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Brebner, Melanie --- "Auckland's housing affordability problem" [2014] NZJlEnvLaw 8; (2014) 18 NZJEL 207

Last Updated: 21 January 2023

207

Auckland’s Housing Affordability Problem

Melanie Brebner*

Housing affordability is of concern to many New Zealanders. No truer is this than in Auckland, where houses are currently regarded as severely unaffordable. This article investigates the supply- and demand-side factors that have contributed to the housing affordability problem in New Zealand, and in Auckland in particular. It looks at the recommendations made by the New Zealand Productivity Commission and the response to its report by both central and local governments. It is clear that a holistic approach is required, with a range of tools that address both the supply and demand of affordable housing.

1. INTRODUCTION

This article investigates the effectiveness of urban planning tools in addressing housing affordability problems in Auckland. The problem of defining the terms “housing affordability” and “affordable housing”, and the various benchmarks used to measure housing affordability, are considered. The implications of lack of affordable housing are discussed and the factors contributing to housing affordability outlined. The recommendations of the New Zealand Productivity Commission’s (NZPC) inquiry into affordable housing, along with the responses from central and local government, are provided. Finally, other tools for solving the housing affordability problem are considered.

*The author is working towards an LLB at The University of Auckland. She graduated from The University of Auckland with a BCom/BA in 1991. This article was written for the Resource Management Law paper at The University of Auckland in 2014. Email contact: m.brebner@ auckland.ac.nz.

2. DEFINING AND MEASURING HOUSING AFFORDABILITY AND AFFORDABLE HOUSING

2.1 Housing Affordability

Defining the term “housing affordability” has proven to be elusive. The New Zealand Treasury concludes that although “the term ‘affordability’ is widely used in the English language, with general consensus as to its meaning ... as a concept it is hard to define”.1 Stone states that “affordability is not a characteristic of housing — it is a relationship between housing and people”.2 Gabriel and others define “affordability” as a “[t]erm usually denoting the maximum amount of income which households should be expected to pay for their housing”.3 Bertaud defines affordability as “the ability for any urban household to be able to rent a dwelling for less than 25 per cent of its monthly income, or to buy one for less than about three [times] its yearly income”.4

Although it is difficult to define, housing affordability is generally discussed in terms of the relationship between household incomes and the amount of money required to pay for housing.

2.2 Affordable Housing

The relative term “affordable housing” is not defined in current New Zealand legislation.5 Section 4 of the now repealed Affordable Housing: Enabling Territorial Authorities Act 2008 (AH:ETA) provided that “affordable housing” means housing that:

(a) is for persons living in households that—

(i) have low to moderate income; and
(ii) have no, low, or moderate legal or beneficial interests in property; and

  1. Mark Robinson, Grant M Scobie and Brian Hallinan Affordability of Housing: Concepts, Measurement and Evidence (New Zealand Treasury, Working Paper 06/03, March 2006) at [2.1].
  2. Michael E Stone “What Is Housing Affordability? The Case for the Residual Income Approach” (2006) 17 Housing Policy Debate 151 at 153.
  3. Michelle Gabriel and others Conceptualising and measuring the housing affordability problem (National Research Venture 3: Housing Affordability for Lower Income Australians — Research Paper 1, Australian Housing and Urban Research Institute, May 2005) at 8.
  4. Alain Bertaud “Introduction: Urban Planning and Housing Affordability” in Wendell Cox and Hugh Pavletich 10th Annual Demographia International Housing Affordability Survey: 2014 — Ratings for Metropolitan Markets — With an Introduction by Alain Bertaud (Demographia, 2014).
  5. Auckland Council The Auckland Plan (2012) [Auckland Plan] at 278.

(b) is priced so that the persons are able to meet—

(i) their housing costs; and

(ii) their other essential basic living costs; and

(c) is within the regulatory criteria for determining what affordable housing is, if regulations setting criteria exist

The Auckland Plan states that “there is no agreed definition or measure of ‘affordable’ or ‘unaffordable’ housing”.6 Gabriel and others define “affordable housing” as a “[g]eneric term to cover any low cost housing (irrespective of tenure)”.7 As in the definition provided in s 4 of the AH:ETA, the term is often discussed in terms of the relationship between income and property interests, and outgoings of householders. The most comprehensive definition found comes from Stone, who states that:8

The term “affordable housing” came into vogue in the 1980s as part of the retreat from public responsibility for the plight of the poor and as affordability challenges moved up the income distribution. Although it still lacks precise and consistent definition, the term has since achieved international stature, and it typically encompasses not only social housing and low­income housing, but also financially assisted housing for middle-income households that find it difficult to purchase houses in the private speculative market.

As both “housing affordability” and “affordable housing” are discussed in terms of the relationship between household incomes and outgoings on housing, whether related to rental or homeownership, agreeing on a suitable measure of that relationship is paramount.

2.3 Measures of Affordability

Just as there is uncertainty as to the definition of the terms “housing affordability” and “affordable housing”, there is also debate as to the best method of measuring housing affordability and whether or not housing is affordable. The New Zealand Treasury refers to different approaches to measuring affordability and identifies the following as the most common:9

6 At [608].

  1. Gabriel and others, above n 3, at 8.
  2. Stone, above n 2, at 153.
  3. Robinson and others, above n 1, at [3.2], [3.2.1] and [3.2.2].
For renters, the outgoings (on housing) to income ratio is calculated by dividing rental payments by income for a specified period. For homeowners, the outgoings (on housing) to income ratio is calculated using mortgage payments instead of rental payments.

The residual income measure approach looks at the ability of households to pay for non­housing expenses after housing costs expenses have been paid. It is calculated by subtracting rental or mortgage payments from income.10

A commonly used house price to income ratio is the Median Multiple indicator, which is calculated by dividing the median house price by the gross annual median household income.11 This approach has been criticised by the New Zealand Treasury because it “fails to incorporate many factors that affect the affordability of housing”, particularly interest rates.12 However, Cox and Pavletich state that the Median Multiple indicator is appropriately used in the Annual Demographia International Housing Affordability Survey because:13

The Massey Home Affordability Index is calculated by “comparing the average weekly earnings with the median dwelling price and the mortgage interest rate”.14

Regardless of the method used to measure housing affordability, the calculated measures and ratios are then compared against a benchmark to determine relative affordability or unaffordability. For example, Statistics New Zealand “measures the proportion of houses spending more than 30 per cent of their disposable income on housing”.15 Similarly, The Regional Growth Forum considers housing to be affordable “if households can access suitable

  1. Stone, above n 2, at 163.
  2. Demographia “Housing Affordability Rating Categories” <www.demographia.com>. 12 Robinson and others, above n 1, at [3.3.3].
  3. Wendell Cox and Hugh Pavletich 10th Annual Demographia International Housing Affordability Survey: 2014 — Ratings for Metropolitan Markets — With an Introduction by Alain Bertaud (Demographia, 2014) at 7.
  4. Massey University Home Affordability Report: Quarterly Survey (vol 24(2), June 2014) at Terminology.
  5. Statistics New Zealand “Auckland local board population projections by sex and age, 2006 (base)–2031” (December 2012) <www.stats.govt.nz>.
and adequate housing by spending a maximum of 30% of their gross income”.16 The Annual Demographia International Housing Affordability Survey assigns housing affordability ratings based on the Median Multiple.17 Housing is said to be affordable if the median price of housing is three times the median annual household income and severely unaffordable if the median price of housing is over five times the median annual household income.

