I’ve been quite sceptical that either side of politics – whichever group of parties won the election – would address the fundamental distortions that have rendered urban land and houses so expensive. After all, successive National and Labour-led governments had enabled us to get, and overseen us actually getting, into this mess. And for anyone looking to the minor parties, New Zealand First had previously been part of, or supported, governments of both stripes, and the Greens – with a taste for rapid population growth and restrictive planning laws – didn’t seem any more hopeful. Neither the Prime Minister nor the Leader of Opposition, before or after the election, seemed interested in seeing lower house prices.
An optimistic supporter of the Labour Party yesterday put it to me – it was Reformation Day , and the 500th anniversary of Luther nailing his theses to the door of the church in Wittenberg – that not even the Pope could stop an idea whose time had come. As I noted in response, the general point was no doubt true, but plenty of aspirant reformers misjudged when “the time had come”, when the mood and opportunity for change had become irresistible. Often they paid a dreadful price. In modern democracies, of course, that usually only means losing the next election, or quailing at the prospect and just not doing anything much of substance at all.
As I’ve noted various times previously – including in this post a year ago – while there are plenty of examples of successful places (notably now in significant parts of the United States) without tight land-use restrictions limiting housing development, I’m not aware of any country (or even region/major city) that, having once adopted the morass of planning laws and associated restrictions, has ever successfully unwound those controls. And thus we have house prices as they are in New Zealand, or Australia, or much of the UK, or California (and many other parts of the United States).
Housing was a significant issue in the election campaign, but perhaps less significant than it might have been if Auckland prices had still been rising strongly this year. Four of the items on Labour’s pre-election 100 day plan were housing-related:
- Pass the Healthy Homes Guarantee Bill, requiring all rentals to be warm and dry
- Ban overseas speculators from buying existing houses
- Issue an instruction to Housing New Zealand to stop the state house sell-off
- Begin work to establish the Affordable Housing Authority and begin the KiwiBuild programme
Whatever the merits of some of them, nothing on that list was seriously likely to address the fundamental regulatory distortions that have stopped the housing and urban land markets working effectively.
Today the headlines are dominated by the announcement that the government appears to have found a way to ban non-resident non-citizens from buying existing homes, by amending the Overseas Investment Act to classify all the land under such dwellings as “sensitive land” (for which we reserved rights to “adopt or maintain any measure that requires the following investment activities to receive prior approval by the New Zealand Government under its overseas investment regime” – page II-59 of this Annex to the Korea-New Zealand agreement). Given that the Act requires a “national benefit” for any overseas investment in “sensitive land”, and it is difficult to conceive how a potential non-resident purchaser of a house could demonstrate such a benefit given the criteria set out in the Act, it looks to this lay reader like a clever wheeze that should, largely, be effective.
But to what end, other than political signalling? At the margin, presumably transactions costs for all purchasers of houses, anywhere in New Zealand, will increase a bit forever (will we all have to verify that we are residents or citizens?). More importantly, is there any evidence at all that a law change like this will increase housing supply? And is housing supply, as distinct from land supply, the real issue at all? The argument is supposed to run that if non-resident foreigners want to buy in New Zealand they will have to build, or buy a newly-built house, instead (as is, indeed, the law in Australia). If the law discourages foreign purchases in total it will, to some extent, ease overall demand pressures – although experiences with provisions like the British Columbia stamp duty suggest the effect might be quite shortlived – but if it simply leads foreigners to bid for new houses rather than existing houses, presumably residents and citizens will – at the margin – buy more existing houses rather than new ones. The law is likely to change, at the margin, who buys which type of dwelling, but why will it increase overall supply? The land market is rigged, by regulation, to be as unaffordable as ever. That won’t change as a result of this policy. Any issues around development finance, council consenting, or infrastructure won’t change either. In many cases, non-resident non-citizen purchasers – however many there truly are – probably already prefer new apartments (if, for example, what concerns them is an easily-maintained and secured store of value). Perhaps there is evidence from some other places that such a restriction has increased effective supply? If so, it would be good to have it drawn to our attention. As it is, as I noted the other day, if the goal is real impact on housing affordability for New Zealand there is probably a stronger case for banning all house purchases by non-resident non-citizens than simply banning purchases of existing dwellings.
