Isaac Davison is a NZ Herald political reporter.

Budget 2016 - Feeling the Pressure

What can the Budget do for our schools, housing, health and transport, asks Isaac Davison.
illustration / Rod Emmerson
illustration / Rod Emmerson

In recent years, New Zealand has become a victim of its own success.

Its strengthening economy in relation to Australia has prompted Kiwis to return home in droves and has convinced more New Zealanders to remain in the country.

The number of migrants coming to New Zealand on work and student visas has also risen. More than 66,000 people arrive in New Zealand a year. The rise in net migration, on top of natural increases, is putting pressure on the health system, schools, housing and transport.

At the same time, the New Zealand population is ageing, placing increasing strain on the health system and reducing the Government's tax take.

The pressure on services is particularly acute in Auckland, where a large proportion of migrants are choosing to settle.

Next week's Budget, the eighth under the National Government, is expected to focus on addressing the pressure points in New Zealand's biggest city.

The Government says population growth has been higher than expected, and it has brought forward money that had been put aside for future years.

Where are the main pressure points in Auckland and how might Government respond in the Budget?

BUDGET 2016

• Thursday 26 May (published at 2pm)

• National-led Government's eighth Budget

• New spending originally set at $1 billion, but $2.5 billion now brought forward to cover costs of population growth and to pay off debt

• Likely investments in health, education, police and other public services to meet needs of growing population

• Further support for vulnerable New Zealanders

• Tax cuts off the table

TRANSPORT

There are now 43,000 more cars on Auckland's roads compared to last year - a 5 per cent increase, which has been driven partly by high net migration into the city. The rise in cars has led to worsening congestion. The average travel time from Auckland Airport to the city in peak hours is 54 minutes, compared to 39 minutes a year ago.

The biggest concern is that traffic gridlock is not limited to peak hours, but is spreading across the whole day.

"Transport in New Zealand is stuck in a 1960s and 1970s era of suburbia and motorways," economist Shamubeel Eaqub says.

"If you increase the number of roads, you just increase the number of cars on the roads.

"And the reality is, given the kind of population growth and the kind of city Auckland will be, that's simply not possible.

"We have to go towards what some people would describe as a first world country, where even the rich folk use public transport."

A significant amount of investment in improving the transport network is under way - the $1.7 billion Waterview Connection, the $2.6 billion City Rail Link, the East-West Connection and other arterial routes.

But the Government is playing catch-up, New Zealand Infrastructure Council chief executive Stephen Selwood says.

"We're really filling in a backlog of investment which should have been made decades ago. The pace of growth is really putting pressure on many points."

A big boost for the transport sector is unlikely in Budget 2016, though funding for regional projects is a possibility.

The big funding commitments are likely to occur next year, after the Government and Auckland Council agree which transport projects in Auckland should take the highest priority.

They will also have to agree on how to pay for them. The council wants motorway tolls, but the Government is cool on the idea.

The housing shortage in Auckland means the median price of a property is now $812,000. Photo / Doug Sherring
The housing shortage in Auckland means the median price of a property is now $812,000. Photo / Doug Sherring

HOUSING

To meet demand, Auckland needs around 13,000 houses to be built every year for 30 years, up from current construction levels of 9700 a year.

"For the amount of houses that Auckland has, the amount of immigration going into Auckland is terrible," says economist Eric Crampton, of the New Zealand Initiative.

"There's far more people going in than there is space for them and they're not quite able to keep up, so you've got overcrowding, and a huge bid-up in the price of real estate."

The housing shortage in Auckland means the median price of a property is now $812,000.

The average house is nine times the average income, making it one of the most expensive cities in the world.

So far, the Government's response to the shortage has focused primarily on ramping up the supply of houses, with some measures to limit demand on the margins. It has worked with councils to create fast-tracked housing developments, freed up surplus land, and subsidised first home-buyers in a bid to stimulate development. On the demand side, the Government has introduced a "bright line test" which makes it easier to tax the capital gains of houses bought and resold within two years.

These measures are yet to have a significant impact on housing affordability, despite a halt in house price rises in late 2015 and early 2016.

The Government is expected to take further action by allocating some money in the Budget 2016 to free up surplus Crown-owned land in Auckland for housing.

More than $50 million put toward the surplus land scheme has been exhausted, but progress has been slow and the first house will not be built on this land until the end of the year at the earliest.

The Government may also address the infrastructure deficit which is holding up housing developments. New greenfield developments need roads, water pipes, and sewerage and councils say they need more support to provide this infrastructure.

Finance Minister Bill English says the Budget alone cannot solve the biggest obstacle to affordable housing - council planning rules. Auckland's outdated rules about where and how high houses can be built are inflating land and construction costs and slowing supply, he says.

If the Auckland Council fails to allow for intensification in its crucial 30-year plan, which is signed off in August, the Government has signalled that it will step in.

The Labour Party backs the Government's position, but it also wants a massive state-sponsored building programme and more state houses.

Schools with the least space were the most likely to struggle to accommodate the population growth. Photo / iStock
Schools with the least space were the most likely to struggle to accommodate the population growth. Photo / iStock

EDUCATION

''When there are more children turning up you simply have to build the classrooms," Finance Minister Bill English told the Wellington Chamber of Commerce last week. "There's no choice about that."

In Auckland alone, the Ministry of Education has been tasked with finding space for 107,000 more children over the next 30 years.

Pressure points include the Western Bays area of central Auckland, Mt Albert, Takapuna on the North Shore, Papatoetoe and, longer-term, areas further out including Warkworth.

More than a quarter of the student population growth will centre on the Auckland isthmus, where land is particularly scarce and intensification likely to be most intense.

