This is a guest post by Tamba Carleton. Tamba is a Research Manager at CBRE and her work focuses on the housing market.

A lot of people would agree that housing in New Zealand is unaffordable. Rents and mortgages cost hundreds of dollars a week, and deposit requirements are so large that people need to save them up over many years. As a result, they stay renting for longer.

There are lots of different drivers of house prices, but those sale prices occur because of open market transaction between a willing buyer and a willing seller. Someone, somewhere in that market is willing and able to pay that price for that property.

This is fine for households on above average incomes. Market priced housing is affordable for them. They can pay their rent or mortgage and still have enough left over for market priced groceries, utilities, transport, and leisure. However, thousands of Kiwi households struggle to cover their other costs after paying the rent or mortgage, and many of them are forced into unsuitable housing as a result.

Affordability in the Special Housing Areas

Special Housing Areas (SHAs) were created through the Housing Accord and Special Housing Areas Act 2013. This Act was interim legislation implemented while wider reforms to improve housing affordability were under development. The Act aimed to enhance housing affordability by establishing SHAs to increase land and housing supply.

SHAs were able to have their consenting fast tracked, giving them a faster pathway to being developed – saving developers time and money. In return, SHAs needed to provide affordable housing using one of two options defined by the Act.

The option most developers preferred was the ‘relative affordable’ option, and they had to provide at least 10% of their homes on this basis. ‘Relative affordability’ was defined as homes costing no more than 75% of the region’s median house price, with the median house price recalculated each year in September. The ‘relative’ benchmark kept jumping with the annual reset as Auckland’s median price was rapidly increasing at the time.

Usually, ‘relative affordable’ homes were achieved by including smaller units, such as studio units without carparking. Certainly cheaper than average, but also probably not too far off market rate for what was being offered.

An example of a ‘relative affordable’ home: a south-facing 47 square metre apartment, with one bedroom and no carpark

Towards a Better Definition of Affordability

Providing housing for ‘cheaper than average’ prices fulfils a certain buyer niche, but it’s not necessarily affordable. More inclusive measures of affordability need to take people’s incomes into account. I like a quote by Wellington Housing Portfolio leader Brian Dawson:

“People are confusing affordable with ‘cheaper than average’. A $50 steak might be considered cheap if everywhere else is charging $75, but it doesn’t make it any more affordable for someone whose budget is maxed out at $30”.

Affordable housing accommodates households in a property that meet their needs, without putting them under financial stress. – A potential ‘soft’ definition

Affordable housing costs up to 30% of gross household income. – A potential ‘hard’ definition

As mentioned above, SHA developers in Auckland were able to choose two options for providing affordable housing. The second option was called ‘retained affordable’, and this one did use an income-based measure of affordability.

‘Retained affordable’ homes needed to have a rent or mortgage payment which did not exceed 30% of the Auckland median household income. Median incomes were recalculated each year, but of course they grew more slowly than house prices. Units were sold or rented to Community Housing Providers who then coordinated occupiers.

The SHA scheme showed that private developers can profitably develop new housing even when they are required to provide some units at below-average prices. The ‘relative affordable’ units were close to market rates for what they were; they were simply smaller and/or on the lower levels, hence had lower prices.

The provision of income-based ‘retained affordable’ housing was more difficult. In order to provide homes that met the needs of households priced out of the market, the units had to be subsidised to some extent.

What Can We Learn From Overseas?

Internationally, affordable housing providers are consistent in their thinking that income is the key driver of affordability. In New South Wales (NSW), housing is considered affordable if it costs less than 30% of gross household income. Affordable housing schemes are developed with some assistance from the government (local/ state/ Commonwealth) including: grants, planning incentives, land contributions, security against community housing providers’ current assets, etc. Affordable housing is owned by private developers/ investors, local governments, charitable organisations or community housing providers. They are typically managed by not-for-profit community housing providers, and sometimes private organisations.

In the US, there are approximately 5.1 million affordable housing units provided through an array of federal, state and local programs. Approximately half of those units, or more than 2.3 million, are the product of the Low Income Housing Tax Credit program. This program has been successful in obtaining private sector participation by providing an incentive to do so. In the past few years billions of dollars of affordable housing assets have transacted, and there are market participants who specialise in all aspects of this well-established sector.

We know that New Zealand needs more affordable housing too. The demand is there, but we lack the incentives that could drive participation in this sector. The first step is to reach agreement on how affordable housing should be defined. The main point is that ‘cheaper than average’ is not necessarily affordable. Although we’ve seen that developers can include some ‘cheaper than average’ homes when required by legislation, those homes aren’t necessarily suitable or affordable for households.