Demographia Housing Affordability Rating Categories18
Rating
Median Multiple
Severely Unaffordable
5.1 and over
Seriously Unaffordable
4.1 to 5.0
Moderately Unaffordable
3.1 to 4.0
Affordable
3.0 and under

2.4 Implications of Decreased Housing Affordability

There are many reasons for ensuring that housing remains affordable. “Housing plays a central role in individual and community health, family stability and social wellbeing, in the operation of the labour market, productivity and development.”19 Affordable housing contributes to health, economic, environ­ mental and social benefits and it has been argued that it is a “core component of national infrastructure”.20

There are also macroeconomic advantages to maintaining a well­adjusted level of housing affordability. “A well­performing housing market can play a part in reducing economic volatility.”21 High housing costs require home buyers to take on greater debt, increasing household sensitivity to future interest rate increases and diverting investment in other sectors.22 This instability can adversely affect “levels of business investment and long­term growth prospects” by acting as a disincentive to the movement of labour skills, both from within

  1. Regional Growth Forum Auckland Regional Affordable Housing Strategy (March 2003) [RGF] at 4 (emphasis added).
  2. Cox and Pavletich, above n 13, at 9.
  3. At 9.
  4. New Zealand Government Housing Affordability: Government response to the Productivity Commission’s recommendations (29 October 2012) [NZPC] at 2.
  5. Sarah Bierre, Philippa Howden­Chapman and Lisa Early (eds) Homes People Can Afford: How to Improve Housing in New Zealand (Steele Roberts Aotearoa, Wellington, 2013) at 7.
  6. NZPC, above n 19, at 22.
  7. Chez Leggatt­Cook Housing Demand, Supply and Affordability in the Auckland Region: A Review of Current Trends and Drivers — Background Report (Auckland Regional Council, Social and Economic Research and Monitoring, May 2007) at 10.
New Zealand and externally. It may lead to firms and skilled workers leaving New Zealand, as they are priced out of the market.23

Housing affordability may impact upon the long­term outcomes of children. Evidence suggests that children living in owned homes have “greater cognitive abilities and fewer behavioural problems”, which “will result in higher educational attainment, greater future earnings, and a reduced tendency to engage in deviant behavio[u]rs”.24 Respondents in the study conducted in Nelson, Tasman and Marlborough stated that the lack of affordable housing negatively affected health, the school attendance of children, and crime.25

At the other end of the life­line, the “relatively low rate of poverty among New Zealand’s elderly” may be attributed in part to the high proportion of homeownership that occurred in the past.26 This can be attributed to the policies of the 1930s to 1970s of subsidised state loans that allowed many people to achieve homeownership, “resulting in low housing costs upon retirement”.27

Traditionally in New Zealand, central government has “supported the delivery of private-sector residential construction, provided financial support and schemes to enable first-time home owners to afford a home, and established a state rental housing stock for those families unable to purchase”.28 A study revealed that more local councils thought that affordable housing was potentially the responsibility of local government than those that thought central government was potentially responsible.29 The same study showed that where local councils have provided affordable housing, this has predominantly been for older people or people with disabilities.30 Although the Auckland Council

  1. NZPC, above n 19, at 22.
  2. Donal Haurin, Toby Parcel and R Jean Haurin The Impact of Home Ownership on Child Outcomes (Joint Centre for Housing (Cambridge, MA), Low Income Home Ownership Working Paper Series 011­4, 15 March 2000).
  3. Public Policy and Research/CRESA Stakeholder Perspectives and Experiences of Housing Affordability in Nelson, Tasman and Marlborough — A report for the Affordable Housing in the Nelson, Tasman and Marlborough Regions: A Solutions Study Research Programme (Centre for Housing Research, Aotearoa New Zealand, Ministry of Economic Development and Work and Income — Nelson, Marlborough and West Coast Region, April 2006) at 5.
  4. Michael Bassett and Luke Malpass Priced Out: How New Zealand lost its housing affordability (Research report 2) (Housing affordability series 1, The New Zealand Initiative, 2013) at 1.
  5. John Jensen and others New Zealand Living Standards 2004 (Ministry of Social Development, Centre for Social Research and Evaluation, 2006) at 138.
  6. Patricia M Austin “Searching for the perfect recipe for affordable housing: Learning from other countries” in Sarah Bierre, Philippa Howden­Chapman and Lisa Early (eds) Homes People Can Afford: How to Improve Housing in New Zealand (Steele Roberts Aotearoa, Wellington, 2013) 75 at 75.
  7. Kay Saville­Smith, Margie Scotts and Ruth Fraser Local Government and Affordable Housing (CRESA and Public Policy and Research, prepared for the Centre for Housing Research Aotearoa New Zealand, July 2007) at [5.3].

30 At [4.2].

considers affordable housing to be part of its mandate, its housing stock consists of “1,480 units of social housing for low­income, older people”.31

Since the 1980s, the New Zealand government has shifted away from providing support for housing towards a “free market” approach. Social housing is now provided only for those in extreme need. There has been a global shift in this direction, with the result that a “large number of people live in inadequate housing conditions”.32

New Zealand is a signatory to the International Covenant on Economic, Social and Cultural Rights,33 art 11 of which recognises “the right of everyone to an adequate standard of living for himself and his family, including ... housing”. It has been noted that the state is obliged to unlock the system, “providing access to housing stock and a legislative framework to facilitate self-built homes through planning law and access to finance”. With respect to those who cannot afford to provide themselves with housing, social welfare should be provided.34

2.5 Housing Affordability in Auckland

The 2014 Organisation for Economic Co­operation and Development (OECD) outlook shows that New Zealand has the highest price­to­rent ratio and the second highest price­to­income ratio in the OECD.35

As New Zealand’s largest city, Auckland contributes to the poor national standing of housing affordability. An inquiry into housing affordability by the New Zealand Productivity Commission (NZPC) revealed that “[h]ousing affordability is lowest among those who are younger, single, have lower income and wealth, live in Auckland, or belong to an ethnic group other than New Zealand European”.36 The Auckland Plan states that “Auckland faces a housing crisis”.37 It is estimated that “Auckland will need around 400,000 new dwellings over the next 30 years” and that there is currently a shortage of between 20,000 and 30,000 homes.38 Map 11.1 of the Auckland Plan paints a grim picture of housing affordability in Auckland. Using the Mean Multiple measure, there

  1. Auckland Plan, above n 5, at [651].
  2. Ben Saul, David Kinley and Jacqueline Mowbray The International Covenant on Economic, Social and Cultural Rights: Commentary, Cases, and Materials (Oxford University Press, Oxford, 2014) at 940.
  3. International Covenant on Economic, Social and Cultural Rights 993 UNTS 3 (opened for signature 19 December 1966, entered into force 3 January 1976).
  4. Saul, Kinley and Mowbray, above n 32, at 958.
  5. OECD Economic Outlook, Chapter 1: General Assessment of the Macroeconomic Situation

(2014) at 33.

  1. NZPC, above n 19, at 58.
  2. Auckland Plan, above n 5, at [605].
  3. Auckland Council Housing Action Plan: Stage 1 (December 2012) at 5.
is no affordable housing in Auckland (based on 2006 capital values).39 In the 2014 Demographia survey, Auckland ranks as the seventh least affordable city out of 360 markets and, with a Median Multiple of eight, is rated as severely unaffordable.40 The Massey University Home Affordability Report shows that housing in Auckland is the least affordable of New Zealand’s districts, at 138 per cent.41

In 1999 the Regional Growth Forum (RGF) developed the Regional Growth Strategy (RGS ) to accommodate the estimated 2 million people forecast to be living in Auckland by 2050.42 It was predicted that an additional 200,000 dwellings would be required by 2050.43 In December 2012 the population in Auckland was projected to be 1.968 million by 2031 (assuming medium fertility, mortality and net migration).44 As stated above, current projections state that Auckland requires 400,000 additional dwellings over the next 30 years.45 If this forecast is accurate, Auckland will have reached the figures projected by the RGS almost 20 years earlier than predicted and will require double the number of houses forecast in 1999.

2.6 Factors Affecting Housing Affordability

(i) Availability of land for housing

The NZPC identifies the “multiple determinants of housing affordability”. In addition to the direct components of household income, house prices and cost of homeownership, there are a myriad of supply and demand factors that affect housing affordability, some of which are influenced by central and local government policies.46

It has been espoused that the predilection in recent times for constraining land supply for the construction of new housing has been detrimental to housing affordability. In the 2014 Demographia survey, Cox and Pavletich note that “[i]n every market where there has been a sustained and significant increase in the Median Multiple, more restrictive land use policies have been implemented”.47 They state that the Town and Country Planning Act 1947

  1. Auckland Plan, above n 5, at 281.
  2. Cox and Pavletich, above n 13, at 3.
  3. Massey University, above n 14.
  4. RGF, above n 16, at 5.

