I’ve been wary for some time of Labour’s approach to the disgrace that is the New Zealand housing and urban land market – a mess created, and/or presided over, by successive National and Labour-led governments.
Eric Crampton and Oliver Hartwich at the New Zealand Initiative (bastion of quasi-libertarian public policy analysis) had been consistently pretty upbeat about Labour’s proposals, and particularly about the stated desire of (then housing spokesman, now Minister of Housing, Phil Twyford) to free up the urban land market and fix problems around infrastructure financing. There was the famous joint op-ed in the Herald a couple of years ago. I have never been sure how much the NZI people really believed Labour was committed to letting the market work, how much they simply wanted to reinforce that strand of Labour’s thinking with support from a business-funded body, and how much it was just about building relationships with a party that would, one day, no doubt be back in government. Perhaps there was an element of all three?
I’ve liked the talk, but have been a bit sceptical that it will come to much. In part, I’m sceptical because no other country (or even large area) I’m aware of that once got into the morass of planning and land use laws has successfully cut through the mess and re-established a well-functioning housing and urban land market. In such a hypothetical country, we wouldn’t need multiple ministers for different dimensions of housing policy. I’m also sceptical because there is a great deal local government could do to free up urban land markets, but even though our big cities all have Labour-affiliated mayors, there has been no sign of such liberalisation. The Deputy Mayor of Wellington for example leads the Wellington City Council ‘housing taskforce”. Paul Eagle is about to step into a safe Labour seat. His taskforce seems keen on the council building more houses, and tossing more out subsidies, but nothing is heard of simply freeing up the market in land. Or even of looking for innovative ways to allow local communities to both protect existing interests and respond, over time, to changing opportunities.
There was also the fact that any Labour government was likely to depend on Green votes in Parliament, and there was no sign the Greens were keen on land-use liberalisation.
And then there was little sign of leadership commitment.
Labour’s leader, Andrew Little, devoted the bulk of his election year conference speech to housing, complete with the sorts of personal touches audiences like. Media reports say the speech went down well with the faithful…….
But in the entire speech – and recall that most of it was devoted to housing – there was not a single mention of freeing up the market in urban land, reforming the planning system etc. Not even a hint. I understand that giving landowners choice etc probably isn’t the sort of stuff that gets the Labour faithful to their feet with applause. But to include not a single mention of the key distortion that has given us some of the most expensive (relative to income) house prices in the advanced world, doesn’t inspire much confidence.
It has been no different since Jacinda Ardern took over as leader.
Sure, as defenders point out, reform of the planning system does appear in Labour’s manifesto, and there was a brief mention in the Speech from the Throne. But mostly what we hear about are the same, consistently emphasised, lines they’ve been running for at least the last year:
- the ban on non-resident non-citizens buying existing residential property,
- the extension of the brightline test (from two years to five years),
- ringfencing, so that rental property losses can’t be offset by other income, and
- Kiwibuild.
As well as measures to impose new higher standard on rental properties. In practice, the new Tax Working Group also seems likely to be focused on housing-related tax issues (capital gains tax in particular).
Two things in the last few days reinforced my unease.
The first was the new “independent stocktake of the housing crisis” the Minister has commissioned. Given that it was announced on 25 November, and is to report “before Christmas”, it is hard to believe that the group will come up with much new and different. Probably, that isn’t even the point.
Here is how the Minister framed the work
“Shamubeel Eaqub, Philippa Howden-Chapman, and Alan Johnson are among New Zealand’s foremost experts on housing. Their insight will be invaluable.
“This report will provide an authoritative picture of the state of housing in New Zealand today, drawing on the best data available. It will put firm figures on homelessness, the state of the rental market, the decline of homeownership, and other factors in the housing crisis.
“The Labour-led Government is already pushing ahead quickly with initiatives to make housing more affordable and healthy, including banning overseas speculators, passing the Healthy Homes Guarantee Bill, cancelling the state house selloff, and setting up KiwiBuild. This report will help the Government refine and focus that work where it is most needed.
Each of the members has some expertise in aspects of housing, but none has any expertise in – or known sympathy with arguments for – freeing up land-use restrictions, and allowing the physical footprint of cities to grow readily as the population does. And then there is the third paragraph – the same old list of direct interventions, with nothing at all about liberalisation of the land market, even though it is vital if the long-term structural problems are to be effectively addressed.
Now perhaps the Minister will argue that planning reform is proceeding on a separate track, or even point to the responsibility of his colleague, the Minister for the Environment, David Parker. But the fact remains that in all the talk about fixing the badly-distorted housing market there is little open emphasis on land-use law, nothing on reducing the price of urban land, and nothing on (finally) letting the market work effectively.
And then there was a substantial interview the other day with Phil Twyford on interest.co.nz. And it was much the same again. There was plenty of talk of the coming tax changes and the proposed foreign ownership ban. And there was great deal of talk about Kiwibuild. There was reference to using Crown and Council-owned land in Auckland to build on. But there was nothing at all, in the entire 23 minute interview, on reforming or freeing up the market in urban land. There were defensive references – it would be hard to produce ‘affordable” houses in the $500-600K range because land was ‘absurdly expensive” – but nothing, not a word, about reforms that might effectively, and enduringly, lower land prices.
