Price of housing threat to city's growth

Terence and Belinda Smith, who were able to afford their $400,000 house thanks to the NZ Housing Foundation's shared ownership programme. Photo / Martin Sykes.

Community housing groups are looking for a "circuit-breaker" to solve a housing affordability crisis that threatens to stifle Auckland's growth potential.

"We can't continue to do what we're doing. There has to be some sort of circuit-breaker," says Brian Donnelly of the New Zealand Housing Foundation, a charity founded by entrepreneur Stephen Tindall to try to tackle the problem.

The proportion of Aucklanders who own their own homes dropped by a tenth in the 20 years to 2006, from 74 per cent to 64 per cent.

Roost Mortgage Brokers' affordability index shows that it now takes 72 per cent of the median income to service a 25-year mortgage covering 80 per cent of the cost of a median-priced home in Auckland, more than anywhere else in the country except Queenstown.

"Median-priced housing is still not affordable for families in Auckland, even when both adults work," says Bernard Hickey, who maintains the index.

A 2008 report by the Prime Minister's department placed much of the blame for higher prices on high rates of immigration, lower interest rates and looser bank lending.

It said the tax system, including the lack of a capital gains tax and the ability to deduct losses on rental properties from the owner's other income, also "encouraged investors into housing, putting further pressure on prices".

"The ability to deduct losses from rental properties increases the value of a median-priced house to the investor by $25,000, relative to a potential home owner who needs a large mortgage to buy the same house," it said.

On the other side of the equation, our incomes have become much more unequal. Social Development Ministry data shows that the median household income dropped in real terms by 15 per cent in the last big recession from 1988 to 1994 and was still only 24 per cent higher than its 1988 level last year, whereas the richest 5 per cent gained, even in the bad years, and are now 50 per cent above their 1988 starting point.

Auckland University sociologist Gerry Cotterell relates this to the abolition of national wage awards and the shift to enterprise-based bargaining in the 1990s.

"The Clerical Workers Union simply disappeared in 1991. That was a large pool of low-paid workers who couldn't negotiate on their own to get wage increases," he says.

"If the income distribution becomes skewed, then those at the top end, especially with tax breaks and funding rules, are able to buy on the equity of their second, third and fourth rental properties, which drives up the low end of the market and makes it unaffordable."

Council planning rules and development levies have also had an effect. The Prime Minister's department found that development levies in Auckland City jumped from $7000 in 2006 to "potentially up to $40,000 per unit" a year later.

Donnelly, whose foundation has now built more than 150 units in Waitakere, Auckland and Manukau, says development levies, other council fees and the costs of consenting delays "are just about equalling the cost of the land now".

"There has to be funding for future infrastructure, but at the moment it's crippling. Current developments are paying for future development needs," he says.

But Donnelly was also a member of a Housing Shareholders' advisory group appointed by Housing Minister Phil Heatley and Finance Minister Bill English to look for the kind of "circuit-breaker" Donnelly is calling for.

Its report, released last month, provides a long list of programmes in other countries to help first home-buyers, including a first home owner's grant of A$7000 ($8829) in Australia and shared equity and rent-to-buy schemes in Britain.

It recommends five-to-10-year, low-interest "starter loans" and shared equity and rent-to-buy schemes. The Housing Foundation already provides both rent-to-buy homes and homes where it keeps typically a quarter of the equity, so that first home owners can afford to buy on the expectation that the owners will buy out the foundation's share when they can afford to. The report also recommends transferring some state houses or capital to community agencies to meet a fifth of the need for social housing in the next five years, giving those agencies the capital base they need to fund new developments by borrowing.

Dr Alan Jackson, the Fletcher Building director who chaired the advisory group, says overseas benchmarks suggest that about 10 per cent of the population needs subsidised social housing and a further 20 per cent need help to buy homes.

Applying those figures to the estimated 260,000 extra homes needed to accommodate almost 2 million Aucklanders by 2031, the region needs to plan for about 26,000 more social housing units and help about 50,000 families to buy homes.

"Where is that going to come from?" Jackson asks.

"Housing New Zealand has their portfolio [30,000 homes in Auckland], they have to keep upgrading it, but they are not going to be the people who provide the extra 30,000 houses.

"Our push is around getting the development of reasonable additional participation where those people can work with Housing New Zealand and look to expand social housing."

Seven Auckland community providers - the Housing Foundation, Auckland Community Housing Trust, Community of Refuge Trust, Bays Community Housing Trust, Vision West, Monte Cecilia and Habitat for Humanity - are working together to encourage the new Super City to put affordable housing "at the top of its agenda".

"It will be a significant landowner and it can play a role in using some of that land to help develop low-cost housing," says Monte Cecilia executive David Zussman. "So we are approaching candidates saying, 'How are you going to integrate this into your policies?"'

Mayoral candidate John Banks sold Auckland City's pensioner housing to Housing New Zealand in his first term but has promised not to sell any of the pensioner units still owned by other councils that will become part of the Super City. Rival candidate Len Brown says he would push Housing New Zealand to develop land in areas such as Weymouth and to work with the new Auckland Council and community providers to develop more pensioner housing.

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* From the New Zealand Herald feature, 'Project Auckland - our city'