Rising house prices dangerous for NZ – English

Promises housing market reform, but acknowledges political complications

UPDATE Oct 29: Prime Minister John Key says fast-tracking the supply of land would help address housing affordability.

Finance Minister Bill English will take a white paper today on proposals to solve what he calls "dangerously high" house prices.

Changing the Resource Management Act to speed up the development of land will help solve the supply and demand issue.

"When you get an RMA consent at the moment it's an arduous process that takes a very long period of time," Mr Key said on TV One's Breakfast programme.

"In the end, someone pays for that and that is the consumer."

Fast-tracking RMA conscents to allow for more redevelopment of land was a "reasonably bold" move, Mr Key said.

The prime minister ruled out further increases to housing subsidies (already at $200 million) or a capital gains tax.


Oct 28: Finance Minister Bill English is trying to talk down the property market, warning rising house prices are “dangerous” for the country.

“People just seemed to assume that no matter what happens, house prices are going to go up. That has turned out to be quite dangerous for New Zealand. So we don’t accept that house prices automatically have to rise," Mr English said on TV One's Q+A programme.

Asked how much he thought houses were overvalued, Mr English replied, "There are various measures, but one of them is median house price over median wages. We are now somewhere between five and six times the median wage for a house, and it used to be somewhere around two to three times that 20 years ago."

The minister promised government action on housing affordability, including changes to local government and resource consent laws.

Mr English said he would be taking a paper to cabinet tomorrow in response to the Productivity Commission's recent report on housing affordability (which focused on increasing land supply rather than opposition party's preferred soluton of a capital gains tax).

The thrust of government reforms will be to open up more land both brownfield sites (denser development, such as more subdivision or more apartment blocks) in cities and greenfield sites on the outskirts to get more houses built, he said.

"There’s a lot of urgency," Mr English added, but he also dampened expectations of any big-bang measure. There would be a range of small reforms.

Mr English acknowledged the political problems inherent in any housing market reform.

"It's the nimby [not in my backyard] thing," the minister said. "But you can understand people have invested a lot in their house and they want to keep their view or they don’t want a block of three-storey, more dense housing next door to them."

People also had concerns about the “urban sprawl” danger with greenfield sites, Mr English said.

English said existing homeowners may have to ‘pay a price’ if we want to keep the Kiwi dream of homeownership alive.

“If the wider community decides that they want to lock up the housing market to drive up the value of the existing houses and keep other people out, then we won’t get there. But, look, I think most people understand that the fact that they’ve achieved the dream is a good thing, and they’d like others to be able to achieve it.”

He hinted National will intervene to help first-home buyers out of rentals and into the property market.

“[Tax-funded rental] subsidies are growing quite fast, so the government has a direct interest in enabling those people into the market” and “we’ve also got to provide access for those households who are caught in this high-rent situation where they can’t make savings," Mr English said.

The government wants to coordinate councils, banks and developers to get more houses built, especially cheaper houses, the minister said.

“There’s a real shortage of good quality lower-priced housing ... for the lowest quartile incomes, there’s really no new housing being produced, apart from what the government is building.”

Mr English is  ‘worried’ about rising cost of government’s accommodation supplements rising $200 million per year.

“We’ve got to be careful about government not blundering in here too much into council business,” he said.

Watch Bill English's full interview here.


RAW DATA

 

Q+A TRANSCRIPT

CORIN DANN INTERVIEWS BILL ENGLISH

CORIN DANN

Good morning, Mr English. You’ve said the housing market is still a serious problem. It’s not working. Why isn’t it working, and how isn’t it working?

 

BILL ENGLISH - Finance Minister 

Look, it’s very complex, so any explanation is partial, but it looks to us as if there’s a number of problems. One is the cost of building. That does appear to be pretty high, particularly compared to Australia. There’s a lot of work being done on why that might be the case. More scale, building regulation - all of that can be improved, and that process is underway. We’re also concerned about the supply of housing coming to the market. It does look like the councils have got a very difficult job ensuring that there’s enough new land but also enough development within our cities of more dense housing to enable enough housing to come on to the market to stop prices rising unnecessarily.

