What’s the problem?

Housing is expensive in New Zealand, especially in Auckland, where median house prices have increased fivefold since the early 1990s (in nominal terms). Roughly half of this increase has occurred in the last four years, which is causing quite a bit of concern:

Interest.co.nz Aucklan stratified house price index 1992-2015

Housing markets are complex – prices are influenced by both demand-side and supply-side variables. As a result, it can be difficult to tell a single, simple story about why prices have gone up or down in any given year. Take the recent rise in Auckland house prices. Some people argue that it’s a financial bubble (a demand-side explanation); others blame high migration (demand) or distortionary tax policies (demand); and others cite inflexible planning rules (a supply-side explanation) or low construction productivity (supply).

Although short-term dynamics can be mysterious, elasticity of housing supply is the main long-term driver of housing market outcomes in a growing city. The easier it is to build new dwellings in the right places in response to increased demand, the less upward pressure there will be on prices.

The empirical evidence suggests that housing supply in Auckland is slightly inelastic – somewhere in the range of 0.7 to 0.9. This isn’t horrible, but nor is it sufficient to get housing supply in balance with demand.

Severe geographic constraints – Auckland’s harbours and steep hillsides – appear to be an underlying driver of the city’s inelastic housing supply. In this context, settling for average urban planning policies means getting a limited supply of housing and high prices. Consequently, we have to make it much easier to use scarce land efficiently. That means reforming our approach to planning regulations. In the past, we adopted land-hungry policies like minimum parking requirements or severe building height limits without thinking through their ill effects. That has costs, and we need to do better.

Auckland is not the only city coping with high housing prices and a lack of supply – you see similar problems in places like London, New York, San Francisco, and Sydney. However, I would bet that New Zealand will do a better job sorting out its housing affordability issues than other places. In fact, I am betting on it! I’m renting in Auckland, which means that I bear all of the downside and none of the upside of spiraling housing prices.

There are three reasons for my optimism:

1. Our proven track record of policy reform

Let’s start with a pat on the back. Having lived in New Zealand, the United States, and Nigeria, I’d say that Kiwis are, by and large, pretty reasonable when it comes to public policy. We’re not very corrupt, which removes one major source of inefficiency. We generally recognise that as a small, distant trade-exposed country we can’t afford to do things inefficiently. And, due to New Zealand’s small size, there’s usually no need to over-complicate things.

Policymaking anywhere will always be subject to cognitive and professional biases – people screw things up, and sometimes it takes a while to sort it out – but New Zealanders don’t seem want totally irrational or insane policies. Unlike the US, say:

TRUMP
Source: The Economist

Possibly as a consequence, New Zealand has a record of reforming policies that aren’t working, either incrementally or in one go. The classic example of this is in trade policy. From the 1930s to the 1980s, the New Zealand government oversaw an extensive set of import controls. Te Ara describes this policy:

Faced with declining export returns and a foreign exchange crisis, a Labour-led government introduced foreign exchange controls and import licensing regulations in 1938. The regulations prohibited the import of any goods except under licence or where exempted.

Importers had to apply to government for both an import licence and the foreign exchange needed for purchases. The quota – the amount that could be imported with a licence – was set on the basis of imports the previous year.

Just as restrictions on the efficient use of land produce windfall gains for landowners while foisting large costs on renters and new home-buyers, import licensing created fortunes for some manufacturers while making most consumers worse off. As a consequence, after experimenting with some liberalisation of trade policy in the 1970s and 1980s, the remaining import controls were swept away in the late 1980s.

Recent changes in transport policy also demonstrate our ability to reform bad policies. Over the last decade, there have been some important, although undoubtedly incremental, moves to reform our inefficient monomodal urban transport system.

For example, last year I reviewed a 2010 research research report on deficiencies in NZ’s public transport planning and operations – and was surprised to find that almost all of its recommendations are being implemented in Auckland, Christchurch, and other places. Since 2010, Auckland has:

  • Established a public agency (AT) that can plan and deliver a PT network and supporting infrastructure
  • Developed and begun implementing a frequent, connected network that satisfies best practice network design principles
  • Reformed bus contract models
  • Implemented integrated ticketing (and soon, integrated fares)
  • Started to build bus interchanges and bus lanes.

New Network Model

This is a big deal, but it’s hardly the only story in town. How about the fact that central and local governments are now coming to the party on urban cycleways? For the first time ever, significant investments are going towards one of New Zealand’s “missing modes”.

