PRICED OUT HOW NEW ZEALAND LOST ITS HOUSING AFFORDABILITY MICHAEL BASSETT LUKE MALPASS © The New Zealand Initiative 2013

Published by The New Zealand Initiative, PO Box 10147, Wellington 6143, New Zealand www.nzinitiative.org.nz

Views expressed are those of the authors and do not necessarily reflect the views of The New Zealand Initiative, its staff, advisors, members, directors or officers.

ISBN: 978-0-9922565-1-7

Research report 2 (RR2) - Housing affordability series 1

Typeset by Aeroshop

Printed by Wickliffe Solutions

Cover photo by Brigitte Masters Priced Out

How New Zealand lost its housing affordability

Michael Bassett and Luke Malpass

The New Zealand Initiative is an independent public policy think tank supported by chief executives of major New Zealand businesses. We believe in evidence-based policy and are committed to developing policies that work for all New Zealanders.

Our mission is to help build a better, stronger New Zealand. We are taking the initiative to promote a prosperous, free and fair society with a competitive, open and dynamic economy. We develop and contribute bold ideas that will have a profound, positive, long-term impact.

www.nzinitiative.org.nz c Priced Out

About the Authors

Michael Bassett

Michael was educated in Auckland, New Zealand, and at Duke University where he took a PhD in modern American history. He then taught American, European and New Zealand history at the University of Auckland for eleven years. He was elected to the Auckland City Council and to New Zealand’s Parliament in the 1970s, serving over a period of six years in the 1980s as Minister of Health, Local Government, Internal Affairs, Civil Defence and Arts and Culture in the governments headed by David Lange and Geoffrey Palmer. He was the minister responsible for reducing 750 local authorities to 93 in 1989. Since retiring from politics in 1990 Michael has been J.B. Smallman Professor of History at the University of Western Ontario, a lecturer at Auckland’s Medical School, and New Zealand’s Fulbright Professor of New Zealand History at Georgetown University in Washington DC. He sat for ten years (1994-2004) on New Zealand’s Waitangi Tribunal dealing with the claims of indigenous Maori. For six years he wrote a regular political commentary for New Zealand’s Fairfax papers, winning the Qantas Media Award for Best Political Columnist in 2004. He has published twelve books on New Zealand’s political history and specializes in biography. He is at work on two more books, one on the Auckland City Council 1989- 2010 and a study of New Zealand’s 24 prime ministers. Michael was awarded the Queen’s Service Order for Community Services in 1992.

Luke Malpass

Luke is a Research Fellow at the New Zealand Initiative. Luke joined The New Zealand Initiative from Sydney, where he was a freelance consultant and weekly columnist for the Australian Financial Review. Prior to this he spent three years as a Policy Analyst with the Centre for Independent Studies. Luke holds a first class Bachelor of Arts Honours degree in Politics from the University of Otago.

Acknowledgements

The authors wish to acknowledge and thank all those who participated in interviews, reviewed or commented on this report. Any errors remain our own.

Priced Out

Executive Summary

New Zealand’s housing affordability First, the economy slowed down quite problems are well documented. Barely drastically from 1974 onwards. There was a week passes when housing in New less government money available through Zealand is not in the news: either because the State Advances Corporation to prices are rising, or as in 2008–09 when stimulate the construction of new homes prices briefly fell and many people were for first-home buyers. This fading of upset about paying too much for a house. government stimulation was accompanied This report examines the development by the formation of new types of family of housing in New Zealand since the early units (or family households) – partly due 1900s, the current state of the housing to cultural change, partly due to welfare market, and its journey to this point. and partly due to a rise in divorce and New Zealand is suffering a shortfall remarriage rates. The number of new of houses caused by anti-development houses built dropped from a record 34,400 attitudes, tighter building regulations, in 1974 to 24,200 in 1978. Although the and artificial restrictions on land supply. economy improved in the 1990s and early Some of these attitudes reflect the rising 2000s, housing completions have seldom discipline of urban planning: a discipline reached the rate of new household pregnant with questionable assumptions, formation. some of which have proved to be self- Second, since the 1970s, there has been defeating. a misplaced fear of urban sprawl. Less This stands in marked contrast to New than 1% of New Zealand is built upon Zealand’s post World War II attitude to even after including landfill and roads. building and construction. Housing was a Fears of ‘using up all our farmland’ are key plank of New Zealand’s post World grossly exaggerated. War II welfare state. The state, through Third, this fear of ‘urban sprawl’ has State Advances Corporation 3% loans and resulted in urban limits and restrictive a corporatist approach to building and and prescriptive zoning, which have construction, ensured that New Zealand conferred a virtual monopoly market enjoyed very high rates of building and power on landowners near the city fringes. higher levels of private homeownership Regardless of how many thousands of than had previously been the case. sections of land are available within urban Despite a richer and larger population, limits, they are only worth the developer New Zealand’s rates of building since opening them up at a certain price. The the 1980s have not reached the levels of experience of Auckland’s Metropolitan the 1960s and 1970s. As a result, New Urban Limit (MUL) is similar to that of Zealand’s new house building is lagging Portland, Oregon, with land outside the with a shortfall of at least 10,000 new city limits costing nine times less than houses annually – a shortfall that is within city limits. continuing to grow. Fourth, as New Zealand has become The trend can be explained by several more prosperous, green agendas of more key changes to New Zealand’s economy, affluent New Zealanders have trumped culture and legislative arrangements in the traditional egalitarian social aspirations, past half century. such as suburban homeownership. i Executive Summary

Although a slim majority of New Zealanders now think rising house prices are undesirable, the current policy quagmire has created a situation where the interests of those who are lucky enough to own property are often opposed to the interests of non-owners or younger people seeking to get a first step on the property ladder. However, it should also be remembered that since the 1980s, houses in New Zealand have not only become more expensive but they are also much bigger with a far greater square footage and better insulation and fittings. These improvements are partly the result of changes to government and local authority rules in recent years. As a result, many first-home buyers now have an unrealistic expectation of what standard of house is available at what price. Changing the face of the housing market will require political will and perseverance as well as overcoming a central part of New Zealand’s economy that sees investment in housing as a way, or indeed the best way, to make individual wealth. We should remember that individuals can get wealthy off housing, but the country cannot.

ii Priced Out

Contents

List of figures, tables and boxes iv

Part I: The state of play 1

Affordable housing in New Zealand: History, facts and myths 1 The state of the market 2 Government failure, not market failure 4 What this report is NOT 5 International comparisons 6

Part II: Government in the business of building 9

Planning in New Zealand: The beginnings 9 “We must organise the distribution of our population.” The Town and Country Planning Act 1953 10 Post World War II: Government in the business of building 11 The State Advances Corporation and government-backed loans 12 A culture of construction: Government-subsidised house building and loans 12

Part III: Economic change alters the market 15

Costs begin to rise 15 The changing face of cultures and households 16 Household completions subside 18 When the money dried up 19 Trends in local planning: The rise of the planners 20 The compact cities cult 21 Auckland’s Metropolitan Urban Limit 23 Death by a thousand cuts: Levies, fees and development contributions 26 Rising costs 27 The current situation: Owners versus buyers 28

Conclusions 30

Bibliography 31

iii List of Tables and Figures

List of Figures, Tables and Boxes

Figure 1. Net capital stock by asset type 2 Figure 2. House prices, real and nominal 3 Figure 3. Massey Home Affordability Index 4 Figure 4. House price indexes 6 Figure 5A. Real house price index in the Anglosphere (1997, Q1 =100) 7 Figure 5B. House prices across a range of countries since the 1970s 8 Figure 6. Floor area per new dwelling consented 14 Figure 7. New Zealand dwelling stock 2006, by stock added per decade 17 Figure 8. Land prices as a share of house price 23 Figure 9A. Land value effects of Auckland’s MUL 25 Figure 9B. Portland’s urban growth boundary 25

Table 1. Demographia Housing Affordability Survey 2012 5 Table 2. Forecast shortfalls in housing completions 19

Box 1. Urban sprawl: a short history in New Zealand 10 Box 2. Capitalisation of the Family Benefit and 3% loans 17 Box 3. All of our land is being used up! 21

www.nzinitiative.org.nz ivv Priced Out 1. The State of Play

Affordable housing in Zealand’s high level of homeownership is believed to have contributed to social New Zealand: History, stability and safer communities, and is a facts and myths key aspect of the national mythology of ‘Affordable housing’ is New Zealand’s egalitarianism. public policy problem du jour. Of all However, for the past four decades, and the ‘cost of living’ political issues, it is the past 10 years in particular, house prices the one that hits the average person the have risen inexorably. This is undesirable hardest. New Zealand’s house prices have for two reasons: increased by a staggering amount over the past 30 years, aided by a mixture of 1. New Zealanders’ attachment to policies and social and cultural changes property has resulted in high that have forced up the price of building levels of national indebtedness, or buying a house. making New Zealand one of the Housing affordability in New Zealand most privately indebted nations in is a serious national economic issue. the developed world. High house prices and the resulting high mortgages are key contributors to New 2. High house prices make it very Zealand’s high levels of private debt. But difficult for many people, the economic cost is not the only issue. particularly those on lower The cultural value of homeownership is incomes, to own their own home. also important: the number of people not owning their own home is considered, While a rational response might be, rightly or wrongly, a national problem. ‘big deal, homeownership in Europe is As with many settler societies, low where many people rent as a more particularly in the Anglosphere, New sensible economic choice’, this response Zealanders identify with and believe in doesn’t automatically work here. New landownership to an extent that people Zealanders will not stop seeking to buy a from Europe fail to understand, or do house just because it is expensive – and not regard as so important. For much it is important to note that the relatively of our history, the government has low rate of poverty among New Zealand’s encouraged this affinity with a variety elderly is partly due to the freehold of policy prescriptions: opening up homeownership that occurred decades cheap land, extending low interest loans, ago when houses were acquired at a much capitalising government benefits for lower cost. equity-strapped households, etc. More recently, the accommodation supplement has performed a less direct role. New www.nzinitiative.org.nz 1 Priced Out

The state of the market sense. This can be seen in the capital stock formation ratio in Figure 1. The New Zealanders face a shortage of artificially inflated price of our houses dwellings of just about every description, is a drag on New Zealand’s investment while paying far more for those we do have. patterns; capital- and investment-hungry This has led to inflation in the housing industries are losing out at the expense of market, which like any other inflation, is housing and people desperate to climb the caused by too much cash chasing too few first rung on the housing ladder. Figure 1 goods. It is a contention of this report shows the relative investment in housing that governments at several levels are since 1987. Residential housing has risen artificially restricting the supply of houses, at the expense of every other sort of and hence, the ability of the housing investment. market to answer the public’s needs. As investment in housing accelerated New Zealand’s obsession with houses is from the 1970s, so did house prices; as the also unhealthy from a national economic number of new houses being constructed perspective. While housing may be slowed, demand has consistently productive in a strict economic sense, it outstripped supply. These trends have is not really productive in an investment been particularly pronounced in Auckland

Figure 1: Net capital stock by asset type

Residential buildings Non-residential buildings Other construction Transport equipment Plant, machinery and equipment Intangible assets 60%

50%

40%

30%

20% % of Net Capital Stock Total

10%

0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1987 1988 1989

Source: Statistics New Zealand and Capital Economics.

