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Waitakere City Applauded For Land Initiatitive

“Waitakere City Applauded For Land Release Initiative – Demographia”

The Waitakere City Council ( Auckland New Zealand ) is pushing the Auckland Regional Council to allow it to release more residential, commercial and industrial land ( NZ Herald “Waitakere City to free up land” – 19 February 2006 ) following a Bayleys Real Estate Research Report identifying severe shortages of available land within the City. Waitakere City has a current population of approximately 200,000.

“Mayor Bob Harvey and the Waitakere Council people are to be applauded for this initiative”. said Hugh Pavletich, co author of the recently released 2006 Demographia International Housing Affordability Survey.

This housing affordability Survey of 100 major metropolitan areas of the six nations surveyed ( New Zealand, Australia, United States, Canada, Ireland and the United Kingdom ) rated the Auckland urban market ( of which Waitakere is a part ) as “severely unaffordable”, with a median multiple rating of 6.6 ( median household income $57,800 – median house price $383,300 ). This is the 15th worst performance of the 100 urban areas and six nations surveyed.

To qualify as “affordable”, urban areas need to achieve a median multiple of 3 or below. 24 of the 100 urban areas surveyed by Demographia currently achieve this affordability ranking. The Survey also found that most urban areas of Australia and New Zealand were historically affordable.

“Housing prices should be no more than three times incomes” said Mr Pavletich, adding “The Waitakere Council needs to release land to ensure that this is achieved again, within a reasonable time”. New Zealand is one of the least urbanised countries in the world, with just an estimated 1.42% of its land area urbanised”. ( refer attached “Estimated Urban Land Area Selected Nations Table” – Demographia. )

Pavletich is of the view that every Local Authority in New Zealand needs to assess its own housing affordability performance using the Demographia approach, set housing affordability goals and ensure they are maintained. Land releases based on land pricing changes then need to be carried out on an annual basis to ensure artificial scarcities do not occur.

“The only true measure of scarcity or abundance is price. If raw peripheral urban land ( prior to subdivision works ) exceeds the adjoining rural, this is a sure sign that the Local Authority is not doing its job properly. Its essentially rewarding land speculators and punishing the poor when this happens” said Mr Wendell Cox, the other co author of the Demographia Survey.

ENDS

Pavletich Properties Limited

PO Box 13 439

Christchurch

New Zealand

12 February 2006

Mr Bob Harvey

Mayor

Waitakere City Council

Em Bob.Harvey@waitakere.govt.nz

Auckland

New Zealand

Dear Bob,

UPDATE ON THE HOUSING AFFORDABILITY / LAND USE REGULATORY ISSUE

INTRODUCTION

As you are no doubt aware, the writer is the instigator and co author of the Demographia International Housing Affordability Survey. The 2006 2nd Edition www.demographia.com of the Survey was released 23 January 2006 and to date there have been around 60,000 copies of it downloaded. It is particularly pleasing to my good friend and co author Wendell Cox and I, to see the level of constructive debate and discussion the Survey is generating globally.

The major reason however for this letter, is simply to update you on how I see this broad issue and in how things could move from this point. It is an extremely complex one (although the key issues are not) and by no means do I have all the answers. At best I consider myself a “student’ of it and tend to think that it is too complex to ever really become an urban “expert” as such.

But I was indeed heartened to see your Council take the initiative in getting more land released in an endeavour to better meet people’s needs. Waitakere Council, is with justification, seen as a “trendsetter” in Local Government both here in New Zealand and Australia. From my perspective as a “student’ on these issues, it appears to me that more creative thinking goes on within the Waitakere Council than most others.

It is to be hoped that the Demographia Survey clearly sets out factually the serious issues we need to deal with and that these artificial land scarcity problems need to be dealt with effectively. Somehow – the regulatory mechanisms need to be put in place to ensure these scarcities do not creep up on us in the future.

These ‘artificial” property booms are hugely damaging of course, particularly as property prices become de coupled from incomes. It’s just fine of course if property prices go up PROVIDED THAT this is based on a solid foundation of rising incomes. Its pretty dumb stuff if one is living in a 100 year old hovel with an artificial value of a million bucks – and think that one is “wealthy”. This could better be described as “delusional wealth”.

IDEOLOGICAL PLANNING THE ROOT OF THE PROBLEM

The “root of the problem” as I see it, is “ideological planning” – and the few zealots (my estimate just 10% of them within Australia and New Zealand) hell bent on ramming their dystopian fantasies down the throats of their fellow land use regulators, politicians and the wider public. In my experience most of them are within the tertiary planning schools and the larger regulatory authorities. They wouldn’t last five minutes in the smaller authorities, where elected representatives and senior management understandably are closer to what’s going on. These ‘ideologues” are simply unaware (and obviously couldn’t care) that the key role of government at all levels, is to foster community cohesion – not persistent damaging community conflict and tension.

