This is page 2 of a 3-page article based on economist Rodney Dickens’s weekend report, The Government should do the obvious to fix housing affordability.
In this section, I’ve raised other factors that need to be considered.
Things in the wider picture to keep in mind:
- Keep in mind that a syndrome featuring in the Auckland & New Zealand pictures also happens to have featured worldwide: Housing prices have been escalating in many countries, not just New Zealand, which ought to raise the suspicion that there’s at least one element of common cause.
The common features internationally:
- Unheard-of low interest rates, which lift asset values
- Rising US public debt, now truly out of control, an influence on values exported worldwide because of the reserve status of the $US
- Sharp & prolonged increases in immigration.
Near-term international influences which will make it harder to bring specific economic policies of countries & for sectors such as housing under control:
- The US desire for control, seen at the moment through President Donald Trump’s trade war with China, pressure on Iran & increase in military spending
- Likely for/against positioning regarding the South China Sea, Pacific islands (including New Zealand) support, various treaties & international agreements (particularly those involving Asia), ad African development
Those might seem like far distant influences with little likelihood of interfering in domestic issues down here, but look at them this way: When, as a country, you’re forced to take sides (and this will happen all too soon), your trade routes & relations can be seriously upset.
There’s also one issue peculiar to Australia & New Zealand, and another which both countries can start to rectify:
- The peculiar local issue concerns the flow of migrants across the Tasman Sea, thataway when times are tougher here & expanding there, the reverse when jobs are harder to find in Australia and Kiwis come home.
New Zealand came out of the global financial crisis of 2007-12 (the years of greatest impact here) very well, courtesy of a leap in immigration. Australia has encouraged even more immigration than our previous government did, though as a lower percentage of total population, but other factors have reduced the boost there. The most notable factor is the price of mined commodities, combined with some uncertainty in the biggest market, China.
Reduced immigration by both countries would at least stabilise the pressure on housing, but would also reduce economic growth.
Auckland’s 2 key issues: land availability & price
The 2 key issues for housing in Auckland are land availability & land price. Less of an issue (although they’re still big) are construction costs & regulation. Infrastructure funding is also less of an issue than the certainty of providing it quickly in the right place.
Housing & Urban Development Minister Phil Twyford addressed infrastructure funding this week in a way which looks positive, but in reality shifts the cost burden from today’s buyer down the track as a fixed-in-place (& spreading everywhere in short time if it’s accepted) cost for all homeowners.
Why do I regard it as a “targeted” cost for all homeowners? Targeted rates have spread from a city-centre rate to local rates for services such as sewerage to a fuel tax. Development contributions paid (and factored into land pricing) by developers to local councils were seen as a short-term solution to infrastructure expense and will remain in place, but are increasing in Auckland. The new targeted rate will be an extra.
The division of rates into general & specific is turning up more specifics. At the moment, buyers in new subdivisions pay development contributions, and you will see that kind of cost spread to specific charging for replacing infrastructure in older suburbs.
In the short term, the Government’s infrastructure funding support measure, via Government-sourced loans (as a long-term depository for Accident Compensation Corp income) plus targeted rates on specified homeowners, gives more certainty to the supply of utility networks & roading. It will spread infrastructure costs from immediate into years hence – an addition to the mortgage.
Is the rural:urban boundary the real bogey?
There has been a campaign for several years for Auckland Council (& the regional council & regional growth forum before it) to abandon set rural:urban boundaries (the RUB) to free more land for subdivision and, through competitive pricing, thereby reducing land costs.
Through all that campaign, nobody has ever said how that open-slather approach would be applied. In particular, how infrastructure would be provided.
One method could be to impose regulations on urban-fringe land sales to control prices of sale & onsale – authoritarian, roughly applying the model brought in by National Prime Minister Rob Muldoon in 1982 to freeze wages, prices, interest rates & dividends, which lasted until he lost office to Labour in 1984.
Lifting of that freeze had the most telling impact on interest rates – first mortgage rates flew quickly as high as 30% – but also loosened the reins on mortgage lending.
Unitary plan changed the equation
Auckland Council’s unitary plan, mostly operative since October 2016, has done 2 things to encourage new housing. One is to make zoning through much of suburbia less restrictive, opening the way to more brownfields development through many existing suburbs, resulting in a wider spread of intensification.
The other is to ensure a supply of potential greenfield residential land is made available through rezoning, starting as land zoned initially as future urban, mainly on the fringes, and progressing to long-term zonings.
Despite the aim of the National-led Government’s special housing areas legislation to free more land for housing – pretty much anywhere – somebody had to supply infrastructure, and that was in the hands of the council, which was approaching debt ratio limits.
Through last week’s 3-way government-council-developer infrastructure funding agreement for the Wainui area west of the Hibiscus Coast in Auckland’s north-east, Government loan support in September for Auckland Council via the Housing Infrastructure Fund to get further development underway at Redhills & Whenuapai in the north-west, and the legislation to establish a national urban development authority (that’s been sitting on the rack since National introduced it in early 2017), funding uncertainty appears resolved.
Attribution: Rodney Dickens.