There was. of course, lots of talk of how “we have to build more houses”, but no attempt to seriously address the argument that, given land-use restrictions, there may not be any material unmet demand for houses at the prevailing price. Talk about a shortage of 71000 houses – or whatever the latest guess is – is mostly nonsense unless the land market is fixed, and the price of land falls considerably. At much lower land prices, I think there is little doubt that there would be more effective demand for housing – and no obvious reason why the private sector would not meet that additional effective demand. That would be a highly desirable outcome, but in his interview the Minister studiously avoided any suggestion of land prices falling. And at current (very high, but currently stable) prices, there isn’t obviously any unmet effective demand in Auckland at present.
All the Minister’s talk seems to be of state-led projects to build more houses, including more ‘affordable’ houses, and more state houses. In some cases, it seems, it will just involve the state participating in developments that were already planned. But unless land prices are going to fall materially, it is really hard to see how any big increase in state-associated housebuilding isn’t going to largely displace private sector building that might otherwise have taken place. For all the talk about building at different price points, and actually building more so-called “affordable houses”, houses are substitutable, to a greater or lesser extent. A new small place on a tiny amount of land at, say, $600,000 (a price point which even the minister conceded would be a stretch) is going to be competing with existing houses in that price range in, say, Manurewa. Perhaps additional state-led building can alter relative prices a bit but (a) if so, it seems likely too be only by use of government subsidies (the Minister indicated that the government will not be charging for the development risk, in a way that any private developer would need to), and (b) nothing about the underlying scarcity (regulation-induced) of land will change.
In their recent Monetary Policy Statement, the Reserve Bank indicated that it was assuming that half of the Kiwibuild activity displaced other construction. They didn’t elaborate on that point, but I have an Official Information Act request in with them asking for the analysis they did in support of that assumption.
(Incidentally, while I am keen to see LVR restrictions come off – since they never should have been put on – it would be quite curious to see them beginning to be removed at just the sort of time when – on government policy – the risks around housing lending might increase quite considerably. If the government is to be taken at its word, and we really are to see a massive increase in housebuilding, led by government initiatives rather than market forces – and at a time when many forecasters expect net immigration to be dropping away – the risks of an oversupply of physical housing (as in Spain, Ireland and parts of the United States) would have to be considerably greater than they’ve been in recent decades. Of course, weirdly, LVR restrictions have never applied to the most risky type of housing lending, that for houses being built.)
Two final points:
The Minister indicated, again, that one of the government’s motivations in its housing reforms is to “shift investment”, so that people don’t so much buy houses, as buy shares etc. On this point, they seem as confused as ever. If there really is a physical shortage of, say, 71000 houses and that is to be met over the next few years, there will have to be much more physical investment in building houses. And someone will need to own those houses – whether owner-occupiers, the state, or private rental businesses. Real resources devoted to one use can’t be devoted to another use. And, for any given stock of houses, it isn’t that evident that it is likely to make much difference to economic performance who (among New Zealand residents) owns those houses. I’m all for home ownership, but if owner-occupiers buy houses (with large mortgages) it isn’t obvious why capital markets etc, or investment choices by businesses elsewhere in the economy, will be much different than if rental property owners buy houses (with large mortgages).
In his interview, the Minister was also lamenting large boom-bust cycles in residential construction, and suggesting that was part of the problem in New Zealand. I was a bit puzzled by that suggestion, and wondered if there was any evidence that the fluctuations in residential building activity were larger here than in other advanced economies. It was possible they were – after all, our population growth rates are quite variable, mostly because of swings in the flow of New Zealanders going to Australia. So I dug out the data, for residential investment as a share of GDP, going back to 1995 (when complete data is available for most OECD countries). This chart shows the coefficient of variation (ie the standard deviaton divided by the mean).
At least over this period, residential building activity (as a share of GDP) in New Zealand has been less variable than in the median OECD country, and far less variable than in the countries to the far right of the chart. Over a longer period, back to 1970, there is no sign that New Zealand’s residential investment cycles have been larger or more variable than those in Australia or the United States. Investment is variable – typically the most variable component of GDP. It is how market economies work.
Where does all this leave me? With the new government’s apparent determination to continue to pursue a “big New Zealand” approach, without any material change to immigration policy, the need for additional housing will continue to grow largely unabated (tax changes and foreign ownership bans won’t make much more sustained difference here than they have abroad). Perhaps the government has plans, currently kept quiet, for far-reaching land use reforms that will enable the market to meet changing demands, at genuinely affordable prices – as happens in much of the US. But at present it looks disconcertingly as though the centrepiece is going to be a government-led house building programme that (a) never gets to grips with the land issues, (b) will substantially displace private sector building, and (c) runs all the sorts of risks that government-led investment projects are often prone to.
Perhaps it will work. But it is hard to be optimistic at present.
UPDATE: An interesting piece from today’s Herald on the way land prices render even moderate intensification not really consistent with more “affordable” house prices in Auckland.