2 1. The State of Play where prices between 1995 and 2011 Figure 3, it is wildly varying over time, compared to the rest of New Zealand but in 2008 was at a similar level to 1989. increased by 260% in the lowest quartile The second is the Demographia Annual of housing and by between 230% and Housing Affordability Survey. 150% in the medium and upper quartiles, The Demographia Housing respectively.1 Affordability Survey calculates a ‘median Of course the issue is not only one of multiple’, a number reached by dividing rising house prices. What do we know a region’s median house price by median about house price to income ratios? Two household income. It calculates how of the more useful measures of this ratio many years’ annual household income are the Massey Housing Affordability is necessary to buy a house. The Index which uses a mixture of average Demographia survey puts the affordable weekly earnings, interest rates and house housing level at a median multiple of 3, 1 Housing prices to calculate its index (a low index which puts most New Zealand cities in the Affordability Inquiry. Housing shows improved affordability). This unaffordable category on this measure. Affordability. graph shows the mix of real payment a Auckland rates 6.4 and Christchurch 6.3. Wellington: New household might have to make and how This measure is particularly useful because Zealand Productivity Commission, 2012, it changes over time. As can be seen in it is linked to regional income and gives p. 2.

Figure 2: House prices, real and nominal

Nominal Real

250

200

150

100 Index (base: 2000Q1=100)

50

0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 1971 1973 1975

Source: New Zealand Productivity Commission, Statistics New Zealand, and Quotable Value Limited. www.nzinitiative.org.nz 3 Priced Out

a view of housing affordability as felt by Government failure, consumers in different regions. not market failure The Demographia Housing Affordability Survey calculates a ‘median One of the problems in discussions of multiple’, a number reached by dividing housing in New Zealand, and most other a region’s median house price by median nations in the Anglosphere, is the use of household income. It calculates how the term ‘housing market’. The housing many years’ annual household income market deals with probably the single- is necessary to buy a house. The largest asset most New Zealanders will Demographia survey puts the affordable invest in during their lifetime. We tend to housing level at a median multiple of 3, think of the housing market as a sector which puts most New Zealand cities in the relatively free of restriction: you can unaffordable category on this measure. buy a house as long as you can raise the Auckland rates 6.4 and Christchurch 6.3. necessary finance. If you wish to build a This measure is particularly useful because house, you find yourself some land, or a it is linked to regional income and gives plot in a new subdivision, and build on it. a view of housing affordability as felt by However, this perception is inaccurate consumers in different regions. in today’s world. There is nothing approaching a free market in housing: it is a market largely created and manipulated by government – whether from Wellington or by local councils.

Figure 3: Net capital stock by asset type

Auckland New Zealand

45

40

35

30

25

Index 20

15

10

5

0 Jun 1992 Jun 1997 Jun 2002 Jun 2007 Jun Feb 1994 Feb 1999 Feb 2004 Feb 2009 Feb Oct 1995 Oct 2000 Oct 2005 Oct 2010 Feb 1989 Feb Apr 1993 Apr 1998 Apr 2003 Apr 2008 Oct 1990 Aug 1991 Aug 1996 Aug 2001 Aug 2006 Aug 2011 Aug Dec 1994 Dec 1999 Dec 2004 Dec 2009 Dec 1989

Source: New Zealand Productivity Commission, Massey University Real Estate Analysis Unit.

4 1. The State of Play

Table 1: Demographia Housing Affordability Survey 2012

Major International National Median Market Affordability Affordability Metropolitan Market Median Median Household Affordabflity Nation Rank Rank Multiple Price Income Rank

299 71 8 NZ Auckland 6.4 $464,400 $72,500

298 7 NZ Christchurch 6.3 $354,600 $55,900

265 5 NZ Dunedin 5.2 $249,700 $47,900

241 2 NZ Hamilton-Waikato 4.8 $303,900 $62,700

241 2 NZ Napier-Hastings 4.8 $265,300 $55,200

216 1 NZ Palmerston North-Manawatu 4.1 $231,700 $56,800

290 6 NZ Tauranga-Western Bay of Plenty 5.9 $334,100 $56,600

255 4 NZ Wellington 5.1 $370,000 $72,000

Median 5.2

Sources: The Ninth Annual Demographia Housing Affordability Survey.

Government controls many of the factors significantly influenced by government, that determine the parameters of housing there are structural issues that need to be supply. Building conditions, consents, the addressed. Figure 4 shows the increase Resource Management Act, zonings, and in house prices according to different development fees – all are relevant to the methods of measurement. market. As this report will show, for much of New Zealand’s history, government has also directed the demand side of the What this report is housing market. NOT Of course, some of this is unavoidable This report is NOT an inquiry or and indeed often desirable. No one wants stocktake into the building industry, but it there to be no regulations around housing, will refer to the complex character of the few people are keen for open sewage to be New Zealand housing market. Regional floating down their roads, or for there to be variations in policy, compliance and leaky homes, a problem with which New governance make the sector impervious Zealand has had much recent experience. to generalisations. New Zealand’s building Saying that the housing market is supply chain is often considered a major significantly influenced by government culprit in the high housing costs. On its is a statement of fact. Talk of ‘market own, this is an unsatisfactory explanation failure’ to describe the housing market and an excuse for government to heavily is glib and ignores government failures. regulate successful companies just for While noting that the housing market is being successful. The Productivity www.nzinitiative.org.nz 5 Priced Out

Commission’s report and a BRANZ In most other markets, demand spikes are report in 2008 found that New Zealand met by increased supply, albeit with a lag. houses were, on average, 15% to 25% To a substantial extent, supply response is more expensive to build than Australian controlled by central and local government houses, and that this could mostly be regulatory regimes, and the associated explained by the ‘cottage industry’ nature building and development industries of New Zealand’s building sector and that operate alongside. In other words, New Zealanders’ preference for buying capital gains and access to loans influence bespoke homes.2 3 That also does not take demand. The big question is: why does the into account New Zealand’s more difficult supply of housing not respond to demand geography on which to build, or the for housing? earthquake regulations that New Zealand has developed, both of which add to the International costs of building. Nor its climate that in the 1990s saw overseas roof designs fail Comparisons to handle New Zealand’s rain. Provided New Zealand houses are not only there is free entry into the market for new expensive compared to income but suppliers of building products, regulation their prices too have been rising. Other 2 Ibid, pp. 170–180. cannot meaningfully achieve much more. Anglosphere countries have had similar 3 Page, I.C. New Nor is this report an in-depth study of housing bubbles to New Zealand. Figure House Price the effects of capital gains, credit markets, 4A shows the massive boom in the Modelling. Study and cheap loans. The basic problem in the Irish housing sector that began in 1997 Report 196. BRANZ: Porirua City, 2008. housing market is of demand and supply. (followed by its spectacular collapse), and

Figure 4: House price indexes

Section QVNZ REINZ New House + Section CGPI 5000

4500

4000

3500

3000

2500

2000 Index, base 1000 March 1992 Index, base 1000 March

1500

1000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1992 1993 1994

March Source: BRANZ.

6 1. The State of Play the general price inflation within housing represent the real and growing value of markets. It is interesting to note that housing over time. Clearly not all nations the United States, with generally fewer consider rampant house price inflation zoning restrictions, and notwithstanding normal. the recent subprime mortgage crisis, has not experienced anything like the sharp upturn in house prices that New Zealand and Australia have. This sample, however, is limited to Anglosphere societies, three of which are relatively young. Figure 4B, drawing on Bank of International Settlements (BIS) data, shows a slightly different picture. Figure 4a shows the effects of house price inflation in these English speaking countries. However a look at figure 4B reveals the extent to which rampant house price rises in the past twenty years has not been a universal trend. It is important to note that both Switzerland and Germany have had relatively stable prices for a long period of time. The figures in 4B are real house prices adjusted for inflation: they

Figure 5A: Real house price index in the Anglosphere (1997, Q1=100)

USA Great Britain Australia

Ireland New Zealand

320

280

240

200

160

140

100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1997 1998 1999

Source: OECD. www.nzinitiative.org.nz 7 Priced Out

Figure 5B: Real house prices across a range of countries since the 1970s

House prices deflated by the CPI

Spain Ireland UK Germany Switzerland New Zealand Australia USA

450

400

350

300

250

200

Base 1976(4) = 100 150

100

50

0 Jul 1972 Jul 1979 Jul 1986 Jul 1993 Jul 2000 Jul 2007 Jul Jan 1976 Jan 1983 Jan 1990 Jan 1997 Jan 2004 Jan 2011 Jan Sep 1973 Sep 1980 Sep 1987 Sep 1994 Sep 2001 Sep 2008 Mar 1970 Mar 1977 Mar 1984 Mar 1991 Mar 1998 Mar 2005 Mar 2012 May 1971 May 1978 May 1985 May 1992 May 1999 May 2006 May Nov 1974 Nov 1981 Nov 1988 Nov 1995 Nov 2002 Nov 2009 Nov

Source: Bank for International Settlements/authors’ calculations.

