Thursday, September 27, 2012

Frank Newman: Housing for the poor?

According to an article appearing in today’s NZ Herald government officials have been in touch with the country’s largest house builders to ask them what is “stopping them putting up big swathes of new housing, particularly aimed at the more affordable end.”

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.


Kiwiwit said...

Of course they know what the reasons are. They just lack the political will to do something about it.


JackSparrow said...

You have mentioned a number of reasons why housing in NZ costs so much, and why it is unaffordable to those on low income, fair enough.

But you have failed to mention another very obvious reason housing costs so much in NZ, it is also unaffordable because most building materials are available almost exclusively thorough monopolies run by Flecther's.

Recent reports have Aussie bricks at 18% the NZ price. Wall boards are much more expensive here than there.

Be fair, it is not just the cost of regulations which has driven the cost of home construction in NZ sky-high.

Ron Ashford

Anonymous said...

All this misses the most vital point of all. Because it is LAND that inflates in price, when councils strangle the supply of it, old "fixer-upper" houses that used to cost next to nothing, now cost just as much as a new house. In an affordable market in the USA as identified by "Demographia", where there is a "median multiple" of around 3 (instead of 6 or more as in NZ even with smaller sections), you will find old fixer-upper houses for well under $100,000. But the absolute cheapest equivalent here is over $200,000. The difference is entirely in the land cost.

Well functioning housing markets undistorted by regulations, do not "build housing for the poor", any more than car manufacturers "build cars for the poor". Just as poor people would rather drive a 15 year old Nissan than a new Tata Nano, poor people would rather live in an old and deteriorated multi-bedroom separate home, than in a new council apartment.

In our distorted market, even the apartments are far too expensive. Check out in TVNZ archives, "Shoebox Living and What You Get For Your Rent". Urban planning that actually intended to proscribe "sprawl" ends up "pricing out" people from even the planners preferred, "efficient" locations and modes of living. In the affordable cities of the USA, CBD apartments are a fraction of the price that they are in an NZ city, even more so than the fringe McMansions are a fraction of the price.

Urban planners claim to want to "increase housing choice". Ironic, huh? All they do is reduce it for everyone, but the lower-income you are, the more your choice is restricted. This is worse than "exclusion", it is bordering on eugenics.

- PhilBest

Anonymous said...

A good article, but JackSparrow is right, it is a combination and accumulation of added costs, and also the expectations of what peole are prepared to live in and where, that has delivered unaffordable housing.
The outgoing CEO of Fletchers recently bemoaned the fact that there was no cheap housing for young people, a bit rich I thought. I recently viewed one of their appartments at Stonefields, you could hardly swing a cat in it and yet they wanted $690,000 for it. I have a friend who recently built a 4 bedroom home at Omaha with all the bells and whistles for under $800,000. Go figure.

Anonymous said...

Just a quick question. Do other countries have new houses that are affordable to low income earners? Is ownership (or rental) of a new house a social right? Yes new houses are over priced, yes compliance costs are a problem, yes price ouging is an issue. It also seems our expectations may also be an issue