Archive | Affordability

Institute highlights lower apartment medians to switch buyer focus

An odd news release on Friday from the Real Estate Institute exhorts buyers looking to gain an entry point into some of Auckland’s top suburbs to consider apartments “rather than a residential property”.

It’s a release that:

  • demonstrates why you should be wary of comparisons using median prices
  • says nothing about the differences between houses & apartments in size & utility, and
  • doesn’t define “a residential property” to distinguish it from an apartment, which you might have thought was also a residential property.

The institute suggests buyers could save over $1 million by buying an apartment in suburbs such as Parnell, Epsom & Takapuna instead of, I presume, a house on a section.

The institute cited its research on median prices for apartments & “residential” (including or excluding apartments?), but didn’t acknowledge differentiating factors: “The median price for apartments in Parnell was $772,500 compared to a residential median price of $2,067,500 – a difference of $1,295,000. For Epsom the apartment median price was $865,000 compared to a residential median price of $2,100,000 – a difference of $1,235,000, and for Takapuna the median price of an apartment is $817,500 compared to a residential median price of $1,870,000 – a difference of $1,052,500.”

Institute chief executive Bindi Norwell said: “For those wanting to gain an entry point into some of Auckland’s top suburbs, considering an apartment rather than a residential property is a much more affordable way of getting into some of these areas. Apartments have come a long way in the last 20 years to having top-end fixtures & fittings, eco-friendly/energy saving features & extensive communal areas.

“A saving of more than $1 million to live in a fantastic location or a good school zone is not something to be ignored.”

“For first-time buyers, apartments are an excellent way to get a foot on the already expensive Auckland property market. Apartments are usually close to public transport & other amenities such as cafes or restaurants, gyms & other retail outlets. But most importantly, they’re in a price bracket that people can more realistically actually afford.

“An apartment may not be the property that a young couple end up living in their whole life, but it allows them the chance to build up equity in their apartment and then, further down the track, if they plan a family it means that they can then look to make the next step to a larger home with more room.”

Ms Norwell said the research uncovered one anomaly in the Auckland market, Orewa, where the median price for apartments was $11,500 above that for “a residential property”.

Attribution: Institute release.

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Australian research attributes high proportion of housing cost to regulations

Advocates of removing urban growth boundaries have hailed a research paper on the effect of zoning on house prices, issued by the Reserve Bank of Australia last week.

The research paper, by Ross Kendall & Peter Tulip, was published in the bank’s discussion paper series “intended to make the results of the current economic research within the Reserve Bank available to other economists”.

The bank noted: “Its aim is to present preliminary results of research so as to encourage discussion & comment. Views expressed in this paper are those of the authors and not necessarily those of the Reserve Bank. Use of any results from this paper should clearly attribute the work to the authors and not to the Reserve Bank of Australia.”

The authors wrote in their abstract: “Zoning regulations provide benefits, but they also restrict housing supply and hence raise prices. This paper quantifies their importance by comparing prices to the marginal costs of supply at different points in time. For detached houses, marginal costs comprise the dwelling structure & the land that other home owners need to forego.

“Relative to our estimates of these costs, we find that, as of 2016, zoning raised detached house prices 73% above marginal costs in Sydney, 69% in Melbourne, 42% in Brisbane & 54% in Perth.

“Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney. We emphasise that this is not the amount that housing prices would fall in the absence of zoning. The effect of zoning has increased dramatically over the past 2 decades, likely due to existing restrictions binding more tightly as demand has risen.”

In their introduction, the Australian researchers wrote: “Some government policies, which we will refer to as zoning, restrict the supply of housing. Examples include minimum lot sizes, maximum building heights & planning approval processes. Although these restrictions may confer benefits, they also raise the price of housing. This paper attempts to quantify the effect of zoning on housing prices in Australia’s 4 largest cities.

“Anecdotal evidence suggests that zoning can have a huge effect on land values. For example, a 363ha site in Wyndam Vale (40km west of Melbourne) increased in value from $A120 million to $A400 million following its rezoning from rural to residential.

“Examples like this are common. Such large increases in values as a result of zoning changes are inconsistent with the view that a physical shortage of land itself is the main cause of high land values & housing prices – and instead point towards a high ‘shadow price’ of government permission to build dwellings as a likely explanation. It is difficult, however, to gauge how representative these anecdotes are, or to analyse how they change over time or place.”

3 issues – urban footprint, zoning & construction rules

3 planning issues are involved, and appear confused here. One is the allowance (& support) for expansion of the urban footprint; the second is the zoning confining property activities to specified areas. Third are the many rules on construction, such as height:boundary.

In the New Zealand context, Auckland has had an issue with the urban growth boundaries instituted by the region’s local bodies in the late 1990s, which made it nigh on impossible to expand the urban footprint.

The Auckland Regional Council was most opposed to expansion, while the Manukau & Waitemata territorial councils pressed the case for enabling development to expand.

The Auckland City Council saw the boundary constraint as an aid to intensification, which suited the council for the region’s central isthmus.

With inadequate boundary expansion & inadequate forethought given to intensification, the immigration spike of 2003-04 under the Labour government was met by an inadequate supply of new homes.

But the net inflow during that spike peaked at 35,000/year. This time round, the inflow began to surge in 2013, reached 60,000/year in August 2015 – compared to a total net inflow of 65,000 over the previous 7 years – and reached 70,000/year in October 2016.

It’s easy to see that housing supply could have caught up during that 7-year immigration slump, but that’s asking a sector which traditionally expands when the sun’s out to do so during a downpour.

The supply of money increased when the US introduced its quantitative easing programme (and other countries adopted similar measures) as a means of exiting the global financial crisis of a decade ago, but it also slashed interest rates.

This meant people could borrow more; it also meant prices would rise.

Attributing a rise in house prices to “zoning” (or, I think in the Australian examples as well as in New Zealand, inadequate expansion of the urban footprint) is irrational if these other causes are ignored, and it’s difficult to see in this Australian research what value is placed on the positives of regulation or on other economic factors such as the contribution of low interest rates.

Auckland’s unitary plan

As for zoning in the New Zealand context, Auckland’s unitary plan – the combination of both regional & district plans that preceded it, and updated – has provided a far greater capacity for intensification throughout suburbia, as well as providing for greenfield expansion. But that plan is new, and it will take time for the effects to be felt.

The next question concerns the orderly & efficient provision of infrastructure to enable intensification & expansion – one of the 2 reasons for creating the urban boundary. The other reason was to curtail urban encroachment into Auckland’s countryside, and that still hasn’t been dealt with sensibly.

Reserve Bank of Australia, March 2018: The effect of zoning on housing prices
Earlier stories:
19 January 2017:
Building consent highs still don’t match migrant demand
23 December 2016:
48% of net migrant inflow stops in Auckland
22 November 2016:
Migrant inflow tops 70,000/year
31 January 2014:
Migrant inflow strongest since 2003

Attribution: Reserve Bank of Australia research paper.

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After 14 years, 3 more years’ income needed to buy same house in Auckland

Auckland’s year-end stalling of median house price rises (up only 0.7% over 12 months), combined with a 14.2% increase in median household income, returned the region to an unaffordability rating in single digits in Demographia’s latest annual international survey.

It also made Auckland the second least affordable urban area in the country, swapping places with Tauranga.

Demographia survey authors Wendell Cox (US) & Hugh Pavletich (NZ), said in their introduction the improvement in New Zealand’s rating was largely the result of a statistical update.

As for Auckland’s standing, they said the consistently poor affordability meant buyers of houses in Auckland now had to spend 3 more years’ income than they did 14 years ago to buy the same house.

“New Zealand’s housing affordability indicates an improvement that’s largely due to an upward restatement of median for the last decade by Statistics NZ. Even so, New Zealand’s housing remains severely unaffordable, with a median multiple of 5.8.

“Auckland has a severely unaffordable 8.8 median multiple. Housing affordability has deteriorated from a median multiple of 5.9 in Demographia’s first survey (2004), thus adding the equivalent of nearly 3 years in pre-tax median household income to the house prices.”

New Zealand markets with median multiple (2016 in brackets), median price, median household income and their rankings – international affordability, major market ranking (Auckland only) and NZ ranking:

Auckland: 8.8 (10.0), $836,700 ($830,800), $94,800 ($83,000); rankings 281 (401), 84 (89), 7 (8)
Christchurch: 5.4 (5.9), $448,300 ($435,300), $83,700 ($73,900), 226= (305), 2= (5)
Dunedin: 5.4 (5.4), $363,300 ($322,000), $67,400 ($59,700), 226= (323), 2= (2)
Hamilton-Waikato: 6.5 (6.2), $530,100 ($444,900), $81,800 ($72,100), 257 (356), 6 (6)
Napier-Hastings: 6.1 (5.7), $409,100 ($340,500), $67,000 ($59,300), 253 (342), 5 (3)
Palmerston North-Manawatu: 4.5 (4.7), $278,000 ($255,800), $62,000 ($54,900), 181 (275), 1 (1)
Tauranga-Western Bay of Plenty: 8.9 (9.7), $617,000 ($591,900), $69,100 ($61,200), 282 (398), 8 (7)
Wellington: 5.5 (5.8), $508,700 ($463,700), $92,100 ($79,600), 231 (348), 4 (4)
Median market: 5.8 (5.9)

The international picture

The survey covers 293 metropolitan housing markets (metropolitan areas) in 9 countries – Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the UK & the US) for the third quarter of 2017.