8 2. Government in the Business of Building

Planning in New Zealand: that often killed infants.4 Governments The beginnings enforced stricter health requirements, especially after the influenza epidemic of As late as the mid-1950s, there were 1918. Yet, as late as 1940, the results of few planning regulations in New Zealand. a national housing survey showed 44,000 District planning schemes were just homes or 20% of the total housing stock starting to emerge in most urban areas. in New Zealand lacking essential amenities 5 They envisaged the classification of land such as power and running water. Pomare. M. Etahi according to its best use. Anyone wanting Before the 1950s, most housing rules Mate Rere. Report of the Department to make a major departure from a district emanated from the central government of Health scheme after approval required permission rather than local authorities. The central Wellington: from the local authority. Constructing government, however, had been trying to Department of Public Health, 1902. a house on one’s own land was still a delegate. The Housing Act 1919 specified fairly easy proposition with only a few sums of government money that local 4 Bassett, Michael. basic rules to follow: height restrictions, authorities could borrow to erect workers’ Sir Joseph Ward: A Political Biography. minimum ceiling levels, and six feet (later dwellings. But only city councils in bigger Auckland: Auckland two metres) from the section boundary cities like Auckland and Wellington erected University Press, so as to not inconvenience neighbours. In houses to sell to workers.6 Several main 1993, pp. 118–120. areas with small sections, side walls had city mayors experimented with affordable 5 New Zealand. New to be constructed with non-flammable housing but retreated after finding that Zealand Official material like corrugated iron in case of fire, ratepayer subsidies would be needed.7 Year Book. Auckland: Statistics which was a recurring nightmare in settler From the early years of the twentieth New Zealand, 1990, societies. Some sanitary requirements century, councils were under pressure pp. 514–516. were also introduced. After a bubonic to construct sewerage systems rather 6 plague scare in Auckland in 1900, the than emptying night soil into harbours A substantial number of houses British Empire’s first Minister of Health on the outgoing tide. Eventually central were erected in the dispatched his medical officers to examine government extended subsidies for early 1920s on Old Mill Road and its conditions in the infected parts of the sewerage plants so local authorities could side streets near rapidly growing city. They reported back undertake the necessary infrastructure what became about unsanitary practices in overcrowded work, and most councils embarked on Auckland Zoo. areas in central Auckland, and about sewerage schemes. Infant mortality 7 Goldsmith, Paul suburban problems where artesian water statistics rapidly improved. Only a few and Michael Bassett. was being drawn in areas close to long- extremists questioned such requirements The Myers Auckland: David drop toilets. This endangered freshwater on local authorities and house builders. Ling, 2007, pp. cleanliness, and contributed to diarrhoea In the early years of the twentieth 86–87. www.nzinitiative.org.nz 9 Priced Out

century when municipal reform and town “We must organise planning were being discussed in the the distribution of our United States and Europe, New Zealanders also began to contemplate them. But no population.” town planning Act existed here until 1926. The Town and Country That legislation required boroughs and towns containing 1,000 people or more Planning Act 1953 to appoint a director of town planning “We must organise the distribution of who would draw up a scheme and have it our population,” proclaimed the Town and approved by central government’s Public Country Planning Act 1953. The shortage Works Department no later than 1931. of town planners slowed the introduction However, most councils were unable of district and regional schemes. As late to recruit town planners and were given as 1956, only the University of Auckland repeated extensions to register their taught a course in planning. It had one schemes. Then World War II intervened. recognised town planner on its staff and By 1953 only 17 councils, out of 100 he was located within the architecture or more that ought to have possessed department. He taught a paper called planning systems, actually had one.8 In ‘Architectural Civics’ covering a broad any event, the role of town planning sweep of planning since the Roman times; was vague. The 1926 Act specified that a the value of plans and how they should borough or city should plan “in such a way be prepared; and street layout, zoning and as will most effectively tend to promote its open spaces.10 By the mid-1960s, Auckland healthfulness, amenity, convenience, and possessed a separate planning department, advancement”.9 but only three lecturers. Councils still employed few planners, who tended to be imports from the United Kingdom, where the concept of planning had been developing apace since Britain’s Town and Country Planning Act 1947. Passage of New Zealand’s Town and Country Planning Act 1953 acted as a

Box 1: Urban sprawl: a short history in New Zealand

8 New Zealand. New The negative perception of urban sprawl is not new to this country, and Zealand Official environmentally concerned observers were not the first to object to it. As early as the Year Book. Auckland: Statistics 1950s, there was parliamentary concern with ‘ribbon developments’ (developments New Zealand, 1954, forming like a ribbon along main roads out of cities). p. 1062. In fact, back then the concern was not so much with taking up farmland or 9 New Zealand environmental impacts, but that the government was not in control. The National Statutes 1926, Town Government minister, W.S. Goosman, declared: “People can’t just do as they want!” Planning Act 1926. Concerned with the rising costs of infrastructure, voters soon began demanding 1926 No. 52. better services. Moreover, urban sprawl went against the tenor of the Town and 10 The University Country Planning Act – a benevolent piece of legislation whereby towns and of New Zealand settlements could be neatly and efficiently planned. Calendar 1956, p. 174.

10 2. Government in the Business of Building stimulant to urban planning, although the rules did emerge over time, and many parliamentary debates on the Bill suggest small home industries were curtailed. The legislators were mainly preoccupied new Act provided for appeals to a new with limiting urban sprawl, or ‘ribbon Town and Country Appeal Board.13 development’, along roads leading out of the big cities. Sprawl always led to demands from new homeowners for expensive Post World War II: services like power and telephone wires, Government in the water and sewerage connections, and public transport. The National minister business of building handling the legislation (W.S. Goosman) In the relatively hands-off planning declared: “People can’t just do as they environment, house construction picked want”. There had to be controls on where up rapidly after World War II. Returning 11 houses were built. The message from servicemen quickly formed families New Zealand. New Zealand central government was clear: district plans and there was demand for many more Parliamentary should be swiftly completed and planners houses. The Post Office over-stamped Debates 299. should concentrate on populating existing mail with the exhortation ‘Homes and Wellington: Hansard, 25 August suburbs in an orderly manner so residents Farms: Sell to a Serviceman’ as the 1953, pp. 688–689, could access cheaper service reticulation. government stimulated feelings of social p. 797. In a statement that hinted at tighter responsibility towards returning heroes. It 12 Webster, Chris. regulations to come, Labour’s spokesman was a sentiment advanced strongly by the “The Battle for on the 1953 Bill, H.G.R. Mason, signalled hugely influential Returned Servicemen’s Ideas that Shaped his desire for local authorities to adopt Association. While the rate of construction British Planning,” paper presented to bolder social goals when he said councils stepped up from the 1950s to the 1970s, it a conference in “must organise the distribution of our was within a gradually tightening planning Korea on spatial 11 policy, May 2006. population to stop economic waste”. environment. The state played a central http://region.snu The British planner, Chris Webster, has role because the need for housing was now ac.kr/bk/ referred to Britain’s “Soviet style post-war a big political issue. The government had achievement/data BK_06-03.pdf land-use planning system”. Like Britain’s begun constructing what became known 1947 legislation, our 1953 Act and as ‘state houses’ in 1937, and nearly 30% of 13 New Zealand. subsequent amendments to it contained all homes constructed in 1949 were state New Zealand Parliamentary an urge to restrain the market and dictate rentals. Under the National government Debates 299. land use.12 elected at the end of 1949, construction Wellington: New Zealand’s new legislation covered of new state houses was less of a priority. Hansard, 25 August 1953, p. 797. counties as well as cities and boroughs. National preferred what it called “a Goosman envisaged at least 150 district property-owning democracy,” and after 14 New Zealand. schemes emerging. Regional plans for 1951, tenants of state houses were able New Zealand Official Year Book. citywide projects involving water, sewerage to purchase them on favourable terms. Auckland: Statistics and transport were also seen as inevitable, Over the next decade under governments New Zealand, 1962, given that New Zealand was still littered of both stripes, nearly 17,000 tenants did p. 920. The terms on which purchases 14 with hundreds of small territorial councils. so. One-third of all state houses passed could be made are Some MPs wanted to extend the rules into private hands over a 30-year period. set out here. beyond land use, one even arguing for New state houses also kept being built for 15 Ferguson, Gael. tighter controls on the activities that could rental purposes. Building the New be undertaken within privately owned Zealand Dream. properties. There were cries for controls Palmerston North: Dunmore Press Ltd, on ‘home industries’ in suburbia. Such 1994, p. 181. www.nzinitiative.org.nz 11 Priced Out

The State Advances Auckland region, Panmure, West Tamaki Corporation and and Pakuranga-Howick were developed. Fletcher Construction Ltd alone built government-backed loans 1,000 homes in Pakuranga.17 When British 16 Personal interview Government involvement with private immigrants flowed into the country in with Dick White, former managing construction stepped up during the 1950s. the early 1970s, many of them looking director of Neil In 1949, state assistance financed 19% to buy in west Auckland, the demand for Homes, 19 October of all new homes constructed; by 1954, new houses skyrocketed. White recalls Bill 2012. 33.6% of all new homes benefitted from Fraser, the Minister of Housing (1972– 15 17 Auckland. a State Advances loan. As yet, there was 74) in the third Labour Government, A Brief History of no entrenched lobby organisation like threatening to invite Australian building Auckland’s Urban Britain’s Campaign for the Protection firms to New Zealand if local contractors Form. Auckland: Auckland Regional of Rural England, and planners were did not step up the pace of construction Council, 2010, still few and far between. Developers of houses on around 1,000 square feet pp. 16–17. were encouraged by the government, blocks of land on the outskirts of the 18 18 Personal interview popular sentiment, and local authorities big cities. In the early 1970s, ministers with Dick White, to acquire and open up tracts of land, were more involved in the housing market former managing some of it Crown leasehold land on the than at any time in the country’s history. director of Neil Homes, 16 October periphery of big cities, to house baby Finance for housing was their biggest 2012; Ferguson, boomers. Dick White, managing director political challenge. Gael. Building the New Zealand Dream. of Neil Homes and a member of the Palmerston North: Master Builders Federation, recalls that Dunmore Press Ltd, local authorities willingly cooperated with A culture of construction: 1994, pp. 238–239. developers in the 1950s and early 1960s. Government-subsidised 19 New Zealand. House construction was performed in a New Zealand Official more orderly and efficient manner than house building and loans Year Book. Auckland: Statistics before because it was being done on a After the Advances to Settlers Act New Zealand, 1914, larger, coordinated scale. Initially, the 1894, governments borrowed in London p. 743, pp. 812–813. developers would arrange with the Crown and on-lent to people at rates of interest to build on leasehold sections and the end lower than what local commercial banks 20 Ferguson, Gael. Building the New buyer would pay the lease. Then insurance were charging so they could buy farms Zealand Dream. companies became involved, purchasing and get a foot on the housing ladder. Palmerston North: Dunmore Press the leasehold land from the Crown and Then came the Workers’ Dwellings Act Ltd, 1994, Chapter 2. entering into a commercial arrangement 1905, which enabled houses to be built The income limit with the intended homeowner.16 Gradually, and rented, leased or sold to workers who was raised to £200 in 1906. extended motorway systems linked earned less than £156 ($312) per annum. suburbs within Auckland and Wellington, The income threshold was the average 21 The Department making travel to work easier. The opening wage for a skilled worker.19 The Advances of State Advances became the State of the Auckland Harbour Bridge in 1959 to Workers Act 1906 provided cheap Advances led to rapid house construction north of loans to urban workers for housing if Corporation in the bridge, mainly for first-home buyers. their income was £186 ( 372) per annum 1965, which was $ 20 then incorporated, Wellington’s Ngauranga Gorge motorway or less. These acts were consolidated in along with the and the Hutt expressway opened up areas 1913 and administered by the Department Housing Division of 21 the Ministry of like Paparangi, Titahi Bay, Naenae, Upper of State Advances. State involvement in Works, into the Hutt and Wainuiomata. housing increased under the Savage and Housing The 1960s and early 1970s were a Fraser Labour governments after 1935 Corporation of New Zealand in 1974. golden age for first-home buyers. In the with further assistance to those wanting

