13 February 2019

Cr Greg Sayers, Auckland Council

Auckland is the ninth most unaffordable city in the world. How can that be?

Auckland is a beautiful and vibrant city with many highly desirable qualities, however, its housing costs are out of control. This is particularly true for first home buyers, people who are renting and those who are on fixed incomes.

Such a large amount of people’s disposable income is being spent on housing they are struggling to get ahead. As a city we need to recognise this is a moral issue that should be addressed.

The Crown, and the building industry, cannot fix this issue on their own. Surprisingly, it is in fact the local government authority who can have the greatest impact on solving Auckland’s housing crisis.

In comparison with other cities around the world Auckland’s population is relatively low, so why is housing affordability at crisis point for so many?

The answer to this can largely be explained because of the price of land, and particularly the price of a bare section. This is where Auckland Council comes into fixing the Auckland housing crisis.

Bare land section prices have been driven up by 1,500% because Auckland’s politicians had an artificially growth barrier drawn around the city to fence off outward growth. Called the rural-urban-boundary, or RUB, it is this Council-led regulation that has made it impossible for anyone to build an affordable home anywhere because section prices are now unaffordable to begin with.

According to the property industry the value of basic rural land on the outskirts of Auckland is approximately $150,000 per hectare. That same rural land, when placed inside the RUB is worth around $2 million per hectare. This differential is entirely due to the RUB put in place by the Auckland Council.

Yet we are hearing every little about this, in the meantime government ministers, the Resource Management Act and the building industry are making the headlines in the Press.

Don’t get me wrong, central Government does play a role in solving the Housing Crisis. Auckland Council cannot control immigration policy, visa types, or foreigners owning property. It cannot control the banking regulatory environment, the building material supply chain or the pricing of building materials, or labour skills shortages. It can’t simply vote in changes to the Resource Management Act (RMA).

However, Auckland Council can make a colossal impact on housing affordability by removing the RUB. This has to be on the proviso of simultaneously protecting the environment, protecting vital food growing soils, building the required infrastructure and ensuring any outward growth is managed appropriately to produce thriving communities - as cities successfully do elsewhere around the world. Auckland needs to build both up and out if it is serious about affordable housing becoming a reality.

The other way Auckland Council can significantly assist is by speeding up its building consent processing times.

If we accept the Auckland Council’s chief economist’s figures, then every new property in Auckland has $285,000 of regulation attached to it. Do new home builders get $285,000 of value back from the Council? Is it even moral to accept this huge level of regulatory cost and impose it onto first home buyers?

Dealing with housing affordability is a moral issue for Aucklanders. The ugly social outcomes of the housing crisis include an increasing wealth gap between the have and have nots, growing poverty, increasing homelessness, the emergence of third world diseases from overcrowding, and becoming the ninth most unaffordable city on the planet.

It is also morally wrong that so many of the next generation have given up any hope on the Kiwi dream of being able to own a home.

There are downsides to growth outwards. Any downside is important to consider, but the moral question for Aucklanders remains: Are these downsides more important than putting an affordable roof over people’s heads, or allowing enough money to be left over from paying the rent or mortgage for families to put decent food on the table, or to buy their child’s school uniform?

Auckland Council has not even defined what the price of an affordable house should be. Therefore, without such a target the Council is rudderless in being able to steer towards affordable housing for its citizens.

International best practice defines an affordable house as being three times the median household income of that city. Auckland’s median house prices are currently over nine times the median household income. Auckland has an international ranking which translates to the city being severely unaffordable.

At any given time there are complicated market forces at work in the property market. However, if land prices were made more affordable in new subdivisions, then these same market forces would also start to ease all house prices back, or see them level out for many years. This would allow the gap between median household incomes and the median house price to swing back into balance.

Fears that there could be a housing crash because of Auckland Council are unfounded. Aucklanders worried and planning to sell up and buy in another New Zealand town city because they feel can do better, or that they are going to be stripped of wealth, can take comfort. The ripple effect of any land value decline for existing homeowners would take years, perhaps even decades, to take effect. But something needs to change now to start the processes that will finally fix Aiuckland’s housing crisis.

When a large correction to house prices does come, which it inevitably will as part of normal economic cycles, the consequences for those with huge mortgages could be devastating. Even a small increase in interest rates means considerable repayment issues for those who are highly leveraged. There could be a swath of mortgagee sales. But here’s the point, things should not be this way in the first place.

So, should Auckland Council implement new city planning policies that start the process of reversing artificially inflated house pricing, which will also address the ugly moral social outcomes we are all witnessing? Or would Aucklanders prefer Auckland Council stuck with the status quo?

ends

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