Deputy PM goes to Cabinet with a plan

Expectations are high for a Bill English initiative attacking skyrocketing house prices.

Today the finance minister and deputy prime minister is expected to present Cabinet with a plan.

It will be his response to a Productivity Commission report – a recent housing affordability report.

Like similar reports in recent years, it cites strangled land supply, red tape bottlenecks, local government levies, higher building costs and buyer expectations. 

Mr English's spin doctor Craig Howie says the plan will be “pretty broad brush” and would fit in with other recent government initiatives.

An annual affordability survey, Demographia, reports that it takes six times average annual household earnings to buy a house.

This compares to three times annual average household earnings in the 1970s.

Read more about the issues in NBR NZPI.

c.hutch@clear.net.nz

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18 Comments & Questions

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Unfortunately this will likely simply tinker around the edges of the problem which is caused by the destruction of property rights.

The correct solution is to create tradeable "neighbour rights" to sunlight, clean air, quietness and privacy and then to restore landowners' rights to do as they wish with their own property subject only to not infringing those neighbour rights without negotiating direct compensation.

No doubt there is a massive industry feeding off the present disaster which will oppose such changes.

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It's a big task to dismantle the erosion of property owner rights that are fundamental to the current RMA. And then there is all the "professionals" that gravy train along. There's too many vested interests to allow real change.

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Yes, several thousands of highly-paid, useless paper-pushers would lose their jobs whereas very many more thousands of useful construction workers, designers, entrepreneurs and productive people would be employed.

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I'm with you in spirit Alan, as my below comment indicates, but just would like to add some comments to your suggestion about 'creating' tradable rights to various amenities.

Property rights, the ones that are natural and proper, are not created by social engineers or legislators or planners. They are not even created by judges as case-law. Instead, they are created by custom, by the development of practices for dealing with resources and resolving disputes over resources and conflicting uses. The role of good law is to recognise, refine and respect such customs. This process is evolutionary and property rights emerge over the more crude and basic units of possession and control first. This is why property rights in land are foundational: borders around land can be natural (e.g. ridges and rivers) and made visible (e.g. the ancient practice of boundary stones), and re-enforced with fences etc. whereas, by contrast, resources such as water under the ground or in lakes or the sea, and air, and quietness or fragrance, are much harder to possess, control and delimit, and the economic benefit that can arise from exclusive control is much smaller than for an area of land. The system of transacting in land is also more easily developed through custom (i.e. transaction costs are lower). Land, then, being the basic ownership, control and transacting unit, becomes a conventional vehicle or container for holding a bundle of other socially (and legally) recognised rights, most relevant being the rights to be free from 'nuisance' the term for recognised breaches of those rights. Although these rights naturally and normally run with land, they can be separated from it by covenants. There is therefore no need to create or invent the tradable rights to sunlight etc. since they have either already been incorporated into the land rights, or can be created by contract.

The role of custom in generating efficient law is also demonstrated by this: to the extent that recognising and dealing in such rights is economically viable, the nature and volume of such transactions creates visible customs that indicate the default ownership and boundaries that are convenient and practical. Customary law recognises such default ownership and boundaries, saving most people most of the time, the expense of settling the ownership issue and negotiating the extent of the boundaries. And where such transactions and terms are exceptional and inadequately viable to form a custom, the resources involved in finding default ownership and boundary limits is saved (i.e. only the problems that are viable to solve are solved). Not only are the resources saved, the domain of freedom is also conserved: commons are domains of free use. Since the primary function of property rights is to diffuse a sub-set of social conflicts, where no material social conflict exists or where property rights are not a good solution, we can either enjoy both peace and freedom, or can make peace using other institutions (such as courtesy and good manners).

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I hate to think how long it might take for any reforms to be enacted, and for the affected local government policies and practices to actually change, and fear the extent of the eventual change could be a disappointment.

The culture and philosophy of land development as a political and centrally planned and controlled activity remains deeply embedded and seldom questioned in New Zealand. The key intellectual, social and legal error here is the acceptance of prior restraint on property rights in land as being normal and proper manner for addressing conflicting land uses. The existence and adequacy of posterior restraint for resolving conflicting land uses has disappeared down the social memory hole. In business law papers the tort of nuisance has been literally removed as defunct.

The conflicting land uses problem has been a social and legal issue for centuries and our natural and customary legal system has developed very practical, efficient and effective solutions to these conflicts. These institutions are tried and proven, and above all highly flexible and fully open to bargaining and negotiated settlements by those most directly affected. These institutions are our best way of coordinating the complex mix of synergistic and conflicting land uses found in larger cities.

Somehow I doubt that Mr English will actually oversee a roll back the central planning and control and prior restraint on land use, and its replacement with a wider core of property rights and the resort to direct deals or damages remedies by or for those most affected. More likely some more embellishments to and procedures and documentation required by the local government land use central planners. Local government entities may be exhorted to perform specific tasks faster, report on specific areas of results, and to create additional policy or strategy documents to manage specific issues. Actual curbing of local government substantive restrictive powers or materially increasing the scope for taking action without seeking permission first aren't going to feature (prove me wrong, please Mr English).

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Absolutely true, David. For example as I have previously said, I have a block of land with a 3km perimeter on which I am allowed to build one house - if I first get a resource consent. Utter, stark, raving lunacy.

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Part of the problem of which Reserve Bank governors have complained over the years. NZers put their money into houses, not shares. This
a. Drives up the price of houses, and
b. Leaves it to overseas investors to buy up NZ shares. Don't blame them that Australia owns most of our banks, et cetera, blame ourselves for not buying shares in NZ companies.

