Wellington rental market: a problem of success?

I’m a bit tied up with other stuff today, so will come back to the New Zealand Initiative’s immigration report next week.  But in the meantime, I was somewhat taken aback to see the Prime Minister quoted as describing the current squeeze on the Wellington private rental market as “a problem of success“.

Sadly, it is like some line lifted directly from the John Key playbook.  I wrote last year about the then Prime Minister’s ludicrous, and frankly insulting to the intelligence of ordinary citizens/voters, attempt to pass off the extraordinary pressures on Auckland house prices and infrastructure, including traffic congestion, as “quality problems”.  In fact, what they were –  and are –  are failures of central and local government to get the land supply market functioning effectively, having over-regulated it in the first place, interacting with central government’s decisions to keep on bringing in lots more non-citizen immigrants.

How does the new Prime Minister justify his insouciance about the Wellington situation?

However, English said the demand for rentals was “a problem of success”, which the Wellington City Council was already trying to address.

“It’s actually a long time since Wellington has felt the pressures of growth – the Government’s investing large amounts of money in the infrastructure…

“The council has shown that it understands for the first time in a number of decades, there is pressure on the housing stock and they are enabling more houses to be built because that’s the only way that they’re going to see a bit less pressurised.”

Damage to Wellington office buildings from last November’s Kaikoura earthquake had also had “a bit of a flow-on effect” to the city’s accommodation, English said.

Although the large lines were “certainly concerning for people who are looking for accommodation”, they did not show a crisis as the housing shortfall was well understood by the council.

Wellington hasn’t experienced pressure in its market for quite some time and as long as they respond quickly, they’ll be able to deal with it.”

I presume not even he is arguing that the earthquake effects were a problem of success.

I was a bit puzzled by the infrastructure spending line.  I’m looking forward to trying out the new Kapiti expressway, but the biggest local infrastructure spend is on Transmission Gully,  the total uneconomic  new motorway on the outskirts of the city.  Perhaps that might, in time, help ease housing pressures in Wellington city, if people could get in more easily from Kapiti, but then I recall a commenter a while ago pointing out how little land Kapiti had actually zoned as residential.

But what really puzzled me about the PM’s comment was that it was a long time since Wellington had felt the pressures of growth, as if this was the dawn of some new renaissance of Wellington.  But here are the population growth data for Wellington city (where the pressures seem to be), greater Wellington (Wellington, Upper and Lower Hutt, Porirua and Kapiti) and New Zealand as a whole.

wellington-popn

Wellington city has had population growth rates very similar to those for the country as a whole –  Wellington city grew faster than the country as a whole in the previous population surge in the early 2000s, and has been just slightly behind in the last few years.  As for the “greater Wellington” region –  a more comparable basis to compare to Christchurch or Auckland –  there has certainly been a rebound in population growth in the last few years, but it continues to lag behind New Zealand’s population growth rate as a whole.  In only two years in the 20 shown here has greater Wellington’s population growth exceeded that of the country as a whole, none of them in this decade.    House prices rose rapidly in Wellington in the 2000s boom, and they are doing so again now.  It just looks like the same old shared central and local government failure.

I’ve written about rents previously.  In a well-functioning urban land supply market, a substantial and sustained fall in real interest rates should be expected to result in rents falling.  Actually, what has happened –  and still appears to be happening in Wellington –  is that real rents have been rising: not as much as house prices have certainly (rental yields have been falling), but they;ve been rising when, if governments hadn’t so badly messed up the housing market, they’d have been falling.

But, says the Prime Minister, not to worry: the Wellington city council is apparently on the case and moving to resolve the problem.    Really?  They didn’t do anything very much in the previous boom, and I haven’t seen much sign of far-reaching reform this time round.  Last week, they announced a plan to build more “social housing” –  which might or might not be a good thing in time –  but I’ve seen little sign of any sort of serious reform of the land supply regulatory situation.

Immediately after the local body election late last year, I wrote about the prospects for housing supply liberalisation in Wellington.

Sadly I don’t expect much.  Here is the housing policy of the new Labour Party mayor of Wellington.

For starters, I’ll be sending a bill through to parliament to make rental WoF a reality in Wellington. If you’re paying rental for a house it’s only fair that house meets basic standards. Living in a warm, dry house that’s free of mould should be a right for every Wellingtonian.

