The void where hope might have been

If, as I do, you’ve lived for almost 25 years 100 yards or so from the old Erskine College you have a fairly good sense of what National was on about in this snippet from their new “Building NZ, RMA Reform and Housing” policy discussion document released yesterday.

Objections to proposals for residential reuse of the old Erskine School site in Wellington held it up for more than 20 years. It involved claims that the decaying buildings had heritage value, as well as the routine RMA neighbour objections. Long after the school closed the buildings were red-stickered by Wellington City Council as being unsafe for occupancy. After two decades of costly objections and delays, development eventually started on the site providing 94 dwellings for families.

The school closed in 1985.  Some of the land was developed decades ago, but the main site is only now getting the first few occupants in the new (eye-wateringly expensive, at least on the advert I followed up) townhouses.

But if there seem to be some hints of some modest good things in the document, it is hard to be that positive  Every so often Opposition parties talk a good game about fixing (or rather, freeing) the housing market –  the one that results in such appallingly high price-to-income ratios, systematically skewing opportunity away from the young.   And then nothing very much that matters happens.  It has been that way for 30 years now, even as the problem has got worse and the imbalances more entrenched.

National talked a good game leading up to 2008.  And then accomplished almost nothing –  people from David Seymour to David Parker argue they made things worse – including when they had a clear absolute majority with ACT.  Some elements of Labour –  well, mostly just Phil Twyford – talked a good game prior to 2017.  Twyford can still give a pretty good speech on the subject, but are real house/land prices higher or lower than they were when Labour took office two years ago?  Higher of course.  And these are asset markets, that trade not just on how things are right now –  policymaking and legislating takes time – but on best credible expectations about the future.

And now we have National in Opposition again, trying to shape the best policies for New Zealand –  oops, the best policies they think they might win on –  heading towards next year’s election.  They seem to have given up already.

Oh, I know the headlines don’t say that.   They’ll report National talking of splitting the Resource Management Act in two, to have separate regimes for urban development and for wider environmental resource utilisation issues.  But then the current government is already looking at that option in one of their numerous working groups and consultative processes.    Have land prices on the edges of our cities been falling towards the value in the best alternative (agricultural?) use?  Not that I’ve noticed.  In principle, the idea of  splitting the Act sounds appealing, although with the caution that various experts have posed that there is a risk of creating huge uncertainty for a decade or two as courts define the implications and limits of a whole new regime.

But what is striking is how little specific there is about how differently things might actually operate under new National legislation.  National grappled with these issues in government for nine years, with ready access to experts inside and outside government.  They’ve now had two years in Opposition, with key former ministers (eg Amy Adams and Nick Smith) still on board, and yet nine months out from an election we have page after page of ideas from other people (notably the Environmental Defence Society) and discussions of how things are done in Scotland, South Australia, and Queensland, but little or nothing specific, and nothing that articulates any sort of National vision of a radically more functional future system.     And nothing that, for example, notes that Scotland has little population growth and the big cities in Queensland and South Australia have house price to income ratios well in excess of six –  classified in the annual Demographia rankings as “severely unaffordable” –  when both Brisbane and Adelaide not that many decades ago had price to income ratios of three.

And, sadly here I add an “of course”, there is not a single reference anywhere in the document to that myriad of thriving growing US cities where house price to income ratios today  –  10 years into an economic growth phase, with interest rates almost as low as those here now –  are anywhere from 2.5 to 4.    Or how we might be able to deliver those sorts of outcomes for New Zealanders.