43 At 37.

  1. Statistics New Zealand “Auckland local board population projections by sex and age, 2006 (base)–2031” (December 2012) <www.stats.govt.nz>.
  2. Auckland Council, above n 38, at 5.
  3. NZPC, above n 19, at 24.
  4. Cox and Pavletich, above n 13, at 1.
(UK) “was the cradle of restrictive land­use regulation”.48 New Zealand town planning was greatly influenced by British practices, as can be seen in the Town and Country Planning Acts of 1923 and 1953.49

The NZPC states that Auckland’s “MUL [Metropolitan Urban Limit] is a constraint on the supply of land for urban growth and has worked to increase section prices within Auckland city”.50 The “value of land just within the MUL boundary is almost nine times greater than the price of land just outside the boundary”.51 There are concerns that this gives rise to land banking, where owners of vacant property inside the MUL hold on to land “in anticipation of further price increases”.52 A more recent study suggests that Auckland’s MUL has resulted “in upward pressure on residential land prices within the urban areas ... and is most pronounced for those at the lower end of the housing market”.53

The OECD points to the growth strategies of some local governments that restrict land supply to promote high­density urban development in order to achieve environmental objectives. It further states that “[t]here are indications that these restrictions have contributed to inflated land prices within such containment areas, without any clear net environmental benefit”.54

The Growth Concept of the RGS was based on “compact urban environments”.55 Population growth was to be accommodated through redevelopment and intensification within existing metropolitan areas and along existing transport routes, with less emphasis on infill housing and urban sprawl. Some growth would take place in greenfield areas and in rural areas close to rail lines. Development would be avoided in areas deemed to have “significant environmental values”.56

Concern was expressed that the RGS might “have a negative impact on housing affordability”. However, it was thought that the “relationship between housing affordability and the RGS was more complex than this” and that any impact on affordability would “depend on the take­up of opportunities for higher density development”.57 It was envisaged that single­unit housing would

48 At 28.

49 NZPC, above n 19, at 104.

50 At 102.

51 At 116.

  1. Leggatt­Cook, above n 22, at 4.
  2. Guanyu Zheng The effects of Auckland’s Metropolitan Urban Limit on land prices (New Zealand Productivity Commission, Research Note, March 2013) at 10.
  3. OECD OECD Economic Surveys: New Zealand — Overview (April 2011) [OECD (2011)] at 7.
  4. Regional Growth Forum Auckland Regional Growth Strategy: 2050 (November 1999) at 28 [RGS].
  5. At 26 and 28.
  6. RGF, above n 16, at 8.
decrease from 88 per cent in 1996 to 70 per cent in 2050, with an increase of multi­unit homes from 12 per cent in 1996 to 30 per cent in 2050.58

Statistics New Zealand noted in 2009 that the strategy “has not been strictly adhered to in the 10 years since its implementation”. There has not been significant growth in centres near transport corridors and “infill and greenfield development have continued to be the most popular methods to facilitate population growth”.59 Intensification has occurred, “but not at the rate envisaged in the RGS ”.60

(ii) Planning and land­use regulations

The 2025 Taskforce points out that the intended purpose of the Resource Management Act 1991 (RMA) was to “provide a mechanism by which adverse effects of activities could be addressed but be permissive otherwise” and “to reduce transaction costs by creating a single mechanism for the consideration of development proposals”. It argues that local councils have instead “tended to use the RMA as a prescriptive tool for environmental and urban planning”.61 Rules that limit the density requirement per site, section or house size, height­to­boundary ratios, parking or planting can discourage development. These rules are not always aligned with a territorial authority’s intensification policies. Restrictive land covenants are also imposed by developers, in an

attempt to “maximise the value of the subdivision”.62

The “slow pace at which land for housing is planned, zoned and released” can also contribute to increases in the final house price. “Regulatory complexities” have been cited as a “critical issue for developers and their financiers”, increasing the administrative costs involved in the construction process.63 The Business Roundtable claims that “[e]xisting regulation is imposing unduly large costs and delays on housing development”.64

The number of statutes that must be considered and their different “legal purposes, timeframes, processes and criteria” are thought to add to the complexity.65 The RMA, Local Government Act 2002 (LGA) and the Land Transport Management Act 2003 (LTMA) “were never designed to work

  1. RGS, above n 55, at 38.
  2. Statistics New Zealand Mapping Trends in the Auckland Region (June 2009) at 19.
  3. Arthur Grimes, Ian Mitchell and Vicky Smith Housing Supply in the Auckland Region 2000–2005 (Motu Economic and Public Policy Research, December 2006) at iii.
  4. 2025 Taskforce Focusing on Growth: The Second Report of the 2025 Taskforce (3 November 2010) at 112.
  5. NZPC, above n 19, at 117.

63 At 119.

  1. New Zealand Business Roundtable Submission on New Zealand Productivity Commission Issues Paper — Housing Affordability (August 2011) [NZBR] at 10.
  2. NZPC, above n 19, at 121.
together as a complete urban planning system”,66 resulting in “duplication and lack of clarity”67 and creating a “lack of alignment between spending, policy, regulation and development”.68

(iii) Building regulations

The Building Act 2004 controls residential building in New Zealand and sets performance standards for health, safety and sustainable development.69 The purpose of the Act was amended by the Building Amendment Act 2012 to include the promotion of accountability of those who have “responsibilities for ensuring that building work complies with the building code”.70

The Building Act 2004 was implemented as a regulatory response to the leaky buildings crisis that arose after deregulation of the building industry with the Building Act 1991. However, the legislation was thought to be “too prescriptive and too heavily focused on compliance” which “slowed down the whole industry and added costs that were ultimately passed on to homeowners”.71

Building regulations must consider the balance of risks, costs and benefits. The NZPC identified six ways that the regulatory framework can affect the cost of building or renovating a house:72

(1) Standards that exceed necessary levels of durability and safety.

(2) Administration costs that are passed on to home buyers.

(3) Inconsistent or slow enforcement of regulatory requirements, leading to project delays and increased costs.

(4) Acts as a barrier to innovation with new materials or processes.

(5) Influences how risks are shared between different parties.

(6) The structure of the building consent and inspection process.

(iv) Cost of housing­related infrastructure

Infrastructure can be classified as major and basic economic infrastructure.73 Major economic infrastructure “services a number of land subdivisions”. This includes major roads, water, sewage, utilities and transport links. Basic economic infrastructure connects individual lots to major infrastructure. Social

  1. Ministry for the Environment Building competitive cities: Reform of the urban and infrastructure planning system — A technical working paper (2010) at 9.

67 At 10.

68 At 11.

  1. Section 3(a).
  2. Section 3(b).

71 (9 December 2010) 669 NZPD 16056–16057.

  1. NZPC, above n 19, at 155–157.
  2. NZPC, above n 19, at 127–128; Australian Productivity Commission First Home Ownership (Report 28, 2004) at 168–169.
infrastructure includes parks and leisure and cultural facilities. It is generally accepted that the cost of basic economic infrastructure should initially be borne by developers, with land owners or homeowners ultimately bearing the cost. There is less agreement as to how major economic and social infrastructure should be charged.74

Most territorial authorities in New Zealand raise revenue through property­ based rates. Although direct charging through development and financial contributions is increasing, it is often still a small proportion of total capital expenditure.75 Development contributions are applied under the LGA. Financial contributions are authorised under the RMA. The Business Roundtable suggests that development and financial contributions are not being charged on a principled basis and “are adding appreciably to housing costs”.76

In 2010, development contributions varied between the different councils that made up greater Auckland, ranging from 1.5 per cent in Manukau to 7.1 per cent in Papakura.77 Under the Auckland Council, development contributions are calculated based on units of demand.78 Auckland Council estimates that development costs constitute 3 to 5 per cent of housing costs, which is “borne by the ultimate purchaser of the dwelling, not the developer”. The Auckland Council argues that the “impact of development contributions on housing affordability are complex” and questions whether reduced development contributions would be passed on to homeowners.79

The NZPC concluded that “the implementation of development contributions in 2002 contributed to the increase in house prices ... but did not explain the surge in house prices at that time”.80

(v) Construction costs

Construction costs comprising materials, labour, subcontracted work and costs such as overheads and profit margins may “account for half of a typical house and land package, with land, development levies and consent fees comprising the remainder”.81

The cost of materials accounts for approximately half of residential con­ struction costs. Although there has been a modest increase over time, some of this is attributable to meeting changes in the Building Code.82 Concern has

  1. NZPC, above n 19, at 127–128.

75 At 129.

  1. NZBR, above n 64, at [2.13].
  2. NZPC, above n 19, at 133.
  3. Auckland Council Contributions Policy 2012 (1 July 2012) at [9.4.4].
  4. Auckland Council Submission to New Zealand Productivity Commission Issues Paper — Housing Affordability June 2011 (3 August 2011) at [8.0].
  5. NZPC, above n 19, at 135.