I’ll also invest in social housing, so there’s more available for the people who need it most. This means a long term building program, partnering with third sector housing providers to increase the number of live-to-own dwellings. It also means improving the 2500 existing Wellington council owned social housing units, making them safer and better to live in. 

But that’s not enough. It’s vital that we look after those in need, but we also want Wellington to grow and prosper. That’s why I’m offering a $5000 rates rebate for anyone building their first home in Wellington. Newer homes means better quality homes, and Wellington needs to encourage fresh young talent and new families to move here if we want to keep thriving. 

Plus, I’m committed to establishing Build Wellington, an urban development agency that will utilise existing green-field land holdings for affordable, good quality residential development in the tradition of state and Council housing in years gone by.

Nothing, at all, about freeing-up land supply, just more statist “solutions”, and a local version of the sort of first home buyer grant central government offers –  the sort of tool that has been proved, time and time again, to do precisely nothing to improve housing affordability.

And this is the Council that the Prime Minister thinks is going to quickly resolve the stresses?    Promising to make renting more costly, and offering subsidies to first home buyers to bid up the price of houses

In truth, Wellington’s situation looks a lot like the situation in the country as a whole –  a milder form of Auckland’s stresses, with 2 per cent population growth at present rather than 3 per cent.  There is no sign that housing stresses are a result of some great Wellington renaissance, but rather it looks like the outcome of the same old mess: land use regulations imposed and enabled by central and local government combined with a fresh wave of fairly rapid population growth.  Some of that is about a drop in the number of New Zealanders leaving Wellington –  only about 800 last year – but much of it is, in effect, down to central government’s non-citizen immigration policy.

16 thoughts on “Wellington rental market: a problem of success?

  1. Paid Auckland Council a visit and asked to see a planner about the latest update on the Unitary Plan. Surprise Surprise. Auckland Council Planners do not know when the final plan will be fully operative. I mentioned the recent High Court ruling that set aside the legal objections by Character Society and Auckland 2040 ie old folk and grey NIMBY power.

    Apparently the legal objections were set aside as the scope of the objection was too wide. The High Court has asked that the scope to be narrowed. So now we wait for grey NIMBY groups to ponder their next legal move. In effect 29,000 properties are in legal limbo for an indefinite amount of time whilst we all twiddle our thumbs waiting for the next legal appeal to be lodged. In the mean time the Auckland planners have to work with the old zoning District plans together with parts of the new Unitary Plan which is only partially operative.

    The oldies do not want change and they now have extended lives and still very much controls the majority vote and therefore the government. Bill English knows who is buttering his bread as evidenced by his increasing popularity.

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  2. It was very clear Bill English was very keen to put up his hand to help sort out the Housing NZ issue by putting up his hand to volunteer for the Housing NZ Ministry portfolio even though he was very busy as the Finance Minister. His first speeches were on the fact that Housing NZ was sitting on $10 billion of land that it could create high density housing. He went very quiet after the initial rah rah rah. Unfortunately he found out very quickly that everyone of those houses had someone living in it. In order to build high density housing you need to vacate those houses and shifting families and old folk out onto the streets in large numbers was a political nightmare.

    Then you had to override the District zoning rules and you can see Auckland Council is having a big barn fight just to get the latest Unitary Plan approved and fully operative. This is the stuff of nightmares. Nothing you do is right and every move you make drastically wrong for one conflicting group or another.

    John Key’s next brilliant plan was to farm out this problem to the charity groups and initially the Salvation was keen as mustard and then lo and behold they forgot also that the Salvation Army cannot be associated with forced removal of old folk families and poor people onto the streets. They backed out.

    Bill English disbanded the Housing NZ Ministry recently.

    Why get involved in a problem that a majority of New Zealanders do not want fixed?

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  3. Just as a thought, if every city and region isn’t capable or willing to seriously address housing affordability, then what happens to all that pent up demand from Gen Y people looking for an affordable house to raise a family and have a normal job? Whenever they start to flee en masse to a smaller town they’ll quickly overwhelm that town’s supply (see Queenstown or Tauranga).