We now have an opportunity to take the same approach to urban planning – reform what isn’t working and get better outcomes.

2. The structure of our governments

The current structure of New Zealand’s governments makes it easier to implement reforms and make them stick. We have two key advantages in this area that offer a smoother path to policy reform.

First, New Zealand’s government has a unitary structure rather than a federal one. This means that most powers are concentrated in central government rather than distributed among multiple layers of government. Political centralisation certainly isn’t all good – in the past it’s often led to a perverse situation in which urban transport policy is being designed by rural politicians.

But in this case, it makes policy changes much easier. If central government were to, say, issue a National Policy Statement on urban development or rewrite sections of the Resource Management Act (which governs the development and implementation of urban planning rules), it would lead to changes in the way that local governments regulate. That option isn’t usually available in federal systems.

Because any proposal to liberalise planning rules inevitably creates controversy at local body election time, central government involvement can potentially assist in getting important changes over the line.

Second, the creation of the unified Auckland Council ensures that all growth tradeoffs – and the negative consequences of preventing growth – are internalised within a single council. Gone are the days when councils could simply refuse to zone for growth and assume that it would become someone else’s problem instead. Now a single council is responsible for sorting the region’s problems out.

You can see the results in the Unitary Plan – a document that’s not perfect (no plan is!) but which takes some important steps forward. For example, it removes MPRs from the centre zones, which are intended to accommodate a mix of business and residential uses, cuts back minimum lot sizes throughout much of the city, and creates some midrise residential zones.

Amalgamation does come at a potential cost to Tiebout competition, in which adjacent councils compete for growth. But I suspect that the benefits outweigh the drawbacks. As the San Francisco Bay Area shows, local government fragmentation doesn’t necessarily result in more housing supply – the Bay Area has 93 local governments but building permits have still been falling since the 1970s.

New Zealand’s unitary government structure and the creation of a consolidated Auckland Council create the potential for “virtuous cycles” in which local and central government egg each other on to improve urban planning regulations and processes. To date, this has led to things like the Special Housing Areas, which aims to ease consenting in selected areas, and the Unitary Plan hearings process, which is intended to review the plan and allow it to be implemented faster.

The hearings process, in particular, has encouraged Auckland Council to think carefully about its proposed zoning rules. For example, following instructions from the hearings panel, the council is considering rezoning some areas to enable more housing. This is an important step towards recovering from the ill effects of past down-zoning.

FrameWORK_Housing_ZoningCapacity
Down-zoning in Los Angeles (Source: Re:Code LA)

3. The political agenda

Lastly, housing affordability has hit the political radar at a national level. There is an increasing consensus that reforms to urban planning rules are a key part of the solution. The latest Productivity Commission report on using land for housing outlined some key policy changes, and politicians from several major parties have subsequently endorsed a number of these recommendations. For example:

In other words, there is likely to be cross-party support for sensible reforms to urban planning that build on the good work that’s already been done by central and local government.

Globally speaking, it’s somewhat unique – and fortuitous – to have so much attention placed on urban planning issues at both a local and central government level. For example, in the US, a few economists in the Obama administration are starting to talk about the drawbacks of overly restrictive planning regulations. But President Obama has very little ability to influence zoning in San Francisco or New York.

New Zealand is different. We are generally willing to reform policies that aren’t working for us, we’ve got government structures that can facilitate that reform, and our elected representatives are paying attention to the problems and potential solutions. Those seem like good reasons for optimism!

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52 comments

  1. So, what is Auckland’s target population or do we just keep growing forever? And how do we make Auckland ‘livable’ with endless growth (if that is what everyone is happy with)?

    1. Isn’t most of Auckland growth natural (we keep having babies). Should we put a population cap in place so that children are banned from living in the city they grew up in once they reach adulthood?

      1. Most of the growth is but prices are not set by the average they are set at the margin. It is immigration that has pushed the demand well above the level the industry has been able to supply.

          1. Net migration to Auckland was higher, as a percent of the population, during the 1950s, 1960s, and parts of the 1990s. Wasn’t a problem then. Wouldn’t be a problem now if we enabled more flexible housing supply.

          2. Peter nothing is a problem if you fix it. That is a tautology. The issue is as much one of timing as anything else. We dont have a surplus of houses and we currently dont have a fix in place and yet we are inviting people to come and live here. So at least in the short term people will miss out on a house to live in in Auckland.

