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National promise of 34,000 houses/decade for Auckland may add 2000/year

The headline is what matters in an election campaign, and the headline is that National is promising that, as the government, it will build 34,000 new houses on Crown land in Auckland over the next 10 years.

New Zealand has a record of not electing governments beyond 3 terms and National is ending its third term as the majority in a coalition, which jeopardises the chances of it being in a position to carry out the promise.

Social Housing Minister Amy Adams.

Amy Adams, Social Housing Minister and Minister Responsible for Housing NZ, revealed the figure in a speech at the Property Institute in Auckland yesterday. And then she proceeded to whittle it down.

The 34,000 is made up of 13,500 new social houses & 20,600 affordable & market homes.

Under the Crown Building Project, the Government will take down 8300 old, rundown houses.

Ms Adams said Housing NZ alone had over 50 housing developments under way in Auckland. The forward programme includes other housing projects already announced & underway:

  • Northcote, where 300 state houses will be replaced by 1200 new homes
  • Hobsonville Point, where the Government-owned Hobsonville Land Co Ltd (now HLC (2017) Ltd) is about to deliver the 1000th house in a programme to deliver 4500 homes
  • Tamaki, where the government-council regeneration project has a programme to develop 7500 new homes over the next 15 years, replacing the houses on 2800 Housing NZ properties
  • Other existing projects include 2700 new homes already announced under the Crown land programme, 580 houses under the Ministry of Social Development’s social housing reform programmes, and new homes for emergency & transitional housing.

By Ms Adams’ calculation, the Government would add 24,000 new – not previously announced – houses over a decade, though on the figures above the actual total might be less, perhaps down at 20,000, or an average 2000/year.

Comparing promises

Andrew Little.

That compares with Labour leader Andrew Little’s proposal last year for 100,000 new affordable houses nationally over 10 years, half of them in Auckland, which would include partnerships with private developers.

So, on top of existing projects, Labour has promised 5000 and National 2400 extra houses/year for Auckland.

Labour also promoted a dole for apprenticeships policy which would subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction.

Phase one of National’s Auckland housing programme, which covers the next 4 years, would cost $2.23 billion and be funded through Housing NZ’s balance sheet and $1.1 billion of new borrowing that the Government has approved as part of the business case.

Phase 2 in the latter years would be funded through the market housing development part of the programme & rental returns.

Ms Adams said ministers had also agreed that Housing NZ would retain dividends & proceeds from state house transfers, to help fund the building programme.

A glance at reality

The promises come after a period of extremely high immigration – a net inflow of 228,000 nationally over the last 4 years, 108,000 of those in Auckland, requiring 40,000 homes at an average 2.7 persons/household.

Building consents in Auckland over those 4 years started low, 6500 for the March 2014 year as the country was still gradually easing out of the global financial crisis, and totalled 34,200 for the 4 years.

Assuming 100% construction of consented homes (which is not normal, but I don’t have the exact figure), Auckland fell short of housing the net migrant inflow by almost 6000 homes over those 4 years. That housing requirement ignores, completely, the net flow of people within the country.

The National proposal might fill the gap if immigration eases, but on the slim information from the minister it would encourage pricing to stay high. On my calculation in February, consents for new homes nationally (excluding land) have risen 34% in value over the last 5 years – after a slow shift from the bottom of the market, between 6-7.7%/year for the last 4 years.

The land price equation in Auckland can be partly met by intensification throughout suburbia, land prices falling because of the freer availability of sites under the new unitary plan, and section sizes being reduced.

That doesn’t require tampering with rural:urban boundaries, which Labour has said it will eliminate. Those boundaries have a role in protecting non-urban land and in directing development into more efficient parcels.

Auckland also needs more infrastructure for housing development, but it needs to be in well devised communities with a supply of jobs nearby, not on the basis of rural carpetlaying. The local job requirement is fundamental but has been ignored as Auckland has spilled out along motorway corridors.

To catch up, New Zealand needs more builders with a longer future in the trade than the typical construction cycle allows. To do that, either the Government or some other industry supporter needs to ensure trade skills are being taught to enough people before a boom gets underway, and it makes sense to reduce booms, and therefore busts, with some smoothing of economic cycles (but not the total smoothing the US tragically & farcically tried in its attempt to avoid what became the global financial crisis).

As a cyclical high recedes, the building force needs attractive alternatives other than leaving for Australia. Some of that can come through infrastructure projects, which ideally should be separated in time from highs in house & commercial construction, thus reducing cost pressures as well.

Full Adams speech, 16 May 2017: Launch of Crown Building Project

Earlier stories:
16 May 2017: Little calls for end to negative gearing, and Property Institute calls it “cynical ploy”
6 March 2017: Auckland above 10,000 home consents/year again
10 February 2017: Smith exultant about figures that are plainly inflated
19 January 2017: Building consent highs still don’t match migrant demand
11 July 2016: Little sets out 8 planks to remedy housing issues
19 November 2012: Shearer proposes Government scheme to build 100,000 “entry-level” houses over 10 years

Attribution: Ministerial speechnotes & release, Statistics NZ tables, Labour releases, own articles.