92 major metropolitan markets (housing markets) with populations over 1 million are included, 5 of them megacities, which are defined as having more than 10 million residents – Tokyo-Yokohama, New York, Osaka-Kobe-Kyoto, Los Angeles & London.

Hong Kong was again the least affordable, with a median multiple of 19.4, up from 18.1 last year.

Sydney was again second, at 12.9. Vancouver was third least affordable, at 12.6, followed by San Jose at 10.3 and Melbourne at 9.9. The next 5 least affordable were Los Angeles (9.4), Honolulu (9.2), San Francisco (9.1), Auckland (8.8) & London (8.5).

Osaka-Kobe-Kyoto is the most affordable megacity in the survey, with an average multiple of 3.5, earning a moderately unaffordable rating. It was also the most affordable major housing market outside the US, ranking 19th out of 92. TokyoYokohama was the second most affordable megacity in the survey, with a seriously unaffordable average multiple of 4.8.

There were 10 affordable major housing markets, all in the US, and 28 severely unaffordable major housing markets, including all in Australia (5), New Zealand (1) & China (1). 13 of the major markets in the US were severely unaffordable (out of 54), 6 in the UK (out of 21 major markets) and 2 out of Canada’s 6.

The most affordable major housing markets were in the US, with a moderately unaffordable median multiple of 3.8, followed by Japan (4.2), Canada & the UK (4.3). Singapore & Ireland both had median multiples of 4.8.

Overall, the major housing markets of Australia (6.6), New Zealand (8.8) & China (19.4) were severely unaffordable.

The survey rates middle-income housing affordability using the median multiple, which is the median house price divided by the median household income. Demographia rates a median multiple of 3.0 & under as affordable, 3.1-4 moderately unaffordable, 4.1-5 seriously unaffordable, 5.1 up severely unaffordable.

The authors said the median multiple was widely used for evaluating urban markets, had been recommended by the World Bank & the United Nations, and was used by the Joint Centre for Housing Studies at Harvard University.

With this year’s survey, I’ve run an extensive list of links below, mainly to give you an idea of how – despite awareness of an acute problem for so long, solutions haven’t been forthcoming.

However, in Auckland, some change can be expected as the influence of the region’s new unitary plan starts to change housing patterns (which I haven’t linked to).

The links are in 2 groups – first, those relating to past Demographia surveys, and second, those containing suggestions of change.

Demographia, 14th (2018) annual international housing affordability survey
Performance Urban Planning

Earlier stories:
23 January 2017: Auckland still near top of Demographia’s international unaffordability table
25 January 2016: Demographia ranks Auckland severely unaffordable
19 January 2015: Auckland worsens on Demographia’s affordability rating
22 January 2014: Property Council uses Demographia to combat unitary plan constraints
23 January 2006: Demographia survey rates Auckland 15th least affordable city in 6 countries, but authors don’t give evidence to prove cause theory

Other related stories:
24 June 2016: Fairgray works through the question: Who’s really the house price villain?
25 January 2016: Introducing “middle income housing affordability”
25 January 2016: Australian senator says affordability crisis ‘contrived’
25 August 2014: National promises easier access to first-home money, Pavletich says it’ll fuel housing inflation
20 January 2014: More housing action a 2014 certainty – plus links for affordability story & research
21 January 2013: English warns of another housing demand shock on way
13 April 2012: Productivity Commission misses key affordability point – again
10 February 2012: Council presents the garbled nonsense response on housing affordability
3 February 2010: Canadian researcher fires broadside at Demographia affordability report
23 January 2008: ARC strategy chief rejects Demographia solution as over-simplification (again)
21 January 2008: The Demographia view on what’s wrong, how to fix it
28 January 2009: Heatley promises housing initiatives
21 January 2008: NZ rated most expensive for housing affordability
10 December 2007: Pavletich sets out ways to gauge unaffordability triggers
10 December 2007: Government introduces affordability measures
6 September 2007: Curtis loses fight to remove “compact” from development framework
11 April 2007: Pavletich reckons NZ under-building by 10,000 homes/year
11 April 2007: Expect 4-5 centres to be earmarked in growth strategy review
1 April 2007: Lee proposes formal integration of regional growth & sustainability strategies
12 March 2007: Pavletich says improved land supply will defeat inflationary speculation
22 January 2007: Affordability campaigners berate governments for their failure as Auckland ranks 21st least affordable in world survey
15 October 2006: Our choice: Closed cities of despair or open cities of opportunity
30 August 2006: Townsend lashes regional containment policy
7 July 2006: Compact-city concept “destroying the Kiwi way of life”
6 April 2006: Housing affordability – how to measure it
5 January 2006: Growth forum embarks on review – and the chance to adjust its thinking
10 November 2005: Curtis sets up scrap over containment policy
28 May 2005: Housing affordability calculations: What you get is not what you want
3 April 2005: McShane derides Smart Growth, and says why
6 June 2004: Scorecard indicates regional growth far more rapid than anticipated, increasing pressure to expand urban limit
2 March 2004: Auckland land shortages for both business & housing

Attribution: Demographia release.

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National says rent & homebuying subsidies are good, I say they’re pure inflation

Prime Minister & former Finance Minister Bill English said it last Monday and his party came it again yesterday: the Government is propping up the rental market and, yesterday, it would make more money available to first-homebuyers so they can pay a deposit.

The Stuff website took the first story from one side, leaving the further consequences alone.

Image above: Prime Minister Bill English during TV3’s leaders’ debate.

Subsidies flow straight through

Both policies are widely acknowledged ways of feeding landlords & home sellers – though ostensibly supporting impecunious buyers & renters. I wrote in 2009 that Australia’s Housing Industry Association criticised that country’s first-homebuyers’ grant – introduced in 2000 to overcome the impact of GST – because it reduced affordability because it flowed directly through to the property seller’s bottom line.

Mr English said in the second televised leaders’ debate on TV3 that the Government spent up to $6 million/day propping up New Zealand’s private rental market. The $2.3 billion/year in rent subsidies supported 60% of private tenants, and Mr English argued it was helping to keep many Kiwis out of poverty.

Social Housing Minister Amy Adams said the Government supported 320,000 of New Zealand’s 550,000 rental households.

Look at these subsidies another way: What would happen if they weren’t paid? Beyond the initial assumption that all those no-longer-subsidised tenants would be evicted, who would pay the rent? Their places would not be immediately filled.

The argument here is that it is not the tenant being subsidised, it’s the landlord. The consequences of ending the subsidy would, in due course, be that rents would fall so landlords could get tenants. That, in turn, would affect rental yields and, again in due course, would tell both prospective landlords & banks that the prices of houses intended for rental were too high.

All round, in due course, adjustments would be made.

Homebuyer support runs same course

Yesterday, Ms Adams and Building & Construction Minister Nick Smith (now spokespersons in the election campaign period) said National would double the financial support available to first-homebuyers when buying an existing house, and increasing it for new builds.

Ms Adams said of the measure to make it easier for first-homebuyers to get a deposit: “National believes every New Zealander should be able to buy their own house if they want to – so we are building on our existing suite of measures to support first-homebuyers.”

National would raise the Government HomeStart grant for a couple by $10,000 to $20,000 for an existing home, and to $30,000 for a new-build.

“The additional grants mean there is funding to help a further 80,000 people into their first home over the next 4 years, on top of the 31,000 people the scheme has already helped,” Ms Adams said.

Building and Construction spokesperson Dr Nick Smith says HomeStart Grants complement other Government measures to support first home buyers, including:

Welcome Home Loans allow first-homebuyers to access Government-backed mortgages with a 10% deposit, and KiwiSaver FirstHome withdrawals allow them to access all of their KiwiSaver funds to put towards a deposit.

Dr Smith added these available funds together: “Take a couple on the average wage in Auckland who have been in KiwiSaver for 5 years and are looking to buy their first home. Between the $20,000 HomeStart grant and their KiwiSaver withdrawal, they will have around $60,000 for a deposit for an existing home.