UPDATE (Friday): Twyford speech on the government’s housing policy does nothing to allay any of the concerns in this post. Land use reforms appear, a little cryptically, very briefly and near the end of the speech.
croaking cassandra 
A staggering statement by Michael Woodhouse showing how out of touch (and consequently out of power) National had become.
http://www.newshub.co.nz/home/politics/2017/11/flat-house-prices-prove-there-s-no-crisis-national-housing-spokesman-michael-woodhouse.html
Nobody thinks there is a 71,000 house shortfall of million dollar houses – its the $250K houses we are short of. These people seem to live in a parallel universe – including Labour so far.
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Phil Twyford is also completely out of touch when he wants to ring fence negative gearing in residential property.
BIS Shrapnel, a Economic Research think tank in Australia in March 2016 concludes that limiting tax deductibility(Ring Fencing) of negatively geared residential investment properties would have negative consequences.
• Rents will rise by up to 10% ($2,600) per annum
• New home building will shrink by around 4% nationally, or 7,200 dwellings a year
• GDP would shrink by around $19 billion per annum on average, equating to some 1% of Australia’s $190 billion annual income
• 175,000 fewer jobs would be created over the next 10 years, resulting in the unemployment rate rising from 5.8% to 5.9%
• Government revenue across a range of taxes would shrink by $1.65 billion per annum
• 70,000 extra households would be pushed into housing rental stress
• If the government were to compensate these stressed households, it would require an additional subsidy outlay of $650 million per annum. In other words, the impact would go well beyond any saving of the income tax concession, to a multitude of unintended consequences.
Click to access BISShrapnelNegativeGearingReportMarch2016.pdf
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The reality is that the government irrespective whether it is National or Labour does depend on the respective local councils planners to determine the rules. Urban planning is a very complex science because it also is a balance between the ratepayer of today versus the non existent ratepayer of tommorrow. The crux of the matter lay in the massive infrastructure spending that is also required in greenfield development sites.There was clear frustration that the National government did have with the slow pace that the Unitary Plan got off the ground. The Special Housing Zones was actually Auckland Councils Unitary Plan version 1, which the government pushed through to try and get the pace of building ticking upwards. The government did a lot of threatening and that forced Auckland Council to have the final version agreed with an Independent Hearings committee. But that committee left in place other severe restrictions like the 6 metre outlook and the Vievshaft to protect the view of Aucklands’ 57 volcanos.
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I am not entirely disagreeing with you GGS but the previous government did create the Super City which necessitated the Unitary Plan. So it is a kind of Barnyard shop situation of ‘if you break it, you buy it’.
I know you could argue the previous government were tripped up by the government before that. But how far back do you go…….
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The Unitary Plan has increased density. There is no doubt about that. But the problem is not enough density to allow for cheaper houses as there is insufficient economies of scale.
The old district plans did not offer higher density either and instead of Viewshaft, it used to be called Sensitive Volcanic Zone. We would be in a worse situation without the Unitary Plan and Supercity.One of my sites in Mt Roskill 905sqm, is now zoned Suburban which offers me subdividable sites perhaps 3 or even 4 additional sites whereas previously they were zoned Residential 5 which was 500 sqm per dwelling which did not allow me to subdivide at 905sqm.
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The other problem is that our town planners and various do gooder bloggers look at Houston as an example of where Auckland should head. But Houston has access to 29,000skm of flat land but as they have found now also subject to intense flooding because Houston have concreted over their wetlands.
Auckland has created an artificial Island surrounded by water and the 57 sacred volcanos limiting highrise around the harbour. The land area available to intensive higrise has been artificially limited to only 550skm which is the size of Singapore.
Instead of dumbly looking at Houston its about time we looked seriously at Singapore for our Town Planning models because it is about time we recognise that there is no way the Viewshaft height restrictions are going away and we are already stretched too far from Leigh to Pukekohe.
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GGS I agree -viewshaft restrictions should go. They are not worth the price of Auckland restricting an entire generation’s opportunity to access affordable housing.
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Also our wetlands, streams and rivers cannot be concreted and paved over like they have done out in Houston. Ours are somewhat protected by the Queens Chain which is not a myth. The Auckland Council uses it conveniently to reclaim 8 metres, 4 metres left and right walkway access to streams and waterways in a subdivision as part of a development levy.
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Who “paves over” permeable surfaces the most – a city that sprawls freely, and where most housing has sections from 1/4 acre to 2 acres; or one that crams everyone in and insists on “infill” development of every bit of space?
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Singapore????? Are you for real? Have you compared Singapore with Auckland and its surrounds on Google Earth? Is there nothing but ocean or foreign territory south of Pukekohe and North of Warkworth?
But if Kiwis are going to be so post-enlightenment as to force Singaporean “allowable space for development” on ourselves, yes we should adopt Singapore’s solution, which is for all land to be government owned, leaseholds charged, and planners to have 100% powers over redevelopment.
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Philip Hayward, we have created an artificial island being surrounded by 57 sacred volcanos which have a artificial visual height limit on most of the properties surrounding each of the mounts. Therefore more similar to Singapore with its 600skm harbour city.
You may not have noticed that Singapore is connected by a bridge to Johore which is part of a larger land mass. Many Singaporeans live in Johor and travel to work via monorail or via a long queue by motor vehicle. It operates quite similar to our Highway 1 connecting our distant metropolitan cities ie 18 level highrise 30 to 40 km away, ie Manukau, Albany, New Lynn
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“Sprawl costs America over $1 trillion a year, according to a new report by LSE Cities and the Victoria Transport Policy Institute, because it can increase per capita land consumption up to 80 percent and car use by up to 60 percent. Together these outcomes create social costs that amount to $626 billion a year for people living in sprawling areas and $400 billion for those outside of them, the report estimates.”
