Rising land values in Auckland caused by planning constraints have given the Government's balance sheet a $2 billion boost but made it "illegal to build a house under half a million dollars in Auckland", Finance Minister Bill English says.
Treasury's update on the state of the Crown's books yesterday showed the value of state houses was up by $2.1 billion in the last year.
Mr English said most of the increase was caused by rising land prices caused largely by "distortions of the planning process on the Auckland property market".
The National Government has long argued that Resource Management Act (RMA) and local government planning constraints have reduced the supply and increased the cost of land for residential building in Auckland and elsewhere in recent years.
"The Government has been the principal but reluctant beneficiary of a planning process which we believe needs considerable change," Mr English said.
Meanwhile, lower-income New Zealanders had seen an increasing proportion of their income eaten up by the rising housing costs which Mr English pinned largely on those planning rules.
"It's clear that the lowest-income households have been the most affected so our planning processes have probably done more to increase income inequality in New Zealand than most other policies and it does remain a challenge to make progress," he said.
Those planning rules meant "it's pretty much illegal to build a house, or has been until recently illegal to build a house under half a million dollars in Auckland".
More recently, the Government worked with Auckland Council to fast track the release of land for building through Special Housing Areas, but National intends passing changes to the RMA as a longer-term fix.
Jennian Homes business development manager Dave Wilson said his company could in some areas of Auckland build a home for under half a million dollars "but it's going to be sold at market value; the two don't necessarily correlate".
"Market value probably says it's going to be more than $500,000.
"Historically, land was about one-third of the cost and the house about two-thirds. Now it's somewhere around a 60-40 split, with 60 per cent being the land."
Labour's housing spokesman Phil Twyford said Mr English was "scapegoating councils to soften the public up for the Government's RMA reforms, which have the real purpose of gutting the RMA of its environmental principles and protections".
Q & A
Finance Minister Bill English says it has been "illegal" to build a house in Auckland for less than $500,000 - what does he mean?
That council planning rules and the Resource Management Act have reduced the supply and increased the cost of land for residential building in Auckland to the point where it is uneconomic to build and sell a new house for less than $500,000.
Why only until recently?
Because the Government has struck a deal with the Auckland Council to fast-track new land for building, including for low-cost houses through Special Housing Areas.
No. The Government says Special Housing Areas are only a short-term fix until 2018 and over the long term, changes to the Resource Management Act are required.
What could go wrong?
While it agrees some RMA changes are needed, Labour says National's proposed changes go too far in giving development priority over the environment.