The Government Treasury sent incoming ministers in July a briefing paper which may have responded to the question, but went a long way wide of providing a useful answer. The Government released that paper, among a number of papers to incoming ministers, on Friday.
Treasury housing & urban growth principal analyst Bastiaan van der Scheer & manager Melody Guy opened their executive summary thus:
“We understand your goal is to take action to meet the large & growing need for warm, healthy & affordable homes. Delivering on this will require successful implementation of:
- A homelessness response, including public housing
- Government-supported affordable housing; and
- Affordable housing by the private sector.
“Successfully delivering these 3 work areas will require changes to the weighting of goals &/or incentives on government departments, councils, landowners & developers. While everyone can agree they want affordable housing, a credible path to delivering it is yet to be established in the face of current constraints.
There are a number of risks in the portfolio for you to be aware of & manage:
- Treasury & other commentators/economic forecasters expect house & rent prices to continue to increase over time, creating increased hardship, homelessness, public housing demand & fiscal costs
- Government build programmes (KiwiBuild & public housing) have not met new-build targets in the past.
You can shape existing work programmes to deliver your goals & manage the risks. We suggest this includes:
- Setting focused goals, strategy & funding for Kainga Ora to deliver public & affordable housing
- Changing requirements &/or incentives for local government to take a permissive approach to housing zoning, including using Kainga Ora in the short term; and
- Providing directives & new tools to plan, fund & finance the infrastructure needed for housing to go up & out.
The Treasury executives listed 6 points they recommended that ministers should note:
- There is a wide set of goals influencing projects in the housing portfolio
- High housing costs & poor housing quality are affecting a large portion of the population, creating a wide range of potential target groups for government assistance
- Housing costs & quality have wide-ranging impacts on wellbeing, and providing support to those without stable, warm & healthy housing will improve wellbeing
- We diagnose the high cost of housing as primarily due to land use restrictions & bulk infrastructure planning, this restricts the range of effective policy tools at your disposal to make a positive impact for a large number of New Zealanders currently facing hardship due to housing costs
- We see a benefit in narrowing the initial focus of housing agencies to:
- Using Government assistance to target those most in need;
- Using Government projects to increase the volume of houses being made, and way in which they are delivered; and
- Housing affordability through actions that lead to the removal of costly restrictions on housing supply
- We suggest the use of the following key levers to drive the housing portfolio:
- Working across Cabinet to implement changes to the way land & infrastructure is regulated & provided to enable affordable housing
- The legislation currently underway to orient & empower Kainga Ora
- Using the funding & financing work programme to select & focus Government projects on achieving your priority goals; and
- Using the public housing funding review to maximise the impact of public expenditure on housing.
A third of US cities doing better, Treasury says
In their analysis, the Treasury executives said large & growing numbers of people were priced out of warm & healthy housing, including being priced out of rentals.
They compared New Zealand’s predicament with “a third of cities in the US”, which they said were “growing, prosperous & affordable – examples include Orlando, Atlanta, Columbus, Colorado, Minneapolis & Houston”.
While the paper didn’t distinguish what made those cities so different from the New Zealand predicament, the Treasury executives said: “The lesson from these successful & affordable cities is that the institutional roles & incentives in New Zealand need rebalancing to allow those that benefit from growth to come together to plan & fund the land & infrastructure required. Achieving this will require co-ordinated actions across Cabinet.”
Land use policies
From there, the Treasury executives reverted to blaming councils’ land use policies, under the heading Land use policy drives high costs:
“Housing is expensive because councils heavily restrict land for housing in their district plans and do not plan sufficient growth bulk infrastructure. There are many reasons for this. The resulting dynamics in the land & build market exacerbate the initial shortage.
“In most New Zealand cities, the supply of greenfield land is deliberately limited, and the most in-demand brownfield land has strong height, density & other limits. The rules that determine what can be built where are hampering the flexibility of housing supply to respond to demand pressures from population growth.
“These regulations are adding a differential between the cost of producing a house when the system is responsive, and the price of existing houses in Auckland. The regulatory burden in Auckland has been assessed at around $530,000. Supply is so restricted that, at the urban boundaries of most of our major urban centres, a simple change in zoning to allow housing would add over $100,000 to the value of a section.
“High land values in the highest demand locations are not problematic for wellbeing if developers can respond by increasing the utilisation of expensive land through intensification, and urban expansion provides alternative options. In an environment where it is possible to go up & out, the abundance of opportunities can keep the cost of housing affordable for most people.
“Government support cannot meet demand unless the system changes.”
The Treasury executives suggested 3 levers for improvement in public housing functions, the first dealing with the issue of homelessness, the second with upgrading Housing NZ and revamping its funding & finance structures, the third moving to reshape Government goals, including increasing public housing & focusing on large projects.
In their advocacy of a greater public sector role, the Treasury executives said:
“An approach focused on lowering the price of housing would work to overcome housing restrictions that the private sector currently cannot. To do this, Kainga Ora (and ideally a wider set of providers) will need powers to zone land & supply infrastructure. This approach will require a more enabling & faster process for releasing land to be established for Kainga Ora as part of the ‘cut through powers’ planned for a second establishment bill.
“An example of this approach in action would be affordable housing-focused projects that bring forward land Auckland Council does not plan to release for 20 years and ‘leapfrogging’ to enable rural-zoned land in the short term.
“The limited & staged nature of current plans lead to council modelling suggesting average sales prices of $1.5 million/feasible greenfield dwelling – and will not deliver affordable housing. What does an affordability-focused approach for Kainga Ora look like?
“Inner suburbs: Purchase high value land, which will generally be close to the cbd (with existing uses), deploy Crown zoning, consenting, development planning, capital, financing & risk appetite to support medium-high density apartments where this kind of development is currently prohibited or difficult. The existing buying-off-the-plans programme is also likely to be a good platform for supporting higher density developments.
“Infill sites over 10km out from the cbd: Due to legacy landholdings, the wider Crown (including local government) is likely to have significant access to urban brownfield sites. Land can be acquired & quickly sold with minimal conditions (pace, price & scale) to private developers. This is similar to the current land-for-housing programme.
“Greenfield: Acquire rural land priced at rural levels or just above (from willing sellers), change zoning, introduce infrastructure funding & financing mechanisms (potentially including targeted rates), sell with binding conditions on pace & scale.”
In the short term, the Treasury executives said, the Government should focus its regulatory effort on enabling housing to reduce growing unmet demand:
“A generally permissive approach of enabling housing both up & out is required or prices (public & private) will continue to increase. This will require changing councils’ choices (through persuasion & incentives), requiring actions from them they do not wish to pursue (through an enforced, proscriptive & directive national policy statement) or bypassing them (through devolution &/or centralisation of functions).
“Many councils & Government agencies will be resistant to opening up the restrictions on housing supply through a generally permissive approach that includes urban expansion, as they value competing goals that they see to be in conflict. A strategy to manage this could include combining a strong case for change with mitigations for concerns such as infrastructure standards & protections for special areas from development.
“Relying in a large extent on demand-side assistance such as rental assistance & home ownership assistance will struggle to increase supply, given the constrained environment. In fact, financial support is likely to increase prices when supply is constrained. The accommodation supplement & HomeStart grants are examples of demand-side assistance.”
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Attribution: Treasury briefing paper.