“Add in a Government-backed Welcome Home loan, which means they only need a 10% deposit, and they have enough for a house worth up to $600,000 – the Auckland HomeStart cap for existing homes – without needing other savings.

“That’s significant support for those New Zealanders, particularly given 18% of home sales in Auckland in the past year were below $600,000.

“If that couple lived in Palmerston North, they would have enough for a 20% deposit on a $300,000 house, without the need for a Welcome Home loan.”

Ms Adams said National would also simplify the process for borrowers, combining HomeStart grants & Welcome Home loans into one HomeStart product, so first-homebuyers could get all the support available to them from one place.

“We will simplify the application process for Welcome Home loans to allow accredited banks to approve these 10% deposit, Government-backed loans on the spot, rather than going through an often time-consuming process with Housing NZ,” Ms Adams said.

Dr Smith said National’s policies would help 200,000 new houses be built over the next 6 years – the equivalent of 4 extra Dunedins.

“We are increasing our support for first-homebuyers and making it easier to access, to further help young New Zealanders achieve their dream of owning their first home.”

The changes would come into force on 1 January 2018 and have been priced at $74 million/year, to be met from the 2018 Budget allowance. Costs in 2017-18 would be met from the between-budget contingency.

If – as Australia’s housebuilding organisation believes, and I understand numerous NZ Treasury recommendations have agreed (sources to come) – feeding the borrower or prospective tenant actually feeds the seller or the landlord, what is the outcome? Higher prices.

The Government has been feeding inflation via subsidies – and National intends to lift that inflationary input.

Stuff, 6 September 2017: PM Bill English says Govt spends billions propping up the private rental market

Earlier stories:
12 October 2016: First-homebuyers hit KiwiSaver for over $500 million in deposits
25 August 2014: National promises easier access to first-home money, Pavletich says it’ll fuel housing inflation
1 October 2013: Housing NZ offers first-homebuyers deal to buy empty old provincial stock
22 May 2015: Smith launches fund to build houses on Government land
27 March 2015: Parliament passes KiwiSaver HomeStart Bill
29 July 2013: Shearer says Labour will block overseas speculators; plus some extra statistics
23 October 2009: Australian incentives boost construction, hurt affordability

Attribution: Ministerial/party releases, Stuff.

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PSA survey highlights social harm of high housing costs & congestion

57% of Auckland respondents to a Public Service Association survey have said they’d considered moving out of the city because of housing costs and 39% over commuting.

The association – New Zealand’s largest with 62,000 members, 18,000 of them in Auckland – sought members’ view in response to Auckland mayor Phil Goff’s taskforce on housing supply: “In the space of 2 hours we received close to 1500 responses and by the time the survey closed this number had grown to 2512.”

The association said of the response: “The speed of our members’ response and the heart-breaking stories they shared with us was powerful evidence that our members are deeply affected by the housing crisis. Our members also provided many suggestions for how things could be improved, ways to increase housing supply, bring down the cost of housing and improve the quality of housing.”

  • 58% of respondents in single-income households with dependents pay at least half their income in housing costs, 22% pay two-thirds or more
  • 51% of double-income households with dependents spend more than half their pay on housing costs, 24% spend two-thirds or more

Both home-owners & renters told of the budgetary stresses arising from high housing costs. In addition, renters told of the high levels of fear & anxiety associated with renting.

Many respondents reported living in housing that’s too expensive and often very poor quality: “They report having very limited choices about the housing they can afford to live in and the quality & location of the housing. Many would like to leave Auckland but can’t get jobs out of the city. Others want to be able to stay close to their children’s school or to family members, which often meant having to pay very high rent, often for sub-standard housing.

“Some older respondents reported they would like to downsize and move to other parts of Auckland but that they can’t find affordable housing to shift into, or this would lead to change in the quality of their lives.”

Some of the many points made:

  • No laws support a long-term renting culture
  • Auckland would benefit from having a mix of homeowners, long-term & short-term renters, equally respected socially and by the law
  • The council needs to take an integrated approach to planning and ensure that affordable & quality housing is available across the city, so people can afford to live near their work, schools & their communities
  • If more new housing was smaller and in a good location (with reasonable amenity and near good transport links), much of the buyer market would gravitate there instead of expensive 5-bedroom standalone houses on the peri-urban fringes
  • Members expressed frustration about the complexities & difficulties in getting permission to build a small/tiny house, or live in housing structured in ways other than traditional subdivisions – such as communal/eco housing.

Mr Goff launched his taskforce on 20 February. It comprises council & central government officials and representatives of the private sector, and its objectives are to identify barriers & constraints to building more homes in Auckland at a pace & scale which meets the demand created by population growth, and identify options and make recommendations to overcome those barriers & constraints.

Mr Goff said Auckland was growing by about 900 people/week and needed 13,000 extra houses/year, but was building only about half that number.

The taskforce will make its recommendations public in May.

21 March 2017, PSA submission to mayoral taskforce on housing supply

Attribution: PSA survey.

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Auckland still near top of Demographia’s international unaffordability table

Auckland comes in at 6th least affordable city internationally in Demographia’s 13th international survey of housing affordability in 9 countries, out today.

New Zealand markets with median multiple (last year in brackets), median price, median household income and their rankings – international affordability, major market ranking (Auckland only) and NZ ranking:

Auckland: 10.0 (9.7), $830,800, $83,000, rankings 401, 89, 8
Christchurch: 5.9 (6.1), $435,300, $73,900, 350, 5
Dunedin: 5.4 (5.2), $322,000, $59,700, 323, 2
Hamilton-Waikato: 6.2 (5.1), $444,900, $72,100, 356, 6
Napier-Hastings: 5.7 (5.0), $340,500, $59,300, 342, 3
Palmerston North-Manawatu: 4.7 (4.1), $255,800, $54,900, 275, 1
Tauranga-Western Bay of Plenty: 9.7 (8.1), $591,900, $61,200, 398, 7
Wellington: 5.8 (5.2), $463,700, $79,600, 348, 4
Median market: 5.9 (5.2)

The survey, by Wendell Cox of Demographia in the US and Hugh Pavletich of Performance Urban Planning in Christchurch, is based on data at September.

Auckland’s median multiple (median house price divided by median household income) of 10.0 put it behind Hong Kong on 18.2, Sydney 12.2, Vancouver 11.8, Santa Cruz, California 11.6, and Santa Barbara, California, 11.3. Melbourne was 10th on 9.5.

The authors said Auckland’s housing affordability had deteriorated from a median multiple of 5.9 in the first survey in 2004. Auckland was the 4th least affordable among the 92 major housing markets, following only Hong Kong, Sydney & Vancouver, and has been severely unaffordable in all 13 Demographia surveys.


Demographia has rated all of Australia’s 5 major housing markets as severely unaffordable in every one of its surveys, and did so again: “Overall, Australia’s 54 housing markets have a severely unaffordable median multiple of 5.5. 4 housing markets are affordable, 3 are moderately unaffordable, 14 are seriously unaffordable and 33 are severely unaffordable.”


Last year’s survey covered 367 metropolitan markets in 9 countries (Australia, Canada, China – Hong Kong, Ireland, Japan, New Zealand, Singapore, the UK & the US), and introduced the qualification of “middle-income housing affordability”. This year’s survey covers 406 metropolitan housing markets in the same countries, including 92 major markets of 1 million-plus population & 5 megacities.

The authors explained the qualification: “Middle-income housing affordability is different from low-income affordable housing, which often relies on public subsidies. Even so, low-income housing costs and the demand for social housing are generally driven up by the failure to maintain middle-income housing affordability.”

Demographia rates a median multiple of 3.0 & under as affordable, 3.1-4 moderately unaffordable, 4.1-5 seriously unaffordable, 5.1 up severely unaffordable. This median multiple is derived from median house price divided by median household income.

The Demographia survey doesn’t adjust the median multiples to reflect differences in house types, housing characteristics & lot size. For example, the average size of housing, particularly new housing, is abnormally small by New World standards in the UK & Hong Kong.

The authors wrote that, “in many housing markets, house prices have skyrocketed compared to household incomes. The most severe house price increases have been limited to housing markets where urban containment policy (or its equivalent) have been implemented.

“Generally, urban containment policy draws a development limit around the urban area and seriously limits or even prohibits greenfield development of housing tracts on the urban fringe. Consistent with the basics of economics, this is associated with higher land prices and, in consequence higher house prices….

“In effect, governments implementing urban containment policy choose pursuit of a particular urban form at the expense of a better standard of living and less poverty.”

People over places

The authors commented on what constitutes “best cities” & “most liveable cities”, international comparisons frequently made, with Auckland often one of the prime contenders.

The authors said these surveys were aimed at the high end of the market and virtually never evaluated housing affordability. “Yet, the media often mischaracterises the findings as relevant to the majority of households. In fact, a city cannot be liveable, nor can it be a best city, to households that cannot afford to live there. Households need adequate housing.”