Among the potential solutions being considered are leasing building spaces in commercial buildings for inner-city primary schooling, bulldozing existing schools and putting in two-storey blocks, or changing school zones or the ages of students who go to them.

"You've got increased pressure in some areas for schools and spare capacity in other parts of Auckland."
Allan Vester

Secondary Principals' Councils head Allan Vester said rising population numbers were been felt unevenly across Auckland.

"There are certainly pressure points. And it's coming from two sources: people from outside Auckland, and also movement within Auckland as the demographics shift.

"So you've got increased pressure in some areas for schools and spare capacity in other parts of Auckland."

Schools with the least space were the most likely to struggle to accommodate the population growth.

"In Pt Chevalier the internal population growth within the area means the schools are under great pressure. And they are constrained sites. They are not well-placed to increase the size of the school."

Between 2003 and 2014, Auckland's Westmere School grew by 52 per cent, and nearby Western Springs College almost doubled in size.

Mt Albert School saw an 86 per cent jump to 323 students and the roll at Gladstone Primary shot up by 100 in a single year.

However, at many schools, particularly low-decile schools, numbers have fallen.

Another pressure points is schools' ability to cope with children with special needs. Despite a four-year injection of $63 million in last year's Budget, schools are still struggling to accommodate all high-needs children, Mr Vester said.

The Government is expected to allocate the biggest portion of new spending in Budget 2016 to the health sector. Photo / iStock
The Government is expected to allocate the biggest portion of new spending in Budget 2016 to the health sector. Photo / iStock

HEALTH

New Zealand's population is not only growing, but ageing.

The total population is projected to increase by 25 per cent by 2041, but by over 150 per cent for ages 75 and older.

"The ageing population has been the elephant in the room for some time," independent economist Shamubeel Eaqub says.

"The big concern is not really around superannuation, which is relatively affordable. It is around the cost of health and accommodation supplements for all the older people who do not own their own homes.

"Those costs are going to go through the roof, and with fewer working-age people to pay for it."

Health Minister Jonathan Coleman acknowledged the issue in a speech last month.

"Like many other countries, our very success in increasing life expectancy also creates our biggest challenge," he said.

"While people are living longer, they're also living longer in less than full health, and need more support.

"More of us are also living with chronic diseases. Cardiovascular diseases, diabetes, cancer and chronic respiratory disease make up around 80 per cent of the disease burden for our total population.

"We need to find new ways of delivering health services in a more cost-effective way, while continuing to improve health outcomes and the quality of services."

The growing, ageing population has led to busier emergency departments and growth in acute hospital admissions.

"It's also primary care," says New Zealand Medical Association head Stephen Childs.

"It's difficult to get a doctor in Auckland at the moment. Most of them are basically full. So there are pressure points throughout the entire system."

In response, the Government is expected to allocate the biggest portion of new spending in Budget 2016 to the health sector.

It is not yet known where the money will be distributed, although Mr English has said that district health boards need more funding because "more people are turning up at hospitals".

In pre-Budget announcements, $97 million has been committed to health research and $39 million to bulk-buying drug agency Pharmac, possibly to invest in melanoma drugs.

Government spending on health has risen from $13.1 billion in 2009-10 to about $15.6 billion in 2015-16.

Research commissioned by the Labour Party showed that once population growth and inflation was taken into account, the increases amounted to a $1.7 billion cut in funding - a figure that is disputed by the Government.

Last year, the Government allocated $1.7 billion for elective surgery, palliative care, and free doctors' visits for under-13s.

Tom Kelway has teamed up with a friend to buy a home. Photo / Nick Reed
Tom Kelway has teamed up with a friend to buy a home. Photo / Nick Reed

Returning home with a sense of optimism

Thousands of Kiwis are flocking back to New Zealand after living abroad.

Of the 67,700 people who moved to New Zealand permanently in the year to March, 31,000 were expats coming home.

Aucklander Elizabeth Heaney, 32, lived in Sydney for nine years before shifting back to Auckland this year.

There was a "huge trend" among her Kiwi friends of returning home, she said. After leaving for higher wages and jobs in the mining boom, many have been drawn back by New Zealand's economic stability.

"I think it's easier to come back now," she said.

"I definitely had a sense of optimism about coming back to New Zealand.

"I felt there were opportunities for me that I wouldn't have in Australia. I thought that the lifestyle was probably going to be better."

"We're trying to do a syndicate to get something started. It's pretty difficult by yourself now."
Tom Kelway

Prime Minister John Key says high net migration and returning Kiwis are cause for celebration, because they show New Zealand is a place where people want to live.

The trend also creates new challenges. It has played a part in Auckland's booming population, which has put further pressure on the housing market and stretched infrastructure - two key issues in next week's Budget.

Tom Kelway, 29, arrived back in New Zealand in February after two years working as a lawyer in London.

Despite earning a relatively high salary at a commercial property company, he cannot afford a home so he has teamed up with a high school friend to raise money for a deposit.

"We're trying to do a syndicate to get something started. It's pretty difficult by yourself now."

Even with two good incomes, they are daunted by the $800,000-plus prices for homes in Te Atatu and Glen Eden, where they are searching for a property.

The cost of living is relatively high in Auckland, Mr Kelway said.

Food, rent, and other costs were similar to London, but his income was 30 per cent lower.

Ms Heaney, a lawyer, faces similar obstacles.

She is living with her parents until she can afford a home. But she stands by her decision to come home.

"It was a big decision.

"But it's very different in Auckland from five years ago. Back then, family members couldn't get a job and restaurants were closing down."

- NZ Herald

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