Affordable Housing – Secretary’s Blog!

New Zealanders love houses. My wife and I live in one. We share it with our children. Some might even argue housing is a basic human right. New Zealand’s widely reported love affair with housing is however under strain.

Rates of home ownership are decreasing (from 75% in the late 1980s to 65% now – New Zealand Productivity Commission (Summary) Report on Housing Affordability – March 2012).

This same report records the “unprecedented” doubling of real house prices between 2001 and 2007 and states a concern that:

real (inflation adjusted) house prices in New Zealand are markedly higher than they were a decade ago and that this has been associated with general declines in housing affordability and home ownership rates. These declines have contributed to increased demand for rental accommodation and additional pressure on the social housing sector.

In response to this concern (over housing affordability) we have been treated to a flurry of recent policy responses from across the political spectrum, commencing with the release of the Labour Party’s proposals last November. This included a targeted National Policy Statement directed at the issue of housing affordability specifically, and in addition to a proposal to partner with the private sector to build some 100,000 affordable homes. Introduction of a capital gains tax ‘to take the pressure off house prices” was also mooted, as it had been by Labour before the 2011 election.

More recently the Green Party has suggested a rent to buy scheme, criticised by the Prime Minister (alongside Green Party suggestions for “quantitative easing”) as “playing Monopoly”.

For the Government’s part, its response has been to appoint former Minster for the Environment Dr Smith to inject new energy into the housing portfolio, alongside an initiative aimed at addressing a skills shortage in the construction sector, with a $12m boost in apprenticeship training to aid the Christchurch rebuild.

At the same time the Prime Minister has fired a warning shot at local authorities; quoted in the Dominion (26 January 2013) as saying:

If Councils aren’t able to change their planning processes, then the Government will have to get a lot more proactive because we are very serious about the issue.

The Prime Minister also complained that “…we can’t have years and years of waiting time for someone to be able to subdivide or for a few houses to be taken down to be able to allow a brownfield development to take place”.

That the RMA procedures would become the “whipping boy” in the housing affordability context is perhaps not unsurprising.

Attempts to constrain urban sprawl and achieve a greater degree of consolidation in urban form have been controversial from the outset, and are not unique to New Zealand. Readers may recall that the 2006 RMLA conference “Pathways to Sustainability” included a keynote session on this specific topic, with the Melbourne transport planning expert Dr Paul Mees ‘slugging it out’ with the US based proponent of a more laissez faire approach-Wendell Cox.

But to what extent is land supply the cause of any crisis in housing affordability; such that an RMA response of any kind (including “liberalising” our planning laws to release more land) would be the solution?

In terms of the most recent boom in the 2000s, the Productivity Commission Report notes a number of factors that “drove the surge” in New Zealand housing prices including loose monetary policy in the United States along with progressive relaxation of credit standards in originating banks, and resulting in increased credit availability in New Zealand.

On top of these global developments a number of New Zealand specific factors are reported to have increased housing demand including strong natural population growth, real GDP per capita growth, net migration flows, relatively low interest rates, and a trend of “borrowing on the house” releasing equity for further house purchases or development.

While noting that section prices have grown more quickly than house prices over the past 20 years, the report also states that new supply in housing has tended to come in the form of large and relatively expensive houses, rather than being targeted at the “affordable end of the market”, adding to the difficulties faced by those seeking to buy a “starter” home.

This assessment alone suggests to me that there is more to the picture than just land supply. I doubt anyone would disagree. Given that, policy responses applying “corrections” in the form of targeted emphasis on affordable housing and/or within the banking sector directly (Government subsidised rent to buy schemes?) should not be dismissed out of hand. Maybe (perhaps) the Labour Party policy response based on the notion that “our tax system encourages speculation in the property market” has some merit as well.

Looking at the matter in very simplistic terms, and assuming it is the ‘culprit’ for a moment, I think it would be fair to say that since the RMA was enacted, house prices have either trebled or quadrupled if not more. Statistics New Zealand has produced an index suggesting a 3.5 fold increase in house prices between 1992 and 2012. REINZ statistics (available on its website) reveal an increase in the median Auckland house price from $140,000 to $535,000 over that period. This is a (near) four-fold increase.

Looking at Auckland however, its population has not increased between 3 and 4 times between 1992 and 2012. If anything, and so far as I can tell, the size of Auckland has grown during the period. And if my memory serves me well (it was a busy time), resource management practice throughout the boom period of the 2000s was dominated by subdivision and apartment developments.

Land supply and in turn land price cannot therefore have been the only or most dominant factor; so it is certainly questionable whether releasing more land will solve the problem. T he Productivity Commission Report does not suggest otherwise, but recommends a range of solutions, in terms of the multiple factors affecting housing costs; land, construction, labour, capital and regulation. On that basis, is a ‘shot over bows’ of local authorities from the Prime Minister, warning that they must move quickly or face further intervention really fair? Perhaps local authorities might fire a volley in return that Central Government needs to ensure it has addressed the broader landscape of causal issues before levelling blame at them.

In terms of the RMA processes themselves, there has been ‘serial reform’ in recent years, including throughout the period of the most recent housing boom, aimed at “simplifying and streamlining” the Act. This has ranged from relaxation of notification requirements, improved Environment Court practice, provision for direct referral, establishment of the EPA and greater utilisation of Board of Inquiry processes for major infrastructure projects, and now (most recently) the “six month” timeframe initiative included in the current resource management bill. Auckland itself faces a further round of targeted intervention aimed at establishing a “bespoke” process for the Auckland Unitary Plan, in the hope that it can become operative within a three year period from notification.