          3. “we are inviting people to come and live here”

            Our migration policy settings haven’t changed – we’re not any more or less inviting to migrants than we were three years ago. Net migration to NZ simply fluctuates in response to economic conditions here and in Australia.

            I don’t think we should bugger up our migration policies – which, by the way, couldn’t be done overnight either – to avoid changing planning policies that aren’t working.

          4. Except Peter back then we had a) more land readily available, b) land closer to the city and more suited to development, c) a larger part of our economy in the construction sector, d) government grants to build, e) lower building standards (although built better in many cases). Take your pick they all allowed for easier development back then. These days we have far higher density so we have the higher costs associated with building up. We have less greenfields land located close to the city that is suitable to build on. We also have a larger population so more inherent demand to go with a smaller percentage of the economy devoted to construction. In the past there were also big swings in immigration numbers from year to year and in the past immigration was more evenly spread around the country. These days we have had 2 decades of unfettered immigration (primarily from Asia) most of which has been focuses on Auckland. As a result Auckland has doubled in population over that time while the rest of the country has pretty much stayed still. Yes Auckland has natural growth and receives domestic migration, but the main driver of the extra growth in population has been immigration. 200,000 less Asian immigrants would mean around 60,000 spare houses in Auckland (or around 6 years worth of building at current high levels).

          5. Your anti-immigration rants are boring and wrong.

            1. As Charting Transport’s analysis of population densities shows, Australasian cities are at the bottom end of the density scale. There is plenty of scope to intensify at an affordable price.

            2. Auckland hasn’t doubled in population over the last 20 years. It’s taken more like 40 years for the population to double. Perhaps you’re worried about growth in part because you don’t have a very good handle on the numbers?

            3. As I’ve previously shown, the majority of Auckland’s population growth is from natural increase, not migration. You say that migration is “extra” growth, but that’s a meaningless, undefined term.

            4. The fact that you’ve singled out Asian immigrants rather than (say) European or Pacific migrants, who are still more numerous in spite of the last 20 years, leads me to believe that you’re motivated partly by xenophobia. You don’t seem to be bothered by previous waves of “unfettered migration” from the UK.

          6. “Our migration policy settings haven’t changed” Peter that is the problem, it is not proof of your argument. To Bruce I just want to point out that thinking immigration is a problem at the moment for us is quite different to not liking people of different races. The first can be supported by logic, the second is mostly irrational and based on emotions like fear. I am in the first camp and I would have us tighten up on all immigration equally regardless of where people come from or their skin colour until such time as we have sorted out housing problems, up, out, both whatever. Invite in more people when we have enough homes and once our wages have risen to decent levels. At the moment we have a low wage economy and no incentive to change that. Owners don’t face rising wages so they dont have to invest in training or in capital plant to make labour more effective.

      2. You say it like it sounds crazy….but ultimately either citizens rationally limit their fertility or it will be done for them – best case – by the state, as in China, or – worst case – by death, conflict and disease due to exceeding the carrying capacity of the resources they rely on.

        If there was no immigration, growth would be slower. Would people rather allow themselves more breathing space for their fertility? Or would they rather limit their fertility to make space for newcomers?

        Issues like these will matter to someone someday.

        1. You’re right to say that the planet as a whole has to transition to no population growth over the longer term. In fact, this is already happening. According to the World Bank, world fertility rates halved over the last 50 years. That’s huge. And it mostly wasn’t driven by state regulation or wars, but by productivity growth (which reduces the need to have a large family for income or farm labour), technological improvements (e.g. better contraception, and better access to it), and the education and economic empowerment of women. With luck, these trends will continue.

          Immigration is about the *distribution* of population – it has very little bearing on the carrying capacity of the planet as a whole. (Except insofar as it reduces fertility rates among people who migrate from poor countries to richer countries, and changes the consumption habits of those who migrate.)

          “If there was no immigration, growth would be slower.”

          Yes. This isn’t necessarily a good thing, though – as the baby boomers retire, somebody’s got to be around to pay for their pensions and buy their houses.

          1. Much of that “luck” has been the result of a 40 year program by the United Nations to educate woman and support their ability to make choices about how many children they have. It’s one of the huge things going on that we almost never hear anything about, unless we go to the UN web site and look for ourselves.

