Cross-Examination: The Housing Crisis in Auckland: A Discussion

By Katrina De Joya

In recent years, there has been increasing concern about the decline of affordable residential housing in Auckland. Homeownership has been at its lowest level in 66 years.[1] In 2013, 65% of individuals owned a home, the lowest it has been since 1953.[2] As prices for homes keep increasing, the Kiwi Dream of homeownership seems to be gradually slipping away.

What are the causes of the crisis?

There is a range of factors that have caused the decline of affordability of housing. Migration levels, supply and demand and land availability seem to be the most crucial factors in influencing Auckland’s increasing housing market.

Migration

Both international migrants and returning New Zealanders affect housing affordability. Immigrants with long-term settlement plans generate demand on the housing market. International migrants also indirectly influence locals to purchase better housing. As immigration creates expectation of income growth, locals feel encouraged to relocate to more affluent neighbourhoods. This creates another factor on house prices increasing – as there is now a demand for better quality houses by locals.[3]

Returning New Zealanders have also greatly influenced housing prices. According to Sillman and Maré, a 1% increase on the population of just returning New Zealanders is associated with a 9.1% increase in prices.[4]

As the immigration hub of the country, Auckland has attracted a disproportionate number of migrants (both non-New Zealand and returning New Zealanders) and this has consequently increased housing prices.

Supply and demand

Low housing supply responsiveness to a high demand can result in inflation on prices. The number of houses being built in Auckland has decreased sharply in the mid-2000s.[5] Nationwide construction has also dipped in a low not seen in five decades in 2011, making the shortage worse and prices higher.[6] There is currently a shortfall of 35,000 houses.[7] If construction rates continue to fall below the population growth, the housing crisis will continue.

Land Availability

Land scarcity, restrictive urban planning and the time associated with construction are also important factors influencing the housing crisis in Auckland. Responsiveness to the housing supply is often hampered by land availability. Geographical constraints are specifically connected to Auckland as house prices will tend to increase in geographically-constrained areas where people want to live.[8]

What is the government doing about it?

The Labour government has three main proposals to address the housing crisis. This includes a ban on foreign speculators, less immigration and the Kiwibuild programme which will build 100,000 affordable homes over 10 years.

Ban on foreign speculators

According to their proposal, the government plans to:

  • Tax speculators by extending the bright line test (to determine if you are required to pay tax on the sale of a residential property) from two to five years.
  • Ban foreign speculators from buying New Zealand houses.
  • Remove a tax loophole that speculators use to avoid paying tax.

Labour argues that the past government’s two year limit had little impact as it is too short of a period to influence speculative behaviour.[9] The current government is also duplicating Australian policy by only allowing citizens and permanent residents to buy homes.[10] Speculators will also no longer be able to deduct their tax losses on their rental properties from other income, a loophole that allowed large-scale speculators from paying less tax than they should.[11]

Labour asserted that removing this loophole will save taxpayers around $150 million a year once fully implemented.[12]

Restricting Immigration

Labour plans to limit immigration numbers to reduce pressure on housing demand, social services and infrastructure.[13]

The government plans to introduce an Exceptional Skills Visa for highly skilled individuals and also a KiwiBuild visa for residential construction firms when they hire a worker from overseas.[14] There are also plans to make the shortage skill list more regional so the influx of migrants are more spread to out to different cities.

Labour is quite clear in stating that these immigration changes won’t affect the Refugee Quota, the Pacific Quotas, Working Holiday Schemes, or the Recognised Seasonal Employer scheme – although monitoring will be increased to prevent exploitation.[15] In total, these changes are estimated to reduce net migration by 20,000-30,000 which, according to the government, will lessen the demand on housing.[16]

Kiwibuild programme

The government plans to partner with the private sector in building more affordable homes. Known as KiwiBuild, the programme hopes to create 100,000 homes in the next ten years.[17] Half of these houses will be built in Auckland and will only be sold to first home buyers.[18] The price range for houses under this programme will be around $500,000-$600,000.[19]

Part of this programme includes establishing the Affordable Housing Authority who will work with the private sector to get new homes built quickly as possible.[20] It will also partner with local councils, private developers and iwi on revitalisation projects and urban planning.[21]

Will these policies work?

Foreign speculators

While the news media have put a lot of emphasis on the effects of foreign buyers, particularly Chinese buyers, on the housing market – there seems to be no solid evidence supporting this view. According to the report released by Land Information New Zealand, only 3% of the properties sold in New Zealand were from overseas tax residents.[22]

This low number of foreign buyers could be a result of policy implementations by the Central Bank of New Zealand. Seeing the increase of residential homes and the potential for a financial crisis, several regulations have been implemented since 2015 to restrict the ability for foreign speculators to buy homes in New Zealand.[23] Given that international buyers are a small fraction of the market, it seems this policy will have little impact to curb the housing crisis.