They compared Dallas-Fort Worth, where housing affordability was far better than in Toronto, which was rated as the “best city” by the Economist: “In addition to better housing affordability, traffic congestion was better and incomes were higher. This is despite the fact that Toronto employs the most favoured urban strategies, which Dallas-Fort Worth does not.

“Another comparison shows that Kansas City has better middle-income outcomes than all of the Economist’s top 10 (for which data was available) in housing affordability & traffic congestion, and higher incomes than all but 3.”

While “excessive housing regulation has been identified as having significantly reduced economic growth in the US and inequality internationally,” the Demographia authors commented: “It has complicated the inflation-controlling role of central reserve banks.”

To keep housing affordable “requires avoiding urban planning policies associated with artificially raising house prices, specifically urban containment. Failing that, housing affordability is likely to worsen further.”

2017 survey
Demographia (Wendell Cox)
Performance Urban Planning (Hugh Pavletich)

Earlier stories:
22 January 2016: Updated: The urban boundary case, and hard versus soft edge
13 January 2016: Auckland home values rise 22.5% in year, but only 0.2% in December
11 January 2016: Urban boundary & zones under the spotlight
8 November 2015: Twyford talks ideas which unitary plan & council funding review likely to resolve
2 October 2015: Council economist lists potential housing price solutions
30 September 2015: English sets out his housing rationale
11 May 2015: Australian affordability report a 40-recommendation failure
6 May 2015: Hobsonville Pt affordable brackets raised $50-65,000
23 January 2015: Building cost research a onesided analysis
19 January 2015: Auckland worsens on Demographia’s affordability rating

Attribution: Demographia survey.

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Australian response to high housing costs ran a story on Friday about a Sydney building firm which has introduced a range of low-cost options for first-homebuyers designed to cut the cost of a house by over $A100,000.

Thrive Homes, a division of Rawson Group, says its houses cost $A185,000 to build, compared to $A260-300,000 for a typical standard build.

One difference is that Thrive mastered the CDC (complying development certificate) process, issued by private certifiers instead of councils, and assessed against state government rather than local council codes.

The alternative, using councils’ development application process, allows for customisation & reworking, takes about 8 weeks and ends up costing more in time & changes.

Thrive general manager Patrick Eather said Thrive offered predesigned houses, with a range of internal options that were already calculated & costed, that were generally under 220m² and designed to fit on small sections.

Ho also remarked that New South Wales should join the West & South Australian state governments in supporting low-deposit loans for first-homebuyers.

Links: Thrive Homes

News, Sydney, 13 January 2017: Low-cost builder targets first home buyers

Attribution: News Ltd.

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Tracking ideas Sun27Sep16 – sprawl v compact, inclusionary housing, infrastructure funding, related pieces, Making NZ

Sprawl v compact research stops short
Inclusionary housing another debate that’s international
Infrastructure funding options
Related pieces
Making NZ a home for planning thinkpieces

Tracking ideas is a Bob Dey Property Report section devoted to ideas on property questions such as urban strategies & design, many from overseas but with relevance to Auckland.

This page today flits between foreign, mostly American, information and Auckland. I’ve listed a large number of links to work through – it’s a library piece, not a quick read. And I’ve mentioned a couple of points which may be true in the US but don’t apply in Auckland because circumstances here have changed.

Sprawl v compact research stops short

In another round of the sprawl v compact argument, US analyst Issi Romem produced an article a fortnight ago that’s already been taken by some notable news outlets as something approaching gospel.

Some of what I’ve read among the many links below leaves me mystified about the writer’s point, some of the complicated analysis requires more digestion, here & there I’ve spotted contributions worth taking further.

The first mystery, for me, is how Dr Romem’s figures (down to 2 percentage points) on housing development over the last 3 decades can point to a sensible way forward in times which have started to change very quickly.

An inappropriate template

The US – and New Zealand followed, though to a less extravagant extent – launched into suburban development in the 1950s, pushed along by the availability of cars for general consumption. That doesn’t mean the development of those suburbs was a perfect mechanism for housing fast-growing populations, or that in an isthmus-centred place like Auckland the carpetlaying grid template would be appropriate.

One side of the argument now is that central intensification should be used to provide a larger proportion of housing, that this will be cheaper than sprawl on the fringes of the region. On the other side, proponents of extending the urban footprint say this will provide cheaper land and thereby cheaper housing.

How you count the numbers, and which numbers, makes a big difference. Do you include a travel component, or not? Does it measure cbd to wherever, or some to more local workplaces? How many cars does a household have?

Housing comparisons undefined

All the research, and all the comments, refers to housing, houses, apartments…. You, the reader, can only guess at what kind of economic units are being referred to. At the start of the 1980s, the standard New Zealand house (used in Master Builders statistics) was 93m² (1000ft²). Standard houses now are more likely to be over 200m², perhaps over 300m² including garage, with indoor-outdoor flow to make it hard to assess actual, practical size.

Old sausage-block flats were small, commonly under 80m², and a high proportion of apartments built in the last 20 years will also measure less than that. But, in recent times, terraces, townhouses, cross-leases, standalones on small sections and a smattering of apartments will exceed 200m².

Section sizes have been shrinking for 20 years. From 809m² (one-5th of an acre, far more common than the ‘quarter-acre paradise’, 1012m²), sections now can be down at 200m².

In Auckland, now, the Government is a key participant in redeveloping at Hobsonville Point, in the Glen Innes-Tamaki area and at Northcote. The Government-owned Housing NZ is still contesting unitary plan decisions limiting what it can do on many other sites where it’s aggregated land, wants to reposition old housing or wants to do a mix of upgrade & new.

In most of the American research, apartments or other intensified housing in the city centre are compared to development on the distant suburban fringe, with no indication of how close they are to being alternative options, and no calculation of commute costs.

Commuting from Faraway

In Auckland, we have a 20km stretch through Dairy Flat, between the ridge above the Albany basin & Silverdale, and very large areas between Karaka, Pukekohe and west to the coast likely to be developed for housing. You can bet it won’t be turned over to housing at the US standard of 4 houses/acre gross (10/ha) – more likely a mix of standalones on sub-400m² sections, terraces and, a novelty, suburban apartment blocks.

Where will these residents work? Shop? How will they get there? Do we create new communities – or faraway dormitory suburbs? Will the commute be made easy first, or wait for an economic number of travellers to buy at Faraway?

What kind of local jobs will be there? Rodney District Council, in its last years before the super-city was created in 2010, envisaged an innovation zone of business & education as well as housing north-west of Silverdale, a strategy that would increase jobs & education and reduce the commute. That kind of thinking needs to be revived.

Completion of the Auckland unitary plan enables the course of infrastructure provision to be more clearly defined (the appeals still to be determined shouldn’t drastically alter this), but there will still be questionmarks over how much more intensive development might be put in train in the inner suburbs.

Back to Dr Romem

Today’s Ideas page traverses ideas on infrastructure funding, inclusionary zoning as a way of introducing some more affordable housing, and city shape (focusing on Auckland being linear, having satellites, or concentrated around nodes).

This journey over the weekend has taken me to a wide range of views on transport, land use, access – starting with American, returning to New Zealand via international links (Wendell Cox, co-author of the Demographia studies with Hugh Pavletich of Christchurch; and housing & urban development thinker Phil Hayward of Lower Hutt, whose comments appear in a couple of the international & local threads).

At my first stop, Dr Issi Romem’s Can US cities compensate for curbing sprawl by growing denser? offered 4 central points:

  • The link between housing production and outward expansion is unmistakable: cities that expand more produce proportionally more new housing
  • Throughout the country, housing production is skewed towards low density areas
  • Densification has slowed down across the board, and especially in expensive cities, undermining their ability to compensate for less outward expansion
  • Unless they enact fundamental changes that allow for substantially more densification, cities confronting growth pressure face a tradeoff between accommodating growth through outward expansion, or accepting the social implications of failing to build enough new housing.

While Dr Romem’s research shows his first point appears true historically in the US, in Auckland at least that may be much less so in the last 5 years. On his second point, land price & ease of development are the crucial factors. Auckland has a short history of apartment building (though a long history of much less intensive sausage-block flats), and it’s come in bursts. Building consents are now approaching the 2004 level, but the price range is limited – almost entirely above what’s deemed “affordable”.

Romem says less outward means less overall

Dr Romem is the chief economist at BuildZoom, a San Francisco website aimed at matching clients to construction contractors. He was previously an economist at OnPoint Analytics, earned his PhD in economics at Berkeley, and consulted for the Bay Area Council Economic Institute on matters involving transport, real estate & the regional economy.

In this report, he found that, when cities change their pace of outward expansion, their rate of housing production tends to change accordingly.