12 2. Government in the Business of Building to build homes. After 1937 came ‘state fairly steady except when property prices houses’ for renting to workers.22 In 1958, across the country surged for several years government assistance to first-home in the early 1970s as rising inflation and buyers took a quantum leap forward. immigration numbers increased housing Walter Nash’s Labour government passed demand. the Family Benefit (Home Ownership) Initially, local authorities left individual Act that came into force on 1 April 1959. home buyers to pay for their own service It enabled young couples to capitalise connections, but this was gradually pushed the Family Benefit payable to mothers aside in favour of requiring developers for children under the age of 16, and use to reticulate the new areas being opened it, along with the 3% loans from State up. Footpaths, water and sewerage Advances, to build first homes. Initially, connections, electricity and phone each family could capitalise a maximum reticulation were much cheaper when done 22 Ferguson, Gael. of $2,000. In the year to 31 March 1961, on a larger, more coordinated scale. By Building the New 11,442 applications for capitalisation were the late 1960s, local authorities mandated Zealand Dream. Palmerston North: approved. That number subsided a little reticulation to be done for the sale of Dunmore Press Ltd, during the 1960s but it averaged more house sections to proceed. The cost was 1994, Chapter 3. than 7,500 each year into the mid-1970s.23 added to the end price of the section, or to 23 New Zealand. In Auckland, Hamilton, Tauranga, the total price if it was a package including New Zealand Wellington and Christchurch, construction a house. Buyers were now expected to pay Official Year Book. firms working closely with the State upfront for the complete product whereas Auckland: Statistics New Zealand, 1962, Advances Corporation began specialising previously they would have acquired the p. 186; 1970, p.183. in first-home building. The corporation extra services over time as they felt they 24 initially specified that sections could could afford them. Personal interview with Dick White, not exceed £750 ($1,500) to qualify for By 1977, a ‘standard house’ of about 90 former managing capitalisation. Neil Homes, Universal to 100 square metres standing on a section director of Neil Homes, Reid Housing (“This is the house priced at 6,970 cost an average of 18,650 Homes, 16 October $ $ 2012. that Reid built” went the TV jingle), to build.26 Figure 5 shows how the average Beazley Homes, and other construction consented floor space has greatly increased 25 Personal interview firms acquired tracts of land in areas like since then. The era of the £750 ($1,500) with David Hay, managing director Mt Roskill, Green Bay, Te Atatu, Massey, section had long gone. By the mid-1970s, of Keith Hay Homes, Glenfield, Beachaven, Otara, Tauranga, 7% to 8% of New Zealand’s workforce 5 November 2012. Paparangi, Wainuiomata and Waimairi was engaged in residential building and Formed in 1938, the company built County. Taking advantage of the state allied sectors. Forestry, the concrete 22,000 houses over finance available to young couples, Neil industry, non-metallic and metallic fittings 60 years. Homes alone constructed 20,000 first makers, carpenters, electricians and 26 New Zealand. homes of around 1,000 square feet (90 plumbers – all were affected by the surge New Zealand to 100 square metres) over a 30-year in house building.27 Neil Homes alone Official Year Book. period, adding considerably to the total employed 600 people at several building Auckland: Statistics New Zealand, 1977, housing stock in Auckland, Hamilton sites.28 There was other new building too, p. 465. and Whangarei.24 Keith Hay Homes did but entry-level construction dominated 27 not invest in land, preferring to construct the market and remained a hot political Ibid, p. 463. at its bases and truck the houses to sites issue because of its ripple effect on the 28 25 Personal interview arranged by the purchaser. With so many rest of the housing market. with Dick White, new dwellings coming on to the market former managing for first-home buyers, the pressure on the director of Neil Homes, 19 October prices of existing housing stock remained 2012.

www.nzinitiative.org.nz 13 Priced Out

Figure 6: Floor area per new dwelling consented

200

180

160

140 Floor area (m sq)

120

100 1980 1982 1990 1992 2000 2002 1974 1976 1978 1984 1986 1988 1994 1996 1998 2004 2006 2008

March Source: Statistics New Zealand.

14 3. Economic Change Alters the Market

Costs begin to rise urban renewal project in Freeman’s Bay in the early 1970s, were densely re-settled After 1963, New Zealand’s birth rate with houses and units. Some people 29 Areas where mass began to subside. Although government sought to reduce transport costs and get building had taken assistance to first-home buyers increased a roof over their heads for an affordable place in the 1950s, 32 1960s and early under the Kirk-Rowling Government price. Sections were smaller on average. 1970s, such as between 1972 and 1975, the number But as historian Gael Ferguson has Te Atatu, Ranui of buyers of new homes on the cities’ observed, Labour’s policies between 1972 and Massey, were originally little peripheries started a gentle downwards and 1975 “proved to be the swan-song more than dormitory trajectory. This was further depressed by of the approach first developed in the suburbs from which people travelled the Holyoake Government’s slowdown 1950s. They interrupted a longer-term across the city to of housing finance during the 1967–68 decline in state lending”.33 New Zealand’s work. recession, and the first oil price shock in economic malaise was starting to have 30 1973. The latter lifted petrol prices and an impact on families and housing. The New Zealand. New Zealand made commuting to work by car more sliding terms of trade after 1973 reduced Official Year Book. expensive. Peripheral suburbs temporarily the number of second jobs and overtime, Auckland: Statistics New Zealand, 1977, lost their allure to indebted young families thereby depressing total family incomes. p. 466; 1970, p. 532. because little attention had been given to This made it harder to get a first step on locating industry and jobs within many of the housing ladder. Nobody realised it at 31 Personal interview the early developments. More attention the time, but the country was entering a with Dick White, former managing was now given to providing employment 20-year recession. The inflation rate kept director of Neil opportunities within new subdivisions.29 rising as central government spent to the Homes, 19 October 2012. David Hay, The Labour Government’s renewed hilt while growth declined into stagflation. managing director efforts to stimulate the building industry Excessive borrowing and declining of Keith Hay Homes, after 1972 saw new house construction productivity became inter-locking parts said 2012 was the best year for Keith pick up, but building costs rose as shortages of New Zealand’s economic malaise. Hay Homes in a of building supplies caused problems. In From the early 1960s, the inflation rate personal interview, 5 1975, the total number of completed units exceeded the OECD average for almost November 2012. reached 34,400, the highest annual figure 30 years and skyrocketed after 1978. 32 New Zealand. since World War II.30 White recalled it Rising prices flowed through to housing. New Zealand as Neil Homes’ best ever year when the When the Family Benefit was increased Official Year Book. Auckland: Statistics firm completed approximately 20 houses to $6 per child per week in 1979, the New Zealand, 1977, every week.31 The proportion of inner maximum that could be capitalised was p. 463. suburban flats on infill sections also rose. lifted to $3,000, but passing the means 33 Ferguson, Gael. Flats in established suburbs had been test for concessional loans was now Building the New 5.5% of total new houses in 1960; they more difficult to pass. Robert Muldoon’s Zealand Dream. reached 35% in 1975. Denuded parts of National Government after 1975 had cut Palmerston North: Dunmore Press Ltd, Auckland’s inner city, starting with the back the amount of money loaned by the 1994, p. 239. www.nzinitiative.org.nz 15 Priced Out

Housing Corporation, and raised interest changed, the numbers capitalising the rates.34 Lending at concessional rates family benefit and uplifting a concessional was available only to people who earned loan declined. In 1977, 2,663 first-home average or below average wages, so the buyers qualified compared to 2,445 in numbers uplifting state loans declined. 1982.39 Lifting the maximum amount that Muldoon’s Minister of Works and could be capitalised to $4,000 did little to Housing from 1978–82, Derek Quigley, stimulate the house building market until significantly altered the housing market the Lange Labour Government altered with his decision to change the Housing the range of loans available to first-home Corporation’s (formerly State Advances buyers. Inflation raged temporarily as 34 Ibid, pp. 241–242. Corporation) lending rules in April 1979. interest rate controls were removed. A total Henceforth, capitalisation and state loans of 9,019 families capitalised benefits in 35 Personal interview could be spent on existing houses as well 1985–86 before the system was abolished with Derek Quigley, 31 October 2012. as on new homes. Quigley recalls that on 1 October 1986 and replaced by what all ministers were required early in 1979 became known as Homestart lending. 36 Goldsmith, to reduce spending by 3%, and since Under the new scheme, up to $12,000 Paul. Fletchers: A Centennial History the demand for new houses was such could be extended for five years to assist of Fletcher Building. that they were now more expensive than average and below average income earners Auckland: David existing homes, he decided to give first- into a new or an existing house.40 But in Ling, 2009, p. 224. home buyers the choice of buying an the year to March 1987, first-home buyers 37 Personal interview existing home in an older, and usually still preferred to purchase existing homes with Dick White, more central, suburb.35 Sensible as that over new constructions by a margin of former managing 41 director of Neil explanation seems, it severely affected 10:2. Homes, 16 and 19 on those companies concentrating on October 2012. first-home construction. Not even the introduction of a Housing Corporation 38 New Zealand. New The changing face of Zealand Official $4,000 suspensory loan to buyers who Year Book. chose to build a new home arrested cultures and households Auckland: Statistics New Zealand, the decline in first-home construction. Besides the falling birth rate, another 1986–87, p. 539. Fletcher Construction’s residential demographic shift was having a big impact section contracted.36 Neil Homes, which on housing demand. The Domestic 39 Ibid, 1983, p. 181. had been a darling of the share market Purposes Benefit (DPB), which was a few years earlier, shifted its emphasis payable mostly to women with dependants 40 Ibid, 1987–88, p. 185; 1988–89, pp. towards acquiring land, providing building but no spouse, came into effect on 1 626–627. Family supplies, and constructing pensioner April 1974. The number of recipients Benefits were 37 abolished in villages (which were still subsidised). rose from 17,231 on 31 March 1975 to December 1990. The company continued to buy blocks 56,548 a decade later, and to 96,335 by 30 of land on the perimeters of cities, but June 1993. More than 113,000 recipients 41 Ibid, 1988–89, its construction of houses for first-home were on the DPB in December 2003, p. 626. buyers slowed. Other first-home builders nearly all of them women living alone 42 42 Ibid, 1977, p. 150; also altered their direction as housing with their children. As an institution, 1986–87, p. 209; finance diminished. marriage was declining as divorce rates 1994, p. 145; 2004, p. 121. In the financial year 1984–85, two- accelerated and partnerships collapsed thirds of all Housing Corporation loans more frequently. The number of divorces 43 Ibid, 1977, p. 112; extended to first-home buyers were used increased from 3,347 in 1971 to 10,037 2000, p.123. to buy existing houses.38 But apart from an in 1998.43 With only one benefit coming upward blip in 1979 when the rules were into the household, and, for a handful

16 3. Economic Change Alters the Market

Box 2: Capitalisation of the Family Benefit and 3% loans

New Zealand’s historically high rate of homeownership was partly the result of government subsidies through capitalisation of the Family Benefit and 3% loans extended by the State Advances/Housing Corporation. Between the early 1960s and the mid-1970s, there were on average 7,500 capitalisations and 3% loans for newly built homes per year. Since these houses and loans were for first-home buyers, they increased urban expansion and helped contribute to many run-down inner city neighbourhoods. With the aspirational young taking the subsidy and abandoning the cities for the periphery, inner city house prices were driven down and prices of suburban homes remained relatively stable. While there are many policy actions government could take to make housing more affordable and to help the housing market, New Zealand’s abnormally high rate of homeownership is most likely a thing of the past. Although levels of ownership can be increased through the right policies, the percentage of homeownership is now back to where it was in 1916, after which time government progressively got involved in providing houses and housing subsidies.

