Good news for landlords, not for renters

Hey guys, guess what? GOOD NEWS! TradeMe Property has analysed house rental listings for the last three months and determined that tenant demand is up. The number of enquiries from potential tenants about rental properties in the December quarter was up 13 percent since the same time in 2010. Great news, right?

If you’re a landlord.

If you’re a potential tenant, it’s crap news. It probably means endless rejected applications, missing out on the rare gems that are suitable and reasonably priced in a matter of minutes, and ending up signing a lease for an overpriced or unsuitable home just because you’re scared you won’t find something else. It means landlords can charge what they like because they know they’ll find someone willing to pay more than you. If you have children, pets, or other special circumstances, you probably won’t even get a look in because it’s just easier for the landlord (or property manager) to let to someone less complicated.

So yes, good news is definitely in the eye of the beholder. TradeMe’s stats also add weight to evidence of an emerging housing shortage, which is also bad news for all of us. As Metiria pointed out to interest.co.nz last year, a lack of supply drives rents up, and the Government foots part of the bill via the Accommodation Supplement (AS).

The AS is a government payment to people deemed unable to fully meet their housing costs (board, rent, or mortgage) and it cost the Government $1.2 billion in the year to June 2011. The Government’s official projections don’t predict a major increase in spending on the AS in the next five years, but the Housing Shareholders Association and the Salvation Army say a combination of lack of supply, increasing rents, and an increase in the number of people claiming the AS as the recession bites mean the real cost could be much higher, perhaps as much as $2.2 billion per annum by 2016.

So not only will more people struggle to make ends meet paying higher rents (one quarter of all New Zealand households now spend more than 30 percent of their income on housing costs), with the resulting poor consequences for children and families, but the cost to the Government is significant. And instead of improving outcomes for those to whom the AS is targeted, the main beneficiaries are landlords and property investors, to whom it is effectively a subsidy. There’s something very wrong with this picture.

Without messing with the AS (which hundreds of thousands of people now rely on), wouldn’t it be wise for the Government to invest in the easing the supply side of the housing market, by increasing the provision of affordable state and social housing?

The Green Party has proposed building 2,000 new state and community houses before the rebuild of Christchurch gets underway, to create employment, help to ease housing demand, and keep skilled builders in New Zealand where they’re desperately needed.

What do you think?

32 thoughts on “Good news for landlords, not for renters

  1. An excellent idea. We should move to a world where a community/state rental is an option for anyone who doesn’t want the burden of a mortgage, whatever their financial circumstances. Stop state housing being just for poor people.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  2. If the accomodation suppliment cost the taxpayer $1.2 billion a year as claimed, then that sounds like a jolly gopod reason to dump it. There are many things 1.2 billion could be better spent on (or better, given nback to the taxpyer).

    Sounds like Holly has the beginnings of a reasonable argument for less government interference/subsidisation/manipulation to me!

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  3. Why should the crown invest in more state housing, a subsidy for some that can access, and continue the culture of reliance on the crown?

    Then when the crown wants to redevelop, as in GI, some complain that its not fair to shift them from their subsidised accom after 40 years.

    It is not a solution to the real issues.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  4. State housing and subsidies aren’t the correct answer, but they are the answer we have.

    For many decades the salary multiplier for a housing loan was 3.5x the main earner, and with median house prices now over $350K in pretty much all parts of NZ, that would suggest a median wage required of getting on for $100K.

    We aren’t within a light year of that.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  5. Someone has pointed out that the way my last paragraph reads it could imply we want to delay the rebuild in Chch until we’ve built 2000 additional state and community houses – which obviously is not the case! Thanks Aaron for pointing it out :)

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  6. The suggestion that subsidies need to be removed and not to invest in state houses will only make things worse. Because there is a housing shortage and there is competition for those houses, rental costs will not drop if the subsidy is removed and families will just have to cut back on other essentials such as food to pay the rent (there was a good reason for bringing in the subsidy in the first place). State housing used to provide decent homes for those who were struggling to afford them and although we could have endless debates around whether the state should only provide emergency housing and not longer term, a lot depends on what is available privately.

    If we left private landlords to provide housing for the poor the standard of that housing would not be high due to the economics around providing goods houses at low rentals. State houses meant that those struggling on minimal incomes could bring up their children in healthy environments and give those children the same opportunities as John Key. It would be interesting to compare the percentage of state housing now to that of the fifties.

