Housing Crisis Solved?


In the middle of October, something astonishing happened: the Government and the National Party held a joint news conference to announce that they had agreed on the way to make housing more affordable.

According to many opinion polls, the ludicrous level to which house prices have risen in New Zealand is the issue which is of greatest concern to the New Zealand public. And that’s hardly surprising. Relative to incomes, New Zealand house prices are now some of the most expensive in the world.

So it was perhaps not surprising that the Labour Government was willing to share the responsibility for fixing the problem with the National Party because any policy to make housing more affordable will, by definition, disadvantage those who have bought at the top of the market, often with huge dollops of borrowed money.

And the National Party would no doubt have welcomed the opportunity to portray itself as the main party of Opposition, taking a responsible and principled position in the wider interests of the whole country.

What was particularly pleasing about the announcement was that both the Government and the National Party recognized the need to move fast by amending the Resource Management Act between now and Christmas to make it easier for landowners to build more accommodation – more houses, more apartments, more granny flats or whatever – on their own property without the need to seek a resource consent for doing so.

It was a tacit acknowledgement by the Government that their attempt to achieve a comprehensive revision of the RMA by replacing it with the Natural and Built Environments Bill is hopelessly bogged down, and would in any event almost certainly make the consenting process even more constipated than it is now.

The key question remains however: will the proposed law make housing more affordable or not?

On the one hand, enabling a substantial increase in the number of houses or apartments to be built in any given area should, in principle, help satisfy the demand for accommodation, and take away some of the upward pressure on house prices.

On the other hand (economists are famous for having two hands), enabling more accommodation to be built on any particular piece of land makes that land more valuable than previously, so it will not be surprising if the price of land in some of the areas close to the centre of our major cities rises quite sharply.

Moreover, the international evidence suggests that higher population density is often associated with less affordable housing. >

What will be of fundamental importance is the extent to which land supply around the perimeter of our cities is freed up. And in that regard, the messages from the joint Government-National Party announcement were mixed.

I saw nothing in the statement by Housing Minister Megan Woods which hinted at freeing up more land. The statements by both Judith Collins and Nicola Willis (National’s Housing spokesperson), however, explicitly stated that the agreement was about building both “up and out”, implying that when the new law is enacted there will be some form of quite clear instruction to local governments to free up additional land.

When the Productivity Commission was established soon after the National-ACT Government was formed in 2008, the very first task which the Commission was asked to address was how to make housing more affordable. And in October 2012, Prime Minister John Key and Finance Minister Bill English held a press conference to announce that they accepted the conclusions of the Commission’s report, the most important of which was to free up land on the perimeter of our major cities. And over subsequent years half-hearted attempts were made to persuade local governments to do that.

But local governments were very reluctant to free up land supply. They were beset by greenies who would prefer to price lower- and middle-income people out of housing than to build over North Shore clay, and they were reluctant to foist the cost of extending road and water infrastructure onto existing ratepayers.

The politics of the situation should have been removed when, in May 2016, Labour’s Housing spokesperson Phil Twyford (then in Opposition of course) agreed with the National Government that freeing up land supply was fundamental to fixing the housing affordability problem.

“What we are calling for,” he said, “is the abolition of the urban growth boundary, not softening it, not making it more flexible. And not just doing what the Auckland Council advocates, which is periodically adding in more parcels of land zoned for development. All that does is feed the speculative land market.”

The main condition that Mr Twyford made was that development on the urban fringe must pay the full cost of the additional infrastructure required, and he proposed that Auckland Council be allowed to issue infrastructure bonds that would be repaid from rates levied on the newly developed properties over the life of the infrastructure – perhaps 40 or 50 years – rather than be paid for by upfront “development levies” which simply compound the unaffordability problem.

A substantial consensus between National and Labour had emerged, and when the Labour and New Zealand First parties formed a government the following year, the abolition of the Metropolitan Urban Limit around Auckland was an explicit promise in the Speech from the Throne outlining the new Government’s plan for the following three years.

Alas, at some point that promise was broken: abolishing the Metropolitan Urban Limit has now been explicitly rejected by the Prime Minister and appears to be off the Government’s agenda unless, perchance, last month’s bipartisan announcement is designed to provide political cover for reinstating it.

Comments by Judith Collins and Nicola Willis about the new arrangement providing the basis for building both “up and out” perhaps gives some grounds for hope, though what this means is not yet by any means clear. It may just mean the carefully constrained release of a little more land on the fringe of Auckland – to feed the speculative land market that Phil Twyford warned about.

This piece first appeared at eLocal Magazine.

Don Brash has been one of New Zealand's leading economic and financial policy advisers, and over the years he has provided advice to governments in many parts of the world – in New Zealand most obviously, but also in recent years in Indonesia, Cambodia, the Bahamas, Saudi Arabia, and the Pacific Islands.

He was Governor of the Reserve Bank of New Zealand (the nation’s central bank) for 14 years. During his tenure inflation in New Zealand was reduced to its lowest level for several decades (1988-2002). Don led the Bank through the passage of the Reserve Bank Act of 1989, pioneering legislation which both established a relationship between government and central bank which was internationally unique at that time and made the objective of monetary policy unambiguously clear – achieving and maintaining stability in the general level of prices.

Don then served in Parliament from 2002 to 2007, and led the National Party into the 2005 election, nearly doubling its share of votes, though not winning the election.

Photo credit: Auckland skyline, by Wendell Cox.