Figure 7. New Zealand dwelling stock 2006, by stock added per decade

Dwelling stock as at March 2006 = 1,605,000 units

300,000 279,000 262,000

250,000 209,000 194,000 200,000 189,000 155,000

150,000 Number 90,000 100,000 82,000 56,000 56,000

50,000 27,000 600 3,900 1,500

0 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Pre 1880

Source: Beacon Pathway Report, Quotable Value New Zealand (QVNZ), Census, and BRANZ. www.nzinitiative.org.nz 17 Priced Out

of women if they were lucky, half the resident population increased by 500% proceeds of a broken marriage, the ability to more than 17,000 between 1991 and to buy a new home retreated steadily for 2006.46 At the end of 2005, The New 44 Ibid, 2010, p. 407. this growing segment of the population. Zealand Herald estimated that as many Another less significant trend saw people as 9,000 inner-city apartments had been 45 Ibid, 1986–87, in their late teens and early 20s leaving constructed in central Auckland, some of p. 536; 1994, p. 426. home and renting before marriage. This, them now empty because several language 46 Auckland. A Brief too, increased household formation and institutes were in financial trouble.47 History of overall demand for accommodation. Not Under the Clark Labour Government Auckland’s Urban Form. Auckland: surprisingly, the average number of adults elected in 1999, the number of new Auckland Regional living in a New Zealand house subsided. A dwellings constructed each year rose Council, 2010, p. 25. rising number of dwellings were occupied – averaging 23,000 before sliding with

47 by only one person, a trend that continues the onset of the global financial crisis in Gibson, Anne. “Apartments Fail to to this day. At the end of World War II, 2007–08.48 In 2011, 15,832 new dwellings Sell.” The New there were on average 4.42 inhabitants per were completed.49 However, an estimated Zealand Herald 21 October 2005: dwelling; by 2006 the average number per 22,000 new households were formed B2–3; Gibson, Anne. household stood at 2.7.44 In effect, there that year.50 It was now many years since “Tenants Shun were more households wanting roofs construction levels had approximated CBD’s Shoebox Apartments.” The over their heads even though many of the rate of demand for new houses. New Zealand Herald them could not contemplate purchasing Not surprisingly, the number of people 1 November 2005: A4. or building. Governments devised an renting had been going up for many years. ever more complex array of means-tested About 20% of the population rented in 48 New Zealand. benefits to assist those whose choices kept the 1970s; 29.3% by 1996; and 33.1% New Zealand confining them to rental accommodation. by 2006.51 Table 2 shows the estimated Official Year Book. Auckland: Statistics These social trends increased the pressure increase in the number of households and New Zealand, 2010, for building new houses and state support potential shortfall of houses. p. 417. to renters. As new house construction gradually

49 subsided, a smaller portion of the New Zealand. New Zealand Housing workforce was involved in building – from Report 2009/2010: almost 8% in the mid-1970s down to a Structures, Pressures Household completions and Issues. little over 6% by the onset of the global Wellington: subside financial crisis in 2007–08.52 In 1977, Department of While all this was going on, the number nearly 50% of all existing houses had Building and Housing, 2010, p. 40. of new homes built each year plateaued been constructed since 1953, a significant at between 14,000 and 15,000 across percentage of them driven by the 50 Ibid, p. 21. the country during the early 1980s, availability of state assistance.53 The fall in rising slightly above 20,000 during the building for first-home buyers meant the 51 New Zealand. New Zealand Lange-Palmer Labour governments, and average size of the houses edged upwards Official Year Book. subsiding again in the 1990s.45 Figure 7 to 125 square metres by 1990.54 The total Auckland: Statistics shows the amount of housing completions stock of cheaper, smaller homes was no New Zealand, 2010, p. 407. per decade, and how they have contributed longer expanding rapidly. Eventually, the to the total housing stock. The sale of price of existing smaller, cheaper houses 52 Ibid, 2008, p. 419; education to foreigners after changes to started to climb. A complex supply and 2010, p. 414. the Immigration Act in 1986 saw many demand problem was emerging – the

53 small high-rise units – some as small as 28 number of newly completed homes in Ibid, 1977, p. 465. square metres – built near universities and 2011 was only 46% of the number built 35 54 Ibid, 1990, p. 513. language institutes. Auckland’s inner-city years earlier, yet the number of households

18 3. Economic Change Alters the Market

Table 2: Forecast shortfalls in housing completions

Expected increase Expected increase in the number of new Period in the number of Shortfall/surplus dwellings that would households add to supply

2006-2009 66,000 55,734 -10,266 2009-2011 45,000 28,419 -16,581 2011-2016 112,800 98,028 -14,772 2016-2021 108,000 97,397 -10,603 2021-2026 104,000 89,946 -14,054 2026-2031 99,000 101,322 2,322

Source: Statistics New Zealand and Department of Building and Housing estimates using data from Infometrics.

needing a roof over their heads had risen remained difficult for those who had little significantly in the interim.55 equity. The government’s Reserve Ratio system dating from the war years required trading and trustee banks and other When the money dried up lending institutions to invest substantial tranches of money in government stock. While efforts were made in the early This meant that most lending institutions 1980s to control building costs in the hope suffered from a perennial shortage of that more homes would be constructed, money for home lending until the Reserve a growing shortage of state finance plus Ratio system was abolished at the end rising inflation gradually changed the of 1984. By then, interest rates were building industry. Muldoon’s Wage-Price skyrocketing because the Lange Labour Freeze imposed in June 1982 did not Government removed interest rate restrain land prices, and section costs kept controls and loosened a rigidly controlled rising.56 With the economic difficulties economy back into a less regulated state. besetting the country, the government Bank and insurance company money no longer had enough money to keep became available, but at interest rates lending for housing on the scale that had many first-home buyers could not afford. applied in earlier times. The Housing The process of economic readjustment 55 Ibid, 1988–89, Corporation resorted more and more to in the 1980s exacerbated some of the p. 623. operating a mortgage guarantee system already worrying trends in affordable introduced in 1977. It guaranteed up to housing. New ‘standard homes’ that had 56 Ibid, 1985, p. 537. 90% of the funds raised privately by first- done so much in the past to moderate 57 home buyers.57 In 1984–85, the Housing prices across the housing sector did not Ibid. 58 Corporation issued 4,124 guarantees. increase as rapidly as before and were not 58 Ibid, 1986–87, Borrowing money privately, however, moderating overall prices in the way they p. 539. www.nzinitiative.org.nz 19 Priced Out

once had done. While the number of first would inevitably require a ratepayer- homes constructed rose in the late 1980s, funded bureaucracy to administer.61 not all those wanting to take the first step Nothing had happened since the 1920s on the housing ladder got there. A gap to convince councils that involvement in between demand and supply remained. housing would be anything but a drag on Finance was part of the problem. The their ratepayers. total price of any home now required so Worse still, by 1980, at the very time many more times the average wage that when housing needed more stimulation, or servicing the borrowing costs was beyond at least a freer approach from government the capacity of many average income and local authorities if it was to keep families to contemplate. There can be no up with rising demand, planners and surprise that the section of the population legislators contrived to make new house that prefers to rent has been rising steadily. building more difficult. Planning became more dirigiste, not less. Before 1989, there were 235 territorial local authorities Trends in local planning: plus 22 regional councils and hundreds of special purpose bodies. By the 1980s, The rise of the planners most of them, particularly the bigger city Under the Local Government Act 1974, and regional councils, employed planners. local authorities were authorised to provide Their plans ‘zoned’ land within a district. housing loans and subdivide council- Zones protected existing uses of the land, owned land for housing. They could also and slowed changes to its use. Universities sell or lease allotments and apply to their were now churning out planners. They local authority’s loans board to borrow offered degrees and post-graduate degrees to purchase land for subdivision. These in planning. Questionable theories seemed legislative provisions amplified rules that to be the dominant source of inspiration. had existed since 1919. However, while The outlines for courses were pregnant local authorities were verbally encouraged with a ‘we know best’ set of assumptions. to assist with housing, only a couple The 2012 first-year course outlines for in Hawke’s Bay plus the Auckland City students at the University of Auckland Council ventured into housing. In 1938, use the words “equity in the allocation of the Labour Party firebrand John A. Lee resources” and “sustainable development”. regretted the lack of oversight on local In the hands of planners, the buzz term

59 authorities, which had constructed only ‘sustainability’ seemed in practice to mean Lee, John A. Socialism in New 800 houses in 20 years.59 In the financial more intensive use of brownfields land. Zealand. London: year 1982–83, only 128 local authority The University of Auckland offered a T.W. Laurie, 1938. housing loans were approved and a paltry paper on planning, gender and equity. 60 60 New Zealand. 78 in 1984–85. Central government Concern about technical issues was being New Zealand claimed to want local authority replaced by social agendas and theories Official Year Book. cooperation on housing, but provided about the ideal shape of societies. Auckland: Statistics New Zealand, incentives only for the construction of While the provision of housing for low 1986–87, p. 542. pensioner accommodation. In any event, income people had traditionally been a after many years of an involved state, bipartisan political cause, environmental 61 Bassett, Michael. History of Auckland most councils regarded housing for first- and Greens agendas advocated by City Council home buyers a social responsibility of more affluent people started to trump 1989–2010. central government. Councils showed traditional working class social aspirations. Forthcoming. Chapters 9 and 10. little appetite for getting involved in what Economic growth, which had done

