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Affordable Housing Bill Introduced

Hon Maryan Street
Minister for Housing

EMBARGOED: 2.15pm

4 December, 2007 Media Statement


Affordable Housing: Enabling Territorial Authorities Bill introduced to Parliament

Housing Minister Maryan Street today introduced a Bill designed to stimulate the provision of more affordable housing for first-home buyers and modest-income families in the rental market.

“The Affordable Housing: Enabling Territorial Authorities Bill seeks to create more choice and opportunity for families by giving councils the flexibility to promote a wider variety of house sizes, ownership models and costs in the new home market,” Maryan Street said.

“Although we are building a large number of new homes each year in New Zealand, very few have been designed for, or targeted at, first-time buyers or modest-income families. Over the past 15 years, the size of new homes has increased by 50 per cent.”

There is rising demand among local councils for tools to tackle this issue and ensure an adequate housing supply for workers crucial to local economies. This Bill delivers those tools, the minister said.

“The Bill, which is based on tried-and-tested schemes in place in the United Kingdom and the United States, will enable local authorities to address imbalances in the supply of new homes through a combination of requirements and incentives for developers.”

It seeks to balance the need for continued housing development, with the need to address affordable housing issues. It provides developers with a consistent and predictable legislative framework, while still allowing scope for flexibility and negotiation, Maryan Street said.


“The Labour-led government believes homeownership is part of our national identity and an important stabilising influence in society. The government has a responsibility to do what it can to maintain this tradition and to ensure an evenness of opportunity between generations.”

Rapidly escalating property prices have seen the rate of homeownership fall from 74 per cent to 67 per cent between 1991 and 2006. If current trends continue this rate will fall to about 62 per cent by 2016, a scenario New Zealanders do not embrace, Maryan Street said.

“The Affordable Housing: Enabling Territorial Authorities Bill will prevent the use of title covenants which are used to exclude social or affordable housing from developments.

“The use of these covenants is growing, and they unfairly affect some of the most vulnerable people in our community. Ours is a country with an egalitarian culture and we want to avoid segregation in communities.”

“This Bill is part of broader work being undertaken by the government on housing issues. It provides a solution to one part of the affordability problem and other initiatives will follow,” Maryan Street said.

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Key Elements of the Affordable Housing: Enabling Territorial Authorities Bill:

- The Bill will enable councils to require developers to either: include affordable housing in their developments, make payments towards the cost of providing affordable housing elsewhere, or provide land for the construction of affordable housing.

- However, councils can only introduce these requirements if they have first established evidence of affordable housing need in their area and developed a plan to deal with it that has been appropriately consulted on.

- Councils will be able to offset the costs developers might incur in providing some affordable housing by offering incentives to developers. These incentives may include the waiving of development contributions, or permitting greater densities in developments than might otherwise be allowed.

- Councils can decide how to administer properties obtained for affordable housing through negotiations with developers. They can: retain the properties as part of the council’s own stock, vest them in a housing trust, enter into shared equity arrangements with first-homeowners, or sell properties on the open market with deed restrictions to ensure the housing remains affordable over the longer term.

- The Bill also prevents the use of any title covenant whose principal purpose is to exclude social or affordable housing, including supported accommodation.

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Affordable Housing: Enabling Territorial Authorities Bill – Questions and Answers

How will the Bill work?

Case Study One:

A council identifies a severe shortage of affordable houses in its community. Little or no affordable housing is being built. The council develops an affordable housing policy, consults on this policy, and includes the policy in its long-term council community plan.

As part of the policy, the council decides any development of more than 10 houses in its area must make a contribution of land or houses towards affordable housing. Any developments under ten homes must pay a levy.

A developer wants to build a subdivision with 20 new houses. As part of the negotiations with the council, it is agreed that the developer will set aside 5 percent affordable housing. This translates into one affordable house in the sub-division.

The council and the developer agree that the developer will build a house to sell for an affordable price of $350,000, significantly less than the average house price for the subdivision which is $450,000.

This arrangement means the cost to the developer of the policy is the difference between the agreed affordable price and the market price for the house. In return, the council agrees to waive some of the development contributions. The developer recoups the balance of the cost by building the affordable house with a smaller floor space, a single car garage and with less expensive internal fittings than the market price houses. The external appearance of the house is otherwise indistinguishable from other houses in the development.

The house is sold to an eligible household selected using criteria developed by the council, and a caveat is placed on the house to ensure that affordability is retained when the house is eventually resold.


Case Study Two:

A council in a resort town is having trouble attracting essential workers for the local hospitality industry. After researching the issue the council finds that a shortage of affordable housing is a key reason why hospitality professionals are not moving into, or remaining in, the area.

The council adopts an affordable housing policy to promote more affordable housing to attract and retain essential workers.