            The program began soon after the Club of Rome released its book “Limits to Growth” in 1970. It raised awareness of the issue of population.

    2. Growth is hard to prevent. Maybe a big outbreak of foot and mouth disease and the collapse of our economy? Might slow immigration.
      A one child policy for Auckland given much of the population growth is just births minus deaths.
      A positive policy can be to increase the attractiveness of the provincial cities to send some growth their way.

      1. Demand for housing may come from immigration or natural population growth. But it also can come from income growth, changed economics circumstances that might increase demand for certain cities or certain parts of cities. It might come from natural or man-made disasters such as Christchurch’s earthquakes or sea level rises causing residents to move. The list goes on and on.

        Only having a top down dictatorial response doesn’t have a good history. Central govt/planners cannot make all the decisions on where people should live, there are too many variables. What they can do is provide a good framework -some of that may be immigration reform -but that is only a small part of our regulatory and urban development framework. Then allow people to self organise within that framework. Hopefully in a sustainable and affordable manner.

      1. Coercion is only required when people fail to do what obviously needs to be done.

        So we have compulsory income tax, car registration, driver licencing, pilots licence for people who fly and so on and so on.

        None of that is “fascist”. They are just laws that were introduced in order to protect everyone from the people who do as they please without regard for the consequences to others.

        More generally, we refer to these things as “laws”. What night seem like a crazy law now to us may one day make perfect good sense to the people actually facing a problem we have the luxury of choosing to ignore. So far.

    3. Hi Ricardo

      Setting aside the limited feasibility and negative welfare effects of a cap on population, your comment is off-topic. If you want to continue commenting on this thread, please endeavour to be relevant.

  2. The “severe geographic constraints” of building on an isthmus are no longer a factor, because we have built on all of the isthmus and new builds will be on the much wider Rodney and Franklin land masses. Pre-existing 0.7 – 0.9 inelasticity no longer applies due to “geographic constraints”. Unfortunately the Unitary Plan of Auckland Council extend a virtual isthmus onto the larger land masses. Our severe land supply constraints are now regulatory.

    The efforts to create intensification are to be applauded, but suffer some fundamental flaws. Apartments take specialist construction techniques and long-term investments of capital. Our regulatory constraints create an artificially high cost of land. Our zoning constraints prevent intensification where it is most proximate to the CBD and would be able to command the highest prices. An investor looking to maximise return would be better off in any of the Australian cities or even Christchurch. Our costs are too high and the profits are too low.

    1. Estimates of Auckland’s geographic constraints take into account the existence of Rodney and Franklin. Even after accounting for these places, 2/3 of the area around Auckland is not buildable. Anyway, as I’ve pointed out in the past, the point isn’t that Auckland doesn’t have Franklin – it’s that other cities have Franklinesque land right on the doorstep of the CBD.

      “Apartments take specialist construction techniques and long-term investments of capital.”

      Not necessarily. Highrise apartments are big projects, but smaller-scale projects, like 3-storey blocks of flats, aren’t that much more complicated to build than standalone houses. Unfortunately, we’ve historically regulated to make them illegal. (This will change, at least in some areas, under the Unitary Plan.)

      Basically, inefficient regulations are the main factor preventing intensification. Change that and the market will follow.

      1. “Anyway, as I’ve pointed out in the past, the point isn’t that Auckland doesn’t have Franklin – it’s that other cities have Franklinesque land right on the doorstep of the CBD.”

        I appreciate your point and agree that Auckland has a restrictive geography, it is on an isthmus. However as you know other places do not suffer from this restriction and that means their supply is much more elastic. Cities like Manukau, and towns like Pukekohe, have a much higher proportion of potentially developable land offering greater elasticity. Auckland Supercity has much more geographic elasticity than old-Auckland city, because Auckland Supercity is not constrained to the isthmus.

        1. Likewise, I appreciate your point that it is undesirable to supplement natural constraints with man-made constraints. (Unless there is good evidence of externalities or other market failures that may arise from development – in which case a restriction on development can make sense.)

    2. My view is you are right Angus. The intensification policies that were favoured by the old Auckland City Council (as it gave them more development in their area) have been pushed onto the surrounding areas where there was and still is a huge area that could be developed. The constraint as you say is regulatory not physical geography.

      1. *What* intensification policies? I was reading the old Auckland district plan a while back and there weren’t many policies that would enable intensification outside the city centre. Two storey residential height limits, minimum parking requirements even on frequent bus routes, demolition controls, etc.