“Both expensive & expansive cities are economically vibrant and face pressure to grow, but whereas expansive cities like Atlanta, Houston & Phoenix continually provide ample new housing at affordable prices, expensive cities like San Francisco, New York & San Diego do not. Since the 1970s, expensive cities have failed to produce enough new homes to keep real housing costs steady, and as a result they have curbed their population growth and sent real housing prices on a long-run upward spiral.”

He saw 2 key reasons for housing production to correspond so closely with outward expansion:

  • Undeveloped & low density areas produce a disproportionately large share of cities’ new housing. Restricting the flow of undeveloped land “into” a city chokes off subsequent rounds of densification, because low density areas add new housing more readily than denser ones, and
  • Cities which curb their outward expansion are also likely to curb densification within the existing footprint, eg, through more restrictive land use policy.

“Housing production’s skew towards low density areas is important, because it is consistent with the notion that a greater inflow of undeveloped land helps cities produce more housing, through both initial development & subsequent rounds of densification. For reasons explained earlier, eg, with respect to vacant lots, such densification is easier in low density areas. Crucially, expansive cities’ namesake outward expansion keeps low density areas more plentiful there than in expensive cities. In contrast, expensive cities have limited their inflow of undeveloped land by curbing their outward expansion, thereby choking off the initial development of new areas as well as subsequent rounds of densification.”

Densification has slowed down across the board, but much more so in expensive cities

Dr Romem said an important development of recent decades was the increasing paucity of densification: “During the first post-war decades, it was fairly common for areas to grow more dense through construction on vacant lots, and in particular through the replacement of older structures with new ones containing more dwellings. The data show that densification has grown far less common over time, especially in the expensive cities.”

He said the results were similar for areas first developed before World War II.

“Aside from the slowdown in densification, the numbers also tell us that in the US today, substantial densification is the exception. Just 3.8% of areas adding over 1 home/acre (4/ha) and just 0.95% adding over 2 homes/acre over the span of a decade is not very much, and the fraction of areas that cross the 4- & 10-home/acre (16- & 40/ha) thresholds each decade is also exceedingly small. In fact, the vast majority of the developed area of US cities maintains a fixed level of density that doesn’t usually change much over time….

“By curbing their outward expansion, expensive cities have stemmed their subsequent supply of low density areas that are flush with opportunities for further development. A sizable share of densification occurs through infill – not the kind of infill for which planners reserve the term, but simply construction on vacant land scattered within developed areas. The best land is used first, and as densification progresses the remaining lots are fewer and increasingly more challenging to build on, until redevelopment ultimately becomes the only alternative.

“Expansive cities maintain a robust supply of fresh land that is in the early phases of the progression. In contrast, expensive cities’ reduced rate of outward expansion means that most of their land is farther along in the progression, and as a result it is getting harder for them to densify. It is no coincidence that builders today report an unprecedented shortage of vacant lots that is most pronounced in the West & the North-east, where expensive cities cluster.”

Dr Romem’s assessments may also have been true in New Zealand, Auckland in particular, but the intensification trend is strong at the moment. Building consent figures over the last 2 years show intensive housing (apartments, retirement village units, townhouses & suburban units) showed 29.4% of consents nationally were for such intensive development in the July 2015 year, falling to 28.5% of a bigger total (up from 7600 of 25,700 to 8300 of 29,000) in the July 2016 year. I don’t have the breakdown for each market segment for Auckland alone.

Auckland apartment pricing has risen since the market bottomed in 2011. The market in standalone homes has skyrocketed in that period, but the 2 markets differ in their foreign input. Overseas investors have strongly influenced recent house prices, but have had a much longer association with the apartment market, which has relied on marketing overseas in this boom & the last one to get projects started.

The path forward

Dr Romem saw 3 paths forward in the US:

  • Cities that expand with gusto will maintain housing at more affordable levels, but this will further entrench the ills associated with sprawl; today’s expansive cities are already on this path
  • Avoiding expansion, and maintaining the status quo with respect to densification, will divert population growth towards more accommodating cities and render housing increasingly unaffordable for a growing share of the population; it will unequivocally change the social character of these cities, while keeping their physical facade intact, and
  • Enacting fundamental changes to land use policy that prompt far more substantial densification than any US city has undergone to date; expensive cities would have to embrace redevelopment; if new transport infrastructure connects undeveloped areas to the city, or functionally tethers existing nearby cities to it, then such infrastructure amounts to a catalyst for expansion.

Cox says research supports stance against ‘forced density’

Wendell Cox, principal of Demographia, wrote the book War on the dream: How anti-sprawl policy threatens the quality of life 10 years ago. In an article on the New Geography website on Wednesday, The incompatibility of forced density & housing affordability, he said Dr Romem’s research “supports the conclusion that anti-sprawl policy (urban containment policy) is incompatible with housing affordability. He quoted Dr Romem’s finding: “Cities that have curbed their expansion have – with limited exception – failed to compensate with densification. As a result they have produced far less housing than they would otherwise, with severe national implications for housing affordability, geographic mobility & access to opportunity, all of which are keenly felt today as we approach the top of housing cycle.”

Journal accepts the sprawl argument

In the Wall Street Journal, Laura Kusisto wrote: “Building sprawling suburbs is better at making cities affordable than building tall towers, according to research released Wednesday. Environmentalists, urban planners & economists are pushing cities such as New York & San Francisco to build more housing to help combat rapidly rising rents and home prices that are crowding out the middle class.”

At CityLab, Richard Florida noted the expansive versus expensive comparison and said if most development was low density it would amount to sprawl even if the overall urban footprint didn’t increase, and asked: “Do we continue to try to sprawl our way to the American dream, or do we add the density that powers innovation & economic growth?”

A Planetizen report said Dr Romem’s research “shows that housing affordability increases with a region’s ability to build outwards, as opposed to upwards. Densification largely has not accompanied efforts to curb sprawl.”

The Planetizen take was that the research found “sprawl may be bad for the environment & liveability, increasing dependence on the automobile and making transit less practical, but in terms of housing affordability, it’s a winner”.

In comments on the Romem report, Phil Hayward of Lower Hutt wrote (in a much longer comment): “I believe that everywhere that intensification & redevelopment have been adopted as significant proportions of planned housing supply, the results have been the opposite of the anticipated ‘affordability’. Site values increase to incorporate ‘development potential’ as soon as any rezoning occurs, which increases the costs that developers need to sustain while at the same time reducing their margins. All the gain falls to the incumbent owners of sites. In many cases, the expected ‘supply’ does not materialise.”

Hard boundaries go as immigration spike continues

Auckland, as a region with urban boundaries for 20 years – and “hard” boundaries for most of that time, in that they weren’t easily changed without going through protracted litigation – has been the main host for 2 immigration spikes, in 2003-04 and the present one that began with the turnaround from net outflow to net inflow in January 2013.

The latest annual net inflow was 69,000, of whom 32,200 were destined for Auckland. Neither inflow has been matched by an adequate rise in housebuilding. Consents for new homes issued in the last 12 months, 29,000 nationally, 9600 in Auckland, would barely house the national inflow while the Auckland consents would be inadequate to house all the new migrants, let alone internal migration & natural increase.

That can be turned into an excuse, aided by slow consent processes. Auckland was also behind during the 2003-04 immigration spike, but builders worked to catch up

For the first of those migration spikes, Auckland’s policy statement on land use was in the hands of the now-gone regional council. For the second, it’s in the hands of the successor unitary council, and the spike has coincided with the 3 years it’s taken to get the council’s unitary plan from start to almost finished. The housing accord with the Government through that period has enabled a lift in consents, though still well short of demand, and a finalised unitary plan will make intensification easier in many areas.

The “forced density” Mr Cox writes of is not what we have in Auckland, although the Government is leading rebuilds & newbuilds in 3 suburbs – Hobsonville Point, Glen Innes-Tamaki & Northcote. 2 of those projects involve rejuvenating Housing NZ properties, with additional intensive housing, while Hobsonville Point is all new (except for repositioning of a couple of handfuls of former Defence Force houses) and is being built by private contractors.

Current consents for apartments are no longer just in the central city, and include a number of high-price projects – upward of $10,000/m² for some consented 2 years ago, higher than that for more recent projects.

Occupants of those, and of new retirement villages, will free up existing housing, much of it in city fringe suburbs. The question, then, is: Where is the supply for lower market levels?

The answer is that it’s not going to appear until land prices ease, interest rates rise, speculation diminishes and developers & designers adjust their sights.

