National is stuck in the bad old days with its obsession with land supply. Auckland now needs something more, and here's what

National has finally published it's National Policy Statement (NPS) to try to slow down Auckland's charge-ahead property market. But NPS may as well stand for No Plan Sorry, because it's an admission of failure; proof it's living in the past.

The government is now requiring councils in fast-growing regions to open up land to match population growth. If the councils don't open the land – in the hope of keeping prices flatter – they can be taken to court. The main target of this policy is Auckland.

Problem is, Auckland Council is already opening up land at a rate of knots, and with the government's help. Problem is, that's the same goal the government's Special Housing Areas hand – 'release the land'. As of April this year and tranche 10, 56,000 sections are being made available for houses. Problem is, Auckland's problem is no longer a lack of land, it's a lack of infrastructure and houses.

The focus now has to be on who pays for the road, parks and sewers... and ultimately the houses themselves... if you want that land to start sprouting homes. Otherwise we're going nowhere. 

National is blowing the message. Instead of saying 'we've fixed the land supply problem, it's time to now turn to housing supply', It's repeating its five year-old mantra about land supply and reinforcing the impression of failure.

National seems to be stuck in its 2012 mantra "release the land... release the land".  

But the problem has moved past National's limited array of solutions. While Nick Smith keeps saying he's "pulling every lever" and there's "no silver bullet", he's ignoring the obvious options for what can only presumed to be political reasons.

It seems that the government 's willing to wear the stench of failure around its housing policies to keep the 64 percent of New Zealanders who own their own home happy and feeling wealthy. Because it's willfully ignoring the obvious.

More than that, it's opening the door to loan-to-income ratios that are guaranteed to hurt first-home buyers. And of course every time they muse on the plan, they encourage those first-home buyers to add another 20 grand to their next bid.

All the while National is ignoring what could make a difference. First, change negative gearing. You could remove the whole thing or just remove the ability to, essentially, claim your mortgage as a tax loss. 

Second, put some limits of what banks can lend. No, not income limits. But rather limits on those buying second, third or more homes. We want more money invested in the productive sector, but banks are increasing their mortgage holdings instead.

Third, rather than opening up land and insisting a housing market with the median house price running at ten times the median income is not broken, it could build houses itself. National can't cross the ideological line, but more than just releasing land and sending passive aggressive policy statements, it could guarantee a pipeline of affordable houses to builders. That is, create a National version of Labour's KiwiBuild.

Oh, and there is a fourth: Council bonds. But that's for another post.

I guess John Key has that up his sleeve for Budget 2017, should the market continue to steam ahead.

And one other thing the government could have done... I wonder if National should have swallowed the dead rat and accepted Labour's offer for limited RMA reform a year or two back.

Now, all we have is an NPS that doubles down on an solving a problem that's living in the past.  

Comments (26)

by Antoine on June 04, 2016
Antoine

Before you jump to solutions, how about understanding the actual problem?

If not enough dwellings are being built in Auckland, then why not?

Is it:

- not enough land?

- difficulties getting planning permission?

- not enough tradies?

- not enough horizontal infrastructure?

- developers playing some kind of hold out game?

- something else?

Hoping for an answer based on actual information rather than a desire to score political points off the (local or national) Govt

A.

by Antoine on June 04, 2016
Antoine

PS I'm pretty sure your proposed tax and lending changes would have massive adverse unintended consequences

A.

by mikesh on June 04, 2016
mikesh

David Seymour, on TV3's "The Nation" a couple of weeks ago, pointed out that no-one will build a $100,000 house on an $800,000 piece of land. So expensive land attracts expensive houses, which puts those properties out of the reach of poor to middle income would-be home owners. It would be better to mandate higher density housing on expensive land so that the land cost could be spread over many households.

by Grant Henderson on June 04, 2016
Grant Henderson

Seems the Natz want to throw the town planning rule book out the window and have more houses no matter what. Hence the "big stick" waved by government at cojuncils. This is classic policy-making on the hoof, indicative of a panicked administration bereft of sound ideas. 

But short term solutions bring long term problems.  Expanding city boundaries for purely political reasons means we will eventually have one massive uber-city stretching from Whangarei to Hamilton, with South Auckland's valuable horticultural land hoovered up for housing. 

Minor matters like an overarching transport strategy for the Auckland region have been left out of the equation. That is something for Auckland city Council to deal with. 

 

by Rich on June 04, 2016
Rich

Auckland land/housing isn't a market, it's a bubble - it's not a supply and demand situation - property is just seen as a financial instrument that increases in value, and thus there is effectively infinite demand (limited only by the number of people who can finance the purchase and take the risk (or be oblivious to the risk) of the bubble bursting.

You don't need a land shortage for a property bubble, they had one in Las Vegas, which is in a desert with room to expand land use indefinitely.

by Ross on June 05, 2016
Ross

Releasing land, changing boundaries, relaxing the RMA, etc is all about the supply side. Where is the government's policy to constrain or reduce demand? You would think demand had no part to play in this process. Bill English and John Key seem economically illiterate.

by donna on June 05, 2016
donna

It does seem that while the government is ignoring the clear incentives to invest in property as opposed to anything more productive, the shortage of housing is not going to be solved. Yep, dealing with this may create some adverse consequences (presumably in reduced property values) but if the current bubble bursts then the consequences will be much more severe.

