Project Auckland: A course in home economics

Photo / iStock

Forging political consensus on the housing affordability challenge is an elusive task at best, reports Alexander Speirs.

Building and Housing Minister Nick Smith is adamant the steep increase in section prices over the past two decades, as much as fivefold in Auckland, is the core issue to resolve if young New Zealanders are to have a fair chance at home ownership.

"Every rule that limits lot sizes, designates special character areas, requires minimum balcony apartment sizes or minimum heights and which requires extra design features beyond the Building Act comes at a price."

But Smith's prescription does not go far enough for his political opponents.

They say though new housing supply remains the most important factor, there needs to be action on the demand side of the equation.

Among the suggestions is banning foreign investment in existing homes (as Australia does) but allowing it in new homes to increase the overall supply.

Taxes or stamp duties on foreign investment to discourage foreign speculators and land bankers are also suggested.

Labour's housing spokesman Phil Twyford says Australia's policies have been successful, channelling $30 billion of offshore investments into new builds -- particularly apartments in Sydney and Melbourne -- in the past 12 months. By restricting the purchase of existing housing stocks, funds which were previously earmarked to inflate the price of existing supply have instead been used to make a material impact on newly available housing supply.

National's Nikki Kaye, MP for Central Auckland, reckons the Opposition's criticism is misplaced: "There are a range of mechanisms we're pulling -- there are tax changes that are being put through, we are poring over Crown land to see what can be freed up there and I think that the new Urban Development Authority in Auckland is going to be a key enabler."

But, says Kaye, it is naive to think there is a single, silver bullet solution to cooling off demand or addressing housing supply issues in Auckland.

"That's where the political debate lies -- who is able to best demonstrate on the numbers that they can get there. As the MP for Auckland Central, from my perspective while it s clear that there will be some foreign interests coming into the market, they're not the major issue when it comes to housing affordability."

"Central and local government are going to have to get much better aligned and that is a strong theme within the report. These decisions can't all be left to local government, we need to be clear where there are ridiculous rules in place, figure out how to tackle them and get to where we need to be as a city."

Commission says councils should:

• Make greater use of existing tools to fund growth such as targeted rates

• Price infrastructure to recover costs from those who benefit

• Better manage infrastructure and allow growth to occur where spare capacity exists

• Adopt rating systems that encourage the efficient use of land

• Ensure land use restrictions pass robust cost benefit tests

• Ensure CCOs are aligned with plans for growth

Government should:

• Remove barriers to the use of charges such as road tolls and congestion charges

• Remove rates exemptions on some Crown-owned land

• Remove barriers to contracting for water services

• Create an inventory of Crown-owned land

• Improve the RMA -- e.g. limited notification of site-specific plan changes

• Provide greater and better-quality guidance to assist councils with cost benefit analysis

The Using Land for Housing report points to "overly restrictive" urban limits as increasing both land and housing prices. Urban limits can impose restrictions like large minimum lot sizes in rural areas and urban fringe zones, which push out cost-benefit tests for developers.

The Greens reckon the solution is to improve densification in existing areas, not to continue to sprawl outwards.

"The report clearly recognises what others have been saying for years, which is that the most affordable and efficient way to solve the Auckland housing crisis is high-quality, medium density housing along key bus, train and ferry routes," says Green MP Julie Anne Genter. "There is a fantastic opportunity for councils to enable smart, high-quality, medium density housing close to where people work. Central government must also support those changes with much greater investment in frequent buses and trains to create a more affordable and liveable city -- which is what Aucklanders clearly want."

But Twyford says merely improving density regulations is wishful thinking. "There's no question that given Auckland's population growth trajectory and given what is currently a structural shortfall in housing -- a deficit in the number of dwellings that is getting worse -- that it must grow both out and up."

Funding infrastructure has been a key sticking point in the past for greenfield developments. The report notes that costs associated with urban infrastructure are rising and councils are struggling to adequately finance new sites, particularly with public backlash against rate-hikes to finance them.

The commission has recommended that councils consider repayment options for development contributions that allow the initial costs to be recovered over a longer period of time.

One method proposed is the introduction of targeted rates to fund infrastructure, which would enable local governments to pay using bond funding accessible through the Local Government Funding Agency. It says that if infrastructure is funded through 30-year local government bonds, development could be paid for over the lifetime of the infrastructure and not tagged on to the price of the house. This finances the infrastructure required at a lower rate, spreads the payments out and ensures contributions are fully recovered.

"If we were to reform the way we re-finance infrastructure, we could make a major difference in just a few steps," says Twyford.

"When linking a new development to the network at the moment, some of the costs are charged to the developer in levies, but the bulk of it ends up being passed on to the end buyer and tacked on to the price of the house and subsequently the mortgage of that house.

"What that does is pump up the price of the new house and it gets capitalised into the market value of all houses across the market. It's an incredibly inefficient way to do things, it creates a barrier to home ownership and means infrastructure costs are funded at commercial banking rates on people's mortgages."

Phil Goff: In his own words:

Labour's Phil Goff has been tipped to run for the Auckland Mayoralty.

"House price inflation, unaffordability and demand supply issues have to be addressed collectively -- one leads to the other.

"The failure of supply to keep up with demand means that we do have an utterly unacceptable level of house price inflation in Auckland and that in turn creates unaffordability.

"Right now, we're at the peak of unaffordability -- not just for first home buyers -- but actually for a whole lot of people in Auckland, which is resulting in declining home ownership.

"Inevitably, with a city the size of Auckland, we are gong to have intensification.

"Maybe in the downtown areas you can build upwards , but most other areas are going to be limited. That means we need to look outside of the central city area too, along those arterial routes and transport hubs.

"Ironically, the major regional development policy that the Government seems to be pursuing is to make Auckland so unaffordable and so congested that people have to look elsewhere to live -- but that's not the best way of dealing with the problem.

"What we have to do is grow upwards and outwards, because excluding either alternative is going to put further pressure on the availability of land, the price of land and the overall cost of housing. Letting the Government intervene isn't necessarily going to fix this.

"If central government is going to override local government in the area that local government is always most involved; local planning, then don't stop with the Super City. Just accrue all powers to Wellington.

"I don't think Wellington always knows what is best for other areas. Wellington perspectives can vary from Auckland perspectives, so you need to be extraordinarily careful in allowing Government to override rather than developing a proper partnership between Central and Local Government."