81 At 171.

82 At 174.

been expressed at the price differential in building materials between New Zealand and Australia. This has been accounted for by New Zealand’s “small and dispersed population” and geographic isolation that provide barriers to achieving economies of scale. Cheaper imports are of a lesser quality to New Zealand­manufactured materials, which are more suited to local conditions.83 There is also concern regarding the level of competition between building material manufacturers and the detrimental effect this may have on affordability. However, no breaches of the Commerce Act 1986 have been found.84

Labour costs account for around 20 per cent of the cost of building a house. Although labour costs have risen over time, these have been “very similar to that of other industries”.85

The size and quality of houses being built has increased over time.86 The average floor area of consented new dwellings increased from 139 m2 in 1991 to 191 m2 in 2006.87 This trend “may have been exacerbated by developers who increasingly impose covenants relating to house size and quality”.88

The building industry is currently made up of many small firms that build only one or two houses per year.89 In 2010, self­employed builders constituted 45 per cent of the building construction sector.90 Innovative construction methods utilising automated technology to build modular units would improve building efficiency.91 However, one of the barriers to this has been described variously as New Zealanders’ “desire for some form of individuality in house form”92 and “preference for bespoke houses”.93

Currently, 80 per cent of new dwellings are built for the upper end of the housing market. Improved productivity in the building industry may affect housing affordability as newly built homes would become a more viable option to current homeowners. This would decrease the demand on existing stock, making it more affordable to first-home buyers. Additionally, improved

83 At 175–177.

84 At 177.

85 At 178.

86 At 179–180.

  1. Statistics New Zealand Severe crowding in New Zealand since 1921: “A challenge to health and decency” (May 2012) at 14.
  2. NZPC, above n 19, at 180.

89 At 195.

  1. New Zealand Sectors Report 2013: Featured Sector — Construction (Ministry of Business, Innovation and Employment, November 2013) at 49.
  2. Susan Bates and Chris Kane The Future of Housing in New Zealand (Centre for Housing Research Aotearoa New Zealand and Building Research, November 2005) at 14.

92 At 14.

93 NZPC, above n 19, at 195.

efficiencies and reduced construction costs would mean more affordable housing could be built for middle­ to low­income households.94

(vi) Taxes

A tax bias in favour of housing has affected “the attractiveness of housing and its affordability”.95 Currently, there are three categories of taxes that apply to housing:96

(a) Income tax

(b) Goods and Services Tax (GST)

(c) Rates

(a) Income tax

Homeowners have an “imputed return on the equity” in the house they own, that is not taxed. This “creates an unlevel playing field between owner-occupied housing and rental housing, and other forms of ‘market’ investment”. However, this benefit is limited to the equity-financed portion of the house.97 The Reserve Bank considers that the “relatively high local government rates in New Zealand compared to other countries, act as a tax on property ownership”.98 The “shift in the tax base away from income taxes and towards consumption tax”99 has also assisted in mitigating this bias.

Interest on money borrowed for the purchase of rental properties is fully tax deductible. This provides a tax advantage in favour of, and has encouraged, property investment.100 This has “exaggerated the surge in house prices, giving rise to wider wealth inequalities ... property prices remain at high levels relative to rents and average incomes, keeping affordability low for less affluent households”.101

In its 2011 economic survey of New Zealand, the OECD recommended either the introduction of taxing imputed rents and a capital gains tax or “reducing the taxation of alternative savings to level the investment playing field”.102 Exemptions from a capital gains tax on owner­occupied property

94 At 171.

95 At 83.

96 At 84.

97 At 85.

  1. Reserve Bank of New Zealand Submission to the Productivity Commission Inquiry on Housing Affordability (August 2011) at 8.
  2. NZPC, above n 19, at 91.

100 At 98.

  1. OECD (2011), above n 54, at 1.
  2. At 6.
would “diminish the effectiveness” of a capital gains tax,103 and “create a new bias in the tax system”.104

(b) GST

GST is paid at a flat rate, currently set at 15 per cent, by the end consumer of goods and services. It is regarded as being harsher on low­income earners, who spend proportionally more of their income than high­income earners. GST is paid on newly built houses by the final purchaser and on renovations and repairs and maintenance on existing houses by homeowners. Any impediment to first- home buyers is thought to be mitigated, as KiwiSaver account balances can be accessed for the purchase of a first home. Government grants are also available to low­income earners for this purpose.105

Landlords effectively pay GST as the final consumer when they purchase a brand­new house as a rental investment property. Rent is exempt from GST. However, as GST paid by the landlord on the property is usually passed on to tenants in the price of the rent,106 it does not create a bias in favour of renting.107

(c) Rates

Rates are assessed on property values. They are considered to be an efficient form of taxation, and “have not created the distortions or skewed incentives that have been associated with the income tax treatment of housing”. There is concern that those who are “‘asset rich’ but ‘income poor’” are adversely affected by elevated property values. However, central government funds a rates rebates scheme and some local councils operate rates postponement schemes, which help to alleviate housing affordability pressures on low­income earners.108

(i) Macroeconomic factors

Low interest rates have led to an increased borrowing ability. This increased demand caused house prices to increase. An increase in immigration further stimulated the increase in house prices.109 Low public confidence in the

  1. At 6.
  2. Victoria University of Wellington Tax Group A Tax System for New Zealand’s Future (Centre for Accounting, Governance and Taxation Research, Victoria University of Wellington, January 2010) at 67.
  3. NZPC, above n 19, at 98 and 99.

106 At 86.

107 At 99.

108 At 99.

109 At 50.

financial sector contributed to the preference of New Zealand households to invest in housing rather than in other investments.110 In addition to this, in the 1990s, Australian and New Zealand banks moved away from business loans and towards household lending, as a result of corporate collapses that occurred in the wake of the 1987 share market crash. Deregulation in the 1990s improved “banks’ access to an under­leveraged housing sector”, making money “readily available for housing”.111

New Zealand has not seen the sharp increase in home mortgagee sales that have been experienced in other economies following the global financial crisis, due to “a more prudent approach to home lending by Australasian banks”.112 Additionally, the demand from Australia and Asia for primary commodities has remained strong. This has meant New Zealand has experienced a smaller increase in unemployment rates than has been experienced in other economies. This, in turn, means there have been fewer defaults in housing loans.113

The OECD noted that “incomes per head are well below the OECD average”.114 Overseas studies reveal that in cities where land supply is artificially restricted, “small changes in expectations regarding long­run average income growth rates and real interest rates can generate very large price movements”.115

(ii) Taxation concessions

As stated in part 2.6.1(vi) above, there is a tax bias in favour both of home­ ownership and in terms of housing as an investment option. Habitat for Humanity New Zealand states that the decision of those purchasing a house for purely economic reasons may be influenced by the tax system. However, the larger proportion of home buyers purchase for reasons such as security of tenure, wealth accumulation and the desire for reduced housing costs during their retirement years, and are less likely to be influenced by the tax system.116

(iii) Population and demography

“Auckland’s population grew by over 110,000 people since the 2006 census”, an increase of 8 per cent.117 Population growth in Auckland is attributable

110 At 51.

111 At 53.

112 At 54.

113 At 55.

  1. OECD OECD Economic Surveys: New Zealand — Overview (June 2013) [OECD (2013)] at 2.
  2. NZPC, above n 19, at 57.
  3. Habitat for Humanity New Zealand Habitat Auckland Submission (2011) at 6.
  4. Statistics New Zealand “Auckland fastest­growing region since last census, and South Island districts grow most” (media release, 15 October 2013).
to natural increase (live births minus deaths) and increased net migration, with strong levels of net international migration driving growth.118 If house supply is held constant, a 1 per cent increase in the population raises real house prices by 1.2–1.3 per cent.119 “Population growth has placed pressure on housing availability and competition for housing has also influenced housing affordability.”120

Whether the effect of population growth on housing affordability is due to migration is arguable. Auckland Council states that, historically, “there has been a strong relationship between large swings in net migration and house price growth in Auckland”.121 However, the NZPC states that new migrants are less likely to own their own home than those born in New Zealand, meaning that the immigrant population is more likely to increase demand for rental properties. This pattern diminishes after 10 years of residency. However, New Zealanders returning to an area from overseas have been found to impact on local house prices.122

Although Auckland has the youngest population in New Zealand, with an average age of 33.9 years, it is an ageing population.123 “Over half of the predicted total population growth to 2021 will be people in the 65 [plus] age group.”124 This will lead to a “slower rate of population growth”. Counteracting this is the trend to smaller households, with an increase in the number of one­ person and couple­only households, driven by the ageing population.125 Lower marriage rates126 and “one­parent” families also contribute to this trend.127 The graph below shows the projected change in make­up of households from 2001 to 2031. The increase in smaller households will impact on the type of dwellings required in the future.

