Opinion: Planning rules the cause of housing crisis

Dr Oliver Hartwich
Phil Twyford
The New Zealand Herald
29 November, 2015

There is a great deal of debate on the causes and solutions of the housing crisis but little disagreement that the problems we face are enormous:

  • The number of new homes consented dropped from a record 39,800 in 1973 to a little over 24,700 last year. Over the same period, New Zealand's population grew by 50 per cent.
  • Expressed differently, the 1960s and 1970s often saw between 8 and 13 residential buildings consented per 1000 population. Since the beginning of the century, the average rate has been a meagre 5.3.
  • This undersupply of housing is most extreme in Auckland, where house prices now increase at an annual rate of more than 25 per cent.
  • House prices are now equal to 9 times household incomes, making Auckland "severely unaffordable" in Demographia's International Housing Affordability Survey. Three is considered the benchmark for affordability.

A big part of the problem in Auckland is escalating land costs. Linked to this, too few houses are being built. The houses that are being built are too expensive.

To quote Bill English: "It costs too much and takes too long to build a house in New Zealand. Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand."
We agree with the Minister.

Our own research leaves no doubt that planning rules are a root cause of the housing crisis, particularly in Auckland but not only there.

The situation is made worse by the way new infrastructure is financed. Councils, which regularly cop a lot of the blame, are operating under planning and finance rules that are simply not conducive to residential development. They have no financial incentive to promote it - quite the reverse is true.

We believe this view is more widely shared across the political spectrum than first meets the eye. But although politicians have been blaming planning rules for the high cost of housing for a decade now we are still waiting for genuine policy changes that are needed to restore New Zealand's housing affordability.

Because this is a national housing crisis that has grown over decades and under governments of different hues, playing political blame games is pointless. You cannot solve problems in retrospect. We need to face the facts and work together for real reform.

We believe any attempts to reform the Resource Management Act (RMA) must protect the act's environmental principles.

However, this should not stop us from changing the way councils regulate residential development under the RMA.

In our view, there are three issues to be addressed.

First, urban growth boundaries driving up section costs. Second, anti-density restrictions stopping affordable housing. Third, the expensive and inefficient way we fund infrastructure.

Let's go through these one by one.

When you consider that land inside Auckland's urban boundary now costs around 10 times more than land outside, it is hard to dispute that the city's urban growth boundary has driven up land prices.

In essence, the boundary around the city has created an artificial scarcity of land. It is an open invitation to land bankers to speculate on rising prices.

It is also discouraging developers from building affordable homes. It makes no business sense to build affordable homes on expensive land.

And while Auckland cannot grow out, it is also prevented from growing up or growing denser.

Restrictions on density and height are yet another way to choke off the supply of affordable housing.

More density allows you to build more affordable homes in places people want to live.

Allowing smaller plots of land and consequently more people per hectare helps. It is not a prescription for entire cities, but markets should be allowed to provide different kinds of housing for which there is demand.

Some people are fearful density means the kinds of high rise slums you see in Hobson St.

It need not be this way. There are plenty of examples of density done well, you only need to look at the buildings designed by Mark Todd's Ockham Residential.

The trick is to require good urban design and plenty of open space. Even three- to four-storey buildings can provide higher density. There is no need to go high rise.

The final problem that needs to be addressed is the way we fund infrastructure. It is expensive and inefficient, adding huge dollars to the cost of new housing.

Currently the cost of drainage, roads and power in a new subdivision are financed by the developer. Likewise, the developer pays a portion of the cost of connecting the new development to roading, water and power networks via development contributions levied by the council.

Even though developers nominally pay for all these costs, they are immediately passed on to the new home-buyer.

This front-loads tens of thousands of dollars onto the price tag of new homes and means that long-term infrastructure is effectively paid off via their mortgages.

We propose three modest ideas:

  • Instead of using urban growth boundaries, empower communities to protect places that are of special character and value to them.
  • Free up density and height controls and rely more on high urban design standards including requirements for open and green space, to allow more affordable housing in the city. Let the market discover where and how people want to live.
  • Take developers out of the business of financing new infrastructure. Instead, spread the cost over the assets' lifetime, either by issuing local government bonds or establishing Community Development Districts.

Rising house prices are making us poorer as a nation. They force people to spend an ever larger proportion of their incomes on housing, and it ties up vast amounts of the nation's wealth in housing instead of investing it in businesses that create jobs and exports.

It is a risk to financial stability, and a driver of growing economic and social inequality.

We hope our three proposals will find widespread support.

It is an issue of national importance and concerns all of us - all councils and political parties, developers and the wider business community - and of course the people of this country who would benefit the most from restored housing affordability.

The time for reform is now.

* Phil Twyford is the MP for Te Atatu and Labour's Housing Spokesperson. Oliver Hartwich is the executive director of The New Zealand Initiative.

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