        1. I was thinking of the old Auckland City support for Plan Change 6 of the RPS which is what made developing the outer areas so much more difficult. As part of that process the ARC tried to ‘allocate’ growth targets to each sector with Auckland City gaining the most while trying to make greenfields as difficult as possible for the other Councils. As for the operative central area and isthmus plans they are both still enabling. It is difficult for residents to stop a development near a centre or along a transport corridor. A development might not meet the permitted rules but most large developments never do. They still get built.

          1. That’s just the wrong way to go about it. The best way to promote intensification is to remove the barriers to doing it.

            “A development might not meet the permitted rules but most large developments never do. They still get built.”

            *Some* of them get built, at a higher cost than they would have with more enabling regulations. Others don’t get built at all. This can be plainly seen in the population statistics. Between 1996 and 2013, Auckland’s population increased by about 1/3. All of the local boards in the former Auckland City Council grew at a substantially slower rate – except the city centre, where the rules facilitated development.

          2. “I was thinking of the old Auckland City support for Plan Change 6 of the RPS which is what made developing the outer areas so much more difficult.”

            But plan change 6 was never adopted right?

            “As for the operative central area and isthmus plans they are both still enabling.”

            It’s quite a stretch to call the operative zoning in the Isthmus ‘enabling’ when the only thing permitted on the majority of land is a suburban house on a large site. In fact much of the Isthmus has zoning more restrictive than the existing built form.

            “A development might not meet the permitted rules but most large developments never do. They still get built.”

            Yes large developers can bare the costs of fighting for a resource consent but no one else can. This eliminates smaller developers, makes intensified developments scarce, and means the costs of consent are added to the price tag of the few large developments that are built.

            This idea often comes up – that intensification or ‘smart growth’ policies have caused high prices. But in reality intensification / smart growth policies have never been implemented. For years lipservice has been paid to intensification but our plans have prohibited building both up and out, with ‘out’ offering a path of less resistance for developers.

          3. Hell I didn’t mean to defend the control freak mentality that planners adopted when the RMA came in. We used to have significant development potential as predominant uses under the old District Schemes. But requiring assessments for everything adds cost but it doesn’t stop development dead and it isn’t anti-intensification as they apply the same nonsense to sprawl. But the operative plans are not fundamentally opposed to intensification. But they do require far to many reports by too many people. PC6 to the RPS is operative and added to the cost of every greenfields development since. It was a poorly written piece of work by a few politically motivated people. http://www.aucklandcouncil.govt.nz/EN/planspoliciesprojects/plansstrategies/DistrictRegionalPlans/regionalplans/aucklandcouncilregionalpolicystatement/Pages/change6-lgaaa-nowoperative.aspx

  3. Since the government introduced requirements a few months ago for a NZ bank account and IRD number the numbers of foreign (mostly Chinese) buyers has dropped dramatically. As a result we have seen a levelling off in the price rises (and in many cases a drop in prices from failed auctions etc). Couple this with domestic investors requiring 30% deposit for buying in Auckland and there is now a marked difference in the market.
    If only we had put these in place years ago we wouldn’t have a large chunk of our housing tied up by foreign investors and at the lower end of the market first home buyers would still be able to get into housing.
    But according to National we didn’t “have a housing problem” (read – we own houses let’s sell them off to overseas buyers for top dollar).

    Now if we could restrict numbers of low skilled immigrants coming to Auckland we could give ourselves a bit of breathing space to catch up on the supply side of things.

  4. Hi Peter, great background post with some good points. I agree with your argument that if the framework of regulations allows a particular type of building, the industry will adapt to provide it. Auckland’s prior dabble in intensification was the single story sausage flats of the seventies (Patrick, fill in details and add photo please). They are a bit, but not much different to the single dwellings,of the time, just joined together and stretched out a little. Our builders adapted. This time we are asking them to go upwards as well and they will adapt to that too. The most important thing is keeping the body corporate and supporting infrastructure adapting and developing at the same speed.

