House pricing: Heatley agrees on need for land reform – but vague on answers
"There is only one thing necessary to fix the problem: legislate that councils are responsible only for health and safety of buildings, not quality or durability."
Featured commentHousing Minister Phil Heatley says land reform is needed to bring down house prices, but sees local rather than central government leading the charge.
Picking up on Finance Minister Bill English's comment that house pricing is "ridiculous," Mr Heatly told TV3's The Nation at the weekend the "the fundamental issue is the cost of land".
"The cost of sections is so high that when a builder comes along and buys a bare section, he has to build a flash big house to make any money," Mr Heatley said.
City boundaries needed to be extended, but it also had to become easier to intensify housing.
"You’ve got an elderly couple in Auckland, and I tell you what there's thousands in this situation, they're in a quarter acre or a half acre section, they'd love to cut it in half, build a new house for them on one half and sell the other bit off, and make, you know, three or four hundred thousand dollars for their retirement.
"They don’t do it because it costs them $40,000 two years and they may not even be consented. So that’s crazy," Mr Heatley said.
But the housing minister was short on specifics about how the craziness could be addressed.
The government was talking to Auckland mayor Len Brown, who was also concerned about the problem, Mr Heatley said.
The minister pointed out his government and Mr Brown's council are co-investing in an $8.5 million, 20-year project to re-generate the lower socio-economic areas of Tamaki (neighbouring Auckland's posh eastern suburbs). Elements of the project will involve more intensified housing.
Most cities had unproductive land that could be released for housing, he said.
Others see the issue as more of a central government problem.
In the wake of a Productivity Commission report that found the cost of land too high, due to artificially constricted supply, ACT leader John Banks has called for a full review of the Resource Management Act.
Mr Banks says in Auckland, land now accounts for 60% of the total cost of a home, as opposed to 40% elsewhere.
Watch Phil Heatley's full interview here.
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Comments and questions17
House pricing is not that ridiculous. There's plenty of other housing and New Zealand around the country than just a few comments about Auckland.
I guess that depends if you own a house now or are looking to buy one. National has been in power for 4 years and has done zero about the land supply and compliance costs - which is why the business sector has lost faith in them. Act was meant to do something about this but also did nothing.
The cost and process of a simple subdivision combined with onerous RMA requirements and large local body costs that don't add value are strangling the chance of economic recovery in NZ for typical Mum & Dad property owners. These are the people that used do the odd project that employs a few trades and used to keep the wheels of commerce turning in all towns around the country. Looking forward to a revolution.
Typical. When his buddies in business are gouging the public, he points the finger at local government and the levies they need to keep public infrastructure going. I'm in the building business and know. Builders don't build small because the margin is squeezed by the subdivision developer and the product supplier. In the first instance the developer forces John and Jane first time home owner into an over sized mortgage by stipulating a minimum house size. And believe me, they're getting stupidly large now, more then we really need. It's rare to see house sizes under 180 sqm and half the time that not including the mandatory garage! In the second instance the product supplier absolutely screws them for everything he can get. The housing dream is very strong in NZ and many couples will sacrifice a lot, too much in my opinion, to get into their own home. The supplier knows this and charges an absolute mint for products that I know for a fact can be bought in China and shipped to NZ by private individuals for a whole lot less. Unfortunately, this practice is not common enough, because your average sweethearts know practically nothing about building a house and their ignorance is taken advantage of by the developer and supplier. So, what's the answer you say? Don't know for sure because soon as you whack down one nail, up pops another, but here's my best guess so far. First. Restrict developers from mandating house sizes and especially having design panels that 'critique' house plans. Design panels are just another way of the developer stuffing the freeholder around and forcing them to build big and with lots of unnecessary bling. Second. If the product suppliers want to play by the rules instead of these comfortable little cartels they belong to, lets see some overseas competition. There are plenty of guys here that can arrange product by the house load. Sure, let's regulate the quality so we're not letting people bring in poisonous crap, but level the field by cutting the tariffs and protections we keep giving to NZ suppliers. At the end of the day, John and Jane just want a bit of dirt they can build anything on. As freeholders they should be given better protection by the government from being eaten alive as they are today. We owe it to them and if we stop to think about it more, we owe to ourselves.