It is interesting to see that the Planning Institute of Australia is well aware of this huge problem, as outlined within tis excellent Report of last year (available from its website). The problems of low morale and high attrition rates within the land use regulatory field are by no means confined to Australia.

If the “dense thinkers” are so keen on living like battery hens, I think that is just fine (I’m all for choice Bob). They really do need to think seriously about moving to East Germany, where I understand one million of those 65 square meter slab development apartments have been vacated since reunification back in the early 1990’s.

DISCIPLINE REQUIRED WITHIN THE REGULATORY PROFESSION

It’s long overdue for the Resource Management Law Association and the Planning Institute to get together and sort this serious issue out once and for all. The (supposedly environmental effects based) Resource Management Act was enacted in 1991 after all. As far as I can tell, there are simply no professional disciplines within this important field. Try forwarding a complaint with respect to a Planners performance to the NZ Planning Institute to see what happens. Numbers of these people directing land use policy within the regulatory authorities are not even members, I understand.

In turn these ideologues create the regulatory environment, which attract the “protectionists” within the property field, to act as their “cheerleaders”. I see this as the “unholy alliance”, with the former being on a “power trip” and the latter egging them on, to shut the competition out, generate easy monopoly profits and take the wider public to the cleaners. I am sometimes surprised in how elected representatives at both local and central government level are not more alert to this nonsense. As the “peoples representatives” they need to be.

In my experience (over a quarter century as a property practitioner / industry leader) the vast majority of the people working in the land use regulatory field are fine, dedicated people. Some of them I am fortunate enough to say are personal friends. The ideologues create massive problems for these people of course.

Land use regulatory administrators in my view, need to better focus on assisting others in meeting peoples needs, whilst protecting the environment, with reasoned and reasonable environmental standards. They should never see themselves as “urban experts” as they have neither the practical expertise or training for this work, These people need to realise too that we do not appear in Australia and New Zealand to have economists with any expertise in “urban economics”.

THE LACK OF URBAN ECONOMISTS

I would suggest you read some of my recent public comments (Google News – “Demographia” and “Hugh Pavletich”) with respect to economists and their “perceptions” of the urban property market. I have also “dished it up” recently to the Property Council of New Zealand, Real Estate Institute of New Zealand, Local Government New Zealand and the Planning Institute of Australia.

It would be fair to say, I think, that the 2nd Edition Demographia Survey findings on monetary issues, that interest rates only have a minor (at best) impact on the property market, whilst “supply” is the main driver. This will come as quite a shock to most of them. I am sure that the 2006 Demographia Figure 8 Page 13 is now copied and framed on the wall of the offices within Treasury and the Reserve Bank. With all due respect, I was pleased that the New Zealand Reserve Bank Governor, Dr Bollard in his latest announcement Thursday 26 January “lightened up’ on housing market comments and spoke instead of New Zealand’s “global challenges”.

I am not at all too sure why economists seem to have such an inadequate understanding of the urban property market. Some have suggested to me that because of the hugely varying individual urban areas regulatory influences, they can’t “model” it. Much of what passes for “property commentary” is barely disguised marketing, dressed up as research. I suspect a lot of this “misinformation” is due to the reality, that many of these people have simply academic qualifications with no practical experience operating within the property market.

So what I’m saying here Bob is – why not let the economists get themselves up to speed first on “urban economics” – without expecting the same of the land use regulators at this stage. The latter have enough to deal with in getting some “disciplines” in to their own field.

THE OBSOLETE THINKING OF BELTS AND BOUNDARIES

I do hope that when you and your Council people discuss the “land issue” with your colleagues at the Auckland Regional Council, that the whole issue of “Urban Growth Boundaries” and “Green Belts” is discussed as well. My view is that this thinking is obsolete and hugely damaging (you only have to read the Demographia Survey to see that) and that the thinking instead needs to move towards “Green Space” and the further creation of this to enhance our urban environments.

With “belts” or “boundaries” all that results is that “sprawl” is converted to “splatter”. And of course the former is considerably less disruptive and less expensive than the latter. People after all have to live some place. The only really limiting factor is “economic”. Those in the regulatory field need to better appreciate just how much the economic cost is of “urbanising” say a square kilometre. It is massive. And it is not as though New Zealand (and Australia even less so) is heavily urbanised (around 1.4% of NZ total land area ; 0.25% Australia – refer Demographia Table with today’s Media Release).

THE NEED FOR FACTS BASED RESEARCH

You will note with the Demographia Survey, that it is strictly “facts based” – and that we have deliberately kept clear of ideology. We desperately need to see more “facts based” research associated with Local Government issues. From this Survey, we would like to see national organisations such as the Real Estate Institute of New Zealand and Local Government New Zealand working together, using the Demographia approach (i.e. median multiples) to assess both the current and historic housing affordability levels, within each Local Authority area of New Zealand. The International Demographia Survey is an “alive” document (electronic on the web) and is capable of being constantly updated and added to. We would “link through” to these national or state surveys (provided they follow the Demographia methodology strictly) as they are generated. Already the State Division of one of the lead Australian property organisation is in the process of completing a survey of this nature.

