: , , ,

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.

Tags:

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!

Tags: ,

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.

Tags: ,

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.

Tags: , , ,

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.

Tags: , ,

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.

Tags: , ,

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!

Tags: ,

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. 

Tags: , , ,

Herald on Labour’s home loan policy

September 26th, 2013 at 11:00 am by David Farrar

The Herald editorial:

Labour’s new leader appears to think he can manage New Zealand’s financial system better than the Reserve Bank. If he was in power now, he says, he would not allow the bank to include first-home buyers in its mortgage lending restriction to take effect from next week.

The bank is about to limit the amount of lending that retail banks can do on deposits of less than 20 per cent of the price of the house. It is acting out of concern that banks are becoming too exposed to the risk that another house price bubble will burst, causing prices to fall. If that were to happen, the consequences for banks might be costly but for low-equity first-home owners it could be catastrophic.

The little equity they have amassed could be wiped out, leaving them owing the bank more than their house is worth.

If that sounds bad enough, other policies espoused by David Cunliffe would make their position even worse. If elected, he says, Labour would exempt first-home buyers from the new lending limits until its capital gains tax took hold and its low-cost house building programme took effect.

Nothing would be more likely to bring about a fall in house prices than a capital gains tax and an increase in state housing. If Mr Cunliffe had the interest of first-home owners at heart he would not only limit their access to low equity loans, he would do so well in advance of his other proposals.

So Labour is joining the Greens in promoting policies to leave home owners with negative equity!

When it announced the proposed restriction the Prime Minister made it known the Government wanted an exemption for first-home seekers. The bank was unmoved, pointing out that first-home buyers were about 30 per cent of low-deposit borrowers and they had to be included if the measure was to be effective.

John Key gave way, deferring to the bank’s expertise in its statutory jurisdiction. The bank’s so-called independence in these matters has been in the bedrock of New Zealand’s economy for nearly 30 years. In that time its independence has been respected by both major parties in government and when they were in opposition.

Labour’s finance spokesman, David Parker, believes the party could exempt first-home seekers without removing the Reserve Bank’s independence; his new leader appears not to care whether the bank’s role is compromised or not.

The independence of the Reserve Bank has been a critical element of our economy. We should be very worried about promises to over-ride its decisions by politicians.

Mr Cunliffe needs to be very careful in this area. As the leader of one of the main parties, his utterances could be damaging to long-term confidence in the economy well before he threatens to be in any position to act.

It is hard to believe he would carry out the promise to over-ride the Reserve Bank’s independence to exempt first-home seekers, if only because of the obvious risk to their equity. He was looking to score an easy political point.

Anything that makes it harder for first-home seekers to get finance is bound to be superficially unpopular, as proven by a poll at the weekend. Political leaders who withstand this pressure and respect the Reserve Bank’s independence deserve more credit for it than Mr Key has received.

Governments are all-powerful in this country, it would be easy to weaken the bank’s legislated jurisdiction and do untold damage to our economy.

Mr Cunliffe’s stance is a worry.

Basically Labour are campaigning on cheap and easy credit – the very thing that caused the global financial crisis. We should be very wary.

Tags: , , , ,

Turei on house prices

September 15th, 2013 at 12:00 pm by David Farrar

Sadly I was overseas last week and didn’t get to cover at the time the massive blunder by Metiria Turei on The Vote. It was so bad, that even before the episode went to air, she was on Firstline admitting she doesn’t know their own policy.

Extracts from what she said:

Garner: Would you like to see house prices fall in New Zealand, Metiria?

Turei: Well, yes actually. We would like to make sure that they are affordable. Oh – shocked look on your faces , how dare, how terrible if young families could actually afford to buy a home.

There is a big difference between saying prices should stop rising so rapidly, and saying we want to see house prices fall.

Garner: So, if house prices fall as you would like, you’d like the house prices to fall, that means that some families could have negative equity which could be an economic disaster for New Zealand!

Turei: Yes, that’s right that’s right so you have to be extremely careful….would you like to listen to an answer Duncan?

Garner: I think I heard enough!

Turei: So you have to make sure…

Peters: Hang on, hang on, hang on…

Turei: You have to make sure that if you’re going to change any of those, those economic levers you have to do it extremely carefully and over a long period of time and the first priority has to be building affordable homes – now those are homes…

And here Turei says she wants some home owners to have negative equity.

 “that means that those holding onto the wealth now will have to be prepared to let some of it go…”

And she went further and advocated that it would be good to have some home owners forced to sell their homes because the prices drop.

Won’t a Labour/Green Government be a lot of fun!

Tags: , ,

House prices in NZ and UK

September 13th, 2013 at 1:00 pm by David Farrar

James Weir at Stuff reports:

An upmarket, spacious McMansion in Austin, Texas, or a pokey one-bedroom flat in a Soviet-style apartment block in London.

