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Hugh Pavletich

Restoring the Housing Opportunity

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The 2008 4th Edition Demographia International Housing Affordability Survey released recently, illustrates clearly why so many young and vulnerable New Zealanders, are being denied the right to the opportunity of affordable housing.

I am particularly heartened to see this annual international survey I initiated back in late 2004 – assisting people throughout the six nations surveyed, gain a growing understanding of what housing should be costing and the causes of housing stress in too many markets. Prior to these annual surveys being generated, most New Zealanders and Australians simply didn’t have a clue about firstly, what “affordability” meant, and secondly, how poorly we rated in comparison with so many other cities of the Anglo world.

The sad reality is that due to ignorance and inadequate management skills – our local authorities are deliberately starving and inflating the price of land on the urban fringes and denying too many people the opportunity to purchase affordable housing.

In mid 2007 – Demographia released a Sydney Dallas Fort Worth Fringe Starter Housing Cost Comparison Study , which clearly sets out (with easily accessible hyperlinked examples provided) how young people in Dallas Fort Worth can purchase new fringe starter homes for $140,000.

We too should be supplying new starter housing for young people, around our urban fringes for about $140,000 – with about 20% of this or $30,000 for the section and 80% or $110,000 towards the actual house construction. That’s what young people within the affordable markets of North America pay. Our young people deserve nothing less.

Currently in New Zealand – the sections cost more – and often much more – than what a completed house and land package should cost.

We should not be required to spend any more than three times our annual gross household income to house ourselves.

This years Demographia Survey of the six nations of the Anglo world (United Kingdom, Republic of Ireland, United States, Canada, Australia and New Zealand) has been expanded to cover 227 urban markets including seven of New Zealand’s larger urban markets. These are – Auckland, Wellington. Christchurch, Dunedin. Hamilton, Napier – Hastings and Tauranga.

Based in the “Median Multiple” (as recommended by the United Nations and World Bank) where the median house price is divided by the median gross annual household income – New Zealand with Australia are an appalling 6.3 times annual household earnings; the United Kingdom 5.5; Ireland 4.7; the United States 3.6 with Canada achieving 3.1 times household earnings.

When interest rates are added – New Zealanders overall are in the worst position of all the Anglo nations surveyed.

Put simply – local government has forced New Zealanders to pay twice as much as Canadians for housing.

It is obvious to most New Zealanders now that “something must be done” to restore housing affordability. The international evidence with respect to the cause of the problem – is clear, overwhelming and irrefutable.

The “deniers” have had their day.

Dr Donald Brash, Governor of the New Zealand Reserve Bank (1988 – 2002) within the Introduction to this years Demographia Survey, summed it up very well when he said –

“Despite all the evidence, governments continue to pretend that they are powerless to make housing affordable or, worse still, implement futile interventions which make the situation worse, as the New Zealand Labour Government is proposing for this year”.

The process of unwinding the mess and restoring housing affordability, will take at least ten or more years, depending on the severity of housing stress within individual urban areas.

Sadly – local government has severely degraded the performance of our residential construction sector. Many will recall the waves of builders who departed these shores for better opportunities in Australia during the 1980’s and 1990’s.

No wonder the starter housing construction costs within the affordable North American markets are currently in the order of $US550 per square metre. Ours are substantially more. Our New Zealand builders are just as clever as their North American counterparts – and their productivity and pricing will improve substantially over time – as and when Central, Regional and Local Government, decide to provide adequate and affordable land supply and give them a “fair go”.

The focus must be on (a) opening up fringe land supply (b) appropriately debt and equity financing infrastructure and (c) getting simple and clearly understood performance standards in place, to assist local government to restore housing affordability over reasonable and realistic time frame.

The problem – and the solutions are not at all complex. The only “ingredient” required – is the will and commitment to restore housing to affordable levels.

As New Zealanders – we owe it to ourselves to start on this path – now.