  1. Statistics New Zealand Mapping Trends in the Auckland Region, above n 59, at 12. 119 At 36.
    1. Auckland Council The Proposed Auckland Unitary Plan (notified 30 September 2013) [Proposed Auckland Unitary Plan] at [1.3].
    2. Rachael Logie “... but situation not as bad as initially feared, with population projections below expectations” (2013) December Housing Matters (online ed).
    3. NZPC, above n 19, at 80.
  2. Proposed Auckland Unitary Plan, above n 120, at [1.3]. 124 Leggatt­Cook, above n 22, at 17.
    1. Statistics New Zealand How will New Zealand’s ageing population affect the property market? (April 2013) at 7 and 8.
    2. Leggatt­Cook, above n 22, at 17.
    3. NZPC, above n 19, at 73.

2014_800.png

2014_801.png

Auckland is experiencing an increase in ethnic diversity. Although the majority of people still identify themselves as European, this group is becoming less dominant.128 There is also a slight decrease in the number of people who identify themselves as Māori.129 The number of people identifying as Asian and Pacific has increased.130

Ethnicity influences household size. The average household size is larger amongst Pacific, Māori and Asian ethnic groups. These ethnic groups also have higher rates of overcrowding.131 Māori and Pacific Islands households often require larger houses to accommodate extended family. Other ethnic groups design houses to include additional spaces, such as larger communal areas or a prayer room.132 These preferences could also influence the design of future dwellings.

(iv) Central government policy

Central government has assisted people to purchase land in New Zealand since the introduction of the Government Advances to Settlers Act 1894. The purpose of the Act, as stated in the preamble, was to encourage settlement in New Zealand by counteracting the “high rates of interest charged on mortgage of land, and the heavy incidental expenses connected therewith”. The Workers’ Dwellings Act 1905 enabled houses to be built for workers whose income was below a certain level. Workers were able to lease the dwellings and were provided an option to purchase. The Government Advances to Settlers Act 1906

  1. Statistics New Zealand Mapping Trends in the Auckland Region, above n 59, at 32. 129 NZPC, above n 19, at 75.

130 Statistics New Zealand Mapping Trends in the Auckland Region, above n 59, at 32. 131 NZPC, above n 19, at 74 and 75.

132 Leggatt­Cook, above n 22, at 19.

provided housing loans to urban workers who earned below a certain level of income. The State Advances Act 1913 consolidated these Acts and established the State Advances Office. The State Advances Corporation Act 1936 was enacted to provide cheap first mortgages to urban and rural purchasers.

The government became directly involved in building affordable housing in 1937, when the first state houses were built in Orakei for renting to workers.133 The Family Benefits (Home Ownership) Act 1958 provided for the “payment of family benefits in advance for housing purposes”, specifically, for the purchase of land.134

These policies provided security to construction firms, some of which specialised in first-home building.135 The policies also took the pressure off existing housing stock. However, in 1975 the amount of money that could be borrowed was reduced and the interest rates increased. Additionally, the loans became available only to those who earned the average wage or beneath. Further amendments were made in 1979 that enabled the family benefit to be capitalised to purchase existing dwellings. This negatively impacted upon the building companies that specialised in building first homes. In 1986 the system was abolished and replaced with the Homestart lending scheme.136 The government withdrew from all mortgage schemes in the early 1990s.137 In 1991 the income­related rent subsidy was “replaced by market rents and the introduction of the Accommodation Supplement”.138 In 2010 the government introduced the KiwiSaver first-home deposit subsidy, providing first-home buyers up to $5,000 for the deposit on a first home as a suspensory loan from Housing New Zealand Corporation against their KiwiSaver contributions.139 Expected uptake is 3,000 Aucklanders per year.140

It has been suggested that “provision of the Accommodation Supplement has contributed to increasing demand and higher house prices”. This is evidenced by “the threefold growth in the proportion of renting households in the $30,000–$50,000 and $50,000–$70,000 income classes now devoting more than 30 per cent of their budgets to housing”.141

The increase in low­ to moderate­income households who cannot afford to purchase a house has also been attributed to the Accommodation Supplement, as it “only assists those with the most urgent housing needs”.142 This group is

133 Auckland Regional Council A brief history of Auckland’s urban form (April 2010) at 13. 134 Sections 6 and 7.

135 Bassett and Malpass, above n 26, at 13.

136 At 16.

  1. Leggatt­Cook, above n 22, at 42.
  2. NZPC, above n 19, at 200 and 201.
  3. Income Tax (Social Assistance Suspensory Loans) Amendment Order 2010.
  4. Nick Smith “Package to better support first home buyers” (press release, 11 August 2013). 141 NZPC, above n 19, at 201.

142 Leggatt­Cook, above n 22 at 42.

known as the intermediate housing market. It is estimated to have increased by 239 per cent between 2001 and 2006,143 suggesting that “it is becoming increasingly difficult for households who currently rent their dwellings to overcome the affordability hurdles required to become homeowners”.144

(v) Investment preferences

As alluded to in part 2.6.2(i) above, New Zealanders regard housing as a key investment option. Many New Zealanders will be relying on the equity in their homes to fund their retirement.145 A 2007 report by the New Zealand Treasury revealed that 8 per cent of New Zealanders owned rental properties. This increased to almost one in five for the highest income quintile.146 The OECD states that “favourable tax treatment and inefficient regulatory constraints on supply ... [exaggerate] the surge in house prices, giving rise to wider wealth inequalities and a heavy dependence of households’ long­term financial positions on volatile property values”.147 The preference for property investment places investors in direct competition with first-home buyers and contributes to rising house prices.148 Property investors also show a strong preference for existing dwellings, as opposed to newly built houses,149 indicating that they do not contribute to expanding the current housing stock to any significant extent.

(vi) Housing design and quality preferences

Supply of new dwellings in Auckland has been in the upper quartile, where the value has increased from 10 per cent to 50 per cent in the last 15 years. Simultaneously, the number of new dwellings in the lower quartile has fallen from 30–35 per cent to 5 per cent. This indicates that the majority of new dwellings being built are not affordable houses. One contributing factor may be the abolition of the State Advances system in the 1970s, which meant that building smaller houses for first-home buyers became less profitable. Additionally, rising land prices increase the risk of undercapitalisation if houses are not built to a higher specification. Finally, profit margins for builders on low­cost houses are lower than on more expensive houses.150

143 DTZ New Zealand The Future of Home Ownership and the Role of the Private Rental Market in the Auckland Region (Centre for Housing Research Aotearoa New Zealand and Auckland Regional Council, December 2006) at 88.

144 At 89.

  1. Leggatt­Cook, above n 22, at 50.
  2. Grant Scobie, Trenh Le and John Gibson Housing in the Household Portfolio and Implications for Retirement Saving: Some Initial Finding from SOFIE (New Zealand Treasury, Working Paper 07/04, March 2007) at [3.2].
  3. OECD (2011), above n 54, at 1.
  4. Leggatt­Cook, above n 22, at 51.
  5. NZPC, above n 19, at 43 (footnote 14).

150 At 41–43.

3. SOLUTIONS TO HOUSING AFFORDABILITY PROBLEMS

Both central and local governments have attempted to address the challenges linked to housing affordability. First, the attempts of central government will be considered, followed by those of local government.