Issi Romem, BuildZoom, 14 September 2016: Can US cities compensate for curbing sprawl by growing denser?
Wendell Cox, New Geography 21 September 2016: The incompatibility of forced density & housing affordability
Planetizen, 16 September 2016: If housing affordability is top concern, let metro regions sprawl
Wall Street Journal, 14 September 2016: What if urban sprawl is the only realistic way to create affordable cities?
Richard Florida, CityLab, 14 September 2016: The difficulties of density
Phil Hayward comment, 18 September 2016

Inclusionary housing another debate that’s international

Debates over housing affordability, inclusionary zoning, sprawl & urban boundaries are international and can often relate to what happens in Auckland.

Jamues Brasuell wrote on the Planetizen website this week that Portland, Oregon, was considering a new inclusionary zoning policy – ending a statewide ban – but some believed it would have the opposite effect to that intended.

The inclusionary zoning policy is up for debate following a decision by the state to repeal a statewide ban on inclusionary housing requirements. City Observatory columnist Joe Cortright, a panellist at an Urban Land Institute forum on it, suggested ending parking requirements instead, saying inclusionary zoning & weakened urban growth boundaries weren’t effective tools for reducing the price of housing.

Mr Cortright focused on the consequences of “bursting” Portland’s urban growth boundary, saying that possibility, combined with new inclusionary zoning, could make Portland’s affordability worse.

He argued 7 points:

  1. Affordability is about growing up, not out
  2. The market demand/affordability problem is in the urban core
  3. Adding more supply in the core is the key to addressing affordability
  4. Inclusionary zoning increases market prices
  5. Inclusionary zoning creates only token numbers of affordable units
  6. Inclusionary zoning requirements would encourage further sprawl. (Because inclusionary zoning is likely to apply only to housing built in Portland, but not in suburban jurisdictions, it will effectively be a way of penalising & disincentivising dense development in the city relative to housing on the periphery)
  7. If we want to make housing more affordable, let’s get rid of parking requirements. (Oregon actually does allow inclusionary zoning – for cars, in the form of parking requirements. Requiring parking reduces the amount of land that can be used to house people, and directly drives up the price of new homes & apartments. These costs get passed on to homebuyers & renters. Studies show that in urban centres, parking requirements drive up rents by something in the order of about $US200/month. If we want to increase affordability we ought to be getting rid of this kind of hidden housing tax).

Planetizen, 19 September 2016: Inclusionary zoning & unintended consequences
Planetizen, 4 February 2016: Cortright: Oregon legislation would make housing affordability worse
City Observatory, 3 February 2016: Bursting Portland’s urban growth boundary won’t make housing more affordable (and a number of counter points in the comments)

Infrastructure funding options

Only when it doesn’t work does anybody think about infrastructure, says Just Economics LLC director Rick Rybeck.

In an article for Revitalization News, Funding infrastructure to rebuild equitable, green prosperity, said divorcing payment from infrastructure from payment for it made it harder to understand how the money was spent.

People also didn’t understand that, when infrastructure was designed & implemented well, it often inflated the price of well-served land. Where does that lead? “The infrastructure we create to facilitate development pushes development away and is partly responsible for sprawl,” he said. User charges, including road user charges, could help focus the mind on cost.

Just Economics says on its website it helps communities harmonise economic incentives with public policy objectives to:

  • reduce blight by putting vacant & boarded-up properties back into use
  • enhance business & employment opportunities
  • fund transit & other public infrastructure
  • reduce parking & traffic congestion
  • enhance housing affordability
  • enhance the environment, and
  • reduce sprawl.

The company says it accomplishes these goals by helping communities re-engineer taxes, fees & regulations so:

  • incentives embedded in taxes, fees & regulations encourage the private sector to create jobs, affordable housing, transport efficiency & sustainable economic development
  • needed public revenues are obtained, and
  • government sustainability, efficiency & competitiveness are enhanced.

Related pieces

These articles led me to several related articles on various websites. Check them out:

Charles Marohn, Strong Towns, 19 September 2016: Infrastructure spending for dummies
Revitalization News, 15 July 2015: Funding infrastructure to rebuild equitable, green prosperity
Rick Rybeck, report for Washington DC Tax Revision Commission, 2013: Funding long-term infrastructure needs for growth, sustainability & equity
Just Economics LLC (Rick Rybeck)

Making NZ a home for planning thinkpieces

A group of professionals who want to raise the level of public debate & understanding about housing, infrastructure, cities & planning launched the Making NZ blogsite in July.

I’ve quoted some of them below about the launch & their reasoning, but Making NZ cracks a mention today because of links to a number of its contributors who’ve commented recently on topics above – notably intensification & affordability.

Blog editor Matthew Webster said the group of contributors saw affordable housing, economics, infrastructure & design as important components.

Phil Hayward, an independent researcher, writer & lobbyist on urban policy issues, said: “A lot of urban policy is based on plausible assumptions that actually are not supported by real-life experience anywhere. For example, changing zoning to allow more intense development is always forecasted to unleash far more supply of housing units than what actually ends up being built. This is mostly because these zoning changes cause land values to increase even faster than otherwise and, as Arthur Grimes pointed out in a 2010 paper, all the profit potential is captured in land values rather than in newly constructed buildings.

“We should learn from the decades of over-estimated housing supply by urban planners in the UK, and avoid a replay of their costly & now-irreversible blundering.”

Development planning consultant Phil McDermott said: “Transport policy in our largest & most troubled market aims to focus investment in already intensively developed urban areas, raising environmental & financial risks. It’s a double whammy for unaffordability. Existing urban areas with limited capacity for growth receive expensive improvements. While that will increase the desirability of living there for some of those that can afford the higher costs & inflated property values, it leaves many more stranded without access either to traditional suburban housing or to multi-unit dwellings of any quality.

“One key, in the case of Auckland, is to free up for development sufficient greenfields land so the land value/rent curve is at least stabilised from the fringe back into the inner city, allowing more affordable & better quality housing to be developed citywide.”

Andrew Atkin blog, Building Utopia, 12 June 2013: Auckland versus Los Angeles
Making NZ, for urban planning that works
Phil Hayward, Making NZ, 1 September 2016: The myth of affordable intensification
NZ Herald, 29 February 2016: Dushko Bogunovich & Matthew Bradbury: Curing Auckland’s growing pains
Peter Nunns, Transport Blog, 7 March 2016 (and a long line of comments): The linear city and other science fictions

Attribution: BuildZoom, New Geography, Planetizen, Wall St Journal, CityLab, City Observatory, Strong Towns, Revitalization News, Just Economics, Making NZ, Andrew Atkin, Phil Hayward, NZ Herald, Transport Blog

Regular leads: Planetizen.

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Little sets out 8 planks to remedy housing issues

Labour Party leader Andrew Little announced yesterday that Labour would, if elected next year, carry out 8 actions aimed at fixing the housing crisis.

They are:

  1. Build 100,000 affordable homes around the country
  2. Ban foreign speculators from buying existing homes
  3. Introduce an affordable housing authority, partnering with the private sector, to fast-track development in our cities
  4. Tax property speculators who flip houses within 5 years
  5. Help 5100 more Kiwis into emergency housing every year
  6. Make Housing NZ build more state houses & maintain them properly, rather than paying dividends & selling stock
  7. Require all rental homes to be warm, dry & safe to live in, and
  8. Abolish the urban growth boundary and allow Auckland to grow up & out.

Mr Little said: “The Kiwi dream of home ownership is slipping away and we’re facing the biggest housing crisis New Zealand has ever seen. This is a game-changing policy package to fix the housing crisis.

“Labour will establish an affordable housing authority to work with the private sector to cut through red tape and get new homes built fast. It will partner with private developers, councils & iwi to undertake major greenfields & revitalisation projects, building affordable homes with KiwiBuild & the private market. These homes will be part of great communities built around parks, shopping centres & transport links.”

The party would put all surplus urban Crown land under the control of the affordable housing authority for use in its development projects.

“Only a quarter of adults under 40 own their own home, compared to half in 1991. Too few houses are being built, which is helping to drive up prices beyond the reach of middle New Zealand, and too few of the houses that are built are affordably priced for new home buyers.

“In Auckland, despite more than 13,000 new houses being needed to keep up with population growth, just 9400 new houses were consented in the past year. The trend for new consents is falling when a dramatic increase is needed.

“The Government’s estimate that only 5% of new builds are priced in the lowest quartile means fewer than 500 affordable houses will be built in Auckland this year.

“There is no single body tasked with driving the construction of affordable homes. Most developments are smallscale & slowed down by long consenting periods. To ensure profitability, private developers focus on building large, expensive houses.

“At the same time, regional centres are crying out for redevelopment of rundown town centres & suburbs but there is no support from the Government to get this done.”

100,000 affordable homes

Mr Little said Labour’s KiwiBuild programme would build 100,000 high quality, affordable homes over 10 years, 50% of them in Auckland. Standalone houses in Auckland would cost $5-600,000, apartments & townhouses under $500,000. Outside Auckland, houses would range from $3-500,000.