Let’s hear in the comments how you think affordable housing should be defined.

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  1. OK – here’s a definition of what the standard should be for Affordable. Take the average wage of an average single person. The banks will loan on 3 to 3.5 times that salary, so that’s your sale price. And that means that the average person can afford a house of just that much. So, if I earn $60,000 pa, the banks will loan me a mortgage of $180-200,000 – and that’s what I need to target as my “affordable house”. Anything above that is unaffordable.

    1. Proves my point below. You just can’t build a house for that much (even if land was free). Maybe you can build a studio apartment or tiny unit, but I doubt that suits many people.
      Apply your formula to Manhattan or London or Mumbai. Those places wouldn’t have been affordable for decades. And no matter what happens they never will be (except maybe a natural disaster or some kind of pandemic). Its pointless.

      1. You can get a house for that much if you buy a prefab or relocate an old house (neither of which is allowed in most subdivisions). The main problem is the land cost (as you’ve identified). You could only achieve that budget by buying land a long way from any of the major centres.

        You could probably build a dwelling for that much if it was a small (50ish square metres) apartment in a very large apartment building full of identical apartments. However even in the limited areas where this is permitted, the apartment developers needs to price in a lot of risk. The only way you could do it would be a single buyer model where the government takes on the risk then after completion on-sells at cost.

        1. Even if the land itself was free you would struggle to create a section for that price (either the subdivision costs of an existing brownfields site or the development costs of a greenfields site plus council contributions and costs). If you then moved an existing house on it you would have to bring it up to current building code which would cost a lot too.

        2. you are probably looking at at least a 120-150k price for a modest 50m2 stand alone house in terms of build cost/ infrastructure servicing straight off the bat. More for an equivalent sized apartment. throw in land, profit margin (for developer and bank lending requirements) and some risk then you are already getting well over $200k minimum.

      2. I agree with average human here. As for building costs I don’t see why if it cost 3x the average wage to build x house in 1975 it can’t cost x times average wage to build the same house today (assuming the land is free). Maybe we have too tight building rules? The goal should be to get the housing market to go back to looking like it was in the 1970s and 80s

        1. Minimum standards are higher now, such as insulation and double glazing and I’m sure there’s plenty of other things. Improved safety standards also add to building costs.

          In addition people want larger houses. I don’t think what I’ve described explains the whole increase though.

        2. For example our original 1950’s house had 6 power points and 8 lights in total, no insulation at all, single glazing, no shower, low pressure HW, no french/sliding doors, no deck, no building paper, no double cavity, minimal bracing, no safely locks or safety glass, minimal kitchen, no dishwasher or plumbing for one, no internet connection, no garage, probably no driveway, wire fences, no heating, no exhaust fans, no ventilation…
          It now has 56 power points and 52 lights!

        3. Jimbo – thanks, I suspected there was a lot more that I couldn’t think of off the top of my head.

        4. The reason is housing standards have changed. In 1975 you could legally build a house out of asbestos sheets that would collapse and kill its residents in an earthquake, and with no insulation, no double glazing and effectively no ventilation.

          Many cheap houses were built at that time with only a long drop toilet or septic tank sewer, gutters that drained onto the ground, no bath or shower, certainly no laundry facilities.

        5. Jimbo and Jezza – you’re both right. The average home has increased in size and in scope and in build/quality level over that period of time. However, the premise of my argument has not changed – that the Average person on an Average salary should be able to afford an Average home. That’s the basis of our society – not just that only the incredibly rich can buy a home, or that only the people in the top 4% of the salary range can buy a home. It needs to be that the average person can buy a home. That’s what Tamba Carleton’s article is about – how to define what is “Affordable” in terms of housing.

          As Jimbojones says, “Apply your formula to Manhattan or London or Mumbai. Those places wouldn’t have been affordable for decades.” Well, yes, exactly. That’s why I left London a couple of decades ago – it was completely unaffordable, and even then, I was earning a little above the average wage. The only way to counter that is for two people with average salaries to buy a house together – and even then you’re struggling. But so the original premise in the 1950s was that one average worker could buy one average house on one average salary, has now been skewed – and can’t be put back in the bottle. Prices now don’t just assume but expect to have at least two salaries going into one house. In fact, as most first home buyers in the Auckland market now know, you often need three buyers – ie Mums and Dads putting in a third of the price as well.

          A house that was once affordable to buy on a single salary is now dependent on two salaries, and it is fast moving to a mandatory three salary input. All of these moves are non-reversible, without a corresponding house-price crash.