I also suspect that politically the other problem is that the housing bubble is like crack cocaine for governments, especially ones faced with a downturn in the rural sector. It creates the illusion of sustained economic growth and employment. The problem is that this exacerbates Auckland's existing spatial and socioeconomic inequality. While national home ownership may be 64%, in parts of Auckland it is much lower, and Pacific rates of home ownership are in the low 20s. 

Does any of this matter? Given the respective age structures of propertied baby boomers and those on the losing end of the property bubble, probably yes.

by Stewart Hawkins on June 05, 2016
Stewart Hawkins

The Herald states that 46% of new mortgages in Auckland last month were for investment purchases not owner-occupier. It is a bubble, approaching peak inflation..if I were an investor I would be selling at least half my portfolio and banking my winnings from this casino.

 

by Rich on June 05, 2016
Rich

"Picking up nickels in front of bulldozers?"

Although in this case it isn't nickels.

If you're quite young and have $50-100k or so deposit from parents, it makes sense to play, because if prices keep on rising, you'll make a lot of money and if it goes pearshaped, you won't have lost that much.

Once you've got more than that it becomes an increasing risk that you'll lose the lot. If I had a big leveraged property portfolio, I'd be pulling cash out and settling it on a trust so the banks won't have recourse to it. (that sort of quasi-fraudulent behaviour is perfectly legal in John Key's NZ).
 

by Lee Churchman on June 05, 2016
Lee Churchman

Expanding city boundaries for purely political reasons means we will eventually have one massive uber-city stretching from Whangarei to Hamilton,

That's what you think bro. We're going to elect a mayor of Hamilton who will build a giant wall to keep you out, which you will pay for. 

by Lee Churchman on June 05, 2016
Lee Churchman

Expanding city boundaries for purely political reasons means we will eventually have one massive uber-city stretching from Whangarei to Hamilton,

That's what you think bro. We're going to elect a mayor of Hamilton who will build a giant wall to keep you out, which you will pay for. 

by Antoine on June 06, 2016
Antoine

@Rich

> If I had a big leveraged property portfolio, I'd be pulling cash out and settling it on a trust so the banks won't have recourse to it. (that sort of quasi-fraudulent behaviour is perfectly legal in John Key's NZ).

Pretty illuminating as to your personal moral code,

Would be ineffective however as the trust would be unwound in the event that you went bankrupt.

A.

 

 

 

by Antoine on June 06, 2016
Antoine

@Ross

> Where is the government's policy to constrain or reduce demand? You would think demand had no part to play in this process. Bill English and John Key seem economically illiterate.

They know what the demand side is. They're trying to solve this problem primarily on the supply side as a matter of policy. (Although as Tim points out they may be casting the net too narrow by focusing on land supply)

A.

by Antoine on June 06, 2016
Antoine

@Grant

> Minor matters like an overarching transport strategy for the Auckland region have been left out of the equation. That is something for Auckland city Council to deal with.

It sure is

A.

by Murray Grimwood on June 06, 2016
Murray Grimwood

Rich - Las Vegas, Houston and others, are indeed examples of unlimited physical expansion possibilities.

Unfortunately, the servicing of that suburban sprawl in that climate requires massive daily injections of one-off fossil fuels. Nobody seems willing to ask the question - how long can it last?

Certainly the writer of the above piece will have continued to not investigate (I gave him one or two links......)

Auckland will haver exactly the same problem, even if it's a bit more temperate. Kunstler calls the post WW2 suburban obsession "the greatest misallocation of resources the planet has ever seen".

Nor is jammed-together high-rise the answer; those folk have to be fed and serviced too.

Post crash - and it was just staved off in '08, and can't be far away properly - small town/village clusters will be the best living arrangement, and food-production will take a lot more of the time of a lot more people.

But if I submitted an article to Pundit along these lines, bet you anything they'd avoid publishing it. National are indeed nothing but dogma (which happens to be self-serving ) but Labour and the Greens are still avoiding articulating the truth about what's pending.

by Rex Ahdar on June 07, 2016
Rex Ahdar

As Ross above rightly asked:  "Where is the government's policy to constrain or reduce demand?"

I have suggested one mechanism to reduce demand is spreading the migrants around NZ:

http://www.stuff.co.nz/national/80311762/the-auckland-crisis-and-migrant-dispersal




by Tim Watkin on June 07, 2016
Tim Watkin

Antoine, I'm wondering if you're just trying to score points against me! I've researched, blogged and interviewed about this topic for many years now and as I've written more than once. it is about all those things you are right to list. You can see some of my discussion of the problems in previous blogs. This one was about solutions.

Extensive amounts of land are being or have been released. The whole point of SHAs was to do that make those consents easier to get. Houses are still not being built because of those other three points. Hence the options I suggest.

