Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Build houses and they will stay

State houses built in the 70s were small, cheap and Government-guaranteed. Offering similar deals now would help ease our housing crisis. Photo / NZ Herald
State houses built in the 70s were small, cheap and Government-guaranteed. Offering similar deals now would help ease our housing crisis. Photo / NZ Herald

John Key and Nick Smith have in recent weeks taken to trumpeting Auckland's current building boom as the biggest in New Zealand history.

Keen to show something is being done to deal with a shortage of 40,000 homes in a city that has grown by 163,500 people since it was elected in 2008, the Government appears to be exaggerating the scale of what is happening.

Yes, total spending on construction in Auckland in 2015 was a record-high $10.9 billion and is forecast to rise to $18b by 2018 in the most recent Government forecasts. But that total includes building offices, motorways, tunnels, hospitals and schools.

The 9651 houses consented in the past year remain below the 12,937 in 2004. More importantly, that was also far fewer than the 12,941 homes in 1974 when Auckland's population was half its current size.

Statistics New Zealand has published an analysis of consents showing the number per 1000 people has risen nationwide to 6.3 in the past year from a record low 3.1 in 2011, but remains below the 13.1 per 1000 reached nationwide in 1974.

The numbers for Auckland are even more stark.

Consents are no higher than the national average and below the 16 per 1000 people reached in 1974.

Auckland is building houses at significantly less than half the rate it was 40 years ago.

By exaggerating the scale of Auckland's building boom, the Government has highlighted the enormous task ahead and hinted at solutions.

It forces the question: what were we doing in 1974 that we're not now?

In 1974, the Government was building and financing lots of smaller and much more affordable homes on a much bigger scale.

The 1972-75 Kirk Labour Government was ramping up state-house building and first-home buyers could borrow money from the State Advances Corporation at relatively cheap rates to buy new homes from private developers and builders.

Almost half the new builds in Auckland in the past five years were sold for more than $1.2m.

Young families were also able to capitalise their future family benefit payments to help come up with a deposit.

But those Government loans were only available to buy simple and Government-approved designs under the Group Building Scheme.

The designs and the buildings were checked and approved by the Government and private builders and developers were given a guarantee if a home was not sold the Government would buy it.

This meant the houses were small (80-100sq m) and relatively cheap to build.

Fast forward to 2016 and now most new homes are enormous (over 200sq m) and expensive and built in dribs and drabs by small building businesses.

An analysis by Homes.co.nz found almost half the new builds in Auckland over the past five years were sold for more than $1.2 million.

The one and two-bedroom homes with 80-120sq m floor plans that first-home buyers want are only rarely built.

PrefabNZ CEO Pamela Bell said the size and cost of new houses is driven by developers looking to maximise profits at the lowest risk from their sections, which means building for the top end of the market on expensive sections.

Along with often restrictive covenants requiring large floor plans, the market has moved to big houses with almost as many bathrooms as bedrooms, she said.

Somehow, the Government needs to step up and back a 1974-style boom in the building of small, affordable homes at a massive scale. The Government may not need to build them all, but guarantees of repurchase and low-deposit loans for first-home buyers would help unleash the market for these homes.

History has shown the market won't provide them on its own.

- Herald on Sunday

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Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

Read more by Bernard Hickey

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