I got to the end of the document last night and was rather struck by the lack of apparent ambition and by what appeared to be an avoidance of directly addressing the main issues.  So I checked the entire document and neither ‘land prices’ nor ‘house prices’ appear at all.   And yet every serious analyst knows that one of the key presenting issues is how large a share of the cost of an urban house+land is the price of the land under the house.  We aren’t short of land in New Zealand –  far from it.   Fly in and out of even Wellington or Auckland –  let alone most provincial cities –  and it is striking just how much land is close by the existing urban areas.  And yet our governments –  central and local –  have managed to create an artificial scarcity that often means that well over half the cost of a house+land in our cities is the price of the land.  It is crazy –  and we aren’t just talking close-in places like Mount Victoria or Parnell, with distinct locational advantages.   But it is worse than crazy, it is a chosen evil that governments do to our younger generations.    National can do all it likes –  and there looks to be good stuff that could and should be done –  but unless they end the artificial (government created and maintained) scarcity of (potentially) urban land, they will never make any serious inroads in fixing housing affordability.    There wasn’t even any sign in the document of National pushing back against the current proposal to worsen the situation around so-called “highly productive land”.    No hint of, for example, a flagship stake in the ground, promising (say) to enact a presumptive right to build two-storey housing on (almost) any land.

And so one comes away from the document with a sense that National really doesn’t care that much about severely unaffordable housing and rigged land markets, or they are scared and don’t trust themselves to actually be able to sell the case for change and what it might take to bring that change about.   Probably only they know the answer to which influence is more important, and perhaps not even they do (since the human capacity for barely conscious self-deception is pretty well-developed).    And so the government-created disaster, and all the attendant injustices, will go on.  It doesn’t make National any worse than the Labour-New Zealand First-Greens government, but what consolation is that to anyone (other than those sitting on existing artificially high-priced assets)?   On these issues –  as on so many –  they are really two sides of the same coin, largely protecting the status quo and wasting the offices of government which could be occupied by an –  as yet non-existent party –  that might be really willing to address the core issues to promise to get house and land prices a long way down, and perhaps even offer some sort of limited compensation scheme for those who –  largely through no fault of their own –  have taken on very large debts in recent years to get into any sort of home of their own.

Instead, all we get is small-target stuff, with nothing to scare the horses, no bold messages to sell, and little or no prospect of overdue real change and improvement.  Much like –  again from both parties –  the failure to even begin to get to grips with the decades-long productivity failure.  I’m guessing National – like Labour –  would be quite happy if several decades hence houses were once again affordable (perhaps three times income) more or less by accident.  But they won’t promise to get house and land prices down, they won’t do what it would take to fix this massive failure of our government.  And, so it seems, they’d mostly also be happy with just a bit of marginal product differentiation and just little enough action to keep the public angst (my children should be in the house market 10 years from now) more or less in check.

 

37 thoughts on “The void where hope might have been

  1. Michael

    It seems to me that everyone from banks to home owners to politicians are invested in maintaining the status quo when it comes to housing affordability. For a very long time now, many parents have helped their children into their first home. That’s probably not a bad thing.

    I’m also conscious that our changing culture has set different expectations for young people. We started out with second hand furniture and appliances like fridges and washing machines. I sense that’s not the case today.

    We stayed at home and rarely ate out, or visited cafe’s – did they even exist? Again, expectations have changed today.

    Can we really ‘have it all’?

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    • There are certainly established interests in the status quo, but we could manage something v different as they do in much of the US. And sure some parents can help children, but many at the bottom can’t – often the parents themselves haven’t been able to buy, or still have v large mortgages. And it simply shouldn’t be necessary.

      I’m sure you are right re changing expectations – in the street where my parents had their first house, I’m just old enough to remember people doing all their own landscaping, incl planting potatoes out front before putting down a lawn. But, again, the US comparisons…..the land prices are an avoidable disgrace.

      And of course the other cultural consequence in the financial pressure for two parents to work fulltime or near fulltime when the survey evidence suggests that many (esp women) would prefer a parent at home at least in pre-school years.

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    • Every Auckland dwelling that existed prior to September 2013 when the Unitary Plan was first notified now allows for a minimum of 2 dwellings as of right if you have a minimum of 5sqm living space. Yes 5sqm living space for each dwelling. The Auckland housing stock potential virtually doubled overnight when the Unitary Plan was approved. So why did prices not fall in Auckland but instead is starting to rise again? Simple maths answer, 2 dwellings for the previous price of a single dwelling makes Auckland properties now undervalued at 2 or more dwellings rather than overvalued at one dwelling.

