Monday, August 22, 2011

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?

‘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.

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13 Comments:

Anonymous Anonymous said...

Another issue is the stance of the Christchurch CC to rebuild work. They insist that all the planning and design work must be physically done in Chch. There are not enough engineers in Chch and of course few want to transfer there given the ongoing earthquakes and the mess the place is in. This means that the firms around NZ have to send their engineering and design staff to Chch through the week, put them up at inflated costs due to the lack of accommodation and fly them home on the weekends. The obvious answer is to have the design and engineering work done wherever suitable engineers are located and the results emailed to whoever in Chch. Guess who will be paying for the extra costs and delays?

8/22/2011 09:25:00 am  
Anonymous Mort said...

Gerry looking after No1 again? Who owns half of Fletcher Building Ltd?

Can the redzones be rehabbed back to rural, and a eventual land use swap out be arranged?

CERA needs to get off its ass, it has the legal entitlement to overrule the RMA and rezone land at its will. Am I right in asking if all it would take is a CERA ordinance?

8/22/2011 09:41:00 am  
Anonymous David said...

If people had to pay for their own roads/maintenance (i.e. free market in new roads) AND there were a free market in mass transportation (buses, trains whatever), I doubt there would be any great risk of sprawl.

One of the big reasons for big sprawling cities with enormous suburbs in the USA is that the Government paid for tons of highways. Without these highways, many people would have chosen to live in the cities (which, without state 'planning', would be far more livable. See 'The Death and Life of Great American Cities' by Jane Jacobs - thanks PC for suggesting this book to me some time ago).

I have often thought to myself what a truly free market (including roading, but not including policing/defence) would look like. I'm not sure which direction it may take, but that's the beauty of markets; you don't need to know (and plan) exactly how it may turn out in the end.

8/22/2011 01:15:00 pm  
Anonymous Cooper said...

Looked at getting a house built myself but had to give it up. The cost without section would have been greater than the cost of buying an equivalently spec'ed existing house, including the section. How do people build houses nowadays without getting into a deep financial hole? I hope you still have some clients to keep you going Peter!

8/22/2011 01:35:00 pm  
Blogger PC said...

@Cooper: Yes, first piece of advice I usually give (prospective) clients, is to do a calculation: add together what you expect to pay with what you might get if you sold what you have, and then see if you can find anything in your area for that number that already does what you're after.

If you can, then you should think about doing it. If you can't, then we have a project.

8/22/2011 03:23:00 pm  
Blogger PC said...

@David: Yes, I agree to an extent that govt road-building exacerbates the present type of sprawl. But it's also true that people, many of them, like to have open land around them.

These people could be happy with, for example, a network of satellite 'hamlets' around the outskirts of a city--easily serviced and would require only minimal highways. But these are not allowed.

Instead, we have a never-ending process of ring-fencing the city that simply encourages developers to hold land around the outskirts while they lobby council(lors) to release it so they can make a windfall. And when it is released, it's released under planners' rules, so what gets built on these handkerchief sections is the same cooky-cutter houses as on virtually every other handkerchief section in the city.

That's the "sprawl" that folk don't like, and that's the very sprawl the zoning encourages.

Fact is, people should be free to live as they choose--whether it's dense inner-city or rural arcadian or village hamlet--provided they pick up their own tab. But virtually all forms of housing other than those selected by the self-anointed have been made illegal.

PS: Yes, Jacobs' book should be required reading for anyone interested in cities, how people live in them and how planners have helped to destroy them.

8/22/2011 03:34:00 pm  
Anonymous V said...

If the CBD is mandated to be a 6-7 story height limit these price pressures will only increase over time.

8/22/2011 04:48:00 pm  
Anonymous Mort said...

Its an interesting idea, if everyone lived on an acre of land then we would indeed have the quintessential return to the village hamlet that the greens would so desire. If everyone lived this way there would be no need for mass sewerage and storm-water treatment as micro-treatment systems like reed-beds or biocontainment processing would be the norm, and the processed effluent would become plant fodder. The obesity rates of kids would probably decrease. I would expect that the number of trees in existence would actually increase too. What can those hair-shirted obstructionists not like about the idea?

ewwww to the thought of having to live in the Waikato.... all them tronskis and all that fog...

8/23/2011 12:38:00 am  
Blogger Greig said...

Awww, Mort. We're not that bad!

8/23/2011 09:18:00 am  
Anonymous house and land packages Perth said...

i hope that this issue will be resolved as soon as possible so that the people in the community can get to work.

8/23/2011 04:50:00 pm  
Anonymous Bizarro #1 said...

As a simple back-of-the-envelope calculation would tells you, there would be no problem with sprawl if the ring-fencing were relaxed

Josh Arbury frequently talks about how lots of regulations actually encourage sprawl. Density requirements, minimum parking requirements, and so on discourage high-density development.

8/23/2011 10:09:00 pm  
Anonymous Mort said...

Waikato University... need I say more?

8/24/2011 12:47:00 am  
Blogger Greig said...

Fair call. We are that bad. :)

8/24/2011 10:49:00 am  

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