The vanishing dream of home ownership
Part One
SOURCE NZ Herald
5.00AM Saturday October 27, 2007
By Geoff Cumming
High density housing, like these townhouses, is one answer for a well-functioning city. Photo / Fiona Hawtin
Just inside the fenceline ringing Auckland’s sprawl, a development boom is in full cry. At Westgate, Hobsonville, Albany, Flat Bush, Papakura and Karaka, green fields are sprouting houses as fast as people arrive to fill them. The pace of building dwarfs activity in the zones earmarked on planning maps to take much of the city’s population growth - the high density zones surrounding established town centres which have railway lines and/or bus routes and all the trappings of city life within easy reach.
Eight years after city leaders signed up to a “compact city” model to guide Auckland into the future, the market continues on its headstrong course. Amid this stubborn pattern of fringe development, what’s going up most is house prices.
Yet the answer to unaffordable housing is to push out even further, a growing number of developers, politicians and economists are arguing.
As Housing Minister Chris Carter prepares to unveil a housing affordability bill, there’s a clamour to tear down the metropolitan limits and increase the supply of land. This will ease land prices - the biggest factor in soaring house costs, or so goes the theory.
Attempts at intensification (the Americans call it “smart growth”) so far have given the compact city a bad name and entrenched neighbourhood opposition. Tortuous planning hurdles, tougher building regulations, community objections and their ensuing delays push up prices and in many cases make development in the high density zones uneconomic, say developers.
Suitable sites for comprehensive urban renewal are hard to find. So they head for the wide open spaces. Now they are arguing there is not enough land left. And we all thought it was demand driving property prices up, not supply.
The Auckland Regional Council (ARC) has already eased the limits several times since 1999. Further loosening revives the spectre of endless sprawl with its costs of extending roads, water supply, schools and social facilities, added motorway congestion, air and water pollution - impacts far more costly than are reflected in the price of a brand new stucco McMansion.
With more than one in five Auckland households under “housing stress”, solving the problem has been the subject of a parliamentary inquiry and risks becoming a political football. There’s a risk too that the 50-year growth strategy, which hangs on rare political unity among Auckland local bodies, could unravel.
An incoming National Government would ease the supply of land and lower the regulatory barriers. It is even promising to lighten up a Building Act toughened in response to the leaky homes crisis. Labour is promising incentives for developers to include affordable housing in projects and further help for low income earners.
But property developers say none of these things will work in isolation. What’s needed is a thorough debate about the direction of the city and the type of housing it needs, says McConnell Property chief executive Martin Udale. What’s lacking most, he says, is leadership.
“If it’s not managed, change will come and by and large it will be crap.”
The link between affordability and the region’s 50-year growth strategy was made in two studies by economic consultancy Motu for the Centre for Housing Research and has been seized on by everyone from the Property Council and the Reserve Bank to the National Party.
Of nearly 60,000 residential consents issued between 2000 and 2005, Motu found three-quarters were outside the zones earmarked for high density housing, just a small (7 per cent) change to the pattern before the growth strategy was adopted in 1999. Most building was near the city limits, most likely driven by the availability of large sites.
Motu also concluded the urban fence had a strong inflationary affect, with land inside the boundary fetching nearly 10 times the price of rural-zoned land just outside the boundary.
With large sites fast running out, extending or abolishing the urban limits was one way to ease the crisis.
“It is inescapable that land availability is a major constraint to residential development in Auckland.
“The result of this land shortage will continue to be inflation of land values until prices meet major consumer resistance. That resistance is most likely to be exhibited by prospective residents choosing not to migrate to Auckland and by current residents choosing to migrate from Auckland. Other cities in New Zealand may attract some would-be Aucklanders. A more likely scenario is that people priced out of the Auckland market (and economy) will migrate to similar sized or larger cities in Australia that are addressing planning and affordable housing concerns.”
Unsurprisingly, Motu’s findings have drawn support from the likes of the Property Council: “Growth boundaries (both out and up) need to be relaxed to free up more land, thus removing artificial supply constraints that currently inflate the price of development and precipitate the practice of land-banking.”
Housing affordability is already a consuming issue for low and middle income Auckland families. An estimated 55,000 households can no longer afford to buy even the most basic house. The home ownership rate has fallen from 72 per cent in 1991 to 61 per cent last year. In some suburbs it is already below 50 per cent as absentee investors take over.
A study by DTZ Research, released in March, found 21 per cent of owner-occupied households and a third of renters in Auckland are under housing stress - paying more than 30 per cent of household income in housing costs. 60 per cent of these households earn more than $50,000. The swathe of stress covers not only modest income-earners in Manurewa, New Lynn and Massey but villa-belt professionals in Mt Eden, Mt Albert, Parnell and Newmarket. Over 33,000 owner-occupied households (12.8 per cent) pay more than 40 per cent of incomes in housing costs.
More than a third of the region’s stressed households are in high-income Auckland City, reflecting the widening gulf between incomes and house prices. Auckland City Council maps comparing median household incomes with house prices across the city, submitted to the affordability inquiry, suggest that stand-alone housing is virtually out of reach for newcomers earning less than $100,000. In areas where incomes range from $50,000 to $70,000, stand-alone houses are selling for $500,000-plus. Homebuyers with a 10 per cent deposit simply cannot contemplate mortgage repayments of that scale.