3.1 Central Government

In response to housing affordability challenges faced by the Queenstown Lakes District Council (QLDC), the Labour government of the time enacted the now repealed AH:ETA.151 The QLDC introduced a plan change (PC24) to incorporate affordable housing policies into the District Plan. A court case ensued, whereby the legality of PC24 was challenged. The issue was “whether the Council is empowered under the RMA to ‘command’ financial contributions from new developments to subsidise a shortfall of affordable housing”.152 The High Court held that “PC24 is within the scope of the functions of territorial authorities specified in s 31” of the RMA153 and that the “concept of social or economic well­being is obviously wide enough to include affordable and/or community housing”.154

The objective of the AH:ETA was to enable (but not compel) territorial authorities to require developers to facilitate affordable housing and to address covenants that sought to prevent the provision of affordable or social housing, through the implementation of a housing policy.155 One of the options considered before the Act was passed was amending the RMA “to provide for affordable housing initiatives”. This was decided against, as it was thought it would change the original intent of the RMA.156

It was thought that although the AH:ETA could assist with the supply of affordable housing, its success would be dependent on the uptake of territorial

151 (11 December 2007) 644 NZPD 13889.

152 Infinity Investment Group Holdings Ltd v Queenstown Lakes District Council [2011] NZHC 74; [2011] NZRMA 321 (HC).

153 At [44].

154 At [46].

  1. Section 5.
  2. Affordable Housing: Enabling Territorial Authorities Bill 2007 (189­1) (explanatory note) at 5.
authorities.157 The cost of implementing and monitoring a housing policy were seen as factors that could act as barriers to uptake.158

The AH:ETA was repealed in 2010 by the National government because it was thought that the Act had been “viewed as a potential impairment to increasing the housing supply” by creating regulatory barriers, making it harder to build houses rather than easier. Increasing the supply of residential land was proffered as an alternative method of improving housing affordability.159 A modified version of the section dealing with restrictive covenants was retained by amending the Property Law Act 2007, so that a covenant is void if its principal purpose is to prevent housing being used by those on low incomes, with special housing needs, or whose disabilities require that they need support or supervision in their housing.160

The NZPC was established by the National government through the New Zealand Productivity Commission Act 2010 and was commissioned by ministers of the National government to conduct the inquiry into housing affordability.161

Despite the wide range of both supply and demand factors identified by the NZPC as contributing to declining housing affordability, the recommendations focused on three broad themes to address housing affordability, remove barriers to homeownership and provide appropriate rental accommodation:162

(1) Increasing land supply for housing.

(2) Achieving economies of scale and reducing costs in land development and building construction.

(3) Developing a regulatory framework that facilitates and encourages cost­ reducing and quality-enhancing innovation, and where the benefits of regulation are achieved at least cost.

  1. Louise Cooney “Facilitating the Provision of Affordable Housing: An Analysis of the Affordable Housing: Enabling Territorial Authorities Act 2008” (2009) 13 NZJEL 241 at

292.

158 Kenneth Palmer “Affordable Housing — Void Covenants and Other Conundrums” (2008) 7 BRMB 183.

159 (25 August 2009) 657 NZPD 5840.

  1. Section 277A.
  2. Terms of Reference: NZPC Inquiry into Housing Affordability (Bill English (Minister of Finance) and others, 30 March 2011).
  3. NZPC, above n 19, at 19.

In response to the NZPC’s recommendations, the government set objectives to increase the supply of housing by “changing the behaviours of market participants and regulators”.163 The government was supportive of the Auckland Plan and considered that “legislative change to enable speedier adoption of a Unitary Plan for Auckland” were necessary to address Auckland’s housing affordability problems.164

The government perceives land supply regulation as a role for local govern­ ment under the jurisdiction of the RMA, the LGA and the LTMA. It considers that the role of central government is to “ensure that the planning framework supports local authority efforts and that the right tools and guidance are available”.165 Since the inquiry into housing affordability, the government has amended the RMA, the LGA and the LTMA to “reduce the costs, complexity and uncertainty associated with the interaction of planning processes” as recommended by the NZPC.166

The Resource Management Reform Bill 2013 was an omnibus Bill that proposed amendments to the RMA, the Local Government (Auckland Transi­ tional Provisions) Act 2010 and the Local Government Official Information and Meetings Act 1987. Of particular interest are amendments that aim to improve the consenting regime, enabling consents to be processed within six months for medium­sized projects, and provisions to streamline the delivery of the first combined plan for Auckland (the Unitary Plan).167 The Local Government (Auckland Transitional Provisions) Amendment Act 2013 was enacted to accomplish this.

The Local Government Act 2002 Amendment Act 2012 amended the Local Government Act 2002 with the aim of achieving “better provision for effective, efficient, and democratic local governance”.168

The LTMA was amended by the Land Transport Management Amendment Act 2013. This made changes to the planning and funding framework and the framework for assessing road toll schemes. It also sought to assist in “building

  1. Office of the Minister of Finance Memorandum to Cabinet State Sector Reform and Expenditure Control Committee SEC (12) 88: Response to the Productivity Commission Report on Its Inquiry into Housing Affordability (29 October 2012) at 5.
  2. NZPC, above n 19, at 2.
  3. At 1.

166 At 121.

  1. Resource Management Reform Bill 2012 (93­1) at 1 and 2.
  2. Local Government Act 2002 Amendment Bill 2012 (27­1) (explanatory note) at 2.
a long­term partnership between regional councils and public transport operators”.169

Although the NZPC inquiry into housing affordability has not been specifi- cally mentioned in some of the Bills referred to above and the associated parliamentary materials, there is mention of reducing red tape, lowering costs, and providing high­quality infrastructure170 and streamlined decision­making.171 These objectives meet the recommendations set out by the NZPC. They also address some of the criticism levelled at New Zealand’s urban planning system as lacking “alignment between strategies, funding, regulation and decision­ making to integrate land use and transport, set spending priorities and manage growth”.172

The Local Government Act 2002 Amendment Act (No 3) 2013 is part of a “second phase of legislative reform to improve the operation of local government”. Amongst other purposes, it has been introduced to “improv[e] housing affordability, by supporting councils to operate more efficiently and effectively”.173 It came into force on 1 July 2014.

Two Acts have been introduced to amend the Building Act 2004.174 However, these were introduced as Bills in 2010 in response to the Building Act Review undertaken by the government in 2009. As they address “concerns about costs, complexity and delays in the building consent process”,175 it can be hoped that these amendments will also assist in improving the productivity of the building sector.

The government acknowledged that proposals in what was at the time the Draft Auckland Unitary Plan would address the problem of land supply identified in the NZPC’s inquiry into affordable housing. However, two problems were highlighted. First, it stated that the Draft Auckland Unitary Plan assumed construction of compact townhouses and apartments at much higher rates than have actually been achieved.176 Second, the Unitary Plan would not be operative until 2016 and it was believed that the problem of insufficient land supply had to be addressed more urgently than that timeframe allowed.177

  1. Land Transport Management Amendment Bill 2012 (46­1) (explanatory note) at 1.

170 (12 June 2012) 680 NZPD 2840.

171 (11 September 2012) 683 NZPD 5101.

  1. Ministry for the Environment, above n 66, at 9.
  2. Local Government Act 2002 Amendment Bill (No 3) 2013 (165­1) (explanatory note).
  3. Building Amendment Act 2012; Building Amendment Act 2013.
  4. Building Amendment Bill (No 3) (2010) (253­1) (explanatory note).
  5. Nick Smith Addressing Housing Supply and Affordability through Housing Accords and Special Housing Areas (Office of the Minister of Housing) at [34].

177 At [35].

The Housing Accords and Special Housing Areas Act 2013 was enacted as an interim measure to ensure that the shortfall in land was curtailed over the intervening years. Sections 16 and 17 that establish special housing areas will repeal on 30 June 2015, while the rest of the Act will repeal on 30 June 2018.178 It is envisaged that the currently proposed Auckland Unitary Plan will be in place by that time and will include provisions to continue the facilitation of increased land and housing supply.

The purpose of the Housing Accords and Special Housing Areas Act 2013 is to “enhance housing affordability by facilitating an increase in land and housing supply in certain regions or districts ... identified as having housing supply and affordability issues”.179 Auckland is listed as one of these regions. Special housing areas are designated due to their “potential to deliver increased land and housing supply”. This will be facilitated by rendering “resource consent and plan change powers more permissive” for qualifying developments.180

The Auckland Housing Accord was signed by the Minister of Housing and the Mayor of Auckland on 3 October 2010. It sets a goal of 9,000 new sites and dwellings consented in Year 1, increasing to 13,000 in Year 2 and 17,000 in Year 3.181 In the first six months, “a net total of 5,100 new sections have been created and dwellings consented in Auckland”.182 Although the Year 1 target of 9,000 sections and dwellings is likely to be exceeded,183 this does fall short of the 13,000 additional houses required per year as identified in the Auckland Plan.184 The report acknowledges that “[d]evelopment activity will need to accelerate in order to meet the more ambitious targets [set] in the second and third years of the Accord”.185 House prices in Auckland continue to increase.186 At the time of the second monitoring report, 63 special housing areas had been created in Auckland.187 Discovering how many affordable houses have been built under the Act has proved to be elusive.

