Auckland in desperate need of housing leadership
7 May, 2016

Replace the word London for Auckland and you could be forgiven for thinking that The Economist was writing a lament about housing affordability in New Zealand’s biggest city.

In an article titled “Little London”, the magazine notes that soaring property prices are dragging on the city’s economy. That is because while the city’s population has grown by about 100,000 people a year, while only 27,000 new houses are consented annually to accommodate these new arrivals.

This disparity between demand and supply means that prices must rise. The article notes that the median price of a house in London has tripled over the last 20 years. That has spilled over into the labour market, where firms struggle to attract and retain young talent. Indeed, London-based firms also pay twice as much for equivalent commercial space as their counterparts in New York.

The parallels between the affordability problem in London and Auckland are striking. So too with the root cause: land use regulation. In London, draconian rules are stymieing the supply of housing in the city, and urban growth boundaries in the form of greenbelts are stopping it from spreading outward. In Auckland, existing property owners have successfully lobbied politicians to back away from attempts to lift height limits in the inner city suburbs. Furthermore, planning and balance sheet constraints also prevent fast growing cities like Auckland from expanding outwards.

The long-standing view of the Initiative is that cities need to cut through the regulations that prevent them from growing up or out, a policy cure shared by The Economist.** Both cities desperately need strong political leadership with a firm grasp on the economics of housing affordability if either is to have a hope of cooling their white-hot property markets.

For Londoners, who went to the polls on May 5 while this article was being drafted to choose a mayoral replacement for Boris Johnson, the prospects do not look good. Labour-backed candidate Sadiq Khan has proposed tightening existing rent controls. On the right, Zac Goldsmith is no better, proposing that firms lend money to workers for rental deposits.

Both of these policies are deeply flawed. The economic literature on rent controls shows that they tend to exacerbate housing affordability problems, not cure them. And that is not the worst of it. Allowing people to borrow more money to get into the rental market will not resolve the housing shortage in London, to say nothing of the risk it shifts to employers. It does not look good

Fortunately for Aucklanders, there is still some time before the local government elections (October). The three right-of- centre candidates and one-left- of-centre candidate are for the most part still working on the specifics of their respective policies. Hopefully, measures to address the housing crisis will rank among their top priorities.

For those voters concerned about housing affordability, it is important that they assess the candidates (and their policies) on two criteria. The first is whether they credibly plan to lift the supply of land and housing stock in Auckland – the only practicable means of improving housing affordability.

Of course Auckland Council is only responsible for a limited (but important) range of factors which influence the property market. Central government regulation, building industry capability, Nimbyism, ideology, and a generational wealth divide are all factors that make housing affordability one of the most complicated political issues of our time.

That brings us to the second criterion: do the plans recognise this complexity, and the roles that respective parties play when it comes to residential housing? 

As a non-partisan think tank, the Initiative does not have a preferred mayoral candidate. But as the contenders for the Auckland mayoralty unveil their plans to make housing more affordable, it is through the lens of these two criteria that we will be assessing their policies. We, as a nation, need to separate the wheat from the chaff when it comes to housing solutions, as the costs of weak leadership will be too high to bear.

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