Immigration

There is a lack of evidence to support the idea that a more restricted quality-focused migration policy will actually ease the demand on housing in Auckland.

In fact, there is little evidence of higher house price inflation in areas where new migrants settle.[24] The decrease of New Zealanders leaving to settle in countries such as the United Kingdom and Australia has had a bigger impact on increasing house prices in Auckland than the growing number of international migrants settling in Auckland.[25] While no one can fault having a more sustainable and merit focused migration policy, it seems dubious that changing immigration policy will help fix the housing crisis in a substantial way.

Kiwibuild programme

Building houses is not a quick solution. Kiwibuild would take time to ramp up. The government expects it would be about three to five years before the programme starts to get going, meaning its influence on the housing market won’t be felt until later – maybe when it’s too late[26].

The sheer scale of building homes is also drawback. Construction prices have increased by at least 20% and land prices have also soared.[27] This may make it harder to build affordable homes, as KiwiBuild promises.

While 100,000 homes are the goal for ten years to equate supply with demand, population can be unpredictable. Economist Shamubeel Eaqub says the programme is not ambitious enough and for it truly to be impactful, we need half a million more built.[28] Housing Minister Phil Twyford seems to agree and told reporters that the government would actually build “far more” than 100,000 homes.[29]

Thus, while a good first step, Kiwibuild is far from a complete solution to the housing shortfall.

What other governments are doing

Singapore

Singapore, while being one of the most unaffordable cities in the world, has a 90% home ownership rate.[30] Government policies from the 1960s ensured this high level of home ownership. The government enforced compulsory purchase orders and capped land purchase prices – which prevented landowners from making an excessive profit.[31] This allowed the country to exceed their target on building houses.

Canada

Vancouver has introduced a 15% tax on foreign buyers to restrict the influx of foreign buyers in the city’s housing market[32]. After the tax was implemented, there was a sharp decline in housing sales and prices in the Vancouver market.[33]

What should we do?

Investigate construction costs

According to the Ministry of Business, Innovation and Employment (MBIE), building costs in New Zealand are 30 per cent higher than in Australia and in the United States.[34] Statistics tell us that it costs $280,000-$312,000 to build a new home in New Zealand. Australia is much cheaper – just costing $260,000 to $280,000 for an equivalent house.[35] There is currently a monopoly in the construction market. For example, Fletcher’s share of the New Zealand plasterboard market is 94%.[36] Carter Holt Harvey, a wood-based building product company, has been fined $1.85 million for price fixing and anti-competitive behaviour.[37] The cost of building homes is increasing because materials for these are set at often unfair prices. We need a commission of inquiry to look into the cost of building materials and practices.

Collaborative action

Ultimately, New Zealand cannot solve a complex issue like this by one sector of government. To truly make a difference and be accountable to fixing this issue requires collective agreement from different sectors. According to Leonie Freeman, who won the Property Council New Zealand’s Judges Choice Award for 2017 for her leadership in solving the housing crisis, different groups who are all trying to solve one thing need to stop fixing it themselves and ask for help. Private developers, government and iwi need to come to one table and set a unified vision and course of action.

While this may seem idealistic, collective action has been acknowledged on the global stage and in New Zealand as a successful way to approach and solve issues. An example is the US movement called the ‘100,000 Homes Campaign’. Aiming to house 105,000 homeless Americans over a four-year period, different groups committed to collaborating with one another and leaving political agenda at the door.[38] In New Zealand this collective action plan was used by the People’s Project in Hamilton, whose goal was to end homelessness in the city by 2016. Through the collaborative action of local and national government, iwi groups and non-profit organisations, 254 people were housed in just 2 years.[39]

Conclusion

It is an understatement to say that the Auckland housing crisis is a complex issue. Immigration, supply and demand, and land availability are just some of the factors – compared to the many more – that have significantly influenced the housing issue.

Labour’s current policies in regard to housing such as banning foreign speculators from buying New Zealand homes, restricting immigration and creating the KiwiBuild programme are often based on misconceptions or will take a while for it to be felt in the market. Singapore and Canada’s policies prove that we need innovative and fresh ideas in order for effective solutions to come about.

Overall, it is difficult to know what the best solution is. I would suggest creating an inquiry to look into anti-competitive behaviour on the construction industry as this may be unknowingly skyrocketing the costs of houses and removing competition. Lastly, I would propose that central government, private companies and local council to start working collaboratively. One sector cannot fix this crisis alone. And why should it? It clearly affects all of us.