Yes, some of the consequences could be significant, but intended. What are you suggesting could be unintended consequences?

by Tim Watkin on June 07, 2016
Tim Watkin

Ross, I agree that it's fascinating National keep insisting this is a supply issue, as if supply and demand aren't two sides of the same coin.

Donna the issue and the points you make all certainly matter. Rising house prices are good for governments (National has just doubled down on an addiction Labour enjoyed as well, though in a less risky fashion). Pointing at the councils is all part of the blame game preparing for when the market dives.

Lee, Trump has to go somewhere after he loses. Why not Hamilton?

by Tim Watkin on June 07, 2016
Tim Watkin

Grant and Antoine. It's not as simple as laying responsibility for a transport system at the feet of the council. First, previous councils need to own part of the problem. While they shaved rates and won elections by not spending, they've now left us with a terrible infrastructure deficit.

Second, the council has been begging the government for a law change to allow it to start charging congestion fees, but the government refuses. (This after the government stalled the building of the CRL). The council, while too passive for too long, can't be entirely blamed for not creating a plan when the government won't let is raise its own funds to enact that plan. Instead, we had the Auckland transport accord which stalled action for a year for no good reason. The council's hamstring with little money to build the scale of transport infrastructure it needs.

by Antoine on June 07, 2016
Antoine

> Yes, some of the consequences could be significant, but intended. What are you suggesting could be unintended consequences?

Well, take your suggestion: " First, change negative gearing. You could remove the whole thing or just remove the ability to, essentially, claim your mortgage as a tax loss."

What would a landlord do in this event?

First they would try to adopt a trust or company structure under which they could still claim their mortgage as a deduction.

If you were somehow able to prevent this (eg by ruling that no party of any sort could deduct interest on a residential property) then what would the landlord do?

They would put the rent up a whole bunch!!!! In order to compensate for the massive hit to their bottom line.

A.

by Antoine on June 07, 2016
Antoine

> Extensive amounts of land are being or have been released. The whole point of SHAs was to do that make those consents easier to get. Houses are still not being built because of those other three points.

I'm trying to link up the problems you identify with the solutions you pose.

Your problems are, I think:

- not enough tradies

- not enough horizontal infrastructure

- developers playing some kind of hold out game

Your solutions are:

- remove deductability of mortgages

- lending limits

- Kiwibuild

- council bonds

- congestion charges.

There is a mismatch yes?

A.

 

by Katharine Moody on June 09, 2016
Katharine Moody

Perhaps the worst thing about the proposed NPS is that its only effect will be to provide yet another voluminous amount of costly investigations with the subsequent write up of a huge amount of drivel to already painfully profuse planning documents - whilst making no impact whatsoever on anything other than the cost of bureaucracy. Ditto goes for the NPS for Freshwater Management.

  

by Tim Watkin on June 11, 2016
Tim Watkin

Antoine, you leave 'not enough homes being built' off the problem list, which makes for less of a mismatch. The only mismatch then is a lack of tradies, which I agree is a tricky problem. Nats have belatedly promised more apprentices, Labour promises more again.

But the Labour people insist on a 'build it and they will come' approach. They may be optimistic, but they reckon if they give 10 year contracts to a few builders, especially pre-fab companies, those companies will hire the tradies and make it work.

As for the negative gearing, if the market has any power at all left, there will still be competition holding that rent down. And certainly the longer we wait while more investors buy more properties, the less power the market will have. Isn't it at least as likely some (maybe many) investors will just sell out, increasing supply and increasing investment in other parts of the economy?

by Antoine on June 11, 2016
Antoine

> Antoine, you leave 'not enough homes being built' off the problem list, which makes for less of a mismatch.

That to me, is a symptom, not a problem.

> But the Labour people insist on a 'build it and they will come' approach. They may be optimistic, but they reckon if they give 10 year contracts to a few builders, especially pre-fab companies, those companies will hire the tradies and make it work.

If the Gummint starts handing out contracts saying 'I dunno what's been holding you guys back, but I'm sure you'll figure out a way around it'... - that sounds like a recipe for disaster. They will end up with less homes than they asked for, or late, or over budget, or not what people want to live in.

> As for the negative gearing, if the market has any power at all left, there will still be competition holding that rent down

Not if you remove negative gearing for everyone!

> Isn't it at least as likely some (maybe many) investors will just sell out, increasing supply and increasing investment in other parts of the economy?

Yes that would happen. House prices would drop and some renters would become owners.

But not all renters are able to buy a house even at a reduced price. So some would be trapped as renters with a substantially increased level of rent. -> homelessness.

And this would be a nationwide consequence, not just Auckland.

A.

by Antoine on June 11, 2016
Antoine

> Not if you remove negative gearing for everyone!

I should have said 'Not if you remove tax deductability for everyone'

by Antoine on June 12, 2016
Antoine

In conclusion, can you imagine what a Flippin' disaster it would be if Steven Joyce started paying the private sector billions of dollars to build houses in Auckland?

We'd get a few years down the track and they'd have built like 13 houses and no one would be living in them.

A.

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