          Prices go up and down on many things in life – new car prices, relative to what we earn, have been coming down steadily over the last 3-4 decades, but no-one is complaining (except perhaps the car companies, who are refusing to make cars – GM and Ford now really only make trucks and sports vehicles rather than sedans in America, as there is just no money for them to make cars in that market). So, car prices and food prices and electronics prices have all come down – but as they are not our major investment in life, few are complaining.

          House prices should also come down – drastically – but if they did, many would complain, as that house is their only investment. For house prices to lower, there are only two ways: either slowly (stagnation) or fast (crash). The best thing in many ways would be a crash, to get the pain over with, but few people really want a crash.

          So we’re left with a slow eroding away of value in what was once the original family home. The time / cost / quality triangle of work also applies to houses – something has to give. If you want to retain the quality level, and it takes the same amount of time to build, then the cost has to come down – and the only way for that to happen is (if cost = square footage) the size to come down. Or, if you don’t want the size to come down, then the quality needs to be reduced. Or, in theory, if we could build much much faster, size and quality don’t need to be reduced.

          The only real way out of this conundrum is to stop leaving it to the market. If the house construction prices could be contained, then the only thing different would, by nature, be the land prices. So if the Government – or the Council or the Iwi (in effect the only other large property owners in the game) wanted to make land available freely to average people building average homes, then we could have an affordable housing market. But if that never happens, then affordability will never happen.

        6. I’m not sure home ownership needs to be affordable, in many countries it isn’t.
          What needs to be affordable is rent. A definition of a first world country should be the ability for it’s citizens to afford shelter over their heads (along with affordable health care and education).
          This can be achieved by increasing the housing stock or by increasing incomes.
          Houses that are rented out could be tax free if the owners agreed to apply rent controlled prices. That would create cheaper rents and a Long term reasonable ROI. That would still allow the high end rent market to operate, but that can be taxable at max tax rate.
          This could help ease the situation without the government needing to be property investors.

        7. Daniel – I’d add one thing, renting needs to be stable as well. No one who is treating a house well should be living in fear of being asked to move out of their home in six weeks.

        8. +1 Jezza.
          I could not agree more!
          House owners that enter a rent the controlled scheme would want Long term tenants as it’s th Long game investment strategy.
          This is good for everyone as the owner gets his 3% ROI (or whatever it is) for 20-30 years, while the family that pays the affordable rent gets a real sense of having a home.

      3. Manhattan, London and Mumbai haven’t been affordable for decades, unless you have a higher than average income or inherit property you rent. That’s the norm.

  2. I don’t see that a good definition of affordable really helps anyone. Its always going to be an arbitrary number.
    Regardless of what level is considered affordable, what happens if a house cannot be built for that price? I think that is the situation we are in at the moment.
    I can’t see that it is feasible for a government to subsidise that many people by hundreds of thousands of dollars each. I guess if the government subsidised enough houses it could crash the market and bring down the cost of existing houses too. But then that in turn will stop private sector building.
    The best thing that the government could do would be to keep out of the market. And that means a total overhaul of the RMA and building code as they are government imposed handbrakes on the market. Every other option will cause unintended consequences, its economics 101 (I know reality is not very trendy these days…)

    1. As an example of the free market working, there are lots of houses on big lots near us being torn down and replaced with terraces. They probably wont fall into any definition of affordable, but it will definitely help affordability. Not that long ago this wasn’t possible because the council knew best (zoned one house per 500m2) and the government allows the idiots at the council to know best (RMA). In reality the only person who does know best (the best trade off of size/location/price/materials/etc) is the person who buys it! We don’t need to decide for them, we don’t need to define what they can afford.

      1. There’s still huge tracts of central Auckland that are single house zoned. I agree with the general direction of your argument but I don’t think we need to rip up the rulebook. Just have a more permissive zoning like Mixed Housing Urban (several dwellings per section, 11m height limit if I remember correctly) everywhere.

        1. If Auckland keeps growing, at some stage those rules will be too restrictive too (if they aren’t already). That will cause another problem some time down the track (unless they are constantly revised). And the rules are also open to political interference; for example a different council may impose more draconian rules or not liberate them when needed.
          There probably does need to be something, but it should be based on “what is the absolute minimum required” rather than “hey if we made rules about how big a back yard must be and how many windows you need facing that yard and where your master bedroom must be and how close your house can be to the street that would be cool”. Those kind of stupid rules exist in the unitary plan.

      2. A lot of that was done in Takapuna, the new terraced houses ended up costing far more than the properties that were removed. I lived in a rental flat in the Terrace, the 3 brick and tile flats were replaced with 4 modern terraced houses, each of the new terraced houses cost more than what the developer paid for the entire block. There was nothing affordable about that development.

