Friday, April 5, 2013

The Great Housing Debate Plods Along

Another day, another working party

The government and Auckland Council are working on the terms of reference for a working party to look further into Auckland’s housing crisis and how to resolve it.  Enough already.
A passage of reports, going nowhere
There has been a host of reports on Auckland’s housing needs, not many of them useful (otherwise the problem should have been solved).  Past attempts to reconcile statistical projections of demand with rose-tinted views of supply failed to stir the councils into doing something about a problem we have known about for 15 years.   

When we diagnosed it then, we argued (and the Auckland’s Regional Growth Forum agreed) that the Growth Strategy (the genesis of the Auckland Plan and its bloated progeny, the 7,000 page Unitary Plan) was too mechanistic in its approach to housing. 
The solution lay in more, not less, flexibility.

Matching residential capacity estimates with projections of household numbers is done at too coarse a level ...  Given diverse demand and ... differences in components of supply, capacity for some types of land is likely to be exhausted earlier than projected… The likelihood is that property prices will escalate if greater flexibility is not introduced… This raises the prospect of adverse equity impacts associated with housing affordability from a strategy that over-emphasises containment …”
Auckland Regional Growth Strategy Review, McDermott Fairgray for Auckland Regional Growth Forum, ARC 1998

Unfortunately, the interim has seen falling supply, rising prices, and perversely intransigent planning.
Deliberating and debating
The Productivity Commission’s was the latest, most wide-ranging and the most thoroughly grounded report into the issue.  It set out the parameters of the problem in a full and systematic manner. 

But that was a year ago now, and its urgency has been diluted in the war of words between central and local government.   And the prospect of a debate over a draft regulatory document the Unitary Plan - and when it might come into force as Auckland’s latest (and most constrictive) statutory planning document promises further procrastination.
I would set aside the Draft Housing Strategic Action Plan Stage 1, Working Draft Version 14 (yes, that’s right, 14!) put out by the Auckland Plan Committee, as yet another report from inside the bunker.  This one contains seven objectives, 12 Priority Areas, and 32 Actions.  Like all the others before it, this plan acknowledges the complexity of the problem.  Unfortunately, it seems to compound this with the complexity of “the solution”.  

The choices we face
As I think the Minister of Housing, Dr Nick Smith, was trying to get across in his recent exchange with the Auckland Mayor, we are running out of time.

We have three choices for dealing with the housing crisis (or not, as the case may be).

First,   can continue to convene working parties, write reports, and debate the detail.

Second, we can save paper, and do nothing, ignoring the problem on the grounds that it may go away. 

And it will, in due course, with a large (younger) chunk of demand heading offshore and another (older) chunk heading for provincial and small town New Zealand. Demand will wither.  And that will bring forward the day that the bubble bursts.  Given so many eggs in the Auckland basket that will be a disaster for the country as a whole.

Incidentally, waiting for the bubble to burst should also bring plenty of newly bank-owned properties onto the market at fire sale prices – a somewhat perverse correction to a problem created by a shortage.  The problem then will be that not too many people will be able to afford them, certainly not the people who need them.

Unfortunately, inaction points the way to economic decline in the long-term (and, it seems, xenophobia in the short term).

(Thinking about it, Option 1 is just a variant on option 2, but it might let our politicians and report writers feel a bit better about it).

Third, We take action now.

The action option and political palatability
How?  Well the Productivity Commission demonstrated that this is a multi-faceted problem.  And if it was easily and painlessly fixed, it would have been.  It needs a multi-faceted solution that not everyone will like.  There will be short-term losers, including people affronted by a loss in property value. Some of us may have to accept that selling our houses will not necessarily fund retirement in the style we had hoped for.

Sometimes, though, political popularity has to give way to strong leadership.
The obvious starting point – land supply
The Commission emphasised the role of land scarcity.  So let’s start there. There is an urgent need to line up capacity for perhaps 60,000 houses in and around Auckland.  