    There are many here claiming state housing and housing subsidies are just creating reliance on the state but no one has suggested how the alternative would operate. I wonder if raising minimum wages and minimum housing standards would also be part of the solution. I get the feeling many contributors here would be happy supporting rogue landlords, dodgy housing and families living on the streets.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  7. Landlord here.

    Contrary to popular opinion, we cannot “charge what (we) like” because the market sets the price, not us.

    I’m in the process of getting new tenants at the moment. There is no shortage of tenants, however if you try to set the rent above their ability to pay, they – quite rightly – disappear. As it is, I’ll be renting it at a 6% return. It’s not really worth the bother, unless capital gains are making up the difference, which they’re not, at present. Still, it’s a long term game.

    The problem is on the supply side. There’s a shortage of supply due to excessive regulation limiting development. And development is expensive, due to excessive compliance and ticket clicking, thus driving up the rents to cover costs. Then, if the tenants can’t pay at that level, there’s no point being in the property market, so why bother building?

    Make life easier for developers and you’ll see cheaper rents.

    because they know they’ll find someone willing to pay more than you. If you have children, pets, or other special circumstances, you probably won’t even get a look in because it’s just easier for the landlord (or property manager) to let to someone less complicated.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  8. The Green Party has proposed building 2,000 new state and community houses before the rebuild of Christchurch gets underway, to create employment, help to ease housing demand, and keep skilled builders in New Zealand where they’re desperately needed.

    What do you think?

    The problem with building more state houses is that state house suburbs are dens of crime – just look at how high crime is in suburbs such as Otara. What you are essentially doing is giving a solution where the tenant might pay less in rent, but within a few weeks of moving in, all their nice things are gone because they have been burgled.

    The solution to the problem is what Elsie has said above – make life easier for developers. Get the notion out of your heads that you need high density apartment living to make public transport viable because in fact you do not; all you need is the provision of the service and a typical suburban density.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  9. As one of the 25% paying more than 30% of my income on housing costs – it’s a meaningless statistic. I pay more than 30% of my income on a home loan, insurance and rates. But it’s a choice – if I paid less the loan would take longer to repay.

    However, if the measure was just interest then that figure would drop to a lot less. If the statistic excluded principal repayments then we could get a better understanding of those truly in need.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  10. To John-ston and Elsie, Getting rid of minimum parking requirements would make life easier for developers, and investing in publicly managed parking, better walking and cycling, and public transport would reduce transport costs for local government, central government and households/businesses. And it would have a positive impact on public health, environmental outcomes etc.

    Getting rid of the MUL would result in temporarily reduced housing costs, but increase transport costs, as well as water infrastructure, worse congestion, increasing obesity, car crashes, etc etc.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  11. One reason for the slowdown in new home building (that leads to shortage) was the loss of finance companies that funded new developments, the other the general risk of lending to developers in a (prolonged) economic downturn.

    The government could simply build 10,000 new homes and then sell them onto the market. This costs the government nothing in the long term, generates economic activity (increasing tax returns) and prevents a housing shortage keeping homes more affordable – both to rent and to own.

    Keeping down property values reduces our dependence on foreign borrowing to own housing.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  12. Julie,

    Yes, the requirement to build carparks adds cost. For tenants, and councils, not to demand carparks would require significant levels of public transport in place.

    Another thing to consider is infill regulation in the suburbs. By the time one has developed land, and gone through all the cost of compliance, the only thing that makes fiscal sense is a McMansion.

    If we are to have smart growth planning, and you still want cheap accommodation, then make it easier for developers to go med/high density.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  13. The government could simply build 10,000 new homes and then sell them onto the market. This costs the government nothing in the long term, generates economic activity (increasing tax returns) and prevents a housing shortage keeping homes more affordable – both to rent and to own.

    Given the building and compliance regulations, government will face exactly the same hurdles that prevent developers building 10K new homes.

    You really think bureaucrats will be able to acquire land, plan and manage construction more cost-effectively than developers? The only reason developers aren’t doing it now is there is high risk and little margin in it. This is why they tend to develop land blocks and sell off the sections.

    The problem is in the regulation. Creating the supply is expensive, no matter who is signing off the check.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  14. please build more state housing – and build them well, dry, with double glazing and passive solar heating. And then tell me how I – a renter with a job and income can get one. The current rental stock is so so bad. ( but then so is the rest of the stock too).

