NZ has land supply problem, not house price problem – Brash, Productivity Commission
"One of the biggest increases in our cost to build houses in NZ is local government fees."
Featured commentNew Zealand doesn't have a house price problem so much as a land supply problem, former Reserve Bank Governor and ACT leader Don Brash says.
On TVNZ's Q+A programme yesterday, host Corin Dann asked Dr Brash if high Auckland house prices were not simply a function of the fact "people just wanna live in Grey Lynn [a trendy central Auckland suberb, where a basic two-room home can sell for close to $1 million]. They want it all right now."
People could get cheaper housing if they were willing to live on the city's outskirts.
Dr Brash replied, "That’s not true.
"I recently saw a subdevelopment just out of Pukekohe [south of Auckland] – $249,000 for a 500sqm section. I mean, that’s a ridiculous price. That’s $4 million a hectare.
"I think the Productivity Commission report had a very good chart in it which compared the price of land just 2km inside the metropolitan urban limit in Auckland with the price 2km outside that limit and the multiple was nine times.
"It’s a question of supply of land."
Local government was blocking access to land, pushing up prices, Dr Brash said.
"The market is stopped from working. It’s local government which has stopped the market from working."
Dr Brash's comments were backed by Canterbury University economist Dr Eric Crampton, who told NBR ONLINE a self-inflicted land supply problem, and restrictive housing policy, was making Christchurch quake problems worse.
On the same Q+A panel, CTU president Helen Kelly suggested a "possible monpoly" on the supply of building materials could be pushing up the price of the average house by 20%.
Dr Brash dismissed the suggestion.
"We don’t have import controls. There’s no reason that we can’t import cheaper building materials," he said.
A third panelist, Otago University political science lecturer Bryce Edwards, jabbed in with "Fletcher has a monopoly, let’s face it."
Dr Brash replied: "You can import any building material, including cement. You can import any building materials. There’s no reason we can’t import.
"[Productivity Commission chairman] Murray Sherwin made the point that at the moment 60% of the price of house in Auckland is land. That’s the core problem."
No price crash needed – just home homes built
Earlier, Mr Sherwin rejected the notion that house prices had to drop sharply.
He was reacting to Bernard Hickey, an Auckland financial journalist, who has variously predicted house prices will plummet between 15% and 30%.
"I don’t think we ever need a big crash," Mr Sherwin said.
"I think what we need right now is a supply response. We need houses to be constructed to meet the demand.
"We have one of the fastest growing populations in the OECD, and a lot of it is concentrated around Auckland, and we just need to recognise that and recognise that the status quo won’t stand.
"There’s a lot of status quo bias in our planning. There’s all the resistance from existing residents who don’t want intensification or new developments, councils who are reluctant to fund the infrastructure and the other things that are required.
"So there’s a lot of status quo bias, but that looks very awkward in the face of rapidly rising population."
Back to home
Back to top
Print
Latest
NBR SERVICES
SUBSCRIPTIONS
Sign up for NBR subscriber content or email alerts
Comments and questions25
I dont see mentioned the local authorities and their agencies like watercare all having a lunge mentioned. Check out the cost to a developer to have a water pipe & meter connected !
If land supply is the problem can't we import some?
The government is in complete denial that there is a serious social problem and economic problem looming with overpriced housing in this country, Auckland especially.
I presume this is because most politicians and their friends all have numerous investment properties and it is not in their interests for house prices not to go up.
About 4 years ago Dr Bollard told us that there would be major damage to our economy if house prices kept going up and he put up interest rates as a result. One would take it that he has changed his mind on this and thinks high house inflation is good for NZ.
House prices are not included in the consumer price index. This makes a mockery of the official inflation figures as the majority of people's incomes goes into housing.
One of the biggest increases in our cost to build houses in NZ is local government fees. The councils are hooking us big time for consent fees, development levies, etc, etc.
Your right about that. It is the council fees that are causing the land shortage.for example we have a rental property in south Auckland that is on 1100m2 off land more than enough for 2 properties but to subdivide the site by the time we account for survey resource consent fees development contributions special water contributions etc etc etc will cost 70k or more to create the extra site. Then add taxes and selling costs and the devaluation of the original property for a section that would end up selling for 125k it's just not worth the hassle.
Is Brash stupid? Land is cheaper outside the city boundaries because it doesnt have things like a sewer system, bus services etc etc - local authorities everywhere are trying to rein in this ridiculous urban sprawl that ha people sitting in cars for half their lives.