The report argues that sprawl-related land consumption displaces economically-beneficial agricultural lands, and therefore, reduces local agriculture-based business activity. Because people are spread out, governments spend more money to construct longer roads, as well as sewage and power lines, to make sure all residents are covered.
Sprawl also tends to require more driving, and more people in cars means more people spending thousands of dollars on maintenance and gas (first chart below). Obviously, more cars on the road also means more traffic accidents (second chart) and pollution (third):
https://www.citylab.com/equity/2015/03/how-much-sprawl-costs-america/388481/
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I call “bullshit” on all these biased studies that “prove” that sprawl itself is the cause of “more driving”.
The crucial factor for travel EFFICIENCY is actually how dispersed employment is (and other common trip generators), and how systemically affordable housing is.
There is no high-density city in the world with shorter average commutes. All the shorter average commutes in the data, are in lower density cities which have median multiple-3 housing markets and highly dispersed employment. The opportunity for people to find a job they like AND a house they can AFFORD within a short distance of it, are vastly higher in Dallas or Atlanta or Philadelphia than in London or even small UK cities.
The reason for “more driving” in otherwise-efficient US low density cities, is always vastly higher discretionary affordability of driving, firstly because housing costs are so low there is a lot of money left over for other things, and secondly because of cheaper petrol. Most of the added travel is in discretionary non-commuting trips. This affordability also influences the choices of far less efficient motor vehicles. The correct solutions would be fiscal ones that “price” driving and fuel consumption.
Auckland’s becoming denser by regulatory force, has resulted in an explosion in commuting from Maungaturoto and Thames because that is where people can afford the house after the Planners have driven the prices up. This is a patently obvious “unintended consequence” of utopian urban planning everywhere in the world.
Singapore’s bridge to Johore is no way comparable to the accessibility to millions of acres of land adjoining Auckland North Shore urban fringe and the millions of acres adjoining the urban fringe past Papakura in the other direction. I don’t know what your agenda is, for constantly making false arguments in support of an indefensible and monstrous status quo.
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Phillip, have you built any houses? Or is yours just a theoretical study. I own a personal $9 million portfolio of property throughout central Auckland and a couple in the Waikato which I am trying very hard to develop without being made a pauper due to the high risk and small margins in development. I am more an accidental property investor because the banks will not lend me, a wage earner the money to build without pre sales. Most developers will know that the profit margin is not in the development but in the prayers and hope that when you complete a development the market price has moved upwards to provide a margin.
I have been waiting for 15 years for my equity to be high enough so that I can borrow to be able to build with a safety margin. Started on my first development which was a simple 3 site subdivision. Now is year 4. It is a very slow and expensive process through the RMA to CCC.
I work in the building industry including working for Fletcher Building when Fletcher was the largest company on the NZX which was a long time ago and over my entire working life I have been in various property related companies here and overseas.
I am just doing my bit as a old migrant to helping New Zealanders and policy makers to make better decisions. Too much theory and regurgitating other peoples theories seem to be normal for do gooder bloggers like yourself.
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Getgreatstuff, you have all that experience and you can’t see the source of your difficulties???
Imagine if you were in a city where land prices were 1/20 of what they are in Auckland, and there was no powers of price-gouging on the part of people from whom you have to buy sites.
The whole “development” industry have been very poor at research and lobbying. You need to look at what decades of urban planning of the kind Auckland has adopted, has done to the construction sector in the UK. Sorry, but I have no sympathy for the people in the sectors who let this fate befall them, and even worse, defend the Planning idiocy and attack advocates for reform.
Sensible property developers will have quit the industry by now and looked for something else to apply their skills and risk-taking to, while lobbying for sensible reforms before they are willing to get back into property development. Hugh Pavletich is an honourable example.
One problem is that all developers who have stayed in the industry, are now hostages to the racket because reform would decimate the value of their sites which are legitimate work in progress. Land bankers per se deserve to be wiped out, but developers do not other than for being really too stupid to be involved in such a badly timed needlessly-risky enterprise.
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1) The immigration rate is out of local government control
2) The councils didn’t employ economists (often) although I understand Auckland does. The urban planning is then dominated by urban planners whose specialty is not economics & lead council planners seldom sought economic evidence for the council officers reports.
3) There is no regulatory impact assessment on every rule urban planners develop, just a vague s42 analysis of everything
4) The RMA is being run as a land zoning based Act rather than an effects based act as it was intended
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You are dead right about urban planners being clueless about economics and they are also impervious to real life outcomes and evidence. The UK has been pursuing this kind of prescriptive planning for decades and they remain in total mystification about why “projected” housing supply always falls short. But no “Planners” anywhere else in the world have any intellectual curiosity about this, they are hell-bent on re-running the same failed experiment, as if wanting to prove their own insanity.
