Don Brash: Council-driven land prices hurt those most in need

Less than 1 per cent of New Zealand's area is urbanised. Photo / Brett Phibbs

Opinion

On these pages last week, Dr Jamie Hosking, a senior lecturer at the Auckland University Medical School specialising in Epidemiology and Biostatistics, criticised my call for the opening up of more land around Auckland to make housing more affordable.

He argued that "it's not the cost of building houses that is driving [housing] affordability woes, it's the cost of land", and went on to argue that building up rather than building out "requires no new land. Building two storeys instead of one doubles housing capacity and uses no additional land. The cost of land is divided by the number of storeys".

Of course Dr Hosking is right if the supply of land is fixed, as indeed it has been by council decision. But it doesn't have to be fixed. At the moment, less than 1 per cent of New Zealand's area is urbanised. We are one of the least densely populated countries in the world. The council has quite deliberately chosen to make land expensive.

And the consequences of that decision are disastrous, socially and economically.

It's disastrous socially because for most low and middle-income families, buying a house in Auckland is now not even remotely possible, and for those families who do make the attempt, it almost inevitably means both parents working outside the home. Most low and middle-income families can't even make the attempt, and often live in over-crowded, poor quality rental accommodation.

At the moment, the median house price in Auckland is some seven times the median household income. It should be about three times, as it was 20 years ago and is now in many of the fast-growing cities in, for example, the United States.

Why is it possible to buy 500sq m sections on the outskirts of Houston for $40,000, whereas 400sq m sections on the outskirts of Auckland cost $400,000? The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.

The policy is also having disastrous economic consequences. New Zealanders have long believed that the safest way to invest their savings is in residential real estate, so we now have a bubble in Auckland house prices which is tempting the Governor of the Reserve Bank to push up interest rates.

If he were to do so, it might deflate the housing bubble, but at the cost of putting still more upwards pressure on the exchange rate. Given that New Zealand is already spending far more overseas than we are earning overseas, that is the last thing we need to have happen.

The very first report of the New Zealand Productivity Commission was on the cost of housing. The commission concluded that there were various reasons why housing is so expensive in New Zealand - but overwhelmingly the biggest single factor is the price of land, and that in turn has been a quite deliberate policy choice.

Ironically, given that we have a left-of-centre council in Auckland, those who most benefit from this policy are affluent land-owners in and near the centre of town. The people most adversely affected are the people who voted for the council.

Dr Hosking mentioned that four of the five cities in the Mercer quality of living survey are "intensified". And the fifth is Auckland. What he didn't note was that Auckland is already more intensified than one of the other five, namely Vancouver. In fact, according to the Demographia survey of many hundreds of urban areas around the world, no city in the United States, Canada or Australia has more people per square kilometre than Auckland has now.

For the sake of the record, I live in a four-storey apartment building in the centre of town (Symonds St). My family trust owns a kiwifruit orchard on the far side of Pukekohe, well beyond any likely expansion of Auckland City in my life-time, whether or not there is a Rural Urban Boundary.

Don Brash is a former Reserve Bank governor, ex-National Party leader and former chairman of the 2025 Taskforce.