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National promises easier access to first-home money, Pavletich says it’ll fuel housing inflation

Prime Minister John Key made the National Party’s big announcement on housing at the weekend, enabling qualifying first-homebuyers to borrow more, especially in Auckland.

Affordability campaigner Hugh Pavletich promptly labelled it “a land speculators’ welfare scheme” at the expense of all others.

Mr Key said the changes to KiwiSaver would help about 90,000 lower & middle-income first-homebuyers over the next 5 years – 40,000 more than would be helped under current policies.

He said the 3 major changes were:

  • Replacing the KiwiSaver first-home deposit subsidy with a KiwiSaver HomeStart grant, doubling the support for buying a new home and increasing the house price limits
  • Enabling larger KiwiSaver first-home withdrawals by including the member’s tax credit, meaning first-homebuyers would be able to withdraw all of their KiwiSaver savings except the $1000 kickstart
  • Expanding eligibility for Welcome home loans by aligning the house price caps with the new KiwiSaver HomeStart grant.

Housing Minister Nick Smith followed up with the detail of the $218 million HomeStart package, which he said would encourage the building of more affordable new homes: “We are roughly doubling the number of people receiving a Government grant to buy a first home from 10,000/year to 20,000/year, and doubling the Government grant they are eligible for if buying a newly built home.

“The focus of this package is to increase the supply of new housing and to encourage housing companies to build homes in a price range affordable for first-homebuyers.

“The house price limits for KiwiSaver HomeStart & Welcome Home loans will be $550,000 in Auckland, $450,000 in Wellington, Christchurch & other similarly priced housing markets, and $350,000 for the rest of the country.”

Currently, first-homebuyers are eligible for a grant of $3000 after 3 years in KiwiSaver, $4000 after 4 years and $5000 after 5 years. Under KiwiSaver HomeStart, these grants will double for the purchase of a newly built home.

The change to the withdrawal policy will increase the maximum withdrawal amount by $512/year for every year a member has contributed. It’s restricted to KiwiSaver members buying a first home, who have been contributing for a minimum of 3 years. The new grant & Welcome loans have additional criteria of borrowers having an income below $80,000 for an individual & $120,000 for a couple, and the house being purchased must be below the regional house price limits.

“This new package extends the help for all first-homebuyers who are in KiwiSaver, although the amount of extra help depends on the amount they earn, the number of years they have contributed and whether the house they are buying is new and whether it is within the regional house price caps. The support is targeted to people on modest incomes buying modest homes.

“The package means a couple in Auckland each earning $50,000, who have contributed to KiwiSaver for 5 years, will be able to withdraw $35,000 and receive a $20,000 KiwiSaver HomeStart grant, giving them a $55,000 deposit on a new home. With the Welcome Home loan scheme allowing only a 10% deposit, they will be able to buy a home up to $550,000 in value.

“Home ownership has been in decline since the mid-1980s and census data shows the greatest decline amongst 20- to 35-year-olds. This package is targeted to help this group and enable them to get on to the housing ladder earlier. Two-thirds of the group expected to benefit from KiwiSaver HomeStart are in this age bracket.

“This is the most significant Government support for first-homebuyers in more than a generation and will come into effect on 1 April 2015. KiwiSaver HomeStart will cost an additional $218 million over the next 5 years.”

Dr Smith said the additional expenses incurred in 2014-15 would be a charge against the between-Budget contingency established as part of Budget 2014. The additional expenses incurred in 2015-16 & later years would be a precommitment against Budget 2015.”

Pavletich: It will fuel housing inflation

Mr Pavletich, of Christchurch, co-author of the annual Demographia international housing affordability, survey, said making more money available to first-home borrowers “should properly be regarded as a land speculators’ welfare scheme, paid for unnecessarily out of young first-homebuyers’ savings and by excessively taxed  taxpayers.

“This is a cynical attempt by the National Party to buy votes at others’ expense. It only fuels housing inflation. It is likely the Reserve Bank will need to respond by lifting deposit requirements further and increasing interest rates. This will in turn lift the $NZ, damaging the export sector further. So far this year, the dairy sector has taken a 40% hit in prices, the logging sector a 50% hit.

“With this cynical approach to the housing issue, Mr Key is punishing our exporters as well by not allowing the $NZ to adjust to these dramatic price falls. This will cost jobs and risk putting vulnerable exporters to the wall, unnecessarily.”

Links: HomeStart summary of changes
HomeStart Q&A

Attribution: Ministerial & Pavletich releases.

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Key: We still have potential, we’re just being managed badly

Published 8 June 2007

John Key on the official cash rate: “If you only have a hammer, everything looks like a nail.”