 

CORIN            I mean, we’ve talked about housing affordability being the problem here. Is it just a case that house prices are too high and that somehow you need to get the house prices down?

 

BILL                Well, in very simple terms, yes. New Zealand has, by international standards, high prices for its urban land and high prices for the total housing package. It’s way higher than it was.

 

CORIN            How much are we overvalued?

 

BILL                Well, there’s various measures, but one of them is median house price over median wages. We are now somewhere between five and six times the median wage for a house, and it used to be somewhere around two to three times that 20 years ago.

 

CORIN            And this has damaging effects on a number of fronts, doesn’t it, not just for the economy but also for the social cohesion of New Zealand. So how much urgency are you going to put on this issue?

 

BILL                Well, there’s a lot of urgency, and you need a lot of urgency because getting something to actually change is very difficult. But it does undermine social cohesion. The Productivity Commission Report showed that for the lowest quartile incomes, there’s really no new housing being produced, apart from what the government is building. There’s a real shortage of good quality lower-priced housing.

 

CORIN            Why is that? We’ve got 4500 builders. Why can’t we seem to build low-income houses?

 

BILL                Well, look, at the moment one of the reasons is simply that people are being very careful about over-investing and over-borrowing. But as the economy picks up, demand is going to pick up, and we want to be in a position where by that time, our building industry is better regulated, that government has been working with councils to ensure that more supply can come on stream in response to the demand. Because if that doesn’t happen, the prices will spike, they’ll rise. We’ll end up with New Zealanders borrowing more than they need to. That makes us more vulnerable to our overseas lenders. We’ll end up with investment being diverted into housing unnecessarily when we want it in our productive business, creating jobs.

 

CORIN            All right. So, you’ll be taking a paper to Cabinet tomorrow outlining your response to the Productivity Commission’s report on this issue. They clearly identified that supply of houses in places like Auckland and Christchurch, to some extent, is the problem here. How are you going to speed up the number of houses that are built and boost that supply? I mean, something like 10,000 more houses are needed in Auckland a year alone.

 

BILL                That’s right, and we’re well short of that at the moment. So, look, we’ll be looking at a whole range of measures because there isn’t one big thing. Councils, such as the Auckland Council, have quite a difficult job. On the one hand, the existing homeowners don’t always want new houses. They don’t always want their views spoiled-

 

CORIN            This is the NIMBY thing, right?

 

BILL                Well, the NIMBY thing, yeah. But you can understand people have invested a lot in their house and they want to keep their view or they don’t want a block of three-storey, more dense housing next door to them. So the council’s got to balance that up. It’s then got to coordinate the schools and the roads and the public transport with the new development. So the kind of things that we’ll be looking at in response to the Productivity Commission is a broader range of tools that give us more options for getting those decisions made in a way that’ll get the houses there.

 

CORIN            What are these tools? I mean, are you going to give financial help to councils to build, say, what they call green fields out on the outskirts of cities? Because that will need sewerage and electricity. I mean, they don’t want to pay for that. I mean, what are the specifics here? How are you actually going to get councils to do what you want?

 

BILL                Well, in the first place we need to understand exactly what happens now, and that’s not clear. For instance, in the process of responding to the Productivity Commission, we’ve spoken to councils and to developers who, after all, are the people who actually build these houses. And it’s been amazing the different views about what impact the plans have. So, you’ll have councils saying, ‘Look, there’s thousands of sections out there. There’s no problem. They should just get on and do it.’

 

CORIN            That’s right, because Auckland Council says they’ve got 18,000 free.

