Over the last year or so, house prices in most parts of New Zealand have come back a bit, probably as a result of the relatively rapid rise in mortgage interest rates. But relative to incomes, New Zealand house prices are still outrageously expensive. It’s absurdly excessive house prices which explain why, when Credit Suisse published their global wealth report in 2021, New Zealanders were listed as the third wealthiest people on the planet – with the great bulk of that “wealth” being in the form of over-priced houses.
To be regarded as “affordable”, the median house price in an urban area should be no more than about three times the median household income in that area. In Auckland, the median house price is somewhere around 10 times the median household income. In Tauranga, the multiple is almost 12 times – and for houses which are often quite small, on miniscule sections.
It is a shocking situation, and explains much of the social distress felt by a great many people – young families at one end of the age spectrum and the elderly who chanced not to have bought into the house price explosion when they were younger, and now face almost impossible rents.
Already we have commentators suggesting that house prices will start increasing again shortly, now that we have more people moving into New Zealand than out. At a recent social function, I was told by a property developer in the Bay of Plenty that the best investment over the next 10 years would be in housing because prices are likely to at least double over that time – from their already ridiculous level.
It’s hard to know whether to blame the Left or the Right of New Zealand politics for this situation.
Shortly after the John Key National Government was elected to office in 2008, that Government established the Productivity Commission. The first issue which the Minister of Finance directed the Commission to look at was the high price of houses in New Zealand – John Key had noted in the 2008 election campaign that the median house price in Auckland had already reached six times the median household income, and he thought that too high.
The Commission published its report on the cause of high house prices in 2012, and laid the main blame for the situation on local body councils: they tightly constrained the land on which houses were allowed to be built, spent far too long in granting building consents and, because land constraints meant that large-scale house building was impossible, caused considerable inefficiency in the actual building of houses. The Commission concluded that taxation was not a key driver of the preceding housing boom, but explicitly blamed “containment policies such as ‘Smart Growth’ and Auckland’s Metropolitan Urban Limit” for unaffordable housing.
Shortly thereafter, the Government passed the Housing Accords and Special Housing Areas Act in 2013. That law was specifically designed to “enhance housing affordability by facilitating an increase in land and housing supply in certain regions” by the creation of Special Housing Areas which would legally empower councils to take a more permissive approach to making land available for housing. But for whatever reason, it didn’t really work and by the time the National Government left office in 2017, the median house price in Auckland had reached nine times the median household income. The Labour-New Zealand First Government scrapped the law in 2019.
At one stage, it looked as if Labour would deal with the situation more effectively. In 2015, Labour’s Housing spokesperson, Phil Twyford, published an article with Oliver Hartwich of the New Zealand Initiative. That article blamed high house prices on the zoning policies of Auckland and other cities, as the Productivity Commission had concluded, but also noted the undesirable effect of loading the cost of infrastructure such as roads and sewerage onto section prices via the “development levies” charged by councils, rather than spreading the cost of that infrastructure over its life, by the use of long-term debt secured over the rates of the new housing development. Eureka, it looked as if New Zealanders could look forward to more moderately-priced houses!
Optimism rose when the Labour-New Zealand First Government announced, in the Speech from the Throne setting out their policy for the ensuing three years, that the “Government will remove the Auckland urban growth boundary and free up density controls. New developments, both in Auckland and the rest of New Zealand, will be able to be funded through innovative new financing methods like infrastructure bonds”.
But somewhere along the way, that Government lost its nerve and it wasn’t long before Prime Minister Ardern quite explicitly ruled out removing the Auckland urban growth boundary. When asked on a television programme whether she wanted house prices to fall from their ridiculous levels, she hesitated but then said that no, she wanted them to rise more slowly.
A few weeks ago, the National Party announced that if they win the forthcoming election, they will compel councils to make available immediately sufficient land to accommodate the expected housing demand over the next 30 years.
It seems fairly clear that most New Zealanders don’t believe them because house prices are still quite widely believed to be more likely to rise than to fall over the next few years, and prices shouldn’t be rising – indeed they should be falling – if councils are in fact obliged to release immediately enough land for the demand expected over the next 30 years.
Yes, the price of actually building a house or apartment may rise somewhat over the next 30 years (though not too much if the Reserve Bank is doing its job!), but it is not the price of the house or apartment itself which is currently outrageous.
I have quoted previously a study which Anne Gibson, Property Editor of the New Zealand Herald, did a year or so ago of the average price of the houses built by the seven largest home builders in Auckland during the 12 months to October 2021. Williams Corporation sold homes which were quite small and had an average price of just $141,000. At the other end of the spectrum, GJ Gardner built homes which were on average larger and more expensive, at an average price of $456,000. These prices at a time when the median price of houses sold in Auckland was well over $1 million. How come? Of course the house prices quoted in Anne Gibson’s study didn’t include the price of the land on which the houses were built.
And it is the ridiculous price of urban land which explains the ridiculous price of “houses” in Auckland. And the ridiculous price of urban land, in a country which is larger in area than the United Kingdom, with just 5 million people, is directly caused by the policies of the Auckland Council – and the councils in other cities such as Tauranga and Wellington.
It appears as if councils have absolutely no intention of changing their policy towards releasing more land for housing development. In other words, it appears clear that they don’t give a fig about the appalling social consequences of their zoning policies – which is surprising given that most councils seem to have a substantial block of left-of-centre councillors on them, councillors who cry crocodile tears about the plight of low-income New Zealanders unable to afford a roof over their heads, but who are quite directly responsible for a large part of that social distress.
In June, the Auckland Council released its Future Development Strategy limiting greenfields expansion in Auckland.
In the same month, the Auckland Council rejected an 80 hectare residential development planned for northwest Auckland on the grounds that it was inconsistent with the Council’s approach to “quality compact urban form”.
Weeks later, the Council also told another private developer, this one backed by the New Zealand Super Fund, that its plan for a 165 hectare development near Warkworth would not be going ahead. This would have provided for 1600 homes, but the Future Development Strategy proposes that the whole of South Warkworth be on hold for development until at least 2040.
Earlier this month, Fisher & Paykel Healthcare, possibly New Zealand’s most dynamic and innovative company, announced that Auckland Council’s planning strategy doesn’t accommodate its planned 105 hectare Karaka innovation park that would have created thousands of well-paying jobs – indeed, between 14,000 and 18,000 jobs over several decades they estimate.
It is absolutely imperative that the next Government compels city councils around the country, starting with the Auckland Council, to immediately remove their urban boundaries, or at very least move those boundaries very substantially to accommodate urban development for the next 30 years. Failure to do so would condemn millions of New Zealanders to financial penury, while enabling land speculators to make a fortune. We don’t need a capital gains tax. We need freedom from crazy council rules.
Don Brash
6 August 2023