Help harried home-buyers! [update 2]

Residents of Kaiapoi and Canterbury contemplating taking the government's payout face the dire prospect of paying far more for a new home than the payout for their old damaged one, even with the inflated 2008 prices residents are being offered.

There is a reason for that, and not a good one. At a time when building new houses has never been more important, the cost of building a new home has never been so high.

There was once a successful model by which New Zealand builders built thousands of speculative homes--"spec homes"--at a small profit to themselves, yet cheaply enough to be bought by thousands of New Zealanders. They bought land cheaply, built a house inexpensively, which was bought gratefully by a New Zealand family eager to move in.

Everyone was happy.

But that model is now broken.  The price (land + building cost) has exploded because of planners and regulators. The cost of building sites has gone through the roof because planners have been restricting the supply of land, and hitting developers with ever-increasing development levies . The cost of building has gone through the roof because government has whacked builders with gold-plated building regulation, and council’s have whacked them with ever-increasing fees and building levies. Meaning that the small profit that once existed for those former builders of spec homes has long since disappeared—as have many thousands of builders themselves, many of them to Queensland. The result, all round this country, is that new homes are simply not being built in the numbers needed.

And the result in in Kaiapoi and Canterbury is that residents facing forced eviction from their damaged homes face paying much more for a new one--even with the payout for their old home at the inflated 2008 prices. The model for building spec homes is broken. And the supply of affordable homes won't be fixed until that model is fixed. Hugh Pavletich expands the point:

Offer to Christchurch earthquake red zone owners a disgrace: The sad reality is that the Christchurch City Council has DELIBERATELY NOT ALLOWED new fringe lots / sections at $50,000, to be put in place for years.
   Christchurch housing is currently “severely unaffordable” at 6 times annual household incomes. It should not exceed 3 times – refer 2011 Demographia International Housing Affordability Survey and extensive other material on this issue at Performance Urban Planning.
    Due to the incompetent governance of the Christchurch City Council over many years (refer recent Pavletich interview “Christchurch earthquakes: Council stalled recovery” ), the earthquake events costs are likely $8 - $10 billion more than they should be. The problems of the displaced people from the “red zones” are part of these massive and unnecessary costs.
    House and land packages of $200,000 ($50,000 lot / section - $150,000 house construction) should have been available on the fringes for these people well before now – near 12 months following the first major earthquake event on 4 September 2010.
    Politicians don’t give a toss – as they are more interested in protecting the interests of Bankers (PM Key’s mates), so that these people from the “red zones” are conned in to excessive mortgages, or forced financially to relocate from Christchurch. As though they haven’t suffered enough.
    The recovery cannot start until these issues are dealt with. Why are we STILL waiting Gerry and Bob?

UPDATE 1:  I fear that anything Gerry and Bob do to “free up” land will involve more confiscation rather than more freedom.  Why do I say that? Because before the last election, Gerry’s leader John Boy signalled possible confiscation of land if developers refused to build on it when John Boy wanted—and because Gerry has both the power and the appetite to do it.

I fear too that even if this outrage fails to come to pass, that instead of freeing up private land Gerry and Bob might only announce that some crown land, a few un-used brownfield sites (some of them previously confiscated from private land-owners) might be waved around by Gauleiter Brownlee as a sort of large-scale photo opportunity to look like he’s doing something.  And I say this because both Team Red and Team Blue were talking about that before the last election as a remedy for the increasing unaffordability of NZ housing. 

British writer James Woudhuysen recently characterised this approach as "a kind of Army Surplus approach to housing."

‘Public sector land use’ ... turns out to be barracks, canals, railway sidings, and turf owned by the National Health Service (NHS) or by local councils. Here we are asked to scrape the bottom of a very small barrel. In effect, the [government] searches for the public sector bits of the 5.5 per cent of England’s surface that is brownfield land.

In effect, as Woudhuysen says, this amounts to little more than a little massaging of existing "ultra-restrictive land provisions" in the addled expectation it will have some effect. It won't.

The hope is that a tiny relaxation of planning constraints will encourage the private sector ... and numerous hybrid housing vehicles, state monoliths and quangos to build more homes, especially homes that are ‘affordable.’
    That approach won’t work. It will mean some extra homes are built, but it will not make proper home ownership cheap. 

No, it won’t. It won’t bring New Zealand builders home from Queensland, and it won’t do enough to lower land to Hugh Pavletich’s $50,000 per site.  Something more radical is needed.  Woudhuysen has such a proposal, one on which both Gerry and John boy should sit up and take note.  I paraphrase his proposal for a New Zealand audience:

Real homes will only become affordable if, in principle, everyone can go to a farmer, buy an acre of land for $30,000, and freely build a house there at a cost, perhaps, of just $100,000. That kind of transaction would lead to significantly lower prices than the $414,261 average asked for a home in NZ today.
    The state should stop preventing deals like this from being done. It should step back, and instead provide the infrastructure to let that house-on-a-freely-bought-hectare thrive.
    That such deals can't be done, and won't be done as a result of either Clark's or Key's announcements is a measure of the overbearing powers of the state in relation to the land.
    Ever since the Town and Country Planning Act of 1927, to buy that $30,000 hectare of land and build on it has been illegal. The nanny state, not the popular will, determines who may build where. The state essentially retains a complete monopoly over what land can be developed for housing and what cannot. To end house price inflation therefore, Britain must end its state-imposed scarcity of land.
    The lack of affordability that characterises Britain’s housing market is not about too many people – single-person households, divorced families, immigrants and their children – chasing too few homes. It is not simply an economic question of supply and demand. The housing market is profoundly distorted by the political intervention of the state, which imposes drastic limits on land that can be developed upon.
    Only a similarly drastic counter-attack on state controls, amounting to a veritable bonfire of National's Resource Management Act and the country's forty-odd District Plans will allow housing in NZ to acquire a semblance of either rationality or efficiency.

What's needed in other words is neither massage nor spin, but the full-blooded planning revolution the destruction of NZ’s second-largest city should have encouraged; one that sees the country's planners joining the growing queues of the unemployed—and by their inclusion, shorten them.

UPDATE 2: I can already hear the whining of anti-development zealots that such a common-sense dispensation as Woudhuysen proposes would see the whole country blanketed in houses.  Bullshit.

As a simple back-of-the-envelope calculation would tells you, there would be no problem with sprawl if the ring-fencing were relaxed: New Zealand's existing urban areas account for less than 1 percent of the total country, one quarter of that in the Auckland region. Even if all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land -- which was the sort of thing proposed by Frank Lloyd Wright in his Broadacre project (right)—we'd all of us fit in an area less than one-quarter the size of the Waikato.  (And just think how easy it'd be to thumb a lift out to Raglan!). 

There’s more than enough room to go around. Especially out there on the Canterbury Plains.