 

BILL                And then developers are saying, ‘Well, once we’ve done this lot, we actually haven’t got anywhere else we can go where it’s going to be worth our while.’ So some of it is about how developers actually make a return on their cash, and some of it is about how the council thinks the cities should develop. So we’ve got to close that gap, and that’s been one of the first biggest steps: the government understanding the problems for councils, which are many, and then government and councils understanding how it works commercially so we can actually get more developers freeing up their land and making it worthwhile for them to build houses.

 

CORIN            So councils don’t seem that keen on the idea of urban sprawl here, the idea of building on the outskirts, because they have to fund the infrastructure to make that viable - the public transport, all that sort of thing. You want that? This is something you will push for in your response?

 

BILL                And that’s a fair enough concern from councils. In the end, the infrastructure’s going to paid for by someone, either by development levies or by existing ratepayers or by the new homeowners. Often the problem is just timing and coordination. Can we get the infrastructure built a bit ahead of the market so that we can get the houses there when they’re needed?

 

CORIN            I’m just struggling - the changes that you’re going to make, how are you going to incentivise for there to be more houses built in both those outskirts and also in the inner-city limits? What’s the incentive?

 

BILL                Well, look, the incentive for all of us is a more balanced economy with more investment available for jobs and growth, and the incentive for all of us is to avoid unnecessary debt. So our first job is to get a common sense of purpose here. It’s not the government trying to tell the councils to do something they don’t want to do. So get a common sense of purpose. And then we’ve got to look at what I have to say has turned out in my experience and, I think, others looking at it, a very complex interaction of planning and economics that lead to the incentives to build more or not. So what we’ve got to do is pick our way pretty carefully through that. We’ve got a couple of special opportunities - one in Christchurch, where, essentially, we can change all the rules if we really need to under the Earthquake Recovery Act. That’s spurred some controversy, but we’re learning a lot from making a lot more land available and changing the central city plan to create opportunities for all the people who lost their houses in the earthquake.

 

CORIN            So that’s in Christchurch where you’ve got emergency powers, but will you also now change the law for the rest of New Zealand in this response of yours so that you can open up more land?

 

BILL                That’s possible, and I think we’ve got to work with council to find the right balance of their decision making. They’ve got to balance up these local political concerns and the long-term growth of their towns and cities on the one hand, and the role the government has. Because the government has an overall interest in this. If house prices go up, we spend a lot more on housing subsidies. We currently spend about $2 billion a year-

 

CORIN            I will get to that in a minute. But I just want to be clear here. So we’re looking at potential law changes around urban planning, around urban sprawl, that will enable greater supply of houses.

 

BILL                Well, that is the thrust of it. The thrust of it is to make it easier, both commercially and in the planning process, to enable more houses - not just green fields, but also within the cities. Because some of the best opportunities are within the cities.

 

CORIN            And what’s the goal here in terms of how much cheaper you want houses to be?

 

BILL                Well, that’s a very good question. Up until, I think, the Productivity Commission Report, no one really believed you could change this. People just seemed to assume that no matter what happens, house prices are going to go up. That has turned out to be quite dangerous for New Zealand. So we don’t accept that house prices automatically have to rise. And we don’t accept that a lot of New Zealanders are automatically cut out of home ownership because they can’t find the half a million dollars you need for a starter home in Auckland. So we haven’t got a target in mind. I think there’s a lot more work to do now that people accept you can-

 

CORIN            But I’ve seen figures showing that 30% of Aucklanders, for example, simply can’t buy a $400,000 house. You know, there’s big chunks of the Auckland market that can’t even get into a $400,000 house.

 

BILL                That’s right, and more of those people are finding themselves in low-quality rentals, and a lot of them find themselves on government subsidies for those rentals. And those subsidies are growing quite fast, so the government has a direct interest in enabling those people into the market. So what we’ll be doing is outlining a work programme where changes in local government legislation, changes in Resource Management Act legislation and maybe some changes in the balance of government influence with councils to enable that better supply.

