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affordability has been in the news in recent weeks. The “problem” is a
perennial political football, but things got a little more serious
recently when the National Party released broad-brush details of their
plan to deal with the issue. The Minister of Finance,
Bill English, has
correctly recognised that housing is becoming less affordable to low
income earners – this is how they propose to deal with it:
delays and costs of RMA processes associated with housing.
the timely provision of infrastructure to support new housing, and
productivity in the construction sector.
English added. “Many of the changes that will make a difference lie with
councils and the Government expects them to share the commitment to
improving housing affordability”.
right – councils are a significant cause of house price inflation, but
so too is central government:
The Resource Management Act has imposed huge costs and delays
on new developments. The Long Bay
residential project in Auckland is an example of a development
“where environmental factors were put ahead of people's housing
needs”. Planning for the estate began in about 1998 but work did not
start until 2011. From my experience as a councillor on the Whangarei
District Council I can say that delays measured in years, rather than
months, is not unusual.
a quick example to show how delays inflate property prices. Let’s make
An investor needs to make say
10% p.a. on their investment to make it
The all up cost to develop a
section is $100,000, and
The time between buying and
selling the section is one year.
that scenario the developer would price the section at $110,000.
the third assumption from one to 10 years then they would have to sell the
same section at $260,000 to achieve the same annual return! In other
words, reducing the consenting time from 10 years to one year would reduce
land prices by more than half! Council staff and politicians (local and
central) simply do not understand the numbers. They need to if they are
going to be part of the solution rather than the problem. The
simple fact is greenies and iwi have used the RMA to advance their own
agendas and that has imposed costs and delays that cost homeowners dearly.
The Local Government Act 2004
(LGA) gave councils the power to impose development fees. The fees are
nothing more than a new tax that has added tens of thousands of
dollars to the cost of a new home. In my view the manner in which
councils have introduced this development fee verges on the dishonest.
For example, in the case of the Whangarei District Council the fees
were “sold” to the public as shifting the cost of new
infrastructure from ratepayers generally to developers specifically.
However, when development fees were introduced, general rates were not
reduced at all – to the Council it was a new income stream. The
Council also intentionally made it virtually impossible for a
ratepayer to contest the fairness of the new fee by introducing it
under the Local Government Act which limits appeals to judicial review
only. If Mr English were
to repeal the fees the cost of building would fall by $25,000 in
Auckland, and tens of thousands of dollars elsewhere.
GST adds 15% to the cost of
building. For some reason those who advocate the removal of GST on
vegetables don’t seem to have the same regard for housing.
Building material costs have
risen faster than wages. This is not surprising given the new costs
central government has imposed on the business sector. The extra
week’s holiday added another 2% of company wage costs and holidays
and other paid entitlements like KiwiSaver (which will increase again
from 1 April next year) add at least 10% to wage costs;
and the nonsensical emissions trading scheme has increased fuel
and power prices. These costs hit building and manufacturers hard
because they are energy, labour and transport intensive.
Regulating the building
industry via builder registration is also likely to add to labour
costs (my guess is as much as $10,000 to 20,000 to an average home).
New building standards have
also increased building costs. According to one joinery supplier,
double glazing alone has added about $6,000 to a small house lot of
Council planners and greenies
have restricted land supply by pursuing an ideology to restrict
green-fields development. The objectors include activists group like
the Environmental Defence Society (EDS) and the government’s very
own Department of Conservation. The
government should remove DoCs advocacy status, and prohibit objections
to plans and consents by parties not directly affected, such as
ideological groups like EDS.
my view if these issues were addressed new housing would become much more
English has gone some way to identifying the issues to be addressed, and
for that he should be commended, but to make worthwhile gains the RMA and
the Local Government Act need major reform, not just tinkering.
other area not talked about much in the housing affordability
the fact household incomes have failed to keep pace with building cost
inflation. In the last 50 years or so we have become a low income nation,
relative to other countries. In
part that’s because the taxman is taking more but there are also many
more people on welfare. Housing
would be more affordable for low income earners if more people went off
welfare and into work. To its credit, the government is making some
reforms in this area.
to Mr English’s credit he has dismissed Capital Gains Tax (CGT) as a
solution. One only has to look
to Australia to see that a CGT does not prevent house price inflation –
if anything the “Mansion effect” will see more money put into private
housing as it will be the only source of tax free investment.
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