Bernard Hickey: City house woes jam economy

A proposed seven-storey apartment block in Auckland has implications for housing throughout the country.

Sheep farmers in Southland and first-home buyers in Palmerston North shouldn't have to care about building consents in Grey Lynn.

But this week it became increasingly clear that all New Zealanders should care about the housing supply shortages and planning restrictions in Auckland that are acting like a giant handbrake on the economy.

One example of how the isthmus of Auckland has become everyone's backyard was a local dispute reported in the New Zealand Herald this week. Grey Lynn and Arch Hill residents voiced outrage at plans by a developer for a seven-storey block of 30 apartments on Great North Rd.

The developer, Greer Stephens, originally presented a five-storey proposal for 20 apartments, but has since upgraded it and said council officers had indicated their support.

This is despite changes last year to the draft Auckland Unitary Plan that in effect de-indemnified zoning and height restrictions near the CBD.

This followed an anti-intensification campaign against the original draft plan by locals who didn't want their views blighted by apartment blocks.

Fair enough, most fellow villa owners would say. Not in My Backyard is a powerful gravitational force in local politics. That would all be fine if the only parties affected were local residents.

But that is not the case with Auckland. New Real Estate Institute figures show house-price inflation in Auckland and Christchurch was responsible for more than 75 per cent of the country's house price inflation in the past year.

The Reserve Bank imposed its speed limit on high loan-to-value-ratio (LVR) mortgages to reduce some risks to the financial system from an overvalued housing market, and Auckland in particular.

The IMF's warning that New Zealand's house prices are 80 per cent above their long-term averages relative to rents is not because of the prices in Invercargill or Palmerston North.

The Reserve Bank has increased interest rates by 0.75 per cent and is likely to add another hike, in part because of the pressures on inflation from Auckland. First-home buyers and exporters across the nation are paying for the 23 per cent rise in house prices in Auckland.

First-home buyers from Ponsonby to Palmerston North have been dramatically curtailed in the past year because of the high LVR speed limit. Exporters are fuming at the strength in the New Zealand dollar despite 20 per cent-plus falls in the prices of milk powder and logs. Reserve Bank Governor Graeme Wheeler may well be saying the currency is unsustainably high, but as he spoke it rose even higher.

The Government's frustration is palpable over Auckland's inability to solve its housing problems.

Last week, Environment Minister Amy Adams lodged a submission criticising the Auckland Unitary Plan as inflexible, costly and too restrictive to meet Auckland's rising population.

She pointed to forecasts showing its sprawl limits and de-intensified height rules would allow only half the necessary new homes to be built.

Finance Minister Bill English told a select committee it was "ridiculous" that Auckland Council restrictions had in effect made it "illegal to build a house that costs less than $600,000". He pointed to the residents' backlash against the rules on intensification in the unitary plan debate . "The Auckland Council got rolled by their ratepayer."

Which takes us back to the "outrage" from the Grey Lynn Residents Association and that of Keith Milne, the villa owner living next to the proposed seven-storey apartment block.

Understandably, Milne doesn't want an apartment block in his backyard, even though the developer has reassured the council it would not shade its neighbours or block views.

This dispute on Great North Rd may seem like an intensely local one, but everyone from Invercargill to Kaitaia should know about it because it is symptomatic of a tension between private property rights and the public good that needs to be sorted for the good of the economy.