20 3. Economic Change Alters the Market so much to open up opportunities for urban areas on to adjoining productive ordinary people, was pushed aside. These land. As 22 regional and unitary councils new agendas became more obvious at now covered New Zealand, the 1977 Act the council level after the passage of the specifically recognised regional plans. Town and Country Planning Act 1977 by They were mandatory and binding on the Robert Muldoon’s National Government. various territorial district schemes in a The new legislation consolidated several region. The appeal board was reconstituted amendments passed since 1953 and as a tribunal. As a New Zealand Business took into account the work of a review Roundtable paper noted, the purpose of committee in the early 1970s. Section 3 town and country planning had moved in the 1977 Act widened the purpose of well beyond land use controls to “set[ting] the 1953 Act. It sought to encourage “the the direction and control of virtually all wise use and management of resources” forms of development”.62 The 1977 Act and “the direction and control of the was a charter for those with wider social development of a region, district or area and environmental agendas. in such a way as will most effectively promote and safeguard the health, safety, convenience, and the economic, cultural, The compact cities cult social and general welfare of the people and the amenities of every part of the In the late 1990s, Americans Peter region, district or area”. Environmental Gordon and Harry Richardson criticised and conservation considerations featured the thinking behind ‘compact cities’ and in the legislation’s goals. Although less the preservation of agricultural land. They than 1% of New Zealand’s total land mass showed that compactness did little to was lived upon, councils were expected enhance food production, did not promote to avoid ‘unnecessary’ expansion of public transport, saved very little petrol,

Box 3: All of our land is being used up!

One of the common complaints about building more houses is that New Zealand will run out of land. At the very least, New Zealand is building over ‘all its productive farmland’. Both claims run contrary to fact. According to Landcare, less than 1% of New Zealand is built upon, and this includes landfill and motorways. Even if New Zealand were to double its built footprint, less than 2% of the country would be built upon. Settlement patterns in comparable cities in other countries show that doubling built-up areas produces a capacity to house far more than double the population. Some comparative figures for national built-up areas are: 62 New Zealand • 9% in the United Kingdom Business • 9% in Denmark Roundtable. Town • 15% in the Netherlands and Country Planning: Towards a • 5.2% in the United States. Framework for Public Policy. Seen in this light, the amount of land used in New Zealand for housing is Wellington: New astonishingly small, and would still be so even with continued population growth. Zealand Business Roundtable, 1987, pp. 9–10. www.nzinitiative.org.nz 21 Priced Out

and was not popular with first-home opportunities.69 Unfortunately, New buyers, most of whom preferred suburban Zealand’s social theorists seldom rethink living to intensification.63 New Zealand their nostrums or adjust to changing economists Grant Scobie and Veronica demands or cater to existing realities. Jardine had come to similar conclusions Academic departments and whole in a substantial paper produced in 1987.64 industries can emerge around ideas

63 In 2005, an English study by Alan Evans regardless of how poorly they stand up Gordon, Peter and Ha r r y W. and Oliver Hartwich cited British research to sustained scrutiny. It has most certainly Richardson. “Are arriving at similar conclusions.65 There become the case with local authority Compact Cities a Desirable Goal?” is no reason to believe New Zealanders planning in New Zealand. Intensification Journal of the would behave in radically different ways is still treated reverentially by our planners, American Planning to the Americans or the British. Indeed, but there is growing evidence that the Association 63.1 (Winter 1997): we know from their behaviour prior to the current approach hurts rather than helps 95–106. 1953 legislation that many preferred urban the most deserving. Figure 8 shows the sprawl and living away from city centres. increase in land prices as a percentage 64 New Zealand Business It is true that after the oil shocks of the of a total house price in Auckland and Roundtable. Town 1970s, as many as 30% of home seekers across the country since 1995. Land as a and Country chose to construct flats or infill housing percentage of the build price has increased Planning: Towards a Framework for near city centres, but new subdivisions on from around 40% to 60% of the price of Public Policy the periphery remained popular with first- a house. Wellington: New Zealand Business home buyers. Of nearly 60,000 residential After passage of the Town and Country Roundtable, 1987. consents issued in the Auckland region Planning Act 1977, regional planning between 2000 and 2005, three-quarters clapped apace. The Auckland Regional 65 Evans, Alan and were outside the zones earmarked for Authority’s regional plan of 1982 built Oliver Hartwich. 66 Unaffordable high-density housing. Jobs were now on the first Regional Planning Scheme Housing: Fables and emerging in new subdivisions and people of 1974, producing what came to be Myths. London: Policy Exchange, worked out that a traditional one-storey known as a Metropolitan Urban Limit 2005. house on the periphery of the city was (MUL) of the kind that was so common cheaper to construct per square metre circling many British towns and cities. 66 Cumming, Geoff. than a multi-storey unit nearer the city The Brookby and Clevedon valleys to the “The Vanishing Dream of Home centre, and it had at least some land around south of Auckland, and the land beyond Ownership. it for children to play on.67 The policy the Massey-Hobsonville ridge to the west, The New Zealand Herald: 27 October of intensification, however, continued were protected, as were the greenfields 2007: B2–3; Maré, to be applied by councils. According to around Silverdale to the north.70 Land David C., Andrew the planners of the Auckland Regional outside the MUL could be released, Coleman, and Ruth Pinkerton. “Patterns Council (ARC), it was “to ensure that as some eventually was at Westgate, of Population Auckland retains a high quality living Hobsonville, Flat Bush, Papakura, Karaka Location in Auckland.” Motu environment by promoting compact and Silverdale, but only after developers, Working Paper 11 urban environments that have high [class] the territorial local authority, and what was 06. Wellington: amenities and are well integrated with the then the ARC between 1989 and 2010 had Motu Economic 68 and Public Policy transport system”. Little evidence was all agreed it was needed, and lengthy and Research, 2011, provided that the public preferred such expensive hearings had taken place. p.14. a policy because the facts told otherwise. 67 Personal interview Out-of-date assertions kept being made with David Halsey of in defence of intensification alleging that Fletcher peripheral city developments were all Construction Ltd, 5 November 2012. ‘dormitory suburbs’ lacking employment

22 3. Economic Change Alters the Market

Auckland’s Metropolitan 1988, the National Housing Commission Urban Limit warned of the diminishing supply of land for subdivision.73 As supplies of sub- 68 Auckland. A Brief In 1982, when the MUL was under divisible land dried up, there was pressure History of Auckland’s contemplation, one unidentified planner to be able to build on smaller sections; the Urban Form. Auckland: Auckland at the Auckland Regional Authority (ARA) quarter-acre section had been diminishing Regional Council, warned councillors that it was bound to for many years, with 600 square metre 2010, 26. lead to a rapid rise in house and section sections becoming the new standard in 69 prices at a time of rising building costs suburban Auckland. Intensification, aka Walbran, Paul. “Urban Limits Make and higher interest rates. The planner ‘sustainable development’, with all its Sense.” The New noted that real incomes were no longer attendant costs, pushed up the price of Zealand Herald 28 May 2007: A11. keeping up with rising costs, thus making land within the MUL, just as had been 71 housing less affordable for ordinary folk. predicted, and it flowed into the end cost 70 Auckland. However, no one was listening. With of new houses. Sections opening up at Auckland Regional encouragement from planners, the ARA’s Long Bay on Auckland’s North Shore in Planning Scheme. Auckland: Auckland revised scheme in 1985 further tightened 2012 averaged $450,000 each. A reporter Regional Authority, the rules protecting rural land from the from The New Zealand Herald noted May 1982, File 5001163059, Section encroachment of housing. The effect was that ‘affordable housing’ was unlikely on 1, Auckland Council to freeze economic and social patterns, sections at that cost.74 David Halsey of Archives (ACA). block popular and potentially profitable Fletcher Construction was adamant: the 71 changes to land use, and deter new home difficulty he experienced securing suitable Ibid, Volume 1, Chapter 9, ARA 72 building on the fringes of cities. In land for subdivision was the biggest 28/64.

Figure 8. Land prices as a share of house price

Auckland New Zealand

70

60

50

40

30

20 Land value as % ofLand value capital value

10

0 1997 1998 2002 2006 2007 1995 1996 1999 2000 2001 2003 2004 2005 2008 2009 2010

Source: Productivity Commission using data from Quotable Value Limited. www.nzinitiative.org.nz 23 Priced Out

impediment to building affordable homes. relationship between levies collected and He blamed the MUL and associated how they were spent, councils have sought planning nostrums.75 the widest interpretation of the rules. In Figures 8A shows the area of the MUL 2002, for instance, Auckland City Council 72 New Zealand and notes that it does affect the price intended to spend 60% in a ward from Business Roundtable. Town of land: its value differs by a factor of which the money was collected while 40% and Country ten across the border. Figure 8B shows could be pooled for citywide projects.79 Planning: Towards a Framework for a similar effect in Portland, Oregon. Four years later the council proposed Public Policy. Auckland is not the only city that has to levy extra money for transport, parks Wellington: New experienced this phenomenon. It can be and storm-water facilities. Developers Zealand Business Roundtable, 1987, witnessed just about anywhere with a stiff estimated that the extra levy would p.14. urban/metro limit and population growth. add another $950 to the cost of a new