  3. What about a Living Rent description of housing affordability?
    Being rent should cost the renter no more than 12 hours work (30% of a 40 hour week).
    Thus the Living Rent concepts creates a link between the living wage concept and rent – the biggest cost of living expense for low income earners.
    Rents in the different city markets could be compared to the minimum wage and living wage.
    Interventions targeting low income earners could either improve incomes or decrease rents (or simply contain rent increases whilst incomes increase).

    1. But should it be 12 hours or 14 hours or 10 hours? The difference between 10 and 14 hours for example is 40%.
      And regardless of what is chosen, what is the solution? For example a massive trailer park might work, or an endless supply of 20m2 apartments in Drury.
      Isn’t it kind of like arbitrarily saying that bread should be $0.50 a loaf and then forcing bread manufactures to produce some crap at that price?

      1. Paying the rent should not cost any worker more that 12 hours work in my opinion. Because that is 30% of a full time (40 hour) working week. If more hours of work are required then the rent should be considered unaffordable. It would be easy to survey workers using this definition -to find what proportion of them have to work more than 12 hours just to pay the rent.
        This Living Rent concept should be considered a basic human right. Housing as a human right should be enshrined in legislation such as the RMA. Affordable housing is in the UN Declaration of Universal Human Rights but as far as I am aware housing as a human right isn’t in any NZ domestic legislation.
        If workers need to work more than 12 hours just to pay the rent it is unlikely that they can save for a deposit for a house, start a business, undertake further education etc. If rent requires more work than 12 hours then it is likely to impact on factors such as, over crowding and insufficient income to buy food, clothing, children’s school needs etc. So the Living Rent affordability measure has important implications for productivity and even more importantly inequality.

        1. Note the Universal Declaration of Human Rights was agreed upon in 1948 and NZ was one of the countries that helped draft it.

        2. The problem with the Universal Declaration of Human Rights is they aren’t binding or enforceable.

          The US Supreme Court concluded that the Declaration “does not of its own force impose obligations as a matter of international law.”

          You have to look to the NZG to solve this one, not an unenforceable document from 1948.

        3. That’s by the by, Torsten. We’re discussing concepts and Brendon is referencing a document with content to consider. Mentioning that NZ helped draft the document is simply confirming that it is in line with NZ’s values and situation, not for some valid reason disconnected from us.

  4. A better option to requiring the developer build a certain proportion of affordable housing would be requiring the developer give a certain proportion of land to community housing providers with no covenant restrictions on multi-unit dwellings, house size, plot size etc so they can build affordable housing. That is a tactic Queenstown has used with some success.

  5. I’d define affordable as the most expensive house you can buy and still be able to service a 25 year mortgage.
    This is then independent from interest rates, variations in local house prices and wages, and the economic cycle.

  6. Improving the way we measure housing affordability is a good step but it won’t actually fix housing affordability. Making developers build “affordable” dwellings as part of far flung urban sprawl isn’t fixing housing affordability either because transport costs become prohibitive. We can’t deregulate (by gutting the RMA or the Building Code) our way to housing affordability either because we’d end up with another leaky homes crisis. Having to spend hundreds of thousands re-cladding your home is not affordable. Living in unhealthy homes is a cost born both by the occupants and the health system.

    Fixing affordability is going to require financial system reform. Currently houses are seen as a reliable investment where the price only ever goes up. The price only ever goes up because a) there is broad consensus that the price only ever goes up and b) ever falling interest rates over the last 40 years has made ever larger mortgages “affordable” for some people even though incomes have not grown proportionately. So the way to rein in house price growth is by reining in credit availability. This doesn’t have to be by increasing interest rates but can be done by changing bank regulation.

    The Reserve Bank of New Zealand (RBNZ) has a mandate to regulate banks to ensure stability of the financial system. For some years (pre-Covid-19) it has implemented Loan to Value Ratio (LVR) restrictions where banks could only conduct a limited percentage of their lending on mortgages with less than a 20% deposit. This is why the 20% deposit is so important but, at current prices, it is a huge hurdle for first home buyers. However when house prices are rising deposit requirements aren’t much of a barrier to investors who can leverage off the capital gains in their existing properties.

    LVR restrictions were introduced under the previous National government (legislation had to be passed giving RBNZ that power) and have been successful from a financial system stability perspective. But they aren’t the only tool that could do this. RBNZ actually wanted to use Debt to Income (DTI) limits, which limit bank lending to a ratio of the borrower’s income. Some other countries implemented these after the Global Financial Crisis crashed house prices to try and prevent a repeat.

    DTI limits would be less burdensome for first home buyers than LVR limits but could, if set up right, make borrowing for housing investment harder. This wouldn’t prevent investors acquiring properties but it’d limit the rate at which they could do so.

