Future of Auckland is smaller homes — Smith
"The Council's rake off from rates is going up at about 10% per year – a combination of roughly 3% rate rise and 7% or more increase in revenue from increased values. This is a cash cow that they do not want to lose. So they have no inducement to substantially increase the housing supply and they are fighting it tooth and nail"Featured comment
Housing Minister Nick Smith says the future of Auckland housing is “smaller, comfortable, affordable product", noting Kiwi homes are twice the size of that in Europe.
But he also said on TV3's The Nation that "It’s not for governments and councils to tell people what they should be living in."
Mr Smith disputes figure from Auckland Deputy Mayor Penny Hulse that 8000 houses will be built in three years under the Councils' Housing Accord with the government (which calls for 17,000 consents by year three).
He says the Auckland Council estimate of 8000 affordable houses completed at the end of the first three years of the Housing Accord is not enough
While Bill English told Local Government NZ Auckland might “have to get a bit ugly”, Mr Smith says “My view is it’s possible to build houses that are both attractive and more affordable.”
Government and Auckland Council have a role in ensuring more new houses are built in the “affordable $400,000 to $500,000 range,” Mr Smith says.
The Nation/TV3 Trranscript: Lisa Owen interviews Housing Minister Nick Smith
Nick Smith: We’re building housing at the fastest rate for more than seven years and those figures that you quote are based on the special housing areas that have been approved to date. We’ve done three of those, they provide for 33,500 sections, but we have a further tranche in August that’s coming through and more supply that is needed. So yes we’re making huge progress, we’ve doubled the number of houses that we’re building from where we were two years ago per month, but we’ve still got some more to go and that’s why there’s a continuing engagement by council and Government to achieve that.
Lisa Owen: But they’re consents, not bricks and mortar. They’re not roofs over people’s head at this point and 8,000 at the end is not that many –?
Oh no, clearly that’s not –
The Prime Minister promised significant numbers -
Oh and indeed, we’ve got the fastest rate of house build in Auckland for seven years, the latest figures we have got 697 house approved in April. That number dropped down as low as under 300, so it’s more than double. But let’s come to that sort of in my view rather pathetic argument that says oh well they’re building consents not a house. Of course it’s not. But people aren’t going to spend 8,000 -
But after, but after three years you will only have 8,000 new houses?
That’s not true, not true at all. We have said that the targets of 9,000, 13,000 –
Penny Hulse has said that to us though –
Based on the current SHAs that have been approved, the number of new houses that’s being built, we’ve got a target of 9,000 sections and houses in the first year.
So at the end of three years, how many houses do you say will be there?
We’ve got 9,000 target year one, we’ve got 13,000 year two, we’ve got 17,000 year three.
But those are consents, not completed houses, so how many completed houses will you have at the end of three years?
The issue with this Lisa, is we have very accurate figures on how many building consents are issued. People don’t spend eight grand on a building consent unless they’re serious about building a house. And so it is correct that you need to do an average of a five month lag between the time when the building consent is finished and the house is there. But if we’re going to respond to this huge challenge in Auckland, then saying oh, we want figures on when the houses are completed, ultimately the only data you have is the census data once every five years. I’m not going to sit around for five years and wait for accurate data so we can respond to the real housing issues in Auckland.
But Penny Hulse says 8,000 houses at the end of three years. Is that enough?
No it’s not. And that’s not the number that we’re aiming for.
Let’s say at the time when these houses are liveable, people can move in, what guarantees can you give that those houses will even go to first home buyers? What’s going to stop people speculating or buying them for rental properties?
Are you really suggesting, Lisa, that the Government is somehow going to say to you as a homeowner you are only allowed to sell your house to a first home buyer or a particular person? We’ve got a housing market in Auckland of about four hundred and fifty thousand houses. Now it is true that when a new house is built – and look many of those houses are seven or eight hundred grand – and a new person buys into that, they also free up a lower house. Now I don’t know what your first house was, mine was an ex state house. It’s unusual for a first home to be a brand new home, albeit one of the issues that I’ve been talking through with mayor Len Brown is we’ve made huge progress in improving the rate of house build, a further issue though for the Government and the Council is ensuring that more of those houses that are being built are in that sort of affordable $400 to $500 [thousand] range.
OK, well let’s say we accept your theory that some people will move into more expensive houses –
It’s not theory, it’s reality.
No let’s say we accept that, they will buy those houses, freeing up their properties for first home buyers – the council has told us that they’re anticipating only seven to eight hundred of these homes will be affordable houses. Is that really enough to help with the pressure on the Auckland property market?
The Productivity Commission has said we’ve got this real issue of too many of the houses being built at the more expensive end. Now that to some degree, Lisa, is what’s occurred around land price. So what’s happened is that we’ve had this dumb policy for more than a decade in Auckland of a metropolitan urban limit that’s driven land prices through the roof. Now if you’ve got a section in Auckland, the average section price is three hundred and twenty-five thousand dollars, you’re not going to build a hundred and fifty thousand dollar house on it are you? You’re going to put a very expensive house on it – and that’s why this issue of land supply is so important, and getting that section price down. Now it’s encouraging in the report that we’ve released today –
But hang on a minute, Minister –
The report we’ve released today –
The Prime Minister, sorry Minister, the Prime Minister said we would see a significant increase in the number of houses available on the market –
Absolutely we are.
The issue is that people cannot afford these houses and we have been told by the council 800 affordable houses. That is not even a drop in the bucket, is it?
Well, we are building a record number of houses, right? Then the question is -
But are they affordable?