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      • Ngaruawahia and Huntly are less than 100km from Auckland, has all the services, houses and its own town. Prices are still available at $250k to $400k less than half the price of Auckland but no one wants those properties. Clearly land prices are cheaper further out. Why would you say they are not?

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  2. I would not call National doing nothing, when they did navigate the NZ economy out of a RBNZ trigger happy engineered recession, 2 disastrous earthquakes with $50 billion in damages, a GFC and delivering economic growth with government budget surpluses. Sir John Key’s National government delivered a fast turnaround by diversifying from a 50% decline in Dairy prices to a $15 billion annual foreign cash injection through tourism and international students. That is why we have a Sir John Key and a Sir Bill English.

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      • Nick Smith did push ahead the Special Housing Areas which were actually the Auckland Unitary Plans first notified. He found that first plan ridiculously difficult to work with. That led to a setting up of the Independent Hearings committee to loosen up the first notified Auckland Unitary Plan based on the experience with the SHA zones.

        Building in Wellington is a problem because everytime there is a shake the insurance companies suspended offering insurance which delayed bank settlements for a month.

        Housing? Was rebuilding Christchurch not about rebuilding and repairing 20,000 damaged houses?

        Most of regional NZ is actually losing permanent population which should mean falling prices and vacant properties. The recent shortages and price surges has more to do with Air BnB rentals which has driven up rents and driven down availability and therefore an increase in prices.

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  3. Great post Michael!

    The ACT party probably should be taking the lead on this but they seem to be taking a bob each way approach – I guess not wanting to put off their property owning voters. But they only got 13,000 votes last election so surely they could risk being more aggressive. There are a million voters who live in a house they don’t own – so a party really committed to getting rents and house prices down might do quite well since none of the other parties seem committed.

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  4. Well, Michael, thank you for a thoughtful article right in the centre politically (a plague on both their houses Whoops that is almost a pun).
    Supply v demand is the answer but regrettably the distortions from immigration in particular remain. The lack of building tradies from prolonged training deficits and substitution using imported labour etc
    Maybe we need to incentvise some of those baristas with largely unused BAs to train as plumbers.
    Enough for now maybe.

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    • When you import 50k builders to build the houses you automatically cancel out around 20k of the houses they will help to build. (Internal) labour market supply hasn’t been looked at sufficiently

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      • You have to ask Michael why he and Allan Bollard decided a complete decimation of the building industry was a good thing when they pushed the OCR close to 9% and the NZ economy into a deep dark recession.

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  5. Yes, not one political party so far has a specific policy for land-value reform. A good start would be reform of the valuation system used for calculating rates.

    Under the current system, they base CV (land+improvements) based pure and simply on market value trends in the area. Hence, one house and land package in a neighbourhood sells for some outlier (ridiculous) amount – and every existing homeowner in the neighbourhood gets a top up capital gain up.

    To my mind revaluations for rating purposes every three years is a key element that bakes in our enormous capital gains.

    I would prefer a numeric scaled system for rating valuations, (e.g., 1-25 as a number assigned) with respect to calculating the General Rate charges (no changes to fixed charges and other user/consumption charging of elements of the rating system).

    The General Rate charges should be based on land value assessment only (not improvements as valuers that make actual physical visit/assessments ought to be doing that).

    And land value should be assessed (under the numerical scale) via a formula that is: (distance to a large centre of employment, i.e., a CBD) x (distance to the town centre of the suburb/provincial town) x (access to public transport) x (m2 of the land holding).

    No dollar values whatsoever set by the State on land, just a numeric scale for calculation of the General Rate.

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    • The problem with Land value rating is that not all land can be developed which makes it rather unfair for the owner who through no fault of his the land remains vacant. Viewshafts, overflow paths, flood sensitive, volcanic cones, drains, sensitive native trees, queens chain, riperian borders makes your calculation of land value a lot more complex, no public services closeby ie green sites.

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      • We are in agreement. For the purposes of price discovery under market conditions, one would have to get a proper valuer to make a market valuation – whether it be land or land+dwellings. Problem at the moment with government valuations is that banks, more than not, just accept the sight-unseen rating valuation as a good enough indicator. Sellers expectations are grounded on a CV basis (amount over depending on the date of the last government valuation) and hence market prices are relatively inelastic. Government valuations ‘lift all boats’ in the near vicinity – regardless planning regulation differences (as you mention) and/or any number of other factors.