Growing the building workforce

Increased house-building will require a larger workforce, but the Labour policy is aimed more widely than that: “Labour’s dole for apprenticeships policy will subsidise employers to take on around 4000 young people for on-the-job training in fields including building & construction. Labour’s policy of 3 years’ free post-school education will see tens of thousands more people study in all fields, including building & construction. KiwiBuild is projected to create 5000 new jobs at its peak.”

Remove barriers that are stopping Auckland growing up & out

“Up & out” has become a common cry, often without thought on what the “out” would achieve. The constraining urban boundaries were put in place to prevent sprawl into rural areas and to enable infrastructure to service new development most efficiently, and therefore more cheaply. Auckland’s old councils were at odds on urban growth – the outer councils were attracting more housing development but had trouble meeting the infrastructure programmes & costs, while the old Auckland City Council favoured intensification as a regional policy.

Mr Little said: “Labour will remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow, as well as stopping landbankers profiteering & holding up development. New developments, both in Auckland & the rest of New Zealand, will be funded through innovative infrastructure bonds.”

Crackdown on speculators

He said Labour would ban non-resident foreign buyers from buying existing New Zealand homes: “This will remove from the market foreign speculators who are pushing prices out of reach of first-homebuyers.”

Labour would extend the bright line test, requiring income tax to be paid on any gains from the sale of residential property, from the current 2 years to 5 years: “This will target speculators who buy houses with the aim of making a quick capital gain. Current exemptions from the bright line test will continue.”

Mr Little said Labour would consult on way to close the negative gearing loophole: “Negative gearing can be used by speculators to make taxpayers subsidise losses on their properties. This is effectively a subsidy for speculation.”

Focus Housing NZ on helping people, not making a profit

Labour will make Housing New Zealand into a public service rather than an SOE, and will substantially increase the number of state houses. Unlike the current government, Labour will not milk state housing for a dividend, and will end its programme of state house sales.

Establishing an affordable housing authority
Focus Housing NZ on helping people, not making a profit

Attribution: Party policy announcement.

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Fairgray works through the question: Who’s really the house price villain?

An historical perspective shows Auckland house prices might not be quite as far out of whack as is commonly thought.

Market Economics Ltd director Doug Fairgray presents that perspective in a column in his monthly newsletter, Is there an (urban) limit to apportioning blame?

Dr Fairgray produced the basis of Auckland Council evidence at the unitary plan hearings on many aspects of its proposal to introduce rural:urban boundaries around the region, replacing the old metropolitan urban limits, and on the availability of land to provide for housing growth over the next 30 years.

Dr Fairgray wrote in his newsletter that Prime Minister John Key, Finance Minister Bill English & Housing Minister Nick Smith had all blamed constrained land supply as the dominant influence causing high housing prices, and wanted the urban boundaries to go.

Labour housing spokesperson Phil Twyford also blamed these limits as the primary cause of Auckland’s housing supply & affordability issues.

The article below doesn’t contain all the graphic material which Dr Fairgray has posted on his newsletter. For a fuller understanding of his view, I recommend visiting that as well (click the link at the foot of this article).

Dr Fairgray wrote:

Given the urgency to rein in growth in housing prices, there also seems to be some belief that removing urban limits will result in a significant price response in the short or medium term…. Important questions arising from this are to what extent Auckland’s urban limits are really to blame for the housing affordability crisis, and which other factors may have contributed to the current situation.

Urban economies & their housing markets are complex, and the experience of those familiar with their workings tells us that important issues like housing affordability seldom arise from one dominant cause. Even more rarely are they able to be solved by simple, one-dimensional solutions.

There is plenty of information around to offer a reasonable evidence base as to the various contributing factors to the current affordability problems, and how these have acted over that time to drive prices up, drive demand up and to limit supply.

First, what actual trends in dwelling prices & housing affordability are evident over the past 25 years or so, in Auckland & across the rest of New Zealand? Auckland housing prices have long been higher than the national average. In June 1990, the median in Auckland was around $145,000 or 29% above the national median. Through the 1990s, Auckland prices grew slightly faster than the national trend, and by 2000 the median was around $240,000, or 36% above the national median (according to REINZ figures).”

[Latest figures from the Real Estate Institute show the Auckland premium in May was 59%, down from 63% a year ago].

Dr Fairgray said the period from 2000-08 was important, leading up to the GFC (global financial crisis) of 2007-08: During this period there were substantial increases in dwelling prices throughout New Zealand, with prices more than doubling in dollar terms between June 2000 and the peak in December 2007. Interestingly, the increase in Auckland prices (110%) was the lowest of all regions in percentage terms leading up to the GFC – the national average was 122%. As a consequence, by December 2007 the Auckland median price – though by now $460,000 – was ‘only’ 30% (or $105,000) above the New Zealand median.

This period is important for several reasons. First, the rates of price increase were high nationally, at 11%/year between June 2000 & December 2007 (according to CoreLogic statistics). Prices rose far ahead of inflation, so the cost of housing increased substantially in real terms, throughout the country. Second, the price increases bore little relation to underlying population growth.

Auckland had the strongest population growth (17.6%) but the lowest price growth (110%). Among the other regions, Southland had no population growth but dwelling prices increased by 208%, East Cape had population decline but a 176% increase in prices, and Canterbury had population growth of 11.8% with dwelling price growth of 167%. Clearly, substantial price increases occurred without significant population growth & associated need for urban expansion.

The dwelling price growth was driven by a number of factors, but major contributors – as identified by the Reserve Bank – were the relatively low cost of finance & the ease with which credit was available. Consumer confidence was high, it was easy for households to move upward in the housing market by simply increasing their indebtedness, sales volumes were high as the market gathered momentum and investors were attracted by the potential for good capital gains.”

What has driven recent upsurge?

The drop in confidence & building activity in the post-GFC period caused a considerable slowdown in Auckland’s new housing supply throughout the period from 2008 until 2014, which meant that the consenting & supply of new dwellings lagged well behind population growth. This gap in new dwelling supply has been an important contributor to the increase in prices since mid-2012.

However, since 2012 the difference in price growth is very marked between Auckland and the rest of the nation.

So what is driving this latest upsurge? Simply, the conditions which underpinned the price boom through the pre-GFC period have returned, but with greater effect. The principal drivers again include the ease of securing finance to purchase dwellings, stimulated by the strong competition among banks & financial institutions to increase their loan books, together with historically low interest rates making loans more affordable, and in particular the record levels of population growth in Auckland driven by record in-migration.

Investors are very active in the market, with returns from residential property being attractive compared with other investment options. While the residential construction sector has ramped up considerably, and numbers of new dwellings consented are growing steadily (9566 to March 2016 compared with 7940 a year earlier, and 6530 just 2 years earlier), pent-up demand & new demand continues to outpace the supply of new dwellings.

These key drivers are clearly recognised by the Reserve Bank, with Deputy Governor Grant Spencer noting in October 2013 that ‘the period of rapid price increases over the past 2 years has coincided with very low interest rates & easier bank credit. Banks have competed aggressively for mortgage business and this has contributed to a ramp up in housing demand, which has far exceeded the available supply…the supply of houses is an important determinant of house prices – but it is only one side of the story…. house price inflation has accelerated only over the past 2 years, over the same period that credit conditions became easier and population growth picked up with stronger net inward migration.’

The land supply question

Much of it seems to be based on the view that the rise in Auckland’s prices in the pre-GFC period was due to a shortage of land supply. And in this regard, a lot has been made of 2 simple ‘big-ticket’ numbers. One is the shift which meant that land value accounts for over 60% of Auckland residential property value, when historically land had been only 30-35% of a residential property’s total value (CV). The other has been the oft-quoted figure that land values inside the urban edge are 9 or 10 times those outside the edge, and the implication that the edge itself is responsible for the differential.

The Productivity Commission’s report into housing affordability attributed the increase in the land value component to a shortage of residential land in Auckland. However, that does not explain why dwelling price growth occurred across the whole country through the early 2000s, driven especially by easy credit & high consumer confidence. This price growth was very far ahead of population growth, in every region including Auckland, and occurred in regions where land supply to accommodate population growth was not an issue.

Also highly relevant is that a feature of the New Zealand local government structure sees each local authority requiring a general property revaluation every 3 years, during which the valuation service responsible (in most cases, QVNZ) has to examine the current property prices, as well as property trends & a range of other influences. That revaluation means each (residential) property is assigned a land value & an improvement value which is consistent with sale prices in the locality.

These changes were not unique to New Zealand. What happened in this country was part of a global pattern. Strong increases in housing prices were evident during this period in many western economies, notable examples being the UK, Australia, Canada & Ireland.