For the moment though, it is telling that the sound and fury – perhaps even lifting the government’s poll ratings – is around a measure that might dampen demand very slightly, and should do almost nothing to increase supply. No doubt there is a place for signalling in politics. But if you want to believe that real structural reform is coming, wouldn’t it have been reassuring to have seen something tangible around land supply in the 100 day plan, or emerging – together with the non-resident ban – from yesterday’s first substantive Cabinet meeting? The Minister of Housing is quoted in the media talking about potentially using the Public Works Act to confiscate private land (and the Public Works Act provisions, while necessary for some limited purposes, never adequately compensate owners). But not about allowing private land owners to use their own land more freely. Labour went into the election promising
Labour will remove the Auckland urban growth boundary
Couldn’t that have been made part of the 100 day plan? Or what about a piece of legislation allowing any geologically-stable private land to be used for housing, up to two storey height, without further resource consent (preferably for the whole country, but at least say in a circle with a radius 100 kms from downtown Auckland)? Yes, there are still transport and infrastructure issues to be resolved – so perhaps make the commencement date of the new legislation 12-18 months hence – but changes in this area – land-use rules – get much closer to the heart of the problem. If there is a problem with “land-bankers”, it is a problem created by regulation and legislation, which removes the element of free competition from the market for developable land. And, perhaps to balance the potential to increase the physical footprint of cities, how about a Working Group to report back within six months on options for allowing groups of residents/existing owners to contract out of existing planning restrictions when collectively those owners judge doing so to be mutually beneficial?
But this all highlights the question as to whether the government is really willing, let alone wanting, to see house and urban land prices fall. On that score, the evidence is mixed at best. Both the current Prime Minister, and her predecessor as leader of the Labour Party, have fallen over themselves to deny such an interest, and both have proved very reluctant to talk prominently about land-use reform (although I’m told that in small meetings – including during the Mt Albert campaign – the PM can talk fluently on the topic), favouring instead a public focus on (a) tax changes, (b) non-resident bans, and (c) state-driven building activity (much of which is likely to displace other building, since there is little evidence of unmet excess demand at current house+land prices).
On the other hand, Labour’s official housing policy has sounded promising, and both Phil Twyford (Minister of Housing) and David Parker (Minister for the Environment) have a promising track record. In the previous Parliament, Parker moved an amendment – which came very close to passing – that would have removed the urban growth boundary around Auckland. But Opposition – when you don’t live with the consequences (gains and costs) – is different from government, and tactical embarrassment of an incumbent government, is different from managing a tri-party government and implementing serious structural reform. Greens/Labour/New Zealand First agreement was presumably easy around the non-resident ban, but will probably be lot harder around fixing the land market (especially now that the government has recommitted to the “big New Zealand” approach to immigration and population).
I’m not ready to be very critical of the new government yet. But my scepticism about the prospects of serious reform remains. It isn’t really about individuals or personalities – as I’ve noted, past governments for 25 years have also done little or nothing – but about incentives, risks, and precedents. In that post I wrote a year ago I concluded
Individual political leaders can make a real difference. It would be great if one would stake a lot on urban land use reform, but anyone considering it needs to recognize the lack of precedents, the potential losers, and the worries and beliefs that underpin the durability of the current model here and abroad. And they probably need to find not only the right language to help frame repeal choices and options, but find a package of measures which helps allay – even if only in part, and for a time – the sorts of concerns some have.
(If anyone was serious about reform, and lowering house prices, I suggested a possible limited compensation scheme here.)
In a three year electoral term, if serious reform is going to happen it needs to be got under way quite quickly. Whatever the possible merits of KiwiBuild (and I don’t have strong views) at present it looks as if there is risk that it – with lots of activity – will crowd out addressing the real issues around land use law that have, unnecessarily, given us among the highest house price to income ratios anywhere in the advanced world.