Bill English has stepped outside his comfort zone in announcing that he intends to fix our broken property market. Can he get builders to build more 'Toyota Corolla' homes? Or will he end up looking like King Canute before the rising tide of house prices?

Having just re-read the transcript of Bill English's interview on housing affordability this morning, I think it's hard to understate the size of the problem National is biting into. And I think the Finance Minister realises this. It's third rail stuff.

Here's the synopsis: Not enough houses are being built in New Zealand and those that are being built are too expensive. That means ever-rising houses prices, which the minister quite strikingly said this morning is "dangerous" for New Zealand. Those under 40 -- and a fair few older than that -- are giving up on the dream of home ownership, and in some cases heading offshore.

Just why we have this supply-side problem in the housing market is heavily debated. The Productivity Commission back in April stressed heavily, as ACT has for some time, that there's not enough greenfield land being opend up for development. Let cities grow outward and that's half the problem fixed as more supply lowers costs.

Hang on, replied Auckland Council. We have 18,000 sites in the city's existing boundaries ready go to, but only 4,000 houses going up each year. Land availability's not the real problem.

Stop right there, said the Greens. You're talking about urban sprawl, which just isn't sustainable, grows greenhouse emissions and undermines public transport.

The real problem, says Labour is that there just aren't enough homes available for low income folk to buy and no way into the market for first home-buyers without immense debt. Greenfields won't create that 'missing first rung' on the property ladder.

Now, at last, National has stepped into this debate. Tentatively, but you've got to say, with some pretty strong language. More specifics will come out on Monday, after Cabinet. What we know at this stage is that it won't be a matter of either/or when it comes to building inside or on the outskirts of our major cities. The government wants both.

Second, the RMA will be trimmed (which we knew) and councils will be urged -- or forced -- to speed up their processes. Let's just hope we've learnt the lesson of leaky homes when it comes to asking councils to encourage building no matter what.

Somehow, National wants more cheap, quality houses built. And urgently.

But the real news today is not the specifics of policy, but the dire language our Finance Minister used to describe the New Zealand property market. It should make anyone looking to buy property, especially in Auckland, pause for thought. Listen to this:

"People just seemed to assume [prior to the Productivity Commission's report] that no matter what happens, house prices are going to go up. That has turned out to be quite dangerous for New Zealand. So we don’t accept that house prices automatically have to rise.”

Or this:

“If the wider community decides that they want to lock up the housing market to drive up the value of the existing houses and keep other people out, then we won’t get there. But, look, I think most people understand that the fact that they’ve achieved the dream is a good thing, and they’d like others to be able to achieve it.”

That sounds like a shot over the bows of the babyboomers. If you own a house, he's saying, perhaps you're going to have to sacrifice something if you want your neighbours to share the Kiwi dream of home ownership.

And he's right. People are spending more and more of their income on housing. Add on student loans and the debt picture for those under 40 is a mess. Even a starter home in central Auckland is around $400,000, which is beyind the reach of at least a third of the population.

As a developer said to me this past week, we build some of the largest homes in the world, because for builders that's where the margins are. But there aren't any companies building lots and lots of simple, quality cheaper homes. We need scale.

What we're getting is a sprinkling of new 'Ford Falcon homes' when what we need is heaps of 'Toyota Corolla homes'.

And that's why English, in dramatic words for a Tory minister and ex-Treasury boffin, said this past week that the property market "isn't working properly". The indication today is that he's willing to intervene to keep prices low and, in particular, help first home-buyers into a home.We can assume he won't take Mana's advice and get the government building those Corolla homes - 20,000 to start with. But it seems he's realised it makes economic sense to incentivise someone to build them, given that the government already pays $2 billion a year in accommodation supplements helping pay the rents of people who'd rather own -- and that bill is set to rise by a whopping $200m a year. He reckons:

“[Tax-funded rental] subsidies are growing quite fast, so the government has a direct interest in enabling those people into the market”.

Like Paula Bennett and Judith Collins before him, English seems to have realised that the government has to start intervening more in markets (and people's lives) to build the kind of society we want. Quite how far he's prepared to go we're yet to see, but his words today are far from those he would have used 20 years ago.

But here's the rub: Start using such words and you pretty soon you have to start delivering aresults. Hence my point that he's grasping a third rail - start talking about a broken property market and the dangers of rising house prices and people pretty soon start expecting you to do something about it. And blame you for it if nothing changes.

English now risks looking like King Canute if the "action programme" he's about to announce doesn't actually make houses more affordable for more people. Those who dream of owning could turn on him.

And on the other hand, saying house prices might not keep rising and that existing home owners might have to pay a price to let new home owners into the market could rattle the cages of baby boomer home-owners. They're counting on capital gain for their retirement. They're used to rising house prices and they like it. Do anything to stop that and they could turn on you pretty quick.

National will have calculated that opposition parties are already promising a capital gains tax and the like to make housing more affordable, so they're not going out on their own. Still, the political risk of tampering with middle class voters' biggest asset should not be downplayed.

Politics aside, however, hats off to English for being willing to grapple with one of the biggest problems of the day. It shows leadership and a willingness to get his hands dirty. Now let's see if the deeds match the words.