  5. Sausage Flats were themselves the result of a peculiar set of regulatory constraints and freedoms, and represent the markets response to demand for greater choice/more efficient use of land within those circumstances.Firstly, the demand for more intensive (than say 1/4 acre) was clearly there or they would not have been supplied, certainly not on the scale they were constructed.
    Secondly, the regulatory opportunity was cross-lease being specifically except from needing prior approval by the relevant TA (cf fee simple subdivision, subject to the T&CPA), under the then LGA. Only criteria was an existing building on the site had to be deemed to have been permitted. Once the cross lease existed, the TAs could not preclude ‘reasonable use’ of those ‘sites’, which in a residential zone means a dwelling – given the size (specifically designed for the sausage flat design), attached development resulted.
    Sausage Flats were themselves the result of a peculiar set of regulatory constraints and freedoms, and represent the markets response to demand for more efficient use of land within those circumstances.
    Most other rules of the relevant district scheme were still complied with such as height and setback, and only density rules were subverted – hence, sausage flats are typified by (relatively) small building bulk, generally single level constructions well setback from the boundaries.
    They are not ‘facing the street’ because most sites in New Zealand are/were deep and narrow at the road frontage. A situation that continues to plague urban designers applying European and American principles to our unique cadastre.
    Anyway, point being, the market found a way to deliver small affordable developments in the face of strong (local government = local community?) opposition – im not sure if the cross lease exemption was a central government deliberate spanner in the works or a coincidence that was (eventually) closed.

    1. Some info here: http://www.gascoignewicks.co.nz/news/16/25/How-do-cross-lease-titles-differ-from-fee-simple-titles/

      “Cross lease developments evolved in the 1970s as an expedient and cheaper alternative to the traditional fee simple subdivision. Today, existing cross lease developments are very common place. When the Resource Management Act 1991 came in to effect, it included cross lease developments under the definition of “subdivision”, which meant that cross lease subdivisions then became subject to the same requirements (and expenses) which affect all other subdivisions. As such, new cross lease subdivisions are a rarity today.”

  6. Good article Peter. I am genuinely hopeful about affordable housing reform coming to NZ too. Affordable housing is a worldwide problem,in particular it plagues most parts of the Anglo-world.

    The factor that gives me the most hope is the current housing situation is counter to New Zealand’s value system. Values such as pragmatic egalitarianism, being given a fair go, a rejection of fixed social/economic classes…. This current housing market, Auckland in particular where hereditary wealth is fast becoming the only way to access decent housing makes kiws distinctly uncomfortable. The divide between master Landlord and tenant Jack (now 51% of the pop) doesn’t sit well with us. We will hear more about Generation Rent vs the Landed Gentry.

    I believe this will cause a moral pressure to challenge and reform the existing political economy. Politicians will find the political will to act or will be replaced. Unlike the 1980s when reform was sold to as TINA -there is no alternative, wrt housing reforms the situation is TAMA -there are many alternatives. Supply versus demand side reforms. Reforms that are more up than out or visca versa. Top down versus bottom up -a la Alain Bertaud. Reforms that tackle palliative, cyclical and structural factors -a la Eaqubs ‘Generation Rent’ book. New Zealand is in fact having a great conversation about all of this -it is fascinating times. : )

    1. I think a big barrier to intensification will have been nearing-retirement-property-owners, i.e. baby-boomers. A solid majority are mortgage free property owners. They will want minimal tampering with the character of their suburbs as they near to retirement as to not dent their property values before they can cash in.

      In the absence of mandatory superannuation, I suspect most of their wealth will be tied up in their houses. To retire comfortably a decent chunk will need to sell and cash in on their housing… at this point the attractiveness of apartments in their suburb of choice increases for a variety of reasons: remain near to their relatives, secure, less fuss to maintain, cheaper than a standalone house, enjoy the trappings of a city life.

      I heard a retirement village guy on RNZ talking about this. They anticipate a jump in the number of retirement villages required from 2022 with half of all new villages being in Auckland. If i look around the Auckland suburbs i am familiar with; Royal Oak, Mount Eden, Greenlane… the current batch of retirement villages i see tend to resemble 3 – 6 story apartment blocks. Moreover, to me, they look aesthetically pleasing and seem to happily mingle with the surrounding villas/houses.

      We all know baby-boomers make up a powerful voter bloc politicians will be keen to woo. As such, their lifestyle shift will perhaps go a long way to changing the way we think about intensification in our cities.

      1. An apartment and a house in the same inner neighbourhood will have similar value. Selling your house and moving into an apartment in the same neighbourhood doesn’t provide much of a cash incentive.

        What is needed is lower utility housing in an outer city area, so people with inner city property can then realise value.

