Editorial - November 27, 2012

THE first thing politicians and political commentators who continue to fret over New Zealand's so-called housing crisis need to do is accept that Auckland and New Zealand are not one and the same. House affordability, as measured according to a formula that takes account of incomes, interest rates and prices, may be an issue for first home buyers in most of the major centres, but it is most severe in Auckland, and more accurately still in some parts of Auckland.

In fact homes are eminently affordable in many parts of this country. A Far North real estate agent last week advertised, in this newspaper, a modern, low-maintenance home in Kaitaia with a separate double garage on a flat right-of-way section that was an easy walk to the town centre. The price, $105,000. The same agent offered, in the same advertisement, a three-bedroom home on a little over 24 hectares, complete with orchard, workshop and carport, for $365,000.

A housing crisis would not seem to be one of the problems facing the Far North. And this district is not unique. Get out of central Auckland, even only as far as the outer, less fashionable suburbs, and the "crisis" seems to ease.

It also needs to be recognised that no one in this country has ever found it easy to buy their first home, unless they struck the Golden Kiwi or were remembered fondly by a recently deceased aunt. Buying a house has always involved sacrifice, and for most people acceptance of the fact that the bottom is the only place to start. There have been plenty of stories of late regarding Auckland houses described as barely habitable that have commanded stratospheric prices, but if those stories are true they simply reinforce the reality that there are better places, in more ways than one, for a young couple to live.

Indeed it would benefit this country enormously if people in general turned their backs on Auckland. It is unhealthy for a country to concentrate one-third of its population in one metropolis, particularly a metropolis that makes very little contribution to the export income we all depend upon, and perhaps it's time for those who can't see themselves ever affording a home of their own to look elsewhere.

In the meantime we have politicians racking their brains for ways of easing house prices, both National and Labour plumping for reducing demand. Good luck to them.

National's brainwave is to reduce the cost of new housing, and so the price of existing homes, by making more land available. Once again, that seems to miss the point. By all accounts there is oodles of potential house-building land in Auckland without expanding the city's boundaries, and unless the exorbitant cost of actually building a home is addressed, more subdivisions won't make a lot of difference.

The cost of land is obviously a factor, but not because there isn't enough of it. The real villain would seem to be the cost of complying with rules that have far exceeded rationality. A subdivider is not going to sell sections for less than they cost to put on the market, and a substantial proportion of that cost emanates from local authorities, which in some cases at least are doing the government's bidding.

Cut the cost of subdividing, reduce the time and money needed to obtain building and other consents (so the builder can start work tomorrow rather than in six months' time) and see the price of houses fall.

Labour's had an even better idea. It's going to build, by means which have not yet been explained, 10,000 new homes a year for the 'next' decade, whenever that might start. How that $150 billion-odd brain explosion might be delivered is anyone's guess. Presumably the next Labour government won't be planning to go into the property development business, but without doing so won't be in a position to promise that any new houses will be built at all, let alone 40 of them every week day.

Assuming the party is planning on governing again some time in the next couple of election cycles it will also need to start doing something now about restoring trades training to a point where it can begin producing the skilled people needed to build houses, and stop them from emigrating to Australia. No recent government has demonstrated any ability to even begin addressing either of those problems effectively.

And, apparently 10,000 new houses a year will just keep up with demand in Auckland, without actually solving anything.

There are (at least) three things a government could do to reduce the cost of housing though. Firstly it could turn off the immigration tap. It might not have much effect in Kaitaia, but there seems to be no doubt that wealthy immigrants for whom house prices are not an issue are a key factor in Auckland's house price boom. One real estate source was quoted last week as saying that it was unusual to see anyone other than immigrants bidding at house auctions in Auckland. Great for the vendor, good (in some ways) to see immigrants spending their money, but we can't have it both ways. If wealthy immigrants want to buy houses in what they obviously regard as highly desirable locations, prices will go up, beyond the reach of many New Zealanders.

Secondly, it could forcibly cap bank lending to say 70 per cent of a home's assessed value. Prima facie that would make it harder for first home buyers, but it would bring prices down. And before we became addicted to spending other people's money the need to save a substantial deposit was accepted.

Thirdly, it could make forms of saving other than real estate more alluring. A succession of finance ministers have bemoaned New Zealanders' obsession with real estate as a means of saving, but the reality is that there are no real options. Sticking money in the bank does not appeal to many, given the interest rates available and the tax payable on interest earned, the sharemarket will always be regarded by many as a gamble, and very few people these days are likely to invite a finance house to invest their life savings for them.

New Zealanders' unwaning desire to own their own homes might be a cultural thing, but their enthusiasm for investing in real estate as a means of generating income from savings is a pragmatic response to a lack of alternatives.

There is one more thing governments could do to ease demand for property in Auckland, as espoused by Far North Mayor Wayne Brown. In this digital age there is no need for the centralisation of government departments and agencies. They don't need to have their armies of employees spending their days in city offices and buying homes they can't afford within a reasonable commute. In many cases they could relocate to the provinces, reducing their costs in the process and boosting local economies as a bonus.

Mr Brown would no doubt be happy to discuss this with any government department that might be interested. Unfortunately none are, and likely never will be.

In the meantime, anyone who baulks at the prospect of raising a mortgage in Auckland (where recent sales included a Mairangi Bay home with a valuation of $880,000 for $1.5 million and another in Remuera, valuation $1,720,000, that went for $2,895,000), should look north, or south, and spend the same amount of money on an entire street.