Getting to the guts of the housing crisis

Roger Partridge
The National Business Review
27 January, 2017

Running away from a problem will rarely solve it. No matter how fast you run, sooner or later the problem will catch up with you. And the chances are, the longer you take to face up to it, the harder it will be to solve.

Nothing bears this out better than the government’s response to the Auckland housing crisis. The cost of housing in New Zealand’s largest city was a problem John Key inherited when he became prime minister. After failing for nearly a decade to front up to its causes, the problem has now become acute. House prices have gone through the roof.

Back in 2008, Auckland ranked 31st in Demographia’s International Housing Affordability Survey of the world’s least affordable housing markets. That was bad enough. But in the latest survey, released on Monday, Auckland now has the fourth least-affordable housing market in the world, up one place since 2016. With Auckland’s median house price at near $1 million, prices are now 10 times the median household income.

When he took office Mr Key described Auckland’s house prices as a crisis. If anyone doubted this then, no one does now. Skyrocketing house prices lock a younger generation out of the housing market. With housing costs rising faster than wages, they also contribute to overcrowding and poverty.

At the same time, inflated prices create financial risks for buyers who can afford to enter the market, and threaten the stability of both the banking sector and the wider economy. The result is a toxic mix of deprivation and risk.

ACT's solution
In his state of the nation speech on Monday, ACT Party leader David Seymour challenged the government to stop tinkering with the housing market and face up to the real problem: the stranglehold the Resource Management Act has on our cities.

He also called for a sharing of government revenues with councils if they enable growth, and for the introduction of infrastructure bonds, supported by targeted rates, to fund the infrastructure needed to promote development.

If Mr Seymour’s proposals sound compelling, it is because they are. As The New Zealand Initiative has long argued, the RMA is choking our cities. And the arrangements between central and local government do not incentivise councils to do anything about it. Indeed, they do the reverse.

As Mr Seymour acknowledged in his speech, the Initiative’s research demonstrates it does not have to be this way. Drawing on policies that have worked in Switzerland and Germany, our 2013 report, Free to Build: Restoring New Zealand’s Housing Affordability, described how revenue sharing arrangements can incentivise local councils to facilitate development.

Our expertise on how to fix a broken housing market was acknowledged by Demographia itself when it asked our executive director, Oliver Hartwich, to write the introduction to this year’s international survey.

Others too are heeding our calls for reform, and they span the political divide. For more than a year, Labour’s Phil Twyford has been a vocal advocate both for RMA reform and for infrastructure bonds to support growth. Indeed, he and Dr Hartwich wrote jointly on the need for planning reform in late 2015.

The way forward
The new prime minister, Bill English, when minister of finance, also acknowledged that the planning pendulum may have swung too far. By asking the Productivity Commission to investigate and report into urban planning, he has surely set in train a process for meaningful reform.

Over the better part of three terms, the Key-led coalition government did many things well: fiscal discipline, its investment approach to social services, and labour market reform among them. But its response to the housing crisis was poor.

The Special Housing Accords and Special Housing Areas policy has been ineffectual. So, too, have successive rounds of tinkering with the RMA. Other policies, like the HomeStart grant operate on the wrong side of the market.

The problem is with supply, not with demand, and there is no sense kick-starting low income-earners into new homes at increasingly inflated prices. And while the Social Housing Programme will help some of our most vulnerable families, it cannot hope to solve the problem on its own.

Mr Seymour suggests the Key government has failed to solve the housing crisis because it is to National’s advantage electorally to let housing prices continue to rise. Whether or not that is true, we can only hope that the English-led government will do better.

Echoing Mr Key in opposition, the ACT leader called on the government to “get some guts” over housing. After eight years as Mr Key’s faithful servant, this year we will find out whether the patient English has the stomach for serious housing reform. We should wish him well.

Roger Partridge is chairman of The New Zealand Initiative


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