Andrew Bruce: Investors scapegoated for council failing

The sensible plan would be to develop higher density housing around train stations, as other cities have done. Photo / David Rowland

Opinion

• Andrew Bruce is President of the Auckland Property Investors Association

Property investors are being blamed by both sides of the political divide as significantly contributing to Auckland's property price increases.

There is little doubt that the property market in Auckland is well into the upper stages of this market cycle, however, is this really the result of property investors?

Instead of constantly blaming investors for skyrocketing house prices, we need to ask: how on earth did we end up with 40,000 fewer houses than we need?

Truth is, investors have become convenient scapegoats to divert attention from a council that is expensive to do business with and has lacked proactive policies to enable development of new housing.

If the Auckland Council were to have a more enabling policy framework for housing, currently controlled by the Auckland District Plan (soon to become the Unitary Plan), this would significantly assist the process.

Currently there are artificial limits placed around the city in what is called the Metropolitan Urban Limit (MUL). There is also limited density allowance for apartment or terraced housing around transportation infrastructure.

According to Core Logic figures, 24 per cent of Auckland housing stock is either apartments or high density terrace housing, compared with 41 per cent of Sydney's housing stock, 55 per cent of Los Angeles' and 67 per cent of San Francisco's.

Back in 1999, the Auckland region's then seven mayors and regional council chairman signed a growth strategy to accommodate thousands more residents. As a result, in the early 2000s the former Auckland City Council looked at promoting what it called "liveable communities", whereby the council targeted higher density living around transportation nodes, in this instance Panmure.

Consultation and community workshops were held, however, the response was vehement opposition from many residents. After this failed attempt, the council appeared to place this regional growth question on the backburner for the past decade or more.

During this period there has been another property cycle with Auckland house price growth peaking in 2007. Fast forward nine years and immigration is at record levels - over 68,000 people arriving or returning to the country - and interest rates are at record lows. This has finally shone a blow torch on the real issue - a decade or more of inactivity from council and failure to implement a regional growth strategy.

Is there any light at the end of this tunnel? The Auckland Council has been undertaking for the past three years extensive investigation and planning on what is to be a new planning framework called the Unitary Plan. This Unitary Plan will essentially say what property owners can and can't do with their land. Decisions are due on August 19.

These decisions will be made by elected councillors on behalf of all Aucklanders and are critical for the future of the city's growth. An enabling policy framework is essential to making an impact on Auckland's current undersupply of houses.

Those people who follow property cycles will be aware property markets generally follow certain patterns. At the start of the cycle prices tend to fall or stagnate for several years and then over time there tends to be an upsurge in pricing; this is what we are currently going through.

From past experience, these cycles follow an approximate 10-year period. This last cycle commenced with prices falling in early 2008 and then prices started to increase from 2012 onwards. It could be argued the current upward phase of this cycle is lasting slightly longer than previous cycles.

Government policy has endeavoured to regulate property investment to manage the growth stage of this current cycle. If we look back to the 2010 Budget, the Government brought in investor targeted policies including the removal of depreciation and loss attributing qualifying companies.

We also now have higher loan to value ratios, higher risk weighting requirements on banks, a bright-line test and many more measures appear to be waiting in the wings. These policies, while making a slight difference at the margins, have not had a material impact upon the current property cycle.

The lack of effectiveness of these tools indicates that investors are not a key driver of the property cycle, but are reacting to what is already happening in the market. Most property commentators and economists will agree that Auckland has at least a 40,000 undersupply of houses. If it was possible to create a 40,000 oversupply of houses in Auckland overnight, this would undoubtedly curb the current upswing in the property cycle.