73 Between 1980 and 2010, the Auckland household unit and strongly opposed the New Zealand. 80 Housing in New region absorbed more than 300,000 more proposal. Some even considered such Zealand: Provision people without significantly extending imposts as nothing but an extra source and Policy at the MUL.76 Planners argued that more of revenue for councillors to spend on the Crossroads. Wellington: National intensive land use required additional whatever they thought fit. From 2005 to Housing recreational space and general community 2009, Auckland City Council raised $58 Commission, 1988, p. xv, p. 11. facilities. Development levies had been million in developer contributions, all provided for in the Local Government of which was added to the price of the 74 Gibson, Anne. “Lon Act 1974 and more specifically detailed new homes.81 Similar levies were applied Bay Housing Project in the Resource Management Act 1991. in subdivisions on the periphery of cities, Claims First Sales.” The New Zealand Swathes of new housing and apartment pushing up the price of land and anything Herald 8 November buildings within a confined area of land built on it. 2012: B4. led planners to argue for higher levies The impact of the MUL and its 75 Personal interview to acquire more open space, which was planning consequences became more with David Halsey of not always easy to find. In the Long Bay pronounced, and in the 1990s land costs Fletcher subdivision, significant tranches of land started rising more rapidly than the cost Construction Ltd, 5 November 2012. were put aside for reserves, but land is of the house constructed thereon. There hard to come by in densely populated are areas in Auckland’s inner suburbs 76 Auckland. A Brief areas of the city centre. Not surprisingly, where the value of the land quadrupled History of Auckland’s Urban developers complain about being levied between 1994 and 2011 while the value of Form. Auckland: for the acquisition of land that cannot be the house less than doubled. In 1998, the Auckland Regional found!77 MUL around Auckland completely closed Council, 2010, p. 23. As apartments mushroomed within and that event has been the principal cause 77 McIlroy, Campbell. the centre of Auckland City from the of rising land values within the circle. “Council Reviews 1990s, the council set out to spend $117 From time to time, complex and lengthy developers’ levy,” The National million acquiring and improving public planning hearings occur and the MUL is Business Review 26 spaces, and to have developers pay 60% cautiously extended; the amount of new October 2001, p.3. of that sum. Planners estimated the new land freed up is always too little, too late; 78 impost would add 5% to the total cost of and the legal costs and the other imposts Auckland. Background a development, with the cost being passed are passed on to users of land freed up for Paper on Developer on to the end buyer of an apartment.78 housing. Many developers who could not Contributions. Auckland: Auckland The developer would have to pay the levy afford the delays and the costs involved in City Council, 31 July before a building consent could be issued. widening the MUL simply departed the 1997: AKC 317/511f. Although the Resource Management scene. Act 1991 set fairly strict rules about the

24 3. Economic Change Alters the Market

Figure 9A. Land value effects of Auckland’s MUL

• Land values vary by a factor of 10 across the MUL border • Implies zonging (MUL) affects land use (as it is designed to do) • Hence, MUL impacts on shape and degree of development

MetroLine NZMG Independent urban community

Main urban

Rural area with high urban influence

Rural area without high urban influence

Satellite urban community

Source: Motu Economic and Public Policy Research.

Figure 9B. Portland’s urban growth boundary

“Across the road” Raw Land Value - Portland Urban Growth Boundary

$500,000 $450,000

$400,000 All 5 & over acre raw land parcels along urban growth $350,000 boundary: 25 miles (40km) $300,000 of Washington County. $250,000 Assessment at 2010.2. $200,000 Value per hectare Value $150,000 $100,000

$50,000 $0 Outside Urban Growth Boundary Insude UGB Urban Growth Boundary

Source: The Ninth Annual Demographia Housing Affordability Survey. www.nzinitiative.org.nz 25 Priced Out

Death by a thousand has vanished. Neither the government nor cuts: Levies, fees local authorities and their planners seem to spend much time thinking about the and development affordability of new dwellings. The post- contributions war patriotism that gave urgency to the housing boom during the 1950s and 1960s Meantime, governments tinkered has long since evaporated. around the edges of the problem. They tried By the mid-1990s, a few important in the late 1980s and 1990s to restrain the barriers to affordable housing were being seemingly inexorable rise in building costs. lowered. The economic reforms of the A Building Industry Authority created 1980s and early 1990s were at last bringing under the Building Act 1991 produced beneficial results. Productivity gains were new building codes. The codes approved most noticeable. By 1993, inflationary alternative materials and designs, resulting pressures had been largely squeezed out

79 in a discernible plateauing of the average of the economy. Along with labour market Auckland. Development Levies. building cost per square metre from the reforms, they enabled New Zealand to Auckland: Auckland late 1980s.82 However, we also now know perform better than most within the Council Archives: AKC 317/233a. that some of these changes that enabled OECD. New Zealand’s Treasury noted in the use of untreated timber and smaller 2004: 80 Orsman, Bernard. eaves on houses were key factors in the “New Zealand’s economic growth “Developers Howl at discovery of thousands of leaky homes a performance has improved since the Threat of Levies R i s e .” The New few years later. A new Building Act 2004 early 1990s. Its average annual GDP Zealand Herald again tightened the rules and promised a per capita growth since the early 6 June 2006: A2. thorough review of the Building Code. 1990s has been higher than the growth 81 Auckland. Auckland Moreover, some new codes required better rate for the total OECD. In the eleven City Council insulation and double glazing in colder years to 2002, New Zealand’s average Minutes. Auckland: areas, thereby adding to a house’s end annual per capita growth was around Auckland Council, 10 December 2009: cost. The government’s building controls 2.25% compared with the OECD AKC 100/124. were now funded by a building consent average of 1.75%.” 84

82 levy of $1.97 for every $1,000 of building New Zealand. 83 New Zealand work on projects exceeding $20,000. The Labour government elected at Official Year Book. This levy, like all the others, was on top the end of 1999 ran surpluses for its Auckland: Statistics of the local authority’s consent charges, first few years, although high spending, New Zealand, 1994, p. 424. development levies, and inspection especially on state services, gradually fees – adding as much as $40,000 to the saw productivity gains from the 1980s 83 Ibid, 2008, p. 420. price of a new house. Included in this and 1990s wither. State investment in were the charges levied by Auckland’s new house construction rose as the 84 New Zealand. New Zealand’s Economic Watercare. One developer found the costs government introduced new lending Growth: An Analysis of connecting water and sewerage reach options. Much government assistance, of Performance and an exorbitant 20,000 for each house in however, was directed at accommodation Policy. Wellington: $ The Treasury, 2004, his development. Council costs for roads, supplements for renters and to lower p. 4. footpaths, drains, and so on average about income people with mortgages. In June

85 $85,000 per section, meaning that the 2003, nearly 252,000 people received New Zealand. 85 New Zealand rock bottom price of the cheapest land some form of housing supplement. Official Year Book. before building in Auckland these days is These grants helped people caught by the Auckland: Statistics around 300,000. The world of the easily modern realities of expensive housing in New Zealand, 2004, $ p. 382. affordable first home for young families a rising market; the $2 billion spent on

26 3. Economic Change Alters the Market them in 2012 helped provide a roof over required to consider the four ‘well-beings’ many people’s heads. But that expenditure of social, economic, environmental did little to add to the overall housing and cultural factors in planning. Most stock,86 acting largely as a subsidy to those councils took on extra staff, adding to who were in the letting business. In the rates increases that were already running long term, it has probably helped push up ahead of inflation. The 2007 rating inquiry rents, although there is little evidence of a headed by David Shand showed that surge in building houses solely for renting. property rates had increased by 38% in At the heart of this problem is the real terms (i.e. above the rate of inflation) monopoly status of councils and the between 1993–34 and 2006–07.87 A hopelessly conflicted position they find government study in March 2012 noted themselves in as both consenters and sole that rates had increased by an average of providers of infrastructure. Councils are 6.8% per annum after the passage of the basically the only infrastructure provider 2002 Act.88 Wage increases in the 2000s in a given region, and they grant land fell well short of rates increases, adding use consents to use their infrastructure to the lengthening line of deterrents to and charge fees accordingly. This is homeownership. not a criticism unique to councils. As One factor often overlooked in analyses with all monopolies there is a lack of of housing is that charges for consents innovation and pressure to curb costs; and and levies kept rising as planners and importantly, it is difficult to prove whether building inspectors protected themselves development levies or contributions are and their councils against possible claims related to infrastructure provision or of negligence, and simply passed on costs political whim. to applicants. Leaky homes – and the There is also the rise of monopoly unexpected, sudden imposition of claims council service providers one step further against councils by irate homeowners removed from public accountability. – made officers extremely cautious 86 The annual outlay Watercare in Auckland is the most obvious about granting building consents. For was listed in a press release from example of a monopoly extracting rents the better part of a decade, many local the Minister of out of developers and ultimately not being authorities have lacked the motivation Works and Housing very accountable to ratepayers. to encourage new construction in their on 29 October 2012. This is the problem in a nutshell: if a areas. Whatever new construction occurs 87 Shand, David. developer or ratepayer does not like the is often despite local authorities, rather Funding Local service a council, or council-run company than because of any enthusiasm on their Government: Analysis of provides, there is little choice but to grin part. What American developers call a Submissions / Local and bear it. ‘stop-it industry’ is employed ruthlessly Government Rates by planners, restraining progress in many Inquiry, Pakirehua mō ngā Reiti local authority areas. Kaunihera ā-Rohe. The gap between demand and supply Wellington: Local Rising costs Government Rates of new houses did not close in the 2000s. Inquiry, 2007, Nothing was done to rein in the Helen Clark’s government saw an average Finding No. 12. agendas of planners that drove much of of 25,000 new homes completed each 88 the increase in land values from the 1970s. year. But these completions fell short New Zealand. Better Local Government. Instead, further government moves added of demand because of the accumulated Wellington: to the costs of all homeowners. Passage of backlog of those wanting houses. The Department of Internal Affairs, the Local Government Act 2002 widened price of new and existing houses kept 2012, March 2012, the obligations of councils, who were now climbing. In the year to 31 December p. 4. www.nzinitiative.org.nz 27 Priced Out

2004, the average sale price of a house was produced – believing that constraining the 14.5% higher than a year earlier, which in boundaries of urbanisation would work turn had risen 20% on the previous year.89 to the advantage of ordinary people, save A brief dip occurred in 2008, but prices transport costs, and restrain unnecessary resumed their upward march. Interest local authority outlays – are absolutely rates rose in the first buoyant years of clear. The MUL has benefitted mostly the century, and then ebbed. In 2009–10, older people who hath, and hurt younger they dropped to unprecedentedly low people who hath not. The MUL favours levels on all mortgages, and have stayed the old and the rich and it punishes the there. However, the global financial younger and the poorer. Local authorities crisis reduced economic activity on many and planners refuse to acknowledge that fronts, and there has been no surge in the the MUL has resulted in high house construction of affordable new homes. prices and even higher land prices, thus Many young people are hunkering down damaging housing prospects for young and unwilling to take risks. In 2013, the people. New Zealand is not alone. Alan pressure on existing housing seems Evans and Oliver Hartwich wrote in 2007 greater than ever. In the Auckland region, about Britain: where an estimated 13,000 new houses are “It is obvious that when house prices rise required each year, absurdly high prices one group is made better off, that is most are being paid each week for very ordinary existing home owners, but another group homes, while only 4,000 new houses are is made worse off: would-be future home being added to the total housing stock owners and those existing home owners each year.90 who will want, in the future, to move into larger properties.” 91