But economists have been less than helpful too, I have yet to meet one who has actually read the important literature on urban economics – they all get a Degree or Doctorate on some specific thesis (like total factor productivity at the level of the individual firm) and then they end up hired as “experts” on some other specialty that they know nothing about. It is like hiring an endocrinologist to do hip replacements, hey, they are all doctors aren’t they?
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That is why the UK has decided to take back control of its borders and why we have Brexit. When Angela Merkel opened up Germany to 1 million Syrian refugees together with another couple of million throughout the rest of Europe, inevitably many muslim refugees would end up in the UK.
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The sabotage of housing markets by urban planners has little to do with population growth. It is possible for UK cities to lose population and employment – like Liverpool and several others – and still have a serious problem with housing affordability. On the other hand, if markets in land are allowed to work, it is possible to have explosive population growth and still have housing affordability. Houston added 1 million residents in a single decade, 25% growth. Atlanta grew even faster. Some smaller cities (i.e. similar to Auckland) like Indianapolis and Nashville, grew just as fast.
Auckland had a median multiple of around 3 for decades, even when its growth (and the baby boom was a big as immigration is now) was still within the confines of the isthmus. Now it has outgrown the isthmus, there is more room than ever for market-led expansion. Building Mangere was what kept the market affordable for years. Now there is room for 10 Mangeres immediately beyond the existing urban fringes.
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“..Urban planning is a very complex science because it also is a balance between the ratepayer of today versus the non existent ratepayer of tommorrow. The crux of the matter lay in the massive infrastructure spending that is also required in greenfield development sites…”
How about the home owner of today versus the non existent home owner of tomorrow?
The mortgage debt that will be required for the sum total of all home owners of tomorrow will be multiple times as great as the debt needed to provide infrastructure for greenfields growth to keep land prices disciplined. And the mortgage debt is in return for NOTHING! Having 3 or 4 times as much mortgage debt as necessary won’t be getting anyone a better home, in fact the quality on average is getting worse because so much old stock does not get renewed, and land prices crowd out so much capital, that rubbish structures are built to try and claw back some of the land cost.
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“…the problem is not enough density to allow for cheaper houses as there is insufficient economies of scale…”
So remind me again, what city has built “up” to achieve affordability, inside a planet-preserving growth boundary? Singapore’s solution is government land ownership and leasehold charges. It is not building “up” that is the magic solution in Singapore.
There are dozens of median-multiple-3 cities with less than 1500 people per square km, and not one single median multiple 3 city with 3000+ people per square km, and the densest cities, with 10,000 – 30,000 people per square km, have median multiples of 10 to 17.
Have you heard of the principle “site values are elastic to allowed density”? In fact I suggest the elasticity is exponential, in the direction that the higher the density, the more dramatic the land price inflation, which will always out-pace the “added housing supply”.
http://www.newgeography.com/content/005402-why-intensification-will-not-solve-housing-affordability-crisis
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HDB flats in Singapore without government grants
Non mature towns
2 bedroom $81,000
3 bedroom $163,000
4 bedroom $257,000
5 bedroom $383,000
Mature towns
3 bedroom $293,000
4 bedroom $432,000
5 bedroom $549,000
Sure looks cheap. I do not think that Phil Twyford is even thinking 5 bedroom properties when he refers to $600k as a affordable entry property in Auckland. Goes to show that High rise tower blocks brings economies of scale which equate to cheaper houses. Not the short 3 level Urban zoned properties under the Unitary Plan that we consider as highrise.
http://dollarsandsense.sg/price-guide-hdb-bto-launch-february-2017/
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I have already explained elsewhere on this discussion thread, why Singapore’s prices are so low. So kindly advocate Singapore’s solutions, to be intellectually consistent. Singapore’s prices are NOT illustrative of “density providing affordability”, they are illustrative of nationalised, leasehold land providing “affordability”.
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Phil Twyford’s as the new government’s Housing, Transport and Urban Development Minister challenges are mounting by the day. Not only did the estimated shortfall of houses rise to 70,000 odd thousand (using the method of comparing average housing occupancy to the occupancy rate of recent pop growth divided by new houses built) in a report that the previous government had suppressed.
The previous Housing Minister (title reduced over time) -Nick Smith -National Policy Statement-Urban Development Capacity is reporting to Auckland Council today and its snapshot/point in time model of how much commercially feasible housing can be supplied given current construction costs and regulatory restrictions has reduced by 25% from 2016 to 2017, although they were careful to say that very, very softly.
http://infocouncil.aucklandcouncil.govt.nz/Open/2017/11/PLA_20171128_AGN_6728_AT_SUP_WEB.htm
“The enabled feasible capacity for dwelling supply, as modelled for the 2016 draft Unitary Plan recommended by the Independent Hearings Panel, was for approximately 422,000 – being 270,000 (modelled) in brownfield existing urban areas and 130,000 (assumed feasible) in future urban areas, with the remainder being potential Housing NZ developments and future dwelling growth in rural-zoned areas. The new modelling shows, principally due to rising construction costs and flat to declining sales prices, that the brownfield enabled feasible capacity of 270,000 has since reduced to 140,000; and that the future urban feasible enabled capacity has changed slightly as it is now modelled, from 130,000 to 146,000 dwellings.”