What really needs to happen is for government to de-power the people magnet that the big centres are, by making in cheaper or mandatory for industries to relocate to smaller towns.
[Brash's point was that land out Auckland's outskirts is not fact that that much cheaper due to artificial constraints on supply - Editor]
King Canute?
It will be almost impossible to stem the Auckland growth as you would wish.
rubbish - its not supply prob is the cost of development - that why most developers have gone bust; in my area (p/n) it costs about $20 - 30k in council fees plus huge sums for resource consent cost & time let alone -
on top is roading cost about $30k plus orginal land purchase cost and then add holding charges;
section value (if can find buyer) $150k but need to deduct 15% gst plus 4% sale com and another $9k legal etc .
Yep - factor all those associated costs with an unweildly RMA / Resource consent process to battle & fund - where just about anyone can stick their oar into your business / private property and slow / stop it from happening on your own private property - and no wonder developers don't want to take on speculative developments these days...
A great pity that Don Brash is not part of Govt; he is able to bring rational thought to the decision making process.
liberte
I agree liberte, trouble was NZers are just too dumb to tolerate a clever guy like Brash, we almost got there a few elections back but then the Media clowns (especially TV One News - always short of the real stories and keen to guess what viewers want -and side with them) started to make him look silly by endlessly re-running the 'walk the plank' clip on TV. Oh how funny - play it again please Mr Sainsbury ! Actually we don't deserve Brash. But sadly he'ds the best thing we could have.
Its in discussions like this that I sadly miss Mr Owen McShane - RIP
Apart from the comments above on costs, which just makes land developing a waste of time and energy, you battle your way through, RMA etc get your titles issued and you get charged rates on each block at the standard Council rates until theyre sold! .....how can that work for a developer ! Developers take all the risk , get no support , the RMA is one big joke .No-one is listening . Lower housing prices are not the answer , we need to subsidize those who are wanting to own. In my experience in the last 10 years, there are a large percentage of people who dont know how to look after a home, Regrettably we need a new alternative style of building ,some landlords have had enough of tenants devaluing houses. Houses as we know them dont suit a lot of people . We need people housed , but I think we need to get into more intensive development . This may bring back some developers.
Undertaken renovations recently ? Its not credible to suggest that there isnt an element of monopolistic practice at play in the NZ construction sector - Fletchers have a dominant position, and lead pricing - others price up to Fletcher. Its not reasonable to pay $8.50/m for 100x50 at Placemakers! Importing option as per Brash is not always precticable, market access is not a given - vis British Plaster board market entry struggle over years, Gib has become the defacto standard, even to the point where the councils specify the Gib standard as being the "required standard" - it isnt, the building code is the standard therby deterring use of another suitable (and cheaper) product.
The only problem here is people thinking they can get a house on a section for cheap in the biggest city in the country.
Cheap does not go with land -- if you want cheap higher density is the only think that will deliver. NZer need to get over this obsession with land. Nowhere is it cheap unless you go for places with no demand like Moerewa or Eketahuna
Wonder if Fletcher Building has a monopoly in Chrischurch...
it is plain, only way to get land price down (creating employment etc) is to reduce the cost of creating the section; as has been said above most developers have gone bust - clearly, there is little profit in developing land
Any one who has looked at building recently will realise that it costs more to buy a section and build than to buy an existing house. This is the reason our houses are not going to drop by a huge degree as demand continues to increase.
The limits on the supply of sections is the problem within Auckland and some other provincial areas. In Auckland to increase supply we either need fringe land rezoned or existing residential land rezoned to higher densities. To meet demand we need high density development of one dwelling per 100 to 150m2 close to suburban town centres/public transport routes (attached townhouse style development), plus higher densities in the central city, allowing high rise development over a wider area, than current constraints.
The balance of the suburban residential land should be zoned at densities of one dwelling per 300m2, which would allow most existing sections to be subdivided for freestanding or townhouse type development. Unfortunately this means that most people will have to live in townhouses or apartments, but this is the reality for bigger cities. However in the near term, only a proportion of these would get subdivided immediately due to the owners desire to retain existing site, outdoor areas etc.
These steps may be enough to increase supply to limit continued inflation on house prices as supply will start to meet demand in Auckland as developers and potential home owners build new dwellings. The alternative is continued urban sprawl but council has stated they will not rezone more land at the fringe. Unfortunately they are also not rezoning or adjusting the existing zones fast enough to meet demand. In addition the high development levies imposed also increases the cost of new housing. Hence our housing remains unaffordable.