    DTI limits aren’t a magic wand but they’d be a significant incremental improvement. There are actually quite a few incremental improvements that could be made to the way the financial system status quo encourages bidding up the price of property. Make enough of these incremental improvements and we’d actually see significant change in the housing market.

    1. I disagree that gutting the building code would lead to more leaky homes (the leaky homes were built under the building code remember). Setting minimum standards encourages people to build to those and for buyers to not do due diligence.
      At the very least the building code needs a fast tracked definition of a standard safe residential build that does not require all of the plans and inspections. “If you build a residential house out of these materials and using this approach and it is no more than two stories then you only need to submit these minimal plans and you only need three inspections (foundation, framing, finished)”. The minimum materials could be significantly better than the current building code minimums and it would still work out cheaper then the current over reliance on paperwork does.

      1. Of course setting minimum standards encourages (rational, profit seeking) companies to build to it. But in the absence of a minimum standard what standard would they build to?

        Buyers can’t do thorough enough due diligence because you can’t get a complete enough idea of, for example, the wall assembly without cutting a hole in it. Same for foundations and roofs where there is no crawl space. Sure you can do house inspections but a lot of that is educated guesswork with modern houses.

        I agree that we need some kind of fast track process. Another model could be ‘national consenting’ where MBIE can approve a house plan that can be used anywhere in NZ and the local authority only has to consent the foundations (which vary based on ground conditions). Production builders could then use offsite prefabrication to pump out hundreds of identical houses, bringing costs down.

      2. You can already get type approval for a standard house design set, all the development companies use them. You can have them build one on any site. But of course you still need the inspections to check it has been built properly and according to the plans.

        The leaky building crisis has two root causes, firstly the relaxing of design standards to allow ‘efficient use of minimum materials’ like monolithic cladding over untreated timber framing. The second was a direction to ‘cut red tape’ with minimal plans and inspections, leading to incorrect and substandard construction of those already bad designs becoming rife.

        1. “You can already get type approval for a standard house design set” – not many brownfields sites can have a standard house on them though (normally small oddly shaped sections).
          I believe those leaky houses did have their cladding inspected, just not very well. So the cutting of red tape wasn’t the problem, more that in the eyes of the building code building your house out of cardboard needs as much regulation as building it out of tried and tested materials (this is still the case today).

        2. I’m struggling to understand what you are proposing really, that bespoke house designs tailored to sites shouldn’t need to meet the building code? Or that they do need to but there shouldn’t be anyone checking that the plans do meet the code?

          There is already a “fast tracked definition of a standard safe residential build”, by the way it’s called NZS 3604.

          With leaky buildings… you are quite right, the drive to ‘cut red tape’ meant that inspections were infrequent, brief and often intentionally overlooked ‘minor issues’ like undersized window flashings and incomplete seals around roof and wall penetrations.

        3. John I guess what you are telling me is that the onerous building consent we had to go through for our house extension (hundreds of pages off crap from Architect and calculations which cost $15k and 15+ inspections and difficult to make basic changes after consented) was the fast tracked definition of a standard safe residential build! It kind if says it all really.
          What would be wrong with: “Hey council, I’m going to build a house with wooden frame”, “Sure, make sure you comply with these simple planning rules and these simple building rules and get us to come check it at these points”

        4. An extension, where you modify an old (and most likely non-compliant) structure and building envelope with the addition of new structure and envelope is the worst and most risky situation with regard to structural integrity and weather tightness. There should be a lot more oversight and inspection, and a lot more detailing of plans, compared to a new build.

        5. If NZS 3604 is still the current building code then I am surprised that the leaky building saga took place.
          3604 (while lowering the standard in my opinion )increased some of the elements and added locality specific conditions, to the previous 1900 seemed like good standards to me. (Maybe there were amendments to it that I’m not aware of.)
          The question of affordability gets back to the income of those in the lower income groups. Since the seventies there has been a marked shift in upper and lower limits of the income spectrum with the lower section of that spectrum holding an increasing proportion fo the population. This means that median income is not a good measure to be applied.
          The shelter affordability should be measured against the minimum income because even a labourer needs accommodation for his wife and family. Child care is best carried out within the family.
          So I feel there was much merit in the old style tax exemptions for the dependents of the taxpayer, and the philosophy of “,,,, from each according to their ability to each according to their need”.
          So getting back to the subject affordability, the topic inflation needs to be raised the inflation of new house prices is not commensurate with the “Construction price index” nor have material costs been. Compare the price of building materials across the ditch with ours and that alone would make a substantial difference. Also take the labour costs and again they have only recently meant that the average tradie been in a position to buy what he;;s building bur he’s become a member of the precariat along the way and is incurring more cost than I ever did to gain that income.