        1. Err. No. Definitely not. I’ve gone to viewings at some new apartments near where I live (inner isthmus). They are selling for $600-800,000, which is expensive, but nowhere near as expensive as buying a standalone house in the area – that will run you $1.2-$2 million, easy.

          If you changed planning regulations to enable the construction of more midrise (3-7 storey) apartments in desirable areas, the price of apartments would probably drop another $100-200k.

  7. Interesting you talk about value systems Brendon. While some NZers and Aucklanders are tending to go down the age old “blame the foreigners” route which is so easy to do when an issue comes up, to me a large part of this housing problem has to do with the values of my parents, the baby boomer generation. Look back a generation ago and the percentage of owner/occupant housing was far higher than today and the level of investment housing was far lower. Many baby boomers in Auckland now own multiple investment properties and they’re the ones largely to blame not the foreigners. But of course as I said it’s so much more easy to blame people coming from the outside with a different language and skin colour than take a look in the mirror at ones own family and society. Baby boomers will say they work hard and they deserve it, to which I say so did your parents (my grandparents) but they didn’t go around buying heaps of property for investment and locking their future generations out of the property market! I’m very confident if that like the generations before most properties were there for owner occupiers we wouldn’t have anywhere near the same issue as we’ve got now, particularly in regards to hopeful first home owners. Without a doubt the baby boomer generation in NZ is the single most selfish generation we’ve had in this country so far. Restrictions should’ve been put on investment property purchases way before they were put on first home buyers. The govt and reserve bank got that totally wrong and only ended up exacerbating the situation.

    TBH I don’t even give 100% of the blame to the baby boomers. they’ve got some wealth and they want to use it for something and have a good retirement. If successive NZ govts had given them the option to use it to invest in NZ’s infrastructure, and manufacturing development and research etc in a way they could still benefit financially, property investment wouldn’t have become the de facto option. As my Indian work colleague said, she couldn’t believe there was so much investment in NZ in something that was so passive for the economy and would have long term social impacts when so much investment was required in other areas which would have a much bigger positive impact on the country’s well-being and future.

    1. Simon I think values plays an important part of this and I kind of agree with your analysis. I would rather not go down the blame game -because I think to a large degree we have drifted into this situation rather than ‘planned’ it. I prefer to take a hopeful look to the future, see how we could improve things stance.

      I do think that politically soon we will have to decide which values are more important. Protecting and maximising property wealth or traditional kiwi values of pragmatic egalitarianism, everyone being given a fair go economically and a society largely free of social classes.

      I kind of comment about this here on interest.co.nz announcement of the latest Productivity investigation on ‘Better Urban Planning’ http://www.interest.co.nz/news/79046/productivity-commission-seeks-feedback-its-plan-action-investigate-best-way-allocate-land#comment-836338

    2. Hi Simon,
      Agree about the baby-boomers being greedy/taking advantage. Don’t agree about immigration though.
      Without the high levels of immigration over the past 2 decades (NZ has pretty much had the highest rate of any developed country) there would not have been the demand for around 60,000 houses in Auckland (at least). Without that demand jacking up prices there would be less incentive for baby boomers to be property speculators as prices wouldn’t have risen so much. Less speculators and demand = even less price gains. Less price gains in property means more investment in useful things for the economy like the sharemarket, businesses etc which of course would have meant higher growth and higher wages.

    3. “Many baby boomers in Auckland now own multiple investment properties”

      How many, Simon? Let’s see the figures, please….and while you are at it, since you are largely blaming baby boomers what proportion of all baby boomers do these ones constitute?

  8. 3. Politics.

    The politicians you cite are MPs in Wellington, they aren’t going to set the policies of Auckland. We need to see a desire for change at Auckland’s council.

    The leading mayoral contender Phil Goff seems opposed to both intensification and any freeing of the MUL. Basically endorsing a continuation of Len Brown’s policies. Hopefully there will be an announcement by a serious opposition candidate to inject some life into the local political debate. Otherwise there is going to be little cause for optimism for the next 4 years.

    1. See point 2. Central government has quite a lot of ability to nudge councils along or require changes to practices.

      Realistically, council politics will always be strongly inflected by the votes of change-averse homeowners. But at least in NZ, central government can provide some checks and balances.