Yes, it’s a hoary old line, but the National Party leader struck a chord when he used it last night in an address to the northern chapter of the Institute of Building. The institute & its members devote a fair amount of their time & energy to improving the way things are done.

Reserve Bank Governor Alan Bollard announced a 25-point rise in the official cash rate to 8% yesterday morning, the third rise in 3 months.

In the evening, Mr Key told his audience of building industry leaders: “I personally think Alan Bollard has it all wrong. There’s a lot more stress in the economy than people realise, particularly in Auckland.”

Mr Key then set about painting a picture of that stress, putting it in context, then looking at his package of tax cuts and better use of growth factors to improve the economy.

In his discussion of stress, he said the first thing people do to get out of trouble is pay the mortgage, then the power bill, then for food. “What they stop paying is their credit cards and their personal loans. The debts are starting to mount up.”

Mr Key believes Dr Bollard will keep going, hammer-like with the one tool he has to control inflation: “I actually think he will stop the housing market. He should have done it 2 years ago. He’s going to keep increasing housing rates. The other thing he’s doing is forcing the exchange rate up.”

Stopping the rise in the housing market will hit other spending – Mr Key said New Zealanders were spending $1.15 for every dollar they earned, which wasn’t sustainable: “Last year they borrowed $20 billion in debt and spent the lot, went to Fiji, bought a new car. The moment the housing market stops going up, they’ll stop consuming debt.”

Long-term, Mr Key saw interesting changes happening in the economy, beneath the surface. “People have been coming into the workforce and that’s all about unemployment coming down. Secondly, New Zealanders are working long hours – the only place working longer is Iceland. Underneath all that, relatively speaking, things are getting much worse.

“When the Government came to office in 1999 we were 20th out of 30 in the OECD. We’re now 22nd.”

The next problem Mr Key saw was the brain drain. He said one million New Zealanders now lived overseas, and an obvious reason for that was the earnings difference across the Tasman: “It used to be a 20% gap. Today you’re earning 30-35% more in Australia than 5 years ago. In the last 5 years Australia has cut personal tax every year.”

Mr Key said productivity was an issue – up only 0.4% overall and negative in the public sector, “and Government spending is increasing at twice the growth rate. In Wellington, one in every 2 properties is now rented by the Government.

“If you look structurally, there needs to be some work long-term. I think we’re in the strongest potential shape New Zealand has ever been in in its history. There are 3 reasons – the first is the internet. It’s revolutionised the world, but particularly New Zealand. I talked to a guy the other day, an architect who works for an English firm: ‘They work during the day, send me the plans, I work at their night.’”

Mr Key said China & India would be huge influences, especially as the rise in Chinese earnings lifted 200 million people there to the average American wage over the next 20 years. He expected double-digit growth to continue in China through the next 2 decades.

While New Zealand was therefore in the fastest-growing region, he believed continuing world terrorism would make New Zealand an attractive place to live: “They’re going to buy a lot of the Shania Twain stuff.”

The benefit of a very good education system meant New Zealanders could tap into these growth streams – but the 20% “tail” of poorly educated people would drag us down. That tail was longer here than in other countries, he said.

His answer was to put the incentive back into the economy, starting by lowering taxes to reduce the gap between Australia & New Zealand.

On the management of resources versus economic gain, Mr Key took the path of least resistance – balance, combined with a view that the Resource Management Act “doesn’t work”.

He cited the example of Dr Wendy Pond, of Coromandel, secretary of the Manu Waiata Restoration & Protection Society for Springs & Streams and committee member of the Native Freshwater Fish Society, who petitioned for changes to the Alpurt B2 northern motorway section between Orewa & Puhoi on behalf of several species of freshwater fish & aquatic snails: “She lost, she was on legal aid and it will now cost 3 times as much to build that road, and it’s tolled.”

Apart from such “crazy things”, Mr Key said compliance costs had to be fixed, linking that with the level of home ownership: “I personally think if you have a home you feel you have a stake in the society.”

He said it was 22% more expensive to build in New Zealand than in Australia. “Fundamentally, New Zealand businesses are small and they’re drowning in red tape. My view is, you have to cut back compliance costs.” But, he admitted, “It’s not easy to do.”

Mr Key tied “a massive skills shortage” in with truancy and the need for incentives. He saw room for skills training in schools to encourage the 12% of school children who were truants just weren’t interested in the courses they were offered. “We’ve got to tailor our education system to work for them.”

Confidence – “just thinking a different way, putting the world back into the national conversation: winning” – is an important factor for Mr Key. “We do it with sport – the All Blacks, Valencia. They didn’t go to participate. Everything we do in the economy, we want to win. I will say to kids, there’s nothing wrong with losing, there’s something wrong with not trying.”

Putting on the investment banker’s hat from his former career, Mr Key looked at New Zealand as if it were a takeover target: “I would say you should buy it. Its assets are underperforming, but I would say, ‘Change the management’.”

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Attribution: NZIOB address, story written by Bob Dey for this website.

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