        And I agree with you, we should leave the complexities of market valuation to valuers.

        For rating purposes, we would let the council GIS systems parameters (nothing to do with market price) calculate the General Rate for each individual property. And it needn’t be recalculated unless their are infrastructue changes in the near vicinity.

        What I’m saying is that the government should not produce a dollar valuation for rating purposes. It simply serves to inflate everyone based on a few sales in the general area, i.e., it serves to ‘lift all boats’, regardless their sea worthiness..

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    • “revaluations for rating purposes every three years is a key element that bakes in our enormous capital gains”
      Rating values are, by their very nature, backward looking so it’s difficult to see them being a driver of prices. They reflect prior sales; albeit quite broad-brush as GGs has pointed out.
      In our area (Kerikeri) we had a precipitous decline in section selling prices following the GFC shakedown. Typical sections went from over $200K to under $100K over three years. Sections were selling for half RV!
      Subsequently RVs followed but with a significant lag and don’t seem to have put any sort of brake on the recovery in price rises which are now around three times the lower values seen only a few years ago.
      I know it’s tempting to blame rating valuations but, as real estate folk are at pains to point out (unfortunately often only when it suits) they are not a proper or accurate guide to market values. The expectation for rising prices is a (not always reliable) reflection of reality.
      Apart from the general fear engendered during the GFC the big driver for our local price decline was a large surge in section availability. I suspect there would have been a significant price decline regardless; restriction of supply is a huge factor in the unaffordability of urban residential sections IMHO.

      Liked by 1 person

      • Yes, land use / planning regulation needs addressing as well, but rating revaluations most certainly “reset” prices (up or down) and they are dangerous tools as (in general) they do not reflect a proper valuation at all.

        So EASY to get rid of them and replace them with a non-dollar value alternate – GIS tools only and no valuation methodology needed at all..

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      • George, you mean a Michael Reddell and Allan Bollard RBNZ engineered shakedown. Nothing at all to do with the GFC.

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      • After the GFC in Northland was a great example of how supply and demand affects the section prices. There were more sections for sale in Northland than Auckland – yet the population is about a tenth. This is what it should be like everywhere, all the time. It’s not rocket science.

        Surely rates should be unimproved value like they used to be. Then there is no disincentive to build a house and the holding cost of vacant land reduces it’s price. Again – really simple stuff

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  6. PS The above requires no revaluations for rating purposes unless the physical infrastructure in the nearby geographic area changes (i.e., improved transport links, new town centre established).

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    • Yes, that sounds like an interesting idea Katharine.
      Still, buyers and sellers are guided/influenced by recent actual sales. In fact RE agents are required to provide prospective vendors (and purchasers on request) with an unadulterated report of recent comparable sales, I’m sure that any wise buyer would pay more attention to that than general rating values which state quite clearly they are not an estimate of current market value.
      Merry Christmas,
      David.

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  7. Good post. National are only interested in promoting policies that are proven vote winners. They have lost credible principles and their mantra is now “Our policy is to get back into power no matter what policy we have to adopt”.

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  8. I don’t disagree the RMA needs revision, but I’m not sure it’s a home run to spur development (which is needed) In Wellington a larger issue is zoning which leaves most of the city as outer residential & which allows just 35% site cover (& height restrictions), this leaves anyone wanting to intensify to punt on what the council might determine. Erskine isn’t a good example – the developer brought with restrictions in the purchase on what the site was to be used for and with Heritage 1 listed buildings and sought for years to do an intensive development – in the end he has been able to do this after the council applied the now defunct SHA and ignored the RMA (the environment ruled this to be incorrect, but then used discretion to allow it to continue as the council had already allowed the development to start). So yes, 96 more dwellings is good, but the loss of one of the few heritage 1 buildings in the city may have been a high price given the incremental increase in scale this allowed and good luck with the traffic from 96 houses and the commercial developments that will trundle down the single lane Erskine close – like the proposed Shelly Bay the developer isnt paying the infrastructure costs. Anyway, the larger point is there are many things within each councils control before the RMA can be blamed.