    But most of all lets see some tenancy security – As in the UK I would like, if I have been in my rental for 2+ years to have some reasonable security that I will be able to stay there as long as I need to. This would give landlords a much more secure long term reliable income.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  15. To John-ston and Elsie, Getting rid of minimum parking requirements would make life easier for developers, and investing in publicly managed parking, better walking and cycling, and public transport would reduce transport costs for local government, central government and households/businesses. And it would have a positive impact on public health, environmental outcomes etc.

    I agree that getting rid of minimum parking requirements would make life easier for developers, but it still wouldn’t make housing any cheaper. The thing you forget is that medium density housing requires a lot of land to make it financially viable – and it can take years before a developer has acquired all the lots that are necessary. One option would be going for higher density – like the apartment towers which exist in Herne Bay, Epsom and Remuera, although I am not sure whether people would really be keen on living next to an apartment block.

    Getting rid of the MUL would result in temporarily reduced housing costs

    Nice to see that you agree that the Metropolitan Urban Limit is driving up house prices.

    but increase transport costs

    I am going to beg to differ there – the costs of retrofitting the infrastructure of a city costs a lot more than building infrastructure on virgin soil. For instance, the Auckland CBD Loop is expected to cost a fraction under $2 billion. The Australians managed to get a 72km long double track commuter railway, rolling stock for that railway, extensions to platforms on an existing railway and an extension to that line all for the same cost (give or take a few hundred million). Incidentally, that railway goes half through the countryside (although that countryside is fast being developed) and a mere four years after its opening, it carried 18.5 million passengers in a single year (Jul 2010-Jun 2011).

    as well as water infrastructure

    Again, I am going to suggest that the costs of retrofitting infrastructure are going to be quite high in this case – especially given that in many of the areas where denser development would make sense still have combined sewerage/stormwater systems.

    worse congestion

    How? Oh that’s right, by virtue of living in the suburbs, people are wedded to their cars – what complete and utter nonsense. Every single day, over 8,000 people board trains leaving Penrith Station in Sydney’s west; every single day, over 5,000 people board trains leaving Gosford Station some 50km to the north of Sydney; every single day, thousands board trains leaving Bendigo, Ballarat and Geelong bound for Melbourne – even though those towns are at least 75km away from Melbourne. Every morning, over 2000 people board trains at Petrie Station, some 30km to the north of Brisbane; 25km to the north-west of Brisbane, some 1800 people do the same thing at Ferny Grove Station.

    And I was just looking at the examples I am particularly familiar with – globally, people living in suburbs board public transport every single day as they head to their employment, and other daily activities. You don’t need Tokyo style living to get decent public transport use – you just need the service.

    increasing obesity, car crashes, etc etc.

    Read above – there is no commandment stating that When Ye Have Suburbs, Thou Shalt Not Use Public Transport.

    Of course, even then, you completely ignore the costs of declining housing affordability – the costs to people who are forced to move on a regular basis; the inability to retire since they still need a sizeable income to pay the landlord, &c.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  16. I think you underestimate the impact of parking requirements on land and housing prices. It can be as much as 25%, especially for medium density. Total value of land tied up in parking is at least $10b annualised, and that’s all been shifted to the real estate sector. I’m not advocating Tokyo style development by the way. High rise has many sustainability challenges. One advantage of brownfields redevelopment is that things are closer and more people can walk and cycle.. Traveling longer distances will always cost more. The parking supply is so huge at the moment, we really nefusty make use of all that land which is just lying fallow and won’t cost much to develop over. I think until we rectify all the land development and transport market distractions of the last 50 years, the MUL will do more good than harm. In fact, MUL increasing land values actually motivates high quality, medium density redevelopment of existing urban areas. There are many other factors affecting housing affordability that we need to address as well, like CGT.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  17. I think you underestimate the impact of parking requirements on land and housing prices. It can be as much as 25%, especially for medium density. Total value of land tied up in parking is at least $10b annualised, and that’s all been shifted to the real estate sector.

    I am not going to disagree that minimum parking requirements do have an impact – what I am saying though is that trying to build medium density, even in the absence of minimum parking requirements is a major problem – to build something like Ellerslie Gardens requires a decent block of land; at least an acre. When you have suburbs that have already been divided into sections of a quarter acre (or less), then you have to purchase adjacent blocks and that can take years.