If we are to have a land shock, though, let’s moderate its impact on infrastructure, environment, and transport by spreading it across multiple sites (brownfield, infill, the greenfield edge, and satellite towns).  This should also ensure the diversity of new stock and limit downward pressure on existing prices and equity within sub-regional markets.
Supported by sensible regulation
We also need to avoid clumsy heritage rules in the city’s proposed plan that will stymie quality urban renewal and prevent modest gains in density in existing suburbs by restricting demolition of any old houses (pre 1940s).  Better by far to preserve with some sensitivity those structures (and perhaps streets) of true character and enduring merit and let the others go if this serves housing demand better.  This approach will make increasing densities in long-established suburbs easier, and the results more attractive.

In fact, let’s streamline all regulation of land use change that does not relate directly to protecting environmental quality and capacity, so that our decisions reflect better how critical good housing is to Auckland’s social and economic wellbeing, and its liveability
And balance
We will also need to provide adequate land for the growth of local employment opportunities at the same time.  Failing to prioritise this is another black mark against the Auckland Growth Strategy and successive planning documents that underlie today’s congestion.

The notion of balanced decision making needs to be carried over into infrastructure.  Let’s get over the myths that bigger is better and that more spending now saves costs later.  It doesn’t, because excessive infrastructure imposes costs today that limit our capacity to implement better solutions tomorrow.  A little more fine tuning of infrastructure design, funding, and delivery is critical to efficient land use in the long run.
For this issue, it’s worth changing the law
It might be hard to countenance, but freeing up land supply for housing around Auckland requires legislative action so that it doesn’t get bogged down in the procedures and strictures around Auckland’s Draft Unitary Plan. And we cannot afford to wait and do it indirectly through the clumsy process of ongoing reforms to the Resource Management Act. 

A development corporation
If Minister Smith and Mayor Brown want to collaborate, perhaps they could create between them a corporation capable of assembling the necessary parcels of land.  Once this is done substantial parcels already approved for development can be released to the market for development through a variety of transparent and competitive methods. 

There are plenty of successful precedents and we have the examples of Council Controlled Organisations (including Auckland Property) that should be capable of breaking through bureaucratic logjams.  Surely the government and council can get this jam-breaker sorted quickly.
Beyond fixing land supply
Of course, adequate land supply is only one condition –albeit the most critical - necessary to re-establish an effective housing market. We also need changes in the institutional, industrial, and commercial environments.  We need to lower infrastructure costs.  We might also expect changes in the social environment as households and communities adapt to a new housing reality, because whatever we achieve, it is unlikely to be the same as what we had in the past.

I will address possible changes in these matters another posting. 
The time is now
For the moment, the message is that a new approach to land supply is urgent. We know enough to stop debating and pondering and to begin the job.  Without action on land, any other initiatives will come to nought and we may as well just carry on wringing our hands and writing reports.


Matt P said...

The National Govt were elected all those years ago to address the housing problem. Their progress has been pathetic, no better than their predecessors Labour.

You are right that greenfields land needs to be opened up, and a land development corporation established as exists in major cities in Australia. This is NOT rocket science!

In addition I believe that more social / affordable housing should be built by central government, and non-resident foreign investment in housing in NZ should be limited to investment in new housing, not existing houses, as per Australia's approach.

However, I honestly believe that the government is not actually serious about housing - that it is essentially rhetoric ,that it is pretending to care, and in fact it wants house prices to shoot up again because overall it is politically advantageous to do so. Is it any coincidence that Key's support has resurged since house prices have resurged over the last 6 months?

I am really concerned that this bubble is going to burst and then NZ will be in BIG trouble.

Is the inaction all a case of short termism over long termism?

Andrew D Atkin said...

Matt P: My suspicions were in your direction from a while back, until the environment minister came out and openly pondered over the possibility of restricting exiting council powers (over-riding them, in other words) and opening up crown land (and/or other?) for development.

I think they're making their move on this. The social and long-term costs of our kind of housing inflation are just too blatantly perverse and chronically destructive. It's virtually a national emergency now.