The homes may cost the same as a median-priced home on the fringes of Wellington at about NZ$390,000, but what you get for your money is worlds apart.

And a report by “think tank” The New Zealand Initiative suggests a lack of supply and difficult planning processes are behind rapidly rising house prices in New Zealand and Britain.

Britain was a “housing quagmire” and a telling study of what not to do in housing policy, the NZ Initiative report says.

More specifically:

Britain suffered from a strong lobby group of Nimbys (not in my back yard) led by the Campaign to Protect Rural England. Its housing market had many of the hallmarks of a Soviet planning system, the report says, with planners deciding where people could live.

The Town and Country Planning Act essentially nationalised the right of the British to develop and vested the right in the state.

That made it difficult to develop in Britain, especially in new “greenfields” sites which, as in New Zealand, meant a lack of housing supply.

“A new housing market scarcely exists in Britain,” with most of the cards left in the hands of people who already own the land and a wall of regulations set up by councils and planners that favour those who control the green spaces.

The British Planning Act was similar to New Zealand’s Resource Management Act, the New Zealand Initiative report says.

But is there a model that works to get affordable housing:

But in other places, such as Texas, houses are cheap and prices steady, which has been a factor in that state’s economic success. …

One of the report’s authors, Luke Malpass, said Texas was a good example for New Zealand to consider, especially in the way it funded infrastructure for new housing.

The state has statutory taxing authorities and the residents are the voters – essentially mini-local governments which could raise debt to pay for new infrastructure, with a maximum tax level for a defined set of services.

“It encourages master planning and mixed use,” Malpass said.

Without such a system Houston, for example, would not have been able to grow as fast as it had, because the city itself would not have had the money to pay for expansion.

That sounds a good model. The city itself should not have to pay for the infrastructure of new subdivisions – that should be borne by the new residents.

Average Texas house prices are typically about three times the average income, about half the relative levels in New Zealand.

And hundreds of thousands of people move to Texas from other states, because they can get a decent affordable family home there.

Tags: ,

Media reporting on Labour’s housing policy

September 3rd, 2013 at 2:00 pm by David Farrar

Matt Harman at Fuseworks writes:

The non-resident buyers policy followed a fairly typical pattern – as soon as it was released there was a flood of information and opinions released to the media – some in support of the policy, but mostly not.  

This isn’t a Labour Party specific problem – we’ve found the same pattern with virtually any announcement made by any political party.

Themes that gained the most traction were that the policy is xenophobic and that it only targets a very small portion of buyers.

Backers said that having no restrictions is causing a housing bubble, that similar policies are common in other countries and NZ land should be kept in NZ hands. …

We compared the media reported responses to Labour’s policy for the three days immediately following the announcement, to what was reported in the following two weeks.

Initial reporting focused heavily on four themes:

  • - Labour’s message that the approach was common overseas
  • - The view put forward by John Banks and others that it is xenophobic
  • - The view first expressed by lawyer Stephen Franks that the policy may violate NZ free trade agreements (FTAs)
  • - The view put forward by the National Party and others that the policy would likely target a small proportion of buyers
  •  

In the following two weeks the responses related to NZ FTAs and the number of buyers it would impact receded, while the xenophobic narrative continued to be a high proportion of the overall discussion.

I am not surprised the media narrative changed, as it transpired Labour’s policy would breach several FTAs they themselves signed!

Tags: ,

Will Lianne allow Orion to price gouge?

August 20th, 2013 at 9:00 am by David Farrar

Mike Yardley at The Press writes:

Orion’s odious proposed price hike, which would gouge an extra $1000 off every Christchurch customer, over and above its existing 25 per cent share of power bills, has run into a brick wall.

The Commerce Commission’s draft report has virtually halved the scope of Orion’s planned cash-grab, while also noting that the community-owned lines company does not have to proceed with this increase.

No-one disputes the critical infrastructure repair and enhancement programme Orion has embarked upon.

But there are alternative ways to pay the $150 million bill for this 10-year project.

As the Earthquake Recovery Minister, Gerry Brownlee, has pointed out, the company’s balance sheet is very strong, its cash reserves are healthy – and Orion has generated $220m in profit in the past five years alone.

Brownlee has described Orion’s proposed price hike as “an appalling slap in the face to the community, by a council-owned company that is behaving like a rapacious capitalist”.

Well that is a clear stance by Gerry. But what about Lianne Dalziel? Are Labour not against price gouging by electricity companies?

So what is the position of our mayoral aspirants?

And should they be successful on October 12, what pressure will they apply on Orion to abandon this lazy financial assault on a captive market?

Paul Lonsdale swiftly responded to me, pledging to negotiate with Orion’s board to abandon the proposed increase.

