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Future of Auckland is smaller homes — Smith

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.

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Comments and questions
24

I see that Debt created bank money and fractional reserve banking is never ever mentioned?

Nor is it ever mentioned that the core value of money is human work. Then people might put two and two together and realise that a requirement to produce more money is actually a requirement to work more. The push to extend the retirement then wouldn't go down so well.

While National are pandering to wealthy property investors, both here and overseas, we will never get any serious or genuine attempt to control house prices.
Building 10,000 houses in the next 12 months sounds good, but only 800 of them are low cost and if John Key does not want to reduce or restrict immigration then treasury estimates we will have another 45000 people arriving, meaning we will be going backwards.
I feel sorry for the next generation of NZers whose housing ambitions have been screwed under National!!

Don't feel sorry for the next generation of New Zealanders ... they live in Australia in homes suitable for human beings to live in.

The Housing Minister's quality of thinking is what you get when an entire generation of Kiwis leave New Zealand to live in developed countries.

Per National, they are not in favor of restricting migration, not in favor of restricting foreign ownership, not in favor of capital gains, and they cant(wont) build enough decent size affordable houses. So what hope does it offer to first home buyer and how?

Question: Why is it a policy goal for young family or young couple to buy a house in Auckland.

It's got obvious political and psychological appeal, but where's the economic sense?

Is it really so bad if the generation coming through puts their money into a balanced portfolio of investments instead of jumping on the property ladder?

Are you actually serious?

Please show us a "portfolio of investments" that has provided the returns of the Auckland property bubble.

"Bubble" being the operative word.

So follow the courage of conviction and sell your property - buy back after the bubble burst at 25% cheaper.

If a smaller house is the target, then we obviously going to end up like the UK which has the smallest house size in Europe (and a lot smaller than the Japanese), and of course following the trend we will end up with 'shoe box in middle of road.'

And since we have the same type of zoning policies we undoubtedly will. Now that is a future to look forward to.

When comparing whether housing is becoming more affordable it should be compared on a like for like and without subsidy, to do so otherwise is to not understand the problem and therefore the solution proposed (smaller houses) is unlikely to make houses truly more affordable.

Or if they do understand the problem and still push this present solution, then look to their vested interests not wanting housing to be truly affordable.

I have only been to NZ a few times, but my memory is that you have a very large land mass in relation to your population. Unfetter the building developers with low building fees and allowable zoning and you will have more new houses available than you can imagine.

'The future is smaller homes' is just another way of saying the future is poorer people.

What an awesome idea Minister! Lots of smaller homes on the same amount of land! Let's keep those property prices rising! Xiexie MInister, xiexie!

When the cost of land inside the urban boundary is more than eight times the cost of land outside it, you have a problem. Land costs more than 60% of the cost of a house. Nobody in his right mind would consider putting a low-cost house on land that is so expensive. He just would not recover his money. So, instead of putting a smallish standard house on an empty section, economics favours a purpose designed house designed to extract the maximum value from the site.

If we want affordable housing, we have to release more land and we have to let the developers build lots of low-cost homes on low cost land. Everything else is evading the problem.

The Council are against this because, if they allow the city to spread, their already seriously uneconomic railway tunnel will become an even larger white elephant. Remember, Len Brown's primary objective is to build a railway tunnel. He put it at number one in his New Year speech. A rational mayor would have been pushing for an affordable and liveable city.

And another thing – at the moment, 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.

Just think, there are many successful towns in the USA with flexible planning rules and few planners. All of them have low-cost houses. The more influence the planners have, the more unaffordable the city becomes. Get rid of them!

Take your point on rates.

But on more expensive land - surely this nudges developers in the direction of terraced housing/apartments where allowed. That is, Smith's smaller homes?

We do not have the population of the other cities mentioned and never will. Living in shoe boxes will never be though necessity in NZ, just some politicians ill conceived idea.

The crux of the matter was mentioned by the banker and Richard Garner this morning on Q & A, a correction down means negative equity, risk, heartbreak for some and as Bill English puts it some ugliness. A correction is not on the agenda, so the problem we have will continue to compound.

I think the first step is to let the market determine interest rates. Non market rates fix nothing, Japan is the very best example of low rates for many years not fixing the economy. it could be however market rates end up lower than they are at present.

Second step is to equalise the tax treatment of all residential property ownership. it is absolutely unfair a property investor/specualtor uses the taxation system to build wealth, whereas a home buyer pays interest out of tax paid income.

Third step is enforce property trading tax rules. I say this for devilment as the public service (tax dept) is incapable, has no will to invest the time required to pin point the traders, foreign & kiwi who have multiple id's or structures to hide trading gains

Fourth step, limit immigration to a sustainable level for our present day infrastructure capacity. The home building targets are based on assumptions and that immigrants will buy homes in outer Auckland areas - which is not necessarily the case. There is substantial risk in this big number policy.

On immigration, I met a younger middle Eastern NZ citizen the other day wanting to buy a car from me. He had been in NZ for 11 years, the last 9 of those years he has been a sickness beneficiary, some thing wrong with his lungs. He had arranged a loan for part of the purchase and could afford to pay $80 per week. This is in Auckland, I was incensed Figure out for your self if this chap and his extended family benefit NZ

Perhaps the comments accusing those of us that may look a little harder as Racist (in respect of immigration) by Duncan Garner are unfounded.

.

Most fair minded people would agree with your comments.
The only problem is that we have politicians and wealthy backers who have invested up to their eyeballs in rental housing to achieve a risk free, tax free investment. It is called self interest.
A turkey does not vote for an early Xmas.

"Bubble" being the operative word.

Good - if you believe that, sell into the bubble and buy back 25% to 40% cheaper later.

So its a free market when prices go up...yet nick smith says we can't let them drop as people will have negative equity!

Exactly. This is just National doing market intervention as part of its drive to match China and India labour costs.

And why not? New Zealanders borrow by the billions of dollars to fund unaffordable overseas holidays, beach baches, TVs, Cars, the latest gadgets and think the world owes them a living.

Stop borrowing first before you mouth any inferences of injustices about wage levels in any other country - because they are funding your lifestyles.

Man enough to stop borrowing? Thought so ...

Fact check test:

overseas holidays - nope haven't borrowed for one of those
beach baches - nope don't own one of those
TVs - I think I saw one at MOTAT
Cars - nope haven't borrowed for one of those
latest gadgets - nope haven't borrowed for those

So Chinese slavery is not funding my lifestyle, but exploiting Uyghur, East Turkestan, Tibet, Mongolia and Manchuria is making many Chinese occupiers very rich.

It doesn't work that way Britain and it won't work here. All that will happen is we'll have crap little semidetach apartments that cost just as much and have no where to park your car. You'll walk inside to a depressing mess caused by lack of storage space and move to another country like Australia or the US where you can purchase a $300,000US house that's bigger and better than anything you ever had in NZ.