RMA blamed for New Zealand's poor home affordability
(Updated) As long as resource consent barriers are in force, New Zealanders will continue to pay more than they necessarily should in order to buy a home.
That's the view of Property Council chief executive Connal Townsend after a new survey reveals that the New Zealand housing market is the second most unaffordable in the world.
The 2009 Demographia International Housing Affordability Survey found that homes in New Zealand are priced at 5.7 times the average household income, an unrealistic cost for the majority of Kiwis.
The international standard of accepted housing affordability is that house prices do not exceed more than three times the average median annual income.
Australia has the most unaffordable housing in the world at 6.3 times average annual household earnings.
Property Council's Mr Townsend says although the retail price of some residential properties in New Zealand have fallen (thus leading to a greater degree of affordability now compared to a year ago), many young New Zealanders in particular are still locked out of the kiwi dream of private home ownership.
Mr Townsend says that the key barriers to affordable housing, such as constraints on the supply of land available for development, the charging of excessive development contributions, and prohibitive compliance costs associated with building and resource consents continue.
“As long as these barriers are in force, New Zealanders will continue to pay more than they necessarily should in order to buy a home,” Mr Townsend says.
However, not everyone is convinced that land restrictions and the resource consent process is a major problem.
The Manufacturers and Exporters Association (NZMEA) says the “almost unique” absence of a Capital Gains Tax in New Zealand is one of the factors that lead to unaffordable housing; “It is clear that the tax rules favour assets over activity”.
“What is there to fear from a Capital Gains Tax that does not affect the family home or increase the overall tax load?” NZMEA chief executive John Walley says.
“We need to balance the tax treatment of all gains and income to encourage more investors into the productive sector of the economy where jobs and wealth are really created.
The Demographia survey covered 265 markets across New Zealand, Australia, the UK, the US, Ireland and Canada.
Of the eight housing market areas surveyed in New Zealand, one qualified as “Seriously Unaffordable” (between 4.1-5.0 times the annual income) and seven were in the most extreme bracket available of “Severely Unaffordable” (5.10 times and over the annual income).
The Western Bay of Plenty/Tauranga area was the least affordable market at 6.6, with Auckland at 6.4. Palmerston North/Manawatu was the most affordable at 4.9, though still classified as “seriously unaffordable”.
The housing market of Ireland came in at third place, being 5.4 times the average income. The UK was 5.3 times, Canada 3.5 times and the US the lowest at 3.2 times annual household income.
The results were found using the multiple median method, where each individual market and the median house price are divided by the gross annual median household income.
UPDATE (2pm): This article has been updated to include comment from the Manufacturers and Exporters Association on why a capital gains tax would also help improve housing affordability.
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Comments and questions9
What a load of purest unadulterated bulls**t ! The RMA is designed to allow a house or building to be constructed without overloading the very poorly thought out and implemented city water and sewage lines not to be overwhelmed. It is also true that the Bureacracy in city Councils (animals with four back legs) prevents quick action on RMA submissions, in combination zero transparency and accountability. Want anything done about your needs at council ? Get all your fellow cheesed off ratepayers together, and prosecute in a body of 10,000 the officials responsible, rather than the Council. Would make life fun, and get jobs done. But I digress.
Now as for home unaffordability - the RMA cannot be held to blame. More likely, it is a combination of the following factors :
* People who bought the houses and wanted to make easy money : they inflated prices for the purposes of sale, and so that they could make money off the IRD as a tax claim back, or else maintain a high rent. Net result - greed-driven overblown valuation.
*In 2007, the housing market in NZ basically ground to a halt in terms of rate of sales - no new sales were being made anywhere in the country. In most cases, this was due to the greed-factor become so pronounced as to shut first time buyers completely out of the market. These days, would be first time buyers are renting rather than saving in a building. This trend does not look like it will decrease anytime soon.
*Another factor in unaffordability has been monetary clipping - since 2001, the value of NZ dollar has fallen as governmental clipping of value i.e. inflation has increased. Sadly, the new National government has not had the guts or principle to say - lets stop stealing as much as we have been, and reduce inflation to 1999 levels. If they did that, certainly the affordability problem would start to disappear
*Taxation is heavy in this country, which makes things difficult. Taxation comes in the following forms :
*income taxes :a cross the board, averaged out, its about 27.5% of income, almost a third
*Transport : in the form of Road Tax, Petrol Tax, and then a tax for owning a car, of which 33% of the last one is almost completely given over to ACC in order to pay the insurance of the great unwashed who love to smash their cars into other cars, uninsured. This accounts for 12% of income p.a.
*GST and other taxes - 12.5% p.a.
So in total, out of your total money taken home, nearly 45% of thats been taken by taxation every year. Almost HALF !