 

CORIN            You mentioned the RMA, so we’re looking at changes here as well. Are you looking at trying to really speed up the consent process for building, because part of the problem isn’t just land, is it, it’s making houses be built faster?

 

BILL                That’s right, and the costs of those processes, it turns out, are really quite high. If you talk to banks and developers about the costs-

 

CORIN            How do you cut those costs?

 

BILL                Well, again, about working the councils. The councils want efficient processes, developers want them, government wants them. Part of this is about getting that three-way conversation so everyone understands the impact of their decisions on the other. A big part of this is a coordination problem. Getting government, developers and councils and banks to all work together on increasing it.

 

CORIN            Do you think you’ll have good coordination? Do you think you’ll have the councils on board? I mean, we’ve already seen the Auckland Council in its submission to the Housing Affordability Report saying, look, they disagree. They’ve got plenty of land available they think they could get houses on.

 

BILL                Yeah, and I think what we’ve learnt from that and in Christchurch is making land available is a long way short of people being able to rock up and actually being able to buy a built house on a section. But, look, Auckland Council, though, has already said in its new plan it’s going to have an affordable housing strategy. We think that’s excellent. We’re working alongside them closely. We’ve got to be careful about government not blundering in here too much into council business, because we don’t understand all the local issues.

 

CORIN            You talked about the housing accommodation supplement - effectively, the money you give to, I guess, tenants struggling, who can’t meet rents. Enormous amounts of money. How much are you paying on that at the moment? $15 billion a year or something.

 

BILL                Well, the government owns $15 billion worth of houses, and, in most cities, the best opportunities within the cities is actually on the government-owned Housing Corp land.

 

CORIN            And you talked about an extra $200 million a year being spent on that because of rising rents, and we hear people say that this is effectively a subsidy for landlords. You’re obviously quite worried about this.

 

BILL                Yeah, we are a bit. We spend $2 billion a year on direct cash subsidies. 300,000 people have some of their rent paid by the government, effectively. And so if the housing market rises, it’s going to cost us a lot more, and those subsidies are forecast to increase fairly significantly.

 

CORIN            Do you think that money could be better used in other ways?

 

BILL                Well, we’re looking at that. We’re looking at some more changes in social housing, because the people in the social housing community want more change. But we do have to be careful there, because people are relying on this cash for their week-to-week income. So any change-

 

CORIN            You can’t just cut their-

 

BILL                You can just cut it. You can’t just shift it around. You’ve got to be very careful.

 

CORIN            But you could get community social housing groups building more houses. Is that the plan?

 

BILL                Yeah, that is one of the plans. So we want to do the response to the Productivity Commission on housing affordability, which is about the broader market, and then we’ve got a lot of work going on on the reform of the $15 billion of housing that the government itself owns, and those sort of changes we do have in mind.

 

CORIN            You know, there will be some people who will say once again this is people with unrealistic expectations. They want the big, flash house, and they’re not thinking about starting small and building their way in. Is that still a fair criticism, or is the Kiwi dream of that house actually a bit more difficult now than that?

 

BILL                Well, some of it is because the standard’s a lot higher. You know, parents of people our age often went up to a subdivision where there was a gravel road, there was no pathways, often they were on sewerage tanks, and that was their first house. Now that’s not the standard we build to now. It’s quite a lot higher. Look, there’s room for the double-income couple who don’t buy their house till they’re 35 and they’ve got 50% of the value. But we’ve also got to provide access for those households who are caught in this high-rent situation where they can’t make savings. If they could get some savings, they’d need to be houses they can afford.

 

CORIN            Can you guarantee, I guess, that these sort of changes, that what you’re doing, is going to ensure that that dream is still alive for our kids, that they’re going to be able to own homes in New Zealand?

