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Carter: Stimulating affordable housing

Hon Chris Carter
Minister of Housing

Embargoed: 30 October 2006 Speech

Interventions to stimulate affordable housing supply

Speech to Affordable Housing Forum
Wellington Town Hall

Ladies and Gentlemen,

Whenever I think of affordable housing and homeownership, I find myself thinking of the house I grew up in.

It was a small three-bedroom cottage in working-class Panmure in Auckland.

My dad was a truck driver. He didn't have much money, but like other serviceman returning from the war in the late 1940s, he got a loan to build a house. He chose a plot of land next door to my grandparents, and my family lived in the home he constructed for 35 years. Although someone else now owns it, I still drive past it periodically with a strong sense of nostalgia.

That house was integral to my childhood. It was never flash, but it was a secure and enduring base from which my family flourished. It was ours and it entrenched us in a diverse and fun community.

Today, I own a home in Te Atatu in West Auckland, and I routinely meet young couples in similar social circumstances to that of my parents in the 1950s: young, hard-working, family-orientated people on low to modest incomes.

But where my parents and I have had the advantage of owning our own homes, these young couples increasingly do not, and many are never likely to, at least not in Auckland.

The statisticians tell us that when people of my generation were putting down roots, the average cost of a house was about three times the average household income, which was usually one income.

Today, the average national house price is 6.6 times the average household income of $50,000, which is usually made up of two incomes, and up to 8 times the average household income in Auckland.

The impact of this is obvious. In 1991 our national home ownership rate was 74 per cent and relatively stable. By 2001 it was down to 68 percent, and since then there has been a 70 per cent growth in the nominal house price.

We are not quite sure where our homeownership rates now sit, but official estimates suggest they could be down to 65 per cent, possibly as low as 61 per cent in Auckland.

If these figures are confirmed by the 2006 Census, then New Zealand will have a lower home ownership rate than Australia, the US, the UK and Canada, all of whom are already trying to boost their levels of homeownership.

To make matters worse, the impact of soaring house prices in New Zealand has been compounded by rising rents.

While rent increases have varied between urban centres and lagged behind house prices, on the whole they have exceeded the growth in incomes. Between June 2005 and June 2006, the number of recipients of the Accommodation Supplement who spent more than 50 per cent of their income on housing rose by 26 per cent.

In an environment of plunging homeownership rates, it is worth bearing in mind New Zealand has no history of long-term rental arrangements beyond state housing. Ours is a nation of Mum and Dad landlords; we have almost none of the institutional rental structures you find in Europe. And while the government has sought to prepare for a growing rental market through new changes to the Residential Tenancies Act, it will take a long time for European-style arrangements to evolve here.

The impact of this situation is beginning to be felt very keenly in a growing number of housing hotspots around the country, and the consequences are multitude. The availability of affordable housing is closely linked to the wealth and wellbeing of our children, the economic performance of our regions, the social security of our families, and the stability of our society.

The Labour-Progressive government recognises this. We believe inaction is not an option and we have been vigorously researching what has been going on in the market, and how best we might be able to help.

That work has highlighted housing supply as an area of focus.

Yes, much has been made by commentators in New Zealand of the number of baby-boomers investing in rental properties, the strong growth in bank lending, the pace of immigration and the impact this has had on the market. Internationally, rising property markets are a feature of a number of developed countries driven at least partly by a global supply of credit looking for a home.

All of these factors have contributed to the huge over-valuing of land that has occurred in recent years, but so too has housing supply, and we need to fess up to that.

The problem with supply is not that we haven't been releasing land for development as those who want to gut the Resource Management Act are fond of claiming. We've been building lots of houses; annual consents for new dwellings reached a 25-year high in 2004. But there are real questions marks over whether supply has kept pace with demand in many regions, and more importantly, what has actually been built.

The evidence coming in from research projects in areas like Nelson and Auckland shows pretty clearly we have not been building affordable housing. Whether it’s because of flaws in zoning policy or the costs for developers of gathering and holding large plots of land, homes have been built for further up the market. One indication of this trend is that house sizes nationally have increased 50 per cent over the past decade.

This failure to build affordable housing has exacerbated the pressure on first-time buyers already battling the market impacts of those other, more uncontrollable factors I outlined moments ago.

So what can we do about this situation?

The government has identified three supply-side interventions that we believe could have an impact, but we cannot hope to deliver them on our own. We need your help.

The interventions are:

- The strategic use of planning mechanisms;

- Third sector partnerships;

- And government-led development projects.

To stimulate discussion at this Forum, I want to explore each of these areas of work in detail, beginning with government-led development projects.

