Land tax vs stamp duty

April 28th, 2016 at 7:00 am by David Farrar

The Herald reports:

A top New Zealand property expert opposes a land tax and says a stamp duty is a far better option.

Dean Humphries, a national hotel broker and a former Auckland University lecturer, was responding to PM John Key talking of a land tax and said that would not resolve the issues around foreign buyers purchasing houses here.

“Stamp duty is a no-brainer and could bring in tens of millions of dollars annually. Land tax is the most draconian thing I’ve ever heard of. Where does the Government get their advice from? Stamp duty is so easy because you pay up front at the time of purchase and just a percentage of what you’re paying. It’s just the easiest thing to do and the tax can be used for a multitude of things,” Humphries said.

Key is threatening to apply a land tax to foreign-based house buyers if there is evidence they are pushing up New Zealand house prices – and it could also apply to Kiwis abroad.

Actually a land tax is better, in my opinion (and that of Tax Working Group).

A stamp duty can be avoided by having a trust purchase the land, and then just changing the trustees. Also stamp duty would encourage people to never sell their properties, while a land tax encourages people to use their properties (not land bank them).

However this is all premature. The Government has said that IF the data shows there is a high proportion of foreign buyers, then a land tax is the best option.   The data may show that relatively few buyers are non-residents.

National and Labour on housing

April 27th, 2016 at 11:00 am by David Farrar

Audrey Young reports:

There are some differences between National and Labour’s policy responses to the housing shortage but the fact is that much of it is by degree. There is more commonality between their policies than difference on addressing supply.

Government partnering private developers on Crown surplus land is equivalent to KiwiBuild policy.

It requires state intervention in the private market in a bid to rapidly boost supply. It is the Government’s most important current policy in terms of potential for growing supply.

Within five years, the Government expects to be delivering 15 to 20 per cent of the new houses into the Auckland market.

National has also embraced Labour’s urban renewal programme in Tamaki and encouraged large-scale development programmes such as in Weymouth and Hobsonville. They have few differences there.

The crossover goes both ways. Labour has now accepted National’s long-held view that restrictive planning laws in Auckland have been a key driver in limiting urban boundaries and driving up land prices. It was a major concession and Twyford announced new funding schemes to spread the cost of development infrastructure across generations, rather than piling it into the cost of a new home.

Labour hasn’t yet decided how it will vote on the current RMA reforms before a select committee, aimed at relaxing consenting rules but there’s a good chance it will support it.

A few years ago the parties were in quite different positions. National was focusing mainly on increasing supply and Labour on decreasing demand.Now both parties are promoting policies to both increase supply and decrease demand.

Cities that grow out are affordable cities

April 20th, 2016 at 2:00 pm by David Farrar


This graph from the Wall Street Journal is very powerful. It is backed up by almost every expert analysis of the situation in New Zealand – land availability is the biggest factor in house prices.

If you want cheaper house prices in Auckland, vote for a Council that will make more land available.

Labour’s maths fail

April 15th, 2016 at 11:00 am by David Farrar

The Herald reports:

A $23 million annual increase in development contributions collected by councils means the Government’s reforms have failed, an opposition MP claims.

Phil Twyford, Labour’s housing spokesman, said councils got an extra $23 million, or 9 per cent more, from developers in the last year.

It all depend son if the number of buildings consented increased by more or less than 9%.

It’s idiotic to say that a policy is a failure based on whether total revenue to Councils increased or decreased. What is important is the amount per property.

The Government had put in place initiatives to constrain building materials costs, rein in development contributions, cut compliance costs and invest in improved sector productivity, Smith said after Statistics NZ data showed 27,745 residential consents were issued in the year to February, up from 24,766 the previous year.

That’s a 12% increase in consents and a 9% increase in development contributions which means the level of average contribution has decreased. Thanks to Phil Twyford for highlighting this.

Palino calls for removal of the urban-rural boundary

March 16th, 2016 at 3:00 pm by David Farrar

The Herald reports:

Auckland mayoral candidate John Palino is calling for the removal of the urban-rural boundary to improve housing affordability.

The boundary, known as the metropolitan urban limit, was restricting land supply in Auckland and driving up house prices for ideological reasons, Mr Palino said today.

“It is time council stopped flogging the dead horse that is the compact city and started releasing large amounts of land for residential development,” he said.

That one policy would do more for lowering house prices in Auckland than the next three policies combined. Land one one side of the boundary is eight to 12 times more expensive than that one the other side.