    In terms of the total value of land tied up in parking, I am going to bet that is mostly in commercial premises, and I am going to bet that even if they weren’t required to, they would still provide the parking, in part because having that land makes it easier to expand (this especially being the case for industrial concerns).

    Traveling longer distances will always cost more.

    Yes, and I would point out that at least theoretically speaking, the value of land would reduce as a result of that distance. Everything else being equal, if someone had the choice between a house that is 15km away from work and a house that is 30km away from work, they would choose the former.

    However, from an infrastructural cost, building infrastructure on undeveloped land is always going to cost less than retrofitting infrastructure.

    The parking supply is so huge at the moment, we really nefusty make use of all that land which is just lying fallow and won’t cost much to develop over

    Aside from industrial areas and around shopping centres, all that land that is used for parking is in broken up little bits which makes it near useless for development, and I can bet your bottom dollar that the industrial owners of land are unlikely to develop their parking land immediately (they would retain it for future expansion), and neither would the shopping centres (if a shopping centre slashed its carparking capacity whilst another one kept theirs, then the customers would flee, all things being equal).

    I think until we rectify all the land development and transport market distractions of the last 50 years, the MUL will do more good than harm.

    I am going to completely disagree there – by forcing house prices upward, the Metropolitan Urban Limit has made life a living hell for the working class and increasing numbers of the middle class. They are unable to afford their own home, which means that they are going to be spending the rest of their lifes paying rent and enriching a landlord. They are never going to be able to retire because any money they get from New Zealand Superannuation would barely cover the rent, let alone any other living expenses. They are going to move from house to house every few years at the whim of a landlord and not get the stability from being able to stay in the same house for a decent length of time.

    And for those who are able to buy a house, they are going to spend longer than necessary to pay off the mortgage and end up paying a huge amount more interest, enriching the banks. All this because the powers that be believe in the myth that you need high density housing to make public transport viable – well, you do not. Perth has half the density of Auckland, and it has double the public transport patronage. Brisbane also has half the density of Auckland, and it has three times the public transport patronage (and that figure would have been higher had the Queensland State Government not increased public transport fares by 15% year on year for the last few years).

    In fact, MUL increasing land values actually motivates high quality, medium density redevelopment of existing urban areas.

    No amount of motivation will make it any easier for developers to gather those parcels of land together. It took Westfield about four years to purchase all the houses that they needed to purchase to enable them to do their proposed expansion, and all they needed for that redevelopment plan to be screwed up was for one person not to sell.

    There are many other factors affecting housing affordability that we need to address as well, like CGT.

    Now tell me, where did a Capital Gains Tax work? It certainly didn’t work in Australia. It didn’t work in the United States either. Neither did it work all that well in Canada. Nor did it work well in the United Kingdom, nor did it work in Ireland, nor did it work anywhere else. If Capital Gains Taxes stopped housing booms, then the world would never have had a housing boom!

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  18. Elsie, if it really were true that regulation was the problem in building new homes then this would have been a problem before the GFC and yet it was not. It is only in the years since that new home starts has fallen. This is related to the failure of finance companies that funded developers. And otherwise the greater risk of property development in a recession – for developers, builders and lenders.

    Only the government will fund an increase in housing stock in such times, and given the economic stimulous and other benefits – job creation and tax revenues, and surety to sufficient supply of housing and awareness that holding down home values reduces foreign debt – this should have occured.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  19. You may have noticed developers were developing land and selling off the plots before the CFC. This is because there is little margin to be had in building and selling a house. Apartments are a different story as you can easily get scale from the build stage.

    Government faces the exact same problem if it wants to build 10K houses. The land is expensive. The land is expensive because of the legal and council restraints on developing it.

    For example, there is a small section near my house. It is 220K. It will take another 100K to get build ready. To build a small house on that section (145sqm) will cost 240845 (approx) PLUS compliance, which adds 30-40K. So, without any profit we’re already up to $560845. The cost of interest at 6% is $33650.

    This is before any profit. So, how can the cost of accommodation come down in such an environment? There needs to be more land freed up for development or we need to change density requirements.