  7. Tamba you are spot on.

    This issue is one of the most significant policy failings in the planning and housing field in NZ. It essential to get the basics right, however, I have sat through numerous discussions with officials in local and central government on the topic and it is always the issue that is overlooked or no one seems interested in. The focus is always on solutions to something we haven’t even universally defined yet.

    Those that have worked in overseas jurisdictions know how important it is to have clear policy directions to drive and guide actual responses. Unfortunately we in NZ are still caught up in countless debates and are making no progress in this fundamental social/economic issue. The incoming government should be seeking to use the tools they have at their disposal (GPSs, NPSs, reform, etc) to once and for all give a clear direction and definition to this issue.

    Thank you for making this issue visible again.

  8. Certainly sparking some discussion! Affordable housing is not the same as “affordable” houses. Housing cost, whether rent or mortgage, whether subsidised or from family income, needs to map across the range of population incomes and housing ‘products’ available. Housing stock growth needs to be driven to fill the real, large gaps. Currently, it’s focused on developer/ builder investment and return – a market – rather than building to make housing affordable for all people. Obviously, the cost of affordable housing for low income is difficult, being met by rental in unimproved, unhealthy houses for the most part. Making healthy homes cheaper to build (or to renovate to standard) is a major objective and the definition of affordable that is measurable to plan and monitor towards that objective is important. I suggest that needs to be a mapped definition relative to income. A low-income household cannot afford 30% of income, when 80% of income needs to go on food. People with top incomes can easily devote a large proportion of that income to investment (for capital gain) in a rather expensive home. For some reason, builders want to build two very expensive houses rather than three really cheap ones. So – what can each 20%ile group of household incomes “afford” to pay for housing?

  9. I’ll buy that income is the key driver of affordability. But what people actually spend is income after tax and transfer payments. What is the “gross income” to which the article refers?

  10. The tax aspect needs to be sorted first. You are pushing No.2s up the hill if investors and speculators are still going to be in the market, en masse, competing with first home buyers or those wanting to upgrade from an initial modest entry into the market, despite what you do about supply.

    And sorting out the tax includes the family home. Its a dwelling, a roof over your head up until the point you derive wealth from it. Tax it like other capital investment.

    Secondly, I am astounded at people saying ‘the government should get out of the market”. Hasn’t worked previously. I’d look at the Singapore model where the govt builds affordable housing (for purchase or, I think, rent to own) but focuses on best bang for back. That’s apartments and for Auckland, preferably ToDs, to kill two birds with one stone (or feed two birds with one loaf of bread, I think is the new PC version).

    I don’t claim to know the Singapore model inside out and am happy to be schooled, but it seems to be working. There are endless discussions on the difference between Hong Kong and Singapore and how each has chosen to ensure its people have adequate housing. Their rioting is not just about Big Brother across the harbour.

    1. Both Singapore and Vienna have public housing as the majority housing type. It seems to work for them so government provision of housing is certainly a policy option.

    2. Yes Singapore is a good example of government provided affordable housing. Likewise Hong Kong is a good example of extremely limited land supply making housing extremely unaffordable, even though they build as densely as possible.

      One reason that Singapore can get urban planning and housing development right is that it’s a city-state. All citizens are well aware of the issues the city faces because everyone lives in the city. All decisions about the future of the city are made in the city. Of course it also helps that their government is kind of authoritarian and just makes decisions without consultation…

      In New Zealand central government is very powerful, can set policy, can change legislation and can borrow without limit. Auckland Council isn’t very powerful by comparison. Many of the decisions that most impact Auckland are actually made in Wellington by a government accountable to the whole nation. Two thirds of the nation really don’t understand Auckland’s problems because they don’t live in Auckland.

      The NZ government could (and should) build a whole lot of apartments in Auckland and in doing so could possibly fix the housing crisis. But the rest of the country would be confused and angry about the spending. “But I don’t want to live in an apartment!” Would be the cries from baby boomers living on lifestyle blocks outside Hastings.

      The government could mitigate the complaints if they did a really good job of communicating with the public about how severe the problems are that our country faces and then how they’re trying to fix this. And it seems the government can do this but will only do so when faced with big disasters like a pandemic. Not singling out the current government here, every government under MMP has avoided making the sort of radical changes that we need.

      1. Re: Two thirds of the nation really don’t understand Auckland’s problems because they don’t live in Auckland being a problem when city-building decision are made in Wellington.

        That dynamic was even worse when it came to rebuilding Christchurch. 84% of the nation really didn’t understand Christchurch’s rebuild problems because they weren’t experiencing it first-hand. Yet the decisions were being made in Wellington (or by Wellington created entities) for national rather than local political reasons.

