11 Jun 2013

Report: How young are shut out of owning home

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Written by: Anne Gibson
Photo: Richard Robinson
Published: The New Zealand Herald – 11 June 2013

Restrictions on development are blamed for ‘absurdly high prices’ as land values in Auckland make up more than 60 per cent of the cost of a house, pushing young buyers out and ownership rates down to 1916 levels.

It is becoming more difficult for young people to own their first home, particularly in Auckland.

It is becoming more difficult for young people to own their first home, particularly in Auckland.

Housing has become a battle between old and young, a new report says.

Priced Out – How New Zealand Lost Its Housing Affordability, from public policy thinktank the NZ Initiative, argues that home ownership in a large part depends on your age.

If you’re young, you are more likely to be locked out of housing and may never be able to climb the first rung on the property ladder.

Authorities such as Auckland Council, who thought a rural-urban boundary would work to the advantage of ordinary people, save transport costs and restrain unnecessary local authority outlays, were wrong, the report claims.

It says that fears Auckland would sprawl over farmland are exaggerated and opening up more rural areas for housing would ease house price pressures.

Less than 1 per cent of New Zealand is built on “even after including landfill and roads”, the report says.

Artificial land restrictions, anti-development attitudes, over-powerful planners, tight building regulations and gun-shy councils have all been blamed for New Zealand’s housing crisis in the report written by former Local Government Minister Michael Bassett and research fellow Luke Malpass.

Auckland’s rural-urban boundary had been almost completely shut for many years, the principal cause of rising land values.

“The MUL [Metropolitan Urban Limit] favours the old and the rich and it punishes the younger and poorer,” the report says.

Dr Oliver Hartwich, initiative executive director, said: “It is scandalous that ordinary New Zealanders are increasingly priced out of the housing market. We need to restore housing affordability to improve social mobility.”

Hugh Pavletich, the Christchurch-based co-author of the annual Demographia Housing Affordability survey, agreed with the report, which draws on Demographia data to show the median cost of a house in Auckland is now 6.4 times the city’s median income.

“New Zealand has 270,000sq km of land area of which only 1800sq km is urban. Auckland takes up only 530sq km and Christchurch 188sq km. Only 0.7 per cent of all land in New Zealand is urbanised. We have about the same land area as the United Kingdom which has a population of 63 million,” Mr Pavletich said. He advocates building on farmland and abolishing city limits.

“There is no need to constrain our cities. We couldn’t urbanise a further half a per cent of our land area over the next 50 years even if we met all the demand for all the housing that’s needed,” he said, praising the Government for its aim to have 39,000 houses built in the next three years.

The report shows land prices in Auckland make up more than 60 per cent of the cost of a home.

Auckland Council’s draft Urban Plan advocates 70 per cent of all new development be constrained within the city limits, sparking a widespread outcry from many communities.

The report found that when Auckland rural land is freed up, it is always “too little and too late” and said there was nothing approaching a free market in housing: “It is a market largely created and manipulated by government – whether from Wellington or by local councils.”

Spreading on to farm land would ease pressure fast.

“Even if New Zealand were to double its built footprint, less than 2 per cent 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.”

Urban sprawl fears had resulted in restrictive, prescriptive zoning which had conferred a virtual monopoly market power on landowners near the city fringes, the report said, further blaming councils for high levies, fees and development contributions.

These had been “death by a thousand cuts” to housing supply, pushed up by the leaky homes crisis as councils sought to protect themselves against claims of negligence and passed on more costs.

“Nothing was done to rein in the agendas of planners,” the report said, blaming councils for their “hopelessly conflicted position” as the sole provider of infrastructure while also deciding on where the urban boundaries should be.

If people did not like the service from a council or council-run company, there was little choice but to grin and bear it, the report said.

“In the Auckland region, where an estimated 13,000 new houses are required each year, absurdly high prices are being paid each week for very ordinary homes while only 4000 new houses are being added to the total housing stock each year,” the report said.

Auckland’s rural-urban boundary favoured those who owned houses and made it more difficult for people to make the first step on to the ladder.

Someone who bought an inner-suburb Auckland house for $70,000 in 1975 could find it worth $1.5 million today.

US cities, with fewer zoning restrictions, had not experienced New Zealand and Australia’s sharp house price upturn.

Expectations about housing have changed too as people demand bigger places and many first-home buyers have an unrealistic expectation of what standard of house is available at what price.

Home ownership rates are now around 1916 levels, before large-scale Government intervention, the report says.

Auckland Mayor Len Brown defended the draft Unitary Plan and said urban sprawl was not the way forward.

Auckland would be a sustainable city with a balance of going in, up and out and simply advocating building on farmland was not an option, he told the Herald.

Getting more affordable housing was crucial for Auckland and people often forgot just how many houses had been built in the previous boom last decade, he said.

The city must plan for growth and do that responsibly, Mr Brown said.

“The type of house we have now will be a different house to what we have in five or 10 years time. Aucklanders are renowned for looking for different housing types, whether or not they are renting, and/or owning,” Mr Brown said.

The Priced Out report backed the Productivity Commission’s recommendations which advocated increasing land supply and introducing new rules to encourage cost-reduction and enhance innovation.

“We need a Government and local authorities prepared to face up to the current housing crisis and pursue solutions relentlessly to fix it,” the report said, asking whether the building industry was to blame, or developers or bureaucrats.

“Each of these aspects plays a role in why New Zealand housing is so unaffordable,” the report concluded.

Environmental Defence Society chairman Gary Taylor backs rules to stop the city spreading into the country and says rules in other countries ensure a much clearer demarcation between urban and rural, with areas for development and non-development clearly defined.

Auckland Housing Accord proposals on special housing areas, which could dispense with resource consents, was a serious assault on the planning framework which can only lead to poor outcomes. “To be blunt: slums,” he said.

20130611 How young are shut out of owning home



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