The Aussies dobetter for one major reason - their taxation, all-in-all, is still in total only 36.5%. Citizens in Australia thus keep more of their money. And, of their taxes, fully 95% of it comes back to the people in the form of spending on reducing the cost of power, water, food, transport, and the needs of life. 5% goes to running the country.
In NZ, only 65% of the 'haul' returns to the people - and has done in rottenly meaningless ways. Once, when working for Crop & Food, I was horrified to learn the Labour gov had thrown $5 million into healthy food research for children - and the result has been probably 400 sappy little adverts on TV, which are so wishy-washy you can;t understand their purpose. Six words - I can do a better job.
John Key can too, I think. And most of cabinet - but until tey have the guts to put the Lifers in the back room out to pasture, things won't improve.
Oh and house affordability? - mark my words on this one. The following events are going send house prices plummeting even further than they have done so far :
*Death of owners - which will inject more houses into the mix
*Bankruptcies in massive number are on the horizon, mainly Q1 FY2009. And we are talking MASSIVE numbers, mainly in real-estate.
*Financial Co. Collapse, with the banks left standing only just.
*A glut on the market in Q2 FY2009, of fully 35% of the housing market. Their prices will be very high - probably 42.3% above intrinsic land+house value. These houses are going to stymy the market - literally 2% will sell in this period, the rest will remain on the market until mortgage fore-closure sees them sold for appropriate prices in Q3 FY2009 at the latest
*The collapse of the house price to 1999 levels.
There will be a knock on effect too - houses will no longer posess the value of investment, but rather a commodity. Real estate will mature, but for the remainder of the century, it is likely to be at no more than that necessary to match the inflation rate.
Not just the RMA, other significant causes of unaffordability are as follows.....
1) Unjustifiable Council Development Levies
2) LAQC structures allows property investors to transfer losses from a company to offset personal tax.
3) Failure to regulate financial markets making investment in equities and now finance companies far riskier than necessary
4) Use of the OCR as the only instrument to regulate the economy, giving banks a right to extract high rent (interest on mortgages)
5) High density housing that is enforced by ring fencing cities and not allowing housing to spread.
6) A low wage economy. Increasing GDP per head of population is the surest way to increase affordability of housing (increasing income via productivity is always preferable to reducing costs)
As a planner that has worked for both private developers and councils i'm dissapointed to read this rubbish. there are many reasons i am sure that housing is unnaffordable, but to blame it on resource consents is laughable. perhaps there is some argument that could be made about impacts from district plans, but these are publicly debated documents and if developers (lets face it we are not talking individuals building houses - in most cases resource consents arn't required or are a minor issue) need to challenge those rules they have PLENTY of opportunity.
its dissapointing that no technical view has been sought and my opinion of your publication has decreased considerably.
if you want an objective article, you should involve the development sector and the local government sector.
for the record i am NOT a fan of the RMA. while it has many faults, increasing house prices is not one of them.
perhaps Mr Townsend should consider the state of our urban and residential environments if there were no planni ng restricitons in place - he might enjoy living next to a piggery or night-club. town or urban planning is arguably new zealand most unsung and most important professions, it affects almost everything we do in our daily lives. all we ever hear is rubbish like the statements in you article.
what about an objective article on the profession and its value to quality of life AND to quality development NBR?
The recent articles published concerning the housing issues in New Zealand show a severe lack of independent, original or well-founded thought - instead focussing upon biased and opinionated viewpoints.
To be perfectly honest, much of the urban development carried out throughout New Zealand leaves a lot to be desired.
With the recent investigation carried out by the Department of Internal Affairs into restructuring the RMA (and pretty much the whole modern townie kiwi lifestyle) to provide for future sustainable urban development my opinion is the lack of new housing being built, plus the increasing costs involved SHOULD make the industry take a step back and say "Are we doing this right?"
The answer is "No."
http://www.dia.govt.nz/diawebsite.nsf/wpg_URL/Resource-material-Sustainable-Urban-Development-Index?OpenDocument
A whole lot of things need to change.
The purpose of the RMA is to "promote the sustainable management of natural and physical resources".
The District Plans and RMA proceedures have completely sidetracked this purpose into maintaining the (unsustainable) visual status quo. How we currently live, develop and build cities is far from sustainable. Assessing development based on whether it effects existing, unsustainable, land uses contradicts purpose of Act, but that's how it's done (no you can't build a wind farm, it will have 'adverse visual effects' ).
This is illustrated in Auckland's ongoing density debate. Increasing density is the only way to grow Auckland sustainably and yet debate is almost always focused on visal effects, rarely on sustainability (Orakei point being prime example). The District Plan and most recent Plan Changes have effect of reducing density, irrespective of quality of development and irrespective of sustainable principles. The District Plans density restrictions are major contributer to cost of housing.