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You hit the nail on the head with that article. I don’t think Labour has any credible plan to really solve the housing crisis. Yes they will rush around pretending to do something and spout the usual bland spin, but nothing much will change. Labour likes to make a lot of noise about various issues such as the refugees on Manus Island, but fundamentally their policies in areas such as immigration, housing, tax etc are very similar to National.
By the way do you know where I can find the statistics on number of migrants who came to NZ under the parent visa category by year ? I was sure I’ve seen them on this site but now I can’t find them anywhere. Thanks.
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The data are in here (and the excel spreadsheets you’ll see accompanying the report)
http://www.mbie.govt.nz/info-services/immigration/migration-research-and-evaluation/trends-and-outlook/2015-16
Unfortunately they only publish accessible data once a year, and the 16/17 report is probably due any day now. Remember too that the previous govt suspending issuing parent visas, so the numbers now should be much lower than in the last published data.
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Thanks for the information. Apparently Labour plans to reopen the parent visa category at some point. So it will be interesting to see what changes (if any) they have planned.
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Here is a link to the interview where the Minister for Immigration announces a reopening of the parent visa category. Sounds like more of the same to me.
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I believe urban areas should have mechanism to competitively build urban areas both upward and to expand the built environment outwards. In general, these mechanisms should reduce rationing and hidden subsidies should also be removed, so that a balance is achieved between the two effects. As part of this effort I have recently written an article about mechanisms for intensification.
View at Medium.com
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People do make very rational arguments about how intensification by itself cannot solve Auckland’s housing affordability crisis. Stephen Selwood -CEO of Infrastructure NZ shows numbers for intensification in Tamaki indicating at current land prices it is uneconomic to intensify a property from one house to three houses. I am not sure if his numbers are accurate -but it is true that high land prices will limit supply.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11948510
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It is still the very cheapest to build stand alone single level stand alone houses at $1600 per sqm. It rises to $2000 per sqm for 2 level standalone houses but rises again to $3000 per sqm for 2 or 3 level apartments due to noise control mitigation, staircases, separate water meters, firewalls.
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I object to this statement. “Shamubeel Eaqub, Philippa Howden-Chapman, and Alan Johnson are among New Zealand’s foremost experts on housing. Their insight will be invaluable.” These people are not experts on housing.
Shamubeel only owns one property. Alan has only one rental, and Philippa who owns three properties has no tenants (that I am aware of). All three are political activists. That does not make them experts on housing. The Minister has possibly already written the report for his “experts” to come up with after 30 days of deep studies. I have been at this business for 30 years now and do not have all the answers. Why would new girls and boys on the block be better than me a long term investor and property manager.
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I didn’t really want to attack them as individuals but you’ll note my own cautious phrasing
“Each of the members has some expertise in aspects of housing”, which i think is fair (even though I disagree with them on many things).
But it is certainly a politically-slanted taskforce, and I suspect it was appointed more for political signalling reasons than for any fresh insights.
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I see the Auckland Herald has published a piece blaming the housing crisis on debt and a lack of capital gains tax. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11948685
I have seen the author -Jenny McArthur a PhD candidate at the Department for Science, Technology, Engineering and Public Policy at University College London is active on Twitter. She is supporter of group of articulate young economists blaming the UK’s housing crisis is about debt, a lack of taxes on ‘economic rent’ and fundamentally about the supply of land being fixed -which I believe is wrong -supply of residential space in urban environments is expandable. This is a empirically proven fact for a large number of affordable cities.
Jen uses a straw man argument -saying a removal of supply restrictions is about ‘shortages’. When it is about unaffordable cities having a supply of new housing that is inelastic and prices being above marginal costs because of monopolistic supply. This is a big argument in the economic world -between what I label pessimists (Jen’s group) and optimists (Glaeser etc).
I wrote an article about it a few weeks back.
View at Medium.com
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That “principle” of “the supply of land being fixed”, as an argument against abolishing growth boundaries, is a destructive absurdity, everyone using it should be sacked from any position of advice and influence, they are not just incompetent at their own claimed speciality, they are so lacking in basic logic that they shouldn’t even have been admitted to a University to do a degree course in anything requiring a modicum of it.
It would be like strictly rationing the supply of grain allowed to be used by bakers of bread for humans, resulting in the price paid by bakers being 100+ times higher than the price paid by cattle farmers for cow feed, and saying that the rationing was not responsible for the difference! When you have a commodity that is rationed for one use and not for another, and there is a “market” price difference between the two, the rationing for the one use is responsible for the price difference, end of freakin’ discussion!!!!
Yes to some extent the total supply of land is fixed, but there is so much farmland around the world that only a tiny fraction of it anywhere, costs more than $20,000 per acre – and proximity to a city is always far more significant an impact on the price than its “productivity” as rural land.
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Unfortunately the land rationing does exist and it is about time we face reality.
Greenbelts
Food security belt
Flood mitigation
Viewshafts, visual height limits
Natural water filtration
57 Heritage Volcanos and its surrounds
The Waitakere Ranges and Kauri dieback protection
The Queen’s Chain
Aquifers
Wetlands
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There is a difference between land preservation and land rationing. The supply of land is so superabundant that rural land is seldom more expensive than $20,000 per acre. It does not make rural land $2,000,000 per acre just because there are national forests and heritage sites. It is even less logical to suggest that urban land needs to be $2,000,000 an acre because of these things, because urban land requirements are around 1/30 of rural land requirements.