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    • Entirely agree with your first point – in a sense the point of the post: one can change the RMA and it is no guarantee of much better outcomes if Council mentalities aren’t changed (or constrained).

      Take some of your points on Erskine, altho some of the units are accessed from other streets.

      I guess my approach to heritage buildings is that if the state wants to preserve them the state shld by them. But it isn’t obvious why the state shld have insisted on preservation of religious buildings when the Catholics saw no continued value in them.

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      • Christchurch Cathedral is the case in point. The church didn’t want it. Besides, why preserve something that is a great example of how not to build a safe and sturdy structure? By all means preserve the facade in some way if you want to preserve “character” (which in real estate terms means undesirable, high maintenance, inefficient design). In Korea they have done this in a way. They have rebuilt all the temples that were burned down by the Japanese as replicas, so you can see what they were like, but are left under no illusion that you’re looking at an authentic 16th century temple.

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  9. 1) For a pop of 5m we dont need so much bureaucracy & district & regional plans stacked as high as the skytower.

    2) Amalgamate all district and regional authorities into unitary authorities

    3) Government required to issue a full set of nationwide environmental standards. (no zoning & no density limitations) These should be justified by regulatory impact assessment & cost benefit analysis.

    4) All covenants sunsetted

    5) All existing district plans sunsetted

    6) Government issues a new nationwide infrastructure standard (esp transport & vision zero)

    7) One nationwide district plan for everyone with unitary authorities allowed only limited abilities to issue region specific pages (eg spatial plans), which must be justified & passed by RMA Government Agency

    8) Any rules proposed must go through regulatory impact assessment & prove there aren’t better alternatives, e.g. pricing mechanisms

    9) Apply the same process to the other required plans under the RMA.

    10) Make the necessary amendments to the RMA

    11) To ensure integrated land use/transport outcomes limit NZTA to funding and standard setting, and pass control of the SHs (as SHs) to the Unitary Authorities

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      • With our typical rate of Kiwis moving overseas that still leaves plenty of immigrants (it would just be a matter of getting the ones who seriously help NZ).
        The rapid internal migration from rural areas to cities and from south to north means even net migration of zero would leave Auckland growing with continuing congestion etc.
        However your net zero migration concept as an announced policy would kill the speculative bubble that is Auckland housing. That would drop house prices and young Kiwis could buy houses and start families.

        It is a means of controlling immigration without appearing racist. Fairly easy to achieve – the quota for work visas and permanent residency to be adjusted monthly to match the previous months emigration. It is a great idea and any party that proposes it would do well. I’ve even thought of starting a new political party and calling it “The Steady State Party”.

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    • 12) Introduce a population strategy to reduce the immigration rate to something sustainable aimed at helping achieve maximum gdp/capita growth rather than absolute gdp. (Current immigration rate is one of the highest in the world per capita)

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    • @Bob – high emigration is a product of economic underperformance, the economic underperformance being a product of high net immigration (if this blog is to be believed, which I think on balance it should).

      “However your net zero migration concept as an announced policy would kill the speculative bubble that is Auckland housing. That would drop house prices and young Kiwis could buy houses and start families.”

      Yes – exactly. Not only that, young Kiwis would also be able to buy “proper” houses – i.e. with some land around it, so their kids can run, play and build things on their own, growing up into fully formed, responsible independent adults, as opposed to anaemic, narcissistic apartment dwellers, dependent on the state for everything (I am convinced this is why modern leftists are so enamoured of high density living – easier to control people)…

      “It is a means of controlling immigration without appearing racist.”

      The most non-racist policy would be zero – no one gets hard done by….

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      • Like it or not immigration is a policy. We do have target quotas. It is a policy that cannot be discussed because those with a strong economic bias for more immigration do call any reduction to a quota racism or xenophobia. Just look at the speed with which Andrew Little having picked up the issue dropped it like a hot stone.