    It’s doesn’t matter if a bureaucrat does the development, or a private developer, they’re faced with the same issue: the high price of acquiring and developing land.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  20. I agree with john-ston. Build a line out into the countryside and open up the land around it for development. You’ll achieve lower rents and develop a train-centric culture. Ensure the land is zoned for mixed use so that business hubs can sit alongside housing developments.

    Consider that many people would like to work near where they live. Why the underlying presumption everyone wants to head into Auckland/Wellington/Wherever central city? I work from home, yet my job is in the US. I use technology to bridge the distance. I live 15 minutes drive from Wellington City center, but seldom go there. I live, shop and socialise in my suburb, much of the time.

    Why not encourage more satellite towns of mixed use? Have you asked New Zealanders what they want? Do they want to live in city-zoned mid/high density European style flats, or do they live in NZ for the suburban space?

    Having said all that, the existing Green approach i.e. limiting development and expansion – makes me more wealthy as I’m an existing landowner. So I’m pitching against my own interests.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  21. Elsie,

    To a minimul extend this is already happening. You dont need new railway lines, just a decent service along the existing one.

    If you look at places like Pukekohe, Tuakau, Huntly, etc. Industry and people are already on the move.

    Similarly Helensville could do with improved rail service (as opposed to new rail lines).

    Those just come to top of mind in Auckland. Imagine better commuter rail services out of New Plymouth, Napier, Hamilton, etc.

    Problem is that the rail corridor is owned by the rail operator. The rail operator has no incintive to allow private rail operators to service the towns with suitable rail car transport.

    In fact it has no interest in regional commuter rail traffic at all.

    Better open up those steel road corridors to private transport.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  22. Do the green party consider that their policies are actually part of the problem that contributes to higher land and development costs?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  23. Elsie, the high cost of acquiring and developing land existed before the GFC and yet houses were still being built.

    In any downturn the private sector will defer lending and investment (more so if finance companies that did much of this work have gone under) and only the public sector can take up the slack to prevent a housing shortage that drives up housing value. Perversely a housing shortage leads to higher valuation of the land component of existing property and this revalues upward all land available for property development – which is what leaving a lot of empty land (land banking for CG) unbuilt on a problem. This is why the government needs to built on land available now.

    There is no problem with most new property being high end, whether sections or apartments, people upgrade into the new housing and leave existing housing stock for others to move into.

    Regulatory change and increasing the availability of land are future issues in managing the housing sector they do not deal with the current circumstance – the lack of building on land already available for new housing.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  24. SPC,

    Yes, they were being built, but there was little margin to be had in houses. Have you ever acquired land, developed it, then built on it?

    The government will still build expensive houses because the building and development regulation makes them expensive. If it somehow manages to build them considerably cheaper than developers can, then what would stop people buying them then on-selling them quickly for a profit?

    I guess if the government flooded the market all at once that might be avoided, but I can’t see it happening.

    And where is all the money going to come from? If you do succeed in undermining all house prices, then the tax take will likely fall as people can’t borrow so much against the equity.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  25. Er the problem is the lack of new home building and thus an emerging shortage that pushes up both rents and home values (that means a rising accomodation supplement cost to government and higher foreign debt as we borrow offshore to buy homes).

    Bizarre, on the one hand you claim to want more land available for building and lower compliance levels for those investing in property development and building, but on the other express concern that new home building might lower upward pressure on property value or might allow property prices to fall.

    As to money, the government can borrow to finance home building and then repay the loans by selling the property. The economic activity involved will cover the debt servicing cost easily enough. It’s simply stepping into the market when it is failing to cope with the economic cycle (and the failure of the finance companies that once focused on this area).

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  26. PS an economy reliant on people borrowing against the rising value of property is not sustainable – see GFC – a government reliant on tax revenue from such an economy is in the budget hole National is in now, it does not seem capable of getting out and seems to be waiting for the earthquake rebuild.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  27. Are there figures for the amount of housing available in square metres per head of the population?

    It strikes me that the demand for housing is very elastic – people can survive with very little space, or use a huge amount if they can afford it. So is there really a shortage, or is the issue (as usual) the inequality of distribution, a few with mansions and holiday homes and others in cramped accommodation?

    Housing doesn’t follow ‘normal’ market rules, in which a seriously over-priced product will be dispensed with, as the only alternative to housing is homelessness, which is an option that has few takers. So housing can be priced up to a level which people can barely afford, in the knowledge that the house will be the last thing on the shopping list to be given up.

