Capital Gains Tax and housing

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

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

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

This exchange from Q+A was interesting:

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

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

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

 CORIN   And paying tax, presumably.

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

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

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

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

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

Maori home ownership rates

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

Stuff reports:

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

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

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

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

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

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

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

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

 

Key on Auckland land

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

Bernard Hickey writes:

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

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

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

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

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

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

Little on housing

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

One News reports:

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

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

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

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

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

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

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

Excellent. I wish National would say the same.

Taxpayer funded motels

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So neither of them are working.

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

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

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

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

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

Herald on Labour’s housing policy

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

The Herald editorial:

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

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

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

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

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

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

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

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

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

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

Bernard Hickey reports:

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

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

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

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

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

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

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

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

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

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

Germany releases land to keep housing affordable

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

Forbes reports:

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

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

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

Widespread support for Twyford’s policy

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

Bernard Hickey reports:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The property people support it.

Business NZ also welcomed Labour’s proposal.

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

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

As does business.

A great policy from Labour

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

The Herald reports:

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

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

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

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

I’m stunned, but in a good way.

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

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

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

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

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

Twyford is dead right – moving it is not enough.

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

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

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

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

Councils will have to unlock more land for housing

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

The Herald reports:

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

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

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

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

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

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

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

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

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

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

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

Phil Twyford claimed last year:

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

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

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

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

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

Stats Chats says:

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

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

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

Bob Jones on Housing

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

Bob Jones writes in NBR:

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

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

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

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

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

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

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

What has been done though is:

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

Auckland Council chief economist calls for more land

May 2nd, 2016 at 4:00 pm by David Farrar

The Herald reports:

Auckland Council’s plans for higher density housing cannot succeed unless the city also expands further into the countryside, says the council’s chief economist.

Chris Parker said the only way to contain Auckland’s runaway house inflation – up $70,000 last month to $820,000 on a median price house – was to open up more rural land to relieve price pressure on a “dysfunctional” urban land market.

The council’s flagship compact city plan, based on more people living in apartments, terraced houses and townhouses within city limits, was necessary but unable to work by itself.

“Intensification won’t do it – not alone, it’s got to be part of a package,” Mr Parker told the Herald in an interview for the Home Truths series.

“Intensification increases the opportunities for what can be done on each piece of land and it increases the value of land underneath.

The hope is that you can spread more houses on top of it, but the problem is we’re in a race we can’t win.

“The rate of increase in land [prices] is always faster than the rate at which we can build houses on top.”

Mr Parker said public opposition to intensification made the process more difficult, as this further delayed the introduction of high density homes while land prices kept rising.

He described Auckland land prices as a vicious cycle: speculation caused land owners to hold off selling, which pushed demand “through the roof”, increasing prices and creating further speculation.

The only way to break the cycle was “good old-fashioned, school kid level economics, which is simply to increase the supply of rural land into the urban land market”.

This is the same view given by almost every other expert on the issue. Everything else is tinkering. The cost of houses and land in Auckland is a result of a political decision by Auckland Mayor and Councillors not to make more rural land available for urban use.

Mr Parker also suggested that private companies – or even home owners – should be allowed to provide roads and water services for new subdivisions to bring down costs.

The cost and organisation of infrastructure by council-run bodies is one of the big obstacles holding up the provision of new housing, partly because councils are only allowed to take on low levels of debt.

However, Mr Parker said it was already accepted that private companies provided electricity and telecommunications. “Why don’t we change our headspace to think the same way about roads and water? No one’s had that discussion,” he said.

Also an idea well worth looking at.

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

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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.