Following the GFC, there was a modest correction in housing prices throughout New Zealand, with Auckland prices dropping 10% by March 2009. Activity in the housing market was far below the pre-GFC level, with sales volumes low and consumer confidence down. With the drop in values, many house owners just sat tight, opting to ride out the decrease in property values by doing nothing, and waiting in the hope that values would increase again. Low confidence was reflected in low demand for dwellings, including new builds. However, this was not simply an Auckland issue – between 2007 & 2010 (June years), the number of new consents tumbled by 46% in Auckland, and by 37% across the rest of New Zealand.

The Auckland residential construction sector underwent major contraction, with total employment (including working proprietors) dropping by 21% by 2010, and total employee numbers dropping by 28%, according to Statistics NZ. The sector did not return to its pre-GFC size until 2014, although total employment grew by 18% to 2015.

Dwelling prices

However, the post-GFC slowdown in price growth did not last. Between June 2012 & June 2015 Auckland prices rose by 52%, far ahead of the national change. The latest REINZ figures indicate further growth of more than 12% in the year to April 2016, which suggests the total increase since 2012 will be around 65%. Auckland is now showing both high rates of increase in dwelling prices, and considerably higher rates than the rest of New Zealand, and that difference has accelerated during 2014 & 2015.

One consequence is that Auckland dwelling prices have very obviously broken away from the trends in the rest of the country. Apart from the mid-1990s, throughout the period until mid-2011, Auckland price growth was not markedly ahead of the rest of the country. Auckland’s price growth rates were higher but were not strongly out of kilter.

Population growth & in-migration

Interestingly, this Reserve Bank assessment was made in late 2013, before the current in-migration wave had really started. Rates of in-migration have a strong effect on Auckland’s dwelling prices, particularly because a substantial share of migrants locate in Auckland, whether New Zealanders returning from overseas, or citizens of other countries. This is no surprise, because population growth drives demand for more dwellings. However, while growth from natural increase is steady & quite predictable, in-migration can generate considerable extra demand within a short time frame. Figure 4 below shows the very strong coincidence between the patterns of dwelling price growth in Auckland since the early 1990s, and the levels of in-migration to Auckland.

It is also no surprise that the record levels of in-migration to Auckland seen since 2013 will have contributed strongly to the growth in dwelling prices. Over the period from 2006 to 2013, population growth was around 19,000 annually, mainly from natural increase. However, since 2013 Auckland’s annual population growth has more than doubled, and the latest migration statistics indicate that growth to June 2016 will be greater again. That means Auckland’s annual population growth over the 2014-16 period will be about 2.25 times that seen in the previous 7 years, with about 22,000 more people each year seeking somewhere to live.

Auckland’s net inflow is very predominantly citizens of other countries, and the latest Statistics NZ figures show there is still a net outflow of New Zealand citizens from Auckland. Consequently, over the 3 years to March 2016, the Auckland region had a net migration gain of 72,052, made up of a net gain of 86,207 citizens of other countries, and a net loss of 14,155 New Zealand citizens (predominantly moving to Australia). This shows quite clearly that Auckland’s migration gain is due not to New Zealanders returning from Australia, but to citizens of other countries who wish to live here.

Until 2013, the population increase translated to 7000 additional dwellings annually (at 2.75/household). However, the current levels of population growth translate to around 15,000 dwellings annually. This major jump in demand has come on top of the post-GFC construction slowdown – which was itself compounded by a deal of ‘wait & see’ around the formation of the new Auckland Council – meaning that by 2013 Auckland already had a housing shortfall in the order of 14,000 dwellings.

Given the strong causal connection between population growth & demand for housing, it is not a huge leap to make the link between the record levels of in-migration and the on-going very strong growth in dwelling prices. An MBIE briefing to senior ministers (including Mr English & Dr Smith) on housing affordability in 2014 identified a number of ‘options with a likely impact in less than 2 years include – Change migration settings [because]…Net inflows (particularly unexpected inflows) have large effects on house prices, as supply severely lags demand.’ The likely impact of reducing migration was identified as a ‘…reduction on demand, depending on scale of migration reduction’ which would be ‘…likely to particularly affect Auckland.’

All of which raises the critical question of why central government’s focus is so strongly, and very predominantly, on land supply & the price of land as the cause of the dwelling supply shortfall & the affordability crisis, and on the removal of urban limits as a primary solution.

Land supply

Much of it seems to be based on the view that the rise in Auckland’s prices in the pre-GFC period was due to a shortage of land supply. And in this regard, a lot has been made of 2 simple ‘big-ticket’ numbers. One is the shift which meant that land value accounts for over 60% of Auckland residential property value, when historically land had been only 30-35% of a residential property’s total value (CV). The other has been the oft-quoted figure that land values inside the urban edge are 9 or 10 times those outside the edge, and the implication that the edge itself is responsible for the differential.

The Productivity Commission’s report into housing affordability attributed the increase in the land value component to a shortage of residential land in Auckland. However, that does not explain why dwelling price growth occurred across the whole country through the early 2000s, driven especially by easy credit & high consumer confidence. This price growth was very far ahead of population growth, in every region including Auckland, and occurred in regions where land supply to accommodate population growth was not an issue.

Also highly relevant is that a feature of the New Zealand local government structure sees each local authority requiring a general property revaluation every 3 years, during which the valuation service responsible (in most cases, QVNZ) has to examine the current property prices, as well as property trends & a range of other influences. That revaluation means each (residential) property is assigned a land value and an improvement value which is consistent with sale prices in the locality.

Rising land values

The revaluations prepared in Auckland in the pre-GFC period had to be in line with the major growth in dwelling prices. A property’s capital value (CV) has just 2 component parts, the land value (LV) & the improvement value (IV). An important feature was that prices – and therefore values – had risen dramatically, but the replacement cost of existing improvements on residential properties had increased much more slowly. Since the CV must approximate the sale price, and there was limited underlying growth in the value of existing improvements, then the only other component to account for the increase in CV must be the land value. As a consequence, there were considerable increases recorded in residential land value for all of the territorial authorities in Auckland as the revaluations rolled out during this period.

This suggests that the Auckland-wide increase in the land value component of capital value was driven quite strongly by the overall increase in the values of existing residential properties, rather than necessarily arising as a direct consequence of a shortfall in residential land supply.

That does not mean that the supply of land for new dwellings did not have some effect. The study into Auckland’s residential land supply for the Department of Building & Housing identified how urban limits have effect on both supply & development responses, though it also concluded that “….conventional density housing is projected to be exhausted by 2023. In Auckland City, North Shore & Manukau, conventional density land supply is projected to be exhausted between 2015 & 2016, or in 7-8 years’ time.” However, the fact that there was 7-8 years’ conventional capacity remaining by 2008 indicates that land supply was one of a number of influences on the Auckland market. Consent numbers had declined considerably after 2004, the decline coinciding with a sharp drop in consumer confidence in 2005 – confidence generally being a good lead indicator of housing development trends – as well as a slowdown in net in-migration, and a slowing in dwelling price rises at that time. Hence, there is considerable evidence that a shortfall in residential land supply in Auckland was not the sole, or even the primary driver of the growth in dwelling prices, or of the shift in the structure of residential property values which saw the land component exceed the improvement component from the mid-2000s.

Also in direct contrast with the view that ‘the price of land is the primary problem’ is the research undertaken for MBIE – and contained in the November 2014 ministers’ briefing alongside the advice on migration policy. This identified in relation to Housing Accords & Special Housing Aras Act/land supply that ‘if land prices fall by 1%/quarter, the NZ regional housing model forecasts that house prices will only be 0.2% lower after 5 years’. Simply, their research showed that a drop of 19% in land price could be expected to lead to a drop of just 0.2% in house prices.

Abolishing urban limits?

Finally, setting aside for the moment the question of whether land supply & land price is the key villain in the housing market drama, the obvious question is how effective the ‘solution’ of abolishing urban limits could be, especially in the short to medium term. Identifying land for urbanisation and getting it serviced, developed & released to the market is not a short-term solution to housing prices – it does not happen overnight. Any effect which the removal of urban limits might have on land prices would take a considerable time to flow through, first to raw land prices, and subsequently to dwelling prices.

Moreover, the proposed Auckland unitary plan already would provide for new urbanisation over a very large area of land (12,000ha+ of future urban zone). It is not clear how signalling that yet more land can be urbanised is expected to reduce the cost of land, when that land already identified will take quite a few years to service & develop, and require very large expenditure on infrastructure. It is difficult to see how allowing more land to be identified as potentially urban would have any material effect on housing prices – just as the research for MBIE showed – and particularly how it could offset the much, much stronger influences of migration growth & easy access to finance.

The Auckland urban economy needs its future form & efficiency to be guided by solid evidence – not shaped by migration policy.

Market Economics memo June 2016

Attribution: Market Economics newsletter.

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