The massive house inflation in Auckland is a result of local policy decisions. Change those decisions to increase land supply and you’ll get a massive result.

Productivity Commission on land for housing

October 22nd, 2015 at 1:00 pm by David Farrar

The Productivity Commission has done a final report on using land for housing. The report is over 350 pages long with lots of data.

Their recommendations:

  • When councils review their rating policies in the future, they should review the evidence in this report with a view to adopting land value as the basis for setting general rates.
  • In future local government amalgamations, central and local government should take the opportunity to consider the merits of adopting land value rating to encourage the efficient use of land.
  • The Government should investigate removing the rating exemption on land owned by the Crown (including on land used for health and education purposes), land used by local government for recreation and community facilities, and the Crown’s exemption from other local government fees and charges.
  • Councils should remove minimum apartment size rules in District Plans
  • Councils should remove minimum parking requirements in District Plans and make more use of traffic demand management techniques (eg, variable pricing for on-street parking).
  • Councils should lift current height limits where it cannot be demonstrated that the benefits outweigh the costs; and undertake robust cost–benefit analyses before considering the introduction of building height limits.
  • Councils should review District Plan controls on the internal design and construction of buildings or dwellings that exceed standards set under the Building Act 2004, with a view to removing them.
  • The Government should amend the Land Transport Management Act 2003 to allow pricing on existing roads where a case has been made that it would enable more effective use of the roading network.
  • The Government should legislate to create a regime similar to Special Housing Areas whereby certain developments undertaken by local urban development authorities are designated by Order in Council as having the potential to deliver significant numbers of dwellings, and within which the urban development authority will operate with different powers and land use rules.
  • The Government should provide for ‘designated developments’ undertaken by local urban development authorities to allow higher height and storey limits than in the Special Housing Areas regime, and to allow non-residential uses that may be necessary for the development to be economically viable.
  • The Government should legislate to grant compulsory acquisition powers to local urban development authorities for ‘designated developments’, subject to the normal processes, compensation and protections of the Public Works Act 1981.
  • The Government should establish a threshold for the price difference between developable and non-developable land, beyond which it will ensure additional developable land is made available.
  • The Government should establish a process involving the relevant council to bring forward the release of additional greenfield land where relative land prices exceed the threshold set.

There is no one silver bullet there, but the combined impact of the recommendations would be considerable.

How much difference could this make:

A report considering global housing affordability issues concludes that “unlocking land supply at the right location is the most critical step in providing affordable housing” (McKinsey Institute, 2014, p. 7). The report estimates that unlocking land supply could reduce the annualised cost of a standard unit of housing by between 8% and 23%. Remarkably, in the world’s least affordable cities (including Auckland), unlocking land supply could help to reduce the cost of housing by between 31% and 47%. Productivity improvements in construction, by taking advantages of scale or taking an industrial approach to construction, could help to reduce the cost of housing by a further 12%–16%.

So in total, you could halve house prices in Auckland and reduce them by a third elsewhere.

Local regulatory constraints to releasing land and development capacity for housing have national and economy-wide impacts. Overseas research suggests that constraints on the supply of housing in high-wage cities can price out workers who would be more productive if they could move to take up the opportunities available. Lifting barriers to urban growth by releasing land and development capacity in these cities would increase a country’s Gross Domestic Product (GDP). Quantifying the size of the prize is difficult, but it could be significant. One US study (Hsieh & Moretti, 2015) estimates that lowering regulatory constraints on land supply in three high-productivity US cities – New York, San Francisco and San Jose – to that of the median level of restrictiveness in the United States would increase GDP by 9.5%. A productivity bonus anywhere near this level would be of major significance to the New Zealand economy. Indeed, it is difficult to think of many other policies that would yield such an improvement in the nation’s economy.

I hope the Government adopts these recommendations, and also that opposition parties support them.

English on housing affordability

September 30th, 2015 at 12:00 pm by David Farrar

An insightful speech on the housing market by Bill English. Some extracts:

A strong focus of our policy is to make sure our markets work.

And over the last 30 years New Zealand has done a reasonable job of this.

Over the last seven years our labour market has been tested.

It has accommodated a significant recession in 2008, and a pickup in demand particularly in Christchurch following the earthquakes.

The labour market was able to respond quickly to those shifts in supply and demand conditions.

Today New Zealand’s proportion of the working-age population in employment is among the highest in the OECD.

Another area that is now working well is the energy market.

For a long time, New Zealand energy markets were over-regulated and poorly-regulated.

Extensive government ownership further stunted price signals.