The views expressed in the posts and comments of this blog do not necessarily reflect those of the Equal Justice Project. They should be understood as the personal opinions of the author. No information on this blog will be understood as official. The Equal Justice Project makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The Equal Justice Project will not be liable for any errors or omissions in this information nor for the availability of this information.

[1] Corazon Miller “Home ownership rates lowest in 66 years according to Statistics NZ” The New Zealand Herald (online ed, New Zealand, 10 January 2017).

[2] Alan Johnson, Philippa Howden-Chapman and Shamubeel Eaqub A Stocktake of New Zealand’s Housing (Ministry of Business, Innovation and Employment, February 2018) at 13.

[3] Andrew Coleman and John Landon-Lane Housing Markets and Migration in New Zealand, 1962-2006 (Reserve Bank of New Zealand, Discussion Paper 2007/12, September 2007) at 9.

[4] Steven Stillman and David C. Maré Housing Markets and Migration: Evidence from New Zealand (Motu Economic and Public Policy Research, Motu Working Paper 08-06, April 2008) at 19.

[5] Tony Alexander “Forces Affecting Auckland House Prices” (10 March 2016) Tony Alexander <http://tonyalexander.co.nz> at 1.

[6] Alexander, above n 5.

[7] Henry Cooke “NZ needs 60,000 more homes, ANZ says” (13 February 2017) Stuff <www.stuff.co.nz>.

[8] Elizabeth Watson A closer look at some of the supply and demand factors influencing residential property markets (Reserve Bank of New Zealand, Analytical Note 2013/11, December 2013) at 4.

[9] “Cracking down on speculators” Labour <www.labour.org.nz>.

[10] Labour, above n 9.

[11] “Levelling the playing field for first home buyers” Labour <www.labour.org.nz>.

[12] Labour, above n 11.

[13] “Making immigration work for New Zealand” Labour <www.labour.org.nz>.

[14] Labour, above n 13.

[15] Labour, above n 13.

[16] Labour, above n 13.

[17] “KiwiBuild” Labour <www.labour.org.nz>.

[18] Labour, above n 17.

[19] Labour, above n 17.

[20] “Establishing an Affordable Housing Authority” Labour <www.labour.org.nz>.

[21] Labour, above n 20.

[22] “Property transfers and tax residency data, 2016” (December 2016) Land Information New Zealand <www.linz.govt.nz >.

[23] David Hargreaves “Reserve Bank will begin rolling back the LVR restrictions with the ‘speed limit’ for high LVR lending for banks increased to 15% from 10%”  (29 November 2017) Interest <www.interest.co.nz>.

[24] Bill Cochrane and Jacques Poot Past Research on the Impact of International Migration on House Prices: Implications for Auckland (National Institute of Demographic and Economic Analysis, 13 April 2016) at 21.

[25] Cochrane and Poot, above n 24, at 20.

[26] John Polkinghorne “Kiwibuild: the good, the vague and the ugly” (12 March 2018) Greater Auckland <www.greaterauckland.org.nz>.

[27] Polkinghorne, above n 26.

[28]Anna Bracewell-Worall “Government report author: New Zealand’s housing is a cluster” (12 February 2018) Newshub <www.newshub.co.nz>.

[29] Jason Walls “Housing Minister Phil Twyford has hit back at claims his Government is not ambitious enough with its KiwiBuild policy and says expect ‘far more’ than 100,000 new houses over the next decade” (12 February 2018) Interest <www.interest.co.nz>.

[30] “How are other countries dealing with housing affordability?” Finder <www.finder.com.au >.

[31] Colin Cram “How do you solve a housing crisis? Study the example of Singapore” The Guardian (online ed, United Kingdom, 30 April 2015).

[32] “Canada’s housing ‘affordability crisis’ fueled by overseas money, Trudeau says” The Guardian (online ed, United Kingdom, 17 June 2016).

[33] Natalie Pearson “Vancouver’s Hot Housing Market Gets Tougher for Wealthy Chinese” (21 February 2018) Bloomberg < www.bloomberg.com >.

[34] Rebecca Macfie “Why it’s more expensive to build in NZ than in Australia” (7 July 2012) NOTED < www.noted.co.nz>.

[35] Michael Morrah “Are we paying too much to build our homes?” (6 September 2015) Newshub <www.newshub.co.nz >.

[36] Anne Gibson “Fletcher defends market dominance” The New Zealand Herald (online ed, New Zealand, 21 January 2014).

[37] “Carter Holt cops $1.85m fine for price fixing” The New Zealand Herald (online ed, New Zealand, 26 March 2014).

[38] Leonie Freeman Auckland’s Housing Crisis: The Solution (The Homepage, October 2016) at 3.

[39] Freeman, above n 38, at 4.