Don lays out why housing has become so expensive in New Zealand - and how we can redress this.
Few things run as deep in our culture as the dream of home ownership. Our country used to allow more people to live that dream than almost any other, but our Kiwi dream is under threat. It seems unlikely that ACT Auckland Central Candidate David Seymour’s generation will find home ownership anywhere near as accessible as mine did, and as my adult children did.
Auckland Mayor Len Brown’s Auckland Plan looks to fit another million people into Auckland, three-quarters of them in the current urban footprint. It looks increasingly likely that they will be forced to live in high density housing, tower blocks and multi-family dwellings quite unlike what we are today.
However, we should not lay all the blame on Len Brown. As a nation, we now have the second most unaffordable housing in the English-speaking world. According to the respected Demographia International Housing Affordability Survey, housing is more affordable, relative to income, in the United States, the United Kingdom, Ireland, and Canada. The only English-speaking country where housing is less affordable than ours is Australia.
For most of our post-war history, houses have typically cost three years’ income. Since the early 1990s, prices have shot through the ceiling and affordability through the floor. Today in Auckland the median house costs 6.4 times the median household income.
As a result, the home ownership rate is falling fast. In 1936, only half of us lived in a home we owned. By 1986, it was up to three quarters. In every census since then, the home ownership rate has fallen. It was down to two thirds in the 2006 census. The tragedy in Christchurch has denied us a census this year, but there is little reason to think that home ownership rates will have stopped falling, let alone improved.
Some would say that it doesn’t matter. That dense urban living is superior to the traditional Kiwi dream anyway, and that we would be better off seeking to turn Auckland into an antipodean version of Amsterdam or Paris.
This alternative dream appeals to a lot of people, including me. I’ve lived in an apartment on Princes Wharf, and I currently live in another apartment on the corner of Khyber Pass Road and Symonds Street.
But, to paraphrase Voltaire, whether or not I like the housing that other people build, I will defend to the death their right to build it.
Younger people do want the Kiwi dream. Earlier this year, a United Nations survey of 8,000 18-35 year olds in 20 countries found that young New Zealanders’ greatest fear is being trapped into apartment living.
But there are more important reasons to make housing more accessible to the next generation. One is equality of opportunity. A lack of buildable land, and therefore affordable housing, creates a society of haves and have-nots. The haves are those who can afford housing, or whose parents can afford to help them into the housing market.
The have-nots are those who will never achieve the Kiwi dream. Those people will find themselves disenfranchised from our society. They will feel that New Zealand society does not include them. Urban geographer Joel Kotkin has called this exclusion-by-urban-planning ‘neo-feudalism’.
For those who want an inclusive and equitable society, housing affordability should be a top priority. It certainly is for me.
Another negative effect of unaffordable housing is the impact on our national competitiveness. As one economist, Rodney Dickens, has asked: ‘How can a small, export orientated country facing huge disadvantages because it is half a world away from some of its major markets be competitive when housing costs 30-43 per cent more than in the U.S.?’
The practice of bidding against each other to secure an artificially limited number of houses means that we must borrow, often overseas, and pay interest to the very economies with whom we’re competing as exporters.
The availability of housing also affects immigration flows. Many New Zealanders and their ancestors came here precisely because they wanted the dream of affordable land. The entire opening up of the new world for our cousins in Canada, the United States, and Australia was similarly motivated.
American urban geographer Wendell Cox has reported that over the past decade severely unaffordable housing markets lost 3.2 million people through internal migration to more affordable markets.
It may well be that opening the tap on the supply of buildable land would offset some of the other disadvantages New Zealand has vis-Ã -vis Australia in terms of income per head, and help to stem the flow of people across the Tasman.
The question we need to ask is why? Why has the dream of home ownership become so far beyond the reach of so many Kiwis? Let me deal to a few of the red herring excuses that have been popular in the media and amongst our political opponents.
Labour and the Greens will tell you that we have a housing bubble because there is no tax on capital gains in New Zealand. But even a cursory look around the world shows that they are plain wrong. Australia has worse affordability than we do, and they have a capital gains tax. The United States and Canada both have nation-wide capital gains taxes, yet have also had some of the most pernicious housing bubbles, especially in urban housing markets where the availability of land has been tightly constrained.