Unfortunately the cost of commercial and industrial land is also too high and this limits our economic development.
If the council will not release any land, or more houses cannot be built because of high council levies, or building costs - there is one sure way to bring land prices down. We should have a 3 year moratorium on immigration into NZ. Will less demand, that will do the the same job on prices as a increase in supply.
The whole RMA process needs to be reviewed.
Since its introduction the industry of environmental advisors, planners, and various other "professions" along with council fees, have spawned a system that means a large proportion of the budget to do anything is skimmed off by non productive middlemen.
The result being overpriced, substandard land and housing, and the developers and entrepreneurs who make things happen not prepared to take all the risk while the RMA system takes the money.
It's just a big money grabbing non productive gravy train.
How about local councils given the power to forcefully acquire farmland for development.
Make a law that says a farmer whos land is rezoned to non-farmland have to return the increase in value to the council, not keep for his own pocket. After all he has not provided the increased value to his land, the council has.
Get rid of speculation and you'll have cheaper land. Now who has the balls.
the core issue comes back to - red tap and council fees pushs price of land to high when measured against returns (if there was money to be made then the developers would not have all gone bust)
The fact of the matter concerning land / housing prices is the local councils, by restricting land development and imposing high density housing, in fact push the residential land value artificially high and not only that maximises the council return on rates and waste water. In such an underpopulated country (try living in Hong Kong or Seoul) city councils are largely to blame for the high cost of housing. It is the old Supply and demand situation...blame the city councils. The other part of the equation is the cost of building; Between Fletcher & CHH the market is 'stiched up' ; add the RMA where anyone with a gripe can cost $000s in legal fees to overcome; add to that the council demands on the developer to cover what has traditionally been a cost to the council and the costs just keep growing....<$45-50k on the cost of a single home. I paid, only after a fight with Rodney council, a deposit of $2,500 to cover any curb or footpath damage during construction..thing was I was building on a rural gravel road without a footpath or curbing within 10km. ...But...the 'officer' was able to tick that box!!! after all, what really matters is "I have to tick the box"!!
How could I build a 2,800sq ft home in a suburb 20 minutes from CBD Brisbane (using NZ pine wall framing) and when I did the costing here in Auckland, could not afford to build the same home. The NZ pine wall framing was 30% cheaper in Brisbane than the price in Auckland. I developed a house wrap with an 'R' value (a thermal rating for heat transfer) almost identical to 50mm of batts. The product had a V0 rating ( the top flameability rating... would not ignite) and had CSIRO in Melbourne conduct all thermal and flameability testing. Every building product must be approved by BRANZ before going to market. Here is the 'bump point'. BRANZ, who at the time had representaives from both Fletcher and CHH on the board, put up every hurdle they could think of. A UV test 3 months (summer) facing due North outdoors. ..... A wall cavity membrane is not subject to UV ..and so the demands continued until it became obvious BRANZ would not approve the product and a great house wrap product was shelved. No influence from CHH or Fletcher Yeah right! BRANZ however is entirley happy to have homes wrapped in a tar impregnated paper product (building paper which has zero 'R'Value) which burns fiercely. OH..that's right they manufacture the fire hazard product..but that's OK?? BRANZ independent? Yeah right!!
As a small market we have two companies owning most of the construction supply product outlets and we have councils hell bent on maximising their return by not allowing 'greenfield' housing sites to be opened up. Maybe it is time to start witholding rates in order to remind the councils that they work for us, we pay their excessive salaries and they do as they are told...or are we as a nation just too damm nice and put up with cr*p?
Anyone tried getting land developed around the CCC owned CHC airport lately? They (CCC - and subsidiaries) are against any development at all - except their own unfettered developments like Dakota park etc. Height restrictions apply to all of us - but notice how high their buildings are - RIGHT next door to the airport!! Do they think we are all stupid? There are clearly 2 sets of rules here -1 for the council and their developments and 1 for the rest of us. Brash is absolutely bang on about this problem. Interesting to note the judge hearing the recent case in CHC slammed the council for changing their position on the land use 3 TIMES in the same hearing!!! Time for a big change down here - get rid of all the cronies at CCC and get this good land close to the city developed and out on the market.
I built a deck on my house. Labour and Materials $13K Council fees and plans drawings to satisfy them $10K total $23K. Council dont want more land used as it would make it harder for them. They want to keep upping the rates on existing houses. Try 7% compounding increase since the Labour govt gave them an open cheque book 10 years ago.