In support, the 2014 Budget announced the suspension of anti­dumping duties and tariff concessions on building materials in a bid to reduce building costs. The Dumping and Countervailing Duties Amendment Act 2014 came into force on 1 June, while the tariff concessions began on 1 July.

  1. Section 3.
  2. Section 4.
  3. Housing Accords and Special Housing Areas Bill 2013 (117­1) (explanatory note) at 2. 181 Auckland Housing Accord (signed by Nick Smith (Minister of Housing) and Len Brown

(Mayor of Auckland), 3 October 2013) at [26].

  1. Auckland Housing Accord Monitoring Report #2 (Ministry of Business, Innovation and Employment and Auckland Council, October 2013–March 2014) at 2.
  2. At 2.
  3. Auckland Plan, above n 5, at [609].
  4. Auckland Housing Accord Monitoring Report #2, above n 182, at 2.
  5. At 2.

187 At 20.

The Auckland Housing Accord is an example of central and local government working together to achieve a common purpose. However, it has been noted that councils can and do manoeuvre around legislation to achieve desired objectives.188 Queenstown Lakes District Council is an example of this in relation to affordable housing. Comparative studies of local government policies on affordable housing show that “the statutory framework within which the local authority operates does not determine whether the local authority effectively facilitates affordable housing”. The three essential characteristics are:189

The Proposed Auckland Unitary Plan provided for affordable housing, prior to the changes made at central government level. The objectives and strategy are very similar to those set out in the now­repealed AH:ETA. The Proposed Auckland Unitary Plan “is a combined regional policy statement, regional coastal plan, regional plan and district plan”. This is the document that will enable the Auckland Council to meet its obligations under s 5 of the RMA.190 The Auckland Plan is Auckland Council’s spatial plan, mandated by s 79 of the Local Government (Auckland Council) Act 2009. It describes the 30­year vision for Auckland.191

The first issue of regional significance addressed in the Proposed Auckland Unitary Plan is “[e]nabling quality urban growth”. The efficient use of the existing urban area is indicated as a key way in which growth must be managed. Auckland’s geography is mentioned as limiting the supply of suitable greenfield land. The Proposed Auckland Unitary Plan is linked to Strategic Direction 11 of the Auckland Plan.192 The key objective is to “house all Aucklanders in secure, healthy homes they can afford”, requiring the following outcomes:193

188 (2 September 2008) 649 NZPD 18456.

  1. Saville­Smith, Scotts and Fraser, above n 29, at 42.
  2. Proposed Auckland Unitary Plan, above n 120, at [1(A)(2.1)]. 191 At [1(A)(3.1)].

192 At [1(B)(1.1)].

193 Auckland Plan, above n 5, at [606].

Intensification in existing and new areas is identified as the means of accommodating Auckland’s growth. The Rural Urban Boundary (RUB) will replace the MUL,194 which is referred to in the Proposed Auckland Unitary Plan as the “metropolitan area 2010”.195 The 30-year RUB is defined as “a permanent urban rural interface” to ensure development occurs “in appropriate locations, rather than enabling continuous outward urban growth”.196 The RUB is a tool to ensure that enough land is supplied to meet the Auckland Plan’s 30­year goal of providing up to 70 per cent of newly built homes within the existing metropolitan area 2010 and up to 40 per cent of newly built homes to be built in new greenfield developments outside of the metropolitan area 2010 and within “close proximity to existing or planned significant infrastructure”.197 Development capacity and the supply of land for urban development are also addressed in the Proposed Auckland Unitary Plan.198

The Proposed Auckland Unitary Plan states there is a recognised need “for a well­located and designed compact urban form” with “urban growth primarily focussed” within the metropolitan area 2010.199 However, it does not explicitly state where this need comes from. Presumably, it arises from the limits imposed by Auckland’s geography and the Auckland Council’s desire to make “more efficient use of existing infrastructure and services and allowing people to be closer to employment opportunities”.200

The provision of affordable housing for low­ and middle­income households is addressed in the Proposed Auckland Unitary Plan.201 The policies around affordable housing target the “intermediate housing market”, defined in the Proposed Auckland Unitary Plan as:202

Households currently in the private rental market, not eligible for social housing, have at least one member of the household in paid employment and

  1. Auckland Council Addendum to the Draft Auckland Unitary Plan: Planning for urban growth over the next 30 years (15 March 2013) [Addendum to the Draft Auckland Unitary Plan] at [15].
  2. Proposed Auckland Unitary Plan, above n 120, at [1(B)(2.1)]. 196 At [1(A)(1.4)].

197 At [1(B)(2.3)].

198 At [1(B)(2.3)].

199 At [1(B)(2.1)].

200 At [1(B)(2.1)].

201 At [1(B)(2.4)].

202 At [4(I)].

cannot afford to buy a dwelling in Auckland under standard bank lending criteria.

Development of a range of dwellings for social and lower­cost market­rate housing and retained affordable housing are included in the policies.203 At least 10 per cent of the total number of dwellings or vacant sites must be retained affordable housing where new developments within the RUB contain more than 15 dwellings or involve the creation of more than 15 vacant sites.204 Retained affordable housing must be spread throughout the development and be similar in type and size to other dwellings in the development.205 A “legally enforceable retention mechanism” must be in place to ensure that dwellings remain affordable in the long term206 and are only sold to eligible households.207 This sort of strategy to provide affordable housing is known as inclusionary zoning, and is not without its critics.

The Proposed Auckland Unitary Plan does not address social housing. However, the Auckland Plan outlines the current social housing situation in Auckland.208 It mentions the possibility of greater participation by the community housing sector209 and the intention to increase the Council’s housing stock for low­income, older people.210

The response of both central and local government has been to address the supply side of the housing affordability problem by increasing the supply of land, streamlining development processes and, in the case of central government, beginning to create an environment that will lead to productivity increases in the building and construction sector.

4. CRITICISM OF THE CURRENT APPROACH TO HOUSING AFFORDABILITY

There are many voices that address the problem of housing affordability. They do not all agree on the solutions.

203 At [1(B)(2.4)].

204 At [3(H)(6.6)(1.1)].

205 At [3(H)(6.6)(1.2)].

206 At [3(H)(6.6)(1.3)].

207 At [3(H)(6.6)(1.4)].

208 Auckland Plan, above n 5, at [646]–[658].

209 At [649].

210 At [651].

4.1 The Role of Taxation

The OECD recommended tax reforms to alleviate the tax bias in favour of property investment and “improving the efficiency of land use policies and overall urban planning system”.211 However, the Productivity Commission did not recommend any changes to the current tax system. It did recommend that “the impact of the removal of [the] depreciation allowance on commercial properties” be monitored.212 The government has made legislative changes to address land­use policies and the urban planning system and has agreed to monitor the impact of the removal of the depreciation allowance on commercial properties. The tax reforms recommended by the OECD have not been addressed.

Morgan is highly critical of the Productivity Commission’s report. He does not perceive that lack of available land is the fundamental issue with housing, pointing to “cities in the world with five times Auckland’s population, living in an area no larger than that of Auckland”.213 The solutions he offers include a wealth tax, the use of macroeconomic tools to make lending on housing less profitable, and forming a cross-party accord on housing.214

4.2 Land Supply

Both the OECD and Morgan advocate a change to the tax system as a solution to housing affordability. However, whereas the OECD also recommended changing the approach to restrictive land supply, Morgan argues that land supply is not the primary cause of Auckland’s housing affordability problem.

Cox and Pavletich state that the “key to preserving housing affordability is a ‘competitive land supply,’ which appears to be incompatible with urban containment policy”.215 By this standard, the attempts by the government and the Auckland Council through the Auckland Housing Accord will assist in improving housing affordability.