        1. I think you’re being a little unfair to “Wellington”. Government MPs and opposition MPS are, to a large degree, from Auckland. Each electorate is sized for about a similar amount of people – and as Auckland has most of the population, it also has a large number of politicians who live there, work there, and are most certainly aware of the problems that Auckland faces. You can’t blame “Wellington” for that.

        2. average human – the issue is more the bureaucrats, they mostly live in Wellington and a relatively high proportion come from Wellington.

  11. “This is fine for households on above average incomes. Market priced housing is affordable for them.”

    This needs a significant caveat, but before putting it forward let me acknowledge the much bigger issue that anyone on below-average incomes faces. Changing the market and supply system to help below-average income groups is absolutely more important.

    The comment above is worrying because it ignores the opportunity costs that even average-income bands incur when paying high prices for housing. To make the mortgage there are likely to be many other expenditures, or more likely prudent savings and investments, that are foregone.

    This is really significant when we think about both long-term outcomes – I nearly scream when I see commentaries encouraging people to blow their Kiwisaver on a first home deposit – and short to medium term outcomes such as diverting money away from more productive investment such as businesses and innovation.

    We’re seeing the effect on workforce availability as people flee Auckland due to high house prices, meaning we become even less productive as we pay higher wages just to keep operational. In the future this opportunity cost will get even worse as the pension black hole really hits and we see the effect of people not saving for their future.

    “Someone, somewhere in that market is willing and able to pay that price for that property”.

    Here is one of the real problems – “able to pay” is now determined primarily by a level of investment in relation to incomes which is way higher than is helpful.

    The commodification of housing as an investment asset, and the rash assumption that prices will always elevate well above other inflation measures, is what drives that ability to pay – not incomes. Finance is easy, banks fall over themselves to lend in a very different way to the banking models of say 30 years ago. Yes, in theory local bank ratio criteria take this into account, but in reality that ignores many other flows of money into the housing market and the much bigger role that accumulated capital (ie asset-rich property investors, whether institutional or individual) now play in the market. We all saw it play out in the USA and other markets in 2008-9; let’s not pretend it will not happen again just because NZ did not really feel the effects of that crash in any big way. Fixing housing finance and capital markets overall is essential to any progress on housing affordability. Hard but necessary if we are not all to pay much more to clean up the mess afterwards (how much is the taxpayer paying for temporary / emergency housing right now? Shedloads and it is only getting worse).

    Back to the question – do we need a clear measure of affordability? Absolutely, and it must be linked to *employment* income otherwise it is meaningless.

    Measures relative to market price are a dangerous way to dodge the issue with smoke and mirrors. Just as the SHA model was fundamentally flawed (like, did no-one foresee the land and construction cost inflation that would come from synchronised triggering of a big free-for-all build programme with few strings attached?!) the relative measure should be consigned to the bin.

    1. +1

      Housing as an investment class (particularly where its the only investment people have) is a huge problem that contributes to a whole lot of other insidious problems in our society.

      1. Thanks TimR and Logarithmic Bear for your comments in this post, which I’m just catching up on now.

        I wonder what would happen if a government set a goal of “removing housing as a favoured item on investors’ portfolios”. And another of “eliminating from government / Treasury / RB any policies or tools designed to keep house prices high”.

        You’ve both touched briefly on wages and taxes. Changes are needed to ensure the people, not just corporates, feel the benefits of our economy. Wage levels are the equally important side of the affordability calculation.

        I think in addition to all these changes to the finance system, though, affordability can definitely be improved through the provision of sufficient quality apartments, which is why I included the Minneapolis data in my recent post about Building Up or Out.

  12. The affordable is one thing, the value for money is another thing.

    We often see new apartments charging more than 10k per sqm. A tiny apartment may be affordable but poor value for money.

    We often see oversea apartment are getting smaller and smaller for the same amount of money, so more people can ‘afford it’, but quality of life decrease overtime.

    Part of the problem is our building industry is not very efficient in building high density high rise buildings, compare to oversea.

  13. Housing costs go up with intensification. A tiny shoebox apartment in a densely populated area is many times more expensive than a large house on a section in a sparsely populated area.

    That’s why Auckland is so expensive, as it pursues development policy that has the goal of driving up prices.

    The price difference can be staggering. An apartment in Auckland CBD can be over 1000 times more expensive per square metre of aland used than my house in Taumarunui.

    Which is why Taumarunui has gone from negative growth to positive growth, as Aucklanders seek truely affordable living.

    1. If you price in 7 hours of driving to work in Auckland and back each day then it really isn’t affordable to live in Taumarunui, sorry.

