Anyone hoping for an end to the country’s housing affordability crisis should despair. Or at least they should if they live in New Zealand’s largest city.
The villain in this instance is not the Resource Management Act. Nor is it Environment Minister David Parker's misconceived RMA replacement.
The current problem is Auckland Council itself.
On 4 May, the Council – the new Mayor included – voted to approve a draft “Future Development Plan” for consultation.
The Plan looks good. All 122 pages of it. It has lots of colour illustrations of new developments, houses, roads and parks. It covers emissions reductions and climate change adaptation. It honours the Treaty and critiques the city’s neo-colonial past. And it starts with a mihi which concludes optimistically, “Auckland let your spirit soar.”
Unfortunately, the only thing that will soar under the Plan is house prices. It will sink the spirit of aspiring Auckland homeowners and those looking for affordable rentals.
The problem with the Plan stems from its positive-sounding “Principles for growth and change.” The principles are five-fold. First, supporting greenhouse gas reduction. Second, adapting to the impacts of climate change. Third, making efficient and equitable infrastructure investments. Fourth, protecting and restoring the natural environment. And bringing up the rear, enabling sufficient capacity for growth “in the right place at the right time.”
There is a lot wrong with these principles – starting with the first. With a nation-wide emissions trading scheme that covers both transport and building, there is nothing Auckland Council can do to reduce New Zealand’s net emissions. The ETS cap will determine these. Indeed, if Mayor Wayne Brown is looking for savings to ease the burden on the super city’s ratepayers, he should start by looking at the Council’s pointless emissions spending plans.
But the big problem with the Council’s Plan is the fifth principle and its Orwellian-sounding provision for growth “in the right place, at the right time.” If that feels like a know-it-all Big Brother dictating Auckland's pace of growth, that's because it is.
The Council’s planners propose a future growth strategy that will set even tighter restrictions on growth on the city’s fringes. The Plan expressly states, “There will be less reliance on expansion into future urban areas, and what growth there is will be phased over a longer timeframe.”
This is the opposite approach to what is needed to ease Auckland’s housing affordability crisis.
Land for urban development at the city’s fringes is already in scarce supply. So much so that, after accounting for land conversion costs, a square metre of land inside Auckland’s rural-urban boundary is worth $1,300 more than land just outside the boundary. That equates to a gargantuan differential of $650,00 for a 500-square-metre section.
Aucklanders will never have affordable housing if the cost of land on the city’s fringes is artificially inflated by planning restrictions. That is because the scarcity of rural land for housing does not simply affect the cost of housing on the city’s fringes.
While the price of land is typically higher close to a city’s CBD than at its periphery, the price of sections at the fringes constrains property prices across the city. And not just for free-standing dwellings. A 2021 study by The Treasury shows that restrictions on building at a city’s fringes make apartments and townhouses in less affordable too.
Consequently, Auckland Council’s proposals to constrain urban growth will prop up property prices city-wide.
Auckland’s housing affordability is amongst the worst in the world. Most international measures suggest housing is affordable when the median house price is about three times the median household income. In Auckland, that multiple is now close to ten – with median house prices of about a million dollars and median household incomes of around $100,000. It is cold comfort that the recent house price slump means the multiple is down from over 11. In 2010, it was only a little over six.
The high cost of housing is one of our country’s worst problems. It is a major contributor to poverty. It accentuates the cost-of-living crisis. It acts as a handbrake on labour mobility, locking workers out of comparatively high-income urban areas. It contributes to shortages of teachers and nurses, who often cannot afford to live near the schools and hospitals that need them. And it fuels an inter-generational divide.
Against this background, Auckland Council’s Plan is unquestionably the wrong one for the city to adopt. The Council should be cutting the rural-urban boundary, not reinforcing it. And it should be flooding the periphery of the city with infrastructure for housing.
Yet, for all this, Auckland Council faces strong incentives to constrain the city’s outward growth.
Infrastructure for new housing is expensive, and the city is cash-strapped.
Indeed, the Council faces a well-publicised funding hole in budgeted expenditure for the year ahead. It is up against its borrowing limits. And it faces pressure from ratepayers squeezed by the cost-of-living crisis to contain rates increases. Little wonder Council does not want to see the city spread. Instead, the Plan proposes greater housing intensification.
Unfortunately, intensification alone won’t solve the housing affordability problem. Nor, indeed, will it relieve the Council from upgrading the city’s infrastructure to accommodate population growth. Recent weather events have cruelly exposed the extent to which Auckland’s infrastructure is already creaking under the weight of a growing population. Substituting expensive infill housing and apartments for growth at the city’s fringes only puts off until tomorrow the infrastructure needs of today. Auckland needs to be able to grow up and out.
Fortunately, there are solutions to the city’s malaise. But they require action from central government. As the New Zealand Initiative’s research has shown, the key to solving the housing affordability crisis is to solve councils’ infrastructure funding difficulties. Returning the GST on every new house built to councils would be one way of incentivising councils to facilitate growth. Legislating for new funding tools like long-term infrastructure bonds, backed by specified revenue streams and without recourse to councils’ main balance sheets, is another.
Solutions like these are urgent. In the meantime, Auckland Council must reverse its draft plans.
Fortunately, the Council vote earlier this month was not a final approval. It simply sets in motion a consultation process on the new Plan. We can only hope submitters will help the Council come to its senses.