Guest post by Stephen Berry
Tinkering with subsidised KiwiSaver allowances and “start-up help” won’t help Aucklanders facing paying seven times their household income for their first home.
With the median house price in the city now at over $550,000, the government is considering lifting the $400,000 price cap for KiwiSaver first-home buyer deposit subsidies in Auckland. Unless the structural issues causing house price inflation are addressed however then instead of spurring new building activity, any increases in subsidy will feed directly into prices.
The key here is spurring new building activity—something needed but still given only lip service by government and councils. Yet while demand has exploded in Auckland due to low interest rates, easy credit and foreign investment, housing starts remain in the doldrums. So prices skyrocket.
Land supply is the key. The Demographia housing affordability survey, which rates Auckland’s housing market ‘severely unaffordable,’ has shown year after year that cities with responsive land markets don’t experience price bubbles. The Productivity Commission agreed, determining that all councils are helping trigger house-price inflation: by restricting land supply, by taking too long to process consents and by failing to finance infrastructure properly.
The Auckland Council is a particularly egregious example of this institutional failure. The result is that Auckland houses are too expensive—not because the government isn’t providing enough taxpayer-funded hand-outs to first homebuyers, but because the market is being restrained by bureaucracy from acting on clear market signals.
Auckland’s “woeful” building consent numbers, just over 4700 in the past year, are a damning indictment on the Auckland Council’s planning failure. This equates to only three new homes per 1000 residents, a level that is only barely covers the replacement rate for existing stock—and nowhere near enough for a growing city. Houston, Texas, on the other hand, a city three times the size of Auckland, is building at a rate of 15 houses per 1000 people.
If Auckland built at this rate it would put up 22,000 new homes per year. Instead it is building less than 5,000.
Meanwhile, the Reserve Bank is planning to limit high loan-to-value ratio (LVR) lending, which will make it even more difficult for first-home buyers. Getting a big enough deposit is already hard in Auckland. At the median house price a 10% deposit would be $55,000, while if a 20% deposit is required homebuyers would have to come up with $110,000. These are eye-watering numbers for young savers.
Affordable Auckland, which I lead, maintains that the solution to house price-inflation is to get Councils out of the way, preventing them from increasing regulation-related expenses. More tinkering by central Government and the Reserve Bank is only going to make this situation worse.”
Stephen Berry is the leader of the nationwide Affordable Cities ticket, and the Affordable Auckland candidate for Waitemata & Gulf.
Contact him at Stephen.email@example.com, or join the ticket at www.affordable.org.nz, or www.facebook.com/mrberry.