The current situation: Of the various reasons for the current 89 New Zealand. Owners versus buyers shortage of affordable housing, the New Zealand negative attitudes of local authorities Official Year Book. As all housing gradually grew more stand out. These attitudes are determined Auckland: Statistics New Zealand, 2006, expensive, one can see with hindsight that partly by planners and officials and partly p. 417; 2004, p. 380. the MUL favoured those who possessed by political pressures. Nearly everywhere, houses over younger people chasing local authority officials and councillors 90 TV ONE’s 6pm news reported that 10,000 them. The MUL boosted the value of the own their own homes. They are already new houses were house and especially the section. It made on the housing ladder, and represent the needed each year in it more difficult for the potential entrant comfortable, seldom the needy. Nor do Auckland. TV ONE. 6pm News. 28 to the market to mount the first step. planners, officials or councillors consider October 2012. Someone in an inner suburb of Auckland the extent to which their lengthy delays Finance minister Bill English’s press who bought a home for, say, $70,000 in over consents affects economic activity. release the next day 1975, lived in it for 37 years, and did little At its most basic, a slower building trade said it was 13,000 but basic maintenance on it might find means fewer jobs within the local authority each year. the house worth $1.5 million plus today. and across the wider community. Councils 91 Evans, Alan and Someone in, say, Torbay on Auckland’s talk about the importance of job growth Oliver Hartwich. North Shore, who built a ‘standard house’ in their areas, but are slow to remove the The Best Laid Plans: How Planning (land and section) in 1969 for $16,000 barriers they themselves have created. And Prevents Economic and did basic maintenance would find the as prices of existing houses rise steadily, Growth. London: property worth about 1 million today. The delays in new house building only help Policy Exchange, $ 2007, p. 28. malign effects of the MUL that planners existing homeowners. The practical effect

28 3. Economic Change Alters the Market on those wanting to buy is that because the market is essentially rigged, extra money keeps being invested in real estate, rather than in more productive parts of the economy. As Evans and Hartwich have shown in their British study, inflexible plans that disregard change stifle progress.92 Councils must shoulder their share of responsibility for these failures. Other considerations worry local authorities. Councillors have gone along with planners and officials because of several factors that have prejudiced them against involvement in housing. The Building Industry Authority’s relaxation of construction rules, and the resulting leaky homes crisis, landed local authorities with huge unexpected costs. By 2007, 80,000 New Zealanders were living in ‘leakies’ expected to cost $4 billion to fix.93 Many councils paid out on claims and it was not until May 2010 that the government finally produced a formula to cover costs for fixing leaky homes. Local authorities’ share of the total cost will be 25%, an impost no council could have anticipated a decade earlier.94 As a result, councils are now even more wary of involving in housing, and there has been a noticeable toughening up at the council level on inspections during the construction phase of all buildings for fear that any slips could lay the council open to claims. But delays and sometimes petty requirements at the consent stage also irritate developers and add to costs. The easy-going cooperation, and the relatively relaxed arrangements 92 Ibid, p. 48. between central government, local authorities and developers of the 1950s 93 Phare, Jane. “Leaks and 1960s, has completely vanished. Such Drove Me to Suicide Bids.” The Herald on cooperation is unlikely to be revived Sunday 16 December without fundamentally changing the 2007: 10–11. thinking about housing and considering 94 Auckland. Auckland the incentives under which councils City Council operate to attract first-home builders. Minutes. Auckland: Auckland Council, 23 September 2010: AKC 100/126. www.nzinitiative.org.nz 29 Priced Out

Conclusions

This review of affordable housing To be realistic about these goals, we explains the many factors instrumental need a government and local authorities in slowing construction, thus producing prepared to face up to the current housing today’s shortage of new homes. The crisis and pursue solutions relentlessly to availability of affordable mortgages; the fix it. efforts of home building companies; the This report has attempted to outline state of the economy at any particular the scope and historical development of moment; and the cooperation, or the housing problem in New Zealand. The otherwise, of local authorities and planners difficulty with this area is that it is multi- – all have played a part in producing faceted and has many different inputs. Is a situation where widely available new it the building industry? Is the problem housing has given way to unaffordable with developers? Or local and central housing for those wanting to take the first government attitudes to development? step up the homeownership ladder. Were New Zealand’s previous levels of In its timely March 2012 Housing homeownership only achievable with Affordability Inquiry, the New Zealand direct government intervention in the Productivity Commission identified three housing market, particularly in financing? areas requiring attention if New Zealand Is it the provision of infrastructure? is to improve housing affordability, In truth, each of these aspects plays remove impediments to homeownership, a role in why New Zealand housing and provide appropriate rental is so unaffordable. The question for accommodation for those who will never policymakers and politicians alike is which otherwise realistically be able to mount the combination of policy changes will make homeownership ladder: the greatest amount of difference? Clearly there is a big mismatch of incentives • increasing the supply of land for between various parts of the current housing and following a less housing market. We need a mentality constrained approach to urban conducive to house building. Given planning that the fundamental problem is that • pursuing opportunities to achieve the market cannot respond to spikes in scale and reduce costs in land demand (or even constant demand) in the development and construction in way other markets do, surely there should a manner similar to the activities of be some attempts at unshackling of the the major home builders of the housing market. 1950s and 1960s Our next housing report will examine • introducing a regulatory framework different jurisdictions around the world to facilitate and encourage at the ground level, and see how other 95 Housing cost-reduction and quality markets with more stable prices and Affordability Inquiry. Housing enhancing innovation, and where affordable housing achieve this. Affordability. the benefits of regulation can be Wellington: New 95 Zealand Productivity achieved at least cost. Commission, 2012, p. 19.

30 Conclusions Bibliography

Auckland. A Brief History of Auckland’s Urban Ferguson, Gael. Building the New Zealand Form. Auckland: Auckland Regional Council, Dream. Palmerston North: Dunmore Press 2010. Limited, 1994.

Auckland. Auckland City Council Minutes. Gibson, Anne. “Tenants Shun CBD’s Shoebox Auckland: Auckland Council, 23 September Apartments.” The New Zealand Herald. 2010: AKC 100/126. 1 November 2005: A4.

Auckland. Auckland City Council Minutes. Gibson, Anne. “Apartments Fail to Sell.” The Auckland: Auckland Council, 10 December New Zealand Herald. 21 October 2005: B2–3. 2009: AKC 100/124. Gibson, Anne. “Long Bay Housing Project Auckland. Auckland Regional Authority. Claims First Sales.” The New Zealand Herald. 8 Auckland: Auckland Council Archives ARA November 2012: B4. 28/64. Goldsmith, Paul and Michael Bassett. The Auckland. Auckland Regional Planning Scheme. Myers. Auckland: David Ling, 2007. Auckland: Auckland Regional Authority, 1982. Goldsmith, Paul. Fletchers: A Centennial History of Fletcher Building. Auckland: David Ling, Auckland. Background Paper on Developer 2009. Contributions. Auckland: Auckland City Council, 31 July 1997: AKC 317/511f. Gordon, Peter and Harry W. Richardson. “Are Compact Cities a Desirable Goal?” Auckland. Development Levies. Auckland: Journal of the American Planning Association. Auckland Council Archives: AKC 317/233a. 63.1 (1997): 95–106.

Bassett, Michael. History of Auckland City Halsey, David. Personal interview. Council 1989–2010. Forthcoming. 5 November 2012.

Bassett, Michael. Sir Joseph Ward: A Political Hay, David. Personal interview. Biography. Auckland: Auckland University 5 November 2012. Press, 1993. Housing Affordability Inquiry. Housing Cumming, Geoff. “The Vanishing Dream of Affordability. Wellington: New Zealand Home Ownership. The New Zealand Herald. Productivity Commission, 2012. 27 October 2007: B2–3. Lee, John A. Socialism in New Zealand. London: Evans, Alan and Oliver Hartwich. The Best T.W. Laurie, 1938. Laid Plans: How Planning Prevents Economic Growth. London: Policy Exchange, 2007. Maré, David C. Andrew Coleman, and Ruth Pinkerton. “Patterns of Population Location Evans, Alan and Oliver Hartwich. in Auckland.” Motu Working Paper. 11-06. Unaffordable Housing: Fables and Myths. Wellington: Motu Economic and Public London: Policy Exchange, 2005. Policy Research, 2011.

www.nzinitiative.org.nz 31 Priced Out

New Zealand Business Roundtable. Town Page, I.C. New House Price Modelling. Study and Country Planning: Towards a Framework Report 196. BRANZ: Porirua City, 2008. for Public Policy. Wellington: New Zealand Business Roundtable, 1987. Phare, Jane. “Leaks Drove Me to Suicide Bids.” The Herald on Sunday. 16 December New Zealand Statutes 1926. Town Planning 2007: 10–11. Act 1926. 1926 No. 52. Pomare. M. Etahi Mate Rere. Report of the New Zealand. Report of the Department of Department of Health. Wellington: Department Health. Wellington, 1902. of Public Health, 1902.

New Zealand. Affordable Housing Action Well Quigley, Derek. Personal interview. 31 Underway. Wellington: Minister of Works and October 2012. for Housing, 29 October 2012. Shand, David. Funding Local Government: New Zealand. Better Local Government. Analysis of Submissions / Local Government Rates Wellington: Department of Internal Affairs, Inquiry, Pakirehua mo nga Reiti Kaunihera a-Rohe. 2012. Wellington: Local Government Rates Inquiry, 2007. New Zealand. Govt responds to Housing Affordability Report. Wellington: Minister of The University of New Zealand. Calendar Finance, 29 October 2012. 1956.

New Zealand. Housing in New Zealand: Provision TV ONE. 6pm News. 28 October 2012. and Policy at the Crossroads. Wellington: National Housing Commission, 1988. Walbran, Paul. “Urban Limits Make Sense.” The New Zealand Herald 28 May 2007: A11. New Zealand. New Zealand Housing Report 2009/2010: Structures, Pressures and Issues. Webster, Chris. “The Battle for Ideas that Wellington: Department of Building and Shaped British Planning,” paper presented Housing, 2010. to a conference in Korea on spatial policy, May 2006. http://region.snu.ac.kr/bk/ New Zealand. New Zealand Official Year Book. achievement/data/BK_06-03.pdf Auckland: Statistics New Zealand, 1914, 1954, 1962, 1970, 1977, 1983, 1985, 1986–87, White, Dick. Personal interview. 16 and 19 1987–88, 1988–89, 1990, 1994, 2000, 2004, October 2012. 2006, 2008, 2010.

New Zealand. New Zealand Parliamentary Debates 299. Wellington: Hansard, 25 August 1953.

New Zealand. New Zealand’s Economic Growth: An Analysis of Performance and Policy. Wellington: The Treasury, 2004.

Orsman, Bernard. “Developers Howl at Threat of Levies Rise.” The New Zealand Herald. 6 June 2006: A2.

32

www.nzinitiative.org.nz

The New Zealand Initiative $15.00 PO BOX 10147 ISBN: 978-0-9922565-1-7 Wellington 6143