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Are cities humanity’s greatest invention?
They are efficient but rely on resources sourced outwards and cannot guarantee any particular level of welfare on their own???
How did I do?
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It would be fairer to say that cities are a consequence of something else that may be the greatest invention. Modern transport.
View at Medium.com
As you say, cities are dependent on the transport of resources into them. For most of human history, this meant dependence on resources that could be brought in on foot or by draft animal or sailing or rowing boat. It meant that “food supply” was limited to adjacent food-producing land only – even livestock would lose weight if driven more than a few days to market. And in a catch-22 situation, the land required to grow feed for draft animals was several times as much as that required for humans.
Now “transport costs” are virtually insignificant for most resources from anywhere in the world. A city can exist with oranges coming from California, iron ore from Australia, oil from Arabia, soy beans from South Dakota, and so on. So why is this a “problem” that undermines the point of cities success?
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Wikipedia: “”A free price system … is a mechanism of resource allocation that relies upon monetary prices set by the interchange of supply and demand.”” maybe we are looking at the problem in the wrong way. Increasing supply is time-consuming and difficult so lets think about demand.
It would be fine if we could create suburbs of modern factory built houses on flat sites – similar to state housing in the UK after the war. But we cannot in Auckland or Wellington. So why not stop the demand. Population growth is solved by a reduction in immigration (just match the numbers experienced by other OECD countries) but this still leaves the flight from the country to the city. Auckland was growing even when immigrants were balanced by Kiwis moving to Australia.
The new regional development policy might be sufficient. We will not get people back into remote villages but the life style and the costs of living are best in small towns and cities; someone reported happiness was highest in small cities. Wouldn’t it be cheaper and easier and faster to build in Taupo or Timaru than 20km outside Auckland CBD?
To accelerate the process just move Auckland university to say Huntley.
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So Bob when are freely deciding to move to Huntly or are you waiting for the Gulag enforcement squad to enforce the regional development plan? (sarc)
In reality, immigration is only factor determining the demand for new housing supply. Supply and demand for particularly located residential spaces will continue to change -in response to economic change, environmental change etc even if demographic change was static.
We will continue to need a flexible, dynamic urban environments. I don’t think putting our large residential environments (quite small by international standards) in aspic is a viable solution. I understand this is a difficult problem (politically mainly) so the temptation is to say -bugger it, this is too difficult so let’s give up. But that will not help.
I am genuinely optimistic that facing up to the housing crisis in a constructive way is the best way forward.
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If immigration was the only factor then it would be an easy solution. Or did you leave out the word ‘one’. I do remember when I arrived the NZ population was stable but rushing to the cities.
I don’t think moving the university or the law courts or the council head offices is much of an issue. Obviously it may require some pressure such as removing any extra state benefits for living in Auckland or paying for the new buildings and asking the university politely. We have some thriving universities that are not hogging the centre of a big city. In other countries Harvard, MIT and Cambridge do quite well in small towns.
The important and in my mind unanswered question is why the population is moving to the big cities. We can both think of many partial answers but the critical question is whether it is a positive desire (like my son listening to rap music in the car because he likes it) or forced on families to obtain education and jobs (like my having to listen to rap when my son is driving and I can find no other driver).
Brendon: I have had the pleasure of reading many informative things you have written; you even persuaded me to order a book from the library to discover the maths behind agglomeration. However that last sentence sounds like a politician. At least it admits there is a crisis but otherwise carries little content.
I know all about flexible, dynamic, urban environments having lived in London and New York but I prefer Auckland’s residential environment with my large garden backing onto a large reserve. I’m sure you and Auckland Town planners will win and eventually I will move on out to somewhere smaller and more old-fashioned.
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Brendon, Bob does have a point to some degree. The government could move some of its own services out of Auckland to either satellite areas of Auckland along the rail line or possibly to secondary centres. However, the ability to move would depend on how much direct customer service the government service provides in Auckland.
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Sorry Bob poorly written -I meant to say immigration is only one factor….
Of course some government activities could be sent to the regions -I think Canterbury is due some regional development, for instance : ). Also some Auckland subsidies could be reduced. Being a Cantabrian I would want somehow for Aucklanders to pay for their own regions accommodation allowance and we could pay for ours. That would allocate more resources to regional economies.
Transport spending has also been quite distorted -towards particular big cities. For tens years from 2002/03 to 2011/12, the smaller region of Canterbury paid for city transport infrastructure in Wellington and Auckland. Nice graph here depicting this https://www.greaterauckland.org.nz/2015/03/06/mots-review-of-capital-spending-on-roads-part-4/
Given the massive projects like Transmission Gully, Waterview and the Central Rail Link this subsidy is almost certainly continuing. Being a Cantabrian petrol taxpayer it would be nice if Auckland and Wellington would acknowledge and give thanks to our generosity. I don’t hold out much hope for that -so instead I campaign to stop the subsidies -Auckland infrastructure should be paid from a regional petrol tax and even better congestion pricing charges because that reduces the demand for expensive transport projects, while contributing some funds to what is needed as well .