Government-led Development Projects

As you are aware, the government provides social housing throughout the country for those with severe housing need. For the past five years, we have been engaged in a vigorous programme of acquiring new houses to meet rising demand and tackle the waiting lists for social housing that grew up in the 1990s. We've also been involved in community renewal and modernisation programmes with our existing stock of houses.

In the course, of this work we have recognised that as we enhance the supply of social housing, it is a small step to also attempt to enhance the supply of affordable housing on crown-owned land, and meet other social objectives.

We have identified Auckland as a starting point. There are essentially two types of government-led development projects we are looking at – green field projects on surplus crown land, and brown field projects redeveloping land already in state housing.

The first cab off the rank in terms of green field projects is Hobsonville in West Auckland. There we are planning a cutting-edge community of 3000 homes. It will comprise, 15 per cent social housing, 15 per cent affordable housing, and the rest expensive or middle market private housing.

The advantage of this approach is we can increase the supply of social housing, and increase the supply of affordable housing, but do so in the context of a genuine mixed community, which is not ghettoised. State house tenants do much better when surrounded by homeowners.

In this respect, Auckland is plagued by the mistakes of history. Entrenched social problems exist in certain areas because the concentration of social housing is too high. In Tamaki, for instance, it is close to 50 per cent.

The next logical extension of the Hobsonville project is to look at what we can do in places like Tamaki in terms of redevelopment. Many of the houses in these areas are small, but on large plots of land. Housing New Zealand estimates that in Tamaki where the Corporation already has 2500 houses, we could reconfigure these properties to provide a further 3000 homes.

Details are still sketchy, but these new homes could comprise of 600 additional state homes, 500 homes for first-home buyers, 500 affordable homes for modest income families, 400 homes for the third sector, and 1000 homes for the open market.

Just by using public land you could reduce the concentration of state housing in Tamaki to 39 per cent over time, and enhance affordable housing supply in the area.

Clearly, these initiatives require the intimate involvement of local government in the planning and consenting for them. But at heart, they remain government-led actions, and as such they have limitations.

The entire state housing portfolio accounts for only 5 per cent of the property market. Whatever central government does with crown land to assist with the supply of affordable housing, we are talking about at most a few thousand affordable homes over a decade.

Yes, this can be augmented if the private sector were to dovetail their developments with those of the government in places like Tamaki, and I'm certainly keen to promote this.

But even larger opportunities for improving the supply of affordable housing lie beyond government property, and for them to take shape the lead must come from other players in the property market, such as local government, private developers, and the charitable or voluntary sector.

Strategic Use of Planning Mechanisms

Planning mechanisms are some thing every council in the country is familiar with. At present, they are used to leverage community outcomes in a whole host of ways, but what they have not been used for to date, and where there is an opportunity to do so, is to ensure a continuous supply of affordable housing.

In this respect, we are well behind the eight ball compared with our neighbour. A number of Australian states have been using planning mechanisms to provide affordable housing for some time. So too has the United Kingdom and the United States.

The range of measures used in other countries varies, but there are essentially five broad categories. They are:

- Inclusionary zoning. This is where a district plan requires affordable housing in new developments – typically 10 to 15 per cent.

- Financial contributions. These are sometimes charged in cases where a developer does not wish to include affordable housing in a development, and pays a levy instead which goes into a fund to provide affordable housing.

- Density bonuses. These reward developers for the provision of affordable housing by permitting more intensive development than they might otherwise be allowed.

- Linkage fees. These are collected from non-residential and sometimes 'market rate' residential developments for use in building lower cost homes.

- Planning incentives. These may include fast-tracking consents, waiving resource and building consent fees, and concessions on local authority rates for developers committing to building affordable housing.

Policies like these recognise that the value of land held by developers instantly rises when consenting agencies grant consents or alter planning or zoning rules in favour of developers. Other countries call this windfall for developers, 'planning gain'.

In New Zealand, the more strategic use of planning mechanisms to recoup a small social benefit for the community from this 'planning gain' could have an immediate impact. Policies like those I have described have the potential to deliver thousands of affordable homes nationally in a three to five year timeframe.

The decision to use planning mechanisms in this way is not mine to make; it is local government's. Different solutions need to be tailored to different regions depending on the severity of affordability issues in the region, and only local councils can do that.

Of course, some councils already are. I note Queenstown Lakes District Council has recently negotiated voluntary contributions for affordable housing from developers, and is intending to introduce a district plan change to promote the supply of affordable housing in their area.

