Monday, April 23, 2007

New report confirms runaway regulation feeding runaway house costs

A new study commissioned by the Housing Corporation and released this afternoon says that policies set to restrict sprawl and to limit choice are making housing in Auckland severely unaffordable -- findings that due to the inanity of Alan Bollard and the Reserve Bank Act affect us all, and effectively confirm what previous studies by Wendell Cox, Hugh Pavletich and Demographia have been saying all along: that envy is making housing unaffordable; that so-called sustainable cities are unaffordable cities; that sprawl is good, but regulation is not; that 'smart growth' is not green; that NZ housing affordability is in crisis, and the dream of home ownership is now just that: a dream.

Among the key findings of today's report from the Centre for Housing Research[pdf] are:
  • Since 2000, increases in demand for housing [in Auckland] have outstripped increases in its supply. The result has been a major increase in land and house prices. A range of factors have contributed to increased demand including positive net immigration, higher incomes and higher employment, coupled with strong ability to borrow to finance house purchase. A number of factors have constrained supply. One of these has been a supply of land limited by regulation and zoning. Another contributor has been difficulties in the consents process, especially its time consuming nature; lack of appropriate resources within councils to handle both non-notifiable and notifiable consents is partly responsible for this situation.
  • Population in the region grew 35.0% in the fifteen years to 2006. Over the same
    period, the stock of dwellings rose faster (36.9%). In the five years to 2006 however, this
    relationship reversed: population increased by 11.6% while dwelling stock rose
    10.9%.
  • Between 2000 and 2005, the median house sales price rose by over 60% in Rodney District, North Shore City and Auckland City, by over 50% in Waitakere and Franklin, and by 48% and 39% in Manukau and Papakura respectively. Over the decade to 2005, the median ... price increased in a range of 88% (Papakura) to 131% (Rodney and Franklin). Apartment prices also rose strongly, but not as much as for house prices. This lower rate of apartment inflation may reflect a variety of factors including: more responsive supply of apartments than houses; differential construction costs for the two types of dwelling; temporary oversupply of (some types of) apartments; differences in investor versus owner-occupier attitudes to risk and yield; and a preference by purchasers for stand-alone
    houses over apartments.
    The difference between house and apartment inflation also reflects land inflation. Vacant section prices doubled or more than doubled in the five years to 2005 in Auckland City, Waitakere and Franklin. Over the decade to 2005, the median vacant section price across all areas rose from a 'low' of 108% in Manukau to highs of 334%, 329% and 315% in Auckland City, Franklin and Rodney respectively.
  • Auckland's Regional Growth Strategy (RGS), adopted by the ARC and by all seven councils in 1999, sets the overarching strategy for Auckland development and urban form. The 'Growth Strategy' promotes a compact city capable of accommodating at least 2 million people by 2050. Intensification of dwellings and population is sought around growth nodes situated around town centres and transport links.
    The Regional Growth Strategy adopts Metropolitan Urban Limits (MUL) that set a boundary within which residential, business and other 'urban activities' are to occur. Proposed Plan Change 6 to the Growth Strategy sees urban activities effectively banned outside the MUL.
  • Surveyed private sector stakeholders (including developers) identify two key themes concerning Auckland house supply constraints: land constraints and council-related issues relating especially to consent processes and infrastructure.
  • Most see three land issues as posing major constraints to development: land availability, land ownership, and cost of land. Land availability reflects the existence of urban growth controls (that is, the Metropolitan Urban Limit).
  • The Metropolitan Urban Limit results in limited land supply available for greenfields development... Greater restrictions on development beyond the existing Metropolitan Urban Limit under [the Auckland Regional Council's] Plan Change 6 would make [this] even more problematic.
  • The overall effect of actual and proposed zoning changes is to limit urban expansion, leading to a shortage of land suitable for large scale development. Zoning changes have done little to enhance the rate of intensification. The latter is occurring but not at the rate envisaged in the Regional Growth Strategy.
  • High land prices promote intensification by incentivising apartment living over stand-alone dwellings. This has acted to the benefit of larger scale CBD developers. However others note that where land prices (and other costs) become too high, any kind of development becomes unprofitable and so does not proceed.
  • Council planning procedures and consent processing times are the subject of huge dissatisfaction amongst private stakeholders. Over 80% of respondents see these two features as major development constraints. Consent approval processes tend to proceed iteratively within councils, each item having to be 'solved' before the next officer becomes involved. This leads to a prolonged process. Developers consider that councils are neither aware of the length of the consent process nor of the implications of delay.
  • Delays are most extensive where a development is notifiable, opening up the potential for objections and lengthy hearings. Developers seek to avoid notification at all costs. This frequently means they settle for 'lowest common denominator' developments that meet all District Plan requirements, rather than including innovative features that might make the development notifiable.
  • Freeing up land supply, while necessary to alleviate high land prices, is not sufficient. The manner in which land is made available is as important as any extension. Dribbling new land onto the market in a pre-specified pattern allows existing landowners to retain monopoly rights and high land prices.
To most of us trying to work in Auckland's increasingly frustrating regulatory environment none of this will come as news, but it might help explain to those who don't work here why the work is becoming much less enjoyable, and why the number of small private developers working in and around Auckland is diminishing.

The losers here are many: would-be new home-owners priced out of the market; developers and designers priced and regulated out of profits and innovation; producers and exporters suffering under the Reserve Banks' high and higher interest rates (and the resulting soaring exchange rates) hiked in an impotent attempt to cure the ills of a market that is being strangled by red tape.

This disaster, allow me to point out, is almost single-handedly the fault of people who almost ironically go by the title of "planner." It's time to make "planning" a dirty word.

LINK: Housing supply in the Auckland region, 2000-2005 - Centre for Housing Research [145-page PDF]

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