Property Report: Cold comfort for home buyers

By Sandra Goodwin

Independent economist Shamubeel Eaqub predicts slow change to Auckland's housing affordability in the wake of affordability requirements being dropped from the soon-to-be-introduced Unitary Plan.

He disagrees with Building and Housing Minister Nick Smith's assertions that housing affordability will start being affected in the short term because of Unitary Plan changes taking effect from October.

Eaqub says: "The plan is a long-term enabling tool. It won't fix issues around infrastructure and land-banking. I don't expect a short-term impact, unless the Government moves urgently to give the council the ability to raise more revenue (for example through congestion charging) or borrow more."

He says he can only assume that incompetence explains Smith and MBIE (the Ministry of Business, Innovation and Employment) predicting Auckland house price affordability will improve in the short term.

"They said the same about the Special Housing Areas (SHAs) and Housing Accords, which have failed to deliver their much vaunted promises of additional supply."

Smith's office didn't respond when asked to take part in this article.

Those people desperate to get on to Auckland's property ladder may have been initially heartened to hear Auckland Council originally propose an affordable home quota for larger developments in the draft Unitary Plan. This would have required developments with more than 15 dwellings provide 10 per cent affordable houses.

(Affordability would have been benchmarked by the percentage of gross income those in a median band of household incomes had to pay in mortgage or rent payments.)

However, the MBIE, is on record as having made submissions to the Independent Hearings Panel, which reviewed and re-wrote the Unitary Plan, that this affordability quota should be dropped. MBIE said supply of developable land with minimal constraints was the most important factor towards achieving affordable housing.

Shamubeel Eaqub, economist
Shamubeel Eaqub, economist

The panel said it was persuaded by Housing NZ and MBIE that the affordability clause "would likely reduce the efficiency of the housing market due to effectively being a tax on the supply of dwellings and be re-distributional in their effect."

In other words a developer would have to charge more for 90 per cent of dwellings to compensate for the reduced sale price of the 10 per cent of affordable ones. This would effectively force some buyers to subsidise others.

A majority of Auckland City councillors reconsidering the plan in the lead-up to signing it off in mid-August then agreed with the Independent Hearings Panel that this affordability quota should be thrown out.

Eaqub is a big supporter of the overall thrust of the Unitary Plan.

"While not perfect, it's the start to actually build enough homes of the variety we need for the growth of Auckland that will inevitably happen."

But he feels the inclusionary zoning or affordability proposal as put forward by the council was clumsy and so he was not surprised it was rejected. However, he feels some sort of affordability mechanism or quota would have been a good idea to bring about more affordable housing options in the short term.

"The idea of trading a little more density for a mandated housing supply that is affordable would be a good short term fix. This would supply housing at the bottom of the market straight away, rather than over a longer period as will happen under the plan.

"My preference is housing that would be supplied exclusively through the social housing sector and remain in it, rather than be available for purchase."

Around the time the Unitary Plan was passed, Smith made much of how changes made to the Kiwisaver Homestart Grant from August would help more first home buyers get a foothold in the Auckland market. These included lifting the grant's pricing cap from $550,000 for any sort of Auckland house to $600,000 for an existing one and $650,000 for a new build.

However, Eaqub believes this will change little for Auckland first home buyers.

"Given house prices are rising so much, the Government will continue to raise the price cap. It will be cold comfort to first home buyers, whose incomes are not rising nearly as fast. Their ability to borrow is constrained and the programme will only be available to a vanishing few."

Some of the SHAs set up by Smith in the three-year "housing accord" signed with Auckland Mayor Len Brown in May 2013 included an affordability quota.

SHAs granted developers fast-track consents, usually in return for delivering 10 per cent affordable housing. However, developers had only lodged building consents in 57 of the 154 Auckland SHAs as of early August.

These housing areas will disappear in Auckland when the Unitary Plan starts taking effect.

- NZ Herald

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