For instance, water management in the hydro-electricity system was, compared to today, very poor. …

We’re shutting down excess capacity, and excess capital is being withdrawn and returned to the owners of that capital.

After years of litigation and legal contest over the rules, the energy market is now starting to work.

Which brings me to the housing market.

This is probably the largest market in New Zealand where the rules need to be reshaped.

The most evident indication of a problem is Auckland house prices.

I’m yet to find a housing market anywhere in the world where prices go up at over 20 per cent a year without stopping and then starting to come down again.

So why is the housing market important:

Over the last five years, the Auckland housing market has been the single biggest imbalance in our macro-economic system.

It takes around eight years for the housing market to respond to a shock to demand.

In part that is because changes to council plans can take years, in some cases over a decade.

Resource consents on a housing development regularly take 18 months, including pre-application times excluded from the official statistics.

When combined, those very real delays can exceed the length of the house price cycle.

The point is that when the supply of housing is relatively fixed, shocks to demand – like migration flows increasing sharply as they have recently – are absorbed through higher prices rather than the supply of more houses.

And the main cause:

This has been borne out by extensive studies in the United States following the Global Financial Crisis.

What they’ve found is that, across different markets subject to rules which vary by state, more-intense regulation of urban development is associated with higher house price volatility.

That is, the steepest price increases and the sharpest falls are in areas where regulation is strongest.

The effects of planning rules can extend to the macro-economy.

Cities are one of the extraordinary inventions of the human race.

Studies have shown that cities are an engine room of growth. Incomes in cities are higher than elsewhere. That is one explanation for high rates of urbanisation.

Research indicates that when planning rules prevent workers shifting to higher-productivity locations, then there is a cost in terms of foregone GDP.

It’s only relatively recently that economists and politicians have understood the scale of those effects.

So when we’re talking about something as apparently dry as the Auckland Unitary Plan, we’re talking about a set of rules that will have a major impact on the city, on current and future residents – but also on the wider economy.

So the unitary plan is important.

In my view, poor urban planning is one of the significant drivers of inequality.

Poor regulation of housing has the largest proportionate effect on the lowest quartile of housing costs and rents.

So when we’re having the debate about whether there is sufficient land available, we have to recognise that the people who lose the most from getting that decision wrong – and who stand the most to gain from fixing those decisions – are those on the lowest incomes.

Income inequality in New Zealand has been flat for 20 years, but the gap between incomes measured before housing costs and after housing costs is growing.

Housing costs are becoming a larger proportion of incomes – and that matters the most at the bottom end of incomes among people who have few choices.

So one of the best ways to tackle inequality is to free up land.

Planning is often seen a public good activity that must address the needs of those who are most-vulnerable and have the lowest income.

In fact there is a strong argument to say it does exactly the opposite.

Poor planning favours “insiders” – homeowners – on high incomes and who have relatively high wealth.

It is the old unexpected consequences.

Today we spend $2 billion each year on accommodation subsidies. 60 per cent of all rentals in New Zealand are subsidised by the Government.

The state owns around $21 billion worth of houses.

One house in every 16 in Auckland is a Housing New Zealand property.

Many of these are three bedroom houses on quarter-acre sections only a few kilometres from the CBD – a massive misuse of scarce land. And all at the taxpayer’s expense.

So these are the reasons why the Government pays attention to the housing market and issues stemming from poor planning.

Yet they protest when their highly subsidised quarter acre section is turned into more housing.

For those among you who are economists, I would go so far as to say that while the justification for planning is to deal with externalities, what has actually happened is that planning in New Zealand has become the externality.

It has become a welfare-reducing activity.

And as with other externalities, such as pollution, the Government has a role to intervene, working with councils to manage the externality.

This is a key sentence and indicates English is very serious about tackling the planning rules.

Recent studies have shown rules setting minimum floor space requirements and minimum balcony requirements add $50,000 to $100,000 to the cost of an apartment.

That’s in addition to costs associated with other rules, such as rules setting minimum ceiling heights.

Some progress has been made. A study examining minimum car parking requirements in Auckland showed the costs of that planning rule exceeded benefits by a factor of at least six.

That’s a rule that should never have been made. It has probably cost the economy millions of dollars.

Fortunately, now that we’re digging in to these issues, that rule has been mostly scrapped – and credit is due to Auckland Council for doing so.

So a start has been made, but much more to do.

Build up and out

August 18th, 2015 at 4:00 pm by David Farrar

The Herald reports:

A plan for a five-storey apartment block in Birkenhead is fuelling the intensification-versus-housing choice debate.

