Housing Affordability
The Productivity Commission has released a draft report into housing affordability.
If you do not wish to read the full 259 pages, there is a 40 page summary and even a four page brochure.
The Productivity Commission is based on the Australian model which has strong support from Governments of both sides of politics. It has been the ongoing commitment to reforms such as those proposed by the Australian Productivity Commission, which has seen Australia move more and more ahead of New Zealand. If we do not act on recommendations for improved productivity, then there is a cost.
They observe:
… the distribution of house prices in Auckland is now markedly different to that in the rest of New Zealand, particularly at the lower end of the Auckland housing market. For example, between 1995 and 2011, the gap between lower quartile house prices in Auckland vis-à-vis the rest of the country increased by over 260% in real terms.
This means that for people in Auckland, even the less expensive homes are becoming unaffordable for many.
Section prices have grown more quickly than house prices over the last 20 years, indicating that appreciating land prices have been a key driver of house price inflation in New Zealand. This suggests a shortage of residential land in places where people want to live. Land price pressures have been particularly acute in Auckland, where section prices now account for around 60% of the cost of a new dwelling, compared with 40% in the rest of New Zealand.
They note:
The prevailing approach to urban planning in New Zealand has a negative influence on housing affordability in our faster growing cities. The widespread planning preference for increasing residential density, and limiting greenfield development to achieve this, places upward pressure on house prices across the board. Constraints on the release of new residential land create scarcity, limit housing choice, and are increasing prices across the market.
It’s simple demand and supply. If politicians restrict the supply of land, of course demand will push the price up. Measures around the tax system can make an impact around the margins, but one has to also get the fundamentals right.
They recommend local authorities:
- take a more active approach to the identification, consenting, release, and development of land for housing in the inner city, suburbs, and city edge, both with respect to volumes of consented land and the time taken to achieve consents;
- adopt a strategy that allows for both intensification within existing urban boundaries and orderly expansion beyond them;
The Auckland Council especially has to release more land for development, otherwise a generation of middle to lower income Aucklanders will never have an opportunity of home ownership. Those poorer Aucklanders will be locked into being tenants for life, funding the retirements of the well off.
They also note the large sums of money now being spent on subsidising rental housing, and how this will increase significantly in future if fewer people can own their own home:
- $564m on income related rents for 69,000 state houses
- Accommodation Supplement of $1,200m paid to 320,000 people (around 50% of all renters)
- $36m on community housing providers
Feedback is open on the draft report for a couple of months.