        Your comparison of those who live in high density housing with those who live in stand alone houses has some support from experiments with lab rats put in a closed environment with limitless food. It also resonates with the reputation for crime found in Europe’s two largest traditional slums: Naples and Glasgow. But I’m not convinced. In NZ isn’t long term dependency on state benefits more common in remote Northland than Auckland’s CBD apartments (not the owner occupied posh apartments nor the instant slums of investment apartments). Despite being on the committee of a gardening society and enjoying possession of a large garden I can’t help noticing that fine gardens in Auckland equates to elderly citizens. Most young adult Kiwis are unwilling to even maintain a window box and a few planters on their apartment decks. Our house backs onto a reserve and in 15 years we have barely seen a kid in it whereas when I was growing up it would have been swarming with them. NZ even has a current advertising campaign by Spark to get children out of the house.
        My Steady State party concept has an appeal beyond just immigration worries. I drove into Auckland CBD yesterday – so many new buildings built in the last couple of years. What were modern semi-high rise five years ago are now overlooked by tower blocks. The one thing that hasn’t changed is the incessant road works. The average Aucklander would greatly benefit from a slower rate of population growth.

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  10. Stop local govt from cashing in on subdivision. I met a guy recently that along with his partnering neighbours was charged $250k per section for subdividing 4 sections in rural north east Auckland. No new roads, no water services, no rubbish collection – just monopoly ticket clipping at extortionate levels.

    End reserve contributions and extortionate service connection fees – raise rates instead. Council can borrow cheaper and is anyway gaining a valuable new asset in the form of a rate payer. Remove that up-front cost and house prices will drop accordingly – as they are set to an extent by cost of new builds.

    Stop council pushing cost of maintaining and improving their infrastructure on new builds. Council can improve storm drains rather than forcing new home builders to do water management on their sections – huge tanks that take up valuable space, limiting ground cover etc (homes built decades back do not have such measures).

    Roll back building regulatory regime to around 2000 (keep updated codes). Remove responsibility for faults in construction from anyone but owner. Make it all caveat emptor, and buy insurance as an owner if you wish, maybe a little unfair on occasion but overall massively cheaper than legal systems to identify and lay blame (legal process in leaky houses cost typically ~5-10x the cost of actual fixes, paid for a lot of lawyer’s porsches but very little house fixing), and removes extreme over-speccing and huge processing and consultant fees that are being incurred in the massive merry-go-round of consenting arse-covering activities. Eliminate most council involvement in consent granting. 40 years back it cost <$100 for a house consent, now it costs $30-$100k+ in fees and professional help to negotiate the process.

    Re-examine cost effectiveness of all health and safety and building code changes – It's nuts to mandate $50k of added high cost insulation upgrades to save $150/year of electricity. $20k in mandatory scaffolding to save a couple of hundred in ACC injuries is equally stupid. Cost of building a house has gone up 300% per m² in last 20 years, with inflation only 50%. The houses are not significantly better. It is all going on regulatory waste.

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  11. In the US, almost all the cheapest states for housing vote Republican, and all the most costly ones go Democrat. Increases in a neighbourhood’s house prices are associated with a corresponding rise in the Democratic Party’s vote share. Yet the whole Conservative economic model of the Eighties was built on house price inflation, with homes supposedly acting as a nest egg, a disastrous mistake that has led to a generation of renters – who heavily backed Labour last time. The main reason for this link is that housing costs prevent people starting families, and married people tend to be more conservative.
    https://unherd.com/2019/12/even-if-the-tories-win-they-face-huge-trouble-ahead/

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  12. I’m skeptical of a free market solution because [psychiatrist’s couch ]
    1. Immigration is the problem (but no elites wants to admit it).
    2. We have gone beyond an optimal population therefore free market solutions will reflect a not so rosy looking solution whether “sprawl” or (compromised) infills.

    My pie in the sky solution would be state ownership of land (as in Singapore) and private enterprise to build and design housing stock (Singapore model).

    Having said that if zoning was relaxed and it lowered land prices people would have more money to spend (I presume) and therefore could build better houses).I have always assumed zoning was about infrastructure management as much as anything? If there is zoning then why not a land banking policy zone?

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