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Paddy, have you tried to build anything in the last seven years? If not, most likely you have no clue as to why NZers have to put their money into houses - or more accurately, into the pockets of the bureaucratic and planning industries. Look no further than the RMA and the Building Act 2004.

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For that to occur, public confidence in PLC governance must be addressed.
Not going to happen in my lifetime.

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You a right Paddy, but you confuse the issue, the reason "ordinary NZers" dont put money in the sharemarket as they have seen the parents and grandparents burnt on a regular basis by "shiney suit" directors and major shareholders, who have acted in self interest, not in the interest of the 'small shareholder"

Unfortnuately Paddy it's learnt behaviour not to invest in the sharemarket

The housing issue in Auckland is driven by migration and immigration, stop the waves of people coming in to Auckland and much of the housing pressure will come off

engage in some active regional development, so every body doesnt want to or has to live in Auckland for employment. With the exception of Tauranga there is no provicial city with a housing issue

Those things are with in the power of Bill English to do this year, Changing the indoctrinated thinking of petty local Government officials and the small minded elected Councillors who see it as there duty to find every reason why something should not happen will take a generation. (It took 20 years to get to here with the RMA it will take 20 years to change, we will have to wait for them to retire or die

So will the statement today have any effect? - no not in my life time

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Any government that seeks to reduce the price of houses especially in Auckland will find themselves consigned to the Opposition benches for a decade at least. Its about voters. Reduce their wealth by reducing the value of the biggest asset they own and your dog tucker.

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This will not do anything to affect property prices as the doubling of house prices between 2002 and 2007 had nothing to do with supply constraints. The housing bubble was caused by easy access to credit, zero deposit mortgages, favourable tax treatment for property, but mainly speculation in the property market.

Take Queenstown for example, it has higher property prices that Auckland. There are thousands of sections zoned for development right now, at Remarkables Park, Jacks Point, Kelvin Peninsula. This land has been zoned for development for many years, such that there is an inarguable oversupply of land zoned for development. Another 1000 sections just came on stream near Shotover River.

However its all land banked by developers, or when developed brought on at the top end of market.

In repsosne to David Hillary, there is no central government involvement in land zoning decisions. I'm also looking forward to setting up my silage pit next door to your house.

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As per my post #1, I am looking forward to the compensation you will have to pay me for your silage pit next door.

You are simply wrong about the supply constraints. They have been compounding since the RMA was introduced in 1991 allowing every man and his dog to appeal anything and councils to impose blanket constraints on landowners' right to do anything on their own land.

Those who have paid the horrendous price of jumping all the hurdles are now simply waiting to recoup their costs knowing that those hurdles will do nothing but get higher in the future so long as the present bureaucratic usurpation of property rights persists.

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'central planning' refers not to the level of government but to any government agency that is planning and controlling the use of resources and market variables such as prices, quantities, production technology, factor allocation etc.

If you wish to use your freedom to act in an obnoxious and offensive manner, you'll not win many friends in a civilised society. Most people seek honour and to avoid unnecessary conflicts with their neighbours. If you're different from most people, and don't follow social customs, manners, conventions and institutions you'll find life a struggle even if you manage to successfully defend some litigation instigated by your upset neighbours.

I hope you discover that a free society has its way of influencing and controlling individuals, generally to the extent that they manage to p*ss other people off. This is even without resorting to litigation in most cases. I hope you don't need to learn about what prudent and wise (and what is imprudent and unwise) by losing civil law suits. A wise man picks up on the subtleties of social niceties and the rules that are implicit in dealing with others. If you don't have much common sense, I suggest you take legal advice before you put your thoughts into action.

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Another example of how supply does not affect affordability. Sure its by a planner but more informed than Alan Wilkinson!

Article by DR K Grundy, Planning Quarterly, December 2008

“In respect to supply and demand, let me use the example of …. Whangarei. Since notification of the first District Plan (1998) under the Resource Management Act, successive councils have pursued very permissive, market orientated policies in regard to the land market. Land regulation in the form of zoning and minimum lot sizes has been extremely permissive – based upon a largely laissez faire approach to land development. Liberal zoning and housing density provisions (a 350 square metre to three hectare minimum lot size across the whole district) reflected this approach.
As a consequence, the district experienced a subdivision boom, resulting in a situation today where there is estimated to be around 10,000 vacant building lots in the District, spread across all zonings – a district of only 70,000 total population. At 2.5 people per lot this is enough vacant lots to accommodate 25,000 additional people, an increase in the district’s population of over 30%.
Yet has this (inarguable) oversupply of residential land resulted in lower housing prices? Not at all. Housing prices in the district have more than doubled over the last ten years – at least as much if not more than the national average.

So if it is not the restrictions on the supply of land that has driven up housing costs over the last ten years what then is it? …it is investment in the property market (largely speculating on capital gain but with a component of rental return on capital outlay) together with high rates of leverage in a low inflation high liquidity environment. These…are the drivers of real estate increases over the last ten years”.

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Would Dr Grundy consider that what has also contributed to price rises is the fee gouging by among others, planners - and those costs are part of resale prices. People have every right to recover costs in the sale price, whether these planners etc have the right to their fees thanks to the current ridiculous RMA, well that's debatable.

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Who on earth wants a 3 hectare block for a holiday house? If this is Dr Grundy's idea of extremely permissive I think we can dismiss the rest of his opinions. Take a look at the building bureaucracy explosion over the last ten years as well as the costs of the resource consent processes - which for a considerable time actually prevented the Whangarei Council from clearing its drains - they couldn't afford the consent costs - leading to consequential flooding of residential properties near where we used to live.

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So if we follow the facts that Dr K Grundy presented in 2008 can anyone tell us what has driven up housing prices in that area. Can they also tell us what is holding them up or have they dropped significantly?

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