What does it matter in terms of housing affordability if banks are no longer willing to lend? This time last year I was told pay off the debts and come back to us. Now I have a deposit no more debts but because of my previous debts I no longer qualify. I can afford a house now despite the fact its 'unafforadable" but cant get a mortgage. I would love the chance to complain about the RMA
Why is the cost of building materials never addressed in these articles?
Two companies effectively monopolise the cost of materials supplied to the NZ residential market. Comparably, m2 supply costs with say Australia show widening gaps in the last decade.
Yes RMA expenses are prohibitive. Particularly contribution piracy. However, TA's conduct similar levels of piracy under the auspice of the NZ Building Act, and again nothing is ever reported on this subject.
So I guess i agree with Nick the planner to some degree.
Having said that, my last experience dealing with devious Wellington City Council planners has ensured that i will never attempt multi-unit residential construction in this country again.
Attributing blame to the RMA for the affordability or otherwise of NZ housing is short-sighted and in my view misses the key issue here - which is a low wage mentality in NZ business generally.
This side of the equation if rarely addressed by the media and craftily avoided by politicians.
NZ's (slowly slipping) position in the OECD rankings over recent years is testimony to the fact that NZ is simply not generating enough wealth as a country in comparison to our competitors and this is reflected in low comparative wages which in turn impacts on the house affordability equation.
Other factors which have a far greater influence in my view than the RMA on the affordability issue include:
1. High long-run cost of capital (borrowing) in comparison to our OECD competitors.
2. High comparative building material input costs due to limited marketplace competition in NZ.
3. High local authority development contributions (to which high density affordable housing projects are especially sensitive).
The attack on the RMA is focused on the supposed barriers imposed on new greenfield developments. However the long-term hidden costs of greenfield development including for example long-distance commuting, increased pressure on infrastructure and the costs of reticulating this over large distances and the loss of productive land are rarely if ever factored into the equation.
The RMA is a scape-goat in the affordability question and both the media and politicians need to look a little bit harder at the real issues and also need to be a little more creative about solutions for those who may need help.
The answer is certainly not to remove supposed barriers to large-scale greenfield development simply to bring the cost of land down to meet NZs low wages!
I also can't agree that (for housing) local authority compliance costs have any substantive effect - as except for earthquake and fire compliance costs in older buildings - these costs are a relatively minor expense in the overall equation.
Both wages and interest rates have a huge leveraging effect and a relatively small drop in interest rates and/or a small rise in wages has a much bigger (positive) influence on the affordability ratio for house buyers than trying to artificially reduce the cost of land or building materials.
These are the two key areas that the government needs to concentrate on in my opinion if they wish to create sustainable affordability.
I am trying myself to build and addition to the property. Lounge addition, approx 15 sq.m. After all the inquiries I made so far in an attempt to put the costs toghether and build a budget, I realised the paperwork only, might cost anything in the range of $15k to $18k. That's before buying even a nail. Why is it like this? Because the Coulcils are unable to retain qualified personnel to be able to understand the drawings and specifications, and then the applicant has to include absolutely all the details on the plans. Years ago it was enough to specify the standard and section of the standard applicable to the work (window installation, cladding, framing, insulation, etc.). The drawings for the Building Consent were A4 or A3 and for an addition like this you might need 3-4 drawings only.
What is required now, is to detail ABSOLUTELY EVERYTHING applicable to the work done. On top of that, the drawings have to be A1, not A4 or A3 format anymore. That shows the few people still knowing how to deal with the Consents at the Council are really "tired" and cannot read small printed material anymore. I find it offending to the tradespeople that the drawings have to show how every flashing and nail or staple has to be placed. You also need digital topographical survey, geotech report, arborist report, each in excess of $1000, even reaching $2000;
How does this help the industry? Personally I am unsure, as with so many details on the drawings, I can do the building work with a couple of friends. The drawings you submit for Consent are full of copy/pasted details from the Building Code and related documentation, available for download from the Department of Building and Housing website. The same sill details are copy/pasted from the same source thousands of times every year or maybe every month, instead of making a note like "sill and jamb details as per section ...";
You then pay the architect for "supervision" (a couple of hours a week) just to make sure you really understand what's on the drawings, and save yourself thousands by not employing a builder to follow the same drawing and charging $65/hour.
After all, you really have to look into any saving you can make after paying in excess of $1000 / sq.m. in complyiance costs only. For $175 an inspector from the Council will have a look at a second hand window I get from a demolition yard for $50 and if it is approved, you save yourself a $1500 new window. How exactly does this help ANY industry at all, that's what I cannot understand.
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