 

BILL                I think if there’s a collective will to have more affordable housing, we can achieve it, and a big part of that is the wider community believing it’s a good thing. If the wider community decides that they want to lock up the housing market to drive up the value of the existing houses and keep other people out, then we won’t get there. But, look, I think most people understand that the fact that they’ve achieved the dream is a good thing, and they’d like others to be able to achieve it. And if we can get there by looking hard at the planning process and the way councils and government make decisions, then I think people will think that’s a price worth paying.

 

CORIN            Finance Minister Bill English, thank you very much for your time.

 

BILL                Thank you.

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25 Comments & Questions

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Being a young professional I am finding buying a house in Auckland frustrating. Coming from a low income single working mother family, putting myself through University and working hard only to see that buying a house is becoming less affordable is disheartning. The only way to solve this situation in new Zealand is to set up an INDEPENDENT INSTITUTION (similar setup to the RBNZ) to stop the exodus, independent of politics that has only added to the problem - lets be honest with ourselves. Most DEVELOPED economies have two thirds if their money invested in productive assets and a third in real estate, while in New Zealand its the other way around. Ironic isn't it, how are we going to grow our GDP with such a fundamental limitation. I guess the warped kiwi mentality of who gets hurt the least prevails.

I try not to expect much, to save myself from dissapointment in our leaders.

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The housing shortage/high prices in central Auckland are being exacerbated by the influx of cashed up Asians who are buying up everything. If you think this isn't so or a harsh statement, try attending open homes and auctions for Grammar Zone properties. Asians (often non-english speaking) out number kiwis 10 to 1. This invasion is destroying any locals' chance of securing property at CV or around CV prices.

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One thing that is odd is that in many other countries (including China, who we like to laud for various economic things) ownership of land is restricted to citizens - or at least permanent residents - in order to prevent foreigners from driving up prices through coming in with much more money.

Meanwhile, we as Kiwis are so keen to sell all our best assets to overseas concerns who are not invested in the future of NZ. We take the quick cheap buck while many others play a wiser long game.

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Give landowners back their property rights that have been stolen by bureaucrats and safeguard the environment by formalizing further tradable rights to sunlight, clean air, quietness, and privacy. Then developers can negotiate compensation directly with affected neighbors and Councils can sack most of their building and planning empires.

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Above all else, the price of houses are based on market demand. Why is New Zealand not prepared to increase the minimum wage to match the price of fundamental requirements to make a healthier country such as housing costs (both renting and owning)?

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Because that would make a whole lot more people unemployed.

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sheesh ... and where does that money come from Bryony? Price is based on supply AND demand (supply is equally important in driving price) - the problem is restrictive RMA, and council racketeers reducing the easy supply of land .. it is really quite ridiculous that in such an unpopulated country with an abundance of land we have such disparity in our incomes vs land prices ... the problem is restriction on supply for housing.

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Great stuff Bill, great response to a serious and tricky problem

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It's not a tricky problem, it's a simple problem created by morons. Land for houses is expensive because morons prevent it being used. I have a block with a perimeter about 3km long on which only one house is permitted. Buildings are expensive because morons are made responsible for quality and durability when they first don't know the price and preference tradeoffs the owner wants and second are not responsible for designing and building it. The consequences are horrific and disastrous but the fixes are simple - except too many voters are also morons and expect the State to supply and change their nappies.

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Got to admit - I have a totally non productive 10 acre block with one houes on it that should be cut up into 1 or 2 acre blocks for those who want a little bit of country without tearing up farmland. Sadly - not allowed to. So guess what happens - farmers keep cutting off 10 acre 'retirement blocks', which is so wasteful.

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We need to be careful that we don't fall into the trap that the US did with trying to make home ownership "affordable" or achievable by lowering the payments that the purchaser will have to make.

It is a matter of actually lowering the costs and overall price that is needed and this can only be done by increasing supply or making it possible for private sector to increase housing supply in a cost effective and competitive way.

Giving first home owners (or anyone) access to east credit and low interest rates is a nail in the coffin towards another housing bubble and subsequent housing crisis.