But Lianne Dalziel took umbrage at my inquiry as to whether she would lean on Orion to jettison the increase.

Instead, I was emailed a diversionary missive from the red-hot mayoral favourite as to why Orion was an “over my dead body” strategic asset which must be protected.

So is Lianne saying that she supports Christchurch people paying an extra $1,000 a year for power, so long as she owns the company and can get to spend the dividends?

Dalziel also fired off a chapter and verse broadside about why the power retailers are the real “villains”. (Although, unlike the retailers, the customer can’t shop around for a lines company. And, unlike the lines company, the council has no control over power retailers.)

Retailers have competition, and effective competition also. Hundreds of thousands of people swap retailers when they can get better offer. Why would Lianne ignore the monopolist lines company? Oh, maybe because is she becomes Mayor their profits can fund her spending plans?

Of course, all of this is a big fat red herring by the mayoral contender and, surprisingly, Dalziel declined to give me a straight answer on whether she specifically supports Orion’s desire to fleece an extra $1000 out of your backpocket.

It seems like a very reasonable question.

Tags: , , ,

Council development charges

August 16th, 2013 at 1:00 pm by David Farrar

Nick Smith has announced:

The Government has decided on changes to the Local Government Act to rein in council development contributions to improve housing affordability.

“We are going to narrow the charges councils can put on new sections, provide an independent objections process and encourage direct provision of necessary infrastructure to get costs down,” Housing Minister Dr Nick Smith and Local Government Minister Chris Tremain say.

“Development contributions have trebled nationally over the past decade and have gone up more than any other component cost of a new house. This huge increase can be attributed to the local government law change in 2002 that gave councils carte blanche to charge whatever they liked and removed any check or appeal on these charges. These charges now average $14,000 per section but can be as high as $64,000 per section,” Dr Smith says.

How I see it is National is focused on reducing the costs of new houses across the board. Labour just wants to subsidise 10,000 state houses a year that it will sell at a discounted rate through a lottery. If you don’t win their lottery, then bad luck

Tags:

Major RMA reforms announced

August 10th, 2013 at 9:01 am by David Farrar

The PM has just announced the major points of the third stage of the Government’s RMA reforms. They are very significant, and are aimed to lowering housing costs and speeding up consenting. This means I am sure Labour and Greens will oppose them.

The major points are:

  • halve from 20 to 10 workign days the time limit for consents for straightforward applications such as adding a deck or veranda
  • require fixed-fee options for certain consents, so there is certainty of cost
  • Give Councils the ability to waive resource consents for insignificant variations from planning rules such as a retaining wall being slightly over a permitted height
  • Require Councils to provide a minimum of 10 years of urban land supply to cope with projected population growth
  • Make subdivisions non-notified unless they are clearly not of the type anticipated by the relevant plan and zoning

These look really good to me, and should make a real difference to reducing both the cost and time of building or altering a house.

Tags: ,

LVR restrictions

July 16th, 2013 at 11:00 am by David Farrar

Stuff reports:

The Reserve Bank is expected to forge ahead with controversial restrictions on home loans within the week – and there will be no exceptions for first home-buyers.

A banking source said banks were told on Friday to prepare for restrictions which will impose a 12 per cent ”speed limit” on their total new lending going on low equity mortgages.

That will effectively halve the amount of high loan-to-value (LVR) lending that the banks are currently doing, making it much harder to get a mortgage with a deposit of less than 20 per cent.

The source said the Reserve Bank’s restrictions were much more extreme than had been anticipated.

”My understanding is that all the efforts of Government to slow them down on the decision have not been successful,” they said.

Prime Minister John Key had previously suggested the Government would work with the central bank to agree on some sort of ”carve-out” for first-home buyers.

The source said tensions between the two parties had grown as Reserve Bank governor Graeme Wheeler refused to back down.

The Reserve Bank has consistently said that creating exceptions for first-home buyers, small business owners or others, would dilute the strength of the tool.

As an independent organisation, the Reserve Bank’s sole focus is maintaining financial stability in the banking system.

This policy, like most, will create winners and losers.

It should reduce pressure on house prices, as demand will drop following less credit being available. This will benefit those wanting to buy a home that can get credit.

The losers will be those who will be unable to get a mortgage as they don’t have enough of a deposit, and they will have to remain renting for longer. Also current owners could be seen to be losers as their houses won’t appreciate so much.

LVR limits have been widely criticised by the banking and brokerage industries, who have a vested interest in unfettered lending, as well as independent groups like Consumer NZ.

Even the Reserve Bank has admitted that people are likely to sneak around the rules by borrowing a deposit from family, or lower-tier lenders.

Once the limits are imposed, banks will cherry-pick borrowers with the best credit ratings, saving histories and account conduct.

If the reserve Bank does go ahead, it will be interesting to see how effective the policy is.

Tags: , ,