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    • Yes Ryan room has to be made by removing house building restrictions and providing infrastructure so there is a superabundance of developable opportunities. This will keep land prices in check as supply will be closer to perfect competition and further away from monopolistic supply.

      If we don’t make room for Gen Y + population growth from immigration etc then as you say housing affordability will be a problem. Homelessness will increase and the social divide will widen……

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      • The problem with providing infrastructure is paying for it. The large increases required to fund it from rates would be political suicide.

        Long term the changes have to be on the supply side, but right now we need urgent attention to demand.

        Any changes will have to be well thought out. For example, despite disingenuous claims to the contrary, a sudden large drop in immigration would probably lower prices quite drastically, and perhaps even trigger a panic. There must be many property investors who believe it’s too good to last.

        Liked by 1 person

      • Yes faffinz, cutting immigration would be one way of addressing the housing crisis and Michael gives that option a goodly amount of attention for housing and other reasons. Finding a better way to fund infrastructure to make room for housing demand hasn’t had so much attention. Perhaps we could get some articles discussing that option?

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      • I’m very sympathetic to those options, altho since my scepticism about high levels of immigration to NZ isn’t mostly about the house price impact, and my interest in the details of local govt finance is sadly limited, I probably won’t do much more than echo general sympathy. And if our overall population was growing at 0.5% per annum, rather than 2 per cent, probably the existing infrastructure financing models wouldn’t be too unserviceable.

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      • The problem with immigration of course is the inclusion of 115,000 international students. That segment grows at a rate of 10% a year. 10% equates to 11,000 additional students this year. With foreign students contributing $5 billion to GDP, it’s not likely anyone wants those numbers to go down.

        The impact of 3.5 million tourists on accomodation is also largely ignored. But through Air BnB this segment now has a major impact on accomodation. The lack of hotel and motel investments have led to a major overflow of tourists into the residential accomodation space. The impact is better understood when you take into account that Auckland airport handles 18 million inbound and outbound passengers every 12 months and forecast growth is 10% a year which equates to 1.8 million passengers.

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  4. yes, and consistent with that we’ve seen a small but steady net ouflow of NZers from Akld for the last 20 years – partly as a result Tauranga and Hamilton, not first ports of call for foreign migrants – have had population growth rates similar to, or faster, than Auckland. And yet Akld is – according to the advocates of the economic strategy – supposed to be the engine room of fast productivity growth, drawing more and more people towards the superior opportunities supposedly on offer there.

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    • Tauranga is being named Auckland 2. It has a deep water port because Tauranga invested $400 million in dredging and port infrastructure. Tauranga port is capable of handling the largest cruise ships and the largest container ships from around the world. Aucklanders do not want a port. Their preference is for the port to become restaurants and cafes. Commercial bay is a $1 billion dollar conversion of downtown shopping mall into a mega mall which will house on completion 10,000 chefs, waiters, cleaners and baggage handlers and shop retailers.

      No one is concerned about productivity here in Auckland. Auckland is all about 2 hour lunches, 2 hour coffee breaks, 1 hour power walks and gym workouts. That leaves 2.5 hours for work, and half and hour to leave early at 4.30 to beat the traffic pileup. Miss that 30 minute window and spend the next hour and a half in traffic congestion.

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  5. Soviet commissar Moscow circa 1989: “The shortage of bread and increase in its price is a sign of the success of our wonderful system.”

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    • Clear evidence that Bill English’s National government approach is correct. Supply the market and prices will fall. The emphasis on clearing blockages by the RMA and the building consent process will allow houses to be built and therefore ultimately lowering costs and lowering prices. Falling rents as well to top it off. It is amazing how the market can properly respond when allowed to respond.

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  6. Perhaps we should call it “a start”! But then as the article notes even if rents are falling, existing house prices aren’t doing so yet, after a large rise post-earthquake.

    Sadly, since the planning regimes haven’t been fundamentally changed, a best guess probably still has to be that in 10 years time Chch will have much the same affordability issues as other cities in NZ.

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    • Just as an aside on the planning regime – not sure whether I’ve mentioned it here but I see one of the big problems being that we apply compensation but do not apply betterment with respect to our planning regime. Betterment I believe offers a lot of promise wrt our infrastructure funding issues. Correctly applied, it’s a win-win for everyone.

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