Market Solutions to Housing Crisis!

Nick Smith and his National led Government have a very market, developer driven plan to solve our housing crisis. For them the solutions involve removing regulations and increasing land supply (green fields). Although Smith did recognise, in his interview on Q+A, that there is an issue with the cost of land and materials (our houses cost at least 30% more to build than in Australia) he could not provide answers.

The two regions where houses are desperately needed are in Auckland and Christchurch and there is obviously some urgency. The Auckland Council plan appears to recognise a number of needs, a mix of brown fields and green fields development and constructing future developments around transport hubs. The provision of services and infrastructure needs planning if it is to work efficiently and to ensure the quality of life for new communities. Where local and central government clash is around the freedom for developers. The Auckland Council obviously want to have some control in how their city grows, and ensure it has long term viability, and this involves using the very regulations that the Government wishes to dismantle. While some regulations may indeed be unnecessarily restrictive we don't want to allow reasonable local controls to be lost.

What Nick Smith hasn't recognised is that the high building costs aren't just because of regulation and a shortage of land, it is because of monopolies and an overheated property market. The Green Party is quite right in pointing the finger at non resident property buyers. Money will always move to where the biggest profits are to be gained and it just so happens that property prices are again buoyant in New Zealand and we have few restrictions on overseas investors (New Zealand is the 3rd easiest country to do business in). The natural outcomes of supply and demand dictates that when supply is limited but demand is high the value of a product increases and by increasing demand through allowing nonresident buyers, housing costs will obviously move beyond most New Zealanders. As long as we have no capital gains tax (for other than the family home) and no real controls on exploitative landlords, we will continue to see an overvaluing of New Zealand houses.

I happened to be talking to a Christchurch person yesterday who is involved with the construction industry and I heard some fairly concerning stories of cowboy builders, monopolies in building supplies and obvious fraud where officials were receiving financial incentives for favouring certain businesses. Landlords were also taking advantage of the housing shortage by ramping up rentals, and I was also told of wealthy people who ramp up rental costs by offering more than what was asked to ensure an advantage. Obviously those on minimal incomes will always miss out in such a market driven environment.

Of course another answer to the Auckland/Christchurch housing pressure is to encourage more opportunities in outlying regions. The Government is actively cutting state service jobs in the provincial communities (DoC,  IRD, Railways...) and centralising government activity. Many regionally based industries and manufacturers have disappeared and there are lots of empty houses in the places affected. While there are plenty of cheap houses available in smaller towns and communities there are no longer the jobs.

In a market, developer driven environment we will not see lower cost housing being built unless there is Government directive to do so; we will not see a drop in house prices until we have competition in material supplies and the heat taken from the market; we will not see strong viable communities being built unless councils are able to ensure that all new communities are well serviced and sustainable; we won't see a return to a more egalitarian society when we actively separate communities according to income; and we'll see a continuation of unsustainable population growth in Auckland while we have limited opportunities and support for the regions.


Anonymous said…
did you mean 'sustainable growth in Auckland' or continuation of unsustainable growth?

leetle bit confusing, what with all the nested negatives in the phrase ...
bsprout said…
Thanks Anarkaytie, hopefully it makes sense now :-)
corokia green said…
If this bank rescue plan comes in then those with funds will be inclined to take them out of the bank and put them somewhere where the government can't help themselves to them- like property. The Nats don't do joined up thinking.
bsprout said…
Corikia - You are quite right about National's lack of joined up thinking, in fact any thinking that hasn't been around for more than fifty years is treated with great suspicion also. They haven't even moved on from glorifying the coal fueled Industrial Revolution.

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