Many residents of Rawene Rd are upset at the proposal for their no-exit street, which features historic villas built for the Chelsea Sugar Works.

The planned 56 units, all with two bedrooms and some 50sq m, are a classic case of overdevelopment, says one of the residents, Sharon Bonfield. 

She accepts intensification is going to occur in Birkenhead, saying two other developments for 50 townhouses and apartments have been approved for Rawene Rd.

However, it is the size and scale of the block on business-zoned land which have upset the locals. The Birkenhead Residents Association has questioned the design and impact on the community.

The land is zoned for business. I’d rather have a nice new apartment block there than an office block.

There is no real  alternative to building both up and out.

Resident Steve White said the small apartments, inadequate parking, virtually no landscaping, excessive height and street shading from the building would adversely affect the environment. He said it was a shame that the council did not follow Vancouver, the Canadian seaport city that local politicians and planners use as a benchmark to make Auckland the “world’s most liveable city”.

This is Vancouver where the average detached house price is C$1.44 million and rising at $250,000 a year?

Not sure that is the best model to be promoting.


Productivity Commission on land for housing

June 18th, 2015 at 6:37 am by David Farrar

A good report by the Productivity Commission on freeing up land for housing.

It’s 331 pages long, so here’s a summary of some of the recommendations:

  • Large land price differentials between different types of zones, such as those observed in Auckland, should be a trigger for local authorities to review the adequacy of their land supplies and zoning decisions.
  • High-growth local authorities should express their land supply targets in terms of zoned and serviced land and report publicly on their performance.
  • The Ministry of Business, Innovation and Employment, in conjunction with relevant local authorities, should inventory public land holdings in all high-growth cities to identify sites that could be used for housing.
  • The Government should introduce amendments to the RMA to clarify the role and importance of housing and urban environments.
  • In reviewing their District Plans, local authorities should move more residential land-use activities into “permitted” or “restricted discretionary” status.
  • Councils should identify areas where there is existing infrastructure capacity and ensure that planning rules do not prevent intensification from occurring in these areas.
  • Councils should pursue opportunities to make more efficient use of existing infrastructure assets including through greater use of user charges where this can reduce demands on infrastructure.
  • Government should adopt the Local Government Infrastructure Advisory Group’s recommendation to amend the Land Transport Management Act to allow pricing on existing roads where there is a business case that enables effective network optimisation.
  • The Treasury, in consultation with the Department of Internal Affairs, should investigate removing the rating exemption on land owned by the core Crown, including on land used for health and education purposes.
  • There is a place for a UDA to lead and coordinate residential development at scale in both greenfield and brownfield settings, working in partnership with private sector developers. Legislation would be required to establish and give powers (such as compulsory acquisition) to one or more UDCs in New Zealand.

The Productivity Commission are neutral experts whose task is to come up with solutions to issues that reduce our productivity. I hope the Government takes up most of their recommendations. The compulsory acquisition power for UDCs I don’t support, but the other stuff I do

UPDATE: Labour is supportive, which is good:

The Government should adopt the Productivity Commission’s recommendation to create an urban development authority to drive large-scale renewal projects in our biggest cities, Labour’s Housing spokesperson Phil Twyford says.


Guest Post: Investing in a better understanding of Auckland’s ‘housing problem’

May 2nd, 2015 at 10:16 am by David Farrar

A guest post by Michael Sloan:

Have we truly thought through policies proposed to resolve the Auckland property price issue?  Property prices in Auckland are not just rising because there is a lack of housing or because of the RMA process.  They are fundamentally rising because people are still moving to Auckland despite the higher, and increasing, costs of living.  People moving fundamentally believe that the benefits of living in Auckland outweigh the higher costs associated with living there.  That shouldn’t come as a surprise, because the agglomeration effects of living in increasingly large cities (the city effect) is extremely powerful and self-reinforcing.

As regional geographers, we know that difficulty arises because people are very willing to make short term sacrifices in exchange for anticipated long term benefits. My own research in New Zealand has shown that individuals also trade-off costs in some areas of their life for positive returns in areas of their life they deem more important.

In the case of Auckland these long term benefits are better employment and career outcomes than are possible outside of Auckland.  This is also generally true of any town or city relative to a smaller settlement.  Another ‘trade’ that individuals are making in exchange for accepting higher living costs is the positive social effect of moving to a larger city. There are benefits associated with being in closer proximity to more people, more social opportunities and services, and also benefits associated with other friends and family moving to Auckland.  The more important employment, careers and social lives are to movers, the more they are willing to sacrifice their satisfaction in other areas of their lives, such as their cost of living.

