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New Zealand Govt Told to Lower House Prices - Poll

NEW ZEALAND GOVERNMENT TOLD TO LOWER HOUSE PRICES – POLL

Hugh Pavletich
Performance Urban Planning

4 December 2012

A Television One Colmar Brunton Poll found that 62% of New Zealanders want lower house prices, with 75% of young New Zealanders wanting them.

And importantly - that Government take meaningful steps to ensure affordable housing is provided.

http://tvnz.co.nz/national-news/govt-should-act-lower-house-prices-poll-5257810/video

This years 8th Annual Demographia International Housing Affordability Survey illustrates New Zealand housing is rated “severely unaffordable”, with Auckland housing at 6.4 times household incomes and earthquake ravaged Christchurch at 6.3 times (New Orleans in contrast 3.3 times).

Normal housing markets do not exceed 3.0 times annual household incomes (Median Multiples), requiring initial mortgage loads of 2.5 times annual household income.

Currently - mortgage loads of in excess of 6.0 times annual household income are common, as New Zealanders are forced to pay the current artificially inflated house prices.

The Government is acutely aware the housing market cannot be inflated by a further $100 billion through $200 billion, requiring another $25 through $50 billion of addition bubble mortgage debt – on top of the $75 billion already in there.

Deputy Prime Minister Bill English has described this unnecessary further inflation as “dangerous”.

While new starter housing is being provided on the fringes of the affordable US markets for about $US600 per square metre ALL UP , while in New Zealand it is currently $NZ2,500 per square metre ALL UP and often well beyond that.

The primary cause of the problem is the artificial constraints of land supply on the fringes, because bureaucratically bloated Local Governmentas have lost control of their costs and the capacity to meet the infrastructure responsibilities to the communities they are paid to serve.

Buggered with bureaucratic bloat.

True rural land values are in the order of $10,000 to $40,000 per hectare. By artificially strangling land supply, Local Authorities have inflated these real prices for example to nearly $0.5 million on the fringes of the small town of Rolleston (just outside Christchurch); around $1.0 million on the fringes of Christchurch and in the order of $1,25 through $1.5 million per hectare on the fringes of Auckland.

Compounding this problem and because of their insatiable need for additional revenues year after year, out of control Local Authorities over recent times have imposed spurious Development Levies of between $20,000 through $70,000 for each new lot / section created.

Little wonder that fringe sections / lots have “blown out” to $200,000 through $250,000 and beyond – when in normal housing markets they should be $50,000 or less .

This in turn has severely damaged the pricing and performance of the residential construction sector.

With new housing supply still severely constrained, these bubble prices are currently further inflating and house purchasers will soon be faced with mortgage loads of in excess of 8.0 times their annual household income.

Lending Multiples must reflect the Median Multiples of specific housing markets (refer Demographia Survey for guidance ).

Prior to the massive housing bubble collapsing in California during 2007, triggering the Global Financial Crisis, financial institutions were lending over 11 times annual household earnings .

There have been 8 years of public discussion of these issues, with the release March this year of the Productivity Commission Housing Affordability Report . the findings of the Productivity Commission are supported by extensive credible international rsearch.

The problems and solutions are clearly outlined within Cantabrians UniteChristchurch: The Way Forward ( video ).

Late October, Deputy Prime Minister and Finance Minister Hon Bill English announced the Government suite of structural solutions ( and here ) – with the focus on 4 major areas...
Increasing land supply - this will include more greenfields and brownfields developments and allow further densification of cities, where appropriate.
Reducing delays and costs of RMA processes associated with housing - this includes introducing a six-month time limit on council processing of medium-sized consents.
Improving the timely provision of infrastructure to support new housing - this will include considering new ways to co-ordinate and manage infrastructure for subdivisions.
Improving productivity in the construction sector – this includes an evaluation of the Productivity Partnership’s progress in achieving a 20 per cent increase in productivity by 2020.
In response, the Labour Party Opposition had clearly not learnt anythig since the time it was last in Government - being the creator of the current destructive housing bubble we are living with today (refer Christchurch City Council Quick Facts Graph).

The last Labour Government that was thrown out of office late 2008, artificially pumped the value of the housing market up from below $300 billion to in excess of $500 billion - unnecessarily loading New Zealand households with about $75 billion of bubble mortgage debt – borrowed offshore.

Remarkably – Labours “demand solutions” of building an additional 100,000 houses over 10 years, within a constrained market – without dealing with land supply and infrastructure financing – would prove to be unachievable and highly inflationary.

Clearly - the Labour Party is not interested in sorting out the real supply problems, so that New Zealand families can have decent homes (Labours would be British style “ratholes”) with sensible mortgage loads of 2.5 times annual household income.

The Labour response would before long force family mortgage loads up from the currently excessive 6.0 times annual household income to a stratospheric 8.0 times.

Understandably, Labours bureaucratically led “KiwiBuild” idea was widely dismissed.

Labour talking in terms of 100,000 new affordable houses over 10 years or around 10,000 per year, was however helpful in terms of emphasising the need for affordable housing.

Rather amusingly, this all proved extremely confusing for Labours Finance Spokesperson David Parker, when the Governments Housing Minister Phil Heatley noted in the Parliament that Labours proposal of a 100,000 new houses would mean a new house ever hour for every day over 1o years (actually 87,600).

By Labours Finance Spokesman David Parkers "calculated" it would be 613,000 new homes (being of the view there are 365 weeks in a year).

Possibly Mr Parker was thinking in terms of the inflationary consequences of Labours housing proposals.

ENDS

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