Comments (8)

by animalspirit on October 28, 2012

Australia (and Germany) provide fast, quality, prefabricated homes which look good, are well constructed and far cheaper than NZ 2nd rate product (sorry, but we have too many essentially unqualified "builders" here - in this seaside town British immigrants brought a prefabricated house over from Australia in a container and it is the best looking house around and probably the cheapest - especially with the favourable 1:3 exchange rate then.  Clued up people.   In Germany (Bremen?) there are environmentally friendly complexes with shared amenities, solar power, wastewater systems etc which save those who live there electricity and water charges and also the city ..we can do better and the models are out there.   We need to get away from the quarter acre block mentality with all the dead cars and barren ground that goes with it these days.  Cut waste.  Share gardens, playgrounds, pools, power generation and even bikes scooters and cars.   We were doing it in 70s Christchurch and it is a practical way to go for lower cost housing.   Have seen outfits like this in inner Sydney too with living areas of different sizes to suit occupant lifestyles.

by stuart munro on October 28, 2012
stuart munro

I agree that it's a positive step, I'm just not in a hurry to congratulate Bill till I see what he's got in mind. Housing is a basic social good, any country that makes a mess of it reaps generations of lousy outcomes; the leaky homes were just the tip of the failing housing market iceberg. It's important to get it right, ideally to get something going that future governments can extend sensibly.

Our housing market didn't get dysfunctional overnight, it is the product of decades of neglect. Bill won't solve it in one hit, but he could try a handful of promising models:

  • a set of robust standardised pre-approved plans getting waived or discounted permit costs.
  •  a series of small government or PPP building companies constructing and financing for the neglected small or entry level unit market.
  • a graduating tax scale for multiple residential property ownerships - something along the lines of X squared minus 1 - no tax on first property, 3% on second, 8% on third 15% on fourth etc. - if not registered as a business and paying realised capital gains.

Hundreds of possibilities, other countries manage to find a few that work. Mind, so did we before a certain Speaker destroyed the apprenticeship system.

by Kyle Matthews on October 28, 2012
Kyle Matthews

Having more people move into home ownership isn't a financial incentive for the government, in terms of saving much on the accommodation supplement. Rent and mortgage costs are just as valid to submit for the supplement, so there's not much saving there.

by DeepRed on October 28, 2012

"What we're getting is a sprinkling of new 'Ford Falcon homes' when what we need is heaps of 'Toyota Corolla homes'."

And Falcon XR8 homes at that. Bill English finally seems to understand that the housing market is effectively cartellised. The Accommodation Supplement, like the EU's Common Agricultural Policy, has mutated from social welfare to corporate welfare. And another elephant in the room is the lack of competition in building materials.

by stuart munro on October 29, 2012
stuart munro

It turns out that all Bill is doing is 'freeing up land' for developers and removing some consent issues. Both are cost free, neither even begin to address any of the many serious structural deficiencies in the housing market.

It was all empty talk. Nero had nothing on Bill English.

by Andrew Geddis on October 30, 2012
Andrew Geddis

"And that's why English, in dramatic words for a Tory minister and ex-Treasury boffin, said this past week that the property market "isn't working properly"."

But English isn't actually claiming that there's some sort of fundamental failure in the market system per se. Rather, he's saying that there are particualr distortions (such as regulatory constraints, lack of land supply, etc) that mean the market for this particular good isn't functioning efficiently. And so he's acting to remove those distortions in order that the market can "do its job" ... without the barriers that Government has erected, developers then will flock to create a product to sell to all the willing purchasers out there.

So is it really true that "[l]ike Paula Bennett and Judith Collins before him, English seems to have realised that the government has to start intervening more in markets (and people's lives) to build the kind of society we want"? This isn't a case of "right wing social engineering" like we're seeing in the areas of social welfare/crime, rather it's classic "remove the government-created barriers and the market will make it all OK" thinking (albeit that the solution depends on local government providing lots and lots of infrastructure to enable new housing developments to be built on the far outskirts of Auckland's sprawl, but let's ignore that inconvenient wrinkle).

Or, to put it another way, if English really thought that the market can't sort out housing issues, wouldn't he be jumping on board Mana's proposal for the state to build more state houses ... just like we did back in the 50's/60's?

by Richard Aston on October 30, 2012
Richard Aston

Disclaimer: I am on the Auckland Social Policy Forum and we just discussed this, but my opinions on this are my own. 

In saying housing affordability is predominately a Local Govt issues , English is avoiding one particular elephant in the room , the Housing Corporation ( HC).

HC has $15billion is assets and $2 billion in rental income, its in a hugely influential position to influence housing affordability ; by building substantially more state housing to cover "social housing" and either renting them out at lower rents or creating very affordable home ownership options for low income earners.

One big player like them in the housing market could significantly impact on house prices and rents.But I don't see any real political will to do this. Maybe its the risk of losing votes from the many ma and pa landlords. Maybe its too "socialist". Maybe the Govt is dependant on the HC income stream.

Yes there is clearly a lot local govt could do easing compliance costs, releasing brown and greenfields developments but hey even Local Govt could get into the housing market ( council flats) and similarly influence the market.

One key issue in really addressing the housing affordability issue is that effective solutions will have to bring house prices down , substantially. We are a country obsessed with property investment. If house prices fall the wailing and nashing of teeth will  be loud and strong. If we get through that drama maybe it would be a good thing for NZ that investments move from property to real investment in the productive sector . Just a thought.






by danniel on October 08, 2013

I really can't imagine what the builders are thinking when they keep building expensive houses while so many people can't even afford them. It would be a lot wiser to expand their business and provide homes options for lower income families too. At this rate I would rather buy an old home and restore it on my own, I could upgrade everything  from cabinet knobs and pulls to bathroom tiles and bedroom furniture and it would be a lot cheaper than getting a new home.

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