New Zealand still thinks of itself as a nation of home-owners. The report on housing affordability, released by the Productivity Commission at the weekend, gives reason to revise that view. Home ownership, it says, has been declining since the early 1990s when 75 per cent of homes were owner-occupied. Since then, the figure has fallen to 65 per cent, which is about the average for developed countries. In Auckland more than 40 per cent of households are tenants.

During the long boom from 2001 to 2007, when house values almost doubled in real terms, renting was not quite the problem it is now that house prices are not rising and rent must provide the investment return.

The commission says landlords had been keeping rent low "because of expected capital gains in housing and lack of confidence in other investments". But it does not believe the absence of capital gains tax was a significant cause of the price surge. "Clearly, those gains were substantial during the boom," it says, "However, there are questions about how 'real' and/permanent those gains really are ..." For that reason the commission "does not see a pressing need for changes to the taxation of housing".

This is probably what the Government wants to hear but possibly not what it needs to hear on a subject as important as productivity. The country needs all its gears at maximum efficiency for the economy to make the "step change" the Prime Minister used to talk about. If he is going to turn his attention more urgently to that aim in a second term, he needs this commission to give him rigorous advice on tax influences.


Housing affordability, as the commission points out, is important to the mobility and productivity of the workforce as well as the stability and wellbeing of families. One of the few ways it suggests houses might be made more affordable, especially in Auckland, is to relax the urban limits drawn in the Auckland Council's growth plan.

The fact that section prices have risen much more than house prices over the past 20 years suggested a shortage of land. The difference is pronounced in Auckland where land accounts for 60 per cent of the cost of a new home, but 40 per cent in the rest of New Zealand. The point has been made to the council often before, but planners have other priorities. Their "compact city" better serves public transport.

Expensive land encouraged the building of bigger, more expensive houses for full value. New Zealanders, the commission reports, are building very big homes now. Most of these are being erected by what it calls a fragmented "cottage industry" of self-employed builders, most of them sole traders who might produce one house in a year.

The country has just five firms building more than 100 houses a year each and most of those are for the upper end of the market. The sector's productivity is below others and bedevilled by projects exceeding time and budgets as well as defective work and lower quality materials, the commission reports.

The small New Zealand market and high transport costs make building materials expensive here. The commission estimates that building in Auckland is 25 per cent more expensive than in Melbourne.

It seems there is not much the commission can suggest to raise the industry's performance and it concentrates instead on the easy targets of building regulations. Without a mention of leaky homes, it suggests standards are being set higher than consumers would set, procedures are slow, innovation is inhibited and costs are added.

Little wonder, then, that a new house for young and average earners remains an elusive dream.