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Something has to be done to control the councils. Our neighbour is currently getting a 40 sq mt extention , which includes a deck , put on his house. Also an extisting retaining wall has been replaced. It has taken a year to get to the point of starting the job and $25,000 in council costs. ( This is in Wellington).
With these sort of costs it no wonder very little is being done.

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The reality is that Bill English will be recognised by history as one of New Zealand's great Finance Ministers....solid,considered and passionate about NZ.We are weathering a global crisis better than anyone.Give him the credit he deserves.And by the way I am not even a National voter.

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Crikey and I thought Auckland prices were bad. Taking what I made selling here converted into A$ across the ditch and I can only afford a weeny apartment in a similar type area.

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I have heard Bill English speak about this very coherently, so I have confidence in his understanding about housing affordability in New Zealand. The concern I have is around the red tape, hence the need for an independent institution to implement policies.

The problem stems from:
1. Lack of supply (most important)
2. Councils (timing)
3. High building costs (14%)

Any person with half a brain and enough common sense would be able to think about solutions to the above.

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The reason house prices continue to rise is that Bill English despite all his smoke and mirrors is just an agent for the banks who have a vested interest in raising the indebtedness of kiwis who dare to live in a house. Raise the capital ratios lets try 100% then you'll see affordable housing Bill!

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Not sure I follow you there Chief.

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I gather he/she means that if you had to buy a property without the ability to take out a mortgage of any sort from a bank, house prices would plummet.
Imagine having to save up 100% of the purchase price, rr even 33% like the good old days (when prices were cheap).

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Record low interest rates and low deposit requirments are driving demand, legislate for min 30% deposit, this will slow the market and force the banks to look to lend to other sectors.

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What unaffordable Housing? The problem is everyone wants the best NOW! Buy a cheaper home today and build up over time to a better home.
There are plenty of areas in New Zealand where house prices are unbelievably low. I have a 3 Bedroom home, Insulated ceiling and underfloor courtesy of the government , on a fully fenced 800 sqm section, excellent climate in Central Foxton for only $145,000. Work can be found in Levin 18km or Palmerston North and surrounds 40km. Any Takers?
How many People living in Auckland or Wellington suburbs travel 60km each day for work?

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Building material prices in NZ are too high, and that comes back to Fletchers having a protected monopoly across all products and services. If Fletchers were not so cosey with Jonkey and his mates then true competition woud prevail.

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Give it a go ..why not,... .Trying to separate kiwis from property has the same degree of difficulty as handpicking the bacteria out of UHT milk.With more Housing available more will be purchased by more people and Auckland will become greater and bigger with benefits for all.

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Recently built a house and wondered where the Builder was as there were so many subcontractors all taking their margin and once it was all added up there was a sort of amplification factor through the process that added up to be expensive indeed.Cant help thinking there is a missing link somewhere and seems there is a lot of people and processes involved that could be systemized or factory componentized or something.Its obviously a very big animal to break down with a lot of self interest groups and maybe thats the problem.

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Suply and demand.. The only solution that seems to be offered is rezoning of farm land into residential use. The problem with that is is you keep encouraging urban sprawl and in turn increase other issues like roading and congestion. If you remove the crazy reserve contribution costs from inner city developments and more people end up living in the city you'll address these transport issues, but have a more vibrant centre and this will go a long way to satisfy demand, besides Councils get increased rates on the value of the improved property. This is an easy solution.

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Recently bought a house in Auckland. Things I compromised on: number of rooms (only 2), title (crosslease), building consents (no submissions with council for any work done).

The urgency was that I had to leave my apartment. It was leaky, with Gib bowed out from black rotten studs in the middle of a three storey apartment block. Think Pancake. So I made choices and compromised.

There are a lot of issues in the Auckland housing market. Developers made money by cheap materials and cutting corners. Home owners DIY not seeking consents for structural changes. The expectation of 3+ rooms on a reasonable sized section.

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