There is also an urgent need for national research to be undertaken on the differences in land pricing of the peripheral land of our urban areas. Specifically, the differences in land pricing between the peripheral raw urban (i.e. prior to any subdivision works) and the adjoining rural. Note the “rural” that is too close to our urban areas influenced by potentially future urban zoning must be avoided though. So particular care would need to be taken to ensure it is “true rural” pricing. Again, it seems likely that Local Government New Zealand and the Real Estate Institute of New Zealand could be the best placed to undertake this work.

NEW ZEALAND CONSTRUCTION COST PROBLEMS

You are probably aware that New Zealand construction costs are excessive. It is my view (as a long term industry practitioner) that this has been caused by persistent land supply strangulation in this country. Remember the waves of construction people who left our shores through the 1980’s and 1990’s for Australia, because work “dried up” here? Australia has been a huge and welcoming beneficiary of these people.

To give you some idea of these “pricing differences” lets consider standard quality housing. In Western Australia it is about $Aus450 per square metre, the eastern seaboard $Aus550 to $Aus650 and New Zealand in the order of $NZ950 - $NZ1,100. The New Zealand Centre for Housing Research commissioned DTZ NZ Ltd to research this issue back in 2004. A report “Housing Costs” is available from the CHRANZ website. It was however regrettably “shallow” and did not go much past Quantity Surveyors “assessments” in getting to the bottom of these massive differences, for the extraordinary reason of “commercial confidentiality”. Let’s hope we see authoritative and exhaustively detailed research, so that these pricing differences are clearly identified.

I am sure that these land scarcity generated problems have severely damaged the delicate structures and systems within our residential construction sector. These are likely to take many years to “heal”, but will only occur if the land supply issue is sorted out first. This will then give the hugely competitive residential construction sector the necessary confidence to re establish these systems and structures. This would be “hurried along” by Australian residential production builders (the best in the world) having the confidence to establish here as well.

If you can find the time, I would suggest reading the book “The Power of Productivity” by William Lewis of the McKinsey’s Global Institute, where his organisation carried out exhaustive research of construction industries around the world. It was found that Australia was one of the two best global performers. In the context of Australia, my understanding is that the Western Australian residential construction sector is the most innovative and productive.

We should not lose sight of the other “best performers” globally identified as “affordable” (24 urban markets) within the latest Demographia Survey. In Houston for example (with a median multiple of 2.9 – Auckland in contrast 6.6) new starter homes WITH LAND are being sold for around $US800 per square metre building all up. This means that a new 100 square home on say a 700 square metre lot / section sells for $US80,000 – a 200 square metre house for $US160,000. It’s well worthwhile checking out the Houston Association of Realtors website www.har.com and click through “Houses for Sale” and check out their Monthly Market Reports and “Subdivision Research” down the right hand side. You will note that vast tracts of existing housing are priced at $US800, $US700, $US600 per square metre and even less, I am sure that we would find this repeated through the south, inland east, central United States and Canada. They would have to – in achieving median multiples at or below 3 within the Demographia Survey. While of course these figures could be described as “surprisingly good”, one needs to bear in mind that the United States production residential sector is not as productive as the Australian one. Various studies I have read indicate that the Australian industry is in the order of 10 – 20% more productive than the United States one.

AUSTRALIA IS DEALING WITH THE LAND PROBLEM

I am confident Australia is well on the way to working through these “land issues”. The Melbourne M2030 Plan looks like it’s on the way out and it has created massive political problems for the Brack’s Government in Victoria. Just prior to Christmas a further 25 years supply of residential land was released in Melbourne. Further land releases are underway in Adelaide, Sydney and Brisbane and I have every expectation that this is just the start of it in Australia. So in reality, New Zealand has no option other than to “get on with it”. Unless if course, we want to see increasing migration to Australia.

CONCLUSION

It is particularly heartening to see the change in attitudes occurring both here and in Australia to the seriousness of this issue. People are generally aware that urban property prices are “artificially inflated” and the social costs this is inflicting. The property organisations on both sides of the Tasman are in my view now acting far more responsibly, than was the case just a year or two ago. Again, the “booster” talk has died down and they appear to be more willing to play a constructive role, in working with others in solving this problem. Particular note must be made of the Real Estate Institute of Australia and the Property Council of Australia. I expect their New Zealand counterparts to follow this lead and others too.

I do trust these few points are of assistance Bob as you and the people at the Waitakere City Council work with others in finding solutions to these issues.

With best regards,

Yours sincerely,

Hugh Pavletich FDIA

Co author – 2006 Demographia International Housing Affordability Survey www.demographia.com

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