"the levies they need to keep public infrastructure going"
Rubbish. The building and planning bureaucracies are lunatic. As for the rest of your rant, your evil developers would have infinitely more competition if people were free to do what they wanted with their own land and property.
What I learned working all of my professional life in the housing sector in the United States is that very few public officials, economists or even activists understand the fundamental dynamics of property markets. The result is that almost all attempts to stimulate the development of decent, affordable housing fall far short of the need. The primary beneficiaries of subsidy programs are landowners, and the high cost of land acquisition by developers means that the type of housing units constructed are of a high-end luxury type.
Communities in the United States try to counter the high cost of land by approving high density development on condition that a certain percentage of the housing units are priced to be affordable to lower income households (e.g., households with incomes no greater than 80% of the area median).
At a much small scale, housing activists (recognizing the dysfunctional character of speculation-driven land markets) have formed non-profit community land trusts. Housing units constructed on CLT land are normally of a type affordable to lower income households. The homeowner is charged a "ground rent" based on affordability. And, to prevent capitalization of the net imputed income under the ground lease, the resale price of the housing unit is governed by a deed restriction. CLTs take land out of the market; however, CLTs have the challenge of raising funds to purchase land in the first place.
All of the measures adopted to increase the supply of affordable housing would be unnecessary if only public policy was structured to tame land markets. The economic literature for over a century has described how this could be achieved and achieved quite easily. The answer is in how real property is taxed. Ideally, all housing units (i.e, property improvements) ought to be exempted from taxation. Ideally, the community should collect the full potential annual rental value of land parcels from landowners. Doing so would remove the speculative gains from owning land and holding it off the market. Landowners unwilling to absorb the annual tax on vacant or underutilized land would either bring their land to its highest, best use -- or sell it to someone who would.
In terms economists understand, a 100% (or near-100%) tax on rental value of land would bring land markets into a state of general equilibrium in the same way that markets for labor and capital goods operate, with price as a market clearing device. Today, land speculation results in the supply curve for land actually leaning to the left (i.e., supply being reduced) as prices increase.
Landowners have always resisted the above change in publicy because it would require them to actually produce goods and/or provide real services in order to "earn" income. It is up to an informed and outraged citizenry to demand these changes in tax law.
A socialist wet dream - nationalisation of land by proxy. Of course it has a few minor drawbacks. All landowners would be bankrupted. All mortgage lenders would collapse including all the banks and all bank depositors would lose their savings. NZ's credit rating would be junk status and the Government would be unable to borrow and unable to pay salaries and welfare. The farming industry would be destroyed.
Apart from that it may not have any serious issues. At least no more than the average brain dead socialist.
Totally agree. It's interesting that the Super City is basically implementing UN Agenda 21 via soft communitarian stealth measures at local government level. You've see RMA being subverted. You've seen the Unitary Plan gambits and now we even have Len Brown paying Jim Diers to teach Auckland Council staff on how to manufacture consensus and set up faux civil society sock puppet neighbourhood groups to lobby Council to deliver the pre-ordained outcome/synthesis (Diers is the Seattle based self-proclaimed Alinsky community organiser and communitarian).
Even US Dems are waking up.
www.democratsagainstunagenda21.com
Sounds like Agenda 21.
Our minister of housing (or homelessness) seems to have his head in the sand regarding the serious situation evolving in Auckland.
If nothing is done ASAP to bring down the price of existing housing we will see a huge divide in this country between "haves and have nots".
We will have social problems that will cost much more than fixing our housing problems.
Incomes have not gone up much but housing costs are skyrocketing.
I have attended many auctions in Auckland and they are almost a bidding frenzy. People have to borrow much more to get into a basic house. This will all end up in tears and misery when interest rates go up.
