Auckland Council needs to be able to introduce motorway tolls and congestion charges if runaway house prices and drastic housing shortages are to be addressed, a hard-hitting report released today says.

The Government should also set a limit for land price inflation, above which it will step in and require councils to release land for development, the Productivity Commission said in its final report on the way land use is affecting housing in New Zealand.

Most of the recommendations the commission made in a draft report in June have been retained, including a controversial proposal to allow urban development authorities to make compulsory acquisitions of private land.

The commission's chair Murray Sherwin said the operation of New Zealand's planning systems needed to change if cities were to have enough land for housing.

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Difficulties with servicing and zoning enough land to meet demand had led to land shortages both within and outside cities, and dramatic house price rises over the last two decades.

"In Auckland, land is now five times more expensive than it was 20 years ago," Mr Sherwin said.

This had inevitable social impacts as poor and middle income people were shut out of the market.

It also created a "vicious cycle" because developers held onto land to earn capital gains instead of releasing it for housing.

Mr Sherwin said there were many obstacles to the supply of land in New Zealand's cities.

He singled out homeowners' opposition to developments which could increase rates, affect house values, or change their neighbourhoods. These groups had a disproportionate influence on local council elections and consultations, the commission found.

"As a result, many council land use rules and policies effectively protect the interest and wealth of those who already own housing, to the detriment of those who do not," a briefing paper by the commission said.

Other obstacles included problems with funding new infrastructure and restrictive and costly planning rules, such as minimum apartment sizes and balcony requirements, minimum parking requirements and density limits.

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The commission made a series of recommendations to local and central government to improve planning processes and free up land:

• Lift restrictive planning controls where spare capacity for developments exists.
• Give councils new funding tools such as volumetric charging for water, motorway tolls and congestion charges.
• Set infrastructure charges to better reflect costs and use targeted rates.
• Require central government to pay rates on Crown land.
• Grant urban development authorities the power to acquire private land in some circumstances.
• Set a threshold for price differentials between residential and other land above which Government will require councils to release and service more land.

The National-led Government has previously ruled out motorway or congestion charges, and was sceptical about proposals for urban development authorities. Finance Minister Bill English has said the Government is more open to proposals for addressing land banking and making it easier to build apartments.

Mr Sherwin said the most important step councils and government needed to make was a commitment to release and service more land and to bring price inflation under control.

"We need to break the pattern whereby there is more money to be made from simply holding land instead of using it.

"If councils are unable to make this commitment, then central government will need to step in and make it happen. Government should set a limit for land price inflation which would clearly signal to councils, landowners and developers the conditions under which government would intervene to make more land available."

At present, residential land in Auckland is nine times more expensive than other land.

Mr Sherwin said a sufficient supply of land and an adequate supply of affordable housing were topics of national importance.

"Central government has a legitimate interest in resolving those issues, where local councils cannot."