And I’m saying to you, and I’m saying to you if we are going to get those houses more affordable we need to deal with the issue of development contributions. Productivity Commission said the biggest increase in the price of a new house has been the amount that councils have been pinging –
But simply, simply Minister, is 800 new houses at the end of three years – is that enough?
Of course it’s not. And that’s why the Government’s got legislation around development contributions, around the work we’re doing on building materials, the increase in skills and productivity –
A lot of those dwellings, as I understand it and looking at the figures, a lot of those dwellings are going to be apartments. So do New Zealanders need to accept that that’s the new Kiwi dream, you live in an apartment?
I come very much from the point of view and in engagement with the Auckland Council that it’s not for governments and councils to tell people what they should be living in. Who should be living in an apartment, who should be living in the quarter acre section, who might want to live in the rural area. What we’re wanting to do is to free up the rules so that people can have freer choices. And there are rules in our current plans in Auckland that make it very restrictive about building those smaller homes that are in many European cities. So the average size of a Kiwi home is double that in Europe. In the last 25 years that home size has been getting bigger and bigger. Some of that’s been driven by regulation.
Both you and Bill English have raised the size of apartments, in Auckland the minimum is 35 square metres –
No the media raised the issue with me.
Do you think that should be lower?
The issue for me is when you look at the minimum side boundaries, minimum boundaries in front of properties and behind boundaries, apartment size, all those issues is having the development sector say to me that they are going to struggle to deliver that more affordable range of product.
So are they telling you that they need to build smaller apartments than 35 metres?
No actually the issue of apartment size hasn’t been their biggest concern.
Now Bill English this week he said, and I’m quoting him here: “we have to get a bit ugly.” Now this was at a meeting earlier this week. He went on to say “a lot of people live in New Zealand on relatively low incomes and their housing is never going to look that flash, so why don’t we get practical and work with the market as it is.” So do you accept that we might need to get a little bit ugly, as he puts it?
My view is it’s possible to build houses that are both attractive and more affordable. What the Minister of Finance is saying, and is rightly saying, is that many of the bureaucratic rules that we’ve set up around the way in which the developments occur makes it really hard for the development community and that’s why myself and Len Brown have got officials working on how can we get better rules so that the development community’s incentivised to build more of the affordable product.
But Aucklanders have been very clear about the fact they do not want ugly. When it came to the unitary plan, they said they don’t want high rise buildings with little apartments, they don’t want an ugly city.
And that’s where this contradiction, and it goes to the core of why we’ve got ourselves in trouble around housing ownership and affordability, is that you go to a community and you say what size sections do you want, what sort of apartments, and everyone gets into the rules, their sort of dream of utopia.
But Bill English is advocating ugly in the face of people telling him they don’t want it.
Well what I’m saying is there’s a trade-off between how flasher suburbs you want, what those rules are, and what you’ll do in respect to affordability, and we need to have a more honest conversation –
So a little bit of ugly’s ok?
I’m saying that it’s possible and let’s say Hobsonville –
It’s possible, what do you mean it’s possible?
You take an area like Hobsonville where you’ve got a major development going ahead, we’ve got the council showing real flexibility in allowing them to build smaller units, and I would take you to those units, and I’m saying we’re producing smaller, comfortable, affordable product, that is the future of Auckland and we need more of that.
Ok, well, in an interview at the beginning of last year you said this: “we can’t allow house prices to go up in Auckland by another fifty grand a house next year.” Well, they didn’t go up fifty grand, the median house price we up more than seventy thousand dollars since you said that – so even more than what you said was unacceptable. So have you failed as Housing Minister?
Well the idea that the Housing Minister controls the house price, and I’ve always said look there’s a market out there, what I have said is that –
You said you couldn’t allow it though, you set a benchmark and it’s just glided by?
Well we had house prices go up during the term of the previous Government by 19 percent. Last year house prices across New Zealand went up by 10 percent.
You’ve been in government five years now, so that’s ancient history. It’s about what you’re doing now, and whether you are meeting your own standards.
My challenge to you, Lisa, is that since I’ve had the housing portfolio, tell me a Minister who has delivered more legislation. I have got the special housing areas legislation, we’ve got the house price cooler, there is a general consensus across Auckland –
You put a line in the sand, it was fifty grand.
You’re calling it a line in the sand, I’m saying that -
And it’s gone well over that.
But if you’re asking me do I think on going house price inflation, what we’ve seen over the last year or two, what we said a decade ago is not sustainable, and that’s why I’m working so hard to change that.
So someone paying on a median income more than 90 percent of that income to service a mortgage on a median house – that’s acceptable?
Well of course not.
That’s what it is in Auckland.
No, no, let’s be clear. And let’s take the Roost Independent –
I am taking the Roost –
The Roost figures are 20 percent better than when we came to government. That is if you take an average house price across New Zealand or in Auckland, and you take the average income you take an 80 percent mortgage –
If you split out the regions, Minister –
And what they’re required to service it, it is 20 percent better today in Auckland than when National became government. And that is fact, I challenge you to check it.
In the regions, Minister, are you saying it’s ok then for a drop in house prices in the regions to even out the numbers for everyone else – that’s acceptable for people to see their house prices go down in the regions?
Well, Lisa, you can’t have it both ways. No I’m not. And if you take a region like I serve in Nelson, house prices in Nelson increased by about 12 percent since National’s been the government, not much different to inflation. And communities like Queenstown, Bay of Plenty, it’s gone up more than that and that’s why I’m engaging those councils about similar mechanisms that are working so well in Auckland.
Thank you very much for joining us this morning, Minister.