I have seen all this before, but other times when house prices have gone up the country was prosperous with plenty of jobs etc. This time it will be much worse when the cycle turns.
There are many things central government can do but won't. I can only presume it is because so many politicians have rental properties.
cost of subdividing a section in palmerston north is around $15,000 in council fees, and you get nothing in return; get ride of council and sections will become affordable
Leaking (or potentially) buildings are a major contributor to the current shortage of houses. So take however many 10's of thousands of houses out of the market (from a buyer's perspective) and of course you will see distortion in pricing. Buyers seem to have got the message that if a monolithic clad house is not leaking now it is only a matter of time before it does. Consequently, they 'walk away'!
Just remember that the current leaky house situation was brought on by Kiwis demanding ever cheaper building solutions and taking short-cuts.
Subsidies of any sort just put even more people in the market and create further distortion. Just look at the result of Aussie's first home buyer package. Heatley needs to do his homework!
"Buyers seem to have got the message that if a monolithic clad house is not leaking now it is only a matter of time before it does. Consequently, they 'walk away'!"
Exactly. Which is why the morons in Wellington should have let the market deal with the problem instead of fostering a mountainous bureaucracy onto the building industry to achieve absolutely nothing but destroy it.
There is only one thing necessary to fix the problem: legislate that councils are responsible only for health and safety of buildings, not quality or durability.
Neither the central governement nor local government will do anything meaningful to address the cost of housing. Why? Becuase most of them own multiple properties and they are not going to make changes that reduce the value of their own personal property portfolios.
What is needed is civil disobediance on a massive scale to force change. It won't happen any other way
If anyone considers that the cost of land the subsequent cost of building the consented section are not out of kilter then they need a serious re think. Paying nigh 40% of the end value for the land will ensure that the best that can be achieved is to break even; that can mean a $400k outlay to achieve no more than what could have been bought in the first place. This is commerce; risk for reward, the fundamentals of a capitalist society. The knock -on effect is several fold; maintenance of barriers to entry at grass roots level which would otherwise bolster the industry and provide new homes for people that need them, the perpetration of the present incumbents who by and large thrive because they can produce volume, a huge dis-incentive for people to realise the value of hitherto under-utilised land and continuation of the housing shortage with the concomitant inflationary effects that has. We in Christchurch are further buggered by a lot of the high density housing areas, (L3 as it's known here) also being classified TC3, liquefaction/earthquake prone land that is rapidly becoming 'untouchable', a third world term that reflects a third world approach, in my view. Notwithstanding the fact that by is own admission the CERA categories of which TC3 is the most onerous, are based upon boreholes up to 300m apart, a high number of properties are being tarred with the same small brush and with insurance not forthcoming, mortgages LTVs dropping to as low as 50% in some instances, coupled with the foregoing industry dynamics, the future for housing nationally, and Christchurch particularly, is not good.
You may no be aware that New Zealand late in the 19th century raised its public revenue by the very system I describe. Winston Churchill, hardly a socialist, campaigned for a seat in the British Parliament in support of the very same measure.
As for the effect on banks, thousands of banks fail and close their doors because of imprudent lending on land. Canadians avoided the worst of the property market crash problems because homebuyers are required to put down a large cash down payment (essentially paying cash for the land and borrowing only to purchase a house). This was the case in the United States until relatively recently, when the expansion of private mortgage insurance increased the demand side of the property market. The increased number of potential qualified homebuyers resulted in higher and higher land prices.
The historical data confirms that stable property markets require land-to-total-value ratios no greater than 20-25%. On the eve of the 2007 property market crash in the United States, this ratio was often well above 50% (80-85% in the highest cost markets).
More nonsense. How will a farm land value ever be 25%? Why will a central, distant suburb or coastal residence have comparable ratios? Why is your proposed destruction of billions of dollars worth of property rights and values comparable to colonial tax policy?