OECD warns over debt, calls for more homes and suggests congestion charges to free up Auckland’s roads

Dramatic house price growth is burdening Kiwi households with debt and putting the nation's financial stability at risk, the OECD warns.

A biennial New Zealand economic survey report released today urges policymakers to increase Auckland housing supply, invest in infrastructure and counter restrictive red tape that is adding up to $110,000 to the cost of new dwellings.

It also recommends introducing congestion charges to tackle choked roads that are costing Auckland's economy an estimated $1.25 billion annually in lost productivity, and calls for the Government to invest in more public transport and a network of electric vehicle charging stations to reduce greenhouse gas emissions.

" ... Unless significant rezoning takes place, and is accepted by residents, goals of developing within established urban areas to meet annual targets for new dwelling construction will not be met," the report warns.


House price growth disproportionately affected first home buyers and those on lower incomes, but also had a dampening effect on the Auckland economy as businesses were forced to pay more to lure workers.


However, New Zealand is fairing better than most countries in terms of economic growth. It has also been ranked seventh in the world on a Better Life Index that compares developed nations on measures including jobs, housing, work-life balance, subjective wellbeing, personal security and environmental quality.

The report has been prepared with input from the Government. It identifies ways to improve wellbeing and economic growth while reducing inequalities, and makes recommendations to domestic policy makers.

New Zealand's rampant property market is singled out. The report warns that house prices are high by international standards - fourth in the world relative to income and second in the world relative to rents - exacerbating poverty and lumping households with mounting debt.

"Rapid population growth and a low responsiveness of supply have led to housing and urban infrastructure constraints. In particular, house prices have risen sharply in Auckland, the largest city, eroding affordability and raising financial-stability risks," the report says.

Paris-based OECD economist David Carey told the Herald house price growth was a threat to financial stability, especially if New Zealand was rocked by another recession where unemployment spiked and homeowners could no longer maintain mortgage repayments, leading to forced sales.

Other threats included a rise in global interest rates, a slowing Chinese economy and falling dairy prices.


Persistently strong immigration pressure combined with restrictive planning regulations and unresponsive housing supply had driven annual house price inflation in Auckland to 18 per cent.

The average Auckland home is now worth $828,502 according to QV figures out yesterday.

The OECD report says red tape adds $32,500-$60,000 to the cost of subdivision houses and between $60,000-$110,000 to the cost of apartments. It urges central government to reduce planning restrictions to allow more intensive development within the city's urban boundaries, and to limit the ability of non-affected "vested interests" to derail vital housing developments through objections.

Housing Minister Nick Smith was unavailable yesterday for comment, but has announced plans to free up 500ha of surplus Crown land around Auckland for up to 10,000 homes. A similar council scheme aims to build up to 3000 houses.

The Government has also announced a new tax on investment properties.

However, the report warns that a shortage of construction workers could slow the pace of new builds.

Tolls and user-pays fees way to go, report says

Julie-Ann Bell prefers to drive but thought the bus would be faster. Photo / Brett Phibbs
Julie-Ann Bell prefers to drive but thought the bus would be faster. Photo / Brett Phibbs

Tolls and user-pays congestion charges are being suggested to counter choked Auckland roads which are costing the city an estimated $1.25 billion each year in lost productivity.

A just-released OECD economic survey blames years of under-investment in infrastructure for the city's roading problems. It calls for a mix of tolls and congestion charges to alleviate peak-hour traffic pressure and help fund new roads and more public transport.

"Placing a cost on travel during peak periods could incentivise drivers to travel at different times (off-peak), if they are not required to be on the roads, or could encourage more carpooling and use of public transportation," the report says.

Auckland Council proposed a motorway toll last year or a regional fuel tax to plug a $12 billion transport funding gap over the next 30 years. A toll of $2 was estimated to cost the average household $350 a year. But the Government does not support the move so the council has instead introduced a targeted rate.

The report says Auckland is the second most congested city in Australasia behind Sydney.

"Road pricing" would encourage motorists to travel during off-peak times and consider alternative transport. Congestion charges could be levied as drivers entered specific cordons or zones, or take the shape of higher parking charges.

The report says congestion charges would need to be accompanied by investment in public transport.

Auckland commuter Julie-Ann Bell from Royal Oak was willing to pay if it helped reduce peak-hour traffic.

She is about to start a new job in the central city. While she preferred to drive into work, she thought the bus would probably be faster. However, even the bus could take up to an hour during rush-hour, she said.

" I'd have to get up at five or six in the morning."