I congratulate the council on their initiative, and the developers involved in it. I offer my support and that of Housing New Zealand to them. I am very much of the view that if councils and the private sector are to take these steps, then central government has a responsibility to back them up.

To date, Housing New Zealand has signed Memorandums of Understanding with five councils to promote affordable housing, and we have agreed to provide funding for an Affordable Housing Co-ordinator to work with local councils and agencies in the Nelson/Tasman/Marlborough region.

Should local government head down the path of using planning mechanisms, central government may need to review what needs to be done to the regulatory framework to facilitate such an approach. Clearly, we need to be mindful of any additional costs that councils or others might face.

There is a balance to be maintained between providing affordable housing and ensuring, not deterring good development. We need to have a think about the impact using planning mechanisms to promote affordable housing might have on the price and supply of other types of housing as well.

More work is necessary, but I note the sky hasn’t fallen in on property development in other countries that have taken this approach, quite the opposite.

And this leads us to the final area of intervention the government is exploring - third sector partnerships.

Third Sector Partnerships

If we are serious about tackling affordable housing issues in New Zealand swiftly then we need to use as many of the resources in the community we practically can.

For a while now, the Government has been aware that there is an interest in local government and in the charitable and voluntary sector to assist more actively in the provision of social and affordable housing.

Many groups, such as councils, church groups, iwi organisations, and community trusts, have substantial land holdings, and in some cases, capital that could be used to provide housing. The issue has been that the costs of entry in to housing provision are very high, and the costs for local government of reconfiguring existing social housing is similarly high.

In recognition of this, the Government set up the Housing Innovation Fund to provide seed money to build capacity in the third sector, and provide a financial leg up to councils and trusts to get more involved in housing.

To date, this Fund has performed an incubator role and the third sector involvement in housing has begun growing from a low base. However, the potential for the sector is much greater if we broaden our vision.

Elsewhere in the world, substantial housing organisations have formed, involving both local government and charitable and voluntary providers working collectively to deliver affordable housing. Many of these entities administer thousands of houses, and some have grown very rapidly indeed. The Brisbane Housing Company in Australia is on track to grow from nothing to administering a sustainable portfolio of 700 affordable homes in five years.

It is not unusual for housing organisations overseas to represent a blurring of public and private. In some countries, local councils invest the fees for affordable housing earned from leveraging planning mechanisms in the organisations, and some councils also vest existing housing stock in them alongside the assets of other private third sector partners.

In many cases, governments provide equity injections to get things going, and when the entities themselves have reached a sustainable footing they begin borrowing from private lenders to add additional affordable housing to their portfolios.

We need to start exploring whether stimulating the rapid development of a number of organisations of this scale in New Zealand could have an impact in areas where there are severe and enduring housing affordability issues.

I think we are often too precious about maintaining a paper wall between private and public activities in housing. This is not always necessary when profit is not a motive of any of those involved.

As many of you will be aware, the Government is considering introducing a shared equity scheme, and this may provide a tool for larger housing trusts if they evolve.

A shared equity scheme involves either a government or a private entity taking a share in a house of say 30 percent at no cost to the homebuyer. The homebuyer then seeks a conventional mortgage on the remainder of the property, and when the property is later sold 30 per cent of the sale price complete with capital gain is returned to the equity provider.

The advantage of these schemes is they can lower the cost of housing for modest income earners in very high priced markets. Overseas, public/private housing entities are shared equity providers alongside governments. There is no immediately obvious reason why New Zealand should be any different if the third sector here grows in the same way it has elsewhere.

In conclusion, I would like to stress this and the other ideas I've canvassed today are not yet formal government policy. Before we embark on any of them we need to consult widely, consider their implications carefully, and we need to do it together.

Having said that, I believe there is a considerable public mandate to be bold in our defence of New Zealand's traditional of home ownership. I repeat - the government does not believe inaction is an option.

People of my generation are deeply disturbed by the enormous difficulties our children face in getting in to the housing market, and housing affordability is an issue preoccupying hundreds of thousands of young households around the country. This will only intensify if the current swollen house prices bed-in.

When a survey was taken recently in Nelson/Tasman/Marlborough, the public identified housing affordability as the most serious issue facing the region. People were more worried about it than they were about crime.

I'm pretty confident similar findings would result from surveys in other housing hotspots around the country.

With this in mind, I hope your discussions today are fruitful, and I urge you to be adventurous in your thinking. I would like to issue an open invitation to any of you who would like to discuss housing affordability matters to feel free to knock on my door.

Thank you, and I gather I now have the pleasure of presenting some awards.


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