By flexible dynamic cities -I was not thinking London -which in my opinion is an urban planning cot case. I was more thinking that NZ cities need to have options to grow -to cope with the environment being a geologically unstable place (when your home city had been munted like mine has in Christchurch it gives a different perspective on permanency of cities), sea levels are rising (South Dunedin in particular is vulnerable), and to cope with underlying economic forces -such as, for a long time kiwis drifted north, apparently that has reversed now. That sort of thing.
I apologise if I sound like a politician….
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Brendon: I apologise for saying you sounded like a politician. It is too easy to be offensive online.
BTW I have long suspected Auckland infrastructure was paid for by non-Aucklanders to some extent.
Totally agree with your approval of congestion charges; this is an opportunity being lost, an opportunity that has only been available since computing attained the ability to recognise number plates. The critical step is for the government to allow all vehicles fines (speeding, parking, congestion) to be added to the rego. It would reduce the cost of processing fines dramatically and reduce IT implementation costs for each new parking/congestion charge.
A minor benefit of congestion charges would be to identify stolen cars promptly – mine was stolen in CBD and driven south – it had to be on the motorway when I reported its theft. Obviously everyone hates new taxes but we already have an expensive to administer tax for the Puhoi tunnel and say a few random prizes connected to the congestion charge would improve its public acceptance.
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I’m with you on this one. I don’t see how we can free up enough land in Auckland to house all the people we are taking in at the moment without very significant environmental and lifestyle impacts, not to mention loss of important land for growing food. I see only one satisfactory problem to the so-called housing crisis and that is a massive reduction in immigration combined with real efforts to spread the population more evenly throughout the country.
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Who will take care of the 19 million inbound and outbound passengers in Auckland Airport?
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There is room for urban development for 2 million more people to the south of the airport, that would be as accessible to the airport as North Shore currently is.
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Sure, that is mostly also the prime growing soils for Aucklands food security.
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There is abundant land for both urban growth, and preservation of land for “food security”. Last time I looked, NZ was exporting around 95% of its food production and consuming 5% itself. In fact the best thing for humanity on net, would be for NZ to have 30 million population and be neutral in terms of food trade. In fact the NZ government in the late 1800’s, expected the population to reach 30 million within decades, and this is why they invested in a national rail network – which was doubly unfortunate, as 1) the population growth tailed off drastically and 2) rail was becoming a sunset technology for most transport needs, especially people.
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Phil
What is your logic about ‘the best thing for humanity on net” being for NZ to have 30m? Are you simply focused on “food security” is there something more to the argument?
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Michael, my point is “on net for humanity”, NZ would be a better place for most randomly-selected 30 million people from around the planet. Glaeser makes a similar point about population growth being deflected by planning distortions, away from California where the climate is temperate, to Texas where running air conditioning is a higher cost.
That is really my point, but I would agree with the politicians of the 1800’s that 30 million people was a logical population for a territory like NZ to have attained to within a few decades, and could have had immigration continued at a similar rate. Look at the natural endowment and land volumes! We are one of the most underpopulated territories on the planet. Lack of scale efficiencies has been a major problem; whatever you think about the small impact at any one time, this effect has been compounding for decades.
Probably the reason that the immigration fell, was that technology made the Old Country a more livable place and people did not feel so much to gain by getting out to a South Pacific paradise. Refrigerated meat arriving from the colonies, for example, meant that you could consume the meat in Britain, rather than having to move to the colonies to get it as part of your lifestyle.
A huge drawcard for the colonies was the rate at which people got to own a horse. Mobility has always meant a lot to humans.
If you have never read Belich’s “Replenishing The Earth: The Anglo World and the Settler Revolution”, I recommend it as one of the most interesting books I have ever read.
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Thanks for the explanation Phil
We disagree almost entirely (except, of course, that NZ still has above average incomes so that a typical person plucked from the rest of the world would be better off – materially – here than at home. Although there are limits to how far that result would scale.)
Also agree about the Belich book, altho the last time I read it I was quite surprised to find how consistent with my analysis of NZ it seemed to be.
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Yes, I agree reduce the immigration rate to something sustainable as MIchael has strongly argued for.
On the other point, people live where the jobs are, & businesses tend to prefer large cities for a number of reasons.
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Who will service the 19 million inbound and outbound passengers from Auckland Airport?
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What is your point about Auckland airport? Do cities not build extra airports once they get beyond a certain size? NZ needs to pull its head out of the sand and start thinking about whole new cities, whole new airports, whole new urban highway networks.
Wellington should lose its capital city status to a new city (like Brasilia and Canberra), which Wellington deserves to do because it is so NIMBYist and its transport infrastructure is a disgrace to a small capital city. Small US-State capital cities would be a good model, like Tallahassee, Lansing, Raleigh, Salem, and Olympia.
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When 19 million people come in from the regions or from around the world into Auckland, they need to eat, sleep, move around and get entertained. All of which require a huge workforce to service and to pamper to the needs of 19 million people every 12 months.
Top of the list of highly skilled immigrants last year were chefs and followed by other low skilled service related labour. The jobs are in servicing a booming tourism sector and international student sector. The skills needed are chefs that cook delicious foreign food, waiters/waitresses with a 2nd or 3rd language, front desk reception also with bi lingual skills, cleaners, bus drivers, hostesses, prostitutes etc etc.
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