Ashley Church: Plenty of takers for newly built suburbs

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Depressed British economy could provide workforce to cover shortage of skilled Kiwi building workers.

Stonefields in Mt Wellington shows how quickly a new community can emerge. Photo / APN
Stonefields in Mt Wellington shows how quickly a new community can emerge. Photo / APN

There is no doubt that Government intervention in Auckland's overheated housing market is well intended and its strategy is relatively straightforward.

If it can free up housing stock to meet pent-up demand, property prices might at least stabilise and the "economic vulnerabilities" that ratings agency Standard & Poors is so worried about are likely to ease.

However, history suggests such intervention can have unintended consequences. Many people will be familiar with the striking orange terracotta tiles that grace the roofs of older state houses in towns and cities throughout New Zealand. The use of these high-quality, French-manufactured "Marseilles tiles" on state houses during the early part of last century effectively killed the private market for those tiles because nobody wanted an upmarket home that looked like a state house.

So what are the potential consequences of the raft of housing initiatives announced in this year's Budget?

Will there be an entirely new suburb - or two - built in the more affordable special housing areas? It's been done before. Manukau, Albany and the more recent Stonefields development in the old Winstone quarry at Mt Wellington are evidence of how quickly new communities can emerge. Build it and they will come.

Let's face it, there was no shortage of takers for what eventually became leaky homes. A whole industry was created because they were cheaper and faster to build. People asked questions about building standards, but they still sold like hot cakes because buyers believed what they were told. If a new development opens up there will be buyers - particularly in a market where there's a shortage. Here's hoping there's no new variation of the leaky homes disaster in the haste to meet the Government's target.

But can 39,000 new homes be consented and built in just three years? Absolutely. Sure, there may be some challenges marshalling enthusiasm among the now-decimated ranks of property developers, but with an estimated $112 billion sloshing around in bank deposits, there's hardly any shortage of investment capital. Issuing building consents shouldn't be a problem either.

One only needs go back to the 2004 building boom when 31,423 new dwellings were approved that year - a good third of those in the Auckland region.

The greater issue is whether the workforce would be available given the mass exodus of skilled Kiwi workers to Australia and the competing demands of the Christchurch rebuild. The solution to this may well lie in the depressed UK economy. Only this month the Herald highlighted how many Brits were queuing up for a new life Downunder, so one can assume there's a fairly large reservoir of skilled people who would jump at the opportunity to live and work in Auckland.

Of greater concern are the new powers of the Reserve Bank to improve the capital adequacy of our banks and - more significantly - to demand increased deposits on homes. These tools are well intentioned but they will most adversely impact on first-home buyers - the very people the Government wants to encourage into property. Foreign buyers and mum and dad investors with plenty of equity in an existing property will carry on buying, regardless.

If there is to be one really positive consequence from the Budget measures, it's the likely migration of more state-house tenants into the private sector.

With around 70,000 tenants paying very low rentals - in some cases for life - the provision of state housing has always acted as an artificial constraint on the property market. The potential knock-on effect of people moving into private sector housing, when they can afford it, means that the rental market might act more normally over time.

So what will be the impact of the basket of measures announced in the Budget? As Shakespeare wrote, there is "a tide in the affairs of men" and this is particularly true of property, which follows very predictable cycles. In Auckland's case, demand and prices will likely level off over the next few years anyway and there's a strong case to be made for the market sorting itself out without any intervention from the Government.

Doubtless, many in National Party ranks are also wringing their hands about the merits - and consequences - of such radical market intervention. But there's also a political element. That the Government is being seen to be doing something constructive means, if the market settles down, it can probably take the credit - regardless of how much influence these measures actually had.

Ashley Church is chief executive of the Newmarket Business Association and a former CEO of the Auckland Property Investors Association.

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