Auckland house prices again

elocal Magazine, ed. 176. 30 October 2015

Six months ago, I wrote my first article for elocal.  I wrote about the ridiculous prices which people were having to pay to buy tiny homes miles from the city centre, and argued that most people who had a strong view on the issue were wrong about the causes of this situation. 

Those on the political right often thought that today’s young home buyers were simply unrealistic in their expectations, recalling how they had had to “start off small”.  But they were wrong because house prices have not only gone up hugely in nominal terms over the last few decades, they have also gone up enormously relative to incomes.  Today’s home buyers face vastly more difficult challenges than those faced by their parents, with median house prices rising from something like three times median household income to eight or nine times median household income. 

Those on the political left blamed the problem of unaffordable housing on the “free market”, ignoring the fact that umpteen observers, including the Productivity Commission, have concluded after careful study that the main cause of severely unaffordable housing in Auckland has been the strangulation of land supply by successive Auckland local governments – initially the Auckland Regional Council and now the Auckland Council.

Since that first article, the problem has got worse, with continuing escalation of house prices, or more accurately the price of land on which houses sit.

It is possible that recent central government policy measures will help the situation.  The Reserve Bank has demanded that banks require a larger deposit when lending to those who are investing in housing in Auckland, and the Government has introduced new measures which may also dampen the enthusiasm of those investing in housing.  We won’t know for a few months whether these measures will have any enduring effect on the demand side of the equation.

But the efforts of the Auckland Council to free up the supply side of the equation have so far been pathetic.  In the October issue of “Our Auckland”, the ratepayer-funded puff piece of self-justification published by the Auckland Council, the front cover has an illustration of rising house prices with a reference to low interest rates, population growth and Auckland’s strong economy – no mention at all of the Council’s own role in restricting land supply.

The accompanying article refers to how the Council developed a so-called Housing Action Plan in 2012 which is now, three years later, “nearly complete”.  That plan has apparently “enabled an [unspecified] number of affordable homes to be built within special housing areas (SHAs) and under the Auckland Unitary Plan; a requirement in the Unitary Plan and SHAs for new homes to meet a minimum 6-star rating from the New Zealand Green Building Council or similar [though why that should ease the constraint on housing supply is entirely unclear]; the move of some Pasifika financial literacy graduates into new homes in Waimahia [and how does that improve housing affordability?]; and funding of around $500,000 for papakainga housing (housing for and by iwi) in the 2014-15 financial year and another $13.4 million in the 2015-2025 Long-term Plan for papakainga and marae.”   Big deal!

The article boasts that “our fast-track process [for resource consents] means that 15 per cent of all resource consents are processed within 10 working days” – which of course means that 85 per cent of applications are taking in excess of 10 working days – and this not for complicated multi-storey office blocks or convention centres but for plain vanilla houses!  Why in heaven’s name should it take more than 10 working days – indeed, why should it take even one working day – to approve an application to build a house in an area already zoned for residential development?

The article goes on to boast that, under the terms of an agreement with the Government in 2013, the aim is to consent 39,000 new homes and sections in three years, or 13,000 a year.  Given that in the two years to September 2013, by the Council’s own figures, consents averaged just over 12,500 per annum, that doesn’t look like a terribly ambitious target!

Part of the problem of course is that Council staff are often having to apply a host of ridiculous rules – what Paula Bennett rightly calls loopy rules.  An affluent friend of mine owned a home bordering on Lake Pupuke in Takapuna.  Despite the family having very young children, they were not allowed to erect a fence between their lawn and the lake to keep their children safe.  But they were required by another by-law to fence their swimming pool.  

My family trust owns a small kiwifruit orchard near Pukekohe, and there is a small house on it.  I decided to replace a rather old wood-burner with a modern clean-burning wood-burner but was told I couldn’t do that without the permission of the Auckland Council.  The Council required me to produce a detailed plan of the whole house before they would give that approval, and that despite the fact that I was simply replacing an old wood-burner with a more modern one.   I had no plans for the house – I suspect that there were none in existence, since the house was built around 1900 – and the old smoky wood-burner would still be in place had not the vendor of the new unit been willing to sketch plans of the house for the benefit of the bureaucrats in the Council.

A few weeks ago, Ngapuhi leader David Rankin announced his intention to stand for the Auckland Council and stated that one of his key policies was to “extend the urban limits of the city to allow the supply of more land for housing.  The aim will be for a radical drop in land prices due to a huge supply of residential-zoned land”.   At time of writing, I have never met David Rankin to the best of my recollection, but with that policy he would certainly have my vote!

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