That same Council has inherited a legacy of earlier intervention including specific legislation actually requiring direct implementation of the intensification/ consolidation approach through the Local Government (Auckland) Amendment Act 2004. This legislation directed the regional policy statement to give effect to the “growth concept” in the Auckland Regional Growth Strategy and whereby approximately 70% of growth would be contained within the existing metropolitan area. Efficiencies in terms of transportation and infrastructure underpin this approach, along with aspirations of minimising effects on regionally significant landscape, heritage and productive soil resources. There seems to be an element of logic in at least some of that.

This 70% aspiration is adopted in the Auckland Plan acknowledging as it does that around 400,000 additional dwellings will be required by 2040, but stating that 60-70% of total new dwellings should be located inside the existing core area (as defined by the 2010 Metropolitan Urban Limit (MUL)).

Of course this very line (and containment approach) has been a battleground within which entire careers have been forged; no doubt many members reading this would have experience in cases testing the containment approach and the merits or otherwise of the policy assumptions underpinning it. It proves to be a hotly contested issue for the forthcoming Auckland Unitary Plan process.

Returning to the Productivity Commission Report, it critiques the “prevailing approach to urban planning” as reducing housing affordability in our faster growing cities. It maintains that the Auckland MUL has created a price differential between land prices (inside to outside) ranging between six and eight times the value, over the 1995 and 2010 period.

The report states that an “immediate release” of land for residential development would ease supply constraints and reduce the pressure on prices. Undoubtedly it would, but as that report itself notes, any initiative aimed at reducing housing costs must factor in the ‘knock on effects’ for other causal factors behind the overall affordability conundrum.

For example, the report also refers to inquiry participants concerns about “costs, duplication, delays and uncertainties” of the RMA process, along with the level of financial and development contributions, as being further factors exacerbating housing supply and affordability constraints.

In terms of that latter issue, those that bemoan the scale of financial and development contributions aimed at ensuring the burden of servicing new development through infrastructure (transportation, water supply, drainage and the like) does not fall on the ratepayer generally, might well be in for a shock at the scale of such contributions calculated on an anything approaching a user pays basis, and as necessary to service development on otherwise undoubtedly cheaper rural land (outside the MUL).

Put more simply, would housing become any more affordable (in net or overall terms) following any “immediate release” of land for residential development outside the MUL in Auckland? Perhaps to the immediate parties concerned, but what about the broader distribution of costs and benefits that would result?

Under the Uptonian vision of course, our beloved RMA was intended to be a statute establishing “bottom lines”- this reflecting at least one view (apparently that of Parliament) as to how the sustainable management purpose in Section 5 was framed and intended, and within which the market would be left to operate. In an urban development context, the bottom line translates to an ‘edge’ and the type of urban containment ‘edge’ or policy approach is not unique to Auckland. It is also not surprising that wherever local authorities attempt to define a bottom line or hard edge to any resource use scenario (rather than applying the more predominant ‘overall judgement” approach), there will be a contest of views and battle lines will be drawn. The Horizons One Plan is another case in point where hard limits on nitrogen leaching rates relative to the land use capability remain controversial.

With Auckland having defined a boundary, edge or bottom line (however one may wish to describe it) (the MUL now adopted in the Auckland Plan), and as instructed by Parliament during a period of rapidly increasing land and house prices, it would seem that for a range of reasons (including as indentified in the Productivity Commission report), the market has not provided the affordable housing people need. This raises the question of course, is the problem with the planning, or what has been happening in the market place, including in the lead up to the GFC, and with the global banking sector clearly at least a significant part of the issue?

It seems most unlikely to me that our planners and policy makers, transportation and infrastructure engineers, and local body politicians have all got it so wrong in the past 15 or more years that the “conventional wisdom” underpinning a containment approach is in fact fundamentally flawed, just as it would be to suggest the market should now be left to determine the location and distribution of future urban development in the result.

I also very seriously question the extent to which another assault on the RMA, its processes, procedures and principles, along with those that administer and apply it, is either warranted or would be productive and helpful.

I can only hope that the new Minister of Housing applies a much broader perspective in tackling housing affordability and confronting the full range of likely causes of the issue. Given his demonstrable capacity to engage with highly complex systems and issues, and yet overcome inertia to make forward progress (as evidenced by his previous term as Environment Minister) I think we can be confident he is well equipped for the task ahead. He is reported as accepting the issue is “Herculean” in scale, but not impossible to resolve. And he will understand how the RMA works, and (I hope) its limits in addressing the overall housing affordability situation.

Personally, I think a case can be made that the Labour Party’s proposed national policy statement idea on affordable housing is relatively clever. A national policy statement requiring local authorities to give emphasis to increasing the supply of land where it will generate affordable housing and in a specific targeted way, may well help local authorities reconcile the many competing imperatives they must grapple with in making decisions of this kind, including to release more land for housing purposes.

There can be no doubt that an NPS of this kind could have an influence on local authority decision making and requests to expand beyond an urban limit, just as the NPS on renewables has weighed in favour of (and including) wind farm applications facing challenge on (say) landscape or amenity grounds.

It certainly seems more targeted at the issue (affordable housing) than a general attack on local authorities or the RMA, including an instruction to free up planning regulations “or else”.

At the ‘bigger picture’ level though, should we not applaud policy approaches that attempt to tackle the many other issues almost certainly influencing the overall housing affordability equation; construction costs, skills shortages, bank lending practices, taxation policy, and even (go figure) “build some houses” to address the supply issue directly?

A novel approach I know (at least so much in recent times), but then maybe we need to move past an assumption that central and local government responsibility is confined to defining the optimal regulatory framework within which the market can most efficiently operate, into another era of more proactive intervention; perhaps even beyond the Uptonian vision toward a more Utopian ideal?

What do you think?

Martin Williams