Some say that it’s the rising cost of building houses and infrastructure. One only has to ask the obvious question: have the last 20 years of technological advances made it harder or easier to build infrastructure and housing? It should be clear that there is no good reason for the price of infrastructure and housing to be higher than it was when home ownership was at its peak.
Others say that a new generation simply is not interested in home ownership, even as those who do achieve it pay higher prices than ever.
Still others will say that the state has abandoned the housing business, and that the solution is for the government to build more houses. There may well be a role for the state to assist low income New Zealanders into housing. But when affordability is at an all-time low across the entire economy, it is not obvious why government should be able to build housing any more cheaply than the private sector can.
Still others will tell you that there is a general shortage of land in New Zealand. In one of the most sparsely populated countries in the world, where less than one per cent of our land mass is urbanised, and when Auckland is the second most densely populated city in Australasia, behind Sydney, this is the most preposterous explanation of all.
The real problem can clearly be seen in the numbers, and it’s the shortage of buildable land. Since 1992, the price of sections has nearly tripled. Even since 1999, the median price of a section in New Zealand has risen by 120 per cent. The price of construction has risen by only 60 per cent over the same period.
New Zealand does not have a shortage of land, only of land that urban planners will let you build on. It is they who are threatening to take the Kiwi dream away from a generation. If you doubt that you need only look at the old Metropolitan Urban Limit which surrounded Auckland. This was a boundary around Auckland that effectively said to urban New Zealanders, the land outside this boundary is not your land. You may not build residential properties outside it.
The totally predictable result was a shortage of buildable land. According to a report by respected economist and Reserve Bank chairman Arthur Grimes, the scarce land just inside the MUL cost eight to thirteen times more than the land just outside. There is no shortage of land, just land you’re allowed to build on.
Of course, Len Brown’s draft Auckland plan has changed the name of the Metropolitan Urban Limit to the Rural Urban Boundary, but the result will be the same. It will be the end of the Kiwi dream for tens of thousands of young New Zealanders as they are thrust into tower blocks downtown in order to satisfy the planners’ dream.
What’s more, it’s not clear that long term comprehensive land use planning will actually deliver the kind of romantic European urban environment that its proponents promise.
It’s worth noting that the kind of urban environments we most cherish, the Mt Eden Villages, the Parnells, and the Ponsonbys of this city, all evolved naturally and organically before comprehensive long-term urban planning as we know it today evolved. It seems that our planners are forever seeking to create what has otherwise emerged without them.
Urban plans can only change the shape of cities by saying no, by stopping people from building what they would have built otherwise. As such, their net result can only be to reduce the supply of housing, and perhaps prevent the urban forms that future generations would romanticise from ever emerging.
ACT says this is wrong.
We should acknowledge that land use planning and city infrastructure are the territory of local councils. However, it’s also true that local councils exist because of central government laws and carry out their business according to those laws. There is much that central government can do to improve New Zealanders’ access to buildable land and therefore affordable housing.
Last week I gave a speech on the RMA. I said that our priority would be for faster and deeper RMA reform over the coming years.
I said, specifically, that we would look to separate the planning activities of councils from the consenting activities, as letting those who make the rules interpret and enforce them is a recipe for the abuse of power.
We would cap the fees that councils can charge for consents, reducing the revenue for vexatious interference in how people use and develop their land.
We would widen the scope for the Environment Court to award costs against councils and other objectors to resource consents when their objections were not sustained by the Court..
We would increase the right to compensation for those whose land values are reduced by council planning decisions.
We would pare the Resource Management Act back to its original intention of assessing environmental impacts on the air, soil and water, rather than being a tool for councils and other objectors to development to impose their aesthetic preferences on other peoples’ property.
No doubt RMA reform would go a long way towards removing restrictions on the supply of buildable land, and make it possible for the next generation to live the Kiwi dream.
In addition to that, we are committed to supporting the Productivity Commission. Established at the behest of ACT in the current parliamentary term, the Productivity Commission has made housing affordability its first area of enquiry.
ACT will support the Productivity Commission to continue its work, and provide a framework to go forward in making housing affordability a reality for another generation of New Zealanders.
Ladies and Gentlemen, home ownership is the Kiwi dream, but we are fast losing it. If we are to get it back, then we must understand why we are losing it, and seek to get it back. If we don’t, then our future as a socially inclusive, economically productive society is at stake.
A Party Vote for ACT at the next election is a party vote for the next generation to achieve the Kiwi dream.
Copyright © 2020 Don Brash.