    The price of housing on the market has little to do with the cost of its production (site and the degree of demand in particular areas are much more important), so I don’t see dropping regulation as having much impact. I suspect it would just lead to higher returns on assets, which for landlords, are currently low, as noted above. So why would landlords drop rental prices rather than take a better rate of return?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  28. Elsie, if it really were true that regulation was the problem in building new homes then this would have been a problem before the GFC and yet it was not. It is only in the years since that new home starts has fallen.

    SPC, in late 2003, the number of new dwellings authorised per month was around 3000. Between that time and late 2004, that figure decreased from around 3000 to 2000 – and this was as the housing boom was getting underway and the finance companies were still financially stable. The figure remained at around 2000 per month until the Global Financial Crisis hit and the number of new dwellings authorisations dropped again.

    That first drop did cause a problem. Ideally, you want about 1% of your total dwellings replaced each year to allow for irrepairable damage, and then sufficient on top of that to allow for demand increase from immigration and decreasing household sizes. In 2006, there were around 1.6 million dwellings, so you need around 16,000 new houses built each year just to allow for irrepairable damage. After 2004, we were only building 24,000 new houses each year, and given demand, it is quite clear that not enough houses were being built. Had pre-2004 construction rates been maintained then the boom would not have been quite as significant as it was – and it is interesting to note that post-2003, house prices started climbing at a faster rate.

    And otherwise the greater risk of property development in a recession – for developers, builders and lenders.

    Generally it is not the risk which causes the slow down in a recession but the inability to access funding as you mentioned earlier. Right now the problem is the lack of funding, but prior to 2007, the problem was excess regulation.

    There needs to be more land freed up for development or we need to change density requirements.

    Elsie, you would need to look at allowing six story apartment towers before a higher density approach really becomes feasible. At that point, you don’t need the huge amounts of free land in order to make medium density break even (let alone make a profit). Prior to the Global Financial Crisis, virtually all your medium density housing was either built in new suburbs, or in commercial/industrial areas where the block sizes were large enough – you didn’t see medium density really take off in the long developed suburbs.

    I agree with john-ston. Build a line out into the countryside and open up the land around it for development. You’ll achieve lower rents and develop a train-centric culture. Ensure the land is zoned for mixed use so that business hubs can sit alongside housing developments.

    Precisely, and we are very lucky in Auckland. Because of geographical constraints, all we need is around $10 billion and we could have a rail network that is within reasonable access of virtually all places within a fifty kilometre radius of the Auckland CBD (FYI, the $10 billion would be needed for the CBD Loop, a North Shore line which links up with the existing North Auckland Line somewhere around Tahekeroa and a line alongside the North-Western Motorway to make Helensville trains quicker).

    The thing is that if you allowed endless sprawl, it can only go into one of three corridors – either north, north-west or south – the Waitakere Ranges and Hunua Ranges act as choke points to the west and east, and even the Riverhead Forest means that you cannot develop too far away from a logical rail corridor in the north/north-west.

    Why not encourage more satellite towns of mixed use? Have you asked New Zealanders what they want? Do they want to live in city-zoned mid/high density European style flats, or do they live in NZ for the suburban space?

    I think you would find that in New Zealand there are those who would like to live in European style flats close to the CBD because it fits in with their lifestyle desires and then you would have those who would like to live in suburban homes because it fits in with their lifestyle desires. Personally, I do believe that there is sufficient demand for increased levels of medium density housing in what was the old Auckland City, but it should not be rammed down people’s throats – especially when the ideology behind it is predicated on the myth that you need Tokyo style density to make public transport viable. Ironically, the densest New World city is a poster child of what not to do with transport planning!

    Those just come to top of mind in Auckland. Imagine better commuter rail services out of New Plymouth, Napier, Hamilton, etc.

    For New Plymouth and Napier, a bus based solution would be a better one – one of the important things with public transport is being able to provide a frequent service and in a place such as New Plymouth, you cannot really justify running a train service once every 15 minutes during the off-peak. You could do that with a bus based service though. In terms of Hamilton, you would be looking more at linking with Tauranga and Auckland rather than an independent suburban rail service. In saying that, with improvements to the alignment, we could easily have trains taking 75 minnutes from Auckland to Hamilton and 75 minutes from Hamilton to Tauranga.