      1. Interesting things are happening at the central govt level that could improve housing affordability.

        http://www.stuff.co.nz/business/74920959/pattrick-smellie-first-rule-of-rma-reform-it-never-ends

        Patrick Smellie writes about them today in the above link. I have my doubts on how far National really want to go in providing affordable housing but there seems to some meeting of minds between progressives from both the left and right to advance the issue.

      2. The whole housing debacle shows the ills of “party politics“. Has so little been done about Auckland house prices because Aucklands population is only around 30% of the total population and hence rural parties like National`s core base weren’t interested? The Reserve Bank introduced deposit requirements. What has National actually done of substance?

  9. Nicely written piece Peter, but your examples in support of optimism are somewhat selective. If our institutions and processes are so sound, how did we get into this mess?

    Against your examples of effective government I could put up:
    – leaky buildings
    – ETS
    – roads of national significance
    And there are more problems in housing than just the cost of houses in Auckland. Many of the existing houses are of very low quality (e.g. mould). A chart here not so long ago showing that we’ve built about half the houses per capita as Australia for 30 years. Cost and inefficiency of new builds. A very large housing debt, mostly borne I would guess by people in the 40-55 age bracket as many younger people haven’t been able to buy, leading to an intergenerational inequity problem that (even if fixed) will gate 1-2 generations to work through the system.

    As well, the forces that lead to the present situation are still largely in place (the supercity being one big exception), so I don’t expect any rapid solutions.

    Would you care to support your optimism by predicting the median multiple for Auckland in 10 or 20 years? It’s currently 8.2.

    1. I never said NZ’s government is perfect, but it’s a hell of a lot more efficient than many others. (Try paying taxes in the US and you will instantly see what I mean.) As the examples in the post indicated, we sometimes do things badly for a long time – e.g. import licensing for 50 years? Crazy! However, when we _do_ realise that we need to change bad policies, we tend to sort them out pretty comprehensively.

      Lastly, I don’t see the median multiple as a very useful measure, and I’m not sure what it proves if I pick a number. But for what it’s worth I think we could get to 6.5 by 2030 with appropriate reforms to planning policies, and possibly lower if central government reformed a bit on the construction industry side.

      I do not see a median multiple of 3 as achievable – that would require Auckland to be a low-amenity city on a flat plain, which it is not. A median multiple in the range of 5-6 is probably consistent with Auckland’s fundamental attractiveness.

      1. Peter – what gives you optimism that the governmemt will act in a comprehensive manner? In the last 12 years the government (whether red or blue) has introduced the need to have a NZ bank account and IRD number. Hardly earth shattering.

        My concern is that there is now an electoral group large enough that political parties will resist change to maintain their votes. A recent presentation by Shamubeel that I attended stated around half of Auckland homes are investor owned, with the other half owner occupied. There are too many people getting rich from the system.

        1. Information requirements for home buyers and taxation of short-term speculative profits are demand-side measures. I would argue that the supply side is probably more important in the long run – geographic constraints and planning regulations determine how easy it is to build more housing in response to increased demand.

          As I discussed in this post, I think we can expect positive changes on this front from both local and central government. The three largest parties in Parliament have signalled that they would be amenable to changes to our urban planning framework. The Productivity Commission has also done some excellent work in building up an evidence base on the issues we’re facing in this area.

  10. Not very corrupt — I would hope so.

    But… let’s first see if we actually end up spending a billion dollars on that east-west connection.

    And the leaky home crisis, what made that actually possible? I guess according to Hanlon’s razor we should attribute that to incompetence rather than corruption.

  11. You lost me in your blog immediately when you started comparing little Auckland to New York and the rest. Kiwis are fond of comparing apples
    to meat. The GDP of just Manhattan is almost the same as the entire country of Australia let alone tiny Auckland with a population of over 1.3 million. It is expected that New York or London will be expensive.

    Auckland should be compared to cities like Charlotte or Santa Barbara and see if it can withstand the same logics as you’ve outlined here.

    Also San Francisco is expensive for many obvious reasons but the wages are 2x higher there than Auckland. Besides, most Americans don’t have to limit themselves just to cities like New York or San Francisco as there are hundreds or thousands of others cities they can choose from. This phenomena is not true in NZ, besides Auckland (with less than 1.4 million people) and considered the industrial and commercial city for NZ, there’s barely any other city than comes close. So Peter…stop drinking the cool-aid and compare like for like because Auckland is no New York or San Francisco or London or Sydney.

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