One reason that wages haven’t increased as fast as housing costs have in Auckland is likely to be because the influx of workers is keeping local wage inflation low.  This is likely exacerbated by the after-effects of the recession.  Neoclassical economists and geographers talk about regional equilibrium, frequently in terms of wages and regional wage differentials.  The increasing gap between wages and housing costs should discourage an increasing proportion of people considering moving to Auckland from doing so, thus acting as a brake on its population growth.

As a result, any policy, intervention or action (even private) that decreases housing costs in Auckland will have an impact on the city’s growth, beyond shaping where people chose to reside within the city.  A decrease in the cost of living in Auckland will increase the relative attractiveness of the city and therefore increase the flow of people into its boundaries.

The increased migration may also suppress wage growth, further encouraging businesses into the area, at the expense of employment opportunities in other towns and cities.  Low wage growth would increase the relative cost of housing.  This may slow population growth, but less so if people continue to prioritise longer term career opportunities over higher short-term costs of living. 

As a result, there is a strong probability that even a surge in home building will likely lead to little improvement in long-term house affordability.  Quite clearly, and more importantly, manipulating one facet of policy can have a large effect on other urban systems and processes, often in unexpected ways.

Both doing something and not doing something has a human cost.  It goes without saying that high house prices have a detrimental effect on people.  It is most heavily borne on those who are our least economically equipped.  Regional labour models usually fail to humanise the effect associated with ‘impediments to the free flow of labour between regions’.  That is, that people have attachment to place, and generally experience poorer outcomes when they are forced into moving. 

Further, there are those that suggest that the economic benefits associated with large cities is essential to our economic success, or even survival. That the increased productivity afforded by the city effect is essential to maintaining our standard of living. Others believe that the success of our cities are hollowing out our regions, and in the case of Auckland, hollowing out our smaller towns and cities.

The difficulty we have with talking about the effects of large complex systems is that all too often it is reduced to bite-sized discussions about specific aspects of the system in isolation, largely because it is difficult to talk about the system as a whole in the same detail.  It is an issue this piece also faces in the interests of remaining relatively concise.  A result is that solutions and criticisms are suggested in isolation of their impact on the system as a whole.

I now live outside of New Zealand, but I believe strongly that the regional processes leading to the rapid growth of Auckland and decline of rural areas should be an issue of national interest.  New Zealand absolutely needs to place greater importance on the research of those studying the regional processes that lead to the very real issues associated with what we see as Auckland’s rapid population growth.  By doing so we can have a better understanding of the real costs and benefits of implementing specific policies.  It will require investing more into this critical area of research and building on the very high quality work already being undertaken by those in these fields.  This investment, however, will be more than justified in both economic and social terms if it leads to better decision making.

Michael Sloan, PhD

More Auckland houses being consented

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

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

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

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

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

RMA reform

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

Nick Smith announced earlier this week:

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

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

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

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

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

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

Crampton on child poverty

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

Eric Crampton writes at Interest:

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

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

Inconvenient data!

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

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

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

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

Some people rorting KiwiSaver home subsidy

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

The SST reports:

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

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

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

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

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

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

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

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

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

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

Swedish housing controls

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

Quartz reports:

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

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

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

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

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

On housing

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

Stuff reports:

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

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

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

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

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

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

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

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

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

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

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

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

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

Labour’s aspiring home owners not actually looking to buy

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

The Herald reports:

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

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

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

Not bad for so young.

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

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

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

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

Stuff points out:

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

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

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

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

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

What were the gaffes?

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

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

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

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

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

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

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

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

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

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

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

The Herald reports:

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

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

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

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

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

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

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

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

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

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

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

Bertaud on City Planning

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Urban development should remain the main objective of urban planning.

A lot to agree with there.

CPI 0.1% for quarter

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

Stats NZ reports:

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

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

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

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

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

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

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

Housing affordability

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

Stuff reports:

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

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

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

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

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

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

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

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

The Demographia survey is here.

Auckland house consents at five year high

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

The Herald reports:

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

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

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

Nonsense stats

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

The Herald reports:

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

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

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

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

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

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

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

UPDATE: Stats Chat also takes the story to task:

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

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

The point I made.

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

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

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

17 houses available under stated rent limit for person in tent

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

The Press reports:

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

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

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

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

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

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

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

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

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

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

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

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

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

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.