    Elsie, the high cost of acquiring and developing land existed before the GFC and yet houses were still being built.

    But not to the levels required. We needed more new house builds during that pre-2007 period to satisfy the demand brought about by an increased number of households.

    Regulatory change and increasing the availability of land are future issues in managing the housing sector they do not deal with the current circumstance – the lack of building on land already available for new housing.

    The present issue has come about because there was not enough housing built after late 2003.

    So is there really a shortage, or is the issue (as usual) the inequality of distribution, a few with mansions and holiday homes and others in cramped accommodation?

    There is a distribution issue. Sure, one could buy a house in Tuatapere for $25,000, but when all the jobs are in Auckland, then you have a problem.

    Housing doesn’t follow ‘normal’ market rules, in which a seriously over-priced product will be dispensed with, as the only alternative to housing is homelessness, which is an option that has few takers. So housing can be priced up to a level which people can barely afford, in the knowledge that the house will be the last thing on the shopping list to be given up.

    No, what you would find is that when the cost of housing increases, people start living in more crowded conditions (e.g. two families move into one house and share the rent) or they start living in substandard conditions (e.g. living in garages). We have seen both of those increase during the last decade, and they do not have positive outcomes.

    The price of housing on the market has little to do with the cost of its production (site and the degree of demand in particular areas are much more important), so I don’t see dropping regulation as having much impact.

    On the other hand, I do – getting into development has fairly low barriers (all you need is access to capital and access to people who would do the job) and when regulation is decreased, profits increase and so more people are incentivised to become developers. That pushes up supply, and wham, prices come down.

    I suspect it would just lead to higher returns on assets, which for landlords, are currently low, as noted above. So why would landlords drop rental prices rather than take a better rate of return?

    If the pool of renters has dropped because they are now home owners, you would find that there would be pressure for rents to fall in line with the house prices. You might get a 10% yield on a rental in Tokoroa, but the rents are around $200 per week because the house price is so low and so is demand. All else being equal, if your rent is $500 per week and you can purchase a house at a mortgage repayment of $500 per week, then you would purchase.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  29. Why should the crown invest in more state housing, a subsidy for some that can access, and continue the culture of reliance on the crown?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  30. Sam – regulation and rate increases have had a massive impact on the housing market over the past decade, at least in Auckland. This is primarily in response to the “leaky homes” problem. Local councils have to recover costs awarded to plaintiffs through rate increases. Regulations have been restricted to ensure it doesn’t happen again, with the end result that it takes about a year to get a building permit in the Auckland region these days.

    Hence we have both direct restrictions on housing construction through regulation, whilst rate increases (taxes on production) are a further deterrent to construction. The (presumably unintended) effect of the policy change was to make housing more scarce, driving up prices and rents for the existing housing stock.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  31. There were fewer building consents granted for new dwellings in 2011 than in any calendar year in 46 years, figures released by Statistics New Zealand show.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10782373

    We’ve talked about how many of our families [won't] achieve home ownership – but the reality is they’re struggling to even get a rental.”

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10782303

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  32. There’s another option, making up 4 million affordable housing units in Germany: housing co-ops. The Labour government had a policy to strengthen the so called third sector. Not that it followed through with this, but the idea is a good one. Co-ops can provide tenure security on par with individual title, but do not require a lot more financial engagement from members than a rental (there’s usually a nominal share price to pay, approximately the value of your typical bond). Co-ops work because they are not for profit, and all eventual gains are re-invested to the benefit of the members. There are some major hurdles in NZ, though, as there is no specific co-op law (co-ops are treated like for profit companies) and co-ops are subject to the securities act, which makes things a tat more difficult and costly. But this could easily be changed, and the blueprints are available.

    The other overlooked strategy for anyone serious about affordable housing: land is the key. Opening the greenbelt for development does nothing for housing affordability in the long run, it only makes more land subject to speculation – plenty of research on this. But government becoming a player in the land market – land banking and releasing at the right time to cap land prices – works very effectively where it is practised overseas.

    As one example why accommodation supplements don’t work: check out the statement of the landlord above. He can charge what people are capable paying, and as such the AS is factored in the rental cost. I wonder how much land could be bought for 1.2 billion, annually? As it would be re-released at some time, the money wouldn’t even be lost, at least not entirely, to the common wealth – in contrast to money spent on the AS.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>