      1. As the lockdown has shown many of us can now work effectively from home. If Taumarunui has decent high speed internet white collar people who are working from home in Auckland won’t have any problems working from a new more affordable home in Taumarunui. A big bonus is Taumarunui is a hell of a lot closer to Mt Ruapehu.

        1. Well lets see if post Covid there is a mass exodus to Tauramranui now we have discovered this technological advancement called Working from Home, new and groundbreaking such as it is. Added bonus that all former Aucklanders will be forced into enjoying Skiing for a few months are year as well.

    2. “An apartment in Auckland CBD can be over 1000 times more expensive per square metre of aland used than my house in Taumarunui.”

      Let’s unpack that, shall we? Let’s be generous and say that an apartment in Auckland is worth a minimum of $500,000 and a maximum of $1million. That would imply that a house in Taumaranui is 1000th of that – so a house in Taumaranui is costing between $500 and $1000. That’s either the bargain of the century, or pure bullshit. Which is it Geoff?

      1. He’s talking about land only, which is odd because I’m pretty sure he live in a house and not out in the open sleeping under the stars every night.

        His math is off anyway. Land averages around $7,000 a square metre in the Auckland CBD, I’m certain it’s not $7 a square metre in the suburbs of Taumaranui. That would mean buying a quarter acre section for the price of a second hand hatchback.

        1. Weren’t his comparisons previously with Napier?

          Did house prices get too high there and he had to move on to another apples v lemons debate?

  14. Do you have a house in Taumaranui? I didn’t know about that. Hadn’t heard.

    Quick question? What happens when 1.6m Aucklanders move to your neck of the words seeking out this paradise you tease us with?

    It’s great you have a house there Geoff, but you live in an alternate reality to the rest of the world and clearly have no grasp of how people are supposed to make a living and how Cities are designed to operate…and I’m truly baffled why you continually post on a blog about a City you neither live in or appear to actually have any interest in.

    London house prices are higher than John o Groats, revelatory!

    1. Yeah but that isn’t going to happen, especially for people who have industrial or service jobs, people who have white collar office jobs maybe, but then there are a lot of other attractive small towns in the central North Island a family could more to as well as Taumarunui, I’d happily live in Cambridge or Taupo.

      1. It would only take 1,000 people moving to Taumaranui to use up all the vacant housing stock and put the town into a severe housing shortage with the worst affordability in the country.

  15. Apartments dont have to be downtown. Any government build should be ToDs above busway and railway stations. That gives plenty of options nowhere near the expensive land in the CBD.

    1. Do you really want to live in an apartment above a Northern Busway Station right beside the Northern Motorway?

      1. I don’t want to live on the North Shore because its quite far away from where I work. But I’d like to live in an apartment above/close to a train station on the Eastern or Southern lines. I’m currently shopping for a house/apartment so might end up putting my money where my mouth is.

      2. “Do you really want to live in an apartment above a Northern Busway Station right beside the Northern Motorway?”

        Why? Do I get to decide where the government will build and is that my only option?

        And if that’s the only option and you don’t like it, we should just forgot about the 100 other potential sites?

        Great reasoning…

  16. zohnerism- Has anyone heard of this? This is what real estate companies use to beef up prices for higher commission. The companies do not paint true pictures. Their reports and figures are expressed in such a way that they keep telling the world that they going to miss the boat. They broadcast median price against the whole range be it 2 or 3 or 4 bedroom, mansion, apartment or townhouses. Why they do not categorize them? Because they do not want to advertise lower end of the market. I am of opinion Real Estate people had contributed a lot to unaffordable housing by practicing zohnerism. Even with Covid around for them has made no difference especially when whole world is heading for recession.

  17. With deposit help from family, my husband and I went to the bank and we’re told they’d lend us a maximum of $50,000.

    Affordable housing for us would take some generous donors.

    1. Do both of you work? Also why would you go to just one bank, try a few more and get in touch with a mortgage broker. The lending rule of thumb is 3.5 x income, two adults making 15k between them, there has to be some other issues involved.

      1. We’re both on supported living payments, have debt that family would have paid off for us to get the mortgage, have health issues, and are over 40.
        Thank you for your advice.
        Family is considering doing a rent to own with us, but want us to show that we can save. Impossible when you barely have enough to get by on.

      2. “some other issues involved” = “you are other. Not my problem.”

        Torsten, people know their own situation better than you do. If you don’t want to come across as uncaring, maybe you could listen with the intent to learn from someone with knowledge you don’t have.

        1. Thank you Heidi.

          I hope it works out well for us too. We are one of the fortunates to have family capable of helping. Though it’s not an easy family to deal with.

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