Glaeser and Gyourko found evidence to suggest that the strictness of zoning and other land­use controls are highly correlated with high prices.216

  1. OECD (2011), above n 54, at 1.
  2. NZPC, above n 19, at 266.
  3. Gareth Morgan “Housing Affordability: The Problem is Not Lack of Supply” (28 October 2012) Gareth’s World <http://garethsworld.com> .
  4. Gareth Morgan “Gareth’s Five Point Affordable Housing Plan for New Zealand” (4 November 2012) Gareth’s World <http://garethsworld.com> [Gareth’s Five Point Plan].
  5. Cox and Pavletich, above n 13, at 4.
  6. Edward L Glaeser and Joseph Gyourko “The Impact of Building Restrictions on Housing Affordability” (2003) June FRBNY Economic Policy Review 21 at 35.
The reduction of greenhouse gas emissions is often given as a justification for restricting land supply. However, it is argued that “urban containment policy is ineffective in reducing greenhouse gas emissions”.217 In a similar vein, the OECD advocates including “consistent pricing signals for urban road use, congestion and parking, combined with better mass transit service to reduce carbon emissions and other pollutants from automobile exhaust more effectively”.218

Morgan would appear to be a lone voice in stating that land supply does not affect housing affordability.

4.3 Inclusionary Zoning

There is considerable debate as to the effects of inclusionary zoning on housing markets. Bertaud is critical of inclusionary zoning, although he does not provide a reason.219 Bento and others found that cities with inclusionary zoning policies experienced price increases and size decreases in single­family houses and a “marginally significant increase” in the number of multi-family dwellings. They concluded “that inclusionary zoning policies do not come without costs”.220 As the Auckland Council is planning on increasing the number of multi­ family dwellings in existing urban areas,221 increased multi­family dwellings is not likely to be of concern. However, the effects of inclusionary zoning on increased house prices are a cause for concern.

Auckland Council acknowledges that “affordable housing schemes are not risk free and may increase the cost of other homes”.222 However, it believes that any extra costs “should be absorbed by the land price uplift that occurs when land is given an urban zoning”.223

4.4 Community Housing Organisation Sector

The Auckland Council recognises that inclusionary zoning requires a strong community housing organisation sector,224 which it believes the current government is working towards strengthening.225 The government introduced the Taxation (Annual Rates, Employee Allowances, and Remedial Matters)

  1. Cox and Pavletich, above n 13, at 5.
  2. OECD (2011), above n 54, at 7.
  3. Bertaud, above n 4.
  4. Antonio Bento and others “Housing Market Effects of Inclusionary Zoning” (2009) 11(2) Cityscape: A Journal of Policy Development and Research 7 at 7.
  5. Proposed Auckland Unitary Plan, above n 120, at [2(D)(1)].
  6. Addendum to the Draft Auckland Unitary Plan, above n 194, at [82]. 223 At [83].

224 At [85].

225 At [97].

Bill 2011 to “confer tax­exempt status on a small subset of community housing entities”.226

There is recognition of the need for “long­term, consistent and sustainable support” to realise the potential role that the community housing organisation sector could play in the current affordable housing crisis.227 The role of central government is seen as crucial in providing stable support. Divergent views of successive governments “being articulated over time about the extent of the public good benefits of affordable housing” are not conducive to potential providers.228 It is interesting to note that one of the policies Morgan advocates is the formation of a cross­party accord on housing.229

Figenshow states that robust and stable finance is the key to affordable housing provision. He proposes treating housing as infrastructure, with building, finance and land being the three key components. Mixed tenures would allow for rentals, while also providing a pathway to homeownership. Finance provided through debt housing bonds, as utilised in the United Kingdom, would provide stable equity for community housing organisations to participate in affordable housing development at a scale that would provide economies of scale.230

4.5 The Environmental Focus of the RMA

Criticism has been aimed at the RMA for inadequately recognising the urban environment. The RMA emphasises “the management of environmental effects and protection of the natural environment ... which are assessed in the same way”. It is considered that the RMA “does not adequately address the complex social and economic processes which produce and maintain urban environments”.231

  1. Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill 2011 (176­1) (explanatory note) at 6–7.
  2. Claire Aspinall, Alison Cadman and Louise Carrington “More than a landlord: Realising the potential of the community housing sector” in Sarah Bierre, Philippa Howden­Chapman and Lisa Early (eds) Homes People Can Afford: How to Improve Housing in New Zealand (Steele Roberts Aotearoa, Wellington, 2013) 87 at 87.
  3. Ralph Chapman “Affordable housing in New Zealand cities: An economic and policy analysis” in Sarah Bierre, Philippa Howden­Chapman and Lisa Early (eds) Homes People Can Afford: How to Improve Housing in New Zealand (Steele Roberts Aotearoa, Wellington, 2013) 49 at 54.
  4. Morgan “Gareth’s Five Point Plan”, above n 214.
  5. Scott Figenshow (Director of Community Housing Aotearoa) “Achieving 20 percent by 2020: How is it going to happen?” (Communiqué Lecture, Architecture and Planning Department, University of Auckland, 15 May 2014).
  6. Ministry for the Environment, above n 66, at 3.
In its response to the NZPC report on its inquiry into housing affordability, the government proposed exploration of changes to ss 6 and 7 of the RMA “to better support urban planning and decision making”.232 However, to date, no changes have been made to these sections as a result of the report.

4.6 Public Preferences

There are good reasons for advocating a more compact urban environment over urban sprawl. Higher­density developments can create economies of scale. This makes them more attractive to developers, which should make them cheaper for purchasers. Positioning higher­density developments along existing transport infrastructure can add to the benefits of higher-density developments.233 In addition to being less cost­effective to build, low­density, inner­city living has been said to increase carbon emissions and travelling times from newer developments further out of the city.234 The urban sprawl of days gone by may have been cheaper to build, but “resulted in higher transport costs”.235

Given these advantages, it would seem that homeowners would prefer higher­density living close to transport corridors. However, the converse appears to be true. A study that looked at the choices and preferences of homeowners revealed that, while residents of medium­density dwellings chose to live in a particular development, they would like to move to a stand­alone house in the future.236 The study also revealed that, despite being close to improved public transport links, there had been a substantial decrease in the daily use of public transport over an 11­year period.237

5. CONCLUSION

There are a myriad of solutions to Auckland’s housing affordability problem. It is clear that a holistic approach is required to address the complexities involved. Central and local government are working together to find solutions. To date, these solutions have addressed supply­side issues, such as making land available, streamlining regulatory processes and addressing some of the productivity issues of the building and construction sectors, through the

  1. Office of the Minister of Finance, above n 163, at 12. 233 Chapman, above n 228, at 55.

234 At 52.

  1. RGF, above n 16, at 8.
  2. Errol Haarhoff and others Future Intensive: Insights for Auckland’s Housing — A Research Report Prepared for the Auckland Council (Transforming Cities, National Institute of Creative Arts and Industries and The University of Auckland, December 2012) at 197.

237 At 193.

introduction and amendment of key pieces of legislation and the Proposed Auckland Unitary Plan. There seems to be strong agreement that addressing the supply of land will reduce house prices. The question that only time can answer is, will this be enough to improve housing affordability in Auckland?

The government’s attempt to address the demand side of the equation, with its KiwiSaver first-home deposit subsidy of up to $5,000, seems rather trifling, given the high cost of houses in Auckland and the requirement of banks for a 20 per cent deposit. Tax reforms to address the bias in favour of property investment are at least worthy of further investigation.

There are arguments both for and against inclusionary zoning as a method of providing affordable housing. Participation by community housing organisations is essential to ensuring that this method is successful in achieving the Auckland Council’s objective of providing affordable housing and transitioning households from renting to home ownership. A cross­party accord on housing would provide stability and certainty to the community housing organisation sector. Central government support is essential for those in the lowest income groups, who will never be able to afford to purchase their own home.

The shift from low­density to higher­density housing is not new. It was a key strategy of the Regional Growth Forum in 1999. It is clear from the lack of success in achieving this vision that Aucklanders still prefer to live in stand-alone dwellings. It is difficult to see why this should work in the future, if it has not worked in the past. It can only be hoped that predicted changes in demographics and household type will see these preferences change over time. Affordability is measured as a ratio of housing expenses to income.

However, one demand­side factor that has not been addressed with regard to Auckland’s or New Zealand’s housing affordability problem in any of the literature is New Zealand’s low average income. The relationship between the fundamental costs of house production and income238 needs to be investigated to determine whether the problem is one of housing affordability or poverty.

238 Glaeser and Gyourko, above n 216, at 21.

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