A significant new development is proposed in the area. The new development includes commercial, retail, visitor accommodation and residential homes. The council estimates that the visitor accommodation is likely to employ about five employees with moderate incomes that would not be able to afford to live in the area.

The council and the developer reach an agreement. The developer agrees to provide three studio units to be made affordable to staff working in the visitor accommodation in the new development.

The units will be vested in a Community Housing Trust to manage as affordable rental housing, with only employees of the visitor accommodation able to rent a unit.

The developer also agrees that a further two residential houses will be built to an affordable price (with simple design and internal fittings) for households working in the hospitality industry. The affordable houses are purchased by the Community Housing Trust.

The Community Housing Trust sells the houses to households working in the area in a shared equity arrangement, where the Trust retains 25 percent of the share in the property.

In return for the affordable housing contributions, the council agrees to allow the developer to build at a higher density in the development than would normally be permitted in the area.


Why is the Bill necessary?

Because housing affordability is a growing issue in many communities, and this appears to be driven partly by a lack of affordable housing being constructed in new housing developments.

Councils have requested legislation to provide legal certainty to assist them with affordable housing in their local areas.

For example, Queenstown Lakes District Council is attempting to increase the supply of affordable houses in their district but do not have clear mandate to do so.

Current regulatory tools available to councils, such as the Local Government Act 2002, do not directly address the issue of affordable housing.


How many affordable houses will this Bill produce each year?

It is impossible to be precise about these figures because it depends on what happens in the wider housing market. However, officials estimate the Bill could produce up to 1000 affordable homes a year.


Will there be cost implications for developers?

It may decrease their profits, but the Bill also provides local councils with the flexibility to negotiate agreements with developers and offer incentives to offset costs. These agreements will vary depending on the scale of each development, and as a result any costs will vary.

It is possible that developers could benefit, for example, from density bonuses which would be agreed locally. Instead of building 20 houses on a site, they may be permitted to build 24.


Could developers pass any additional costs to other homebuyers?

Only if the market lets them. House prices are not simply a function of construction costs, they are a reflection of the housing market, which is influenced by a wide variety of factors.

In the United Kingdom, a much larger market, a similar policy has been in place for years and it has moderated the rate of increase in land prices over time. Rather than pass on costs to homebuyers, developers have moderated how much they pay for land in the first place to accommodate costs later in the development process.


Could the Bill restrict housing supply?

The use of regulatory tools and incentives has been well-tested over several decades in other countries, such as the United Kingdom and the United States. Evidence indicates that the adoption of the regulatory tools, in combination with incentives, does not impact on overall levels of housing production.


Is the Bill unfair on developers?

No. At present developers often make a significant windfall when a council makes a decision to change the zoning of a piece of land a developer owns to residential. The land suddenly becomes much more valuable because of the council’s decision. The Bill will simply enable the community to recoup a little more of this benefit.


Could the Bill encourage the construction of cheaply built homes in bad locations?

No, affordable homes still meet the same building quality standards required of all housing.

A developer can include lower cost housing in a development without sacrificing quality by reducing the proportions of each home and keeping to basic features consistent with an entry-level property.


Could the building of affordable housing impact on the property values of the nearby market-rate homes?

Affordable housing should not look noticeably different from full market rate housing, and if done properly, is unlikely to affect values. In many cases, small amounts of affordable housing will be integrated into much larger developments, and it is the larger proportion of the development that will set values.


What options will Councils have to manage affordable housing accumulated under the Bill?

Councils must specify in their affordable housing policy how housing will remain affordable and who will own and manage the housing.

Councils can choose to hold onto their affordable housing and these properties become part of the housing stock which they already own, such as pensioner units.

Councils can also transfer the homes to a trust or community organisation to manage, or sell them.


Where affordable homes are sold to first-time buyers, how can they be kept affordable over time?

Councils can use a variety of mechanisms.

Deed restrictions are used extensively overseas and can require that where an affordable home is on sold it is done so at the same discount off the market price that the original purchaser received.

Affordable housing can also be vested in a community trust where the trust retains ownership and management of the land while the occupier owns, or has an equity share in, the dwelling sitting on the land.

Councils may also choose to enter into shared equity arrangements, where only part of the affordable house would be sold with the remainder staying with the territorial authority or non-council body.


Why ban restrictive covenants on developments?

Some developers place covenants on property titles that stop social and supported housing providers from purchasing, or placing residents in, properties in the development. The use of these covenants is growing, and they unfairly affect children and young people. More than 50 per cent of the people in state homes are under the age of 20, and 10 per cent are over the age of 60.

The Bill will only affect new covenants on new developments, not existing ones.

Covenants used for purposes such as protecting views and sunlight (height restrictions) and maintaining a particular appearance or character of a neighbourhood (restrictions on types of buildings), will not be affected by the Bill.


ENDS

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