Thursday, September 27, 2012
Frank Newman: Housing for the poor?
What is unusual about the question is that they need to ask it at all. The reasons are pretty obvious to anyone living on planet earth. The Minister is reported to have said, “The most unfair aspect of it is that there's no housing being built for people in the lowest quartile of income. Like none”.
Yes Minister, that’s right - it’s because the three components to the building package costs so much that new houses are unaffordable to those on low incomes. Land prices are inflated because of planning issues. Building costs are rising because of higher production costs (like the Emission Trading Scheme increasing fuel and power prices) and labour costs are rising because the government has now introduced a builder registration scheme. And finally, the cost of connecting local council infrastructure is inflated through local government inefficiencies and new fee gathering schemes like development contribution charges.
The same article made mention of the Long Bay residential project in Auckland as an example of a development “where environmental factors were put ahead of people's housing needs”.
Planning for the estate began in about 1998 but work did not start until 2011. It does not say how much the delay and consenting fees cost, but they will be substantial.
Here’s a quick example to show how delays inflate property prices. Let’s make three assumptions:
1. An investor needs to make say 10% p.a. on their investment to make it worthwhile,
2. The all up cost to develop a section is $100,000, and
3. The time between buying and selling the section is one year.
Under that scenario the developer would price the section at $110,000. Change the third assumption from one to 10 years then they would have to sell the same section at $260,000 to achieve the same annual return! In other words, reducing the consenting time from 10 years to one year would reduce land prices by more than half!
Council staff and councillors simply do not understand the numbers. They need to if they are going to be part of the solution rather than the problem.
The other aspect about affordability is we are a low income economy – we have too many state beneficiaries and too many jobs in low profit generating industries, like tourism. Housing will always be unaffordable in a low income nation.
Bill English and other MPs do seem to “get it” when it comes to encouraging industries like mining, manufacturing, and farming. The National government now needs to deliver in the face of the senseless opposition, and take an axe to the Resource Management Act to force councils to put people before environmental preservation.
at 7:56 PM